G.R. No.
134241 August 11, 2003
DAVID REYES (Substituted by Victoria R. Fabella), petitioner,
vs.
JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER, INC., respondents.
CARPIO, J.:
The Case
This is a petition for review on certiorari of the Decision1 dated 12 May 1998 of the
Court of Appeals in CA-G.R. SP No. 46224. The Court of Appeals dismissed the
petition for certiorari assailing the Orders dated 6 March 1997, 3 July 1997 and 3
October 1997 of the Regional Trial Court of Paranaque, Branch 2602 ("trial court") in
Civil Case No. 95-032.
The Facts
On 23 March 1995, petitioner David Reyes ("Reyes") filed before the trial court a
complaint for annulment of contract and damages against respondents Jose Lim
("Lim"), Chuy Cheng Keng ("Keng") and Harrison Lumber, Inc. ("Harrison Lumber").
The complaint3 alleged that on 7 November 1994, Reyes as seller and Lim as buyer
entered into a contract to sell ("Contract to Sell") a parcel of land ("Property")
located along F.B. Harrison Street, Pasay City. Harrison Lumber occupied the
Property as lessee with a monthly rental of P35,000. The Contract to Sell provided
for the following terms and conditions:
1. The total consideration for the purchase of the aforedescribed parcel of
land together with the perimeter walls found therein is TWENTY EIGHT
MILLION (P28,000,000.00) PESOS payable as follows:
(a) TEN MILLION (P10,000,000.00) PESOS upon signing of this Contract to
Sell;
(b) The balance of EIGHTEEN MILLION (P18,000,000.00) PESOS shall be
paid on or before March 8, 1995 at 9:30 A.M. at a bank to be designated by
the Buyer but upon the complete vacation of all the tenants or occupants of
the property and execution of the Deed of Absolute Sale. However, if the
tenants or occupants have vacated the premises earlier than March 8, 1995,
the VENDOR shall give the VENDEE at least one week advance notice for the
payment of the balance and execution of the Deed of Absolute Sale.
2. That in the event, the tenants or occupants of the premises subject of this
sale shall not vacate the premises on March 8, 1995 as stated above, the
VENDEE shall withhold the payment of the balance of P18,000,000.00 and
1
the VENDOR agrees to pay a penalty of Four percent (4%) per month to the
herein VENDEE based on the amount of the downpayment of TEN MILLION
(P10,000,000.00) PESOS until the complete vacation of the premises by the
tenants therein.4
The complaint claimed that Reyes had informed Harrison Lumber to vacate the
Property before the end of January 1995. Reyes also informed Keng5 and Harrison
Lumber that if they failed to vacate by 8 March 1995, he would hold them liable for
the penalty of P400,000 a month as provided in the Contract to Sell. The complaint
further alleged that Lim connived with Harrison Lumber not to vacate the Property
until the P400,000 monthly penalty would have accumulated and equaled the unpaid
purchase price of P18,000,000.
On 3 May 1995, Keng and Harrison Lumber filed their Answer6 denying they
connived with Lim to defraud Reyes. Keng and Harrison Lumber alleged that Reyes
approved their request for an extension of time to vacate the Property due to their
difficulty in finding a new location for their business. Harrison Lumber claimed that as
of March 1995, it had already started transferring some of its merchandise to its new
business location in Malabon.7
On 31 May 1995, Lim filed his Answer8 stating that he was ready and willing to pay
the balance of the purchase price on or before 8 March 1995. Lim requested a
meeting with Reyes through the latter’s daughter on the signing of the Deed of
Absolute Sale and the payment of the balance but Reyes kept postponing their
meeting. On 9 March 1995, Reyes offered to return the P10 million down payment to
Lim because Reyes was having problems in removing the lessee from the Property.
Lim rejected Reyes’ offer and proceeded to verify the status of Reyes’ title to the
Property. Lim learned that Reyes had already sold the Property to Line One Foods
Corporation ("Line One") on 1 March 1995 for P16,782,840. After the registration of
the Deed of Absolute Sale, the Register of Deeds issued to Line One TCT No. 134767
covering the Property. Lim denied conniving with Keng and Harrison Lumber to
defraud Reyes.
On 2 November 1995, Reyes filed a Motion for Leave to File Amended Complaint due
to supervening facts. These included the filing by Lim of a complaint for estafa
against Reyes as well as an action for specific performance and nullification of sale
and title plus damages before another trial court.9 The trial court granted the motion
in an Order dated 23 November 1995.
In his Amended Answer dated 18 January 1996,10 Lim prayed for the cancellation of
the Contract to Sell and for the issuance of a writ of preliminary attachment against
Reyes. The trial court denied the prayer for a writ of preliminary attachment in an
Order dated 7 October 1996.
On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the
P10 million down payment with the cashier of the Regional Trial Court of Parañaque.
The trial court granted this motion.
On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997
on the ground the Order practically granted the reliefs Lim prayed for in his Amended
Answer.11 The trial court denied Reyes’ motion in an Order12 dated 3 July 1997.
Citing Article 1385 of the Civil Code, the trial court ruled that an action for rescission
could prosper only if the party demanding rescission can return whatever he may be
obliged to restore should the court grant the rescission.
The trial court denied Reyes’ Motion for Reconsideration in its Order13 dated 3
October 1997. In the same order, the trial court directed Reyes to deposit the P10
million down payment with the Clerk of Court on or before 30 October 1997.
On 8 December 1997, Reyes14 filed a Petition for Certiorari15 with the Court of
Appeals. Reyes prayed that the Orders of the trial court dated 6 March 1997, 3 July
1997 and 3 October 1997 be set aside for having been issued with grave abuse of
discretion amounting to lack of jurisdiction. On 12 May 1998, the Court of Appeals
dismissed the petition for lack of merit.
Hence, this petition for review.
The Ruling of the Court of Appeals
The Court of Appeals ruled the trial court could validly issue the assailed orders in
the exercise of its equity jurisdiction. The court may grant equitable reliefs to
breathe life and force to substantive law such as Article 138516of the Civil Code since
the provisional remedies under the Rules of Court do not apply to this case.
The Court of Appeals held the assailed orders merely directed Reyes to deposit the
P10 million to the custody of the trial court to protect the interest of Lim who paid
the amount to Reyes as down payment. This did not mean the money would be
returned automatically to Lim.
The Issues
Reyes raises the following issues:
1. Whether the Court of Appeals erred in holding the trial court could issue
the questioned Orders dated March 6, 1997, July 3, 1997 and October 3,
1997, requiring petitioner David Reyes to deposit the amount of Ten Million
Pesos (P10,000,000.00) during the pendency of the action, when deposit is
not among the provisional remedies enumerated in Rule 57 to 61 of the
1997 Rules on Civil Procedure.
2. Whether the Court of Appeals erred in finding the trial court could issue
the questioned Orders on grounds of equity when there is an applicable law
on the matter, that is, Rules 57 to 61 of the 1997 Rules on Civil Procedure.17
2
The Court’s Ruling
Reyes’ contentions are without merit.
Reyes points out that deposit is not among the provisional remedies enumerated in
the 1997 Rules of Civil Procedure. Reyes stresses the enumeration in the Rules is
exclusive. Not one of the provisional remedies in Rules 57 to 6118 applies to this
case. Reyes argues that a court cannot apply equity and require deposit if the law
already prescribes the specific provisional remedies which do not include deposit.
Reyes invokes the principle that equity is "applied only in the absence of, and never
against, statutory law or x x x judicial rules of procedure."19 Reyes adds the fact that
the provisional remedies do not include deposit is a matter of dura lex sed lex.20
The instant case, however, is precisely one where there is a hiatus in the law and in
the Rules of Court. If left alone, the hiatus will result in unjust enrichment to Reyes
at the expense of Lim. The hiatus may also imperil restitution, which is a
precondition to the rescission of the Contract to Sell that Reyes himself seeks. This is
not a case of equity overruling a positive provision of law or judicial rule for there is
none that governs this particular case. This is a case of silence or insufficiency of the
law and the Rules of Court. In this case, Article 9 of the Civil Code expressly
mandates the courts to make a ruling despite the "silence, obscurity or insufficiency
of the laws."21 This calls for the application of equity,22 which "fills the open spaces in
the law."23
Thus, the trial court in the exercise of its equity jurisdiction may validly order the
deposit of the P10 million down payment in court. The purpose of the exercise of
equity jurisdiction in this case is to prevent unjust enrichment and to ensure
restitution. Equity jurisdiction aims to do complete justice in cases where a court of
law is unable to adapt its judgments to the special circumstances of a case because
of the inflexibility of its statutory or legal jurisdiction.24Equity is the principle by
which substantial justice may be attained in cases where the prescribed or
customary forms of ordinary law are inadequate.25
Reyes is seeking rescission of the Contract to Sell. In his amended answer, Lim is
also seeking cancellation of the Contract to Sell. The trial court then ordered Reyes
to deposit in court the P10 million down payment that Lim made under the Contract
to Sell. Reyes admits receipt of the P10 million down payment but opposes the order
to deposit the amount in court. Reyes contends that prior to a judgment annulling
the Contract to Sell, he has the "right to use, possess and enjoy"26 the P10 million as
its "owner"27 unless the court orders its preliminary attachment.28
To subscribe to Reyes’ contention will unjustly enrich Reyes at the expense of Lim.
Reyes sold to Line One the Property even before the balance of P18 million under the
Contract to Sell with Lim became due on 8 March 1995. On 1 March 1995, Reyes
signed a Deed of Absolute Sale29 in favor of Line One. On 3 March 1995, the Register
of Deeds issued TCT No. 13476730 in the name of Line One.31 Reyes cannot claim
ownership of the P10 million down payment because Reyes had already sold to
another buyer the Property for which Lim made the down payment. In fact, in his
Comment32 dated 20 March 1996, Reyes reiterated his offer to return to Lim the P10
million down payment.
On balance, it is unreasonable and unjust for Reyes to object to the deposit of the
P10 million down payment. The application of equity always involves a balancing of
the equities in a particular case, a matter addressed to the sound discretion of the
court. Here, we find the equities weigh heavily in favor of Lim, who paid the P10
million down payment in good faith only to discover later that Reyes had
subsequently sold the Property to another buyer.
In Eternal Gardens Memorial Parks Corp. v. IAC,33 this Court held the plaintiff
could not continue to benefit from the property or funds in litigation during the
pendency of the suit at the expense of whomever the court might ultimately adjudge
as the lawful owner. The Court declared:
In the case at bar, a careful analysis of the records will show that petitioner admitted
among others in its complaint in Interpleader that it is still obligated to pay certain
amounts to private respondent; that it claims no interest in such amounts due and is
willing to pay whoever is declared entitled to said amounts. x x x
Under the circumstances, there appears to be no plausible reason for petitioner’s
objections to the deposit of the amounts in litigation after having asked for the
assistance of the lower court by filing a complaint for interpleader where the deposit
of aforesaid amounts is not only required by the nature of the action but is a
contractual obligation of the petitioner under the Land Development Program (Rollo,
p. 252).
There is also no plausible or justifiable reason for Reyes to object to the deposit of
the P10 million down payment in court. The Contract to Sell can no longer be
enforced because Reyes himself subsequently sold the Property to Line One. Both
Reyes and Lim are now seeking rescission of the Contract to Sell. Under Article 1385
of the Civil Code, rescission creates the obligation to return the things that are the
object of the contract. Rescission is possible only when the person demanding
rescission can return whatever he may be obliged to restore. A court of equity will
not rescind a contract unless there is restitution, that is, the parties are restored to
the status quo ante.34
Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to
deposit the P10 million down payment in court.35 Such deposit will ensure restitution
of the P10 million to its rightful owner. Lim, on the other hand, has nothing to
refund, as he has not received anything under the Contract to Sell.36
In Government of the Philippine Islands v. Wagner and Cleland Wagner,37 the
Court ruled the refund of amounts received under a contract is a precondition to the
rescission of the contract. The Court declared:
3
The Government, having asked for rescission, must restore to the
defendants whatever it has received under the contract. It will only be just
if, as a condition to rescission, the Government be required to refund to the
defendants an amount equal to the purchase price, plus the sums expended
by them in improving the land. (Civil Code, art. 1295.)
The principle that no person may unjustly enrich himself at the expense of another is
embodied in Article 2238 of the Civil Code. This principle applies not only to
substantive rights but also to procedural remedies. One condition for invoking this
principle is that the aggrieved party has no other action based on contract, quasi-
contract, crime, quasi-delict or any other provision of law.39 Courts can extend this
condition to the hiatus in the Rules of Court where the aggrieved party, during the
pendency of the case, has no other recourse based on the provisional remedies of
the Rules of Court.
Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer
if the seller himself seeks rescission of the sale because he has subsequently sold the
same property to another buyer.40 By seeking rescission, a seller necessarily offers
to return what he has received from the buyer. Such a seller may not take back his
offer if the court deems it equitable, to prevent unjust enrichment and ensure
restitution, to put the money in judicial deposit.
There is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience.41 In this case, it was
just, equitable and proper for the trial court to order the deposit of the P10 million
down payment to prevent unjust enrichment by Reyes at the expense of Lim.42
WHEREFORE, we AFFIRM the Decision of the Court of Appeals.
SO ORDERED.
G.R. No. 138855 October 29, 2002
LAMBERTO CASALLA, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, and MILAGROS S. ESTEVANES, respondents.
RESOLUTION
QUISUMBING, J.:
This petition for review on certiorari assails the decision1 dated November 17, 1998,
and the resolution2 dated May 25, 1999 of the Court of Appeals in CA-G.R. SP No.
37031, denying petitioner's appeal as well as motion for reconsideration for lack of
merit.
The facts, as summarized by the Court of Appeals from the records, are as follows:
The facts, as disclosed by the record, show that petitioner Lamberto Casalla issued
two (2) Bank of Commerce checks in payment of the obligation of his wife, TERESITA
CASALLA, to private respondent MILAGROS SANTOS-ESTEVANES, in order to avert a
court litigation. The two (2) checks, however, were dishonored by the drawee bank
for reason of insufficiency of funds.
Subsequently, private respondent filed two (2) criminal complaints against petitioner
for violation of the Bouncing Checks Law (BP 22). The cases were docketed as
Criminal Case Nos. 11844 and 11845 and raffled to Branch 68 of the Metropolitan
Trial Court (MTC) of Pasig City.
On September 22, 1994, the MTC of Pasig City rendered a decision convicting the
accused (petitioner herein) of the crime charged on two (2) counts.
Aggrieved by the decision of the trial court, petitioner interposed an appeal to the
Regional Trial Court (RTC) of Pasig City, which was raffled to Branch 261 thereof
presided upon by public respondent judge.
On January 18, 1995, the court a quo rendered its decision affirming the judgment of
the lower court with the modification that appropriate subsidiary imprisonment be
imposed on the accused in case of insolvency (Annex "H", Petition; pp. 24-28, ibid.).
Dissatisfied with the decision of the court a quo, petitioner filed a motion for
reconsideration on February 8, 1995 (Annex "I", Petition; pp. 29-30, ibid.).
In an Order dated February 9, 1995, the lower court denied the motion for
reconsideration on account of the absence of a notice of hearing and because the
issues raised therein have already been passed upon in its decision (Annex "J",
Petition; p. 31, ibid.).
On February 22, 1995, petitioner filed a second motion for reconsideration (Annex
"K", Petition; pp. 32-33, ibid.).
On February 24, 1995, private respondent filed with the RTC a motion for the
issuance of a writ of execution (Annex "L", Petition; pp. 34-36, ibid.).
Opposition to the motion for the issuance of a writ of execution was filed by
petitioner on March 3, 1995 (Annex "M", Petition; pp. 37-38, ibid.).
In an Order dated March 13, 1995, the court a quo denied petitioner's second motion
for reconsideration and granted the motion for the issuance of a writ of execution
(Annex "A", Petition; p. 14, ibid.).
