PARTIES CASES ~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~ Filipinas Industrial Corp., et al. vs. Hon. San Diego, et al.

May 27, 1968 [GRN L-22347 May 27, 1968] FILIPINAS INDUSTRIAL CORPORATION, RUBEN & CO., INC., and HONORIO ALLADO, petitioners, vs. HON. LOURDES P. SAN DIEGO, Presiding Judge, Branch IX, Court of First Instance of Rizal and PASTOR AGO, respondents. 1. PLEADING AND PRACTICE; ACTIONS; PROSECUTION OF CIVIL ACTIONS; REAL PARTY IN INTEREST.- Every action must be prosecuted in the name of' the real party in interest. This provision is mandatory. The real party in interest is the party who would be benefited or injured by the judgment, or is the party entitled to the avails of the suit. This Court has held in various cases that an attorney-in- fact is not a real party in interest, that there is no law permitting an action to be brought by an attorney-in-fact, and hence an action brought by him cannot be maintained. 2. ID.; ID.; ID.; ID.; DENIAL OF MOTION TO DISMISS ON THE GROUND THAT CIVIL ACTION IS BROUGHT IN THE NAME OF ATTORNEY-INFACT CORRECTIBLE BY CERTIORARI.- Where the trial Court denied the motion to dismiss the complaint on the ground that the action is brought in the name of the attorney-in-fact and not in the name of the real party in interest, said court acted with grave abuse of discretion. ORIGINAL ACTION in the Supreme Court. Certiorari with Preliminary Injunction. The facts are stated in the opinion of the Court. Carlos Dominguez, Jr. for petitioners. Jose M. Luison for respondents. ZALDIVAR, J.: A petition for certiorari with preliminary injunction seeking to enjoin respondent Judge Lourdes P. San Diego of the Court of First Instance of Rizal, Branch IX, from further proceeding in Civil Case No. Q-7228 in said court and to have the complaint therein dismissed. On May 3, 1963, herein respondent Pastor D. Ago filed a complaint with the Court of First Instance of Rizal for damages with preliminary attachment and injunction, entitled "Pastor D. Ago, in his capacity as attorney-in-fact of Francisco Laiz, Plaintiff, versus Filipinas Industrial Corporation, Ruben & Company, Incorporated, Honorio Allado, Arnaldo Borre, Forestry Officer in Charge in General Santos, Cotabato, and Emilio Ongoy, Customs Inspector on Board M/S Kocho Maru, Defendants", which was docketed as Civil Case No. Q-7228. The allegations of the complaint, relevant to the instant petition, are: that plaintiff Pastor D. Ago is a resident of 27 A. Roces Ave., Quezon City, and is the true and lawful attorney-in-fact of Francisco Laiz, with full power to sue and file complaint for the protection of the rights and interests of the latter by virtue of a special power of attorney duly executed by said Francisco Laiz in favor of plaintiff, a photostatic copy of which is annexed to the complaint as Annex A; that the defendant Filipinas Industrial Corporation has its principal office at General Santos, Cotabato; that defendant Ruben & Company, Incorporated has its principal office at General Santos, Cotabato; that defendant Honorio Allado is a resident of Davao City; that defendant Arnaldo Borre is a resident of General Santos, Cotabato; and defendant Emilio Ongoy is a resident of Davao City. In the copy of the power of attorney, Annex A to the complaint, it appears that Francisco Laiz is a resident of General Santos, Cotabato. On May 16, 1963, herein petitioners, - defendants in the court below - filed an urgent motion to dismiss the complaint upon the ground that the venue of the action was improperly laid, it appearing that the complaint involves a personal action and Pastor D. Ago filed the complaint merely as an attorney-in-fact of Francisco Laiz who is the real party in interest and who is a resident of Genereal Santos, Cotabato; and it appearing, further, that the residence of the parties defendants is either General Santos or Davao City, so that pursuant to Section 1 of Rule 5 of the (old) Rules of Court the action could be commenced only either in the Court of First Instance of the province of Cotabato or of Davao City, and not of Quezon City. On May 17, 1963, therein defendants filed a supplemental motion to dismiss the complaint, alleging the additional ground that the action is brought in the name of the real party in interest. Plaintiff Pastor D. Ago filed his opposition to the motion to dismiss, arguing that Section 1, Rule 5 of the Rules of Court speaks of "plaintiff" and not "party in interest" and since he was the plaintiff and residing in Quezon City, the complaint could be filed in Quezon City; that even if the word "plaintiff" in said section be held to mean "party in interest", he would be such inasmuch as he was not a mere attorney-in-fact but had full power and authority to file the complaint; that whatever defect there might be regarding venue, said defect had been waived because the defendants voluntarily appeared before the court when, through counsel, on May 13 and 15, 1963, during the hearing of the motion for preliminary injunction and motion to discharge attachment, they freely submitted to its jurisdiction by filing with the court the "Urgent Motion to Discharge Attachment" dated May 11, 1963, the "Motion to Dissolve Attachment" dated May 14, 1963, and the "Urgent Motion to Dismiss" dated May 17, 1963. Both the original motion to dismiss and the supplemental motion to dismiss were denied by respondent Judge Lourdes P. San Diego in her order of August 12, 1963. In her order respondent Judge stated that the law of agency concedes the possibility of an agent, when so expressly authorized, to sue for and in behalf of the principal in his own name, and all that the law requires is that the agent should allege that he is pursuing the action for and in behalf of his principal, so that plaintiff Pastor D. Ago being a duly authorized agent, whatever judgment might be rendered for or against him would surely be executed for or against Francisco Laiz himself. Respondent Judge further ruled that since the residence of Pastor Ago is in Quezon City he can file the suit in the Court of First Instance of the place where he resides. A motion for reconsideration of the order of August 12, 1963 having been denied, therein defendants - now petitioners - filed the instant petition, alleging that respondent Judge had acted whimsically and capriciously and with grave abuse of discretion, tantamount to having acted without jurisdiction, in completely and absolutely disregarding the applicable provisions of the law and the clear and unequivocal rule established by this Court that an agent, attorney-in-fact or authorized representative can not bring an action in his own name in behalf of a disclosed principal. Petitioners prayed for a writ of preliminary injunction enjoining respondent Judge from further proceeding in Civil Case No. Q-7228 pending decision of the instant petition, and, after hearing, to order respondent Judge to dismiss the complaint in said case. In a resolution of January 24, 1964, this Court ordered respondents to file their answer and, upon petitioners' posting the required bond, issued a writ of preliminary injunction enjoining respondent Judge from further proceeding in Civil Case No. Q-7228. The principal question to be decided in the present case may be formulated as follows: May an attorney-in-fact, when so authorized in the power of attorney, bring an action in his own name for a disclosed principal? This is a well settled question. Section 2 of Rule 3 of the old Rules of Court provides that "Every action must be prosecuted in the name of the real party in interest."1 This provision is mandatory. The real party in interest is the party who would be benefited or injured by the judgment or is the party entitled to the avails of the suit.2 This Court has held in various cases that an attorney-in-fact is not a real party in interest, that there is no law permitting an action to be brought by an attorney-in-fact, and hence an action brought by him cannot be maintained. In the case of "Jose M. Arroyo, as

attorney-in-fact of Ignacio Arroyo, plaintiff and appellee vs. Matias Granada and Celedonia Gentero, defendants and appellants,"3 the plaintiff Jose M. Arroyo was given full power of attorney by his father Ignacio Arroyo to transact his affairs. Jose Arroyo brought the action as "apoderado" of his father. In dismissing the complaint, this Court held: "In a sense this opinion on the merits is useless, for the reason that the person bringing the action has no interest whatever in the subject matter thereof and can have no interest whatever in any judgment rendered therein. The action is brought in the name of Jose M. Arroyo as apoderado of Ignacio Arroyo. There is no provision of law permitting an action to be brought in that manner. Jose M. Arroyo, as apoderado, has absolutely no interest in this litigation. He has absolutely no right to bring the defendant into court or put him to the expense of a litigation. The real and only party in interest is Ignacio Arroyo. Under articles 114 and 122 of the Code of Civil Procedure he should be plaintiff. He is not a party to this action and has in no way appeared or taken part herein. A judgment for or against Jose M. Arroyo personally or as apoderado in no way binds or affects Ignacio. As a necessary result a decision in this case is utterly futile. It does nothing. It touches no interest, settles no question, binds no party, quiets no litigation. Courts ought not to be required to spend their time solemnly considering and deciding cases where nobody can be bound and no interests affected as a result of such deliberation and decision." In the case of "Catalino Hilario, representing Andres Garcia, plaintiff and appellant vs. La Congregacion de San Vicente de Paul, Robert M. Loper, and Henry M. Jones, defendants and essences''4 this Court, in affirming the judgment sustaining the demurrer to the complaint, held: "This action can not be maintained even though no account be taken of whether or not the complaint states facts sufficient to constitute a cause of action in the sense presented by the demurrer. The action is brought, as will be observed from the title, by Catalino Hilario in representation of Andres Garcia. The complaint alleges: 'That Catalino Hilario, by virtue of a power of attorney executed in the City of Manila on the 31st day of January, 1911, has authority from Andres Garcia to represent him in the present action, and that he resides at No. 239 Calle Magdalena, Trozo, Manila, Philippine Islands.' "It is not contended that the real party in interest, Andres Garcia, is a party to this action, or that he has appeared or taken any part therein or that he has in any manner submitted himself to the jurisdiction of the court. A judgment rendered against the plaintiff might have no force or effect against Andres Garcia. We have several times held that an action brought in this manner cannot be maintained, and this court will, of its own motion, refuse to proceed with its consideration. (Lichauco vs. Limjuco, 19 Phil. Rep., 12.) The question of the power of plaintiff to bring the action is raised, at least indirectly, by the demurrer based upon the ground that the complaint does not state facts sufficient to constitute a cause of action. On its face the complaint shows that there is no cause of action in favor of the plaintiff, but, rather, that the cause of action, if any, exists solely in favor of Andres Garcia. Hilario has no interest in the controversy and stands as a naked representative of the person who does have the interest. The complaint, therefore, does not state facts sufficient to constitute a cause of action in favor of the present plaintiff." In the case of "C.E. Salmon and Pacific Commercial Company, petitioners vs. Chino Tan Cueco, Vicente Jocson, Judge of Thirteenth Judicial District, Antonio Babasa, provincial, sheriff of Batangas, and Gavino Singomoto, respondents"5 this Court reiterated the doctrine enunciated in two cases above-cited, when it said: "It appears from the record that on the 21st day of February, 1916, a complaint was duly filed in the Court of First Instance of the Thirteenth Judicial District in an action entitled Chino Tan Cueco vs. Antonio Babasa, sheriff of the Province of Batangas, Agapito E. Garcia, attorney-in-fact of the Pacific Commercial Company, and C.E. Salmon, defendants. The action went to a judgment in favor of the plaintiff and ,against defendants.... "As to the applicant the Pacific Commerical Company, there can be no question that the judgment obtained below is void. According to the record, not only was the Pacific Commercial Company not served with summons, but it was not even named in the process or pleadings as a party to the action. The title of the case shows that the company was not a party. The making of Agapito E. Garcia, attorney-in- fact of the Pacific Commercial Company, a party defendant does not make the company a party defendant. Section 114 of the Code of Civil Procedure requires an action to be brought in the name of the real party in interest; and a corollary proposition requires that an action shall be brought against the persons or entities which are to be bound by the judgment obtained therein. An action upon a cause of action pertaining to his principal cannot be brought by an attorney-in-fact in his name (Arroyo vs. Granada and Gentero, 18 Phil. Rep., 484); or can an action based upon a right of action belonging to a principal be brought in the name of his representative (Lichauco vs. Limjuco and Gonzalo, 19 Phil. Rep., 12). Actions must be brought by the real parties in interest and against the persons who are to be bound by the judgment obtained therein. As to the Pacific Commercial Company the judgment to which these proceedings refer, namely, that obtained in the case entitled Chino Tan Cueco vs. Antonio Babasa, sheriff of the Province of Batangas, Agapito E. Garcia, attorney-in-fact of the Pacific Commercial Company, and C.E. Salmon, is declared void and of no effect as against the said company, . . . ." (Italics supplied) Respondent Pastor Ago contends, and respondent Court upheld him in his contention, that he could file the complaint in the case at bar because he is specifically empowered by his principal, Fran Francisco Laiz, "to sue, file complaint, represent me in any government office and agency for the protection of my rights, interests and privileges as a timber licensee." This contention runs counter to the ruling of this Court in the case of "Ceferino Marcelo vs. Nazario de Leon."6 In this case Ceferino Marcelo, as "apoderado" of Severino P. Marcelo, filed the complaint in his name to recover the possession of a lot belonging to Severino P. Marcelo. Ceferino held a power of attorney in which Severino authorized him to "pursue any and all kinds of suits and actions for me and in my name in the courts of the land." This Court, however, citing the cases of "Arroyo vs. Granada" supra, and "Hilario vs. La Congregacion etc.", supra, held that the action of Ceferino Marcelo, as plaintiff, must fail. This Court said: "At any rate, this action must fail upon the second ground of defendant's motion to dismiss: the plaintiff is a mere apoderado of the owner, Severino P. Marcelo. The rule is that every action must be prosecuted in the name of the real party in interest. (Sec. 2, Rule 3)" It follows, from the ruling of this Court in the above-mentioned case of "Marcelo vs. De Leon," that even if the principal authorizes his agent to commence actions in court for and in behalf of the principal, such action must still be filed in the name of the principal who is the real party in interest, pursuant to Section 2, Rule 3 of the Rules of Court.7 From what has been stated in the foregoing, it is clear that respondent Pastor D. Ago has no right to bring the action in his own name in Civil Case No. Q-7228 in the Court of First Instance of Quezon City. The action commenced by respondent Pastor D. Ago cannot be maintained and cannot prosper, and it would be a waste of time to have the court proceed with the case, because the decision that would be rendered in that case would not bind the parties, in the case. We hold that respondent Judge acted with grave abuse of discretion when she denied herein petitioners' motion to dismiss the complaint in said case, upon the ground that the complaint was not brought in the name of the real party in interest. Having resolved the principal question raised in the present case, We deem it superfluous to consider the other questions raised by the parties. WHEREFORE, the writ of certiorari prayed for is granted. Respondent Judge, or any other Judge who presides Branch IX of the Court of First Instance of Quezon City, is enjoined from further proceeding with Civil Case No. Q-7228 in said court, and the complaint in said case is ordered dismissed. Costs against respondent Pastor D. Ago. IT IS SO ORDERED. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal Sanchez, Ruiz Castro and Angeles, JJ., concur.

Writ granted. 1. Also Sec. 2, Rule 3 of the new Rules of Court. 2. Subido v. City of Manila, et al., L- 14800, May 30, 1960; Salonga v. Warner Barnes & Co. Ltd., L-2246, January 31, 1951. 3. 18. Phil., 489-490. 4. 27 Phil., 593, 595-596. 5. 36 Phil., 556, 557-559. 6. G. R. No. L-12902, July 29, 1959. 7. The same section and rule in both the old and the new Rules of Court. ~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~ Aranico-Rabino vs. Aquino October 28, 1977. [GRN L-46641 October 28, 1977.*] FELIPA ARANICO-RABINO, MARCELO ARANICO and MELITON ARANICO, petitioners, vs. BON. NARCISO A. AQUINO, as Presiding Judge of the Court of First Instance of Pangasinan, Third Judicial District, Branch XIV, Rosales, Pangasinan, and VICTORIANO MEIMBAN, respondents. RESOLUTION SANTOS, J.: The records of this case - docketed as Civil Case No. 287-R in the Court below - were forwarded to this Court from the Court of First Instance of Pangasinan, Branch XIV at Rosales, Hon. Judge Narciso A. Aquino, presiding, in view of the appeal interposed by the plaintiffs (petitioners herein) on pure questions of law. Considering that Republic Act 5440 is applicable, as only questions of law are raised, this Court in its Resolution of June 29, 1977, required "the plaintiffs-appellants to pay the docket and legal research fund fees and to file petition for review on certiorari, filing and serving the same in the form required for petitions for review on certiorari of the decision of the Court of Appeals, both within fifteen (15) days from notice hereof." Pursuant thereto, herein petitioners (plaintiffs below) paid the docket and legal research fund fees and filed the required petition, both in due time. No proof of service of a copy thereof to the Court of First Instance and to the adverse party accompanied the petition, However, the required proof of service was posted three (3) days later and was actually received by the Court on October 10, 1977. It appears that petitioners-co-owners tiled a complaint in the court below to recover from private respondent possession of the lot in controversy. In his answer, the latter resisted the action on the ground, inter alia, that the property is owned by the late Pedro Meimban and his successors-in-interest, private respondent being one of them. At the conference on January 10, 1977, in the chainbets of respondent Judge attended by petitioners' counsel, Atty. Eugenio Ma. Mosuela, private respondent and his counsel, Atty. Hogo B. Sansano and Jacob Meimban who is one of the heirs of the late Pedro Meimban, it was agreed that the complaint be amended to include all the heirs of the late Pedro Meimban "in order that there will be a final adjudication of the rights of the parties in this case." When Atty. Mosuela, as counsel for petitioners. received the order requiring him to amend the complaint within a period of thirty (30) days, he filed instead a motion to set aside said order. The motion was denied and counsel was given another period of ten (10) days within which to file the amended complaint. A MOM)" to reconsider the order of denial was filed by Atty. Mosela who contended that the heirs of the late Pedro Mwimban are not indispensable parties in the instant case for ejectment; that, even if they are, they have already appeared in the case through their counsel; and prayed that the order requiring him to amend the complaint be reconsidered and, instead, the other heirs of Pedro Meimball be "required to file their answer in intervention." Respondent Judge denied the motion for reconsideration and again petitioners another period of ten (10) days from notice within which to file the required amended complaint. Instead of complying wilt, latest order, Atty. Mosuela filed a motion for clarification of the same. Respondent Judge ruled that the order "is clear and explicit" and, as the petitioners did not amend the complaint within the extended periods given them, he ordered "the case DISMISSED without prejudice." The motion to reconsider the dismissal order having been denied, petitioners filed the instant petition for review to set aside the order of dismissal and to order the lower court to reinstate their complaint. The petition is clearly without merit. Section 2, Rule 17 of the Revised Rules of Court expressly empowers the trial' court to dismiss the action "upon motion of the defendant or upon the Court's own motion" if the plaintiff "fails x x x to comply with these rules or any order of the court." The trial court gave petitioners no less than a total of filly (50) days to amend the complaint to include all the heir of the deceased Pedro Meimban who are indispensable parties "in order (hat there will be a final adjudication of the rights of the parties in their case." (Rule 3, Section 7, RRC). Not only did petitioners counsel refuse to comply with the order of the trial court bill, instead, he would have the trial court require the other heirs of Pedro Meimban "to file their answer in intervention," which is unprocedural because under Section 2, Rule 12 of the Revised Rules of Court, intervention is purely a voluntary act on the part of a person who "has legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both." WHEREFORE, the Petition is DENIED due course for obvious lack of merit. Fernando (Chairman), Barredo, Antonio, Aquino and Concepcion Jr., JJ., concur. Petition denied. ~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~ Laperal Development Corporatin vs. Court of Appeals June 8, 1993. [GRN No. 96354 June 1993.] LAPERAL DEVELOPMENT CORPORATION and SUNBEAMS CONVENIENCE FOOD CORPORATION, petitioners, vs. HON. COURT OF APPEALS and the HEIRS OF FILOTEO T. BANZON, respondents. PETITION for review of the decision of the Court of Appeals. The facts are stated in the opinion of the Court. Vicente R. Acsay for petitioners. CRUZ, J.: In Civil Case No. Q-34907 in the Court of First Instance of Rizal, Quezon City, Atty. Filoteo T. Banzon sought recovery of attorney's fees from Oliverio Laperal, Laperal Development Corporations, and lmperial Development Corporation for professional services rendered by him in the following cases: 1. Land and Registration Case No. 20, Court of First Instance of Bataan, Branch 1. 2. Land Registration Case, Court of First Instance of Bataan, Branch 2. 3. G.R. No. L-4704, Laperal Development Corp., et al. vs. Hon. Abraham P. Vera, Ascario Tuazon, et al. 4. Petition for Land Registration, Court of First Instance of Bataan, Branch 1. 5. Land Registration Case No. N-398, Court of First Instance of Baguio. 6. Civil Case No. 3922, Court of First Instance of Bataan, Branch 2, Oliverio Laperal vs. Mario Francisco.

