PIONEER INTERNATIONAL, LTD., petitioner, vs. HON. TEOFILO GUADIZ, JR.

, in his capacity as Presiding Judge of Regional Trial Court, Branch 147, Makati City, and ANTONIO D. TODARO, respondents. DECISION CARPIO, J.: The Case This is a petition for review on certiorari of the Decision dated 27 September 3 2001 and of the Resolution dated 14 January 2003 of the Court of Appeals (appellate court) in CA-G.R. SP No. 54062. The Decision affirmed the 4 5 6 Orders dated 4 January 1999 and 3 June 1999 of Branch 147 of the Regional Trial Court of Makati City (trial court) in Civil Case No. 98-124. The trial court denied the motion to dismiss filed by Pioneer International, Ltd. 7 (PIL) in its special appearance. The Facts On 16 January 1998, Antonio D. Todaro (Todaro) filed a complaint for sum of money and damages with preliminary attachment against PIL, Pioneer Concrete Philippines, Inc. (PCPI), Pioneer Philippines Holdings, Inc. (PPHI), John G. McDonald (McDonald), and Philip J. Klepzig (Klepzig). PIL and its codefendants were served copies of the summons and of the complaint at PPHI and PCPIs office in Alabang, Muntinlupa, through Cecille L. De Leon (De Leon), who was Klepzigs Executive Assistant. Todaro alleged that PIL is a corporation duly organized under Australian laws, while PCPI and PPHI are corporations duly organized under Philippine laws. PIL is engaged in the ready-mix and concrete aggregates business and has established a presence worldwide. PIL established PPHI as the holding company of the stocks of its operating company in the Philippines, PCPI. McDonald is the Chief Executive Officer of PILs Hong Kong office while Klepzig is the President and Managing Director of PPHI and PCPI. For his part, Todaro further alleged that he was the managing director of Betonval Readyconcrete, Inc. (Betonval) from June 1975 up to his resignation in February 1996. Before Todaro filed his complaint, there were several meetings and exchanges of letters between Todaro and the officers of Pioneer Concrete (Hong Kong) Limited, Pioneer Concrete Group HK, PPHI, and PIL. According to Todaro, PIL contacted him in May 1996 and asked if he could join it in
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establishing a pre-mixed concrete plant and in overseeing its operations in the Philippines. Todaro confirmed his availability and expressed interest in joining PIL. Todaro met with several of PILs representatives and even gave PIL the names of three of his subordinates in Betonval whom he would like to join him in PIL. Todaro attached nine letters, marked as Annexes "A" to "I," to his complaint. 8 Annex "A" shows that on 15 July 1996, Todaro, under the letterhead of Ital Tech Distributors, Inc., sent a letter to Max Lindsay (Lindsay) of Pioneer Concrete (Hong Kong) Limited. Todaro wrote that "[m]y aim is to run again a ready-mix concrete company in the Philippines and not to be a part-time consultant. Otherwise, I could have charged your company with a much higher fee." Annex "B" shows that on 4 September 1996, Lindsay, under the letterhead of Pioneer Concrete (Hong Kong) Limited, responded by fax to Todaros faxed letter to McDonald and proposed that Todaro "join Pioneer on a retainer basis for 2 to 3 months on the understanding that [Todaro] would become a permanent employee if as we expect, our entry proceeds." The faxed letter to McDonald referred to by Lindsay is not found in the rollo and was not attached to Todaros complaint. Annex "C" shows that on the same date as that of Annex "B," Todaro, under the letterhead of Ital Tech Distributors, Inc., faxed another letter to Lindsay of Pioneer Concrete (Hong Kong) Limited. Todaro asked for a formal letter addressed to him about the proposed retainer. Todaro requested that the letter contain a statement on his remuneration package and on his permanent employment "with PIONEER once it has established itself on a permanent basis in the Philippines." Annex "D" shows that Todaro, under the letterhead of Ital Tech Distributors, Inc., sent a letter to McDonald of PIL. Todaro confirmed the following to McDonald: 1. That I am accepting the proposal of PIONEER INTL. as a consultant for three (3) months, starting October 1, 1996, with a retainer fee of U.S. $15,000.00 per month; 2. That after three (3) months consultancy, I should be employed by PIONEER INTL., on a permanent basis, as its Managing Director or CEO in the Philippines. Remuneration package will be mutually agreed upon by PIONEER and the undersigned; 3. That Gino Martinel and the Sales Manager Jun Ong, will be hired as well, on a permanent basis, by PIONEER as soon as the company
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is established. Salary, likewise, will be accepted by both PIONEER and the respective parties. Annex "E" is a faxed letter dated 18 November 1996 of McDonald, under the letterhead of Pioneer Concrete Group HK, to Todaro of Ital Tech Distributors, Inc. The first three paragraphs of McDonalds letter read: Further to our recent meeting in Hong Kong, I am now able to confirm my offer to engage you as a consultant to Pioneer International Ltd. Should Pioneer proceed with an investment in the Philippines, then Pioneer would offer you a position to manage the premixed concrete operations. Pioneer will probably be in a position to make a decision on proceeding with an investment by mid January 97. The basis for your consultancy would be: Monthly fee USD 15,000 per month billed on monthly basis and payable 15 days from billing date. Additional pre-approved expenses to be reimbursed. Driver and secretarial support-basis for reimbursement of this to be agreed. st Arrangement to commence from 1 November 96, reflecting your contributions so far and to continue until Pioneer makes a decision.
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consultancy services. This, and your refusal to consider my terms of offer of permanent employment, leave me no alternative but to withdraw these offers of employment with this company. As you provided services under your previous agreement with our Pioneer Hong Kong office during the month of August, I will see that they pay you at the previous rates until the end of August. They have authorized me on behalf of Pioneer International Ltd. to formally st advise you that the agreement will cease from August 31 as per our previous discussions. Annex "I" shows the letter dated 20 October 1997 of K.M. Folwell (Folwell), PILs Executive General Manager of Australia and Asia, to Todaro. Folwell confirmed the contents of Klepzigs 18 September 1997 letter. Folwells message reads: Thank you for your letter to Dr. Schubert dated 29 September 1997 regarding the alleged breach of contract with you. Dr. Schubert has asked me to investigate this matter. I have discussed and examined the material regarding your association with Pioneer over the period from mid 1996 through to September 1997. Clearly your consultancy services to Pioneer Hong Kong are well documented and have been appropriately rewarded. However, in regard to your request and expectation to be given permanent employment with Pioneer Philippines Holdings, Inc. I am informed that negotiations to reach agreement on appropriate terms and conditions have not been successful. The employment conditions you specified in your letter to John th McDonald dated 11 September are well beyond our expectations. Mr. Todaro, I regret that we do not wish to pursue our association with you any further. Mr. Klepzig was authorized to terminate this th association and the letter he sent to you dated 18 September has my support. Thank you for your involvement with Pioneer. I wish you all the best for the future. (Emphasis added) PIL filed, by special appearance, a motion to dismiss Todaros complaint. PILs co-defendants, PCPI, PPHI, and Klepzig, filed a separate motion to
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Annex "F" shows Todaros faxed reply, under the letterhead of Ital Tech Distributors, Inc., to McDonald of Pioneer Concrete Group HK dated 19 November 1996. Todaro confirmed McDonalds package concerning the consultancy and reiterated his desire to be the manager of Pioneers Philippine business venture. Annex "G" shows Todaros faxed reply, under the letterhead of Ital Tech Distributors, Inc., to McDonald of PIL dated 8 April 1997. Todaro informed McDonald that he was willing to extend assistance to the Pioneer representative from Queensland. The tenor of the letter revealed that Todaro had not yet occupied his expected position. Annex "H" shows Klepzigs letter, under the letterhead of PPHI, to Todaro dated 18 September 1997. Klepzigs message reads: It has not proven possible for this company to meet with your expectations regarding the conditions of your providing Pioneer with
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dismiss. PIL asserted that the trial court has no jurisdiction over PIL because PIL is a foreign corporation not doing business in the Philippines. PIL also questioned the service of summons on it. Assuming arguendo that Klepzig is PILs agent in the Philippines, it was not Klepzig but De Leon who received the summons for PIL. PIL further stated that the National Labor Relations Commission (NLRC), and not the trial court, has jurisdiction over the subject matter of the action. It claimed that assuming that the trial court has jurisdiction over the subject matter of the action, the complaint should be dismissed on the ground of forum non-conveniens. Finally, PIL maintained that the complaint does not state a cause of action because there was no perfected contract, and no personal judgment could be rendered by the trial court against PIL because PIL is a foreign corporation not doing business in the Philippines and there was improper service of summons on PIL. Todaro filed a Consolidated Opposition dated 26 August 1998 to refute PILs assertions. PIL filed, still by special appearance, a Reply on 2 October 1998. The Ruling of the Trial Court On 4 January 1999, the trial court issued an order which ruled in favor of Todaro. The trial court denied the motions to dismiss filed by PIL, PCPI, PPHI, and Klepzig. The trial court stated that the merits of a motion to dismiss a complaint for lack of cause of action are tested on the strength of the allegation of facts in the complaint. The trial court found that the allegations in the complaint sufficiently establish a cause of action. The trial court declared that Todaros cause of action is based on an alleged breach of a contractual obligation and an alleged violation of Articles 19 and 21 of the Civil Code. Therefore, the cause of action does not lie within the jurisdiction of the NLRC but with the trial court. The trial court also asserted its jurisdiction over PIL, holding that PIL did business in the Philippines when it entered into a contract with Todaro. Although PIL questions the service of summons on Klepzig, whom PIL claims is not its agent, the trial court ruled that PIL failed to adduce evidence to prove its contention. Finally, on the issue of forum non-conveniens, the trial court found that it is more convenient to hear and decide the case in the Philippines because Todaro resides in the Philippines and the contract allegedly breached involves employment in the Philippines. PIL filed an urgent omnibus motion for the reconsideration of the trial courts 4 January 1999 order and for the deferment of filing its answer. PCPI, PPHI, and Klepzig likewise filed an urgent omnibus motion. Todaro filed a consolidated opposition, to which PIL, PCPI, PPHI, and Klepzig filed a joint 19 reply. The trial court issued an order on 3 June 1999 denying the motions of
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PIL, PCPI, PPHI, and Klepzig. The trial court gave PIL, PCPI, PPHI, and Klepzig 15 days within which to file their respective answers. PIL did not file an answer before the trial court and instead filed a petition for certiorari before the appellate court. The Ruling of the Appellate Court The appellate court denied PILs petition and affirmed the trial courts ruling in toto. The dispositive portion of the appellate courts decision reads: WHEREFORE, premises considered, the present petition for certiorari is hereby DENIED DUE COURSE and accordingly DISMISSED. The assailed Orders dated January 4, 1999 and June 3, 1999 of the Regional Trial Court of Makati City, Branch 147, in Civil Case No, 98124 are hereby AFFIRMED in toto. SO ORDERED.
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On 14 January 2003, the appellate court dismissed PILs motion for reconsideration for lack of merit. The appellate court stated that PILs motion raised no new substantial or weighty arguments that could impel the appellate court from departing or overturning its previous decision. PIL then filed a petition for review on certiorari before this Court. The Issues PIL raised the following issues before this Court: A. [The trial court] did not and cannot acquire jurisdiction over the person of [PIL] considering that: A.1. [PIL] is a foreign corporation "not doing business" in the Philippines. A.2. Moreover, the complaint does not contain appropriate allegations of ultimate facts showing that [PIL] is doing or transacting business in the Philippines. A.3. Assuming arguendo that jurisdiction may be acquired over the person of [PIL], [the trial court] still failed to acquire jurisdiction since summons was improperly served on [PIL].