4
On March 21, 1995, a writ of execution was issued by the court directing public
respondent Deputy Sheriff Jose R. Santos to cause the execution of the judgment
(Annex "B", Petition; p. 15, ibid.).3
Petitioner interposed an appeal via a petition for review with prayer for preliminary
injunction and/or temporary restraining order. On November 17, 1998, the appellate
court promulgated its decision denying the appeal for lack of merit.4
In its decision, the Court of Appeals noted that the petition before it did not contain a
statement of material dates showing the timeliness of the petition. It also maintained
that the petition was filed out of time, because the motion to reconsider the decision
of the trial court did not contain a notice of hearing. Hence, being a mere scrap of
paper, it did not interrupt the period for filing the petition before the appellate court,
and the period had lapsed before the petition was filed. It also ruled that petitioner's
second motion was not only a prohibited pleading but it was also filed out of time.
Petitioner's motion for reconsideration before the Court of Appeals was
denied.5 Hence, the present petition, raising the following errors:
I
THAT THE REQUIREMENT ON NOTICE OF HEARING DOES NOT APPLY IN
PETITIONER'S MOTION FOR RECONSIDERATION.
II
THAT THE REGIONAL TRIAL COURT HAS NO AUTHORITY TO ISSUE A WRIT OF
EXECUTION.6
Petitioner argues that the requirement of a notice of hearing does not apply to the
motion for reconsideration he filed before Branch 261 of the Regional Trial Court of
Pasig City, as said court was acting only in its appellate jurisdiction, the proceedings
therein being summary in nature. He further asserts that said trial court gravely
abused its discretion when it issued the writ of execution, because it was the court of
origin, the Metropolitan Trial Court of Pasig City, Branch 68, which had the authority
to issue the writ.1awphil.net
For our resolution now is whether or not the Court of Appeals erred in denying the
petition for review and the subsequent motion for reconsideration.
Petitioner received a copy of the decision of the Regional Trial Court on February 1,
1995. From that date, he had 15 days, or until February 16, 1995, to file a motion
for reconsideration. On February 8, 1995, petitioner did file a motion for
reconsideration of the trial court's decision. The motion, however, lacked a notice of
hearing.
We have ruled in a number of cases that the requirements laid down in the Rules of
Court, that the notice of hearing shall be directed to the parties concerned and shall
state the time and place for the hearing of the motion, are mandatory. If not
religiously complied with, they render the motion pro forma. As such the motion is a
useless piece of paper that will not toll the running of the prescriptive period.7
Under the present rules, the notice of hearing is expressly made a requirement.8 In
the instant case, it is undisputed that the motion for reconsideration filed by
petitioner with the Regional Trial Court did not contain any notice of hearing. It was
therefore pro forma; hence, it did not suspend the running of the prescriptive
period.9 This defect was not cured by the filing of a second motion for
reconsideration, which is prohibited under the rules.10
Petitioner claims that the requirement of a notice of hearing did not apply to the
motion for reconsideration he filed before the Regional Trial Court, since it was acting
only in its appellate jurisdiction. This is error, as the Rules of Court apply to all
courts, except as otherwise provided by the Supreme Court.11 Regional Trial Courts
are not precluded from conducting hearings on matters on which the parties need to
be heard, even in the exercise of their appellate jurisdiction.
Additionally, to assail the RTC's issuance of a writ of execution, petitioner filed a
petition for review under Rule 45 with the Court of Appeals. This was improper. What
it should have filed was a petition for certiorari under Rule 65 of the 1997 Rules of
Civil Procedure. Under the Rules, no appeal may be taken from an order denying a
motion for new trial or reconsideration and an order of execution. Instead, where the
judgment or final order may not be appealed, the appropriate recourse is a special
civil action under Rule 65.12 Thus, the appellate court did not err in denying said
petition for review.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision dated
November 17, 1998 and the resolution dated May 25, 1999, of the Court of Appeals
in CA-G.R. SP No. 37031 are AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. L-45543 May 17, 1939
SURIGAO MINE EXPLORATION CO., INC., plaintiff-appellant,
vs.
C. HARRIS, SURIGAO-MAINIT MINING SYNDICATE, SURIGAO
CONSOLIDATED MINING CO., INC., OTTO WEBER, ET AL., defendants-
appellees.
Hipolito Alo for appellant.
Vicente J. Francisco for appellees.
LAUREL, J.:
5
On October 24, 1935, the original complaint in this case was filed in the Court of
First Instance of Surigao in which the plaintiff, a domestic private corporation
domiciled in Cebu, sought a judicial pronouncement (a) adjudging the plaintiff to be
the owner and possessor of the fourteen placer mining claims mentioned in the
complaint and located in the barrio of Tubod, municipality of Mainit, Province of
Surigao; (b) annulling the forty-three lode mining claims of the defendants, C.
Harris, Surigao-Mainit Mining Syndicate, Surigao Consolidated Mining Co., Inc., and
Otto Weber, and cancelling the registration of said lode claims in the records of the
mining recorder of Surigao and in all other official records; (c) prohibiting the
defendants and their agents, employees and laborers from interfering with plaintiff's
ownership and possession of its placer claims; (d) sentencing the defendants to pay
jointly and severally to the plaintiff the sum of P47,000 by way of damages; (e)
assessing the costs of the action against the defendants; and (f) awarding the
plaintiff such other proper, just and equitable relief. The theory of the plaintiff, under
the complaint, is that it is the owner by purchase of the aforesaid placer claims and
that the lode claims complained of were staked and located by the defendants on
plaintiff's placer claims after the latter had been validly and duly staked and located
by the plaintiff or its grantors and predecessors in interest.
On November 23, 1935, the defendants C. Harris, Surigao-Mainit Mining Syndicate,
Surigao Consolidated Mining Co., Inc., and Otto Weber demurred to the complaint on
the grounds (1) that there was a misjoinder of parties in that Otto Weber had been
included as defendant; (2) that the complaint did not state facts sufficient to
constitute a cause of action, because it merely alleged that the plaintiff was the
owner by purchase of the placer claims named therein; and (3) that the complaint
was ambiguous and unintelligible. On January 9, 1936 the Court of First Instance of
Surigao entered an order finding merit in the third ground of the demurrer and
requiring the plaintiff to amend its complaint so as to contain a detailed description
of its placer claims.
On January 13, 1936 an amended complaint was filed to which another demurrer
was interposed on January 22, 1936. In the order of January 27, 1936 the Court of
First Instance of Surigao overruled the demurrer and required the defendants to file
their answer within the reglementary period. Pursuant to the order of the Court of
First Instance of Surigao of June 5, 1936, the plaintiff filed, on June 11, 1936, a third
amended complaint in which, additional to C. Harris, Surigao-Mainit Mining
Syndicate, Surigao Consolidated Mining Co., Inc., and Otto Weber, the original
defendants, thirty-two other individual's were included as parties defendant. In this
third amended complaint the placer claims alleged to be owned by the plaintiff were
reduced to eleven, and the relief prayed for was about the same as that asked in the
original complaint, although the amount sought to be recovered as damages was
increased to P49,000.
On August 3, 1936 the defendants, other than Surigao-Mainit Mining Syndicate,
Surigao Consolidated Mining Co., Inc., and Otto Weber, filed an answer, which was
amended on September 10, 1936, containing a general denial, setting up five special
defenses and praying that the location of the alleged placer claims described in
paragraph 4 of the third amended complaint and of any placer claim which might be
shown in the trial to have been located by the plaintiff or its predecessors in interest
illegally and in fraud of the government, be declared null and void and that the
registration of said claims in the office of the mining recorder of Surigao be ordered
cancelled.
On August 24, 1936 the defendants Surigao-Mainit Mining Syndicate, Surigao
Consolidated Mining Co., Inc., and Otto Weber filed an answer containing a general
denial, five special defenses and a counterclaim in the sum of P40,000 and praying
the Court of First Instance of Surigao (a) to declare the nullity of the registration in
the office of the mining recorder of Surigao of the placer claims specified in
paragraphs 3 and 4 of the third amended complaint and to order the cancellation of
said registration; (b) to declare the defendants the lawful owners and possessors of
the of the lode claims enumerated in paragraph 6 of the third amended complaint;
(c) to restrain the plaintiff and its agents, employees and laborers from interfering
with the ownership, possession and enjoyment of the defendants of their lode
claims; and (d) to sentence the plaintiff to pay to the defendants the sum of P40,000
as damages.
In the course of the adduction of plaintiff's evidence in the Court of First Instance of
Surigao, Exhibits O and O-1 to O-9 were presented. With the exception of Exhibit O-
7, all of said exhibits are deeds of sale in favor of the plaintiff covering, among
others, the placer claims here in question and bear dates posterior to October 24,
1935, the date of the filing of the original complaint. Exhibit 0-7 is a deed of sale
executed by Pablo S. Atillo in favor of Maximo Borromeo on January 23, 1935. A
perusal of this Exhibit O-7 in connection with Exhibit O-9 reveals the fact that the
mining claims conveyed by Maximo Borromeo to the plaintiff under said Exhibit O-9,
dated December 21, 1935, were the same claims acquired by Maximo Borromeo
under Exhibit O-7.
Whereupon, before the plaintiff could close its evidence, the defendants moved for
the dismissal of the complaint on the ground that, when the action was commenced,
plaintiff's right of action had not yet accrued, since, under its own Exhibits O and O-1
to O-9, the plaintiff did not become the owner of the claims in dispute until after the
original complaint was filed in the Court of First Instance of Surigao on October 24,
1935.
The present appeal is from the order of the Court of First Instance of Surigao entered
on September 12, 1936 dismissing the complaint, with costs against the plaintiff, the
latter alleging that the trial court erred and abused its discretion in so ordering the
dismissal of the complaint.
No pretense is here made by the plaintiff-appellant that it became the owner and
possessor of the claims in question by virtue of muniments of title other than
Exhibits O and O-1 to O-9, and this appeal will be disposed of on the assumption that
the alleged rights of the appellant to said claims had been conferred solely by said
Exhibits O and O-1 to O-9. In other words, this case must be decided on the premise
that the deeds of sale in favor of the appellant were executed after the filing of the
original complaint. Exhibit O-7, executed on January 23, 1935, will not affect the
situation, for the reason that said exhibit evidences a deed of sale in favor of Maximo
6
Borromeo, who conveyed the claims acquired by him thereunder to the plaintiff by
virtue of Exhibit O-9, executed on December 21, 1935, or after the filing of the
original complaint.
Subject to certain qualifications, and except as otherwise provided by law, an action
commenced before the cause of action has accrued is prematurely brought and
should be dismissed, provided an objection on this ground is properly and
seasonably interposed. The fact that the cause of action accrues after the action is
commenced and while it is pending is of no moment. In the present case, timely
objection was made by counsel for the appellees upon discovery of the immaturity of
the action a a result of the presentation by plaintiff-appellant of certain exhibits
hereinabove mentioned. The date when a civil action is deemed commenced is
determined by section 389 of the Code of Civil Procedure. Without the need of
commenting on this section in relation to allied sections of the same Code, it is
sufficient to observe that here summons was issued by the Court of First Instance of
Surigao on October 25, 1935 and was served on the defendants C. Harris, Surigao-
Mainit Mining Syndicate and Surigao Consolidated Mining Co., Inc., on October 28,
1935, and on the defendant Otto Weber on November 11, 1935. Under section 389,
which was taken from section 405 of the Code of Civil Procedure of California, the
action is deemed commenced upon the "filing of a complaint in the office of the clerk
of the court in which the action is to be instituted" (Sotelo vs.Dizon, G.R. No. 46492,
promulgated April 26, 1939, and authorities therein cited). The original complaint
was filed in the present case on October 24, 1935. But although it be assumed that,
under said section 389, the date or dates of the issuance and service of the
summons might affect the true date of the commencement of the action, the points
is of no legal consequence because whether the date of the filing of the original
complaint, or the date of the issuance of the summons, or the date of the service of
said summons, is considered as the time of the commencement of the suit, it is clear
that any of said dates is anterior to those of Exhibits O and O-1 to O-9.
Notwithstanding divergence of authorities and the apparent confusion that has arisen
in the country of origin of our procedural system, we believe that certain principles
are well settled. Primarily, the right to amend a pleading is not an absolute and
unconditional right. It is to be allowed in furtherance of justice under a sound judicial
discretion. This judicial discretion, upon the other hand, is of course not without any
restriction. The cause of action must exist at the time the action was begun, and the
plaintiff will not be allowed by an amendment to introduce a cause of action which
had no existence when the action was commenced. As soon as an action is brought
and the complaint is filed, the proceedings thus initiated are not subject to the
arbitrary control of the parties or of the court, but must be dealt with in accordance
with recognized rules of pleading and practice. Amendments "must be such, and only
such, as are necessary to promote the completion of the action begun — all parties
necessary for that purpose may come or be brought into it, and so also, any and all
such amendments may be made as to the cause of action, as may be necessary to
its completeness in all respects. But neither general principles of practice, nor the
statute providing for amendments, authorize amendments that reach beyond these
purposes. Especially, the court has no authority to allow such amendments as to
parties, or as to the cause of action, as make new, or substancially a new action,
unless by the consent of the parties. Indeed, this would not be to amend, in any
proper sense, but to substitute a new action by order, for and in place of a pending
one, which the court cannot do. General principles of procedure, and, as well, the
statutory regulations upon the subject, contemplate and intend that an action shall
embrace but one litigation or matter, and only such parties, matters and things, as
are necessary, germane, and incident to it, except that several causes of action may
be united in the same action, as specially provided by statute. Any other rule or
method would certainly be subversive of orderly and intelligent procedure, and lead
to intolerable confusion, as well as injustice to litigants. (Grant vs. Burgwyn, 88 N.C.,
95; Merrill vs. Merrill, 92 N.C., 657; McNair vs.Commissioners, 93 N.C., 364;
Ely vs. Early, 94 N.C., 1.)" (Clendenin vs. Turner [1887], 96 N.C., 304, 306.)
It is a rule of law to which there is, perhaps, no exception, either at law or in equity,
that to recover at all there must be some cause of action at the commencement of
the suit. As observed by counsel for appellees, there are reasons of public policy why
there should be no needless haste in bringing up litigation, and why people who are
in no default and against whom there is as yet no cause of action should not be
summoned before the public tribunals to answer complaints which are groundless.
We say groundless because if the action is immature, it should not be entertained,
and an action prematurely brought is a groundless suit.
It is true, that an amended complaint and the answer thereto take the place of the
originals which are thereby regarded as abandoned (Reynes vs. Compañia General
de Tabacos [1912], 21 Phil., 416; Ruyman and Farris vs.Director of Lands [1916], 34
Phil., 428) and that "the complaint and answer having been superseded by the
amended complaint and the answer thereto, and the answer to the original complaint
not having been presented in evidence as an exhibit, the trial court was not
authorized to take it into account." (Bastida vs. Menzi & Co. [1933], 58 Phil., 188.)
But in none of these cases or in any other case have we held that if a right of action
did not exist when the original complaint was filed, one could be created by filing an
amended complaint. In some jurisdictions in the United States what was termed an
"imperfect cause of action" could be perfected by suitable amendment
(Brown vs. Galena Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta,
26 Ga. App., 221) and this is virtually what we also permitted in Banzon and
Rosauro vs. Sellner ([1933], 58 Phil., 453); Asiatic Petroleum Co. vs. Veloso([1935],
62 Phil., 683); and recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however,
which is no cause of action whatsoever cannot by amendment or supplemental
pleading be converted into a cause of action: Nihil de re accrescit ei qui nihil in re
quando jus accresceret habet.
We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and
subsisting cause of action at the time his action is commenced, the defect cannot be
cured or remedied by the acquisition or accrual of one while the action is pending,
and a supplemental complaint or an amendment setting up such after-accrued cause
of action is not permissible (Cf. Compañia gral. de Tabacos vs. Araza [1907], 7 Phil.,
455; Santos vs. Marquez [1909], 13 Phil., 207; Barretto vs. Lane [1915], 29 Phil.,
487; National Bank vs. De la Viña [1924], 46 Phil., 63; Hodges vs.Locsin [1933], 58
Phil., 607; Limpangco vs. Mercado [1908], 10 Phil., 508).