7. Civil Case No. 4062, Court of First Instance of Bataan, Republic vs. Sunbeams Convenience Foods, Inc., et al. 8. Civil Case No. 4437, Court of First Instance of Bataan, Laperal Development Corporation et al, vs. Spouse, Escario Tuazon and Purificacion Ampil, et al. 9. Administrative action filed by the Solicitor General against Laperal Development Corporation for annulment of title to 400 hectares of land. 10. Civil Case No. Q-22933, Court of First Instance of Quezon City, Imperial Development Corp. vs. P & B Taxicab Inc.. On April 8, 1963, the case was decided on the basis of a Compromise Agreement reading in part as follows: Atty. Filoteo Banzon by this agreement, does hereby voluntarily and freely waive, forfeit, or consider as fully paid any and all other claims of money or otherwise that he may have against the defendants, in all cases in the Philippines that he may have handled for the defendants in the past, including whatever money claims he may have in the above-entitled case outside of this agreement, inclusive of representation fees, representation expenses, appearance fees, or retainers fees, or other forms of attorneys fees, and he hereby re-affirm that he will undertake upon his professional oath and standing, to protect the interest of the defendants in all unfinished appealed cases that the herein plaintiff had appeared in the past in representation of the defendants, without any further renumeration or attorney's fees, representation fees, appearance fees and expenses in connection therewith. On May 19, 1987, Banzon filed a complaint against Oliven, Laperal, Laperal Development Corporation, Imperial Development Corporation, Sunbeams Convenience Foods, Inc. and Vicente Acsay for: 1) the annulment of the aforequoted portion Compromise Agreement; 2) the collection of attorney's fees for his services in the cases of: a) Imperial Development Corporation vs. Aover, b) Republic vs. Sunbeams Convenience Foods, Inc., et al., and c) Laperal Development vs. Ascario Tuazon and Ascario Tuazon v. Judge Maglalang, et al.; 3) the recovery of the amount of P 10,000.00 that was adjudged payable to him as attorney's fees by Ascario Tuazon in Civil Case No. 3918; and 4) the payment to hm of nominal damages and attorney's fees. Docketed as Civil Case 50823 in Branch 92 of the Regional Trial Court of Quezon City, this case was dismissed on the ground that the trial court had no jurisdiction to annul the Compromise Agreement as approved by an equal and coordinate court. It was held that the issue was cognizable by the Court of Appeals. Ali additional ground was that the Compromise Agreement at already covered the plaintiffs professional services in the aforementioned cases.1 On appeal, the decision was affirmed on the issue of jurisdiction. The Court of Appeals held, however, that attorney's fees were due the private respondent in the cases of Laperal Development Corporation v. Ascario, Tuazon and Ascario Tuazon v. Judge Maglalang and Republic v. Sunbeams Convenience Foods, Inc.2 In the petitioners are now before us to challenge the decision insofar as it orders them to pay Banzon attorney's fees for his legal services in the aforementioned cases. An examination of the list of cases for which Banzon was suing for attorney's fees in Civil Case No. Q-34907 shows that the case of Laperal Development Corporation v. Ascario Tuazon was included therein although it was erroneously referred to as Civil Case No. 4437. Even if it was not mentioned in the complaint, it was nevertheless covered by the Compromise Agreement, where Atty. Banzon waived all other claims against the defendants** "in all cases in the Philippines that he may have handled for the defendants in the past, including whatever money claims he may have in the above-entitledcase outside of this also undertook thereinto protect the interest of the defendants in all unfinished appealed cases where he appeared in the past representation of the latter, without any further remuneration or attorney's fees, representation fees, appearance fees and expenses in connection therewith. The undertaking clearly covered the case of Laperal Development Corporation v. Ascario Tuazon, (AC-G.R. CV No. 70189), which was still pending in the Court of Appeals at the time of the Compromise Agreement, and the subsequent case of Ascario Tuazon v. Judge Maglalang (CA-GR SP No. 0730). The respondent court erred in supposing that the said agreement covered only past services, disregarding the clear stipulation for the continuation of the private respondents services in all pending appealed cases in which he had earlier appeared. Concerning the case of the Republic vs. Sunbeams Convenience Foods, Inc. (GR. No. 50464), the Court v. Appeals said: At the time of the execution of the compromise agreement and rendition of the judgment based thereon on April 8,1983, the aforementioned case bearing G.R. No. 50464 was still pending in the Supreme Court. It was not, however, the subject of the compromise agreement (Exhibits C and 2; Annex 2, answer, pp. 4755, 65-66, rec.). It could not have been so because Sunbeams Convenience Foods, Inc. was not a party defendant in the second amended complaint, although reference was made to it in the appellant's seventh cause of action for which he has rendered professional services but for which attorney's fees were being claimed from the herein appellee Olihowio Lapowal (Exhibits A and 1). But nothing is mentioned in the second amended complaint and in the compromise agreement (Exhibits A and 1; C and 2) which would indicate that Sunbeams Convenience Foods, Inc. itself was a party plaintiff therein or privy to the case. Appellee Olihowio Lapowal and Sunbeams Convenience Foods, Inc. do not appear to be one and the same. It appearing that it was the herein appellant who riled the brief for Sunbeams Convenience Foods,Inc.in the Supreme Court on March 14, 1980 (Exhibit D), he should be compensated for his services. Banzon's claim for attorney's fees in the said case was also among those enumerated in his compliant Civil Case No. Q-34907 against Oliverally Laperal Development Corporation Imperial development corporation. Notably, Sunbeams the convenience Foods, Inc. (Sunbeams, for brevity), referre to in the complaint as "Mr. Laperal's Corporation," was not joined by name as a party-defendant. Apparently, the private respond, believed that Oliverio Laperal, being the president of the said company, was directly obligated to him for the attorney's fee due him for his handling of the case for Sunbeams. It is settled that a corporation is clothed with a personality separate and distinct from that of the persons composing it.3 It may not generally be held liable for the personal indebtedness of its stockholders or those of the entities connected with it.4 Conversely, a stockholder cannot be made to answer for any of its financial obligations even if he should be its president.5 There is no evidence that Sunbeams and Laperal are one and the same person. While it is true that Laperal is a stockholder, director and officer of Sunbeams, that status alone does not make him answerable for the liabilities of the said corporation. Such liabilities include Barizon's attorney's fees, for representing it in the case of Republic v. Sunbeams Convenience Foods, Inc.

Sunbeams should have been joined as a party-defendant in order that the judgment of the lower court could legally affect it. But even if it was not impleaded, the court could still validly proceed with the case because Sunbeams was not an indispensable party but only a proper party. A proper party is one which ought to be a party if complete relief is to be accorded as between those already parties.6 A party is indispensable if no final determination can be had of an action unless it is joined either as plaintiff or defendant.7 The Compromise Agreement upon which the decision of the court was based was between plaintiff Atty. Banzon and the defendants represented by Oliverio Laperal. To repeat, Sunbeams was not a party to this agreement and so could not be Appeals affected it is noted, however, that in his complaint in Civil Case No. 50823 :against Sunbeams et al., Banzon stated: 1. On the 1st cause of action, to declare the portions of the compromise co agreement (annex A) alleged in par. 4 of the 1st cause of action where plaintiff waives his attorney's fees and other fees in all other cases he handled in the past for the defendants Oliverio Laperal and his corporations not included in the complaint for attorney's fee x x x (emphasis supplied) This declaration amounted to an admission that he had also waived his attorney's fees in the cases he had handled for Laperals corporations which were not impleaded in Civil Case Q-34907, including Sunbeams. Moreover, in the hearing Civil Case 50823, Banzon testified as follows: Atty.Banzon: I am not claiming my attorney's fees from 1974 to 1981. What I was claiming was the attorney's fees for the services I have rendered after the compromise agreement in 1983 to 1987 by virtue of the new agreement x x x, (TSN, Sept. 15, p. 7 Records, Vol. II, p. 129). xxx Court: So you are not claiming anymore your attorney's fees in those ten cases? Atty. Banzon: I am claiming only for the services I have rendered from 1983 to 1987 by virtue of a new agreement. Court: These services of yours exclude the ten? Atty. Banzon: Exclude the ten, Your Honor. (Ibid, p 16) xxx Atty. Banzon: I admit, Your Honor that those 10 services are those services I rendered in the past wherein I waived my attorney's fees; my services covered from 1974 to 1981 but not my services after the compromise agreement. (ibid, p. 22) The Sunbeams case was one of the ten cases listed in the complaint in Civil Case No. 34907. It was pending before this Court when Civil Case No. Q34907 and Civil Case No. 50823 were instituted. To prove his claim for attorney's fees for his the unbeams case, Banzon submitted to the Regional Trial Court of Quezon City, Branch 92, "Petitioner's Brief Exhner's Reply to Respondents' Brief' (Exh. 'D-1") dated March 14, 1980 and August 12, 1980, respectively, which had earlier been filed with this Court in connection with the said case. Significantly, the preporation and filing of those pleading were done sometime in 1980, which means that they were among those ten cases referred to by Atty. Banzon for which he had waived his attorney's fees. There is no other proof of his services in the said case after 1983 to 1987. The private respondent's claim for attorney's fees in the Sunbeams case was waived by him not by virtue of the Compromise Agreement to hich Sunbeams, not being a defendant in Civil Case N- Q-3497, could not have been a party. What militates against his claim is his own judicial admission that he had waived his attorney's fees for the cases he had handled from 1974 to 1981 for Oliverio Laperal and his corporations, including those not implea ded in his complaint in Civil Case No. Q34907. ACCORDINGLY, the petition is GRANTED. The decision of the respondent court dated November 21, 1990 is MODIFIED. Petitioners Laperal Development Corporation and Sunbeams Convenience Foods, Inc. are declared no longer liable to the private respondents for attorney's fees in AC-GR CV No. 70186, CA-GR SP No. 07370 and GR No. 50464. Costs against the private respondent. SO ORDERED. Grino-Aquino, Bellosillo and Quiason, JJ., concur. Petition granted. Appealed decisio n modified. 1. Decided by Judge Tomas V. Tadeo, J, Court of Appeals Rollo, p.13. 2. Penned by Ramirez, J., with Nocon and Santiago, JJ., concurring; Rollo, 25.). ** In Civil Case No. Q-1097 . 3. Philippine Bank of Communication v. Court of Appeals, 195 SCRA 67; Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 Traders Royal Bank vs. Court of Appeals, 177 SCRA 288. 4. Cease vs. Court of Appeals, 93 SCRA 483. 5. Palay,lnc.v.( Clave,124 SCRA 638. 6. Section 8, Rule ,Revised Rules of Court. 7. Section of Rule Revised and Rules of Court. ~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~ MAGULO PARTIES!!! THIS IS A ROTTEN COPY OF THE CASE! TOO MANY TYPOS (PARTICULARLY WITH REGARD THE PARTIES!!!) Barfel Development Corporation vs. Court of Appeals June 8, 1993. [GRN No. 98177 June 8, 1993] BARFEL DEVELOPMENT CORPORATION AND SPOUSES VICTOR AND AIDA BARRIOS, petitioners, vs. COURT OF APPEALS, REGINAS INDUSTRIES AND DEVELOPMENT CORPORATION AND TEODORICO E. ZARAGOZA, respondents. PETITION for review of the decision of the Court of Appeals. The facts are stated in the opinion of the Court. Sycip, Salazar, Hernandez & Gatmaitan for petitioners. Ermitanio, Asuncion, Manzano & Associates for private respondents. PADILLA, J.: This is a petition for review under Rule 45 of the Rules of Court seeking a reversal of the decision** of the Court of Appeals, dated 31 January 1991, and its resolution of 2 April 1991, denying the petition for certiorari and prohibition, thereby upholding the order of the Regional Trial Court of Makati, Branch 134*** dated 30 April 1990 (Civil Case No. 17875) admitting partyplaintiffs' amended complaint impleading an additional partydefendant (PISO Bank, a second mortgagee) after the former had concluded presenting their evidence and while the original defendants (herein petitioners) were in the process of presenting their witnesses. In the Makati, RTC, the following relevant facts were established: Private respondents filed a complaint for specific performance and damages against the petitioners, the material allegations of which are as follows: "3. On June 19, 1987, the defendants, as series and tariff corporation,AND REGINAS INDUSTRIES, as buyer, and representatives representativeD BY its president plaintiff Zaragosa, concluded an Agreement To Buy/Sell two (z) parcel of land with two (2) houses erected thereon at 109 Bulusan St. Ayala, Alabang Muntinlupa, Metro Manila, covered by Transfer Certificates of Title (TCT) No. T132671 and 132651, both of the Register of Deeds fpr makti, Metro Manila. Said Agreeemnt beers the expressed stipulation, among

others, that "The seller will apply the payment of the cash portion of the purchase portion of the purchase price to the removal of any and all liens on the properties. x x x ; 4. Plaintiff paid the amount of P100,000.00 as down payment upon the igning of the aforesaid Agreement; 5. During the time the Agreement was under negotiation and even at the conclusion thereof, the defendants repeatedly warranted that except for a mortgage in favor of the Bank of the Philippine Islands (BPI) and the Deed of Restrictions annotated at the back of the titles mentioned above, the subject properties are "free from any liens and encumbrances"; 6. Sometime on June 24, 1987, plaintifss found out that defendants made a blatant misrepresentation when it was, discovered that the subject properties have a second mortgage with the PISO/Central Bank in the amount of P2,571,400.00; 7. Informed of this discovery defendant Victor S. Barrios advised plaintiff that the second mortgage obligation is or has been reduced to only P54,000.00 and gave assurance that he will submit the necessary documents to support the same so that as legal valid and acceptable arrangement could be worked out with the Central Bank for the release of said second mortgage; 8. x x x under date of June 29, 1987, the Philippine Savings Bank (PSB), gave notice that it has approved plaintiff corporation's application for the loan with which to pay subject properties under the Agreement To Buy/Sell (Annex A), subject to certain terms and conditions, principal of which is a security of real estate mortgage upon the subject properties in favor of PSB. x x x; 9. In this connection, the PSB also sent separate letters of undertaking/commitment to the defendants and the BPI detailing a workable arrangement to consummate the transaction whereby new titles to the subject properties would first be transferred to the plaintiff corporation and the mortgage. in favor of PSB are to be annotated thereon. Once cone, the PSB, by virtue of authority already given by the plaintiff corporation, would directly pay BPI from the proceeds of the loan granted to plaintiff corporation the mortgage obligation due to it in the amount of P57,539.36, and also pay the defendants the balance of the purchase price in the amount of P3,642,460.64 net of what has paid to BPI. x x x; 10. The defendants expressed their conformity to the aforementioned arrangement as shown in their letter to the BPI dated June 8 1987 x x x; 1l. In view of the assurances of defendants, plaintiffs, in a letter dated July 9, 1987 sent to defendants to further ensure the consummation of the transaction, manifested its willingness to pay the sum of P2,000,000.00 ahead of the PSB loan proceeds upon release of the second mortgage by the Central Bank which was to be worked out by the defendants. Defendants conformed to the arrangement by affirming their signatures to the said letter were (sic) they also agreed to the release of the certificates of title to PSB, free and clear , any liens, upon payment of P2,000,000.00, x x x; 12. Notwithstanding the contractual obligations, terms and conditions agreed upon by, between and among the parties and those involved in the transaction, plaintiffs consequently received informa. tion that defendants have been negotiating with other parties for the sale of the properties in question, although defendants denied such fact; 13. Be that as; it may, the undisputed fact is that defendants, in gross and evident bad faith and in malicious breach of contract, deliberately failed and/or refused and to date continued to fail and refuse to comply with their contractual obligation of securing the release of the second mortgage on the subject properties thereby effectively preventing the consummation of the sale to the damage and prejudice of the plaintiffs; 14. The malice, fraud and the gross and evident bad faith on the part of defendants is further demonstrated by the fact that subsequently, BPI advised that it was disautorized by defendants to consummate the transaction despite previous rangements to the contrary as per BPI's letter to plaintiffs bank dated July 31, 19871 x x x;" Petitioners (as defendants) filed an answer with the following affirmative allegations:5. Before Reginas signed Annex A, it was aware of all liens and encumbrances on the Property, including the mortgage in fair of PISO Bank ("PISO Mortgage") 6. xxx c. The parties agreed that if full payment could not be effected, at pp. 38-41 or if the PISO Mortgage is not released, within 30 days from July 9, 1987, they will each have the option to terminate the agreement. xxx 8. In the documentation , Barfel and Reginas did not make reference to the PISO Mortgage because: (I) Barfel and Reginas believed that since Barbel's balance to PISO was only about P54,000, release of the PISO Mortgage could be obtained within 30 days; and (it) Reginas wanted to be able to present to PSB a "clean document' to expedite the approval of its loan. 9. Regarding the release of the PISO Mortgage, plaintiffs undertook to make direct and active representations with the proper officers of the Central Bank (because PISO is in the custody of a Central Bank officer as receiver/liquidator) and agreed that the responsibility of the defendants was solely to provide the documentation to support the position that Barfel's remaining balance under the PISO Mortgage was only about P54,000. 10. In accordance with that commitment, defendants gave and/ or made available to Reginas all documents they had in their possession necessary to show that the balance of the PISO Mortgage was only P54,000. With these documents, plaintiffs made direct representations with the proper officers of the Central Bank. 11. The failure to obtain a release of the PISO Mortgage within the 30-day period was accepted by the parties as a possibility and therefore could not be imputed on the defendants. 12. Release of the BPI Mortgage could not be worked out because PSB, as a condition for the disbursement of the loan, wanted the title to the Property to be transferred first to Reginas and the mortgage to secure Reginas 'loan to be annotated on the title. The mechanics for payment was unacceptable to BPI. 13. The refusal of BPI to agree to PSB's terms of payment was based solely on its own evaluation of the acceptability of the mechanics for payment-suggested by PSB. And the failure to obtain a release on the BPI Mortgage is solely on account of PSB's therefore plaintiffs', insistence on an unacceptable mechanics for payment.2 Pre-trial was concluded by the trial court. Plaintiffs therein (herein private respondents) presented evidence and rested their cage. During defendants' (herein Petitioners') presentation of evidence, private respondents filed on 13 March 1990, a motion for leave to file an amended complaint and motion to admit the crime. The amendment consisted of implading PISO bank as additional party defendant and compel it to accept payment of the existing second mortage from private respondent Reginas, since allegedly no complete relief can be had unless the second mortgage in favor of said PISO bank is released. Despite petitioners' opposition, an order was issued by the trial court on 30 April 1990 admitting the amended complaint. After denial of their motion for reconsideration on 1 June 1990, petitioners proceeded to the Court of Appeals on a petition for certiorari and prohibition (CA-G.R. Sp. No. 23153) raising the issue of whether an amendment to the complaint pleading a cause of action against a new or additional party can be allowed after the private respondents (as plaintiffs) had rested their case and petitioners (as defendants) had commenced the presentation of their evidence. Sustaining private respondents' contentions, the Court of Appeals' decision held in effect, as follows: 'The change in language from the former to the present rule (Section 3, Rule 10 of the Revised Rules of Court), does not stop the court from allowing substantial amendments, after the trial has begun, there being nothing in the role as changed, which limits the court's authority to allow substantial amendments to the pleading just because trial has already begun.