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

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

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

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

and even authorized the non-implementation of Todaros alleged permanent employment. In fact, in the letters to Todaro, the word "Pioneer" was used to refer not just to PIL alone but also to all corporations negotiating with Todaro under the Pioneer name. As further proof of the interconnection of the various Pioneer corporations with regard to their negotiations with Todaro, McDonald of Pioneer Concrete Group HK confirmed Todaros engagement as consultant of PIL (Annex "E") while Folwell of PIL stated that Todaro rendered consultancy services to Pioneer HK (Annex "I"). In this sense, the various Pioneer corporations were not acting as separate corporations. The behavior of the various Pioneer corporations shoots down their defense that the corporations have separate and distinct personalities, managements, and operations. The various Pioneer corporations were all working in concert to negotiate an employment contract between Todaro and PPHI, a domestic corporation. Finally, the phrase "doing business in the Philippines" in the former version of Section 12, Rule 14 now reads "has transacted business in the Philippines." The scope is thus broader in that it is enough for the application of the Rule that the foreign private juridical entity "has transacted business in the 26 Philippines." As to the second sub-issue, the purpose of summons is not only to acquire jurisdiction over the person of the defendant, but also to give notice to the defendant that an action has been commenced against it and to afford it an opportunity to be heard on the claim made against it. The requirements of the rule on summons must be strictly followed; otherwise, the trial court will not acquire jurisdiction over the defendant. When summons is to be served on a natural person, service of summons 27 should be made in person on the defendant. Substituted service is resorted to only upon the concurrence of two requisites: (1) when the defendant cannot be served personally within a reasonable time and (2) when there is impossibility of prompt service as shown by the statement in the proof of service in the efforts made to find the defendant personally and that such 28 efforts failed. The statutory requirements of substituted service must be followed strictly, faithfully, and fully, and any substituted service other than by the statute is considered ineffective. Substituted service is in derogation of the usual method of service. It is a method extraordinary in character and may be used 29 only as prescribed and in the circumstances authorized by the statute. The need for strict compliance with the requirements of the rule on summons is also exemplified in the exclusive enumeration of the agents of a domestic private juridical entity who are authorized to receive summons.

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

It could not be denied that there was no existing contract yet to speak of between PIONEER INTL. and [Todaro]. Since there was an absence of an employment contract between the two parties, this Court is of the opinion and so holds that no employer-employee relationship actually exists. Record reveals that all that was agreed upon by [Todaro] and the Pioneer Concrete, acting in behalf of PIONEER INTL., was the confirmation of the offer to engage the services of the former as consultant of PIONEER INTL. (Rollo, p. 132). The failure on the part of PIONEER INTL. to abide by the said agreement, which was duly confirmed by PIONEER INTL., brought about a breach of an obligation on a valid and perfected agreement. There being no employer-employee relationship established between [PIL] and [Todaro], it could be said that the instant case falls within the jurisdiction of the regular courts of justice as the money claim of [Todaro] did not arise out of or in connection with [an] employer34 employee relationship. Todaros employment in the Philippines would not be with PIL but with PPHI as stated in the 20 October 1997 letter of Folwell. Assuming the existence of the employment agreement, the employer-employee relationship would be between PPHI and Todaro, not between PIL and Todaro. PILs liability for the non-implementation of the alleged employment agreement is a civil dispute properly belonging to the regular courts. Todaros causes of action as stated in his complaint are, in addition to breach of contract, based on "violation of Articles 19 and 21 of the New Civil Code" for the "clear and evident bad faith 35 and malice" on the part of defendants. The NLRCs jurisdiction is limited to 36 those enumerated under Article 217 of the Labor Code. WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated 27 September 2001 and the Resolution dated 14 January 2003 of the appellate court are AFFIRMED with the MODIFICATION that there was improper service of summons on Pioneer International, Ltd. The case is remanded to the trial court for proper service of summons and trial. No costs. SO ORDERED.

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

defendants were declared in default. Herein petitioners, as plaintiffs, were then allowed to present evidence ex parte. On December 2, 1997, the RTC rendered judgment with the following dispositive portion: WHEREFORE, premises considered, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiffs and against the defendants: 1. Declaring plaintiffs as the true and absolute owner of the property subject of the case and particularly described in paragraph II of the complaint; 2. Affirming and confirming the validity and legality of plaintiffs ownership over the property; 3. Ordering defendants to vacate the land adverted to in paragraph II of the complaint; 4. For the defendants to respect plaintiffs' peaceful possession and ownership of the land aforesaid; and 5. To pay the costs. SO ORDERED.
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On December 15, 1997, the RTC received a Motion for Leave of Court to Intervene with an attached Answer-in-Intervention filed by the compulsory heirs of Ines, among whom are herein respondents, who are also co-heirs of defendant Milagros. The intervenors contended that the subject parcel of land forms part of the estate of Ines which is yet to be partitioned among them; an intestate proceeding is presently pending in the RTC of Odiongan, Romblon, Branch 81; the outcome of Civil Case No. OD-306, one way or the other, would adversely affect their interest; their rights would be better protected in the said civil case; and their intervention would not unduly delay, or in any way prejudice the rights of the original parties. In its Order of December 23, 1997, the RTC denied the said motion to intervene on the ground that it has already rendered judgment and under Section 2, Rule 19 of the Rules of Court, the motion to intervene should have been filed before rendition of judgment by the trial court.

Meanwhile, the defendants in Civil Case No. OD-306 filed an appeal with the CA. Their Notice of Appeal was filed on February 27, 1998. On June 23, 1999, the CA issued a Resolution dismissing the appeal for failure of the defendants-appellants to file their brief within the extended period granted by the appellate court. On August 13, 1999, the abovementioned CA Resolution became final and executory. Subsequently, the trial court issued a writ of execution dated March 3, 2000. On May 23, 2000, herein respondents filed a petition for annulment of judgment with the CA anchored on grounds of lack of jurisdiction over their persons and property and on extrinsic fraud. On January 14, 2002, the CA promulgated the presently assailed Decision with the following dispositive portion: WHEREFORE, the present petition is hereby GRANTED. The Decision dated December 2, 1997 and Writ of Execution dated March 3, 2000 of Branch 82 of the Regional Trial Court of Odiongan, Romblon are hereby ANNULLED and SET ASIDE. SO ORDERED.
4

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

Herein petitioners filed a Motion for Reconsideration but it was denied by the 5 CA in its Resolution dated October 21, 2002. Hence, the instant petition for review based on the following assignment of errors: 1. THAT THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN ANNULLING AND SETTING ASIDE THE DECISION DATED 2 DECEMBER 1997 AND WRIT OF EXECUTION DATED 3 MARCH 2000 OF BRANCH 82 OF THE REGIONAL TRIAL COURT OF ODIONGAN, ROMBLON FOR LACK OF JURISDICTION OVER THE PERSONS OF PETITIONERS (NOW RESPONDENTS IN THE ABOVE-ENTITLED CASE), A DECISION NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT. 2. THAT THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT DISMISSING THE PETITION FOR ANNULMENT OF JUDGMENT ON THE GROUND OF ESTOPPEL 6 ON THE PART OF THE PETITIONERS IN CA-G.R. SP. NO. 58834.

The rule on intervention, like all other rules of procedure, is intended to make the powers of the Court fully and completely available for justice. It is aimed to facilitate a comprehensive adjudication of rival claims overriding technicalities on the timeliness of the filing thereof. Indeed, in exceptional cases, the Court has allowed intervention notwithstanding the rendition of judgment by the trial 9 court. Since it is not disputed that herein respondents are compulsory heirs of Ines who stand to be affected by the judgment of the trial court, the latter should have granted their Motion to Intervene and should have admitted their Answer-in-Intervention. Section 7, Rule 3 of the Rules of Court, defines indispensable parties as parties-in-interest without whom there can be no final determination of an action. As such, they must be joined either as plaintiffs or as defendants. The general rule with reference to the making of parties in a civil action requires the joinder of all necessary parties where possible and the joinder of all indispensable parties under any and all conditions, their presence being a 10 sine qua non for the exercise of judicial power. It is precisely when an indispensable party is not before the court that the action should be 11 dismissed. The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to 12 act, not only as to the absent parties but even as to those present. The evident aim and intent of the Rules regarding the joinder of indispensable and necessary parties is a complete determination of all possible issues, not only between the parties themselves but also as regards to other persons who may 13 be affected by the judgment. A valid judgment cannot even be rendered 14 where there is want of indispensable parties. 1^wphi1.net As to the question of whether the trial court acquired jurisdiction over the persons of herein respondents, the Court has held that the filing of motions seeking affirmative relief, such as, to admit answer, for additional time to file answer, for reconsideration of a default judgment, and to lift order of default with motion for reconsideration, are considered voluntary submission to the 15 jurisdiction of the court. Hence, in the present case, when respondents filed their Motion for Leave to Intervene, attaching thereto their Answer-inIntervention, they have effectively submitted themselves to the jurisdiction of the court and the court, in turn, acquired jurisdiction over their persons. But this circumstance did not cure the fatal defect of non-inclusion of respondents as indispensable parties in the complaint filed by petitioner. It must be emphasized that respondents were not able to participate during the pre-trial much less present evidence in support of their claims. In other words, the court acquired jurisdiction over the persons of herein respondents only when they filed their Motion for Leave to Intervene with the RTC. Prior to that, they were strangers to Civil Case No. OD-306.