7
The order appealed from is affirmed, without prejudice, with costs against the
appellant. So ordered.
G.R. No. 201644 September 24, 2014
PEOPLE OF THE PHILIPPINES, Petitioner,
vs.
JOSE C. GO and AIDA C. DELA ROSA, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated September
28, 2011 and the Resolution3dated April 1 7, 2012 of the Court of Appeals (CA) in
CA-G.R. SP No. 108319 which reversed and set aside the Orders dated December
10, 20084 and February 12, 20095 of the Regional Trial Court of Manila, Branch 42
(RTC) in Crim. Case Nos. 00-1 86069-7 5, and dismissed the charges against
respondents Jose C. Go (Go) and Aida C. Dela Rosa (Dela Rosa) on the ground that
their constitutional right to speedy trial has been violated.
The Facts
On September 28, 2000, seven (7) Informations – stemming from a criminal
complaint instituted by private complainant Philippine Deposit Insurance
Corporation(PDIC) – were filed beforethe RTC against various accused, including Go
and Dela Rosa (respondents),6 charging them of Estafa through Falsification of
Commercial Documents for allegedly defrauding Orient Commercial Banking
Corporation of the amount of ₱159,000,000.00.7After numerous postponements,
respondents were finally arraigned on November 13, 2001 and trial on the merits
then ensued.8
However, the trial of the case was marred by a series of postponements/cancellation
of hearings caused mainly by the prosecution,9 resulting in its inability to finish its
presentation of evidence despite the lapse of almost five (5) years.10 This prompted
respondents to file, on December 11, 2007, a Motion to Dismiss11 for failure to
prosecute and for violation of their right to speedy trial,12 claiming that the
prosecution was afforded all the opportunity to complete and terminate its case, but
still to no avail.
The RTC Ruling
In an Omnibus Order13 dated January 9, 2008, the RTC dismissed the criminal cases,
ruling that the respondents’ right to speedy trial was violated as they were compelled
to wait for five (5) years without the prosecution completing its presentation of
evidence due to its neglect.14
Dissatisfied, the prosecution moved for reconsideration15 which, in an Order16 dated
December 10, 2008, was granted by the RTC in the interest of justice, thus resulting
in the reinstatement of the criminal cases against respondents.
This time, it was the respondents who moved for reconsideration17 which was,
however, denied by the RTC in an Order18 dated February 12, 2009. This prompted
them to file a petition for certiorari19 before the CA, docketed as CA-G.R. SP No.
108319. A copy of said petition was served, however, only on the private
complainant, i.e., the PDIC,20 and not the People of the Philippines (the People),
through the Office of the Solicitor General (OSG), as it was not evenimpleaded as
party to the case.21
The Proceedings Before the CA
In a Decision22 dated September 28, 2011,the CA, without first ordering the
respondents to implead the People, annulled and set aside the assailed orders of the
RTC, and consequently dismissed the criminal cases against respondents.23
It ruled that the prosecution’s prolonged delay in presenting its witnesses and
exhibits, and in filing its formal offer of evidence was vexatious, capricious, and
oppressive to respondents,24 thereby violating their right to speedy trial. It further
held that double jeopardy had already attached in favor of respondents, considering
that the criminal cases against them were dismissed due to violation of the right to
speedy trial.25
Aggrieved, the PDIC moved for reconsideration which was, however, denied by the
CA in a Resolution26 dated April 17, 2012.
On May 2, 2012, the PDIC transmitted copies of the aforesaid CA Decision and
Resolution to the OSG.27 Thereafter, or on June 18, 2012, the OSG filed the instant
petition,28 imputing grave abuse of discretion on the part of the CA in giving due
course to respondents’ certiorari petition and proceeding to decide the case. It
contends, among others, that the People – the petitioner in this case – was neither
impleaded nor served a copy of said petition, thereby violating its right to due
process of law and rendering the CA without any authority or jurisdiction to
promulgate its issuances reversing the RTC Orders and dismissing the criminal cases
pending before it.29
The Issue Before the Court
The central issue to resolve is whether or not the criminal cases against respondents
were properly dismissed by the CA on certiorari, without the People, as represented
by the OSG, having been impleaded.
The Court’s Ruling
The petition is meritorious.
8
Respondents’ certioraripetition in CA-G.R. SP No. 108319 that sought the dismissal
of the criminal cases against them should not have been resolved by the CA, without
the People,as represented by the OSG, having first been impleaded. This stems from
the recognition that the People is an indispensable party to the proceedings.
In Vda. de Manguerra v. Risos, where the petition for certiorarifiled with the [CA]
failed to implead the People of the Philippines as an indispensable party, the Court
held:
It is undisputed that in their petition for certiorari before the CA, respondents failed
to implead the People of the Philippines as a party thereto. Because of this, the
petition was obviously defective. As provided in Section 5, Rule 110 of the Revised
Rules of Criminal Procedure, all criminal actions are prosecuted under the direction
and control of the public prosecutor. Therefore, it behooved the petitioners
(respondents herein) to implead the People of the Philippines asrespondent in the CA
case to enable the Solicitor General to comment on the petition.30
While the failure to implead an indispensable party is not per sea ground for the
dismissal of an action, considering that said party may still be added by order of the
court,on motion of the party or on its own initiative at any stage of the action
and/orsuch times as are just,31 it remains essential – as it is jurisdictional – that any
indispensable party be impleaded in the proceedings before the court renders
judgment. This is because the absence of such indispensable party renders all
subsequent actions of the court null and void for want of authority to act, not only as
to the absent parties but even as to those present. As explained in Lotte Phil. Co.,
Inc. v. Dela Cruz:32
An indispensable party is a party-in-interest without whom no final determination
can be had of an action, and who shall be joined either as plaintiffs or defendants.
The joinder of indispensable parties is mandatory. 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." Thus, without the presence of
indispensable parties to a suit or proceeding, judgment of a court cannot attain real
finality. The absence of an indispensable party renders all subsequent actions of the
court null and void for want of authorityto act, not only as to the absent parties but
even as to those present.33
In this case, it is evident that the CA proceeded to render judgment, i.e., the
September 28, 2011 Decision and April 17, 2012 Resolution, without an
indispensable party, i.e., the People, having been imp leaded. Thus, in light of the
foregoing discussion, these issuances should be set aside and the case be remanded
to the said court. Consequently, the CA is directed to (a) reinstate respondents'
certiorari petition, and ( b) order said respondents to implead the People as a party
to the proceedings and thereby furnish its counsel, the OSG, a copy of the
aforementioned pleading. That being said, there would be no need to touch on the
other issues herein raised.
WHEREFORE, the petition is GRANTED. The Decision dated September 28, 2011 and In an Order dated January 29, 2004, the presiding judge of the court a quo set the
the Resolution dated April 1 7, 2012 of the Court of Appeals (CA) in CA-G.R. SP No. case for hearing, and directed the court social worker to conduct a social case study
108319 are hereby SET ASIDE. The case is REMANDED to the CA under the and submit a report thereon.
parameters above-stated.
Pursuant to the abovementioned order, the Court Social Worker conducted her social
SO ORDERED. case study, interviewing the (petitioner) and his witnesses. The Court Social Worker
subsequently submitted her report but without any finding on the (respondent) who
refused to see and talk to the social worker.
G.R. No. 184528 April 25, 2012

On July 6, 2004, the (respondent) filed his Opposition to the petition for
NILO OROPESA, Petitioner,
guardianship. On August 3, 2004, the (respondent) filed his Supplemental
vs.
Opposition.
CIRILO OROPESA, Respondent.

Thereafter, the (petitioner) presented his evidence which consists of his testimony,
DECISION
and that of his sister Gianina Oropesa Bennett, and the (respondent’s) former nurse,
Ms. Alma Altaya.
LEONARDO-DE CASTRO, J.:
After presenting evidence, the (petitioner) filed a manifestation dated May 29, 2006
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil resting his case. The (petitioner) failed to file his written formal offer of evidence.
Procedure of the Decision1 dated February 29, 2008, as well as the Resolution2 dated
September 16, 2008, both rendered by the Court of Appeals in CA-G.R. CV No.
Thus, the (respondent) filed his "Omnibus Motion (1) to Declare the petitioner to
88449, entitled "NILO OROPESA vs. CIRILO OROPESA." The Court of Appeals’
have waived the presentation of his Offer of Exhibits and the presentation of his
issuances affirmed the Order3 dated September 27, 2006 and the Order4 dated
Evidence Closed since they were not formally offered; (2) To Expunge the
November 14, 2006 issued by the Regional Trial Court (RTC) of Parañaque City,
Documents of the Petitioner from the Record; and (3) To Grant leave to the
Branch 260 in SP. Proc. Case No. 04-0016, which dismissed petitioner Nilo Oropesa’s
Oppositor to File Demurrer to Evidence.
petition for guardianship over the properties of his father, respondent Cirilo Oropesa
(a widower), and denied petitioner’s motion for reconsideration thereof, respectively.
In an Order dated July 14, 2006, the court a quo granted the (respondent’s)
Omnibus Motion. Thereafter, the (respondent) then filed his Demurrer to Evidence
The facts of this case, as summed in the assailed Decision, follow:
dated July 23, 2006.5 (Citations omitted.)

On January 23, 2004, the (petitioner) filed with the Regional Trial Court of
The trial court granted respondent’s demurrer to evidence in an Order dated
Parañaque City, a petition for him and a certain Ms. Louie Ginez to be appointed as
September 27, 2006. The dispositive portion of which reads:
guardians over the property of his father, the (respondent) Cirilo Oropesa. The case
was docketed as SP Proc. No. 04-0016 and raffled off to Branch 260.
WHEREFORE, considering that the petitioner has failed to provide sufficient evidence
to establish that Gen. Cirilo O. Oropesa is incompetent to run his personal affairs and
In the said petition, it is alleged among others that the (respondent) has been
to administer his properties, Oppositor’s Demurrer to Evidence is GRANTED, and the
afflicted with several maladies and has been sickly for over ten (10) years already
case is DISMISSED.6
having suffered a stroke on April 1, 2003 and June 1, 2003, that his judgment and
memory [were] impaired and such has been evident after his hospitalization; that
even before his stroke, the (respondent) was observed to have had lapses in Petitioner moved for reconsideration but this was denied by the trial court in an
memory and judgment, showing signs of failure to manage his property properly; Order dated November 14, 2006, the dispositive portion of which states:
that due to his age and medical condition, he cannot, without outside aid, manage
his property wisely, and has become an easy prey for deceit and exploitation by WHEREFORE, considering that the Court record shows that petitioner-movant has
people around him, particularly Ms. Ma. Luisa Agamata, his girlfriend. failed to provide sufficient documentary and testimonial evidence to establish that
Gen. Cirilo Oropesa is incompetent to run his personal affairs and to administer his
properties, the Court hereby affirms its earlier Order dated 27 September 2006.

9
Accordingly, petitioner’s Motion for Reconsideration is DENIED for lack of merit.7
Unperturbed, petitioner elevated the case to the Court of Appeals but his appeal was
dismissed through the now assailed Decision dated February 29, 2008, the
dispositive portion of which reads:
WHEREFORE, premises considered the instant appeal is DISMISSED. The assailed
orders of the court a quo dated September 27, 2006 and November 14, 2006 are
AFFIRMED.8
A motion for reconsideration was filed by petitioner but this was denied by the Court
of Appeals in the similarly assailed Resolution dated September 16, 2008. Hence, the
instant petition was filed.
Petitioner submits the following question for consideration by this Court:
WHETHER RESPONDENT IS CONSIDERED AN "INCOMPETENT" PERSON AS DEFINED
UNDER SECTION 2, RULE 92 OF THE RULES OF COURT WHO SHOULD BE PLACED
UNDER GUARDIANSHIP9
After considering the evidence and pleadings on record, we find the petition to be
without merit.
Petitioner comes before the Court arguing that the assailed rulings of the Court of
Appeals should be set aside as it allegedly committed grave and reversible error
when it affirmed the erroneous decision of the trial court which purportedly
disregarded the overwhelming evidence presented by him showing respondent’s
incompetence.
In Francisco v. Court of Appeals,10 we laid out the nature and purpose of
guardianship in the following wise:
A guardianship is a trust relation of the most sacred character, in which one person,
called a "guardian" acts for another called the "ward" whom the law regards as
incapable of managing his own affairs. A guardianship is designed to further the
ward’s well-being, not that of the guardian. It is intended to preserve the ward’s
property, as well as to render any assistance that the ward may personally require.
It has been stated that while custody involves immediate care and control,
guardianship indicates not only those responsibilities, but those of one in loco
parentis as well.11
In a guardianship proceeding, a court may appoint a qualified guardian if the
prospective ward is proven to be a minor or an incompetent.
A reading of Section 2, Rule 92 of the Rules of Court tells us that persons who,
though of sound mind but by reason of age, disease, weak mind or other similar
10
causes, are incapable of taking care of themselves and their property without outside
aid are considered as incompetents who may properly be placed under guardianship.
The full text of the said provision reads:
Sec. 2. Meaning of the word "incompetent." – Under this rule, the word
"incompetent" includes persons suffering the penalty of civil interdiction or who are
hospitalized lepers, prodigals, deaf and dumb who are unable to read and write,
those who are of unsound mind, even though they have lucid intervals, and persons
not being of unsound mind, but by reason of age, disease, weak mind, and other
similar causes, cannot, without outside aid, take care of themselves and manage
their property, becoming thereby an easy prey for deceit and exploitation.
We have held in the past that a "finding that a person is incompetent should be
anchored on clear, positive and definite evidence."12 We consider that evidentiary
standard unchanged and, thus, must be applied in the case at bar.
In support of his contention that respondent is incompetent and, therefore, should
be placed in guardianship, petitioner raises in his Memorandum13 the following
factual matters:
a. Respondent has been afflicted with several maladies and has been sickly
for over ten (10) years already;
b. During the time that respondent was hospitalized at the St. Luke’s Medical
Center after his stroke, he purportedly requested one of his former
colleagues who was visiting him to file a loan application with the Armed
Forces of the Philippines Savings and Loan Association, Inc. (AFPSLAI) for
payment of his hospital bills, when, as far as his children knew, he had
substantial amounts of money in various banks sufficient to cover his
medical expenses;
c. Respondent’s residence allegedly has been left dilapidated due to lack of
care and management;
d. The realty taxes for respondent’s various properties remain unpaid and
therefore petitioner and his sister were supposedly compelled to pay the
necessary taxes;
e. Respondent allegedly instructed petitioner to sell his Nissan Exalta car for
the reason that the former would be purchasing another vehicle, but when
the car had been sold, respondent did not procure another vehicle and
refused to account for the money earned from the sale of the old car;
f. Respondent withdrew at least $75,000.00 from a joint account under his
name and his daughter’s without the latter’s knowledge or consent;
 g. There was purportedly one occasion where respondent took a kitchen
knife to stab himself upon the "orders" of his girlfriend during one of their
fights;
h. Respondent continuously allows his girlfriend to ransack his house of
groceries and furniture, despite protests from his children.14
Respondent denied the allegations made by petitioner and cited petitioner’s lack of
material evidence to support his claims. According to respondent, petitioner did not
present any relevant documentary or testimonial evidence that would attest to the
veracity of his assertion that respondent is incompetent largely due to his alleged
deteriorating medical and mental condition. In fact, respondent points out that the
only medical document presented by petitioner proves that he is indeed competent
to run his personal affairs and administer his properties. Portions of the said
document, entitled "Report of Neuropsychological Screening,"15 were quoted by
respondent in his Memorandum16 to illustrate that said report in fact favored
respondent’s claim of competence, to wit:
General Oropesa spoke fluently in English and Filipino, he enjoyed and participated
meaningfully in conversations and could be quite elaborate in his responses on many
of the test items. He spoke in a clear voice and his articulation was generally
comprehensible. x x x.
xxxx
General Oropesa performed in the average range on most of the domains that were
tested. He was able to correctly perform mental calculations and keep track of
number sequences on a task of attention. He did BEST in visuo-constructional tasks
where he had to copy geometrical designs using tiles. Likewise, he was able to
render and read the correct time on the Clock Drawing Test. x x x.
xxxx
x x x Reasoning abilities were generally intact as he was able to suggest effective
solutions to problem situations. x x x.17
With the failure of petitioner to formally offer his documentary evidence, his proof of
his father’s incompetence consisted purely of testimonies given by himself and his
sister (who were claiming interest in their father’s real and personal properties) and
their father’s former caregiver (who admitted to be acting under their direction).