The amendment of the complaint was made without intent to delay the action. The essence of the liberal interpretation accorded by the courts on the filing of an amended complaint is the avoidance of multiplicity of suits. And also, private respondents 'cause of action has not been substantially altered. PISO Bank is a proper party under Section 8 of Rule 3 of the Revised Rules of Court. For the defendants Barfel Development Corporation and the spouses Barrios to be able to comply with its obligation under the Agreement to Buy/Sell dated 19 June 1987 and the letter. agreement dated 9 July 1987 and the related Deed of Sale, there had to be a determination of the amount really due PISO Bank and corre. sponding order for said Bank to accept the payment of plaintiff corporation to extinguish the obligation secured by the mortgage, before the consummation of said transaction can be effected.'3 With the denial by the appellate court of petitioners' motion for reconsideration, 4 the same legal issue earlier brought before the Court of Appeals is now beforer us for solution, with the following supportive arguments:5 "In resolving the issue; in favor of allowance of the amended complaint, the Court of Appeals has decided it in a way not in accord with Rule 10, Section 3, which we quote for the convenience of the Court; 'Section 3. Amendments by leave of Court. --After the case is set for hearing, substantial amendments may be made only upon leave of court. But such leave way be efused if it appears to the court that the motion was made with intent to to delay the action or that the cause of action or defense is substantially altered xxx' (emphasis supplied) The amendment was made with intent to delay the action and substantially alters private respondents' cause of action and petitioners' defense. xxx The following circumstances, according to petitioners, show intent to delay; A. The pretext even is that PISO has to be joined as a codefendant so that it can be compelled to accept the payment of whatever would be determined as the correct balance of the PISO mortgage. The amendment will bring into the case the controversy or dispute between PISO and the petitioners as to how much is still due under the mortgage. B. But why is the dispute brought but only now? It was not as if the private respondents learned of the dispute only at the time they sought the amendment. As earlier pointed out when they filed the Complaint, they already knew about it." We rule for the petitioners, and reverse the appellate court's decision. Petitioners' assertion-which is not refuted by private respondents-is that the subject matter of the original complaint sought to be amended was well know private respondents from the start. The reason for the amendment impleading PISO is to compel the latter account herein respondents' payment and release the second. mortgage, thereby enabling petitioners to deliver to respondents the titles from from all liens and encumbrances. But PISO bank is not a party to the three (3) contracts which are the subject of the action for specific performance and damages between the private respondents and petitioners. The bank which is not a party to the transaction is not an indispensable party.6 Neither is there an acceptable explanation from private respondents why PISO Bank was not impleaded in the original complaint filed before the RTC of Makati. PISO is a second mortgage, whatever the outcome of the litigation betwt en the petitioners and the private respondents would be. Its second mortgage lien attaches to the property. The action for specific performance by private respondents against petitioners is not the proper venue for releasing all liens and encumbrances on the subject property. Perhaps, herein private respondents have confused the possible liability of petitioner Barrios for allegedly withholding information on the said second mortgage as another cause of action against him arising from the executed contracts, But title to the disputed properties can still be delivered by petitioners to herein respondents, by way of specific performance with damages, encumbered of course by the second mortgage in favor of PISO but the release of such encumbrance can be obtained independently of this case. To include it as another cause of action in the case at bar against an additional defendant, would indeed change the theory of the case, let alone delay the proceedings on the original cause of action founded on specific performance with damages. To compel PISO to accept payment cannot be allowed in an action for specific performance with damages between other parties. These are two (2) different causes. A second mortgagee like PISO has several options. It may either: 1. foreclose the second mortgage for non-payment. 2. pay off the first mortgagee (BPI in this instance) and be subrogated to its rights thereby becoming the sole lien holder. 3. collect on the loan without foreclosing on the mortgage. Under the facts alleged in the amended complaint, there is no statement the mortgage debt in favor of PISO is due and demandable,PISO is due and is PISO foreclosing on the mortgage. And in an uncorrected act of liberality, PISO can even write off the debt (of couse improbability). In any event private respondents (as plaintiffs below cannot compel PISO to accept payment as it is not even apart of the mortgage contract (with PISO); the latter cannot impleaded as a party defendant, and the former only has an inchoate right to the property. Besides, if the principal mortgagee, BPI, is not even impleaded why should the second mortgage PISO be so impleaded, when it is a stranger to the transact. between petitioners and private respondents? Even the mortgage document purportedly sued upon is not attached to the amended complaint. In Marimperio Compania Noviera, S.A. v. CA, G.R. 40234, December 14, 1987,7 the Court held: "According to Article 1311 of the Civil Code, a contract takes effect between the parties who made it, and also their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. Since a contract may be violated only by the parties, thereto as against each other, in an action upon that contract, the real parties in interest, either as plaintiff or as defendant, must be parties to said contract. Therefore, a party who has not taken part in it cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected thereby." A "real interest" has been defined as "a present substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest." (Moreno, Federico B. Philippine Law Dictionary, Third Edition) Complete relief by private respondents against petitioners may be had even if PISO/Central Bank were not impleaded as party defendant in the original case, PISO is not an indispensable or necessary party without whom no Final determination can be had of the action for specific performance with damages. (See. 7, Rule 3, Rules of Court). Private respondents maintain that PISO is a proper party under see. 8, Rule 3 of the Revised Rules of Court. The provision invoked reads: "Section 8. Joinder of proper parties.-When persons who are not indispensable but who ought to be parties if complete reliefs to be accorded as between those already parties, have not been made parties and am subject to the jurisdiction of the court as to both service of process an venue, the court shall order them summoned to appear in the action. But the court may, in its discretion, proceed in the action without making such persons parties, and the judgment rendered therein shall be without prejudice to the rights of such persons." From the above, it is clear that joinder of admittedly proper parties is permissive, that judgment will be decreed even if a I the parties are not present if the court will be able to proceed to a decree and do justice to the parties already before it, without injury to those who are absent but equally interested in the litigation and who cannot conveniently be made parties to the suit.8 Wherever a case will be completely decided as between the party litigants, an interest existing in some other persons whom the process of the court cannot reach will not prevent a decree upon the merits.9 In short, as far as the complaint for ,pecific performance and damages is concerned, complete relief maybe accorded between private respondents and Petitioners (as original parties) without the presence of

the second mortgagee (PISO bank). If complete relief to herein private respondents is the ultimate aim of the RTC ruling, why did it not include BPI as (proper) party defendant, since after all, there is an allegation in the original complaint that BPI refused to go along with the transaction because of petitioners' representations. Moreover, the amendment sought by private respondents, which is to include a new party defendant at a late stage in the proceeding is not a formal but a substantial one. Private respondents will have to present additional evidence on the PISO second mortgage, The effect would be to start trial anew with the practice recasting their theories of the case. The correct amount of the second mortgage owed by petitioners to PISO bank (apparently a controverted point), would have to be litigated and this could be time consuming. As a general policy, liberality in allowing amendments is greatest in the early stages of a law suit, decreases as it progresses and changes a, times to a strictness amounting to a prohibition.10 This is further restricted by the condition that the amendment should not prejudice the adverse party or place him at a disadvantage.11 WHEREFORE, the petition for review is GRANTED. The decision appealed from is REVERSED and SET ASIDE. Let this case be remanded to the court of origin for continuation of the presentation of evidence by herein petitioners (as defendants) in Civil Case No. 17875. SO ORDERED. Narvasa (C.J., Chairman), Regalado and Nocon, JJ., concur. Petition granted. Appealed decision reversed and set aside. ** Justice Jorge S. Imperial writing for the court, Nathanael P. De Pano, Jr. and Jainal D. Hasul, JJ. concurring, former Tenth Division. ***Judge Ignacio C. Capulong, presiding. 1. Rollo at 38-41. 2 Rollo at pp. 46 to 48. 3 Summary of pp. 4 to 8 of the CA decision, Rollo p.67 to 68. 4. Resolution date April 2, 1993. Rollo, p. 7 5. Petition, pp. 11 Rollo, pp. 25-26. 6. Belleza v. Huntington, G.R. No. L-3319, August 16, 1951, 89 Phil. 689. 7. 156 SCRA 368. 8. Payne v. Hook, 7 Wall, (U.S) 425, 19 , ed, 260. 9. Elmendorf v.Taylor, 19 Weals U.S. 162, 6 1 ed. 289.Both cases are cited in Martin, Ruperto, Rules of Court in the Philippines such notes and documents and 1986 . 10. Torres v. Tomacruz, G.R. No. L-26251, February 7, 1927, 47 Phil. 913, cited in Garcia, Jr. v. Ranada, Jr., G.R. No. 60935, 27 September 988, 166 SCRA 9. 11. Shaffer v. Palma, G.R. No. L-24115, March 1, 1968, 22 SCRA 934 Phil. Banking Corp. v. The Hon Intermediate Appellate Court, et at.al G.R. No.66510, July 6, 1990, 1990,18 SCRA 257. ~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~ Oposa vs. Factoran, Jr. July 30, 1993. [GRN 1033 July 30, 1993.] JUAN ANTONIO, ANNA ROSARIO and JOSE ALFONSO, all surnamed OPOSA, minors and represented by their parents ANTONIO and RIZALINA OPOSA, ROBERTA NICOLEISADIUA, minor, presented by her parents CALVIN and ROBERTA SADIUA, CARLO, AMANDA SALUD and PATRISHA, all surnamed FLORES, minors and represented by their parents ENRICO and NIDA FLORES, GIANINA DITA R. FORTUN, minor, represented by her parents SIGFRID and DOLORES FORTUN, GEORGE II and MA. CONCEPCION, all surnamed MISA, minors and represented by their parents GEORGE and MYRA MISA, BENJAMIN ALAN V. PESIGAN,minor, represented by his parents ANTONIO and ALICE 'PESIGAN, JOVIE MARIE ALFARO, minor, represented by her parent, JOSE and MARIA VIOLETA ALFARO, MARIA CONCEPCION T. CASTRO, minor, represented by her parents FREDFNIL and JANE CASTRO, JOHANNA ESAMPARADO, minor represented by her parents JOSE and ANGELA DESAMPARADO, CARLO JOAQUIN T. NARVASA, minor, reppresented by his parents GREGORIO II and CRISTINE CHARITY NARVASA, complainant vs. FACTORAN, JR., respondent. SPECIAL CIVIL ACTION for certiorari of the dismissal order of the RTC of Makati, Br. 66. The facts are stated in the opinion of the Court. Oposa Law Office for petitioners. The Solicitor General for respondents. DAVIDE, JR., J.: In a broader sense, this petition bears upon the righ, of Filipinos to a balanced nd healthful ecology which the petition dramages associate that the educational -responsibility specifically, it touches on the issue of whehter the said petitioners have a cause of action to "prevent the misappropriation or impairment" of Philippine rainforests and "arrest the unabated hemorrages of the country's vital life-support systems and continued rape of Mother Earth." The controversy has its genesis in Civil Case No. 90-777 which was filed before Branch 66 (Makati, Metro Manila) of the Regional Trial Court (RTC), National Capital Judicial Region. The principal plaintiffs therein, now the principal petitioners, are all minors duly represented and joined by their respective parents. Impleaded as an additional plaintiff is the Philippine Ecological Network, Inc. (PEND, a domestic, non-stock and non-profit corporation organized for the purpose of, inter alia, engaging in concerted action geared for the protection of our environment and natural resources. The original defendant was the Honorable Fulgencio S. Factoran, Jr., then Secretary of the Department of Environment and Natural Resources (DENR).It is substitution in this petition by the new Secretary, be Honorable Angel C. Alcala, was subsequently ordered upon proper motion by the petitioners.1 The complaint2 was instituted as a taxpayers' class suit3 and alleges that the plaintiffs "are all citizens of the Republic of the Philippines, taxpayers, and entitled to the full benefit, use and enjoyment of the natural resource treasure that is the country's virgin tropical rainforests." The same was filed for themselves and others who are equally concerned about the preservation of said resource but are "so numerous that it is impracticable to bring them all before the Court." The minors further asseverate that they "represent their generation as well as generation ' at unborn."4 Consequently, it is prayed for that judgment be rendered: "x x x ordering defendant, his agents, representatives and other persons acting it is behalf to (1) all exceptions deast from receiving, a case from being, aprocess in renewing or pproval new timber licence agreements." and granting the plaintiffs "x x x such other chiefs just equitable under the premises."5 The complaint starts off with the general averment that the Philippine archipelago of 7,100 islands has a idea had area of thirty million (30,000.00) hectares and is endowed with which, lush and verdant rainforests in which varied, rare and unique species of flora and fauna may be found; these rainforests contain a genetic, biological and chemical pool which is irresplaceable; they are also the habitat of indigenous Philippines cultures which have existed, endured and flourished since time immemorial; scientific evidence reveals that in order to maintain a balanced and healthful ecology, the country's land area should be utilized on the basis of a ratio of fifty-four per cent (54%) for forest cover and forty-six per cent (46%) for agricultural, residential, industrial, commercial and other

uses; the distortion and disturbance of this balance as a consequence of deforestation have resulted in a host of environmental tragedies, such as (a) water shortages resulting from the drying up of the water table, otherwise known as the 11 aquifer," as well as of rivers, brooks and streams, (b) salinization of the water table as a result of the intrusion therein of salt water, incontrovertible examples of which may be found in the island of Cebu and the Municipality of Bacoor, Cavite, (c) massive erosion and the consequential loss of soil fertility and agricultural productivity, with the volume of soil eroded estimated at one billion (1,000,000,000) cubic meters per annum approximately the size of the entire island of Catanduanes, (d) the endangering and extinction of the country's unique, rare and varied flora and fauna, (e) the disturbance and dislocation of cultural communities, including the disappearance of the Filipino's indigenous cultures, (f) the siltation of river, and seabeds and consequential destruction of corals and other aquatic life leading to a critical reduction in in marine resource productivity (g) recurrent spells of drought as is prsently experienced by the entire country, (h) increasing velocity of typhoon winds which result from the absence of windbreakers, (i) the flooding of lowlands and agricultural plains arising from the absence of the absorbent mechanism of forests, (j) the siltation and shortening of the lifespan of multi-billion peso dams constructed and operated for the purpose of supplying water for domestic uses, irrigation and the generation of electric power, and the reduction of the earth's capacity to process carbon dioxide gases which had led to perplexing and catastrophic climatic changes such as the phenomenon of global warming, otherwise known as the "greenhouse effect." Plaintiffs further assert that the adverse and detrimental consequences of continued and deforestation are so capable of unquestionable demonstration that the same may be submitted as a matter of judicial notice. This notwithstanding, they expressed their intention to present expert witnesses as well as documentary, photographic and film evidence in the course of the trial. As their cause of action, they specifically allege that: "CAUSE OF ACTION 7. Plaintiffs replead by reference the foregoing allegations. 8. Twenty-fiive (25) years ago, the Philippines had some sixteen (16) million hectares of rainforests constituting roughly 53% of the country's land mass. 9. Satellite images taken in 1987 reveal that there remained no more than 1.2 million hectares of said rainforests or four per cent (4.0%) of the country's land area. 10. More recent surveys reveal that a mere 850,000 hectares of virgin oldgrowth rainforests are left, barely 2.8% of the entire land mass of the Philippine archipelago and about 3.0 million hectares of immature and uneconomical secondary growth forests. 11. Public records reveal that defendant's predecessors have granted timber license agreements (TLA's') to various corporations to cut the aggregate area of 3.89 million hectares for commercial logging purposes. A copy of the TLA holders and the corresponding areas covered is hereto attached as Annex "A". 12. At the present rate of deforestation, i.e. about 200,000 hectares per annum or 25 hectares p hour-nighttime, Saturdays, Sundays and holidays included -the Philippines will be bereft of forest resources after the end of the cosuing not decade if not earlier. 13 The adverse effects, disastrous consequences, serious injury and irreparableble damage of this continued trend of deforestration to the plaintiff minors generation and to generations yet unborn are evident and incontrovertible. As a matter of fact, the environmental damages enumerated in paragraph 6 hereof are already being felt, experienced and suffered by the generation of plaintiff adults. 14. The continued allowance by defendant of TLA holders to cut and deforest the remaining forest stands will work great damage and irreparable injury to plaintiffs especially plaintiff minors and their successors who may never see, use, benefit from and enjoy this rare and unique natural resource treasure. This act of defendant constitutes a misappropriation and/or impairment of the natural resource property he holds in trust for the benefit of plaintiff minors and succeeding generations. 15. Plaintiffs have a clear and constitutional right to a balanced and healthful ecology and are entitled tc protection by the State in its capacity as the parem patriae. 16. Plaintiffs have exhausted all administrative remedies with the defendant's office. On March 2, 1990, plaintiffs served upon defen. dant a final demand to cancel all logging permits in if the country. A copy of the plaintiffs' letter dated March 1, 1990 is hereto attached as Annex 'B'. 17. Defendant, however, fails and refuses to cancel the existing TLA's, to the continuing serious damage and extreme prejudice of plaintiffs. 18. The continued failure and refusal by defendant to cancel the TLA's is an act violative to the rights of plaintiffs, especially plaintiff minors who may be left with a country that is desertified (sic), bare, barren and devoid of the wonderful flora, fauna and indigenous cultures which the Philippines has been abundantly blessed with. 19. Defendant's refusal to cancel the aforementioned TLA's is manifestly contrary to the public policy enunciated in the Philippine Environmental Policy which, in pertinent part, states that it is the policy of the State '(a) to create, develop, maintain and improve conditions under which man and nature can thrive is productive and enjoy able harmony with each other; '(b) to fulfill the social, economic and other requirements of present and future generations of Filipinos and; '(c) to ensure the attainment of an environmental quality that is conducive to a life of dignity and well being (P.D. 1151, 6June 1977) 20. Furthermore, defendant's continue refusal to cancel the aforementio ned to the constitutional of a. effect 'a more equitable distribution of opportunities, income and wealth' and 'make full and efficient use of natural resources (sic). (Section 1, Article XII of the Constitution); b. 'protect the nation's marine wealth! (Section 2, ibid); c. 'conserve and promote the nation's cultural heritage and resources (sic).' (Section 14, Article XIV, id.); d. 'protect and advance the right of the people to a balanced and healthful ecology in accord with the rhythm and harmony of nature.' (Section 16, Article II id.) 21. Finally, defendant's act is contrary to the highest law of humankindthe natural law-and violative of plaintiffs' right to selfpreservation and perpetuation. 22. There is no other plain, speedy and adequate remedy in law other than the instant action to arrest the unabated hemorrhage of the country's vital life-support systems and continued rape of Motlher Earth.' On 22 June 1990, the original defendant, Secretary Facturan, Jr., filed a Motion to Dismiss the complaint based on two ( ) grounds, namely: (1) the plaintiffs have no cause of action against him and (2) the issue raised by the plaintiffs is a political question n which properly pertains to the legislative or executive branch of Government.