It is basic that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the 16 court. In the present case, respondents and their co-heirs are adversely affected by the judgment rendered by the trial court considering their ostensible ownership of the property. It will be the height of inequity to declare herein petitioners as owners of the disputed lot without giving respondents the opportunity to present any evidence in support of their claim that the subject property still forms part of the estate of their deceased predecessor and is the subject of a pending action for partition among the compulsory heirs. Much more, it is tantamount to a violation of the constitutional guarantee that no 17 person shall be deprived of property without due process of law. 1vvphi1.nt This Court held in Metropolitan Bank and Trust Company v. Alejo that: A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal effect. Hence, it can never become final and any writ of execution based on it is void: x x x it may be said to be a lawless thing which can be treated as an outlaw and slain 18 at sight, or ignored wherever and whenever it exhibits its head. In the absence of herein respondents and their co-heirs who are indispensable parties, the trial court had in the first place no authority to act on the case. Thus, the judgment of the trial court was null and void due to lack of 19 jurisdiction over indispensable parties. The CA correctly annulled the RTC Decision and writ of execution. As to the timeliness of the petition for annulment of judgment filed with the CA, Section 3, Rule 47 of the Rules of Court provides that a petition for annulment of judgment based on extrinsic fraud must be filed within four years from its discovery; and if based on lack of jurisdiction, before it is barred by laches or estoppel. The principle of laches or "stale demands" ordains that the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier, or the negligence or omission to assert a right within a reasonable time, warrants a presumption that the party entitled to assert it either has abandoned it or 20 declined to assert it. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular 21 circumstances. The question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by 22 equitable considerations. It cannot be used to defeat justice or perpetrate

fraud and injustice. It is the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the 24 doctrine of laches when to do so, manifest wrong or injustice would result. In the present case, the CA found no evidence to show when respondents acquired knowledge of the complaint that petitioners filed with the RTC. Moreover, the Court finds that herein respondents' right to due process is the overriding consideration in allowing them to intervene in Civil Case No. OD306. Petitioners also fault herein respondents for their failure to avail of other remedies before filing a petition for annulment of judgment with the CA. Petitioners cited the remedies enumerated by the RTC in its Order of December 23, 1997. However, the Court notes that the remedies enumerated therein refer to those available to a party who has been declared in default. In the present case, herein respondents could not have been declared in default, and thus could not have availed of these remedies, because they never became parties to Civil Case No. OD-306. The settled rule is that a judgment rendered or final order issued by the RTC without jurisdiction is null and void and may be assailed any time either collaterally or in a direct action or by resisting such judgment or final order in any action or proceeding whenever it is invoked, unless barred by 25 laches. Indeed, jurisprudence upholds the soundness of an independent action to declare as null and void a judgment rendered without jurisdiction as 26 in this case. As a result of and in consonance with the foregoing discussions, the complaint filed by herein petitioners with the trial court should have been dismissed at the outset, in the absence of indispensable parties. Inevitably, the following questions come to mind: what happens to the original defendants who were declared as in default and judgment by default was rendered against them? What happens to the final and executory dismissal of the appeal of the defaulted defendants by the CA? It is an accepted rule of procedure for this Court to strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the 27 seeds of future litigation. In concurrence therewith, the Court makes the following observations: To dismiss the complaint of herein petitioners for non-inclusion of herein respondents as indispensable parties, the former would have no other recourse but to file anew a complaint against the latter and the original

23

defendants. This would not be in keeping with the Court's policy of promoting a just and inexpensive disposition of a case. It is best that the complaint remains which is deemed amended by the admission of the Answer-inIntervention of the indispensable parties. The trial courts declaration of the defendants as in default in Civil Case No. OD-306 for their failure to attend the pre-trial conference and the consequent final and executory judgment by default, are altogether void and of no effect considering that the RTC acted without jurisdiction from the very beginning because of non-inclusion of indispensable parties. The Court reiterates the ruling in Metropolitan Bank and Trust Company that void judgment for want of jurisdiction is no judgment at all; it cannot be the source of any right nor the 28 creator of any obligation. Parties are reverted back to the stage where all the defendants have filed their respective Answers. WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals areAFFIRMED with MODIFICATION to the effect that the Regional Trial Court of Odiongan, Romblon, Branch 82 is ordered to GRANT the Motion for Leave to Intervene of respondents and their other co-heirs, ADMIT their Answer-in-Intervention, MAINTAIN the Answer of original defendants, and from there to PROCEED with Civil Case No. OD-306 in accordance with the Rules of Court. Costs against petitioners. SO ORDERED.

Spouses JULITA DE LA CRUZ and FELIPE DE LA CRUZ, petitioners, vs. PEDRO JOAQUIN, respondent. DECISION PANGANIBAN, J.: The Rules require the legal representatives of a dead litigant to be substituted as parties to a litigation. This requirement is necessitated by due process. Thus, when the rights of the legal representatives of a decedent are actually recognized and protected, noncompliance or belated formal compliance with the Rules cannot affect the validity of the promulgated decision. After all, due process had thereby been satisfied. e)

amount of P9,000.00 to repurchase the property from them; and ordering the defendants to pay the plaintiff the amount of P10,000.00 as actual and compensatory damages; the amount of P5,000[.00] as exemplary damages; the amount ofP5,000.00 as expenses of litigation and the [5] amount of P5,000.00 by way of attorneys fees.

The Facts The case originated from a Complaint for the recovery of possession and ownership, the cancellation of title, and damages, filed by Pedro Joaquin against petitioners in the Regional Trial Court of Baloc, Sto. Domingo, Nueva [6] Ecija. Respondent alleged that he had obtained a loan from them in the amount of P9,000 on June 29, 1974, payable after five (5) years; that is, on June 29, 1979. To secure the payment of the obligation, he supposedly executed a Deed of Sale in favor of petitioners. The Deed was for a parcel of land in Pinagpanaan, Talavera, Nueva Ecija, covered by TCT No. T[7] 111802. The parties also executed another document entitled Kasunduan. Respondent claimed that the Kasunduan showed the Deed of Sale to be [8] actually an equitable mortgage. Spouses De la Cruz contended that this document was merely an accommodation to allow the repurchase of the [9] property until June 29, 1979, a right that he failed to exercise. On April 23, 1990, the RTC issued a Decision in his favor. The trial court declared that the parties had entered into a sale with a right of [10] repurchase. It further held that respondent had made a valid tender of payment on two separate occasions to exercise his right of [11] repurchase. Accordingly, petitioners were required to reconvey the property [12] upon his payment.

The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, [2] assailing the August 26, 2003 Decision and the March 9, 2004 [3] Resolution of the Court of Appeals (CA) in CA-GR CV No. 34702. The challenged Decision disposed as follows: WHEREFORE, the foregoing considered, the appeal is DISMISSED and the [4] assailed decision accordingly AFFIRMED in toto. No costs. On the other hand, the trial courts affirmed Decision disposed as follows: WHEREFORE, judgment is hereby rendered: a) declaring the Deed of Absolute Sale (Exh. D) and Kasunduan (Exhibit B), to be a sale with right of repurchase; ordering the plaintiff to pay the defendants the sum of P9,000.00 by way of repurchasing the land in question; ordering the defendants to execute a deed of reconveyance of said land in favor of the plaintiff after the latter has paid them the amount of P9,000.00 to repurchase the land in question; ordering the defendants to yield possession of the subject land to the plaintiff after the latter has paid them the
[1]

b)

Ruling of the Court of Appeals Sustaining the trial court, the CA noted that petitioners had given respondent the right to repurchase the property within five (5) years from the date of the sale or until June 29, 1979. Accordingly, the parties executed the Kasunduan to express the terms and conditions of their actual [13] agreement. The appellate court also found no reason to overturn the finding [14] that respondent had validly exercised his right to repurchase the land.

c)

d)

In the March 9, 2004 Resolution, the CA denied reconsideration and ordered a substitution by legal representatives, in view of respondents death [15] on December 24, 1988. Hence, this Petition.
[16]

When a party to a pending action dies and the claim is not [21] extinguished, the Rules of Court require a substitution of the deceased. The procedure is specifically governed by Section 16 of Rule 3, which reads thus: Section 16. Death of a party; duty of counsel. Whenever a party to a pending action dies, and the claim is not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty (30) days after such death of the fact thereof, and to give the name and address of his legal representative or representatives. Failure of counsel to comply with this duty shall be a ground for disciplinary action. The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court may appoint a guardian ad litem for the minor heirs. The court shall forthwith order said legal representative or representatives to appear and be substituted within a period of thirty (30) days from notice. If no legal representative is named by the counsel for the deceased party, or if the one so named shall fail to appear within the specified period, the court may order the opposing party, within a specified time, to procure the appointment of an executor or administrator for the estate of the deceased, and the latter shall immediately appear for and on behalf of the deceased. The court charges in procuring such appointment, if defrayed by the opposing party, may be recovered as costs. The rule on the substitution of parties was crafted to protect every partys [22] right to due process. The estate of the deceased party will continue to be properly represented in the suit through the duly appointed legal [23] representative. Moreover, no adjudication can be made against the successor of the deceased if the fundamental right to a day in court is [24] denied. The Court has nullified not only trial proceedings conducted without the appearance of the legal representatives of the deceased, but also the [25] resulting judgments. In those instances, the courts acquired no jurisdiction over the persons of the legal representatives or the heirs upon whom no [26] judgment was binding. This general rule notwithstanding, a formal substitution by heirs is not necessary when they themselves voluntarily appear, participate in the case, [27] and present evidence in defense of the deceased. These actions negate any claim that the right to due process was violated.

The Issues Petitioners assign the following errors for our consideration: I. Public Respondent Twelfth Division of the Honorable Court of Appeals seriously erred in dismissing the appeal and affirming in toto the Decision of the trial court in Civil Case No. SD-838; II. Public Respondent Twelfth Division of the Honorable Court of Appeals likewise erred in denying [petitioners] Motion for Reconsideration given the [17] facts and the law therein presented. Succinctly, the issues are whether the trial court lost jurisdiction over the case upon the death of Pedro Joaquin, and whether respondent was guilty of [18] forum shopping.

The Courts Ruling The Petition has no merit.

First Issue: Jurisdiction Petitioners assert that the RTCs Decision was invalid for lack of [19] jurisdiction. They claim that respondent died during the pendency of the case. There being no substitution by the heirs, the trial court allegedly lacked [20] jurisdiction over the litigation.

Rule on Substitution

The Court is not unaware of Chittick v. Court of Appeals, in which the failure of the heirs to substitute for the original plaintiff upon her death led to the nullification of the trial courts Decision. The latter had sought to recover support in arrears and her share in the conjugal partnership. The children who allegedly substituted for her refused to continue the case against their [29] father and vehemently objected to their inclusion as parties. Moreover, because he died during the pendency of the case, they were bound to substitute for the defendant also. The substitution effectively merged the persons of the plaintiff and the defendant and thus extinguished the obligation [30] being sued upon. Clearly, the present case is not similar, much less identical, to the factual milieu of Chittick. Strictly speaking, the rule on the substitution by heirs is not a matter of jurisdiction, but a requirement of due process. Thus, when due process is not violated, as when the right of the representative or heir is recognized and protected, noncompliance or belated formal compliance with the Rules cannot [31] affect the validity of a promulgated decision. Mere failure to substitute for a deceased plaintiff is not a sufficient ground to nullify a trial courts decision. The alleging party must prove that there was an undeniable violation of due process.

[28]

the rendition of judgment, further proceedings may be held, such as a motion [35] for reconsideration or a new trial, an appeal, or an execution. Considering the foregoing circumstances, the Motion for Substitution may be deemed to have been granted; and the heirs, to have substituted for the deceased, Pedro Joaquin. There being no violation of due process, the issue of substitution cannot be upheld as a ground to nullify the trial courts Decision.