These testimonies, which did not include any expert medical testimony, were
insufficient to convince the trial court of petitioner’s cause of action and instead lead
it to grant the demurrer to evidence that was filed by respondent.
Even if we were to overlook petitioner’s procedural lapse in failing to make a formal
offer of evidence, his documentary proof were comprised mainly of certificates of
title over real properties registered in his, his father’s and his sister’s names as co-
11
owners, tax declarations, and receipts showing payment of real estate taxes on their
co-owned properties, which do not in any way relate to his father’s alleged incapacity
to make decisions for himself. The only medical document on record is the
aforementioned "Report of Neuropsychological Screening" which was attached to the
petition for guardianship but was never identified by any witness nor offered as
evidence. In any event, the said report, as mentioned earlier, was ambivalent at
best, for although the report had negative findings regarding memory lapses on the
part of respondent, it also contained findings that supported the view that
respondent on the average was indeed competent.
In an analogous guardianship case wherein the soundness of mind of the proposed
ward was at issue, we had the occasion to rule that "where the sanity of a person is
at issue, expert opinion is not necessary [and that] the observations of the trial
judge coupled with evidence establishing the person’s state of mental sanity will
suffice."18
Thus, it is significant that in its Order dated November 14, 2006 which denied
petitioner’s motion for reconsideration on the trial court’s unfavorable September 27,
2006 ruling, the trial court highlighted the fatal role that petitioner’s own
documentary evidence played in disproving its case and, likewise, the trial court
made known its own observation of respondent’s physical and mental state, to wit:
The Court noted the absence of any testimony of a medical expert which states that
Gen. Cirilo O. Oropesa does not have the mental, emotional, and physical capacity to
manage his own affairs. On the contrary, Oppositor’s evidence includes a
Neuropsychological Screening Report which states that Gen. Oropesa, (1) performs
on the average range in most of the domains that were tested; (2) is capable of
mental calculations; and (3) can provide solutions to problem situations. The Report
concludes that Gen. Oropesa possesses intact cognitive functioning, except for mildly
impaired abilities in memory, reasoning and orientation. It is the observation of
the Court that oppositor is still sharp, alert and able.19 (Citation omitted;
emphasis supplied.)
It is axiomatic that, as a general rule, "only questions of law may be raised in a
petition for review on certiorari because the Court is not a trier of facts."20 We only
take cognizance of questions of fact in certain exceptional circumstances;21 however,
we find them to be absent in the instant case. It is also long settled that "factual
findings of the trial court, when affirmed by the Court of Appeals, will not be
disturbed by this Court. As a rule, such findings by the lower courts are entitled to
great weight and respect, and are deemed final and conclusive on this Court when
supported by the evidence on record."22 We therefore adopt the factual findings of
the lower court and the Court of Appeals and rule that the grant of respondent’s
demurrer to evidence was proper under the circumstances obtaining in the case at
bar.
Section 1, Rule 33 of the Rules of Court provides:
Section 1. Demurrer to evidence. – After the plaintiff has completed the presentation
of his evidence, the defendant may move for dismissal on the ground that upon the
facts and the law the plaintiff has shown no right to relief. If his motion is denied, he
shall have the right to present evidence. If the motion is granted but on appeal the
order of dismissal is reversed he shall be deemed to have waived the right to present
evidence.
A demurrer to evidence is defined as "an objection by one of the parties in an action,
to the effect that the evidence which his adversary produced is insufficient in point of
law, whether true or not, to make out a case or sustain the issue."23 We have also
held that a demurrer to evidence "authorizes a judgment on the merits of the case
without the defendant having to submit evidence on his part, as he would ordinarily
have to do, if plaintiff’s evidence shows that he is not entitled to the relief
sought."24 1âwphi1
There was no error on the part of the trial court when it dismissed the petition for
guardianship without first requiring respondent to present his evidence precisely
because the effect of granting a demurrer to evidence other than dismissing a cause
of action is, evidently, to preclude a defendant from presenting his evidence since,
upon the facts and the law, the plaintiff has shown no right to relief.
WHEREFORE, premises considered, the petition is hereby DENIED. The assailed
Decision dated February 29, 2008 as well as the Resolution dated September 16,
2008 of the Court of Appeals in CA-G.R. CV No. 88449 are AFFIRMED.
SO ORDERED.
G.R. No. 151037 June 23, 2005
SAN MIGUEL CORPORATION, petitioner,
vs.
TROY FRANCIS L. MONASTERIO, respondent.
RESOLUTION
QUISUMBING, J.:
This appeal by certiorari seeks to reverse and set aside the D E C I S I O N1 dated
July 16, 2001, and the Resolution2 dated November 27, 2001, of the Court of
Appeals in CA-G.R. SP No. 52622. The Court of Appeals dismissed the special civil
action for certiorari filed by San Miguel Corporation (SMC)3 assailing the Orders4 of
the Regional Trial Court of Naga City, Branch 20, which denied its Motion to Dismiss
on the ground of improper venue and the subsequent Motion for Reconsideration in
Civil Case No. RTC’98-4150.
The facts are as follows:
12
On August 1, 1993, petitioner SMC entered into an Exclusive Warehouse
Agreement5 (hereafter EWA for brevity) with SMB Warehousing Services (SMB),
represented by its manager, respondent Troy Francis L. Monasterio. SMB undertook
to provide land, physical structures, equipment and personnel for storage,
warehousing and related services such as, but not limited to, segregation of empty
bottles, stock handling, and receiving SMC products for its route operations at
Sorsogon, Sorsogon and Daet, Camarines Norte.
The agreement likewise contained a stipulation on venue of actions, to wit:
26. GENERAL PROVISIONS
...
b. Should it be necessary that an action be brought in court to enforce the terms of
this Agreement or the duties or rights of the parties herein, it is agreed that the
proper court should be in the courts of Makati or Pasig, Metro Manila, to the
exclusion of the other courts at the option of the COMPANY.6[Underscoring supplied.]
...
On November 3, 1998, respondent Monasterio, a resident of Naga City, filed a
complaint docketed as Civil Case No. RTC’98-4150 for collection of sum of money
against petitioner before the Regional Trial Court of Naga City, Branch 20.
In his Complaint,7 Monasterio claimed ₱900,600 for unpaid cashiering fees. He
alleged that from September 1993 to September 1997 and May 1995 to November
1997, aside from rendering service as warehouseman, he was given the additional
task of cashiering in SMC’s Sorsogon and Camarines Norte sales offices for which he
was promised a separate fee. He claims that of approximately 290 million pesos in
cash and checks of the sales office and the risks of pilferage, theft, robbery and hold-
up, he had assumed what amounted to approximately 35 million pesos per annum
for Sorsogon, Sorsogon, and 60 million pesos for Daet, Camarines Norte. He also
said that he hired personnel for the job. Respondent added that it was only on
December 1, 1997, that petitioner SMC started paying him ₱11,400 per month for
his cashiering services.
Monasterio demanded ₱82,959.32 for warehousing fees, ₱11,400 for cashiering fees
for the month of September, 1998, as well as exemplary damages, and attorney’s
fees in the amount of ₱500,000 and ₱300,000, respectively.8
On November 19, 1998, SMC filed a Motion to Dismiss9 on the ground of improper
venue. SMC contended that respondent’s money claim for alleged unpaid cashiering
services arose from respondent’s function as warehouse contractor thus the EWA
should be followed and thus, the exclusive venue of courts of Makati or Pasig, Metro
Manila is the proper venue as provided under paragraph 26(b) of the Exclusive
Warehouse Agreement. SMC cites in its favor Section 4(b) in relation to Section 2 of
Rule 410 of the Rules of Court allowing agreement of parties on exclusive venue of
actions.
Respondent filed an Opposition11 contending that the cashiering service he rendered
for the petitioner was separate and distinct from the services under the EWA. Hence,
the provision on venue in the EWA was not applicable to said services. Hence,
respondent insists that in accordance with Section 2 of Rule 4 of the Rules of Court
the venue should be in Naga City, his place of residence.
On February 22, 1999, the Regional Trial Court, of Naga City, Branch 20 issued
an Order12 denying petitioner’s motion to dismiss. The court held that the services
agreed upon in said contract is limited to warehousing services and the claim of
plaintiff in his suit pertains to the cashiering services rendered to the defendant, a
relationship which was not documented, and is certainly a contract separate and
independent from the exclusive warehousing agreements.13
SMC’s subsequent Motion for Reconsideration was likewise denied.14 While the
motion was pending, the respondent filed an Amended Complaint15 deleting his claim
for unpaid warehousing and cashiering fees but increasing the exemplary damages
from ₱500,000 to ₱1,500,000.16
Petitioner elevated the controversy to the Court of Appeals by way of a special civil
action for certiorari with a prayer for the issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injunction, imputing grave abuse of discretion on the RTC
Naga City for denying its motion to dismiss and subsequent motion for
reconsideration.
On June 11, 1999, during the pendency of the certiorari petition SMC filed before the
trial court an answer ex abundanti cautela17 with a compulsory counterclaim for
moral and exemplary damages and attorney’s fees. SMC averred lack of cause of
action, payment, waiver, abandonment and extinguishment.
In its decision dated July 16, 2001, the Court of Appeals found respondent’s claim for
cashiering services inseparable from his claim for warehousing services, thus, the
venue stipulated in the EWA is the proper venue. However, the Court of Appeals
noted that prior to the filing of SMC’s petition, respondent Monasterio filed an
amended complaint to which SMC filed an answer. Thus, the Court of Appeals
dismissed San Miguel’s petition for certiorari, stating that the case was already moot
and academic.
Petitioner filed a motion for reconsideration which was denied by the Court of
Appeals. Hence, this petition wherein petitioner raises the following as issues:18
1. Whether or not this Honorable Court may review the finding of the Court
of Appeals that the Complaint and Amended Complaint were filed in the
wrong venue.
13
2. Assuming arguendo that this Honorable Court may review the finding of
the Court of Appeals that the Complaint and Amended Complaint were filed
in the wrong venue, whether or not such finding should be reversed.
3. Whether or not the Court of Appeals gravely erred in ruling that SMC’s
Petition For Certiorari has become moot and academic in view of the filing of
Monasterio’s Amended Complaint and SMC’s Answer (Ex Abundanti
Cautela).19
In our view, two issues only require resolution: (1) Did the RTC of Naga City err in
denying the motion to dismiss filed by SMC alleging improper venue? (2) Did the CA
gravely err in ruling that SMC’s petition for certiorari has become moot?
On disputes relating to the enforcement of the rights and duties of the contracting
parties, the venue stipulation in the EWA should be construed as mandatory. Nothing
therein being contrary to law, morals, good custom or public policy, this provision is
binding upon the parties.20 The EWA stipulation on venue is clear and unequivocal,
thus it ought to be respected.
However, we note that the cause of action in the complaint filed by the respondent
before the RTC of Naga was not based on the EWA, but concern services not
enumerated in the EWA. Records show also that previously, respondent received a
separate consideration of ₱11,400 for the cashiering service he rendered to SMC.
Moreover, in the amended complaint, the respondent’s cause of action was
specifically limited to the collection of the sum owing to him for his cashiering service
in favor of SMC. He already omitted petitioner’s non-payment of warehousing fees.
As previously ruled, allegations in the complaint determines the cause of action or
the nature of the case.21Thus, given the circumstances of this case now before us,
we are constrained to hold that it would be erroneous to rule, as the CA did, that the
collection suit of the respondent did not pertain solely to the unpaid cashiering
services but pertain likewise to the warehousing services.22
Exclusive venue stipulation embodied in a contract restricts or confines parties
thereto when the suit relates to breach of the said contract. But where the
exclusivity clause does not make it necessarily all encompassing, such that even
those not related to the enforcement of the contract should be subject to the
exclusive venue, the stipulation designating exclusive venues should be strictly
confined to the specific undertaking or agreement. Otherwise, the basic principles of
freedom to contract might work to the great disadvantage of a weak party-suitor
who ought to be allowed free access to courts of justice.
Restrictive stipulations are in derogation of the general policy of making it more
convenient for the parties to institute actions arising from or in relation to their
agreements.23 Thus, the restriction should be strictly construed as relating solely to
the agreement for which the exclusive venue stipulation is embodied. Expanding the
scope of such limitation on a contracting party will create unwarranted restrictions
which the parties might find unintended or worse, arbitrary and oppressive.
Moreover, since convenience is the raison d’etre of the rules on venue,24 venue
stipulation should be deemed merely permissive, and that interpretation should be
adopted which most serves the parties’ convenience.25Contrawise, the rules
mandated by the Rules of Court should govern.26 Accordingly, since the present case
for the collection of sum of money filed by herein respondent is a personal
action,27 we find no compelling reason why it could not be instituted in the RTC of
Naga City, the place where plaintiff resides.
Having settled the issue on venue, we need not belabor the issue of whether SMC’s
petition has become moot.
WHEREFORE, it is hereby ruled that no reversible error was committed by the
Regional Trial Court of Naga City, Branch 20, in denying petitioner’s motion to
dismiss. Said RTC is the proper venue of the amended complaint for a sum of money
filed by respondent against petitioner San Miguel Corporation, in connection with his
cashiering services. The case is hereby REMANDED to the RTC of Naga City, Branch
20, for further proceedings on respondent’s amended complaint, without further
delay.
Costs against petitioner.
SO ORDERED.
G.R. No. 172242 August 14, 2007
PERKIN ELMER SINGAPORE PTE LTD., Petitioner,
vs.
DAKILA TRADING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
The case before this Court is a Petition for Review1 on Certiorari under Rule 45 of the
1997 Revised Rules of Civil Procedure seeking to annul and set aside the
Decision,2 dated 4 April 2006, of the Court of Appeals in CA-G.R. SP No. 78981,
which affirmed the Orders, dated 4 November 20023 and 20 June 2003,4 of the
Mandaluyong City Regional Trial Court (RTC), Branch 212, in Civil Case No. MC99-
605, which, in turn, denied the Motion to Dismiss and subsequent Motion for
Reconsideration of herein petitioner Perkin Elmer Singapore Pte Ltd.
Petitioner is a corporation duly organized and existing under the laws of Singapore.
It is not considered as a foreign corporation "doing business" in the Philippines.
Herein respondent Dakila Trading Corporation is a corporation organized and existing
under Philippine laws, and engaged in the business of selling and leasing out
14
laboratory instrumentation and process control instrumentation, and trading of
laboratory chemicals and supplies.
The antecedents of the present case are as follows:
Respondent entered into a Distribution Agreement5 on 1 June 1990 with Perkin-
Elmer Instruments Asia Pte Ltd. (PEIA), a corporation duly organized and existing
under the laws of Singapore and engaged in the business of manufacturing,
producing, selling or distributing various laboratory/analytical instruments. By virtue
of the said agreement, PEIA appointed the respondent as the sole distributor of its
products in the Philippines. The respondent was likewise granted the right to
purchase and sell the products of PEIA subject to the terms and conditions set forth
in the Distribution Agreement. PEIA, on the other hand, shall give respondent a
commission for the sale of its products in the Philippines.
Under the same Distribution Agreement, respondent shall order the products of PEIA,
which it shall sell in the Philippines, either from PEIA itself or from Perkin-Elmer
Instruments (Philippines) Corporation (PEIP), an affiliate of PEIA. PEIP is a
corporation duly organized and existing under Philippine laws, and involved in the
business of wholesale trading of all kinds of scientific, biotechnological, and analytical
instruments and appliances. PEIA allegedly owned 99% of the shares of PEIP.