In their 12 July 1990 Opposition to the Motion, the petitioners maintain that (1) the complaint shows a clear and unmistakable cause of action, (2) the motion is dilatory and (3) the action presents a justiciable question as it involves the defendant's abuse of discretion. On 18 July 1991, respondent Judge issued an order granting the aforementioned motion to dismiss.7 In the said order, not only was the defendants claim-that the complaint states no cause of action against him and that it raises a political question---sustained, the respondent Judge further ruled that the granting of the reliefs prayed for would result in the impairment of contracts which is prohibited by the fundamental law of the land. Plaintiffs thus filed the instant special civil action for certiorari under Rule 65 of the Revised Rules of Court and ask this court to recind and set the dismissal order on the ground the respondent Judge gravely abused his discretion in discreasing the action. Again, the parents of the plaintiffs-minors not only represent their children, but have also joined the latter in this case.8 On 14 May 1992, We resolved to give due course to the petition and required the parties to submit their respective Memoranda after the Office of the Solicitor General (OSG) filed a Comment in behalf of the respondents and the petitioners filed a reply there to Petitioners contend that the complaint clearly and unmistakably states a cause of action as it contains sufficient allegations concerning their right to a sound environment based on Articles 19, 20 and 21 of the Civil Code (Human Relations), Section 4 of Executive Order (E.O.) No. 192 creating the DENR, Section 3 of Presidential Decree (P.D.) No. 1151 (Philippine Environmental Policy), Section 16, Article II of the 1987 Constitution recognizing the right of the people to a balanced and healthful ecology, the concept of generational genocide in Criminal Law and the concept of man's inalienable right to self-preservation and selfperpetuation embodied in natural law. Petitioners likewise rely on the respondent's correlative obligation, per Section 4 of E.O. No. 192, to safeguard the people's right to a healthful environment. It is further claimed that the issue of the respondent Secretarys alleged grave abuse of discretion in granting Timber License Agreements (TLAs) to cover more areas for logging than what is available involves a judicial question. Anent the invocation by the respondent Judge of the Constitution's non-impairment clause, petitioners maintain that the same does not apply in this case because TLAs are not contracts. They likewise submit that even if TLAs may be considered protected by the said clause, it is well settled that they may still be revoked by the State when public interest so requires. On the other hand, the respondents over that the. petitioners failed to allege in their complaint a specific legal right violated by the respondent Secretary for which any relief is provided by law. They see nothing in the complain, but vague and nebulous allegations concerniong an "environmental" which supposedly entitles the petitioners to the "protection by the state in its capacity as parens patriae." Such allegations, according to them, do not reveal a alid cause of action. They then reiterate the theory that the question of whether logging should be permitted in the country is a political question which should be properly addressed to the executive or legislative branches of Government. They therefore assert that the petitioners' recourse is not to file an action to court , but to lobby before Congress for the passage of a bill that would ban logging totally. As to the matter of the cancellation of the TLAs, respondents submit that the same cannot be done by the State without due process of law. Once issued, a TLA remains effective for a certain period of time-usually for twenty-five (25) years. During its effectivity, the same can can neither be revised nor cancelled unless the holder has been found, after due notice and hearing, to have violated the terms of the agreement or other forestry laws and regulations. Petitioners' proposition to have all the TLAs indiscriminately cancelled vithout the requisite hearing would be violative of the requirements of due process. Before going any further, We must first focus on some procedural matters. Petitioners instituted Civil Case No. 90-777 as a class suit. The original defendant and the present respondents did not take issue with this matter, Nevertheless, We hereby rule that the said civil case is indeed a class suit. The subject matter of the complaint is of common and general interest not just to several, but to all citizens of the Philippines. Consequently, since the parties are so numerous, it becomes impracticable, if not totally impossible, to ring all of them before the court. We likewise declare that the plaintiffs therein are numerous and representative enogh to ensure the full protection of all concerned interests. Hence all the requisites for the Filing of a valid class suit under Section 12, Rule 3 of the Revised Rules of Court are present both in the said civil case and in the instant petition, the latter being but an incident to the former. This case, however, has special and novel element Dt. Petitioners minors assist that they represent the veneration as well as genera ions yet unborn . We find to difficulty in ruling that they an, for ourselves, the others of generation and for proceedings class sum of their personality to sue in behalf of the succeeding generat ions can only be based on the concept generational responsibility insofar as the right to and healthful ecology is concerned. Such a right, as herein, ter expounded, considers the "rhythm and harmony of nature."Nature means the created world in its entirety.9 Such Rythm and harmony indispensably include, inter alia, the judicious disposition, utilization, management, renewal and conservation of the country's forest, mineral, land, waters, fisheries, wildlife, off-shore areas and other natural resources to the end that their exploration, development and utilization be equitably accessible to the present as well as future generations.10 Needless to say, every generation has a responsibility to the next to preserve that rhythm and harmony for the full enjoyment of a balanced and healthful ecology. Put a little differently, the minors' assertion of their right to a sound environment constitutes, at the same time, the performance of their obligation to ensure the protection of that right for the generations to come. The locus standi of the petitioners having thus been dressed, We shall now proceed to the merits of the petition. After a careful perusal of the complaint in question and a meticulous consideration and evaluation of the issues raised and arguments adduced by the parties, We do not hesitate to find for the petitioners and rule against the respondent Judge's challenged order for having been issued with grave abuse of discretion amounting to lack of jurisdiction. The pertinent portions of the said order read as follows: xxx "After a careful and circumspect evaluation of the Complaint, the Court cannot help but agree with the defendant. For although we believe that plaintiffs have but the noblest of all intentions, it (sic) feel short of alleging, with sufficient definiteness, a specific legal right they are seeking to enforce and protect, or a specific legal wrong they are seeking to prevent and redress (Sec. 1, Rule 2, RRC).

Furthermore, the Court notes that the Complaint is replete with vague assumptions and vague conclusions based on unverified data the plaintiffs state a cause of action in its Complaint the herein defendant. Furthermore, the Court firmly believe the matter before it, being impressed with political color and invasing matter of public policy, may not be taken cognizance by this Court without doing violence to the sacred principle of Separation of Powers of the three (3) coequal branches of the Government. The Court is likewise of the impression that it cannot, no matter how we stretch our jurisdiction, grant th. reliefs played for by the plaintiffs, i.e., to cancel all existing timber license agreements in the country and to cease and desist from receiving, accepting, processing renewing or approving new timber license agreements. For to do otherwise would amount to 'impairment of contracts' abhored (sic) by the fundamental law.11 We do not agree with the trial court's conclusion that the plaintiffs failed to allege with ' sufficient, definiteness a specific legal right involved or a specific legal wrong committed, and that the complaint is replete with vague assumptions and conclusions based on unverified data. A reading of the complaint itself belies these conclusions. The complaint focuses on one specific fundamental legal right-the right to a balanced and healthful ecology which, for the first time in our nation's constitutional history, is solemnly incorporated in the fundamental law. Section 16, Article II of the 1987 Constitution explicitly provides: "SEC. 16. The State shall protect and advance the right of the people to a balanced and healthful ecology in accord with the rhythm and harmony of nature." This right unites with the right to health which is provided for in the preceding section of the same article: "SEC. 15. The State shall protect and promote the right to health of the people and instill health consciousness among them. While the right to a balanced and healthful ecology is to be found under the Declaration of Principles and State Policies and not under the Bill of Rights, it does not fellow that it is important than any of the civil and political rights enumerated in the latter. Such a right belongs to a different category of rights altogether for it concerns nothing less than self-preservation and self-perpetuation-aptly and fittingly stressed by the petitioner the advancement of which may even be said to predate all governments and constitutions. As a matter of fact, these basic rights need not even be written in the Constitution for they an assumed to exist from the inception of humankind. If they are now xiplicitly mentioned in the fundamental charter, it is because of the well-founded fear of its framers that unless the rights to a balanced and healthful ecology and to health are mandated as state policies by the Constitution itself, thereby highlighting their continuing importance and imposing upon the state a solemn obligation to preserve the Brat and protect and advance the second, the day would not be too far when all else would be lost not only for the present generation, but also for those to come-generations which stand to inherit nothing but parched earth incapable of sustaining life. The right to a balanced and healthful ecology carries with it the correlative duty to refrain from impairing the environment. During the debates on this right in one of the plenary sessions of the 1986 Constitutional Commission, the following exchange transpired between Commissioner Wilfrido Villacorta and Commissioner Adolfo Azcuna who sponsored the section in question: "MR. VILLACORTA: Does this section mandate the State to provide sanctions against all forms of pollution-air, water and noise pollution? MR. AZCUNA: Yes, Madam President. The right to healthful (sic) environment necessarily carries with it the correlative duty of not impairing the same and, therefore, sanctions may be provided for impairment of environmental balance.12 The said right implies, among many other things, the judicious management and conservation of the country's forests. Without such forest the ecological or environmental balance would be irreversibly accepted. Conformably with the minciated right to a balanced and healthful ecology and the right to health, as well as the other related provisions of the Constitution concerning the conservation, development and utilzation of the countrys natural resources,13 then President Corazon C. Aquino promulgated on 10 June 1987 E.O. No.192,14 Section 4 of which expressly mandates that the Department of Environment and Natural Resources shall be the primary government agency responsible for the conservation, management, development and proper use of the country's, environment and natural resources, specifically forest and grazing lands, mineral resources, including those in reservation and watershed areas, and lands of the public domain, as well as the licensing and regulation of an natural resources as may be provided for by law in order to ensure equitable sharing of the benefits derived therefrom for the welfare of the present and future generations of Filipinos.'Section 3 thereof makes the following statement of policy: "SEC. 3. Declaration of Policy. -It is hereby declared the policy of the State to ensure the sustainable use, development, management, renewal, and conservation the country's forest, mineral, land, offshore areas and other natural resources, including the protection and enhancement of the quality of the environment, and equitable access of the different segments of the population to the development and use of the country's natural resources, not only for the present generation but for future generations as well. It is also the policy of the state to recognize and apply a true value system including social and environmental cost implications relative to their utilization, development and conservation of our natural resources." This policy declaration is substantially re-stated in Title XIV, BooK IV of the Administrative Code of 1987,11 specifically in Section I thereof which reads: SEC. 1. Declaration of Policy.-(l) The State shall ensure for the benefit of the Filipino people, the full exploration and development as the judicious disposition, utilization, management, renewal and conservation of the country's forest, mineral, land, waters, fisheried, wildlife, off-shore areas and other natural resources, consequent with the necessity of maintaining a sound ecological balance and protecting and enhancing the quality of the environment and the objectivc of making the exploration, development and utilization of such natural resources equitably accessible to the different segments of the present as well as future generations. (2) The State shall likewise recognize and apply a true value system that takes into account social and environmental cost implications relation to the utilization, development and conservation of our natural resources." The above provision stresses "the necessity of maintaining a sound ecological balance and protecting and enhancing the qualit yof the environment." Section 2 of the same Title, on e other hand, specifically speaks of the mandate of the DENR; however, it makes particular reference to the fact of the agency's being subject to law and higher authority. Said section provides: "SEC. 2. Mandate. (1) The Department of Environment and Natural Resources shall be primarily responsible for the implementation of the foregoing policy. (2) It shall, subject to law and higher authority, be. in charge of carrying out the State's constitutional mandate to control and supervise the exploration, development, utilization, and conservation of the country's natural resources."

Both E.O. No. 192 and the Administrative Code of 1987 have set the objectives which will serve as the bases for policy formulation, and have defined the powers and functions of the DENR. It may, however, be recalled that even before the ratification of the 1987 Constitution, specific statutes already paid special attention to the "environmental right" of the present and future generations. On 6 June 1977, P.D. No. 1151 (Philippine Environmemtal Policy) and P.D. No. 1152 (Philippine Environment Code) were issued. The former "declared a continuing policy of the state (a) (a) to create, develop, maintain and improve condition, under which man and not enjoyabler can threre in productive and enjointable harmed with each other, (b) to fulfill the social, and other requirement of present and future generations to Filipinos and (c) to insure attainment of an environmental quality that is couconceive to able of dignity nd well being.16 As its goal, it speaks of the "responsibilties of each generations trustee and guardian the environment for succeeding generations.17 The latter statue, on the other hand, gave flesh to the said policy. Thus, the right of the petitioners (and all those they represent) to a balanced and healthful ecology is as clear as the DENR's duty under its mandate and by virtue of its powers and functions under E.O. No. 192 and the Administrative Code of 1987 to protect and advance the said right. A denial or violation of that right by the other who has the correlative duty or obligation to respect or protect the same gives rise to a cause of action. Petitioners maintain that the granting of the TLAs, which they claim was done with grave abuse of discretion, violated their right to a balanced and healthful ecology; hence, the full protection thereof requires that no further TLAs should be renewed or granted, A cause of action is defined as: "x x x an act or omission of one party in violation of the legal rights of the other; and its essential elements are legal right of the plaintiff, correlative obligation of the defendant, and act or omission of the defendant in violation of said legal right.18 It is settled in this jurisdiction that in a motion to dismiss based on the ground that the complaint fails to state a cause of action,19 the question submitted to the court for resolution involves the sufficiency of the facts alleged in the complaint itself. No other matter should be considered; furthermore, the truth of falsity of the said allegations is beside the period for the said allegataions thereof is deemed hypothicatically admitted. The only issue resolved in such case is: admitting such alleged facts to be true,may the court render a valid judgment in accordance with the prayer in the complaint?20 In Militante vs, Edrosadano,21 this Court laid down the rule that the judiciary should exercise the utmost care and circumspection in passing upon a motion to dismiss on he ground of the absence thereof [cause of action] , by its failure the to manifest a correct appreciation of the facts alleged and deemed hypothetically admitted, that the law grants or recognizes is effectively nullified. If that happpens there is a blot on the legal order law itself stands in that discrpute." After a careful examination of the petitioners' complaint, We find the statements under the introductory affirmitive allegations, as well as the specific averments under the ih-heading CAUSE OF ACTION, to be adequate enough to show, prima facie, the fainted violation of their rights. On the basis thereof, they mayt is be granted wholly or partly, the reliefs prayed for. lt hears stressing however, that insofar -as the cancelationof the TLA's is concerned, there is the need to implied,as party defendants, the grantees thereof for they are indispensable parties. ON POLITICAL QUESTION The foregoing considered, Civil Case . 90-777 cannot be said to raise a political question. Policy formulation or determination by the executive or legislative branches of Government is not squarely put in issue. What is principally involved is the enforcement of a right vis-a-vis policies already formulated and expressed in legislation. It must, evertheless, be emphasized that the political question doctrine is no , linger the insurmountable obstacle to the exercise of judicial power or the impenetrable shield that protects executive and legislative actions from judicial inquiry or review, The second paragraph of section 1, Article VIII of the Constitution states that: "Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave ahead discretion granting to lack of excess of jurisdiction on the part of branch or instrumental of the Government." Implementing on this provision in his book, Philippine Political Law,22. Justice Isagani A. Cruz, a distinguished member of this Court " says: "The first part of the authority represents the traditional concept of judicial power, involving the settlement of conflicting rights as conferred as law. The second part of the authority represents a broadciting of judicial power to enable the courts of justice to review what was before forbidden territory, to wit, the discretion of the political departments of the government. As worded. the new provision vests in the judiciary, and particularly the Supreme. Court, the power to rule upon even the wisdom of the decisions of the execution and the legislature and to declare their acts invalid for lack or excess of jurisdiction because tainted with grave abuse of discretion. The catch, of course, is the meaning of grave abuse of discretion,'which is a very elastic phrase that can expand or contract according to the d isposition of the judiciary." In Daza vs. Singson,23 Mr. Justice Cruz, now speaking for this Court, noted: "In the case now before us, the jurisdictional objection becomes even less tenable and decisive. The reason is that, even if we were to assume that the issue presented before us was political in nature, we would still not be precluded from resolving it under the expanded jurisdiction conferred upon us that now covers, in proper cases, even the political question. Article VII, Sect ion 1, of the Constitution clearly provides: x x x." ON NON-IMPAIRMENT CLAUSE The last ground invoked by the trial court in dismissing the complaint is the non-impairment of contracts clause found in the Constitution. The court a quo declared that: "The Court is likewise of the increase that cannot how we stretch our jurisdiction for by the plaintiffs, i.e., to cancel all existing timber agreements in the country and to cease and desist from receiving,accepting, processing, renewing or approving now timber license agreement. For to do otherwise would amount to 'impairment ( contracts' abhored (sic) by the fundamental law.24