Second Issue: Forum Shopping Petitioners also claim that respondents were guilty of forum shopping, a fact that should have compelled the trial court to dismiss the [36] Complaint. They claim that prior to the commencement of the present suit on July 7, 1981, respondent had filed a civil case against petitioners on June 25, 1979. Docketed as Civil Case No. SD-742 for the recovery of possession and for damages, it was allegedly dismissed by the Court of First Instance of Nueva Ecija for lack of interest to prosecute.

Substitution in the Instant Case The records of the present case contain a Motion for Substitution of Party Plaintiff dated February 15, 2002, filed before the CA. The prayer states as follows: WHEREFORE, it is respectfully prayed that the Heirs of the deceased plaintiff-appellee as represented by his daughter Lourdes dela Cruz be substituted as party-plaintiff for the said Pedro Joaquin. It is further prayed that henceforth the undersigned counsel for the heirs of Pedro Joaquin be furnished with copies of notices, orders, resolutions and other pleadings at its address below. Evidently, the heirs of Pedro Joaquin voluntary appeared and [33] participated in the case. We stress that the appellate court had ordered his legal representatives to appear and substitute for him. The substitution even on appeal had been ordered correctly. In all proceedings, the legal [34] representatives must appear to protect the interests of the deceased. After
[32]

Forum Shopping Defined Forum shopping is the institution of two or more actions or proceedings involving the same parties for the same cause of action, either simultaneously or successively, on the supposition that one or the other court would make a [37] favorable disposition. Forum shopping may be resorted to by a party against whom an adverse judgment or order has been issued in one forum, in an attempt to seek a favorable opinion in another, other than by an appeal or [38] a special civil action for certiorari. Forum shopping trifles with the courts, abuses their processes, degrades [39] the administration of justice, and congests court dockets. Willful and deliberate violation of the rule against it is a ground for the summary dismissal [40] of the case; it may also constitute direct contempt of court. The test for determining the existence of forum shopping is whether the elements of litis pendentia are present, or whether a final judgment in one [41] case amounts to res judicata in another. We note, however, petitioners claim that the subject matter of the present case has already been litigated [42] and decided. Therefore, the applicable doctrine is res judicata.

Applicability of Res Judicata Under res judicata, a final judgment or decree on the merits by a court of competent jurisdiction is conclusive of the rights of the parties or their privies, in all later suits and on all points and matters determined in the previous [43] suit. The term literally means a matter adjudged, judicially acted upon, or [44] settled by judgment. The principle bars a subsequent suit involving the same parties, subject matter, and cause of action. Public policy requires that controversies must be settled with finality at a given point in time. The elements of res judicata are as follows: (1) the former judgment or order must be final; (2) it must have been rendered on the merits of the controversy; (3) the court that rendered it must have had jurisdiction over the subject matter and the parties; and (4) there must have been -- between the first and the second actions -- an identity of parties, subject matter and cause [45] of action.

Failure to Support Allegation The onus of proving allegations rests upon the party raising them. As to the matter of forum shopping and res judicata, petitioners have failed to provide this Court with relevant and clear specifications that would show the presence of an identity of parties, subject matter, and cause of action between the present and the earlier suits. They have also failed to show whether the other case was decided on the merits. Instead, they have made only bare assertions involving its existence without reference to its facts. In other words, they have alleged conclusions of law without stating any factual or legal basis. Mere mention of other civil cases without showing the identity of rights asserted and reliefs sought is not enough basis to claim that respondent [47] is guilty of forum shopping, or that res judicata exists. WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against petitioners. SO ORDERED.
[46]

WESTMONT VS. RICARDO SAMANIEGO On June 26, 1998, Westmont and Unilab filed a motion to dismiss Before us are consolidated petitions for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, filed by both contending parties assailing
[2] [1]

Samaniegos complaint on the ground of improper venue and lack of cause of action. They argued that the complaint should have been filed with the National Labor Relations Commission (NLRC) in Manila, not with the Office of the Labor Arbiter in Tuguegarao City, Cagayan; and that the action should only be against Westmont, Samaniegos employer. Samaniego filed an Opposition to the motion to which Westmont and Unilab filed a Reply.

the

Decision

dated January

8,

2001 and

the

Resolution

dated March 9, 2001 rendered by the Court of Appeals in CA-

G.R. SP No. 60400. The factual antecedents as borne by the records are: On May 5, 1998, Ricardo C. Samaniego filed with the Office of the Labor Arbiter, Regional Arbitration Branch (RAB) No. II, Tuguegarao City, Cagayan, a complaint for illegal dismissal and damages against Westmont Pharmaceuticals, Inc. (Westmont) and United Laboratories, Inc. (Unilab), herein respondents. Also impleaded as respondents are Unilabs officers, Jose Yao Campos, Carlos Ejercito, Ernesto Salazar, Eliezer Salazar, and Jose Solidum, Jr. The complaint alleges that Unilab initially hired Samaniego as Professional Service Representative of its marketing arm, Westmont. Later, Unilab promoted him as Senior Business Development Associate and assigned him in Isabela as Acting District Manager of Westmont and Chairman of Unilab Special Projects. In August 1995, he was transferred to Metro Manila pending investigation of his subordinate and physicians of Region II involved in a sales discount and Rx trade-off controversy. He was then placed under floating status and assigned to perform duties not connected with his position, like fetching at the airport physicians coming from the provinces; making deposits in banks; fetching field men and doing messengerial works. His transfer to Metro Manila resulted in the diminution of his salary as his per diem was reduced from P13,194.00 to P2,299.00 only.

On August 13, 1998, the Labor Arbiter denied the motion to dismiss, citing Section 1, Rule IV of the NLRC New Rules of Procedure. This provision allows the Labor Arbiter to order a change of venue in meritorious cases. The Labor Arbiter then set the case for preliminary conference during which Westmont and Unilab expressly reserved their right to contest the order denying their motion to dismiss. On September 3, 1998, Westmont and Unilab filed with the NLRC an Urgent Petition to Change or Transfer Venue. On the same date, they filed with the Office of the Labor Arbiter in Cagayan a Motion to Suspend Proceedings in view of the pendency of their petition for change or transfer of venue in the NLRC. On September 8, 1998, the Labor Arbiter issued an Order directing the parties to submit their respective position papers and supporting documents within twenty (20) days from notice, after which the case shall be deemed submitted for decision.

On September 22, 1998, the NLRC, acting on the petition to change venue, directed the Labor Arbiter to forward to the NLRC the records of the case. The Labor Arbiter retained the complete duplicate original copies of the records and set the case for hearing. Westmont and Unilab repeatedly filed motions for cancellation of the scheduled dates of hearing on the ground that their petition for change of venue has remained unresolved. They did not file their position papers nor did they attend the hearing. Thus, the Labor Arbiter considered the case submitted for Decision based on the records and the evidence submitted by Samaniego. On December 16, 1998, the Labor Arbiter rendered a Decision finding that Samaniego was illegally and unjustly dismissed constructively and ordering his reinstatement to his former position without loss of seniority rights and privileges; and payment of his full backwages from the date of his dismissal from the service up to the date of his actual reinstatement, as well as per diem differential, profit share, and actual, moral and exemplary damages, plus 10% attorneys fees. On January 21, 1999, Westmont and Unilab interposed an appeal to the NLRC. In its Resolution dated August 31, 1999, the NLRC dismissed the petition for change of venue, holding that when the cause of action arose, Samaniegos workplace was in Isabela over which the Labor Arbiter in Cagayan has jurisdiction; and that the Labor Arbiters Decision is not appealable. In the same Resolution, the NLRC declared the Labor Arbiters Decision null and void, finding that: x x x the Executive Labor Arbiter below only allowed the transmittal of the official records of the instant case to the Commission. Throwing caution into the wind, he retained

complete duplicate original copies of the same, conducted further proceedings and rendered his now contested Decision despite the pendency of the appeal-treated Urgent Petition for Change of Venue. As a consequence, respondents-appellants were deprived of their opportunity to be heard and defend themselves on the issues raised in the instant case. They were therefore denied of their right to due process of law in violation of Section 1, Article III of the Constitution which provides: No person shall be deprived of his....property without due process of law.

The dispositive portion of the NLRC Resolution reads: WHEREFORE, premises considered, the main Appeal and Motion to Quash are hereby PARTIALLY GRANTED and the appeal-treated Petition for Change of Venue DISMISSED for lack of jurisdiction and/or merit. Accordingly, the Decision appealed from is declared NULL and VOID and the Order appealed from SUSTAINED insofar as the denial of the Motion to Dismiss is concerned. The entire records of the instant case are DIRECTED to be immediately remanded to the Executive Labor Arbiter of origin for immediate conduct of further proceeding. The respondents-appellants are DIRECTED to pay complainant-appellee the amount of Two Hundred Thirty Thousand Seven Hundred Twenty Pesos and Thirty Centavos (P230,720.30) representing his salary from January 1, 1999 to August 31, 1999, the date of issuance of this Resolution less any salary collected by him by way of execution pending appeal. SO ORDERED.

The parties separately filed their motions for reconsideration but were both denied by the NLRC in its Resolution dated June 27, 2000. On January 8, 2001, the Court of Appeals, acting on the parties petitions for certiorari, rendered its Decision setting aside the NLRC

Resolutions and affirming with modification the Labor Arbiters Decision in the sense that the award of moral damages was reduced from P5,000,000.00 to P500,000.00; and the exemplary damages from P1,000,000.00

The petition to change or transfer venue filed by Westmont and Unilab with the NLRC is not the proper remedy to assail the Labor Arbiters Order denying their motion to dismiss. Such Order is merely interlocutory, hence, not appealable. Section 3, Rule V of the Rules of Procedure of the

to P300,000.00, thus: xxx While this Court concurs with the ruling of the Executive Labor Arbiter that there was constructive dismissal committed against Ricardo Samaniego, this Court finds the award on moral and exemplary damages unconscionable. xxx WHEREFORE, the NLRCs resolutions dated August 31, 1999 and June 27, 2000 are hereby SET ASIDE. The decision of the Executive Labor Arbiter dated December 16, 1998 is REINSTATED and AFFIRMED in all respect except with the following modification: the moral and exemplary damages are reduced to P500,000.00 and P300,000.00, respectively. SO ORDERED.

NLRC, as amended, provides: SECTION 3. Motion to Dismiss. On or before the date set for the conference, the respondent may file a motion to dismiss. Any motion to dismiss on the ground of lack of jurisdiction, improper venue, or that the cause of action is barred by prior judgment, prescription or forum shopping, shall be immediately resolved by the Labor Arbiter by a written order. An order denying the motion to dismiss or suspending its resolution until the final determination of the case is not appealable.

In Indiana Education,
[3]

Aerospace

University

v.

Commission

on

Higher

we held:

An order denying a motion to dismiss is interlocutory, and so the proper remedy in such a case is to appeal after a decision has been rendered.