On 2 August 1997, however, PEIA unilaterally terminated the Distribution
Agreement, prompting respondent to file before the RTC of Mandaluyong City,
Branch 212, a Complaint6 for Collection of Sum of Money and Damages with Prayer
for Issuance of a Writ of Attachment against PEIA and PEIP, docketed as Civil Case
No. MC99-605.
The RTC issued an Order,7 dated 26 March 1999, denying respondent’s prayer for the
issuance of a writ of attachment. The respondent moved for the reconsideration of
the said Order but it was denied in another Order, dated 11 January 2000.8
Respondent then filed Ex-Parte Motions for Issuance of Summons and for Leave of
Court to Deputize Respondent’s General Manager, Richard A. Tee, to Serve
Summons Outside of the Philippines,9 which the RTC granted in its Order, dated 27
April 2000.10 Thus, an Alias Summons, dated 4 September 2000, was issued by the
RTC to PEIA. But the said Alias Summons was served on 28 September 2000 and
received by Perkinelmer Asia, a Singaporean based sole proprietorship, owned by the
petitioner and, allegedly, a separate and distinct entity from PEIA.
PEIP moved to dismiss11 the Complaint filed by respondent on the ground that it
states no cause of action. Perkinelmer Asia, on the other hand, through its counsel,
sent letters, dated 12 October 200012 and 15 November 2000,13 to the respondent
and to the RTC, respectively, to inform them of the wrongful service of summons
upon Perkinelmer Asia.
Accordingly, respondent filed an Ex-Parte Motion to Admit Amended Complaint,
together with the Amended Complaint claiming that PEIA had become a sole
proprietorship14 owned by the petitioner, and subsequently changed its name to
Perkinelmer Asia. Being a sole proprietorship of the petitioner, a change in PEIA’s
name and juridical status did not detract from the fact that all its due and
outstanding obligations to third parties were assumed by the petitioner. Hence, in its
Amended Complaint15 respondent sought to change the name of PEIA to that of the
petitioner. In an Order, dated 24 July 2001,16 the RTC admitted the Amended
Complaint filed by the respondent. Respondent then filed another Motion17 for the
Issuance of Summons and for Leave of Court to Deputize Respondent’s General
Manager, Richard A. Tee, to Serve Summons Outside the Philippines. In another
Order, dated 4 March 2002,18 the RTC deputized respondent’s General Manager to
serve summons on petitioner in Singapore. The RTC thus issued summons19 to the
petitioner. Acting on the said Order, respondent’s General Manager went to
Singapore and served summons on the petitioner.
Meanwhile, in an Order, dated 10 October 2001, the RTC denied the Motion to
Dismiss filed by PEIP, compelling the latter to file its Answer to the Amended
Complaint.
Petitioner subsequently filed with the RTC a Special Appearance and Motion to
Dismiss20 respondent’s Amended Complaint on 30 May 2002 based on the following
grounds: (1) the RTC did not acquire jurisdiction over the person of the petitioner;
(2) the respondent failed to state a cause of action against the petitioner because it
is not the real party-in-interest; (3) even assuming arguendo that the respondent
correctly filed the case against the petitioner, the Distribution Agreement which was
the basis of its claim grants PEIA the right to terminate the contract at any time; and
(4) the venue was improperly laid. The RTC in its Order, dated 4 November 2002,
denied petitioner’s Motion to Dismiss, ratiocinating as follows:
Prescinding from the above arguments of both parties, the [RTC] is inclined to DENY
the Motion to Dismiss.
A careful scrutiny on (sic) the allegation in the (Amended) Complaint would show
that [herein respondent] alleges ownership by the [herein petitioner] of shares of
stocks in the [PEIP]. Such allegation of ownership of shares of stocks by the
[petitioner] would reveal that there is an allegation of personal property in the
Philippines. Shares of stocks represent personal property of the shareholder. Thus, it
follows that even though the Amended Complaint is primarily for damages, it does
relate to a property of the [petitioner], to which the latter has a claim interest (sic),
or an actual or contingent lien, which will make it fall under one of the requisite (sic)
for extraterritorial service under Section 15, Rule 14, of the Rules of Court. Thus, it
could be gainfully said that the summons had been validly served for [RTC] to
acquire jurisdiction over the [petitioner].
The [petitioner] hinges its dismissal on the failure of the [respondent] to state a
cause of action. The [RTC] would like to emphasize that in a Motion to Dismiss, it
hypothetically admits the truth of the facts alleged in a complaint.
15
When the ground for dismissal is that the complaint states no cause of action, such
fact can be determined only from the facts alleged in the complaint x x x and from
no other x x x and the Court cannot consider other matters aliunde x x x. This
implies that the issue must be passed upon on the basis of the allegations and
declare them to be false, otherwise it would be a procedural error and a denial of due
process to the [respondent] x x x.
The three (3) essential elements of a cause of action are the following:
a) The plaintiff’s legal rights;
b) A correlative obligation of the defendant;
c) The omission of the defendant in violation of the legal rights.
A cursory reading of the Amended Complaint would reveal that all of the essential
elements of a cause of action are attendant in the Amended Complaint.
As for the contention that venue was improperly laid, x x x, the [RTC] in its ultimate
desire that the ends of justice could be served in its fullest, cannot rule that venue
was improperly laid.
xxxx
The stipulation as to the venue of a prospective action does not preclude the filing of
the suit in the residence of the [respondent] under Section 2, Rule 4, Rules of Court,
especially where the venue stipulation was imposed by the [petitioner] for its own
benefits.
xxxx
The [RTC] further believes that it is imperative that in order to ferret out the truth, a
full-blown trial is necessary for parties to be able to prove or disprove their
allegations.21
Petitioner moved for the reconsideration of the aforesaid Order but, it was denied by
the RTC in its Order, dated 20 June 2003.
Consequently, petitioner filed a Petition for Certiorari under Rule 65 of the 1997
Revised Rules of Civil Procedure with application for temporary restraining order
and/or preliminary injunction before the Court of Appeals alleging that the RTC
committed grave abuse of discretion amounting to lack or excess of jurisdiction in
refusing to dismiss the Amended Complaint. The Court of Appeals never issued any
temporary restraining order or writ of injunction. On 4 April 2006, the Court of
Appeals rendered a Decision affirming the RTC Orders of 4 November 2002 and 20
June 2003.
This brings us to the present Petition before this Court wherein petitioner raised the
following issues.
I.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
NOT RULING THAT THE SERVICE OF SUMMONS ON PETITIONER WAS DEFECTIVE
AND THAT THE TRIAL COURT THUS FAILED TO ACQUIRE JURISDICTION OVER THE
PERSON OF THE PETITIONER.
II.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT THE "SOLE ISSUE" IN THE PETITION FOR CERTIORARI FILED BEFORE
IT IS THE QUESTION OF WHETHER THE TRIAL COURT ACQUIRED JURISDICTION
OVER THE PERSON OF THE PETITIONER THROUGH THE EXTRATERRITORIAL
SERVICE OF SUMMONS.
A.
WHETHER OR NOT THE COURT OF APPEALS SHOULD HAVE GRANTED THE
PETITION FOR CERTIORARI AND REVERSED THE RTC ORDERS ON THE
GROUND THAT THE AMENDED COMPLAINT FAILED TO STATE A CAUSE OF
ACTION AGAINST PETITIONER.
1. BASED ON THE ALLEGATIONS IN THE EX-PARTE MOTION TO
ADMIT AMENDED COMPLAINT, AMENDED COMPLAINT, AND ALL
DOCUMENTS ATTACHED AND/OR RELATED THERETO, PETITIONER
IS NOT THE REAL PARTY-IN-INTEREST DEFENDANT IN THE CASE
BELOW.
2. ASSUMING ARGUENDO THAT RESPONDENT DAKILA FILED THIS
CASE AGAINST THE CORRECT [PARTY], INASMUCH AS THE
DISTRIBUTION AGREEMENT DATED 1 JUNE 1990 GRANTS [PEIA]
THE RIGHT TO TERMINATE THE CONTRACT AT ANY TIME,
RESPONDENT DAKILA FAILS TO STATE A CAUSE OF ACTION IN THE
CASE BELOW.
B.
WHETHER OR NOT THE COURT OF APPEALS SHOULD HAVE GRANTED THE
PETITION FOR CERTIORARI AND REVERSED THE RTC ORDERS ON THE
GROUND OF IMPROPER VENUE.
III.
16
WHETHER OR NOT PETITIONER IS ENTITLED TO A TEMPORARY RESTRAINING
ORDER AND/OR WRIT OF INJUNCTION.
The foregoing issues raised by petitioner essentially requires this Court to make a
determination of the (1) proper service of summons and acquisition of jurisdiction by
the RTC over the person of the petitioner; (2) existence of a cause of action against
petitioner in respondent’s Amended Complaint; and (3) proper venue for
respondent’s civil case against petitioner.
Petitioner contends that Civil Case No. MC99-605 involves an action for collection of
sum of money and damages arising from the alleged breach of the Distribution
Agreement. The action is one in personam, or an action against a person based on
his personal liability; and for the court a quo to acquire jurisdiction over the person
of the petitioner, personal service of summons, and not extraterritorial service of
summons, must be made within the state even if the petitioner is a non-resident.
Petitioner avers that extraterritorial service of summons stated under Section 15,
Rule 14 of the 1997 Revised Rules of Civil Procedure, is only proper in in rem and
quasi in rem cases; thus, resort to an extraterritorial service of summons in the case
at bar was erroneous. Petitioner asseverates that the allegations in the respondent’s
Amended Complaint that the petitioner has personal properties within the Philippines
does not make the present case one that relates to, or the subject of which is,
property within the Philippines warranting the extraterritorial service of summons
under Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure. Petitioner
states that for an action to be considered as one that relates to, or the subject of
which is, property within the Philippines, the main subject matter of the action must
be the property within the Philippines itself, and such was not the situation in this
case. Likewise, the prayer in respondent’s Amended Complaint for the issuance of a
writ of attachment over the personal property of PEIP, which is 99% owned by
petitioner (as the supposed successor of PEIA), did not convert the action from one
in personam to one that is quasi in rem. Also, the petitioner points out that since the
respondent’s prayer for the issuance of a writ of attachment was denied by the RTC
in its Order, dated 26 March 1999, then the nature of Civil Case No. MC99-605
remains in personam, contrary to the ruling of the Court of Appeals that by the
attachment of the petitioner’s interest in PEIP the action in personam was converted
to an action quasi in rem. Resultantly, the extraterritorial service of summons on the
petitioner was not validly effected, and did not give the RTC jurisdiction over the
petitioner.
Petitioner further argues that the appellate court should have granted its Petition for
Certiorari on the ground that the RTC committed grave abuse of discretion
amounting to lack or excess of jurisdiction in refusing to dismiss respondent’s
Amended Complaint for failure to state a cause of action against petitioner which was
not the real party-in-interest in Civil Case No. MC99-605. Petitioner claims that it
had never used the name PEIA as its corporate name, and neither did it change its
name from that of PEIA. Petitioner stresses that PEIA is an entirely different
corporate entity that is not connected in whatever manner to the petitioner. Even
assuming arguendo that petitioner is the real party-in-interest in Civil Case No.
MC99-605 or that petitioner and PEIA are one and the same entity, petitioner still
avows that the respondent failed to state a cause of action against it because the
Distribution Agreement expressly grants PEIA the right to terminate the said contract
at any time.
Lastly, it is the contention of the petitioner that the appellate court should have
granted its Petition for Certiorari because the RTC committed grave abuse of
discretion amounting to lack or excess of jurisdiction in refusing to dismiss Civil Case
No. MC99-605 for having been filed in an improper venue. Petitioner asserts that in
the Distribution Agreement entered into between the respondent and PEIA, both had
mutually agreed to the exclusive jurisdiction of the courts of Singapore or of the
Philippines as elected by PEIA. Absent any waiver by PEIA of its right to choose the
venue of the dispute, the Complaint filed by the respondent before the RTC in the
Philippines should have been dismissed on the ground of improper venue.
The Petition is meritorious.
Jurisdiction is the power with which courts are invested for administering justice;
that is, for hearing and deciding cases. In order for the court to have authority to
dispose of the case on the merits, it must acquire jurisdiction over the subject matter
and the parties.22
Jurisdiction of the court over the subject matter is conferred only by the Constitution
or by law. It is determinable on the basis of allegations in the complaint.23
Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint, while
jurisdiction over the defendants in a civil case is acquired either through the service
of summons upon them in the manner required by law or through their voluntary
appearance in court and their submission to its authority. If the defendants have not
been summoned, unless they voluntarily appear in court, the court acquires no
jurisdiction over their persons and a judgment rendered against them is null and
void. To be bound by a decision, a party should first be subjected to the court’s
jurisdiction.24
Thus, one of the modes of acquiring jurisdiction over the person of the defendant or
respondent in a civil case is through service of summons. It is intended to give notice
to the defendant or respondent that a civil action has been commenced against him.
The defendant or respondent is thus put on guard as to the demands of the plaintiff
or the petitioner.25
The proper service of summons differs depending on the nature of the civil case
instituted by the plaintiff or petitioner: whether it is in personam, in rem, or quasi in
rem. Actions in personam, are those actions brought against a person on the basis of
his personal liability; actions in rem are actions against the thing itself instead of
against the person; and actions are quasi in rem, where an individual is named as
defendant and the purpose of the proceeding is to subject his or her interest in a
property to the obligation or loan burdening the property.26
17
Under Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure, 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 plaintiff; (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.27
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.28 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.29 On the other hand, when the defendant or respondent does not reside and
is not found in the Philippines,30 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.31
In the case at bar, this Court sustains the contention of the petitioner that there can
never be a valid extraterritorial service of summons upon it, because the case before
the court a quo involving collection of a sum of money and damages is, indeed, an
action in personam, as it deals with the personal liability of the petitioner to the
respondent by reason of the alleged unilateral termination by the former of the
Distribution Agreement. Even the Court of Appeals, in its Decision dated 4 April
2004, upheld the nature of the instant case as an action in personam. In the said
Decision the appellate court ruled that:
In the instant petition, [respondent’s] cause of action in Civil Case No. MC99-605 is
anchored on the claim that petitioner unilaterally terminated the Distribution
Agreement. Thus, [respondent] prays in its [C]omplaint that "Upon the filing of the
Complaint, issue an Order fixing the amount of the bond and issue a writ of
attachment requiring the sheriff to attach the properties of [Perkin-Elmer
Philippines], which are not exempt from execution, and as much as may be sufficient
to satisfy [respondent’s] demands."
The action instituted by [respondent] affects the parties alone, not the whole world.
Hence, it is an action in personam, i.e., any judgment therein is binding only upon
the parties properly impleaded.
xxxx
The objective sought in [respondent’s] [C]omplaint was to establish a claim against
petitioner for its alleged unilateral termination of [D]istribution [A]greement. Hence,
to repeat, Civil Case No. MC99-605 is an action in personam because it is an action
against persons, namely, herein petitioner, on the basis of its personal liability. As
such, personal service of summons upon the [petitioner] is essential in order for the
court to acquire of (sic) jurisdiction over [its person].32 (Emphasis supplied.)
Thus, being an action in personam, personal service of summons within the
Philippines is necessary in order for the RTC to validly acquire jurisdiction over the
person of the petitioner, and this is not possible in the present case because the
petitioner is a non-resident and is not found within the Philippines. Respondent’s
allegation in its Amended Complaint that petitioner had personal property within the
Philippines in the form of shares of stock in PEIP did not make Civil Case No. MC99-
605 fall under any of the four instances mentioned in Section 15, Rule 14 of the
Rules of Court, as to convert the action in personam to an action in rem or quasi in
rem and, subsequently, make the extraterritorial service of summons upon the
petitioner valid.