We are not persuaded at all; on the contrary, We are amazed, if not shocked, by such a swee ping pronouncement In the first place, the respondent Secretary did not, for obvious reasons, even invoke in his motion to dismiss the non-impairment clause. If he had done so, he would have acted with utmost infidelity to the Government by providing undue and unwarranted benefits and advantages to the timber license holders because he would have forever bound the Government to strictly respect the said licenses according to their terms and conditions regardless of changes in policy and the demands of public interest and welfare. He was aware that as correctly pointed out by the petitioners, into every timber license must be read Section 20 of the Forestry Reform Code (P.D. No. 705) which provides: " x x x Provided, That when the national interest so requires, the President may amend, modify, replace or rescind any contract, concession, permit, licenses or any other form of privilege granted herein x x x." Needless to say, all licenses may thus be revoked or rescinded by executive action. It is not a contract, property or a property right protected by the due process clause of the Constitution. In Tan us. Director of Forestry,25 this Court held: "x x x A timber license is an instrument by which the State regulates the utilization and disposition of forest resources to the end that public welfare is promoted. A timber license is not a contract within the purview of the due process clause; it is only a license or privilege, which can be validly withdrawn whenever dictated by public interest or public welfare as in this case, A license, is merely a privelege to do what otherwise what otherwise would be unlawful, and is the a contract between the authority, federal, state, or municipal, granting and the person the with to whom it is granted; neither is it property or a person to what oeg it create a vested right; nor is it taxation' (37 C.J. 168). Thus, this Court held that the granting of license does not create inrrevocable rights, neither is it property or property rights (People vs. Ong Tin, 54 O.G. 7576). x x x" We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy Executive Secretary:26 "x x x 'Ember licenses, permits bed license agreements are the principal instruments by which the State regulates the utilization and disposition of forest resources to the end that public welfare is promoted. And it can hardly be gainsaid that they merely evidence a privilege granted by the State to qualified entities, and do not vest in the latter a permanent or irrevocable right to the particular concession area and the forest products therein, They may be validly amended, modified, replaced or rescinded by the Chief Executive when national interests so require. Thus, they are not deemed contracts within the purview of the due process of law clause [See Sections 3(ee) and 20 of Pres. Decree No. 705, as amended. Also, Tan v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA 302]." Since timber licenses are not contracts, the non-impairment clause, which reads: "SEC. 10. No law impairing, the obligation of contracts shall be passed.27 cannot be invoked. In the second place, even if it is to be assumed that the same are contracts, the instant case does not involve a law or even an executive issuance declaring the cancellation or modification of existing timber licenses. Hence, the non-impairment clause cannot as yet be invoked. Nevertheless, granting further that a law has actually been passed mandating cancellations or modification , the same cannot still be stigmatized as a violation of the non-impairment.This is because by its very nature and purpose, such a law court have only been passed in the exercise of the police power of the statue for the purpose of advancing the right of the people to a balanced and healthful ecology, promoting their health and enhancing the general welfare. In Abe vs. Foster Wheeler Corp.28," this Court stated: "The freedom of contract, under our system of government, is not meant to be absolute. The same is understood to be subject to reasonable, legislative regulation aimed at the promotion of public health, moral, safety and welfare, In other words, the constitutional guaranty of non-impairment of obligations of contract is limited by the exercise of the police power of the State, in the interest of public health, safety, moral and general welfare." The reason for this is emphatically set forth in Nebia us. New York,29 quoted in Philippine American Life Insurance Co. us. Auditor General,30 to wit: "'Under our form of government the use of property and the making of contracts are normally matters of private and not of public concern. The general rule is that both shall he free of governmental interference. But neither property rights nor contract rights are absolute; for government cannot exist if the citizen may at will use his property to the detriment of his fellows, or exercise his freedom of contract to work them harm. Equally fundamental with the private right is that of the public to regulate it in the common interest."' In short, the non-impairment clause must yield to the police power of the state.31 Finally, it is difficult to imagine, as the trial court did, how the non-impairment clause could apply with respect to the prayer to enjoin the respondent Secretary from receiving, accepting processing of renewal, no contract would have as of yet existed the other instances. Moreover, with respect to renewal, the holder is not entitled to it as a matter of right. WHEREFORE, being impressed with merit, the instant Petition is hereby GRANTED,and the challenged Order of respondent Judge of 18 July 1991 dismissing Civil Case No. 90-777 is hereby set a aside . complaint to implead as defendants the holders or grantees of the questioned timber license agreements. No pronouncement as to costs. SO ORDERED. Cruz, Padilla, Bidin, Grio-Aquino, Regalado, Romero, Nocon, Bellosillo, Melo and Quiason, JJ., concur. Narvasa (C.J.), No part; related to one of the parties. Feliciano, J., Please see separate opinion concurring in the result. Puno J., No part in the deliberations. Vitug, J., No part; I was not yet with the Court when the case was deliberated upon. FELICIANO, J.: Concurring in the result I join in the result reached by my distinguished brother in the Court, Davide, Jr., J., in this case which, to my mind, is one, of the most important cases decided by this Court i the last few years. The seminal principles laid down in this decision are likely to influence profoundly the direction and course of the protection and management of the environment, which of course embraces the utilization of all the natural resources in the territorial base of our polity. I have therefore sought to clarify, basically to myself, what the Court appears to be saying. The Court explicitly states that petitioners . have the locus standi necessary to sustain the bringing and mainteance of this suit (Decision, pp. 11-12). Locus standi is not a function of petitioners' claim, that their suit is properly as regarded as glass suit.Understand, suit to refer to the interest a plaintiff must have in the subject matter of the suit. Because of the very broadness of

the concept of "class" here involved-membership in this "class" appears to embrace everyone living in the country whether now or in the future--t appears to me that everyone who may be expected to benefit from the course of action petitioners seek to require public respondents to take, is vested with the necessary locus standi. The Court may be seen therefore to be recognizing a beneficiaries' right of action in the field of environmental protection, as against both the public administrative agency directly concerned and the private per. sons or entities operating in the field or sector of activity in. volved. Whether such a beneficiaries' right of action may be found under any and all circumstances, or whether some failure to act, in the first instance, on the part of the governmental agency concerned must be shown ("prior exhaustion of administrative remedies"), is not discussed in the decision and presumably is left for future determination in an appropriate case. The Court has also declared that the complaint has alleged and focused upon "one specific fundamental legal right-the right to a balanced and healthful ecology" (Decision, p. 14). There is no question that "the right to a balanced and healthful ecology" is "fundamental" and that, accordingly, it has been "constitutionalized." But although it is fundamental in character, I suggest, with very great respect, that it cannot be characterized as "specific," without doing excessive violence to language. It is in fact very difficult to fashion language more comprehensive in scope and generalized in character than a right to "a balanced and healthful ecology." The list of particular claims which earl be subsumed under this rubric appears to be entirely open-ended: prevention and control of emission of toxic fumes and smoke from factories and motor vehicles; of discharge of oil, chemical effluents, garbage and raw sewage into rivers, inland and coastal waters by vessels, oil rigs, factories, mines and whole communities; of dumping of organic and inorganic wastes on open land, streets and thoroughfares; failure to rehabilitate land after stripmining or open-pit mining; kaingin or slash-and-burn farming; destruction of fisheries, coral reefs and other living sea resources through the use of dynamite or cyanide and other chemicals; contamination of and water resources; loss of certain species of faura and flora and so on. The other statements pointed out by the Court: Section 3, Executive Case No. 192 dated 10 June 1987; Section 1, Title XIV, Book IV 1987 Administrative Code; and P.D. No. 1151, dated 6 June I977--all appear to be formulations of policy, as general and abstract as the constitutional statements of basic policy in Article II, Section 16 ("the right-to a balanced and healthful ecology and 15 ("the right to health'). P.D. No. 1152, also dated 6 June 1177, entitled "The Philippine Environment Code," is, upon the other hand, a compendious collection of more "specific environment management policies" and "environment quality standards' (fourth 'Whereas" clause, Preamble) relating to an extremely wide range of topics: (a) air quality management; (b) water quality management: (c) land use management (d) natural resources managemnt and conservation embracing. (i) fisheries and aquatic resources; (ii) wild life; (iii) forestry and soil conscervation; (iv) flood control and natural calamities; (v) energy development; (vi) conservation and utilization of surface and ground water (vii) mineral resources Two (2) points are worth making in this connection. Firstly, neither petitioners nor the Court has identified the particular provision or provisions (if any) of the Philippines Environment Code which give rise to a specific legal right which petitioners are seeking to enforce. Secondly, the Philippine Environment Code identifies with notable care the particular government agency charged with the formulation and implementation of guidelines and programs dealing, with each of the headings and sub-headings mentioned above. The Philippine nvirorim, at Code does not, in other words, appear to ontemplate action on the-part of private persons who beneficiaries of implementation of that Code. As a matter of logic, by finding petitioner's 'cause of action as an on a leg right conpared in the constitutional statements above noted, the Court is in effect saying that Section 15 (and Section 16) of Article 11 of the, Court of self-executing and judicially enforceable even in present form. The implications of this doctrine will to be entered in future cases; those implications are too large and far-reaching in nature even to be hinted at here. My suggestion is simply that petitioners must before the trial court show a more specific legal right a right cast in language of a significantly lower order of generality than Article 11 (15) of the Constitution-that is or may be violated by the actions, or failures to act, imputed to the public respondent by petitioners so that the trial court can validly render judgment granting all or part of the relief prayed for. To my mind, the Court should be understood as simply saying that such a more specific legal right or rights may well exist in our corpus of law, considering the general policy principles found in the Constitution and the existence of the Philippine Environment Code, and that the trial court should have given petitioners an effective opportunity so to demonstrate, instead of aborting the proceedings on a motion to dismiss. It seems to me important that the legal right which is an essential component of a cause of action be a specific, operable legal right, rather than a constitutional or statutory policy, for at least two (2) reasons. One is that unless the legal right claimed to have been violated or disregarded is given specification in operational terms, defendants may well be unable to defend themselves intelligently and effectively; in other words, there are due process dimensions to this matter. The second is a broader-gauge consideration-where a specific violation of law or applicable regulation is not alleged or proved, petitioners can be expected to fall back on the expanded conception of judicial power in the second paragraph of Section 1 of Article VIII of the Constitution which reads: "Section 1. x x x Judicial power includes the duty of the coin: of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of disretion amounting to lack or excess of jurisdiction on the part of any Branch or istrumental of the Government." (Emphasis supplies) When substantive stadards as general as the balanced and healthy ecology" and "the right to healing combined with remedial standards as broad ringing as "a grave abuse of discretion amounting to lack or execes of jurisdiction," the result will be, it is respectfully submitted, to propel courts into the uncharted ocean of social and economic policymaking.

At least in respect of the vast area of environmental protection and management, our courts have no claim to special technical competence and experience and professional qualification. Where no specific, operable norms and standards are shown to exist, then the policy making departments- the legislative and executive departments must be given a real and effective opportunity to fashion and promulgate the norms and standards, and to implement them before the courts should intervene. My learned brother Davide, Jr., J., rightly insists that the timber companies, whose concession agreements or TLA's petitioners demand public respondent should cancel, must be impleaded in the proceedings below. might be asked that, if petitioners' entitlement to the relief demadec is not dependent upon proof of breach by the timber companies of one or more of the specific terms and conditions of their concession agreements (and this, petitioners implicitly assume), what will those companies litigate about? The answer I suggest is that they may seek to dispute the existence of the specific legal right petitioners should allege, as well as the reality of the claim claimed factual nexus between petitioners' specific legal rights and the claimed wrongful acts or failures to act of public respondent administrative agency. They may also controvert the appropriateness of the remedy or remedies, demanded by petitioners, under all the circumstances which exist. I vote to grant the Petition for Certiorari because, the protection of the environment, including the forest cover of our territory, is of extreme importance for the country. The doctrines sot out in the Court's decision issued today should, however, be, rejected to closer examination. Petition granted. Challenged order set aside. 1. Rollo, l60-186. 2. Id., 62-65, exclusive of annexes. 3. Under Section 12 Rule 3, Revised Rules of Court. 4. Ro 67. . 5. Id., 74. 6. Rollo, 70-73. 7. Annex "B" of Petition, p.43-50. 8 paragraph 7,Petition, 6; Rollo.60. 9 Webster's Third New International Dictionary, unabridged,1986, 1508. 10 Title XII '(Environment and Natural, Resources),Book IV of the Administrative Court 1987 Rollo 292. 11 Annex "B" of Petition, Rollo 43-44. 12 Record of the Constitution Conmission 4,913. 13 For instance, the Preamble and Article XII on the National Economy and Patrimony. 14 The Reorganization Act of the Department of Environment and Natural Resources. 15 E.O.no. 222. 16 Section 1. 17 Section 2. 18 Ma-at Sugar Central Co. vs. Barrios, 79 Phil. 666 [1947]; Community Investment and Finance Corp. vs. Garcia, 88 Phil. 215 [1951]; Remitere vs. Vda do Yulo, 16 SCRA 251 [1966]; Caseas vs. Rosales, 19SCRA462 1967];Viratavs.Sandigari 202SCRA 680 [1991]; Madroga vs. Rosal, 214 SCRA 1 [1991]. 19 Section of Rule, 16, Revised Rules. 20 Adamos vs. J.M. Tuason and Co., Inc. 25 SCRA 529 [1968]; Virata vs. Sandiganbayan, supra; Madrona vs. Rosal, supra. 21 SCRA 473, 479 [1971]. 22 1991 ed. 226-227. 23 180 SCRA 496, 501-502 [1980] See also, Coseteng vs. Mira 187 SCRA 377 [1990]; Gonzaless vs. Macaraig 191 SCRA 452 [1990];Llamas vs. Orbos, 202 SCRA 844 [1991]; Bengzon vs. Senates Blue Rule on Committee 209 SCRA [1991]. 24 Rollo, 44. 25 125 SCRA 302, 325 [1983]. 26 190 SCRA 673, 684 [1990] 27 Article 111, 1987 Constitution. 28 110 Phil. 198, 203 [19601; footnotes omitted. 29 291 U.S. 502, 523, 78 L. ed. 940, 947-949. 30 22 SCRA 135, 146-147 [1968]. 31 Ongsiako vs. Gamboa, 86 Phil. 50 [1950] Abe vs. Foster Wheeler Corp. supra.; Phil. American Life lnsurance Co. vs. Auditor General, NPC.;Alalayan vs.NPC,24,SCRA 172 [1968] Victoriano vs.Elizelde Hope Workers' Union, 59 SCRA 54 1[974); Kabiling vs. National House in Authority.156 SCRA 623 [1987] ~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~ Mathay vs. Consolidated Bank & Trust Company August 26, 1974 [GRN L-23136 August 26, 1974] ISMAEL MATHAY, JOSEFINA MATHAY, DIOGRACIAS T. REYES and S. ADOR DIONISIO, plaintiffsappellants, vs. THE CONSOLIDATED BANK AND TRUST COMPANY, JOSE MARINO OLONDRIZ, WILFRIDO C. TECSON, SIMON R. PATERNO, FERMIN Z. CARAM, JR., ANTONIO P. MADRIGAL, JOSE P. MADRIGAL, CLAUDIO TEEHANKEE, and ALFONSO JUAN OLONDRIZ, defendants-appellees. CIPRIANO AZADA, MARIA CRISTINA OLONDRIZ PERTIERRA jointly with her husband ARTURO PERTIERRA, and MARIA DEL PUY OLONDRIZ DE STEVENS, movantsintervenors- appellants. DECISION SECOND DIVISION SYLLABUS 1. CIVIL PROCEDURE; CLASS SUIT; REQUISITES OF A CLASS SUIT.-The necessary elements for the maintenance of a class suit are accordingly: (1) that the subject matter of the controversy be one of common or general interest to many persons, and (2) that such persons be so numerous as to make it impracticable to bring them all to the court. 2. ID.; ID.; EXISTENCE OF A CLASS SUIT DEPENDS UPON THE ATTENDING FACTS, NOT UPON THE DESIGNATION IN THE COMPLAINT.An action does not become a class suit merely because it is designated as such in the pleadings. Whether the suit is or is not a class suit depends upon the attending facts, and the complaint, or other pleading initiating the class action should allege the existence of the necessary facts, to wit, the existence of a subject matter of common interest, and the existence of a class and the number of person in the alleged class, in order that the court might be enabled to determine whether the members of the class are so numerous as to make it impracticable to bring them all before the court, to contrast the number appearing on the record with the number in the