Hence, these consolidated petitions for review on certiorari filed by the opposing parties. In their petition, Westmont and Unilab allege that the Court of Appeals erred in denying their motion to dismiss by reason of improper venue and in sustaining the Labor Arbiters Decision declaring that Samaniego was constructively dismissed; and that they were denied due process. For his part, Samaniego maintains that the Court of Appeals did not err in its ruling. However, he claims that the Appellate Court should not have reduced the Labor Arbiters award for moral and exemplary damages. Section 1(a), Rule IV of the NLRC Rules of Procedure, as amended, provides: SECTION 1. Venue. (a) All cases which Labor Arbiters have authority to hear and decide may be filed in the Regional Arbitration Branch having jurisdiction over the workplace of the complainant/petitioner. Assuming that the petition to change or transfer venue is the proper remedy, still we find that the Court of Appeals did not err in sustaining the Labor Arbiters Order denying the motion to dismiss.

For purposes of venue, workplace shall be understood as the place or locality where the employee is regularly assigned when the cause of action arose. It shall include the place where the employee is supposed to report back after a temporary detail, assignment or travel. In the case of field employees, as well as ambulant or itinerant workers, their workplace is where they are regularly assigned, or where they are supposed to regularly receive their salaries/wages or work instructions from and report the results of their assignment to, their employers. In Sulpicio Lines, Inc. v. NLRC,
[4]

On the contention of Westmont and Unilab that they were denied due process, well settled is the rule that the essence of due process is simply an opportunity to be heard or, as applied to administrative proceedings, an opportunity to explain ones side or an opportunity to seek a reconsideration of the action or ruling complained of. The requirement of due process in labor cases before a Labor Arbiter is satisfied when the parties are given the opportunity to submit their position papers to which they are supposed

we held:

to attach all the supporting documents or documentary evidence that would prove their respective claims, in the event the Labor Arbiter determines that

The question of venue essentially relates to the trial and touches more upon the convenience of the parties, rather than upon the substance and merits of the case. Our permissive rules underlying provisions on venue are intended to assure convenience for the plaintiff and his witnesses and to promote the ends of justice. This axiom all the more finds applicability in cases involving labor and management because of the principle, paramount in our jurisdiction, that the State shall afford full protection to labor. xxx This provision is obviously permissive, for the said section uses the word "may," allowing a different venue when the interests of substantial justice demand a different one. In any case, as stated earlier, the Constitutional protection accorded to labor is a paramount and compelling factor, provided the venue chosen is not altogether oppressive to the employer.

no formal hearing would be conducted or that such hearing was not necessary.
[5]

As shown by the records, the Labor Arbiter gave Westmont and Unilab, not only once, but thrice, the opportunity to submit their position papers and supporting affidavits and documents. But they were

obstinate. Clearly, they were not denied their right to due process. The ultimate issue for our resolution is whether the Court of Appeals erred in holding that Samaniego was constructively dismissed

by Westmont and Unilab. To recapitulate, Samaniego claims that upon his reassignment and/or transfer to Metro Manila, he was placed on floating status and directed to perform functions not related to his position. For their part, Westmont and

Here, it is undisputed that Samaniegos regular place of assignment was in Isabela when he was transferred to Metro Manila or when the cause of action arose. Clearly, the Appellate Court was correct in affirming the Labor Arbiters finding that the proper venue is in the RAB No. II at Tuguegarao City, Cagayan.

Unilab explain that his transfer is based on a sound business judgment, a management prerogative. In constructive dismissal, the employer has the burden of proving that the transfer of an employee is for just and valid grounds, such as genuine business necessity. The employer must be able to show that the transfer is not unreasonable, inconvenient, or prejudicial to the employee. It must not

involve a demotion in rank or a diminution of salary and other benefits. If the employer cannot overcome this burden of proof, the employees transfer shall be tantamount to unlawful constructive dismissal.
[6]

Records show that Samaniego was employed from October 1982 to May 27, 1998,
[11]

or for sixteen (16) years and seven (7) months, with a

monthly salary of P25,000.00. Hence, he is entitled to a separation pay of P425,000.00. Westmont and Unilab failed to discharge this burden. Samaniego was unceremoniously transferred from Isabela to Metro Manila. We hold that such transfer is economically and emotionally burdensome on his part. He was constrained to maintain two residences one for himself in Metro Manila, and the other for his family in Tuguegarao City, Cagayan. Worse, WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 60400 and CA-G.R. SP No. 60478

areAFFIRMED, with MODIFICATION in the sense that Westmont and Unilab are ordered to pay Samaniego his separation pay equivalent to P425,000.00, plus his full backwages, and other privileges and benefits, or their monetary equivalent, from the time of his dismissal up to his supposed actual reinstatement. The award for moral and exemplary damages is deleted. Costs against Westmont and Unilab.

immediately after his transfer to Metro Manila, he was placed on floating status and was demoted in rank, performing functions no longer supervisory in nature. There may also be constructive dismissal if an act of clear insensibility or disdain by an employer becomes so unbearable on the part of the employee that it could foreclose any choice by him except to forego his continued employment.
[7]

SO ORDERED.

This was what happened to Samaniego. Thus, he

is entitled to reinstatement without loss of seniority rights, full backwages, inclusive of allowances, and other benefits
[8]

or

their

monetary

equivalent, computed from the time his compensation was withheld from him up to the time of his actual reinstatement.

However, the circumstances obtaining in this case do not warrant the reinstatement of Samaniego. Antagonism caused a severe strain in the relationship between him and his employer. A more equitable disposition

would be an award of separation pay equivalent to at least one month pay, or one month pay for every year of service, whichever is higher (with a fraction of at least six [6] months being considered as one [1] whole year), his full backwages, allowances and other benefits.
[10] [9]

in addition to

UNIMASTERS CONGLOMERATION, INC., petitioner, vs. COURT OF APPEALS and KUBOTA AGRI-MACHINERY PHILIPPINES, INC.,respondents. DECISION NARVASA, C.J.: The appellate proceeding at bar turns upon the interpretation of a stipulation in a contract governing venue of actions thereunder arising. On October 28, 1988 Kubota Agri-Machinery Philippines, Inc. (hereafter, simply KUBOTA) and Unimasters Conglomeration, Inc. (hereafter, simply UNIMASTERS) entered into a "Dealership Agreement for Sales and Services" [1] of the former's products in Samar and Leyte Provinces. The contract contained, among others: 1) a stipulation reading: "** All suits arising out of this Agreement shall be filed with / in the proper Courts of Quezon City," and 2) a provision binding UNIMASTERS to obtain (as it did in fact obtain) a credit line with Metropolitan Bank and Trust Co.-Tacloban Branch in the amount of P2,000,000.00 to answer for its obligations to KUBOTA. Some five years later, or more precisely on December 24, 1993, UNIMASTERS filed an action in the Regional Trial Court of Tacloban City against KUBOTA, a certain Reynaldo Go, and Metropolitan Bank and Trust Company-Tacloban Branch (hereafter, simply METROBANK) for damages for breach of contract, and injunction with prayer for temporary restraining order. The action was docketed as Civil Case No. 93-12-241 and assigned to Branch 6. On the same day the Trial Court issued a restraining order enjoining METROBANK from "authorizing or effecting payment of any alleged obligation of ** (UNIMASTERS) to defendant ** KUBOTA arising out of or in connection with purchases made by defendant Go against the credit line caused to be established by ** (UNIMASTERS) for and in the amount of P2 million covered by defendant METROBANK ** or by way of charging ** (UNIMASTERS) for any amount paid and released to defendant ** (KUBOTA) by the Head Office of METROBANK in Makati, Metro-Manila **." The Court also set the application for preliminary injunction for hearing on January 10, 1994 at 8:30 o'clock in the morning. On January 4, 1994 KUBOTA filed two motions. One prayed for dismissal of the case on the ground of improper venue (said motion being set for hearing on January 11, 1994). The other prayed for the transfer of the

injunction hearing to January 11, 1994 because its counsel was not available on January 10 due to a prior commitment before another court. KUBOTA claims that notwithstanding that its motion to transfer hearing had been granted, the Trial Court went ahead with the hearing on the injunction incident on January 10, 1994 during which it received the direct testimony of UNIMASTERS' general manager, Wilford Chan; that KUBOTA's counsel was "shocked" when he learned of this on the morning of the 11th, but was nonetheless instructed to proceed to cross-examine the witness; that when said counsel remonstrated that this was unfair, the Court reset the hearing to the afternoon of that same day, at which time Wilford Chan was recalled to the stand to repeat his direct testimony. It appears that crossexamination of Chan was then undertaken by KUBOTA's lawyer with the "express reservation that ** (KUBOTA was) not (thereby) waiving and/or abandoning its motion to dismiss;" and that in the course of the crossexamination, exhibits (numbered from 1 to 20) were presented by said attorney who afterwards submitted a memorandum in lieu of testimonial [2] evidence. On January 13, 1994, the Trial Court handed down an Order authorizing the issuance of the preliminary injunction prayed for, upon a bond [3] of P2,000,000.00. And on February 3, 1994, the same Court promulgated an Order denying KUBOTA's motion to dismiss. Said the Court: "The plaintiff UNIMASTERS Conglomeration is holding its principal place of business in the City of Tacloban while the defendant ** (KUBOTA) is holding its principal place of business in Quezon City. The proper venue therefore pursuant to Rules of Court would either be Quezon City or Tacloban City at the election of the plaintiff. Quezon City and Manila (sic), as agreed upon by the parties in the Dealership Agreement, are additional places other than the place stated in the Rules of Court. The filing, therefore, of this complaint in the Regional Trial Court in Tacloban City is proper." Both orders were challenged as having been issued with grave abuse of discretion by KUBOTA in a special civil action of certiorari and prohibition filed with the Court of Appeals, docketed as CA-G.R. SP No. 33234. It contended, more particularly, that (1) the RTC had "no jurisdiction to take cognizance of ** (UNIMASTERS') action considering that venue was improperly laid," (2) UNIMASTERS had in truth "failed to prove that it is entitled to the ** writ of preliminary injunction;" and (3) the RTC gravely erred "in denying the motion [4] to dismiss." The Appellate Court agreed with KUBOTA that -- in line with the Rules of [5] [6] Court and this Court's relevant rulings -- the stipulation respecting venue in its Dealership Agreement with UNIMASTERS did in truth limit the venue of all suits arising thereunder only and exclusively to "the proper courts of Quezon [7] City." The Court also held that the participation of KUBOTA's counsel at the