It is incorrect for the RTC to have ruled that the allegations made by the respondent
in its Amended Complaint, which is primarily for collection of a sum of money and
damages, that the petitioner owns shares of stock within the Philippines to which the
petitioner claims interest, or an actual or contingent lien, would make the case fall
under one of the aforesaid instances wherein extraterritorial service of summons
under Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure, would be
valid. The RTC in arriving at such conclusions relied on the second instance,
mentioned under Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure
(i.e., when the action relates to, or the subject of which is property, within the
Philippines, in which the defendant claims a lien or interest, actual or contingent),
where extraterritorial service of summons can be properly made. However, the
aforesaid second instance has no application in the case before this Court. Primarily,
the Amended Complaint filed by the respondent against the petitioner was for the
collection of sum of money and damages. The said case was neither related nor
connected to any property of the petitioner to which it claims a lien or interest. The
action for collection of a sum of money and damages was purely based on the
personal liability of the petitioner towards the respondent. The petitioner is correct in
saying that "mere allegations of personal property within the Philippines does not
necessarily make the action as one that relates to or the subject of which is, property
within the Philippines as to warrant the extraterritorial service of summons. For the
action to be considered one that relates to, or the subject of which, is the property
within the Philippines, the main subject matter of the action must be the property
itself of the petitioner in the Philippines." By analogy, an action involving title to or
possession of real or personal property -- such as the foreclosure of real estate or
chattel mortgage where the mortgagor does not reside or is not found in the
18
Philippines -- can be considered as an action which relates to, or the subject of which
is, property within the Philippines, in which the defendant claims a lien or interest,
actual or contingent; and in such instance, judgment will be limited to the res.33
Moreover, the allegations made by the respondent that the petitioner has property
within the Philippines were in support of its application for the issuance of a writ of
attachment, which was denied by the RTC. Hence, it is clear from the foregoing that
the Complaint filed by the respondent against the petitioner does not really relate to,
or the subject of which is, property within the Philippines of the petitioner.
This Court also finds error in the Decision of the Court of Appeals. It is provided for
in the said Decision, thus:
However, let it be emphasized that in the [C]omplaint filed before the trial court,
[respondent] prayed that "Upon the filing of the Complaint, issue an Order fixing the
amount of the bond and issue a writ of attachment requiring the sheriff to attach the
properties of [Perkin-Elmer Philippines], which are not exempt from execution, and
as much as may be sufficient to satisfy [respondent’s] demands.
In other words, although the [C]omplaint before the trial court does not involve the
personal status of the [respondent], nevertheless, the case involves property within
the Philippines in which the [petitioner] has or claim an interest, or which the
[respondent] has attached, which is one of the instances where extraterritorial
service of summons is proper.
xxxx
Hence, it is submitted that one of the instances when exterritorial service of
summons under Section 15, Rule 14 of the Rules of Court is proper may be
considered to have been met. This is because the [C]omplaint for collection of sum of
money which is an action in personam was converted into an action quasi in rem by
the attachment of [petitioner’s] interest in [Perkin-Elmer Philippines].34 (Emphasis
supplied.)
Respondent’s allegation in its Amended Complaint that petitioner had personal
property within the Philippines in the form of shares of stock in PEIP does not convert
Civil Case No. MC99-605 from an action in personam to one quasi in rem, so as to
qualify said case under the fourth instance mentioned in Section 15, Rule 14 of the
1997 Revised Rules of Civil Procedure (i.e., when the non-resident defendant’s
property has been attached within the Philippines), wherein extraterritorial service of
summons upon the petitioner would have been valid. It is worthy to note that what is
required under the aforesaid provision of the Revised Rules of Civil Procedure is not a
mere allegation of the existence of personal property belonging to the non-resident
defendant within the Philippines but, more precisely, that the non-resident
defendant’s personal property located within the Philippines must have been actually
attached. This Court in the case of Venturanza v. Court of Appeals35 ruled that when
the attachment was void from the beginning, the action in personam which required
personal service of summons was never converted into an action in rem where
service by publication would have been valid. Hence, the appellate court erred in
declaring that the present case, which is an action in personam, was converted to an
action quasi in rem because of respondent’s allegations in its Amended Complaint
that petitioner had personal property within the Philippines.
Glaringly, respondent’s prayer in its Amended Complaint for the issuance of a writ of
attachment over petitioner’s purported shares of stock in PEIP located within the
Philippines was denied by the court a quo in its Order dated 26 March 1999.
Respondent’s Motion for Reconsideration of the said Order was likewise denied by the
RTC in its subsequent Order, dated 11 January 2000. Evidently, petitioner’s alleged
personal property within the Philippines, in the form of shares of stock in PEIP, had
not been attached; hence, Civil Case No. MC99-605, for collection of sum of money
and damages, remains an action in personam. As a result, the extraterritorial service
of summons was not validly effected by the RTC against the petitioner, and the RTC
thus failed to acquire jurisdiction over the person of the petitioner. The RTC is
therefore bereft of any authority to act upon the Complaint filed before it by the
respondent insofar as the petitioner is concerned.
If there was no valid summons served upon petitioner, could RTC have acquired
jurisdiction over the person of the petitioner by the latter’s voluntary appearance? As
a rule, even if the service of summons upon the defendant or respondent in a civil
case is defective, the court can still acquire jurisdiction over his person when he
voluntary appears in court or submits himself to its authority. Nonetheless, voluntary
appearance, as a mode of acquiring jurisdiction over the person of the defendant, is
likewise inapplicable in this case.
It is settled that a party who makes a special appearance in court for the purpose of
challenging the jurisdiction of said court, based on the invalidity of the service of
summons, cannot be considered to have voluntarily submitted himself to the
jurisdiction of the court.36 In the present case, petitioner has been consistent in all
its pleadings in assailing the service of summons upon it and the jurisdiction of the
RTC over its person. Thus, the petitioner cannot be declared in estoppel when it filed
an Answer ad cautelam with compulsory counterclaim before the RTC while the
instant Petition was still pending before this Court. The petitioner was in a situation
wherein it had no other choice but to file an Answer; otherwise, the RTC would have
already declared that petitioner had waived its right to file responsive
pleadings.37 Neither can the compulsory counterclaim contained in petitioner’s
Answer ad cautelam be considered as voluntary appearance of petitioner before the
RTC. Petitioner seeks to recover damages and attorney’s fees as a consequence of
the unfounded suit filed by respondent against it. Thus, petitioner’s compulsory
counterclaim is only consistent with its position that the respondent wrongfully filed a
case against it and the RTC erroneously exercised jurisdiction over its person.
Distinction must be made in Civil Case No. MC99-605 as to the jurisdiction of the
RTC over respondent’s complaint and over petitioner’s counterclaim -- while it may
have no jurisdiction over the former, it may exercise jurisdiction over the latter. The
compulsory counterclaim attached to petitioner’s Answer ad cautelam can be treated
as a separate action, wherein petitioner is the plaintiff while respondent is the
defendant.38 Petitioner could have instituted a separate action for the very same
19
claims but, for the sake of expediency and to avoid multiplicity of suits, it chose to
demand the same in Civil Case No. MC99-605.39 Jurisdiction of the RTC over the
subject matter and the parties in the counterclaim must thus be determined
separately and independently from the jurisdiction of the same court in the same
case over the subject matter and the parties in respondent’s complaint.
Moreover, even though the petitioner raised other grounds in its Motion to Dismiss
aside from lack of jurisdiction over its person, the same is not tantamount to its
voluntary appearance or submission to the authority of the court a quo. While in De
Midgely v. Ferandos,40 it was held that, in a Motion to Dismiss, the allegation of
grounds other than lack of jurisdiction over the person of the defendant, including a
prayer "for such other reliefs as" may be deemed "appropriate and proper"
amounted to voluntary appearance, such ruling must be deemed superseded by the
declaration of this Court in La Naval Drug Corporation v. Court of Appeals41 that
estoppel by jurisdiction must be unequivocal and intentional. It would be absurd to
hold that petitioner unequivocally and intentionally submitted itself to the jurisdiction
of the court by seeking other reliefs to which it might be entitled when the only relief
that it could properly ask from the trial court is the dismissal of the complaint against
it.42 Thus, the allegation of grounds other than lack of jurisdiction with a prayer "for
such other reliefs" as may be deemed "appropriate and proper" cannot be considered
as unequivocal and intentional estoppel. Most telling is Section 20, Rule 14 of the
Rules of Court, which expressly provides:
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.43 (Emphasis supplied.)
In sum, this Court finds that the petitioner did not submit itself voluntarily to the
authority of the court a quo; and in the absence of valid service of summons, the
RTC utterly failed to acquire jurisdiction over the person of the petitioner.
Anent the existence of a cause of action against petitioner and the proper venue of
the case, this Court upholds the findings of the RTC on these issues.
Dismissal of a Complaint for failure to state a cause of action is provided for by the
Rules of Court.44 When a Motion to Dismiss is grounded on the failure to state a
cause of action, a ruling thereon should be based only on the facts alleged in the
complaint. The court must pass upon this issue based solely on such allegations,
assuming them to be true. For it to do otherwise would be a procedural error and a
denial of plaintiff’s right to due process.45 While, truly, there are well-recognized
exceptions46 to the rule that the allegations are hypothetically admitted as true and
inquiry is confined to the face of the complaint,47 none of the exceptions apply in this
case. Hence, the general rule applies. The defense of the petitioner that it is not the
real party-in-interest is evidentiary in nature which must be proven in trial. The
appellate court, then, cannot be faulted for not granting petitioner’s Motion to
Dismiss on the ground of failure to state a cause of action.
In the same way, the appellate court did not err in denying petitioner’s Motion to
Dismiss Civil Case No. MC99-605 on the ground of improper venue. In arriving at
such conclusion, this Court quotes with approval the following ratiocination of the
RTC:
As for the contention that venue was improperly laid, x x x, the [trial court] in its
ultimate desire that the ends of justice could be served in its fullest, cannot rule that
venue was improperly laid.
xxxx
The stipulation as to the venue of a prospective action does not preclude the filing of
the suit in the residence of the [respondent] under Section 2, Rule 4, Rules of Court,
especially where the venue stipulation was imposed by the [petitioner] for its own
benefits.48 (Emphasis supplied.)
Despite the venue stipulation found in the Distribution Agreement stipulating that the
exclusive jurisdiction over disputes arising from the same shall lie in the courts of
Singapore or of the Territory (referring to the Philippines), whichever is elected by
PEIA (or petitioner, as PEIA’s alleged successor), the RTC of the Philippines cannot
be considered as an improper venue. Truly, the venue stipulation used the word
"exclusive," however, a closer look on the Distribution Agreement would reveal that
the venue stipulation was really in the alternative i.e., courts of Singapore or of the
Territory, meaning, the Philippines; thus, the court a quo is not an improper venue
for the present case.
Nonetheless, it bears to emphasize that despite our findings that based on the
allegations in respondent’s Complaint in Civil Case No. MC99-605, respondent
appears to have a cause of action against the petitioner and that the RTC is the
proper venue for the said case, Civil Case No. MC99-605 is still dismissible, for the
RTC never acquired jurisdiction over the person of the petitioner. The extraterritorial
service of summons upon the petitioner produces no effect because it can only be
done if the action is in rem or quasi in rem. The case for collection of sum of money
and damages filed by the respondent against the petitioner being an action in
personam, then personal service of summons upon the petitioner within the
Philippines is essential for the RTC to validly acquire jurisdiction over the person of
the petitioner. Having failed to do so, the RTC can never subject petitioner to its
jurisdiction. The mere allegation made by the respondent that the petitioner had
shares of stock within the Philippines was not enough to convert the action from one
in personam to one that was quasi in rem, for petitioner’s purported personal
property was never attached; thus, the extraterritorial service of summons upon the
petitioner remains invalid. In light of the foregoing findings, this Court concludes that
the RTC has no power to hear and decide the case against the petitioner, because
the extraterritorial service of summons was not validly effected upon the petitioner
and the RTC never acquired jurisdiction over its person.
Finally, as regards the petitioner’s counterclaim, which is purely for damages and
attorney’s fees by reason of the unfounded suit filed by the respondent against it, it
20
has long been settled that the same truly falls under the classification of compulsory
counterclaim and it must be pleaded in the same action, otherwise, it is barred.49 In
the case at bar, this Court orders the dismissal of the Complaint filed by the
respondent against the petitioner because the court a quo failed to acquire
jurisdiction over the person of the latter. Since the Complaint of the respondent was
dismissed, what will happen then to the counterclaim of the petitioner? Does the
dismissal of the complaint carry with it the dismissal of the counterclaim?
In the cases of Metal Engineering Resources Corp. v. Court of
Appeals,50 International Container Terminal Services, Inc. v. Court of Appeals,51 and
BA Finance Corporation v. Co.,52 the Court ruled that if the court does not have
jurisdiction to entertain the main action of the case and dismisses the same, then the
compulsory counterclaim, being ancillary to the principal controversy, must likewise
be dismissed since no jurisdiction remained for any grant of relief under the
counterclaim.53 If we follow the aforesaid pronouncement of the Court in the cases
mentioned above, the counterclaim of the herein petitioner being compulsory in
nature must also be dismissed together with the Complaint. However, in the case of
Pinga vs. Heirs of German Santiago,54 the Court explicitly expressed that:
Similarly, Justice Feria notes that "the present rule reaffirms the right of the
defendant to move for the dismissal of the complaint and to prosecute his
counterclaim, as stated in the separate opinion [of Justice Regalado in BA Finance].
Retired Court of Appeals Justice Hererra pronounces that the amendment to Section
3, Rule 17 [of the 1997 Revised Rules of Civil Procedure] settles that "nagging
question "whether the dismissal of the complaint carries with it the dismissal of the
counterclaim, and opines that by reason of the amendments, the rulings in Metals
Engineering, International Container, and BA Finance "may be deemed abandoned."
x x x.
x x x, when the Court promulgated the 1997 Rules of Civil Procedure, including the
amended Rule 17, those previous jural doctrines that were inconsistent with the new
rules incorporated in the 1997 Rules of Civil Procedure were implicitly abandoned
insofar as incidents arising after the effectivity of the new procedural rules on 1 July
1997. BA Finance, or even the doctrine that a counterclaim may be necessarily
dismissed along with the complaint, clearly conflicts with the 1997 Rules of Civil
Procedure. The abandonment of BA Finance as doctrine extends as far back as 1997,
when the Court adopted the new Rules of Civil Procedure. If, since then,
abandonment has not been affirmed in jurisprudence, it is only because no proper
case has arisen that would warrant express confirmation of the new rule. That
opportunity is here and now, and we thus rule that the dismissal of a complaint due
to fault of the plaintiff is without prejudice to the right of the defendant to
prosecute any pending counterclaims of whatever naturein the same or separate
action. We confirm that BA Finance and all previous rulings of the Court that are
inconsistent with this present holding are now abandoned.55 [Emphasis supplied].
It is true that the aforesaid declaration of the Court refers to instances covered by
Section 3, Rule 17 of the 1997 Revised Rules of Civil Procedure56 on dismissal of the
complaint due to the fault of the plaintiff. Nonetheless, it does not also preclude the
application of the same to the instant case just because the dismissal of respondent’s
Complaint was upon the instance of the petitioner who correctly argued lack of
jurisdiction over its person.
Also in the case of Pinga v. Heirs of German Santiago, the Court discussed the
situation wherein the very filing of the complaint by the plaintiff against the
defendant caused the violation of the latter’s rights. As to whether the dismissal of
such a complaint should also include the dismissal of the counterclaim, the Court
acknowledged that said matter is still debatable, viz:
Whatever the nature of the counterclaim, it bears the same integral characteristics
as a complaint; namely a cause (or causes) of action constituting an act or omission
by which a party violates the right of another. The main difference lies in that the
cause of action in the counterclaim is maintained by the defendant against the
plaintiff, while the converse holds true with the complaint. Yet, as with a complaint, a
counterclaim without a cause of action cannot survive.
x x x if the dismissal of the complaint somehow eliminates the cause(s) of the
counterclaim, then the counterclaim cannot survive. Yet that hardly is the case,
especially as a general rule. More often than not, the allegations that form the
counterclaim are rooted in an act or omission of the plaintiff other than the plaintiff’s
very act of filing the complaint. Moreover, such acts or omissions imputed to the
plaintiff are often claimed to have occurred prior to the filing of the complaint itself.