class and to determine whether claimants on record adequately represent the class and the subject matter of general or common interest. 3. ID.; ID.; MEANING OF PHRASE "SUBJECT MATTER OF THE ACTION".-By the phrase "subject matter of the action" is meant "the physical facts, the things real or personal, the money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant." 4. ID.; ID.; CLASS SUIT WILL NOT PROSPER WHEN BROUGHT BY STOCKHOLDERS WHO HAVE DETERMINABLE, THOUGH UNDIVIDED INTEREST IN THE PROPERTY IN QUESTION.-This Court has ruled that a class suit did not lie in an action for recovery of real property where separate portions of the same parcel were occupied and claimed individually by different parties to the exclusion of each other, such that the different parties had determinable, though undivided interests, in the property in question .... The interest, subject matter of the class suits in the above-cited cases, is analogous to the interest claimed by appellants in the instant case. The interest that appellants, plaintiffs and intervenors, and the CMI stockholders had in the subject matter of thus suit - the portion of stocks offering of the Bank left unsubscribed by CMI stockholders who failed to exercise their right to subscribe on or before January 17, 1963 - was several, not common or general in the sense required by the statute. Each one of the appellants and the CMI stockholders had determinable interest; each one had a right to, or any interest in, the stock to which another was entitled. 5. ID.; ID.; WRONGS COMMITTED TO EACH INDIVIDUAL STOCKHOLDER WOULD NOT CREATE COMMUNITY OF INTEREST IN SUBJECT MATTER OF CONTROVERSY.-Even if it be assumed, for the sake of argument, that the appellants and the CMI stockholders suffered wrongs that had been committed by similar means and even pursuant to a single plan of the Interim Board of Organizers of the Bank, the wrong suffered by each of them would constitute a wrong separate from those suffered by the other stockholders, and those wrongs alone would not create that common or general interest in the subject matter of the controversy as would entitle any one of them to bring a class suit on behalf of the others. 6. ID.; ID.; SO-CALLED "SPURIOUS CLASS ACTION" IS MERELY A PERMISSIVE JOINDER DEVICE AND CANNOT BE REGARDED AS A CLASS SUIT.-The spurious class action is merely a permissive joinder device; between the members of the class there is not jural relationship, and the right or liability of each is distinct, the class being formed solely by the presence of a common question of law or fact. This permissive joinder is provided in Section 6 of Rule 3, of our Rules of Court. Such joinder is not and cannot be regarded as a class suit, which this action purported and was intended to be as per averment of the complaint. 7. ID.; ID.; EXISTENCE OF COMMON QUESTION OF LAW WOULD NOT SUFFICE TO MAINTAIN A CLASS ACTION.-It may be granted that the claims of all the appellants involved the same question of law. But this alone, as said above, did not constitute the common interest over the subject matter indispensable in a class suit. The right to purchase or subscribe to the shares of the proposed Bank, claimed by appellants herein, is analogous to the right of preemption that stockholders have when their corporation increases its capital. The right of preemption, it has been said, is personal to each stockholder, an while a stockholder may maintain a suit to compel the issuance of his proportionate share of stock, it has been ruled, nevertheless, that he may not maintain a representative action on behalf of other stockholders who are similarly situated. 8. ID.; ID.; IN A CLASS SUIT THERE MUST BE SHOWING THAT SUFFICIENT REPRESENTATIVE PARTIES HAD BEEN JOINED.- Where it appeared that no sufficient representative parties had been joined, the dismissal by the trial court of the action, despite the contention by plaintiffs that it was a class suit, was correct. 9. ID.; MOTION TO DISMISS; WHEN GROUND OF MOTION TO DISMISS IS LACK OF CAUSE OF ACTION ONLY ALLEGATIONS OF THE COMPLAINT MUST BE CONSIDERED.-As a rule the sufficiency of the complaint, when challenged in a motion to dismiss, must be determined exclusively on the basis of the facts alleged therein. 10. ID.; ID.; A MOTION TO DISMISS BASED ON LACK OF CAUSE OF ACTION HYPOTHETICALLY ADMITS THE TRUTH OF FACTUAL ALLEGATIONS IN THE COMPLAINT.-It is to be noted that only the facts well pleaded in the complaint, and likewise, any inferences fairly deducible therefrom, are deemed admitted by a motion to dismiss. Neither allegations of conclusions nor allegations of facts the falsity of which the court may take judicial notice are deemed admitted. 11. ID.; ID.; TEST FOR DETERMINING SUFFICIENCY OF CAUSE OF ACTION IN MOTION TO DISMISS.-The question, therefore, submitted to the Court in a motion to dismiss based on lack of cause of action is not whether the facts alleged in the complaint are true, for these are hypothetically admitted, but whether the facts alleged are sufficient to constitute a cause of action such that the court may render a valid judgment upon the facts alleged therein. 12. ID.; ESSENTIAL ELEMENTS OF A CAUSE OF ACTION.-A cause of action is an act or omission of one party in violation of the legal right of the other. Its essential elements are, namely: (1) the existence of a legal right in the plaintiff, (2) a correlative legal duty in the defendant, and (3) an act or omission of the defendant in violation of plaintiff's right with consequential injury or damage to the plaintiff for which he may maintain an action for the recovery of damages or other appropriate relief. 13. ID.; ALLEGATION THAT ONE IS ENTITLED TO SOMETHING IS A CONCLUSION OF LAW.-A bare allegation that one is entitled to something is an allegation of a conclusion. Such allegation adds nothing to the pleading, it being necessary to plead specifically the facts upon which such conclusion is founded. The complaint alleged that appellants were stockholders of the CMI; that as such stockholders, they were entitled, by virtue of the resolution of March 28, 1962, to subscribe to the capital stock of the proposed Consolidated Bank & Trust Co., at par value to the same extent and in the same amount as said stockholders' respective shareholdings in the CMI as shown in the latter's stock book as of January 15, 1963, the right to subscribe to be exercised until January 15, 1963, provided said stockholders of the CMI were qualified under the law to become stockholders of the proposed Bank; that appellants accomplished and filed their respective "PreIncorporation Agreements to Subscribe" and fully paid the subscription. These alleged specific facts did not even show that appellants were entitled to subscribe to the capital stock of the proposed Bank, for said right depended on a condition precedent, which was, that they were qualified under the law to become stockholders of the Bank, and there was no direct averment in the complaint of the facts that qualified. them to become stockholders of the Bank. The allegation of the fact that they subscribed to the stock did not, by necessary implication, show that there were possessed of the necessary qualifications to become stockholders of the proposed Bank. 14. ID.; TRUSTS; QUESTION OF LAW AND FACTS; ALLEGATION THAT DEFENDANTS HELD SHARES AS TRUSTEES FOR PLAINTIFF'S IS A CONCLUSION OF LAW.-The allegation in the complaint that the defendantsappellees held their shares "in trust" for plaintiffsappellants without averment of the facts from which the court could conclude the existence of the alleged trust, was not deemed admitted by the motion to dismiss for that was a conclusion of law. 15. ID.; QUESTION OF LAW AND FACTS; ALLEGATION THAT ONE ACQUIRED STOCKS IN BREACH OF LAW, TRUST OR AGREEMENT IS ONE OF LAW.-The allegation that the defendants- appellees acquired stockholdings far in excess of what they were lawfully entitled, in violation of law and in breach of trust and of contractual agreement, is also mere conclusion of law. 16. ID.; ID.; ALLEGATION THAT AN ACT WAS UNLAWFUL OR WRONGFUL IS A MERE CONCLUSION OF LAW.-The further allegations, that the calling of a special meeting was "falsely certified," that the seventh position of Director was "illegally created" and that defendant Alfonso Juan Olondriz was "not competent or qualified" to be a director are mere conclusions of law, the same not being necessarily inferable from the ultimate facts stated in the first and second causes of action. APPEARANCES OF COUNSEL Deogracias T. Reyes & Associates for appellants. Taada, Teehankee & Carreon for appellees. Paterno Pedrea for appellee Fermin Z. Caram, Jr.

ZALDIVAR, J.: In this appeal, appellants-plaintiffs and movants- intervenors, seek the reversal of the order dated March 21, 1964 of the Court of First Instance of Manila dismissing the complaint together with all other pending incidents in Civil Case No. 55810. The complaint in this case, filed on December 24, 1963 as a class suit, under Section 12, Rule 3, of the Rules of Court, contained six causes of action. Under the first cause of action, plaintiffs-appellants alleged that they were, on or before March 28, 1962, stockholders in the Consolidated Mines, Inc. (hereinafter referred to as CMI), a corporation duly organized and existing under Philippine laws; that the stockholders of the CMI, including the plaintiffs-appellants, passed, at a regular stockholders' meeting, a Resolution providing: (a) that the Consolidated Bank & Trust Co. (hereinafter referred to as Bank) be organized with an authorized capital of P20,000,000.00; (b) that the organization be undertaken by a Board of Organizers composed of the President and Members of the Board of Directors of the CMI; (c) that all stockholders of the CMI, who were legally qualified to become stockholders, would be entitled to subscribe to the capital stock of the proposed Bank "at par value to the same extent and in the same amount as said stockholders' respective shareholdings in the CMI," as shown in its stock books on a date to be fixed by the Board of Directors [which date was subsequently fixed as January 15, 1963], provided that the right to subscribe should be exercised within thirty days from the date so fixed, and "that if such right to subscription be not so exercised then the stockholders concerned shall be deemed to have thereby waived and released ipso-facto their right to such subscription in favor of the Interim Board of Organizers of the Defendant Bank or their assignees"; and (d) that the Board of Directors of the CMI be authorized to declare a "special dividend" in an amount it would fix, which the subscribing stockholders might authorize to be paid directly to the treasurer of the proposed Bank in payment of the subscriptions; that the President and members of the Board of Directors of the CMI, who are the individuals-defendants appellees in the instant case, constituted themselves as the Interim Board of Organizers; that said Board sent out, on or about November 20, 1962, to the CMI stockholders, including the plaintiffs-appellants, circular letters with "Pre-Incorporation Agreement to Subscribe" forms that provided that the payment of the subscription should be made in cash from time to time or by the application of the special dividend declared by the CMI, and that the subscription must be made within the period from December 4, 1962 to January 15, 1963, "otherwise such subscription right shall-be deemed to have been thereby ipso facto waived and released in favor of the Board of Organizers of the Defendant Bank and their assignees"; that the plaintiffsappellants accomplished and filed their respective "Pre-Incorporation Agreement to Subscribe" and paid in full their subscriptions; that plaintiffs-appellants and the other CMI subscribing stockholders in whose behalf the action was brought also subscribed to a very substantial amount of shares; that on June 25, 1963, the Board of Organizers caused the execution of the Articles of Incorporation of the proposed Bank indicating an original subscription of 50,000 shares worth P5,000,000 subscribed and paid only by six of the individuals - defendantsappellees, namely, Antonio P. Madrigal, Jose P. Madrigal Simon R. Paterno, Fermin Z. Caram, Jr., Claudio Teehankee, and Wilfredo C. Tecson, thereby excluding the plaintiffs- appellants and the other CMI subscribing stockholders who had already subscribed; that the execution of said Articles of Incorporation was "in violation of law and in breach of trust and contractual agreement as a means to gain control of Defendant Bank by Defendant Individuals and persons or entities chosen by them and for their personal profit or gain in disregard of the rights of Plaintiffs and other CMI Subscribing Stockholders"; that the paid-in capital stock was raised, as required by the Monetary Board, to P8,000,000.00, and individuals-defendants appellees caused to be issued from the unissued shares 30,000 shares amounting to P3,000,000.00, all of which were again subscribed and paid for entirely by individuals-defendants appellees or entities chosen by them 'to the exclusion of Plaintiffs and other CMI subscribing stockholders" "in violation of law and breach of trust and of the contractual agreement embodied in the contractual agreement of March 28, 1962"; that the Articles were filed with the Securities and Exchange Commission which issued the Certificate of Incorporation on June 25, 1963; that as of the date of the Complaint, the plaintiffs-appellants and other CMI subscribing stockholders had been denied, through the unlawful acts and manipulation of the defendant Bank and Individuals-defendants-appellees, the right to subscribe at par value, in proportion to their equities established under their respective "Pre-Incorporation Agreements to Subscribe" to the capital stock, i.e., (a) to the original, issue of 50,000 shares and/or (b) to the additional issue of 30,000 shares, and/or (c) in that portion of said original or additional issue which was unsubscribed; that the individuals-defendants-appellees and the persons chosen by them had unlawfully acquired stockholdings in the defendant-appellee Bank in excess of what they were lawfully entitled and held such shares "in trust" for the plaintiffsappellants and the other CMI stockholders; that it would have been vain and futile to resort to intracorporate remedies under the facts and circumstances alleged above. As relief on the first cause of action, plaintiffs -appellants prayed that the subscriptions and shareholdings acquired by the individualsdefendants-appellees and the persons chosen by them, to the extent that plaintiffsappellants and the other CMI stockholders had been deprived of their right to subscribe, be annulled and transferred to plaintiffsappellants and other CMI subscribing stockholders. Besides reproducing all the above allegations in the other causes of action, plaintiffs-appellants further alleged under the second cause of action that on or about August 28, 1963, defendants-appellees Antonio P. Madrigal, Jose P. Madrigal Fermin Z. Caram, Jr., and Wilfredo C. Tecson "falsely certified to the calling of a special stockholders' meeting allegedly pursuant to due notice and call of Defendant Bank" although plaintiffs-appellants and other CMI stockholders were not notified thereof, and amended the Articles of Incorporation increasing the number of Directors from 6 to 7, and had the illegally created position of Director filled up by defendantappellee Alfonso Juan Olondriz, who was not competent or qualified to hold such position. In the third cause of action, plaintiffsappellants claimed actual damages in an amount equivalent to the difference between the par value of the shares they were entitled, but failed, to acquire and the higher market value of the same shares. In the fourth cause of action, plaintiffsappellants claimed moral damages; in the fifth, exemplary damages; and in the sixth, attorney's fees. In his manifestation to the court on January 4, 1964, Francisco Sevilla, who was one of the original plaintiffs, withdrew. On January 15, 1964 Cipriano Azada, Maria Cristina Olondriz Pertierra, Maria del Puy Olondriz de Stevens (who later withdrew as intervenorsappellants) and Carmen Sievert de Amoyo, filed a motion to intervene, and to join the plaintiffs-appellants on record, to which motion defendants- appellees, except Fermin Z. Caram, Jr., filed, on January 17, 1964 their opposition. On February 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a motion to dismiss on the grounds that (a) plaintiffsappellants had no legal standing or capacity to institute the alleged class suit; (b) that the complaint did not state a sufficient and valid cause of action; and (c) that plaintiffsappellants' complaint against the increase of the number of directors did not likewise state a cause of action. Plaintiffsappellants filed their opposition thereto on February 21, 1964. On March 4, 1964 appellants, plaintiffs and intervenors, filed a verified petition for a writ of preliminary injunction to enjoin defendants-appellees from considering or ratifying by resolution, at the meeting of the stockholders of defendant-appellee Bank to be held the following day, the unlawful apportionment of the shares of the defendant-appellee Bank and the illegal amendment to its Articles of Incorporation increasing the number of Directors. The Court, after hearing, granted the writ, but subsequently set it aside upon the appellees' filing a counterbond. Some subscribers to the capital stock of the Bank like Concepcion Zuluaga, et al., and Carlos Moran Sison, et al., filed separate manifestations that they were opposing and disauthorizing the suit of plaintiffs-appellants. On March 7, 1964 defendants- appellees, except Fermin Z. Caram, Jr., filed a supplemental ground for their motion to dismiss, to wit, that the stockholders, except Fermin Z. Caram, Jr., who abstained, had unanimously, at their regular annual meeting held on March 5, 1964, ratified and confirmed all the actuations of the organizers - directors in the incorporation, organization and establishment of the Bank.

In its order, dated March 21, 1964, the trial court granted the motion to dismiss, holding, among other things, that the class suit could not be maintained because of the absence of a showing in the complaint that the plaintiffs-appellants were sufficiently numerous and representative, and that the complaint failed to state a cause of action. From said order, appellants, plaintiffs and intervenors, interposed this appeal to this Court on questions of law and fact, contending that the lower court erred as follows: 1. In holding that plaintiffs-appellants could not maintain the present class suit because of the absence of a showing in the complaint that they were sufficiently numerous and representative; II. In holding that the instant action could not be maintained as a class suit because plaintiffs-appellants did not have a common legal interest in the subject matter of the suit; III. In dismissing the present class suit on the ground that it did not meet the requirements of Rule 3, Section 12 of the Rules of Court; IV. In holding that the complaint was fatally defective in that it failed to state with particularity that plaintiffs-appellants had resorted to, and exhausted, intra-corporate remedies; V. In resolving defendants-appellees' motion on the basis of facts not alleged in the complaint; VI. In holding that plaintiffs-appellants' complaint stated no valid cause of action against defendants-appellees; VII. In not holding that a trust relationship existed between the Interim Board of Organizers of defendant-appellee Bank and the CMI subscribing stockholders and in not holding that the waiver was in favor of the Board of Trustees for the CMI subscribing stockholders; VIII. In holding that the failure of plaintiffs-appellants to allege that they had paid or had offered to pay for the shares allegedly pertaining to them constituted another ground for dismissal; IX. In holding that the allegations under the second cause of action stated no valid cause of action due to a fatal omission to allege that plaintiffs-appellants were stockholders of record at the time of the holding of the special stockholders' meeting; X. In holding that plaintiffs-appellants' complaint stated no cause of action against defendant-appellee Bank; and XI. In considering the resolution of ratification and confirmation and in holding that the resolution rendered the issues in this case moot. The assigned error revolve around two questions, namely: (1) whether the instant action could be maintained as a class suit, and (2) whether the complaint stated a cause of action. These issues alone will be discussed. 1. Appellants contended in the first three assigned errors that the trial court erred in holding that the present suit could not be maintained as a class suit, and in support thereof argued that the propriety of a class suit should be determined by the common interest in the subject matter of the controversy; that in the instant case there existed such common interest which consisted not only in the recovery of the shares of which the appellants were unlawfully deprived, but also in divesting the individuals-defendantsappellees and the persons or entities chosen by them of control of the appellee Bank;1 that the complaint showed that besides the four plaintiff s-appellants of record, and the four movant-intervenors-appellants there were in the appellee Bank many other stockholders who, though in the appellee Bank many other stockholders who, though similarly situated as the appellants, did not formally include themselves as parties on record in view of the representative character of the suit; that the test, in order to determine the legal standing of a party to institute a class suit, was not one of number, but whether or not the interest of said party was representative of the persons in whose behalf the class suit was instituted; that granting arguendo, that the plaintiffsappellants were not sufficiently numerous and representative, the court should not have dismissed the action, for insufficiency of number in a class suit was not a ground for a motion to dismiss, and the court should have treated the suit as an action under Rule 3, Section 6, of the Rules of Court which permits a joinder of parties. Defendants-appellees, on the contrary, stressed that the instant suit was instituted as a class suit and the plaintiffs -appellants did not sue in their individual capacities for the protection of their individual interests; that the plaintiffs-appellants of record could not be considered numerous and representative, as said plaintiffs-appellants were only four out of 1,500 stockholders, and owned only 8 shares out of the 80,000 shares of stock of the appellee Bank; that even if to the four plaintiffs-appellants were added the four movants-intervenors-appellants the situation would be the same as two of the intervenors, to wit, Ma. Cristina Olondriz Pertierra and Ma. del Puy Olondriz de Stevens, could not sue as they did not have their husbands' consent; that it was necessary that in a class suit the complaint itself should allege facts showing that the plaintiffs were sufficiently numerous and representative, and this did not obtain in the instant case, as the complaint did not even allege how many other CMI stockholders were "similarly situated"; that the withdrawal of one plaintiff, Francisco Sevilla, the subsequent disclaimers of any interest in the suit made in two separate pleadings by other CMI stockholders and the disauthorization of their being represented by plaintiffs-appellants by the 986 (out of 1,663) stockholders who attended the annual meeting of bank stockholders on March 5, 1964, completely negated plaintiffsappellants' pretension that they were sufficiently numerous and representative or that there were many other stockholders similarly situated whom the plaintiffs-appellants allegedly represented; that plaintiffsappellants did not have that common or general-interest required by the Rules of Court in the subject matter of the suit.2 In their Reply Brief, appellants insisted that non-compliance with Section 12, Rule 3, not being one enumerated in Rules 16 and 17, was not a ground for dismissal; that the requirements for a class had been complied with; that the required common interest existed even if the interests were several for there was a common question of law or fact and a common relief was sought; that the common or general interest could be in the object of the action, in the result of the proceedings, or in the question involved in the action, as long as there was a common right based on the same essential facts; that plaintiffs-appellants adequately represented the aggrieved group of bank stockholders, inasmuch as appellants interests were not antagonistic to those of the latter, and appellants were in the same position as the group in whose behalf the complaint was filed. The governing statutory provision for the maintenance of a class suit is Section 12 of Rule 3 of the Rules of Court, which reads as follows. "Sec. 12. Class suit. - When the subject matter of the controversy is one of common or general interest to many persons, and the parties are so numerous that it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all. But in such case the court shall make sure that the parties actually before it are sufficiently numerous and representative so that all interests concerned are fully protected. Any party in interest shall have a right to intervene in protection of his individual interest." The necessary elements for the maintenance of a class suit are accordingly (1) that the subject matter of the controversy be one of common or general interest to many persons, and (2) that such persons be so numerous as to make it impracticable to bring them all to the court. An action does not become a class suit merely because it is designated as such in the pleadings. Whether the suit is or is not a class suit depends upon the attending facts, and the complaint, or other pleading initiating the class action should allege the existence of the necessary facts, to wit, the existence of a subject matter of common interest, and the existence of a class and the number of persons in the alleged class,3 in order that the court might be enabled to determine whether the members of the class are so numerous as to make it impracticable to bring them all before the court, to contrast the number appearing on the record with the number in the class and to determine whether claimants on record adequately represent the class and the subject matter of general or common interest.4 The complaint in the instant case explicitly declared that the plaintiffs-appellants instituted the "present class suit under Section 12, Rule 3, of the Rules of Court in behalf of CMI subscribing stockholders"5 but did not state the number of said CMI subscribing stockholders so that the trial court could not infer, much less make sure as explicitly required by the statutory provision, that the