hearing on the injunction incident did not in the premises operate as a waiver or abandonment of its objection to venue; that assuming that KUBOTA's standard printed invoices provided that the venue of actions thereunder should be laid at the Court of the City of Manila, this was inconsequential since such provision would govern "suits or legal actions between petitioner and its buyers" but not actions under the Dealership Agreement between KUBOTA and UNIMASTERS, the venue of which was controlled by paragraph No. 7 thereof; and that no impediment precludes issuance of a TRO or injunctive writ by the Quezon City RTC against METROBANK-Tacloban since the same "may be served on the principal office of METROBANK in Makati and would be binding on and enforceable against, METROBANK branch in Tacloban." After its motion for reconsideration of that decision was turned down by the Court of Appeals, UNIMASTERS appealed to this Court. Here, it ascribes to the Court of Appeals several errors which it believes warrant reversal of the [8] verdict, namely: 1) "in concluding, contrary to decisions of this ** Court, that the agreement on venue between petitioner (UNIMASTERS) and private respondent (KUBOTA) limited to the proper courts of Quezon City the venue of any complaint filed arising from the dealership agreement between ** (them);" 2) "in ignoring the rule settled in Philippine Banking Corporation vs. [9] Tensuan, that 'in the absence of qualifying or restrictive words, venue stipulations in a contract should be considered merely as agreement on additional forum, not as limiting venue to the specified place;" and in concluding, contrariwise, that the agreement in the case at bar "was the same as the agreement on venue in theGesmundo case," and therefore, the Gesmundo case was controlling; and 3) "in concluding, based solely on the self-serving narration of ** (KUBOTA that its) participation in the hearing for the issuance of a ** preliminary injunction did not constitute waiver of its objection to venue." The issue last mentioned, of whether or not the participation by the lawyer of KUBOTA at the injunction hearing operated as a waiver of its objection to venue, need not occupy the Court too long. The record shows that when KUBOTA's counsel appeared before the Trial Court in the morning of January 11, 1994 and was then informed that he should cross-examine UNIMASTERS' witness, who had testified the day before, said counsel drew attention to the motion to dismiss on the ground of improper venue and insistently attempted to argue the matter and have it ruled upon at the time; and when the Court made known its intention (a) "to (resolve first the) issue (of) the injunction then rule on the motion to dismiss," and (b) consequently its desire to forthwith conclude the examination of the witness on the injunction

incident, and for that purpose reset the hearing in the afternoon of that day, the 11th, so that the matter might be resolved before the lapse of the temporary restraining order on the 13th, KUBOTA's lawyer told the Court: "Your Honor, we are not waiving our right to submit the Motion to [10] Dismiss." It is plain that under these circumstances, no waiver or abandonment can be imputed to KUBOTA. The essential question really is that posed in the first and second assigned errors, i.e., what construction should be placed on the stipulation in the Dealership Agreement that"(a)ll suits arising out of this Agreement shall be filed with/in the proper Courts of Quezon City." Rule 4 of the Rules of Court sets forth the principles generally governing the venue of actions, whether real or personal, or involving persons who neither reside nor are found in the Philippines or otherwise. Agreements on venue are explicitly allowed. "By written agreement of the parties the venue of an action may be changed or transferred from one province to [11] another." Parties may by stipulation waive the legal venue and such waiver is valid and effective being merely a personal privilege, which is not contrary to public policy or prejudicial to third persons. It is a general principle that a person may renounce any right which the law gives unless such renunciation [12] would be against public policy. Written stipulations as to venue may be restrictive in the sense that the suit may be filed only in the place agreed upon, or merely permissive in that the parties may file their suit not only in the place agreed upon but also in the places fixed by law (Rule 4, specifically). As in any other agreement, what is essential is the ascertainment of the intention of the parties respecting the matter. Since convenience is the raison d'etre of the rules of venue, it is easy to accept the proposition that normally, venue stipulations should be deemed permissive merely, and that interpretation should be adopted which most serves the parties' convenience. In other words, stipulations designating venues other than those assigned by Rule 4 should be interpreted as designed to make it more convenient for the parties to institute actions arising from or in relation to their agreements; that is to say, as simply adding to or expanding the venues indicated in said Rule 4. On the other hand, because restrictive stipulations are in derogation of this general policy, the language of the parties must be so clear and categorical as to leave no doubt of their intention to limit the place or places, or to fix places other than those indicated in Rule 4, for their actions. This is easier said than done, however, as an examination of precedents involving venue covenants will immediately disclose. In at least thirteen (13) cases, this Court construed the venue stipulations involved as merely permissive. These are:
[13]

1. Polytrade Corporation v. Blanco, decided in 1969. venue stipulation was as follows:

[14]

In this case, the

4. Capati v. Ocampo, decided in 1982. contract relative to venue was as follows:

[17]

In this case, the provision of the

"The parties agree to sue and be sued in the Courts of Manila." This Court ruled that such a provision "does not preclude the filing of suits in the residence of the plaintiff or the defendant. The plain meaning is that the parties merely consented to be sued in Manila. Qualifying or restrictive words which would indicate that Manila and Manila alone is the venue are totally absent therefrom. It simply is permissive. The parties solely agreed to add the courts of Manila as tribunals to which they may resort. They did not waive their right to pursue remedy in the courts specifically mentioned in Section 2(b) of Rule 4." The Polytrade doctrine was reiterated expressly or implicitly in subsequent cases, numbering at least ten (10). 2. Nicolas v. Reparations Commission, decided in 1975. the stipulation on venue read:
[15]

" ** (A)ll actions arising out, or relating to this contract may be instituted in the Court of First Instance of the City of Naga." The Court ruled that the parties "did not agree to file their suits solely and exclusively with the Court of First Instance of Naga;" they "merely agreed to submit their disputes to the said court without waiving their right to seek recourse in the court specifically indicated in Section 2 (b), Rule 4 of the Rules of Court." 5. Western Minolco v. Court of Appeals, decided in 1988. provision governing venue read:
[18]

Here, the

"The parties stipulate that the venue of the actions referred to in Section 12.01 shall be in the City of Manila." The court restated the doctrine that a stipulation in a contract fixing a definite place for the institution of an action arising in connection therewith, does not ordinarily supersede the general rules set out in Rule 4, and should be construed merely as an agreement on an additional forum, not as limiting venue to the specified place. 6. Moles v. Intermediate Appellate Court, decided in 1989. In this proceeding, the Sales Invoice of a linotype machine stated that the proper venue should be Iloilo. This Court held that such an invoice was not the contract of sale of the linotype machine in question; consequently the printed provisions of the invoice could not have been intended by the parties to govern the sale of the machine, especially since said invoice was used for other types of transactions. This Court said: "It is obvious that a venue stipulation, in order to bind the parties, must have been intelligently and deliberately intended by them to exclude their case from the reglementary rules on venue. Yet, even such intended variance may not necessarily be given judicial approval, as, for instance, where there are no restrictive or qualifying words in the agreement indicating that venue cannot be laid in any place other than that agreed upon by the parties, and in contracts of adhesion." 7. Hongkong and Shanghai Banking Corp. v. Sherman, decided in [20] 1989. Here the stipulation on venue read:
[19]

In this case,

"** (A)ll legal actions arising out of this contract ** may be brought in and submitted to the jurisdiction of the proper courts in the City of Manila." This Court declared that the stipulation does not clearly show the intention of the parties to limit the venue of the action to the City of Manila only. "It must be noted that the venue in personal actions is fixed for the convenience of the plaintiff and his witnesses and to promote the ends of justice. We cannot conceive how the interest of justice may be served by confining the situs of the action to Manila, considering that the residences or offices of all the parties, including the situs of the acts sought to be restrained or required to be done, are all within the territorial jurisdiction of Rizal. ** Such agreements should be construed reasonably and should not be applied in such a manner that it would work more to the inconvenience of the parties without promoting the ends of justice." 3. Lamis Ents. v. Lagamon, decided in 1981. Here, the stipulation in the promissory note and the chattel mortgage specifed Davao City as the venue. The Court, again citing Polytrade, stated that the provision "does not preclude the filing of suits in the residence of plaintiff or defendant under Section 2(b), Rule 4, Rules of Court, in the absence of qualifying or restrictive words in the agreement which would indicate that the place named is the only venue agreed upon by the parties. The stipulation did not deprive ** (the affected party) of his right to pursue remedy in the court specifically mentioned in Section 2(b) of Rule 4, Rules of Court. Renuntiato non praesumitur."
[16]

" ** (T)his guarantee and all rights, obligations and liabilities arising hereunder shall be construed and determined under and may be enforced in accordance with the laws of the Republic of Singapore. We hereby agree that the Courts in Singapore shall have jurisdiction over all disputes arising under this guarantee **." This Court held that due process dictates that the stipulation be liberally construed. The parties did not thereby stipulate that only the courts of Singapore, to the exclusion of all the others, had jurisdiction. The clause in question did not operate to divest Philippine courts of jurisdiction. 8. Nasser v. Court of Appeals, decided in 1990, stipulation in the promissory notes in question read:
[21]

"I/We hereby expressly submit to the jurisdiction of the courts of Valenzuela any legal action which may arise out of this promissory note." This Court held the stipulation to be merely permissive since it did not lay the venue in Valenzuela exclusively or mandatorily. The plain or ordinary import of the stipulation is the grant of authority or permission to bring suit in Valenzuela; but there is not the slightest indication of an intent to bar suit in other competent courts. The Court stated that there is no necessary or customary connection between the words "any legal action" and an intent strictly to limit permissible venue to the Valenzuela courts. Moreover, since the venue stipulations include no qualifying or exclusionary terms, express reservation of the right to elect venue under the ordinary rules was unnecessary in the case at bar. The Court made clear that "to the extent Bautista and Hoechst Philippines are inconsistent with Polytrade (an en banc decision later in time than Bautista) and subsequent cases reiterating Polytrade, Bautista and Hoechst Philippines have been rendered obsolete by the Polytrade line of cases." 11. Philippine Banking Corporation v. Hon. Salvador Tensuan, etc., Brinell [24] Metal Works Corp., et al., decided in 1994: In this case the subject promissory notes commonly contained a stipulation reading: "I/we expressly submit to the jurisdiction of the courts of Manila, any legal action which may arise out of this promissory note." the Court restated the rule in Polytrade that venue stipulations in a contract, absent any qualifying or restrictive words, should be considered merely as an agreement on additional forum, not limiting venue to the specified place. They are not exclusive, but rather, permissive. For to restrict venue only to that place stipulated in the agreement is a construction purely based on technicality; on the contrary, the stipulation should be liberally construed. The Court stated: "The later cases of Lamis Ents v. Lagamon [108 SCRA 1981], Capati v. Ocampo [113 SCRA 794 [1982], Western Minolco v. Court of Appeals [167 SCRA 592 [1988], Moles v. Intermediate Appellate Court [169 SCRA 777 [1989], Hongkong and Shanghai Banking Corporation v. Sherman [176 SCRA 331], Nasser v. Court of Appeals [191 SCRA 783 [1990] and just recently, Surigao Century Sawmill Co. v. Court of Appeals [218 SCRA 619 [1993], all treaded the path blazed by Polytrade. The conclusion to be drawn from all these is that the more recent jurisprudence shall properly be deemed modificatory of the old ones." The lone dissent observed: "There is hardly any question that a stipulation of contracts of adhesion, fixing venue to a specified place only, is void for, in such cases, there would appear to be no valid and free waiver of the venue fixed by the Rules of Courts. However, in cases where both parties freely and