The only apparent exception to this circumstance is if it is alleged in the counterclaim
that the very act of the plaintiff in filing the complaint precisely causes the violation
of the defendant’s rights. Yet even in such an instance, it remains debatable whether
the dismissal or withdrawal of the complaint is sufficient to obviate the pending
cause of action maintained by the defendant against the plaintiff.571awphi1
Based on the aforequoted ruling of the Court, if the dismissal of the complaint
somehow eliminates the cause of the counterclaim, then the counterclaim cannot
survive. Conversely, if the counterclaim itself states sufficient cause of action then it
should stand independently of and survive the dismissal of the complaint. Now,
having been directly confronted with the problem of whether the compulsory
counterclaim by reason of the unfounded suit may prosper even if the main
complaint had been dismissed, we rule in the affirmative.
It bears to emphasize that petitioner’s counterclaim against respondent is for
damages and attorney’s fees arising from the unfounded suit. While respondent’s
Complaint against petitioner is already dismissed, petitioner may have very well
already incurred damages and litigation expenses such as attorney’s fees since it was
forced to engage legal representation in the Philippines to protect its rights and to
assert lack of jurisdiction of the courts over its person by virtue of the improper
service of summons upon it. Hence, the cause of action of petitioner’s counterclaim is
not eliminated by the mere dismissal of respondent’s complaint.
It may also do well to remember that it is this Court which mandated that claims for
damages and attorney’s fees based on unfounded suit constitute compulsory
counterclaim which must be pleaded in the same action or, otherwise, it shall be
21
barred. It will then be iniquitous and the height of injustice to require the petitioner
to make the counterclaim in the present action, under threat of losing his right to
claim the same ever again in any other court, yet make his right totally dependent
on the fate of the respondent’s complaint.
If indeed the Court dismisses petitioner’s counterclaim solely on the basis of the
dismissal of respondent’s Complaint, then what remedy is left for the petitioner? It
can be said that he can still file a separate action to recover the damages and
attorney’s fees based on the unfounded suit for he cannot be barred from doing so
since he did file the compulsory counterclaim in the present action, only that it was
dismissed when respondent’s Complaint was dismissed. However, this reasoning is
highly flawed and irrational considering that petitioner, already burdened by the
damages and attorney’s fees it may have incurred in the present case, must again
incur more damages and attorney’s fees in pursuing a separate action, when, in the
first place, it should not have been involved in any case at all.
Since petitioner’s counterclaim is compulsory in nature and its cause of action
survives that of the dismissal of respondent’s complaint, then it should be resolved
based on its own merits and evidentiary support.
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The
Decision of the Court of Appeals, dated 4 April 2006, in CA-G.R. SP No. 78981,
affirming the Orders, dated 4 November 2002 and 20 June 2003, of the Regional
Trial Court of Mandaluyong City, Branch 212, in Civil Case No. MC99-605, is hereby
REVERSED AND SET ASIDE. Respondent’s Amended Complaint in Civil Case No.
MC99-605 as against the petitioner is hereby ordered DISMISSED, and all the
proceedings against petitioner in the court a quo by virtue thereof are hereby
DECLARED NULL AND VOID. The Regional Trial Court of Mandaluyong City, Branch
212, is DIRECTED to proceed without further delay with the resolution of
respondent’s Complaint in Civil Case No. MC99-605 as to defendant PEIP, as well as
petitioner’s counterclaim. No costs.
SO ORDERED.
G.R. No. 185590 December 3, 2014
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION and SPOUSES
MANUEL LEY and JANET LEY,Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks the
reversal of the Court of Appeals' Decision1 dated September 4, 2008 in CA-G.R. CV
No. 75590 dismissing the appeal of petitioner Metropolitan Bank and Trust Company
assailing the dismissal of its complaint by the Regional Trial Court (RTC) of Makati
City, Branch 56, and the Resolution2 dated December 5, 2008 denying the Bank's
motion for reconsideration.
The Court of Appeals adopted the following recital of facts in the Decision3 dated July
3, 2001 of the RTC in Civil Case No. 91-1878:
This is an action for recovery of a sum of money and damages with a prayer for the
issuance of writ of preliminary attachment filed by the plaintiff Philippine Banking
Corporation4 against the defendants, namely: Ley Construction and Development
Corporation (hereafter "LCDC") and Spouses Manuel and Janet C. Ley (hereafter
"[defendant]-spouses").
The complaint alleges that: Defendant LCDC, a general contracting firm, through the
oral representations of defendant-spouses, applied with plaintiff, a commercial bank,
for the opening of a Letter of Credit. Plaintiff issued, on April 26, 1990, Letter of
Credit DC 90[-]303-C in favor of the supplier-beneficiary Global Enterprises Limited,
in the amount of Eight Hundred Two Thousand Five Hundred U.S. Dollars (USD
802,500.00). The letter of credit covered the importation by defendant LCDC of
Fifteen Thousand (15,000) metric tons of Iraqi cement from Iraq. Defendant applied
for and filed with plaintiff two (2) Applications for Amendment of Letter of Credit on
May 3, 1990 and May 11, 1990, respectively.
Thereafter, the supplier-beneficiary Global Enterprises, Inc. negotiated its Letter of
Credit with the negotiating bank Credit Suisse of Zurich, Switzerland. Credit Suisse
then sent a reimbursement claim by telex to American Express Bank Ltd., New York
on July 25, 1990 for the amount of Seven Hundred Sixty[-]Six Thousand Seven
Hundred Eight U.S. Dollars (USD 766,708.00) with a certification that all terms and
conditions of the credit were complied with. Accordingly, on July 30, 1990, American
Express Bank debited plaintiff’s account Seven Hundred Seventy Thousand Six
Hundred Ninety[-]One U.S. Dollars and Thirty Cents (USD 770,691.30) and credited
Credit Suisse Zurich Account with American Express Bank, Ltd., New Yorkfor the
negotiation of Letter of Credit. On August 6, 1990, plaintiff received from Credit
Suisse the necessary shipping documents pertaining to Letter of Credit DC 90-303-C
that were in turn delivered to the defendant. Upon receipt of the aforesaid
documents, defendants executed a trust receipt. However, the cement that was to
be imported through the opening of the subject Letter of Credit never arrived in the
Philippines.
The prompt payment of the obligation of the defendant LCDC was guaranteed by
[defendant]-spouses under the Continuing Surety Agreement executed by the latter
in favor of the defendant. The obligation covered by the subject Letter of Credit in
the amount of USD 802,500.00 has long been overdue and unpaid, notwithstanding
repeated demands for payment thereof. Plaintiff, therefore, instituted the instant
complaint for recovery of the following amounts: Twenty[-]Three [M]illion Two
Hundred [F]ifty[-]Nine Thousand One Hundred Twenty[-]Four Pesos and Fourteen
Centavos (PH₱23,259,124.14) as of June 15, 1991, inclusive of interestand penalty,
plus additional interest thereon of Thirty percent (30%) per annum; attorney’s fees
equivalent to Twenty[-]Five percent [25%] of the total obligation; and costs of suit.
In support of its cause of action against defendant, plaintiff presented the testimony
of Mr. Fenelito Cabrera, Head of the Foreign Department of plaintiff’s Head Office.
(T.S.N. dated June 16, 1995, p. 4) There being no other witness to be presented by
the plaintiff (Order dated June 27, 1997), the plaintiff filed its formal offer of exhibits
dated July 18, 1997 to which defendant filed its comments/objections to formal offer
of evidence dated February 23, 1998. In an order dated March 4, 1998, Exhibits "A"
to "N" to "N-4" including [their] sub-markings were admitted for the purposes they
were respectively offered. However, on defendants’ motion for reconsideration dated
[March 30,] 1998 that was duly opposed by the plaintiff in itsopposition dated June
3, 1998, this Court partially granted defendants’ motion for reconsideration.
Consequently, Exhibits "D", "E", "H","I", "J", "K", "L", and "M" and their sub-
markings were not admitted for not being properly identified and authenticated by a
competent witness. Only Exhibits "A", "B", "C", "C-1", and "N", "N-1" to "N-4" remain
admitted in evidence. (Order dated September 9, 1998) Defendant filed a motion to
dismiss by way of demurrer to evidence on the ground that plaintiff’s witness Mr.
Fenelito Cabrera was incompetent to testify with respect tothe transaction between
the plaintiff and the defendant and that the plaintiff’s documentary exhibits were not
properly identified and authenticated.5
The trial court found that the Bank’s only witness, Fenelito Cabrera, was incompetent
to testify on the documents presented by the Bank during the trial. Cabrera was with
the Bank’s Dasmariñas Branch and not with the Head Office from March 1990 to June
1991, the period the transaction covered by the documents took place. Thus, he
could not have properly identified and authenticated the Bank’s documentary
exhibits. His lack of competence was even admitted by the Bank’s counsel who did
not even ask Cabrera to identify the documents. Asthe documents were not
identified and duly authenticated, the Bank’s evidence was not preponderant enough
to establish its right to recover from LCDC and the spouses Ley.6
The trial court further ruled that only the following documents remained admitted in
evidence:
Exhibit Document
"A" Continuing Surety Agreement dated July 25, 1989
"B" Application and Agreement for Commercial Letter of Credit
"C" and "C-1" Letter of Credit No. DC 90-303-C
"N" and "N-1" to "N-4" Statement of Outstanding Obligations
For the trial court, these were insufficient to show that LCDC and the spouses Ley
were responsible for the improper negotiation of the letter of credit. Thus, the trial
court concluded in its Decision dated July 3, 2001 that the Bank failed to establish its
22
 cause ofaction and to make a sufficient or preponderant case.7 The dispositive
portion of the decision reads:
WHEREFORE, the demurrer to evidence is granted. The case is dismissed.8 The Bank
appealed to the Court of Appeals. It claimed that the trial court erred in granting the
demurrer toevidence of LCDC and the spouses Ley on the ground that the Bank
failed to establish its cause of action. The Bank insisted that, even without
considering the exhibits excluded in evidence by the trial court, the Bank was able to
prove by preponderant evidence that it had a right and that right was violated by
LCDC and the spouses Ley. It explained that the trial court was wrong in considering
only Exhibits "A," "B," "C," "C-1," "N" and "N-1" to "N-4" as the following documents
were also admitted in evidence and should have been considered in the resolution of
the demurrer to evidence.9
Exhibit Document
"F" Register Copy or Memorandum on the Letter of Credit
"G" Trust Receipt No. TRI432/90 dated August 16, 1990
"G-1" Bank Draft
"G-2" Bill of Exchange
The Bank asserted that the consideration of Exhibits "F," "G" and "G-1" to "G-2"
would have established the following:
(a) On August 16, 1990, LCDC and the spouses Ley received from the Bank
the necessary shipping documents relative to the Letter of Credit evidencing
title to the goods subject matter of the importation which the Bank had
previously received from Credit Suisse;
(b) Upon receipt of the shipping documents, LCDC and the spouses Ley
executed a trust receipt, Trust Receipt No. TRI432/90, in favor of the Bank
covering the importation of cement under Letter of Credit No. DC 90-303-C;
(c) The issuance of the trust receipt was an acknowledgement by LCDC and
the spouses Ley of their receipt of the shipping documents and of their
liability to the Bank;
(d) By signing the trust receipt, constituted an admission by LCDC and the
spouses Ley that the Letter of Credit was in order, including the Bank’s
payment of the amountof US$766,708.00 under the Letter of Credit.10
"N" and "N-1" to "N-4"
Thus, even with only the testimony ofCabrera and Exhibits "A," "B," "C," "C-1," "N"
and "N-1" to "N-4" and "F," "G" and "G-1" to "G-2," the demurrer should have been
denied and LCDC and the spouses Ley held liable to the Bank.
23
Moreover, the Bank contended that its Exhibits "D," "E," "H," and "I" should have
been also admitted in evidence because LCDC and the spouses Ley effectively
admitted the authenticity of the said documents when they stated in the pre-trial
brief which they submitted during the pretrial of the case atthe trial court:
III. DOCUMENTARY EXHIBITS
Defendants shall adopt the documents submitted by plaintiff and marked as Annexes
"A", "B", "C", "D","E", "E-1", "F", "G", "G-1", "H" and "H-1" in the plaintiff’s
complaint.
Defendants reserve the right tomark or adopt such other documentary evidence as
may be discovered or warranted to support its claim in the course of the trial. x x
x.11
The Court of Appeals found no merit in the Bank’s appeal. It observed that Cabrera,
the Bank’s onlywitness, prepared and properly identified Exhibits "F," "G," "N" and
"N-1" to "N-4" only. The Bank’s counsel even admitted in open court during
Cabrera’s direct examination that Cabrera was incompetent to testify onthe rest of
the Exhibits. The trial court was therefore correct in not giving any evidentiary
weight to those Exhibits not properly identified by Cabrera.12
For the Court of Appeals, the statement in the pre-trial brief that LCDC and the
spouses Ley "shall adopt" Annexes "A," "B," "C," "D," "E," "E-1," "F," "G," "G-1," "H"
and "H-1" of the Bank’s complaint did not constitute an admission of the said
documents by LCDC and the spouses Ley. However, the appellate court noted that
LCDC and the spouses Ley admitted the existence and authenticity of the Bank’s
Exhibits "A," "B," "C," "C-1," and "G."13
Nevertheless, the Court of Appeals ruled that the following Exhibits of the Bank were
admitted in evidence:
Exhibit Document
"A" Continuing Surety Agreement dated July 25, 1989
"B" Application and Agreement for Commercial Letter of Credit
"C" and "C-1" Letter of Credit No. DC 90-303-C
"F" Register Copy or Memorandum on the Letter of Credit
"G" Trust Receipt No. TRI432/90 dated August 16, 1990
Statement of Outstanding Obligations
Even upon inclusion and consideration of the above-mentioned exhibits, the Court of
Appeals held that the Bank still failed to show that LCDC and the spouses Ley were
directly responsible for the improper negotiation of the letter of credit. Thus, the
Court of Appeals, in its Decision dated September 4, 2008, dismissed the appeal and
affirmed the decision of the trial court.14 The dispositive portion of the Decision of the
Court of Appeals reads:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the
assailed decision of the RTC, National Capital Judicial Region, Branch 56, Makati City
in Civil Case No. 91-1878 is AFFIRMED.15
The Court of Appeals denied the Bank’s motion for reconsideration, prompting the
Bank to file this petition.
The Bank insists that it has been ableto establish its cause of action not only through
preponderance of evidence but even by the admissions of LCDC and the spouses Ley.
It maintains that its cause of action is not predicated on the improper negotiation of
the letter of credit but on the breach of the terms and conditions of the trust
receipt.16
The petition fails.
First, the Bank’s petition suffers from a fatal infirmity. In particular, it contravenes
the elementary rule of appellate procedure that an appeal to this Court by petition
for review on certiorari under Rule 45 of the Rules of Court "shall raise only
questions of law."17 The rule is based on the nature of this Court’s appellate function
– this Court is not a trier of facts18 – and on the evidentiary weight given to the
findings of fact of the trial court which have been affirmed on appeal by the Court of
Appeals – they are conclusive on this Court.19 While there are recognized exceptions
to the rule,20 this Court sees no reason to apply the exception and not the rule in this
case.
The conceptual distinction between a question of law and a question of fact is well-
settled in case law:
There is a "question of law" when the doubt or difference arises as to what the law is
on a certain state of facts, and which does not call for an examination of the
probative value of the evidence presented by the parties-litigants. On the other
hand, there is a "question of fact" when the doubt or controversy arises as to the
truth or falsity of the alleged facts. x x x.21
The issue of whether or not the Bank was able to establish its cause of action by
preponderant evidence is essentially a question of fact. Stated in another way, the
issue which the Bank raises in this petition is whether the evidence it presented
during the trial was preponderant enough to hold LCDC and the spouses Ley liable.