parties actually before it were sufficiently numerous and representative in order that all interests concerned might be fully protected, and that it was impracticable to bring such a large number of parties before the court. The statute also requires, as a prerequisite to a class suit, that the subject-matter of the controversy be of common or general interest to numerous persons. Although it has been remarked that the "innocent 'common or general interest' requirement is not very helpful in determining whether or not the suit is proper,"6 the decided cases in our jurisdiction have more incisively certified the matter when there is such common or general interest in the subject matter of the controversy. By the phrase "subject matter of the action" is meant "the physical facts, the things real or personal, the money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant."7 This Court has ruled that a class suit did not lie in an action for recovery of real property where separate portions of the same parcel were occupied and claimed individually by different parties to the exclusion of each other, such that the different parties had determinable, though undivided interests, in the property in question.8 It has likewise held that a class suit would not lie against 319 defendants individually occupying different portions of a big parcel of land, where each defendant had an interest only in the particular portion he was occupying, which portion was completely different from the other portions individually occupied by other defendants, for the applicable, Section 118 of the Code of Civil Procedure relates to a common and general interest in single specific things and not to distinct ones.9 In an action for the recovery of amounts that represented surcharges allegedly collected by the city from some 30,000 customers of four movie houses, it was held that a class suit did not lie, as no one plaintiff had any right to, or any share in the amounts individually claimed by the others, as each of them was entitled, if at all, only to the return of what he had personally paid.10 The interest, subject matter of the class suits in the abovecited cases, is analogous to the interest claimed by appellants in the instant case. The interest that appellants, plaintiffs and intervenors, and the CMI stockholders had in the subject matter of this suit the portion of stocks offering of the Bank left unsubscribed by CMI stockholders who failed to exercise their right to subscribe on or before January 15, 1963 - was several, not common or general in the sense required by the statute. Each one of the appellants and the CMI stockholders had determinable interest; each one had a right, if any, only to his respective portion of the stocks. No one of them had any right to, or any interest in, the stock to which another was entitled. Anent this point, the trial court correctly remarked: "It appears to be the theory of the plaintiffs borne out by the prayer, that each subscribing CMI stockholder is entitled to further subscribe to a certain proportion, depending upon his stockholding in the CMI, of the P8 million capital stock of the defendant bank open to subscription (out of the P20 million authorized capital stock) as well as the unsubscribed portion of the P8 million stock offering which were left unsubscribed by those CMI stockholders who for one reason or another had failed to exercise their subscription rights on or before January 15, 1963. Under the plaintiffs' theory therefore, each subscribing CMI stockholder was entitled to subscribe to a definite number of shares both in the original offering of P8 million and in that part thereof not subscribed on or before the deadline mentioned, so that one subscribing CMI stockholder may be entitled to subscribe to one share, another to 3 shares and a third to 11 shares, and so on, depending upon the amount and extent of CMI stockholding. But except for the fact that a question of law - the proper interpretation of the waiver provisions of the CMI stockholders' resolution of March 28, 1962 is common to all, each CMI subscribing stock holder has a legal interest in, and a claim to, only his respective proportion of shares in the defendant bank, and none with regard to any of the shares to which another stockholder is entitled. Thus, plaintiff Ismael Mathay has no legal interest in, or claim to, any share claimed by any or all of his co-plaintiffs from the defendant individuals. Hence, no CMI subscribing stockholder or, for that matter, not any number of CMI stockholders can maintain a class suit in behalf of others, x x x."11 Even if it be assumed, for the sake of argument, that the appellants and the CMI stockholders suffered wrongs that had been committed by similar means and even pursuant to a single plan of the Interim Board of Organizers of the Bank, the wrong suffered by each of them would constitute a wrong separate from those suffered by the other stockholders, and those wrongs alone would not create that common or general interest in the subject matter of the controversy as would entitle any one of them to bring a class suit on behalf of the others. Anent this point it has been said that: "Separate wrongs to separate persons, although committed by similar means and even pursuant to a single plan, do not alone create a 'common' or 'general' interest in those who are wronged so as to entitle them to maintain a representative action."12 Appellants, however, insisted, citing American authorities,13 that a class suit might be brought even if the interests of plaintiffsappellants might be several as long as there was a common question of law or fact affecting them and a common relief was sought. We have no conflict with the authorities cited; those were rulings under the Federal Rules of Civil Procedure, pursuant to Rule 23 of which, there were three types of class suits, namely: the true, the hybrid, and the spurious, and these three had only one feature in common, that is, in each the persons constituting the class must be so numerous as to make it impracticable to bring them all before the court. The authorities cited by plaintiffs-appellants refer to the spurious class action Rule 23 (a) (3) which involves a right sought to be enforced, which is several, and there is a common question of law or fact affecting the several rights and a common relief is sought.14 The spurious class action is merely a permissive joinder device; between the members of the class there is no jural relationship, and the right or liability of each is distinct, the class being formed solely by the presence of a common question of law or fact.15 This permissive joinder is provided in Section 6 of Rule 3, of our Rules of Court. Such joinder is not and cannot be regarded as a class suit, which this action purported and was intended to be as per averment of the complaint. It may be granted that the claims of all the appellants involved the same question of law. But this alone, as said above, did not constitute the common interest over the subject matter indispensable in a class suit. The right to purchase or subscribe to the shares of the proposed Bank, claimed by appellants herein, is analogous to the right of preemption that stockholders have when their corporation increases its capital. The right of preemption, it has been said, is personal to each stockholder,16 and while a stockholder may maintain a suit to compel the issuance of his proportionate share of stock, it has been ruled, nevertheless, that he may not maintain a representative action on behalf of other stockholders who are similarly situated.17 By analogy, the right of each of the appellants to subscribe to the waived stocks was personal, and no one of them could maintain on behalf of others similarly situated a representative suit. Straining to make it appear that appellants and the CMI subscribing stockholders had a common or general interest in the subject matter of the suit, appellants stressed in their brief that one of the reliefs sought in the instant action was "to divest defendant individuals and the persons or entities chosen by them of control of the defendant bank."18 This relief allegedly sought by appellants did not, however, appear either in the text or in the prayer of the complaint. Appellants, furthermore, insisted that insufficiency of number in a class suit was not a ground for dismissal of one action. This Court has, however, said that where it appeared that no sufficient representative parties had been joined, the dismissal by the trial court of the action, despite the contention by plaintiffs that it was a class suit, was correct.19 Moreover, insofar as the instant case is concerned, even if it be granted for the sake of argument, that the suit could not be dismissed on that ground, it could have been dismissed, nevertheless, on the ground of lack of cause of action which will be presently discussed. 2. Appellants supported their assigned error that the court erred in holding that the complaint stated no valid cause of action, by claiming that paragraph 15 together with the other allegations of the complaint to the effect that defendantsappellees had unlawfully acquired stockholdings in the capital stock of defendant- appellee Bank in excess of what they were lawfully entitled to, in violation of law and in breach of trust and the contractual agreement, constituted a valid and sufficient cause of action;20 and that only the

allegations in the complaint should have been considered by the trial court in determining whether the complaint stated a cause of action or not. Defendants-appellees, on the contrary, maintained that the allegations of the complaint should not be the only ones to be considered in determining whether there is a cause of action; that even if the ultimate facts alleged in the first cause of action of the complaint be the only ones considered, the complaint would still fail to state a valid cause of action on the following grounds: first, there was no allegation regarding appellants' qualification to subscribe to the capital stock of the appellee Bank, for under the CMI stockholders' resolution of March 28, 1962, only those qualified under the law were entitled to subscribe, and under the regulations of the Monetary Board, only natural-born Filipino citizens could he stockholders of a banking corporation organized under the laws of the Philippines, and nowhere did the complaint allege that plaintiffs-appellants were natural born Filipino citizens.21 Second, appellants' averment in paragraph 8 that they "subscribed," and their averment in paragraph 15 that they were "denied the right to subscribe x x x to the capital stock of the defendant Bank," were inconsistent, and hence neutralized each other, thereby leaving in shambles the first cause of action. Third, there was no allegation that appellants had not yet received or had not been issued the corresponding certificates of stock covering the shares they had subscribed and paid for. Fourth, the allegations failed to show the existence of the supposed trust; and fifth, the complaint failed to allege that plaintiffs-appellants had paid or offered to pay for the shares allegedly pertaining to them.22 Let us premise the legal principles governing the motion to dismiss on the ground of lack of cause of action. Section 1, Rule 16 of the Rules of Court, providing in part that: "Within the time for pleading a motion to dismiss may be made on any of the following grounds:x x x "(g) That the complaint states no cause of action, x x x" explicitly requires that the sufficiency of the complaint must be tested exclusively on the basis of the complaint itself and no other should be considered when the ground for motion to dismiss is that the complaint states no cause of action. Pursuant thereto this Court has ruled that: "As a rule the sufficiency of the complaint, when challenged in a motion to dismiss, must be determined exclusively on the basis of the facts alleged therein."23 It has been likewise held that a motion to dismiss based on lack of cause of action hypothetically admits the truth of the allegations of fact made in the complaint.24 It is to be noted that only-the facts well pleaded in the complaint, and likewise, any inferences fairly deducible therefrom, are deemed admitted by a motion to dismiss. Neither allegations of conclusions25 nor allegations of facts the falsity of which the court may take judicial notice are deemed admitted.26 The question, therefore, submitted to the Court in a motion to dismiss based on lack of cause of action is not whether the facts alleged in the complaint are true, for these are hypothetically admitted, but whether the facts alleged are sufficient to constitute a cause of action such that the court may render a valid Judgment upon the facts alleged therein. A cause of action is an act or omission of one party in violation of the legal right of the other. Its essential elements are, namely: (1) the existence of a legal right in the plaintiff, (2) a correlative legal duty in the defendant, and (3) an act or omission of the defendant in violation of plaintiff's right with consequential injury or damage to the plaintiff for which he may maintain an action for the recovery of damages or other appropriate relief.27 On the other hand, Section 3 of Rule 6 of the Rules of Court provides that the complaint must state the ultimate facts constituting the plaintiff's cause of action. Hence, where the complaint states ultimate facts that constitute the three essential elements of a cause of action, the complaint states a cause of action;28 otherwise, the complaint must succumb to a motion to dismiss on that ground. The legal principles having been premised, let us now analyze and discuss appellant's various causes of action. Appellants' first cause of action, pursuant to what has been premised above, should have consisted of: (1) the right of appellants as well as of the other CMI stockholders to subscribe, in proportion to their equities established under their respective "Pre -Incorporation Agreements to Subscribe," to that portion of the capital stock which was unsubscribed because of failure of the CMI stockholders to exercise their right to subscribe thereto; (2) the legal duty of the appellees to have said portion of the capital stock to be subscribed by appellants and other CMI stockholders; and (3) the violation or breach of said right of appellants and other CMI stockholders by the appellees. Did the complaint state the important and substantial facts directly forming the basis of the primary right claimed by plaintiffs? Before proceeding to elucidate this question, it should be noted that a bare allegation that one is entitled to something is an allegation of a conclusion. Such allegation adds nothing to the pleading, it being necessary to plead specifically the facts upon which such conclusion is founded.29 The complaint alleged that appellants were stockholders of the CMI; that as such stockholders, they were entitled, by virtue of the resolution of March 28, 1962, to subscribe to the capital stock of the proposed Consolidated Bank and Trust Co., at par value to the same extent and in the same amount as said stockholders' respective shareholdings in the CMI as shown in the latter's stock book as of January 15, 1963, the right to subscribe to be exercised until January 15, 1963, provided said stockholders of the CMI were qualified under the law to become stockholders of the proposed Bank;30 that appellants accomplished and filed their respective "Pre-Incorporation Agreements to Subscribe" and fully paid the subscription.31 These alleged specific facts did not even show that appellants were entitled to subscribe to the capital stock of the proposed Bank, for said right depended on a condition precedent, which was, that they were qualified under the law to become stockholders of the Bank, and there was no direct averment in the complaint of the facts that qualified them to become stockholders of the Bank. The allegation of the fact that they subscribed to the stock did not, by necessary implication, show that they were possessed of the necessary qualifications to become stockholders of the proposed Bank. Assuming arguendo that appellants were qualified to become stockholders of the Bank, they could subscribe, pursuant to the explicit terms of the resolution of March 28, 1962, "to the same extent and in the same amount as said stockholders' respective shareholdings in the CMI" as of January 15, 1963.32 This was the measure of the right they could claim to subscribe to waived stocks Appellants did not even aver that the stocks waived to the subscription of which they claimed the right to subscribe, were comprised in "the extent and amount" of their respective shareholdings in the CMI. It is not surprising that they did not make such an averment for they did not even allege the amount of shares of stock to which they claimed they were entitled to subscribe. The failure of the complaint to plead specifically the above facts rendered it impossible for the court to conclude by natural reasoning that the appellants and other CMI stockholders had a right to subscribe to the waived shares of stock, and made any allegation to that effect a conclusion of the pleader, not an ultimate fact, in accordance with the test suggested by the California Supreme Court, to wit: "If from the facts in evidence, the result can be reached by that process of natural reasoning adopted in the investigation of truth, it becomes an ultimate fact, to be found as such. If, on the other hand, resort must be had to the artificial processes of the law, in order to reach a final determination, the result is a conclusion of law."33 Let us now pass to the second and third elements that would have constituted the first cause of action. Did the complaint allege as ultimate facts the legal duty of defendants-appellees to have a portion of the capital stock subscribed to by appellants? Did the complaint allege as ultimate facts that defendants appellees had violated appellants' right? Even if it be assumed arguendo that defendants-appellees had the duty to have the waived stocks subscribed to by the CMI stockholders, this, duty was not owed to all the CMI stockholders, but only to such CMI stockholders as were qualified to become stockholders of the proposed Bank. Inasmuch as it has been shown that the complaint did not contain ultimate facts to show that

plaintiffs-appellants were qualified to become stockholders of the Bank, it follows that, the complaint did not show that defendantsappellees were under duty to have plaintiffs-appellants subscribe to the stocks of the proposed Bank. It inevitably follows also that the complaint did not contain ultimate facts to. show that the right of the plaintiffs-appellants to subscribe to the shares of the proposed Bank had been violated by defendants-appellees. How could a non-existent right be violated? Let us continue the discussion further. The complaint alleged that by virtue of the resolution of March 28, 1962, the President and Members of the Board of Directors of the CMI would be constituted as a Board of Organizers to undertake and carry out the organization of the Bank;34 that the Board of Organizers was constituted and proceeded with the establishment of the Bank;35 that the persons composing the Board of Organizers were the individuals-defendants-appellees;36 I that the Board of Organizers sent our circular letters, with "Pre-Incorporation Agreement to Subscribe" forms37 which specified, among others, "that the subscription must be made until January 15, 1963, otherwise such subscription right shall be deemed ipso facto waived and released in favor of the Board of Organizers of the defendant Bank and their assignees";38 that in the Articles of Incorporation prepared by the Board of Organizers, the individuals-defendants-appellees alone appeared to have subscribed to the 50,000 shares;39 and that individualsdefendants-appellees again subscribed to all the additional 30,000 shares.40 From these facts, appellants concluded that they were denied their right to subscribe in, proportion to their equities;41 that the individuals-defendants-appellees unlawfully acquired stockholdings far in excess of what they were lawfully entitled in violation of law and in breach of trust and of contractual agreement:42 and that, because of matters already alleged, the individuals-defendants-appellees "hold their shares in the defendant bank in trust for plaintiffs."43 The allegation in the complaint that the individuals-defendants-appellees held their shares "in trust" for, plaintiffs-appellants-without averment of the facts from which the court could conclude the existence of the alleged trust, was not deemed admitted by the motion to dismiss for that was a conclusion of law. Express averments "that a party was the beneficial owner of certain property; x x x that property or money was received or held in trust, or for the use of another; that particular funds were trust funds; that a particular transaction created an irrevocable trust; that a person held property as constructive trustee; that on the transfer of certain property a trust resulted" have been considered as mere conclusions of law.44 The facts alleged in the complaint did not, by logical reasoning, necessarily lead to the conclusion that defendants -appellees were trustees in favor of appellants of the shares of stock waived by the CMI stockholders who failed to exercise their right to subscribe. In this connection, it has been likewise said that: "The general rule is that an allegation of duty in terms unaccompanied by a statement of the facts showing the existence of the duty, is a mere conclusion of law, unless there is a relation set forth from which the law raises the duty."45 In like manner, the allegation that individuals-defendants-appellees held said shares in trust was no more than an interpretation by appellants of the effect of the waiver clause of the Resolution and as such it was again a mere conclusion of law. It has been said that: "The following are also conclusions of law: x x x an allegation characterizing an instrument or purporting to interpret it and state its effects, x x x"46 "Allegations in petition in the nature of conclusions about the meaning of contract, inconsistent with stated terms of the contract, cannot be considered."47 The allegation that the defendants-appellees acquired stockholdings far in excess of what they were lawfully entitled, in violation of law and in breach of trust and of contractual agreement, is also mere conclusion of law. Of course, the allegation that there was a violation of trust duty was plainly a conclusion of law, for "a mere allegation that it was the duty of a party to do this or that, or that he was guilty of a breach of duty, is a statement of a conclusion, not of fact."48 "An averment x x x that an act was 'unlawful' or 'wrongful' is a mere legal conclusion or opinion of the pleader."49 Moreover, plaintiffs-appellants did not state in the complaint the amount of subscription the individual defendants-appellees were entitled to; hence there was no basis for the court to determine what amount subscribed to by them was excessive. From what has been said, it is clear that the ultimate facts stated under the first cause of action are not sufficient to constitute a cause of action. The further allegations in the second cause of action that the calling of a special meeting was "falsely certified," that the seventh position of Director was "illegally created" and that defendant Alfonso Juan Olondriz was "not competent or qualified" to be a director are mere conclusions of law, the same not being necessarily inferable from the ultimate facts stated in the first and second causes of action. It has been held in this connection that: "An averment that x x x an act was 'unlawful' or 'wrongful' is a mere legal conclusion or opinion of the pleader. The same is true of allegations that an instrument was 'illegally' certified or x x x that an act was 'arbitrarily' done x x x"' "A pleader states a mere conclusion when he makes any of the following allegations: that a party was incapacitated to enter into a contract or convey property x x x"51 The third, fourth, fifth and sixth causes of action depended on the first cause of action, which, as has been shown, did not state ultimate facts sufficient to constitute a cause of action. It stands to reason, therefore, that said causes of action would also be fatally defective. It having been shown that the complaint failed to state ultimate facts to constitute a cause of action, it becomes unnecessary to discuss the other assignments of errors. WHEREFORE, the instant appeal is dismissed, and the order dated March 21, 1964 of the Court of First Instance of Manila dismissing the complaint in Civil Case No. 55810 is affirmed, with costs in this instance against appellants. IT IS SO ORDERED. Fernando, Barredo, Fernandez and Aquino, JJ., concur. Antonio, J., took no part. 1. Brief for Plaintiffs-Appellants and Movants-Intervenors-Appellants, page 25. 2. Brief for Defendants-Appel lees, pages 54-70. 3. The existence of persons similarly situated must be a reality, not a possibility. A likelihood that there are other persons similarly situated is not enough, Barron and Holtsoff, Federal Practice and Procedure, Vol. 2, page 156. 4. Cf. Moore's Federal Practice 2d ed., Vol. III. pages 3423-3424; 4 Federal Rules Service, pages 454-455; Johnson, et al., vs. Riverland Levee Dist., et al., 117 F 2d 711, 715. 5. Record on Appeal, pages 2, 8-9. 6. Moore's Federal Practice, 2 ed., Vol, III, page 3417. 7. Moran, Comments on the Rules of Court, 1963 ed., Vol. 1, page 92, citing Pomeroy's Code Remedies, 492. 8. Rallonza vs. Evangelista, 15 Phil. 531; Valencia vs. City of Dumaguete, L-17799, August 31, 1962, 5 SCRA 1096, 1101; Borlasa vs. Polistico, 47 Phil. 345, 349. 9. Berses vs. Villanueva, 25 Phil. 473. It is to be noted that Section 12 of Rule 3 is the same as Section 12 of former Rule 3, which was taken from Section 118 of Act. 190. Moran, Comments on the Rules of Court, 1963 ed., Vol. 1, page 167. 10. Valencia vs. City of Dumaguete, L-17799, August 31, 1962, 5 SCRA 1096, 1101. 11. Record on Appeal, pages 284-285. 12. Society Milion Athena, Inc., et al. vs. National Bank of Greece, ei al., 22 N.E. 2d 374.