in which the venue

" ** (A)ny action involving the enforcement of this contract shall be brought within the City of Manila, Philippines." The Court's verdict was that such a provision does not as a rule supersede the general rule set out in Rule 4 of the Rules of Court, and should be construed merely as an agreement on an additional forum, not as limiting venue to the specified place. 9. Surigao Century Sawmill Co., Inc. v. Court of Appeals, decided in [22] 1993: In this case, the provision concerning venue was contained in a contract of lease of a barge, and read as follows: " ** (A)ny disagreement or dispute arising out of the lease shall be settled by the parties in the proper court in the province of Surigao del Norte." The venue provision was invoked in an action filed in the Regional Trial Court of Manila to recover damages arising out of marine subrogation based on a bill of lading. This Court declared that since the action did not refer to any disagreement or dispute arising out of the contract of lease of the barge, the venue stipulation in the latter did not apply; but that even assuming the contract of lease to be applicable, a statement in a contract as to venue does not preclude the filing of suits at the election of the plaintiff where no qualifying or restrictive words indicate that the agreed place alone was the chosen venue. 10. Philippine Banking Corporation v. Hon. Salvador Tensuan, etc., Circle [23] Financial Corporation, et al., decided in 1993. Here, the stipulation on venue was contained in promissory notes and read as follows:

voluntarily agree on a specified place to be the venue of actions, if any, between them, then the only considerations should be whether the waiver (of the venue fixed by the Rules of Court) is against public policy and whether the parties would suffer, by reason of such waiver, undue hardship and inconvenience; otherwise, such waiver of venue should be upheld as binding on the parties. The waiver of venue in such cases is sanctioned by the rules on jurisdiction." Still other precedents adhered to the same principle. 12. Tantoco v. Court of Appeals, decided in 1977. Here, the parties agreed in their sales contracts that the courts of Manila shall have jurisdiction over any legal action arising out of their transaction. This Court held that the parties agreed merely to add the courts of Manila as tribunals to which they may resort in the event of suit, to those indicated by the law: the courts either of Rizal, of which private respondent was a resident, or of Bulacan, where petitioner resided. 13. Sweet Lines, Inc. v. Teves, promulgated in 1987. In this case, a similar stipulation on venue, contained in the shipping ticket issued by Sweet Lines, Inc. (as Condition 14) -" ** that any and all actions arising out or the condition and provisions of this ticket, irrespective of where it is issued, shall be filed in the competent courts in the City of Cebu" -- was declared unenforceable, being subversive of public policy. The Court explained that the philosophy on transfer of venue of actions is the convenience of the plaintiffs as well as his witnesses and to promote the ends of justice; and considering the expense and trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of Cebu, he would most probably decide not to file the action at all. On the other hand, in the cases hereunder mentioned, stipulations on venue were held to be restrictive, or mandatory. 1. Bautista vs. De Borja, decided in 1966. In this case, the contract provided that in case of any litigation arising therefrom or in connection therewith, the venue of the action shall be in the City of Manila. This Court held that without either party reserving the right to choose the venue of action as fixed by law, it can reasonably be inferred that the parties intended to definitely fix the venue of the action, in connection with the contract sued upon in the proper courts of the City of Manila only, notwithstanding that neither party is a resident of Manila.
[27] [26] [25]

2. Gesmundo v. JRB Realty Corporation, decided in 1994. lease contract declared that

[28]

Here the

" ** (V)enue for all suits, whether for breach hereof or damages or any cause between the LESSOR and LESSEE, and persons claiming under each, ** (shall be) the courts of appropriate jurisdiction in Pasay City. . ." This Court held that: "(t)he language used leaves no room for interpretation. It clearly evinces the parties' intent to limit to the 'courts of appropriate jurisdiction of Pasay City' the venue for all suits between the lessor and the lessee and those between parties claiming under them. This means a waiver of their right to institute action in the courts provided for in Rule 4, sec. 2(b)." 3. Hoechst Philippines, Inc. v. Torres, decided much earlier, in 1978, involved a strikingly similar stipulation, which read: " ** (I)n case of any litigation arising out of this agreement, the venue of any action shall be in the competent courts of the Province of Rizal." This Court held: "No further stipulations are necessary to elicit the thought that both parties agreed that any action by either of them would be filed only in the competent courts of Rizal province exclusively." 4. Villanueva v. Mosqueda, decided in 1982. In this case, it was stipulated that if the lessor violated the contract of lease he could be sued in Manila, while if it was the lessee who violated the contract, the lessee could be sued in Masantol, Pampanga. This Court held that there was an agreement concerning venue of action and the parties were bound by their agreement. "The agreement as to venue was not permissive but mandatory." 5. Arquero v. Flojo, decided in 1988. The condition respecting venue -that any action against RCPI relative to the transmittal of a telegram must be brought in the courts of Quezon City alone -- was printed clearly in the upper front portion of the form to be filled in by the sender. This Court held that since neither party reserved the right to choose the venue of action as fixed by Section 2 [b], Rule 4, as is usually done if the parties mean to retain the right of election so granted by Rule 4, it can reasonably be inferred that the parties intended to definitely fix the venue of action, in connection with the written contract sued upon, in the courts of Quezon City only. An analysis of these precedents reaffirms and emphasizes the soundness of the Polytrade principle. Of the essence is the ascertainment of the parties' intention in their agreement governing the venue of actions between them. That ascertainment must be done keeping in mind that convenience is the foundation of venue regulations, and that that construction should be
[31] [30] [29]

adopted which most conduces thereto. Hence, the invariable construction placed on venue stipulations is that they do not negate but merely complement or add to the codal standards of Rule 4 of the Rules of Court. In other words, unless the parties make very clear, by employing categorical and suitably limiting language, that they wish the venue of actions between them to be laid only and exclusively at a definite place, and to disregard the prescriptions of Rule 4, agreements on venue are not to be regarded as mandatory or restrictive, but merely permissive, or complementary of said rule. The fact that in their agreement the parties specify only one of the venues mentioned in Rule 4, or fix a place for their actions different from those specified by said rule, does not, without more, suffice to characterize the agreement as a restrictive one. There must, to repeat, be accompanying language clearly and categorically expressing their purpose and design that actions between them be litigated only at the place named by [32] them, regardless of the general precepts of Rule 4; and any doubt or uncertainty as to the parties' intentions must be resolved against giving their agreement a restrictive or mandatory aspect. Any other rule would permit of individual, subjective judicial interpretations without stable standards, which could well result in precedents in hopeless inconsistency. The record of the case at bar discloses that UNIMASTERS has its principal place of business in Tacloban City, and KUBOTA, in Quezon City. Under Rule 4, the venue of any personal action between them is "where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of [33] the plaintiffs resides, at the election of the plaintiff." In other words, Rule 4 gives UNIMASTERS the option to sue KUBOTA for breach of contract in the Regional Trial Court of either Tacloban City or Quezon City. But the contract between them provides that " ** All suits arising out of this Agreement shall be filed with/in the proper Courts of Quezon City," without mention of Tacloban City. The question is whether this stipulation had the effect of effectively eliminating the latter as an optional venue and limiting litigation between UNIMASTERS and KUBOTA only and exclusively to Quezon City. In light of all the cases above surveyed, and the general postulates distilled therefrom, the question should receive a negative answer. Absent additional words and expressions definitely and unmistakably denoting the parties' desire and intention that actions between them should be ventilated only at the place selected by them, Quezon City -- or other contractual provisions clearly evincing the same desire and intention -- the stipulation should be construed, not as confining suits between the parties only to that one place, Quezon City, but as allowing suits either in Quezon City or Tacloban City, at the option of the plaintiff (UNIMASTERS in this case).

One last word, respecting KUBOTA's theory that the Regional Trial Court had "no jurisdiction to take cognizance of ** (UNIMASTERS') action considering that venue was improperly laid." This is not an accurate statement of legal principle. It equates venue with jurisdiction; but venue has nothing to do with [34] jurisdiction, except in criminal actions. This is fundamental. The action at bar, for the recovery of damages in an amount considerably in excess of P20,000.00, is assuredly within the jurisdiction of a Regional Trial [35] Court. Assuming that venue were improperly laid in the Court where the action was instituted, the Tacloban City RTC, that would be a procedural, not a jurisdictional impediment -- precluding ventilation of the case before that Court of wrong venuenotwithstanding that the subject matter is within its jurisdiction. However, if the objection to venue is waived by the failure to set it [36] up in a motion to dismiss, the RTC would proceed in perfectly regular fashion if it then tried and decided the action. This is true also of real actions. Thus, even if a case "affecting title to, or for recovery of possession, or for partition or condemnation of, or foreclosure of [37] mortgage on, real property" were commenced in a province or city other [38] than that "where the property or any part thereof lies," if no objection is seasonably made in a motion to dismiss, the objection is deemed waived, and the Regional Trial Court would be acting entirely within its competence and [39] authority in proceeding to try and decide the suit. WHEREFORE, the appealed judgment of the Court of Appeals is REVERSED, the Order of the Regional Trial Court of Tacloban City, Branch 6, dated February 3, 1994, is REINSTATED and AFFIRMED, and said Court is DIRECTED to forthwith proceed with Civil Case No. 93-12-241 in due course. SO ORDERED.

SPS. RENATO LANTIN,

&

ANGELINA

G.R. No. 160053 Present:

foreclosed properties, in partial satisfaction of petitioners debt, were sold at a public auction where the respondent bank was the winning

Petitioners, - versus HON. JANE AURORA C. LANTION, PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF LIPA CITY, FOURTH JUDICIAL REGION, BRANCH 13, PLANTERS DEVELOPMENT BANK, ELIZABETH C. UMALI, ALICE PERCE, JELEN MOSCA, REGISTER OF DEEDS FOR LIPA CITY, BATANGAS, THE CLERK OF COURT and EX-OFFICIO SHERIFF OF THE REGIONAL TRIAL COURT OF BATANGAS, Respondents. QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

bidder. On November 8, 2003, petitioners filed against Planters Development Bank and its officers Elizabeth Umali, Alice Perce and Jelen Mosca (private respondents), a Complaint for Declaration of Nullity and/or Annulment of Sale and/or Mortgage, Reconveyance, Discharge of Mortgage, Accounting, Permanent Injunction, and Damages with the RTC of Lipa City,

Batangas. Petitioners alleged that only their peso loans were covered by the Promulgated: August 28, 2006 mortgages and that these had already been fully paid, hence, the mortgages should have been discharged. They challenged the validity of the foreclosure on the alleged non-payment of their dollar loans as the mortgages did not cover those loans.

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

Private respondents moved to dismiss the complaint on the ground of improper venue since the loan agreements restricted the venue of any suit in Metro Manila.

DECISION QUISUMBING, J.: On May 15, 2003, the respondent judge dismissed the case for improper venue. This is a petition for certiorari assailing the orders dated May 15, 2003
[1]

and September 15, 2003

[2]

in Civil Case No. 2002-0555 issued by

Petitioners sought reconsideration. They argued that the trial court in effect prejudged the validity of the loan documents because the trial court based its dismissal on a venue stipulation provided in the agreement. The motion for reconsideration was denied and the lower court held that the

public respondent, Presiding Judge Jane Aurora C. Lantion, of the Regional Trial Court (RTC) of Lipa City, Batangas.