The required burden of proof, or that amount of evidence necessary and sufficient to
establish one’s claim or defense, in civil cases is preponderance of
evidence.22 Preponderance of evidence is defined as follows:
24
Preponderance of evidence is the weight, credit, and value of the aggregate evidence
on either side and is usually considered to be synonymous with the term "greater
weight of evidence" or "greater weight of the credible evidence." Preponderance of
evidence is a phrase which, in the last analysis, means probability to truth. It is
evidence which is more convincing to the court as worthier of belief than that which
is offered in opposition thereto.23(Emphasis supplied, citation omitted.)
As preponderance of evidence refers to the probability to truth of the matters
intended to be proven as facts, it concerns a determination of the truth or falsity of
the alleged facts based on the evidence presented. Thus, a review of the respective
findings of the trial and the appellate courts as to the preponderance of a party’s
evidence requires that the reviewing court address a question of fact.
Moreover, a demurrer to evidence is a motion to dismiss on the ground of
insufficiency of evidence. Evidence is the means, sanctioned by the Rules of Court, of
ascertaining in a judicial proceeding the truth respecting a matter of fact.24 As such,
the question of sufficiency or insufficiency of evidence, the basic issue presented by
the Bank, pertains to the question of whether the factual matters alleged by the
Bank are true. Plainly, it is a question of fact and, as such, not proper subject of a
petition for review on certiorari under Rule 45 of the Rules of Court. It was
incumbent upon the Bank to demonstrate that this case fell under any of the
exceptions to this rule but it failed to do so.
Second, the Bank attempts to avoid the "only questions of law" rule for appeals filed
under Rule 45 by invoking the misapprehension of facts exception.25 According to the
Bank, the trial and the appellate courts misapprehended the facts with respect tothe
determination of the basis of the Bank’s cause of action.26 In particular, the Bank
contends that both the trial and the appellate courts erred in the consideration of the
proper actionable document upon which the Bank based its cause of action. The
Bank asserts that its cause of action isnot grounded on the Letter of Credit but on
the Trust Receipt.
The Bank’s reference to the Trust Receipt as its "primary actionable document"27 is
mistaken and misleading.
The nature of the cause of action isdetermined by the facts alleged in the
complaint.28 A party’s cause of action is not what the party says it is, nor is it what
the designation of the complaint states, but what the allegations in the body define
and describe.29
In this case, the Bank’s allegations asto the basis of its cause of action against LCDC
and the spouses Ley, however, belie the Bank’s claim. In particular, the relevant
portion of the Bank’s Complaint30 reads:
1.2 The defendants:
 a. Ley Construction and Development Corporation (LCDC) is a
general contracting firm engaged in the construction of buildings,
infrastructures, and other civil works with principal office at
Mapulang Lupa St., Malinta, Valenzuela, Metro Manila where it [may
be] served with summons and other processes of this Court.
b. Sps. Manuel and Janet C. Ley, the major stockholders of
defendant (LCDC)with business address at 23rd Floor Pacific Star
Bldg., Makati Avenue, Makati, Metro Manila where the processes of
this Honorable Court [may be] served upon them are impleaded
herein in their capacity as Surety for the obligation incurred by
defendant LCDC with the herein plaintiff by virtue of a Continuing
Surety Agreement they executed in favor of the plaintiff, a copy of
which is hereto attached as Annex "A";
2. STATEMENT OF CAUSE OF ACTION AGAINST DEFENDANT LCDC AND SPOUSES
MANUEL AND JANET LEY
2.1 In conjunction with its business, defendant LCDC sought to
import "Iraqi Cement" from Iraq thru its supplier "Global
Enterprises, Limited" with address at 15 A. Tuckeys Lane, Gibraltar.
2.2 To finance this importation, defendant LCDC applied with the
plaintiff for the opening of Letter of Credit as evidenced by the
Application and Agreement for Commercial Letter of Credit, copy of
which is marked as Annex "B" and made integral part hereof.
2.3 Acting on defendant[’]s oral representation and those stated in
its application (Annex "B"), plaintiff issued on April 26, 1990 its
Letter of Credit No. DC 90[-]303-C in favor of the supplier Global
Enterprises Limited, as beneficiary in the amount of U.S. Dollars:
EIGHT HUNDRED TWO THOUSAND FIVE HUNDRED (US $802,500)
for the account of defendant, covering the importation of 15,000
metric tons of Iraqi Cement from Iraq, copy of the Letter of Credit is
marked as Annex "C" and made integral part hereof;
2.4 On May 3, 1990, defendant applied for and filed with plaintiff an
Application for Amendment of Letter of Credit, copy of which is
attached as Annex "D" hereof, and another application for
amendment was filed on May 11, 1990 copy of which is marked as
Annexes "E" and "E-1" hereof;
2.5 After these amendments were communicated to the negotiating
bank, Credit Suisse of Zurich, Switzerland, the beneficiary
negotiated its Letter of Credit therewith. Thereafter, Credit Suisse
sent a reimbursement claim by telex to American Express Bank Ltd.,
New York on July 25, 1990 for the amount of US$766,708.00 with a
25
Certification that all terms and conditions of the credit were
complied with;
2.6 Accordingly, on July 30, 1990, American Express Bank debited
plaintiff’s account US$770,691.30 and credited Credit Suisse Zurich
Account with American Express Bank Ltd., New York for the
negotiation of Letter of Credit;
2.7 On August 6, 1990, plaintiff received from Credit Suisse the
necessary shipping documents pertaining to Letter of Credit DC 90-
303-C all of which were in turn delivered and received by the
defendant on August 16, 1990 as evidenced by their
acknowledgment appearing on the plaintiff’s register copy, a copy of
which is hereto attached as Annex "F";
2.8 Upon defendant’s receipt of the shipping documents and other
documents of title to the imported goods, defendant signed a trust
receipt manifesting its acceptance/conformity that the negotiation of
the LC is in order. A copy of the TR and the draft issued by the
defendant as a means of paying its LC obligation to the plaintiff are
hereto attached and marked as Annexes "G" and "G-1" hereof;
2.9 Sometime during the 3rd week of August, defendant LCDC
informed the plaintiff that the expected shipment of cement subject
matter of the LC was allegedly held up in Iraq purportedly on
account of the trade embargo imposed against it by the United
Nation[s] and sought assistance from the plaintiff to secure no-
dollar import permit from the Central Bank as defendant was
negotiating with its supplier Global Enterprises Limited, Inc. for an
alternate shipment of Syrian Cement.
2.10 Plaintiff acceded to the request of the defendant and
conformably secured the requested approval from Central Bank to
allow the defendant to import cement on a no-dollar basis, a copy of
the defendant’s request as well as the Central Bank approval are
hereto attached as Annexes "H" and "H-1".
2.11 About two months after the plaintiff has obtained the
requested Central Bank approval (Annex "H-1")[,] plaintiff was
again advised by the defendant that the alternate shipment of
Syrian Cement is no longer forthcoming and that defendant LCDC
after a series of negotiation with its supplier has agreed with the
latter for a reimbursement of the value of the negotiated Letter of
Credit.
2.12 While defendant was negotiating with its supplier for that
replacement of Syrian cement, defendant advised plaintiff not to
 initiate any move as it might jeopardize defendant’s negotiation with
its supplier.
2.13 In December 1990, four (4) months from defendant’s receipt
of the shipping and export documents from plaintiff, as it became
perceptible that defendant’s negotiation with its supplier for
reimbursement or replacement would fail[,] defendant for the first
time asked for copies of the beneficiary’s draft, the Charter Party
Agreement even as it contested the validity of defendant’s obligation
to plaintiff.
2.14 For the first time, defendant also began to assail the validity of
the payment made by the plaintiff to the supplier (Global
Enterprises Ltd.) through Credit Suisse, with the intention of
avoiding the payment of its lawful obligation to reimburse the
plaintiff the amount of US $802,500 which obligation is now long
overdue and unpaid notwithstanding repeated demands.
2.15 The obligation covered by the aforesaid Letter of Credit bears
interest and charges at the rateof 30% per annum which rate [may
be] increased or decreased within the limits allowed by the law.
2.16 The prompt payment of the obligations contracted by
defendant LCDC from the plaintiff inclusive of the subject Letter of
Creditis guaranteed by defendant Sps.Manuel and Janet Ley by
making themselves jointly and severally liable with the defendant
LCDC in accordance with the terms of a Continuing Surety
Agreement which they executed in favor of the plaintiff (Annex
"A").31 (Emphases supplied.)
That the Bank’s cause of action was hinged on the Letter of Credit is unmistakable.
Taken as a whole, the Bank’s allegations make a cause of action based on the Letter
of Credit. The Trust Receipt was mentioned incidentally and appears only in
paragraph 2.8 of the Complaint.32 In stark contrast, the Letter of Credit figures
prominently in the Complaint as it is mentioned in almost all of the paragraphs of
Part 2 (Statement of Cause of Action Against Defendant LCDC and Spouses Manuel
and Janet Ley). More tellingly, in paragraph 2.15, the Bank speaks of "the obligation
covered by the aforesaid Letter of Credit."33
Moreover, under paragraphs1.2(b) and 2.16 of the Complaint, the spouses Ley have
been impleaded as co-defendants of LCDC on account of their execution of a
Continuing Surety Agreement in the Bank’s favor to guarantee the "prompt payment
of the obligations contracted by defendant LCDC from the plaintiff inclusive of the
subject Letter of Credit."34 In short, the Bank seeks to hold liable (1) LCDC for its
obligations under the Letter of Credit, and (2) the spouses Ley for their obligations
under the Continuing Surety Agreement which stands as security for the Letter of
Credit and not for the Trust Receipt.
26
Another significant factor that contradicts the Bank’s assertion that its "primary
actionable document" is the Trust Receipt is the manner it pleaded the Letter of
Credit and the Trust Receipt, respectively.
The relevant rule on actionable documents is Section 7, Rule 8 of the Rules of Court
which provides:
Section 7. Action or defense based on document. – Whenever an action or defense is
based upon a written instrument or document, the substance of such instrument or
document shall be set forth in the pleading, and the original or a copy thereof shall
be attached to the pleading as an exhibit, which shall be deemed to be a part of the
pleading, or said copy may with like effect be set forth in the pleading.
An "actionable document" is a written instrument or document on which an action or
defense is founded. It may be pleaded in either of two ways:
(1) by setting forth the substance ofsuch document in the pleading and
attaching the document thereto as an annex, or
(2) by setting forth said document verbatim in the pleading.35
A look at the allegations in the Complaint quoted abovewill show that the Bank did
not set forth the contents of the Trust Receipt verbatim in the pleading. The Bank did
not also set forth the substance of the Trust Receipt in the Complaint but simply
attached a copy thereof as an annex. Rather than setting forth the substance of the
Trust Receipt, paragraph 2.8 of the Complaint shows that the Bank simply described
the Trust Receipt as LCDC’s manifestation of "its acceptance/conformity that the
negotiation of the [Letter of Credit] is in order."36
In contrast, while the Bank did not set forth the contents of the Letter of Credit
verbatim in the Complaint, the Bank set forth the substance of the Letter of Credit in
paragraph 2.3 of the Complaint and attached a copy thereof as Annex "C" of the
Complaint.1awp++i1 The Bank stated that it "issued on April 26, 1990 its Letter of
Credit No. DC 90[-]303-C in favor of the supplier Global Enterprises Limited, as
beneficiary[,] in the amount of U.S. Dollars: EIGHT HUNDRED TWO THOUSAND FIVE
HUNDRED (US$802,500.00) for the account of defendant [LCDC], covering the
importation of 15,000 metric tonsof Iraqi Cement from Iraq."37
Thus, the Bank’s attempt to cling to the Trust Receipt as its so-called "primary
actionable document" is negated by the manner of its allegations in the Complaint.
Thus, too, the trial and the appellate courts did not misapprehend the facts when
they considered the Letter of Credit as the basis of the Bank’s cause of action.
Third, a look at the Letter of Credit, the actionable document on which the Bank
relied in its case against LCDC and the spouses Ley, confirms the identical findings of
the Regional Trial Court and the Court of Appeals.
In Keng Hua Paper Products Co., Inc. v. Court of Appeals, we held38:
In a letter of credit, there are three distinct and independent contracts: (1) the
contract of sale between the buyer and the seller, (2) the contract of the buyer with
the issuing bank, and (3) the letter of credit proper in which the bank promises to
pay the seller pursuant to the terms and conditions stated therein. x x x.
Here, what is involved is the second contract – the contract of LCDC, as the buyer of
Iraqi cement, with the Bank, as the issuer of the Letter of Credit. The Bank refers to
that contract in the Petition for Review on Certiorari and the Memorandum filed by
the Bank in this case when the Bank argues that, as LCDC and the spouses Ley have
admitted the issuance of the Letter of Credit in their favor, they are "deemed to have
likewise admitted the terms and conditions thereof, as evidenced by the stipulation
therein appearing above the signature of respondent Janet Ley,"39 viz:
"In consideration of your arranging, at my/o[u]r request[,] for the establishment of
this commercial letter of credit (thereinafter referred to as the ["]Credit["])
substantially in accordance with the foregoing, I/we hereby covenant and agree to
eachand all of [the] provisions and conditions stipulated on the reverse side
hereof."40
(3) an act or omission by such defendant in violation of the right of the
plaintiff with a resulting injury or damage to the plaintiff for which the latter
may maintain an action for the recovery of relief from the defendant.45
Although the first two elements may exist, a cause of action arises only upon the
occurrence of the last element, giving the plaintiff the right to maintain an action in
court for recovery of damages or other appropriate relief.46 In this case, however,
even the legal rights of the Bank and the correlative legal duty of LCDC have not
been sufficiently established by the Bank in view of the failure of the Bank's evidence
to show the provisions and conditions that govern its legal relationship with LCDC,
particularly the absence of the provisions and conditions supposedly printed at the
back of the Application and Agreement for Commercial Letter of Credit. Even
assuming arguendo that there was no impropriety in the negotiation of the Letter of
Credit and the Bank's cause of action was simply for the collection of what it paid
under said Letter of Credit, the Bank did not discharge its burden to prove every
element of its cause of action against LCDC.
This failure of the Bank to present preponderant evidence that will establish the
liability of LCDC under the Letter of Credit necessarily benefits the spouses Ley
whose liability is supposed to be based on a Continuing Surety Agreement
guaranteeing the liability of LCDC under the Letter of Credit.

The above stipulation actually appears on the Application and Agreement for
Commercial Letter of Credit, the Bank’s Exhibit "B." It is the contract which contains The Court therefore finds no reason to disturb the rulings of the courts a quo as the
the provisions and conditions governing the legal relationship of the Bank and LCDC, petition put forward insufficient basis to warrant their reversal.
particularly their respective rights and obligations, in connection with the Bank’s
issuance of Letter of Credit No. DC 90-303-C. The importance of the provisions and WHEREFORE, the petition is hereby DENIED.
conditions supposed to be stipulated on the reverse side of the Application and
Agreement for Commercial Letter of Credit is underscored by the following note SO ORDERED.
appearing below the space for the signature of Janet Ley:

IMPORTANT: PLEASE READ PROVISIONS AND CONDITIONS ON REVERSE SIDE

HEREOF BEFORE SIGNING ABOVE.41

However, the Bank’s Exhibit "B" has nothing on its reverse side. In other words, the
reverse side of the Application and Agreement for Commercial Letter of Credit is a
blank page.42 Even the copy of the Application and Agreement for Commercial Letter
of Credit attached to the Bank’s Complaint also has nothing on its back page.43

A cause of action – the act or omission by which a party violates the right of
another44 – has three essential elements:

(1) the existence of a legal right in favor of the plaintiff;

(2) a correlative legal duty of the defendant to respect such right; and

27