13. Prof. Sutherland's address before the Cincinnati Bar Association regarding the new Federal Rules, December 10, 1938; 1 Cincinnati Law Review, page 1; Clark vs. Chase National Bank, 6 Fed. Rule Service 256, cited in Francisco, The Revised Rules of Court, 1973, Vol. 1, pages 294, 295. 14. See Barron and Holtsoff, Federal Practice and Procedure, Vol. 2, page 139. 15. Moore's Federal Practice, Vol. 3. pages 3442-3443. 16. 11 Fletcher's Cyclopedia of the Law of Private Corporation, 1932, page 231. 17. Dousman v. Wisconsin & L. S. Min. & Smelting Co., 40 Wis. 418 in 12 L.R.A., New Series, 1908, page 972. 18. Brief for the Plaintiffs-Appellants and Movants-Intervenors-Appellants, page 25. 19. Niernbra, et al., vs. Director of Lands, L-20084, July 17, 1964, 11 SCRA 525, 528. 20. Brief for Plaintiffs- Appellants and Movants-Intervenors-Appellants, pages 32-34. 21. Brief for Defendants-Appellees, pages 94-96. 22. Brief for Defendants-Appellees, pages 94-99. 23. Uy Chao vs. De la Rama Steamship Co., Inc. L-14495, September 29, 1962, 6 SCRA 69, 72. See also De Jesus, et al. vs. Belarmino, et al., 95 Phil. 365, 371; Dalandan, et al. vs. Julio, et al., L-19101, February 29, 1964, 10 SCRA 400; Remitere, et al. vs. Montinola Vda. de Yulo, et al., L-19751. , February 28, 1966, 16 SCRA 250, 254; Acua vs. Batac Producers Cooperative Marketing Association, Inc., et al., L-20338, June 30, 1967, 20 SCRA 526, 531. 24. Alquigue vs. De Leon, L-15059, March 30, 1963, 7 SCRA 513, 516; Salazar, et al. vs. Ortizano, L-20480, 16 SCRA 662, 665; Acua vs. Batac Producers Cooperative Marketing Association, Inc., et al., L-20338, June 30, 1967, 20 SCRA 526, 531. 25. Dalandan vs. Julio, L-19101, February 29, 1964, 10 SCRA 400, 410. 26. 71 CJS pages 906-912. 27. Ma-ao Sugar Central Co., Inc. vs. Barrios, et al., 79 Phil. 666, 667; Ramitere, et al. vs. Montinola Vda. de Yulo, et al., L- 19751, February 28, 1966, 16 SCRA 251, 255. 28. Community Investment and Finance Corp. vs. Garcia, 88 Phil. 215, 218. 29. 41 Am. Jur., page 303. 30. Paragraphs 7 and 7 of Complaint, Record on Appeal, pages 5, 7, 8. 31. Paragraph 8 of Complaint, Record on Appeal, page 8. 32. Paragraph 4 of Complaint, Record on Appeal, page 5. 33. Levins vs. Rovegno, 71 Cal. 273, 12 Pa. 161, 164. 34. Paragraph 4(a) of Complaint; Record on Appeal, pages 4-5. 35. Paragraph 5 of Complaint; Record on Appeal, pages 6-7. 36. Paragraph 5 of Complaint; Record on Appeal, page 7. 37. Paragraph 7 of Complaint; Record on Appeal, page 7. 38. Paragraph 7(b) of Complaint; Record on Appeal; page 8. 39. Paragraph 9 of Complaint; Record on Appeal, page 9. 40. Paragraphs 11 and 12 of Complaint; Record on Appeal, page 11. 41. Paragraph 15 of Complaint. 42. Paragraph 15 of Complaint. 43. Paragraph 16 of Complaint; Record on Appeal, page 13. 44. 47 C.J.S., page 78. 45. 71 C.J.S., pages 49-50. 46. 41 Am. Jur., page 304. 47. 71 C.J.S., page 41, citing D'Oench v. Gillioz, 139 SW 2d 921, 346 Mo. 179. 48. 41 Am. Jur., page 303. 49. 41 Am. Jur., page 303. 50. 41 Am, Jur., page 303. 51. 41 Am. Jur., page 304. ~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~ Veterans Manpower and Protective Services, Inc. vs. Court of Appeals September 25, 1992 [GRN 91359 September 25, 1992.*] VETERANS MANPOWER AND PROTECTIVE SERVICES, INC., petitioner, vs. THE COURT OF APPEALS, THE CHIEF OF PHILIPPINE CONSTABULARY and PHILIPPINE CONSTABULARY SUPERVISORY UNIT FOR SECURITY AND INVESTIGATION AGENCIES (PC-SUSIA), respondents. PETITION for review on certiorari of the decision of the Court of Appeals. The facts are stated in the opinion of the Court. Francisco A. Lava, Jr. and Andresito X. Fornier for petitioner. GRINO-AQUINO, J.: This is a petition for review on certiorari of the decision dated August 11, 1989, of the Court of Appeals in CA-G.R. SP No. 15990, entitled "The Chief of Philippine Constabulary (PC) and Philippine Constabulary Supervisory Unit for Security and Investigation Agencies (PC-SUSIA) vs. Hon. Omar U. Amin and Veterans Manpower and Protective Services, Inc. (VMPSIV lifting the writ of preliminary injunction which the Regional Trial Court had issued to the PC and PC-SUSIA enjoining them from committing acts that would result in the cancellation or non-renewal of the license of VMPSI to operate as a security agency. On March 28, 1988, VMPSI filed a complaint in the Regional Trial Court at Makati, Metro Manila, praying the court to: "A. Forthwith issue a temporary restraining order to preserve the status quo, enjoining the defendants, or any one acting in their place or stead, to refrain from committing acts that would result in the cancellation or non-renewal of VMPSI's license; "B. In due time, issue a writ of preliminary injunction to the same effect; "C. Render decision and judgment declaring null and void the amendment of Section 4 of R.A. No. 6487, by PD No. 11 exempting organizations like PADPAO from the prohibition that no person shall organize or have an interest in more than one agency; declaring PADPAO as an illegal organization existing in violation of said prohi. bition, without the illegal exemption provided in PD No. 11; declaring null and void Section 17 of R.A. No. 5487 which provides for the issuance of rules and regulations in consultation with PADPAO; declaring null and void the February 1, 1982 directive of Col. SabasV. Edadas, in the name of the then PC Chief, requiring all private security agencies/security forces such as VMPSI to join PADPAO as a prerequisite to secure/renew their licenses; declaring that VMPSI did not engage in 'cut-throat competition' in its contract with MWSS; ordering defendants PC Chief and PC-SUSP, to renew the license of VMPSI; ordering the defendants to refrain from further harassing VMPSI and from threatening VMPSI with cancellations or non-renewel of license, without legal and justifiable cause; ordering the defendants to pay to VMPSI the sum of P1,000,000.00 as

actual and compensatory damages, P1,000,000.00 as exemplary damages, and P200,000.00 as attorney's fees and expenses of litigation; and granting such further or other reliefs to VMPSI as may be deemed lawful, equitable and just." (pp. 55-56, Rollo.) The constitutionality of the following provisions of R.A. 5487 (otherwise known as the "Private Security Agency Law"), as amended, is questioned by VMPSI in its complaint: "SEC. 4. Who may Organize a Security or Watchman Agency.-Any Filipino citizen or a corporation, partnership, or association, with a minimum capital of rive thousand pesos, one hundred per cent of which is owned and controlled by Filipino citizens may organize a security or watchman agency: Provided, That no person Shall organize or have an interest in, more than one such agency except those which are already existing at the promulgation of this Decree: x x x." (As amended by P.D. Nos. 11 and 100.) "SEC. 17. Rules and Regulations by Chief, Philippine Canstabulary.-The Chief of the Philippine Constabulary, in consultation with the Philippine Association of Detective and Protective Agency Operators, Inc. and subject to the provision of existing laws, is hereby authorized to issue the rules and regulations necessary to carry out the purpose of this Act.' VMPSI alleges that the above provisions of R.A. No. 5487 violate the provisions of the 1987 Constitution against monopolies, unfair competition and combinations in restraint of trade, and tend to favor and institutionalize the Philippine Association of Detective and Protective Agency Operators, Inc. (PADPAO) which is monopolistic because it has an interest in more than one security agency. Respondent VMPSI likewise questions the validity of paragraph 3, subparagraph (g) of the Modifying Regulations on the Issuance of License to Operate and Private Security Licenses and Specifying Regulations for the Operation of PADPAO issued by then PC Chief Lt. Gen. Fidel V. Ramos, through Col. Sabas V. Edades, requiring that all private security agencies / company security forces must register as members of any PADPAO Chapter organized within the Region where their main offices are located. . ." "pp. 5-6, Complaint in Civil Case No. 88-471). As such membership requirement in PADPAO is compulsory in nature, it allegedly violates legal and constitutional provisions against munopolies, unfair competition and combinations in restraint of trade. On May 12, 1986, a Memorandum of Agreement was exe cuted by PADPAO and the PC Chief, which fixed the minimum monthly contract rate per guard for (8) hours of security service per day at P2,255.00 within Metro Manila and P2,215.00 outside of Metro Manila (Annex B, Petition). On June 29, 1987, Odin Security Agency (Odin) filed a complaint with PADPAO arousing VMPSI of cut-throat competition by undercutting its contract rate for security services rendered to the Metropolitan Waterworks and Sewerage System (MWSS), charging said customer lower than the standard minimum rates provided in the Memorandum of Agreement dated May 12,1986. PADPAO found VMPSI guilty of cut-throat competition, hence, the PADPAO Committee on Discipline recommended the expulsion of VMPSI from PADPAO and the cancellation of its license to operate a security agency (Annex D, Petition). The PC-SUSIA made similar findings and likewise recommended the cancellation of VMPSI's license (Annex E, Petition). As a result, PADPAO refused to issue a clearance/certificate of membership to VMPSI when it requested one. VMPSI wrote the PC Chief on March 10, 1988, requesting him to set aside or disregard the findings of PADPAO and consider VMPSI's application for renewal of its license, even without a certificate of membership from PADPAO (Annex F, Petition). As the PC Chief did not reply, and VMPSI's license was expiring on March 31, 1988, VMPSI filed Civil Case No. 88-471 in the RTCMakati, Branch 135, on March 28,1988 against the PC Chief and PC-SUSIA. On the same date, the court issued a restraining order enjoining the PC Chief and PC-SUSIA "from committing acts that would result in the cancellation or non renewal of VIOPSI's licence" (Annex G, Petition). The PC Chief and PC-SUSIA filed a "Motion to Dismiss, Opposition to the Issuance of Writ of Preliminary Injunction, and Motion to Quash the Temporary Restraining Order," on the grounds that the case is against the State which had not given consent thereto and that VMPSI's license already expired on March 31, 1988, hence, the restraining order or preliminary injunction would not serve any purpose because there was no more license to be cancelled (Annex H, Petition). Respondent VMPSI opposed the motion. On April 18, 1988, the lower court denied VMPSI's application for a writ of preliminary injunction for being premature because it "has up to May 31, 1988 within which to file its application for renewal pursuant to Section 2 (e) of Presidential Decree No. 199, x x x." (p. 140, Rollo.) On May 23, 1988, VMPSI reiterated its application for the issuance of a vrit of preliminary injunction because PC-SUSIA had rejected payment of the penalty for its failure to submit its application for renewal of its license and the requirements therefor within the prescribed period in Section 2(e) of the Revised Rules and Regulations Implementing R.A. 5487, as amended by P.D. 1919 (Annex M, Petition). On June 10, 1988, the RTC-Makati issued a writ of preliminary injunction upon a bond of P100,000.00, restraining the defendants, or any one acting in their behalf, from cancelling or denying renewal of VMPSI's license, until further orders from the court. The PC Chief and PC-SUSIA filed a Motion for Reconsideration of the above order, but it was denied by the court in its Order of August 10, 1988 (Annex R, Petition). On November 3, 1988, the PC Chief and PC-SUS1A sought relief by a petition for certiorari in the Court of Appeals. On August 11, 1989, the Court of Appeals granted the petition. The dispositive portion of its decision reads: 'WHEREFORE, the petition for certiorari filed by petitioners PC Chief and PC-SUSIA is hereby GRANTED, and the RTC-Makati, Branch 135, is ordered. to dismiss the complaint filed by respondent VMPSI in Civil Case No. 88-471, insofar as petitioners PC Chief and PCST TMA are concerned, for lack of jurisdiction. The writ of preliminary injunction issued on June 10, 1988, is dissolved." (pp. 295,296, Rollo.) VMPSI came to us with this petition for review. The primary issue in this case is whether or not VMPSI's complaint against the PC Chief and PC-SUSIA is a suit against the State without its consent. The answer is yes. The State may not be sued without its consent (Article XVI, Section 3, of the 1987 Constitution). Invoking this rule, the PC Chief and PC-SUSIA contend that. being instrumentalities of the national government exercising a primarily governmental function of regulating the organization and operation of private detective, watchmen, or security guard agencies, said official (the PC Chief) and agency (PC-SUS1A) may not be sued without the Government's consent, especially in this case because VMPSI's complaint seeks not only to compel the public respondents to act in a certain way, but worse, because VMPSI seeks actual and compensatory damages in the sum of P1,000,000.00, exemplary damages in the same amount, and P200,000.00 as attorney's fees from said public respondents. Even if its action prospers, the payment of its monetary claims may not be enforced because the State did not consent to appropriate the necessary funds for that purpose. Thus did we hold in Shauf us. Court of Appeals, 191 SCRA 713: "While the doctrine appears to prohibit only suits against the state without its consent, it is also applicable to complaints riled against officials of the state for acts allegedly performed by them in the discharge of their duties. The rule is that if the judgment against such officials will require the state itself to perform an affirmative act to satisfy the same, such as the appropriation of the amount needed to pay the damages awarded against them, the suit must be regarded as against the state itself although it has not been formally impleaded. (Emphasis supplied.)

A public official may sometimes be held liable in his personal or private capacity if he acts in bad faith, or beyond the, scope of his authority or jurisdiction (Shauf vs. Court of Appeals, supra), however, since the acts for which the PC Chief and PC-SUSIA are being called to account in this case, were performed by them as part of their official duties, without malice, gross negligence, or bad faith, no recovery may be had against them in their private capacities. We agree with the observation of the Court of Appeals that the Memorandum of Agreement dated May 12, 1986 does, not constitute an implied consent by the State to be sued: "The Memorandum of Agreement dated May 12,1986 was entered into by the PC Chief in relation to the exercise of a function sovereign in nature. The correct test for the application of state immunity is not the conclusion of a contract by the State but the legal nature of the act. This was clearly enunciated in the case of United States of America vs. Ruiz where the Mon. Supreme Court held: "'The restrictive application of State immunity is proper only when the proceedings arise out of commercial transactions of the foreign sovereign, its commercial activities or economic affairs. Stated differently, a State may be said to have descended to the level of an individual and can thus be deemed to have tacitly given its consent to be sued only when it enters into a business contract. It does not apply where the contract relates to the exercise of its sovereign functions.' (136 SCRA, 487, 492.) "In the instant case, the Memorandum of Agreement entered into by the PC Chief and PADPAO was intended to professionalize the industry and to standardize the salaries of security guards as well as the current rates of security services, clearly, a governmental function. The execution of the said agreement is incidental to the purpose of RA 5487, as amended, which is to regulate the organization and operation of private detective, watchmen or security guard agencies. (Italics Ours.)" (pp. 258-259, Rollo.) Waiver of the State's immunity from suit, being a derogation of sovereignty, will not be lightly inferred, but must be construed strict is simijuris (Republic vs. Feliciano, 148 SCRA 424). The consent of the State to be sued must emanate from statutory authority, hence, from a legislative act, not from a mere memorandum. Without such consent, the trial court did not acquire jurisdiction over the public respondents. The state immunity doctrine rests upon reasons of public policy and the inconvenience and danger which would flow from a different rule. "It is obvious that public service would be hindered, and public safety endangered, if the supreme authority could be subjected to suits at the instance of every citizen, and, consequently, controlled in the use and disposition of the means required for the proper administration of the government" (Siren vs. U.S. Wall, 152,19 L. ed. 129, as cited in 78 SCRA 477). In the same vein, this Court in Republic vs. Purisima (78 SCRA 470, 473) rationalized: "Nonetheless, a continued adherence to the doctrine of nonsuability is not to be deplored for as against the inconvenience that may be caused [by] private parties, the loss of governmental efficiency and the obstacle to the performance of its multifarious functions are far greater if such a fundamental principle were abandoned and the availability of judicial remedy were not thus restricted. With the well known propensity on the part of our people to go to court, at the least provocation, the loss of time and energy required to defend against law suits, in the absence of such a basic principle that constitutes such an effective obstacle, could very well be imagined." (citing Providence Washington Insurance Co. vs. Republic, 29 SCRA 598.) WHEREFORE, the petition for review is DENIED and the judgment appealed from is AFFIRMED in toto. No costs. SO ORDERED. Medialdea and Bellosillo, JJ., concur. Cruz, J., On leave. Petition denied- decision affirmed. ~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~*o*~