The facts of the case are as follows:

previous order did not touch upon the validity of the loan documents but merely ruled on the procedural issue of venue.

Petitioners Renato and Angelina Lantin took several peso and dollar loans from respondent Planters Development Bank and executed several real estate mortgages and promissory notes to cover the loans. They defaulted on the payments so respondent bank foreclosed the mortgaged lots. The Petitioners now come before us alleging that: I

THE HONORABLE JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN HOLDING THAT THE VENUE STIPULATIONS IN THE REAL ESTATE MORTGAGE AND PROMISSORY NOTES FALL WITHIN THE PURVIEW OF SECTION 4(B) OF RULE 4 OF THE 1997 RULES OF CIVIL PROCEDURE IN THAT IT LIMITED THE VENUE OF ACTIONS TO A DEFINITE PLACE. II THE HONORABLE JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN NOT FINDING THAT THE MERE USE OF THE WORD EXCLUSIVELY DOES NOT, BY ITSELF, MEAN THAT SUCH STIPULATIONS AUTOMATICALLY PROVIDE FOR AN EXCLUSIVE VENUE, AS CONTEMPLATED BY SECTION 4(B) OF RULE 4 OF THE 1997 RULES OF CIVIL PROCEDURE, SPECIALLY WHEN THE TENOR OR LANGUAGE OF THE ENTIRE VENUE STIPULATION CLEARLY PROVIDES OTHERWISE. III THE HONORABLE JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DISREGARDING THE FACT THAT HEREIN PETITIONERS COMPLAINT INVOLVES SEVERAL CAUSES OF ACTION WHICH DO NOT ARISE SOLELY FROM THE REAL ESTATE MORTGAGE AND PROMISSORY NOTES AND WHICH OTHER CAUSES OF ACTION MAY BE FILED IN OTHER VENUES UNDER SECTIONS 1 AND 2 OF RULE 4 OF THE 1997 RULES OF CIVIL PROCEDURE. IV THE HONORABLE JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DISREGARDING THE PRINCIPLE THAT THE RULE ON VENUE OF ACTIONS IS ESTABLISHED [3] FOR THE CONVENIENCE OF THE PLAINTIFFS.

The main issue in the present petition is whether respondent judge committed grave abuse of discretion when she dismissed the case for improper venue.

Petitioners contend that, since the validity of the loan documents were squarely put in issue, necessarily this meant also that the validity of the venue stipulation also was at issue. according to Moreover, the

petitioners, the venue stipulation in the loan documents is not a n exclusive venue stipulationunder Section 4(b) of Rule 4 of the 1997 Rules of Civil Procedure.
[4]

The venue in the loan agreement was not

specified with particularity. Besides, petitioners posit, the rule on venue of action was established for the convenience of the plaintiff, herein petitioners. Further, petitioners also contend that since the complaint involves several causes of action which did not arise solely from or connected with the loan documents, the cited venue stipulation should not be made to apply.

Private respondents counter that, in their complaint, petitioners did not assail the loan documents, and the issue of validity was merely petitioners afterthought to avoid being bound by the venue stipulation. They also aver that the venue
[5]

stipulation

was

not

contrary

to

the

doctrine

in Unimasters,

which requires that a venue stipulation employ categorical

and suitably limiting language to the effect that the parties agree that the venue of actions between them should be laid only and exclusively at a definite place. According to private respondents, the language of the stipulation is clearly exclusive.

At the outset, we must make clear that under Section 4 (b) of Rule 4 of the 1997 Rules of Civil Procedure, the general rules on venue of actions shall

not apply where the parties, before the filing of the action, have validly agreed in writing on an exclusive venue. The mere stipulation on the venue of an action, however, is not enough to preclude parties from bringing a case in other venues. The parties must be able to show that such stipulation is exclusive.
[6]

discharged, and that the mortgage contracts did not include their dollar loans. In our view, since the issues of whether the mortgages should be properly discharged and whether these also cover the dollar loans, arose out of the said loan documents, the stipulation on venue is also applicable thereto.

In the absence of qualifying or restrictive words, the stipulation Considering all the circumstances in this controversy, we find that the respondent judge did not commit grave abuse of discretion, as the questioned orders were evidently in accord with law and jurisprudence.
[7]

should be deemed as merely an agreement on an additional forum, not as limiting venue to the specified place.

The pertinent provisions of the several real estate mortgages and promissory notes executed by the petitioner respectively read as follows: 18. In the event of suit arising out of or in connection with this mortgage and/or the promissory note/s secured by this mortgage, the parties hereto agree to bring their causes of auction (sic) exclusively in the proper court of Makati, Metro Manila or at such other venue chosen by the Mortgagee, the Mortgagor waiving for this purpose any other [8] venue. (Emphasis supplied.) I/We further submit that the venue of any legal action arising out of this note shall exclusively be at the proper court of Metropolitan Manila, Philippines or any other venue chosen by the BANK, waiving for this purpose any other venue [9] provided by the Rules of Court. (Emphasis supplied.) WHEREFORE, dated May 15, the petition is DISMISSED. The assailed 15, orders 2003 of

2003 and September

the Regional Trial Court of Lipa City, Batangas, in Civil Case No. 2002-0555 are AFFIRMED.

Costs against petitioners.

SO ORDERED.

Clearly, the words exclusively and waiving for this purpose any other venue are restrictive and used advisedly to meet the requirements.

Petitioners claim that effecting the exclusive venue stipulation would be tantamount to a prejudgment on the validity of the loan documents. We note however that in their complaint, petitioners never assailed the validity of the mortgage contracts securing their peso loans. They only assailed the terms and coverage of the mortgage contracts. What petitioners claimed is that their peso loans had already been paid thus the mortgages should be

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION and PHILIP ROSEBERG, petitioners, vs. CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A. MARIANO, respondents.

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

DECISION

PANGANIBAN, J.: May defendants in civil cases implead in their counterclaims persons who were not parties to the original complaints? This is the main question to be answered in this controversy. The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, 2 3 seeking to nullify the May 22, 2002 and the September 3, 2002 Orders of the Regional Trial Court (RTC) of Quezon City (Branch 80) in Civil Case No. Q00-41103. The decretal portion of the first assailed Order reads: "WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to dismiss claims is granted. Accordingly, the defendants' claims against Mr. Lim and Mr. Mariano captioned as 4 their counterclaims are dismissed." The second challenged Order denied petitioners' Motion for Reconsideration. The Facts Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by both parties on August 11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase the cement business of Respondent Continental Cement Corporation (CCC). On October 21, 1998, both parties entered into a Sale and Purchase Agreement (SPA). At the time
1

CA, petitioners prayed that both Lim and Mariano be held "jointly and solidarily" liable with Respondent CCC. On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss petitioners' compulsory counterclaims on grounds that essentially constituted the very issues for resolution in the instant Petition. Ruling of the Trial Court On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed petitioners' counterclaims for several reasons, among which were the following: a) the counterclaims against Respondents Lim and Mariano were not compulsory; b) the ruling in Sapugay was not applicable; and c) petitioners' Answer with Counterclaims violated procedural rules on the proper 6 joinder of causes of action. Acting on the Motion for Reconsideration filed by petitioners, the trial court -7 in an Amended Order dated September 3, 2002 -- admitted some errors in its May 22, 2002 Order, particularly in its pronouncement that their counterclaim had been pleaded against Lim and Mariano only. However, the RTC clarified that it was dismissing the counterclaim insofar as it impleaded Respondents Lim and Mariano, even if it included CCC. Hence this Petition.
8

The Petition is meritorious. First Issue: Counterclaims and Joinder of Causes of Action. Petitioners' Counterclaims Compulsory Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any claim which a defending party may have against an opposing party." They are generally allowed in order to avoid a multiplicity of suits and to facilitate the disposition of the whole controversy in a single action, such that the defendant's demand may be adjudged by a counterclaim rather than by an independent suit. The only limitations to this principle are (1) that the court should have jurisdiction over the subject matter of the counterclaim, and (2) that it could acquire jurisdiction over third parties whose 10 presence is essential for its adjudication. A counterclaim may either be permissive or compulsory. It is permissive "if it does not arise out of or is not necessarily connected with the subject matter of 11 the opposing party's claim." A permissive counterclaim is essentially an independent claim that may be filed separately in another case. A counterclaim is compulsory when its object "arises out of or is necessarily connected with the transaction or occurrence constituting the subject matter of the opposing party's claim and does not require for its adjudication the 12 presence of third parties of whom the court cannot acquire jurisdiction." Unlike permissive counterclaims, compulsory counterclaims should be set up in the same action; otherwise, they would be barred forever. NAMARCO v. 13 Federation of United Namarco Distributors laid down the following criteria to determine whether a counterclaim is compulsory or permissive: 1) Are issues of fact and law raised by the claim and by the counterclaim largely the same? 2) Would res judicata bar a subsequent suit on defendant's claim, absent the compulsory counterclaim rule? 3) Will substantially the same evidence support or refute plaintiff's claim as well as defendant's counterclaim? 4) Is there any logical relation between the claim and the counterclaim? A positive answer to all four questions would indicate that the counterclaim is compulsory. Adopted in Quintanilla v. CA and reiterated in Alday v. FGU Insurance 15 Corporation, the "compelling test of compulsoriness" characterizes a counterclaim as compulsory if there should exist a "logical relationship" between the main claim and the counterclaim. There exists such a relationship when conducting separate trials of the respective claims of the
14

Issues In their Memorandum, petitioners raise the following issues for our consideration: "[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no personality to move to dismiss petitioners' compulsory counterclaims on Respondents Lim and Mariano's behalf. "[b] Whether or not the RTC gravely erred in ruling that (i) petitioners' counterclaims against Respondents Lim and Mariano are not compulsory; (ii) Sapugay v. Court of Appeals is inapplicable here; and 9 (iii) petitioners violated the rule on joinder of causes of action." For clarity and coherence, the Court will resolve the foregoing in reverse order. The Court's Ruling

parties would entail substantial duplication of time and effort by the parties and the court; when the multiple claims involve the same factual and legal issues; or when the claims are offshoots of the same basic controversy between the parties. We shall now examine the nature of petitioners' counterclaims against respondents with the use of the foregoing parameters. Petitioners base their counterclaim on the following allegations: "Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad faith decisions for, and causing plaintiff to file this baseless suit and to procure an unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no right to bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was motivated by his personal interests as one of the owners of plaintiff while Anthony A. Mariano was motivated by his sense of personal loyalty to Gregory T. Lim, for which reason he disregarded the fact that plaintiff is without any valid cause. "Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint tortfeasors in the commission of the acts complained of in this answer and in the compulsory counterclaims pleaded below. As such they should be held jointly and solidarily liable as plaintiff's co-defendants to those compulsory counterclaims pursuant to the Supreme Court's decision in Sapugay v. Mobil. xxx xxx xxx

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

"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless case has compelled the defendants to engage the services of counsel for a fee and to incur costs of litigation, in amounts to be proved at trial, but in no case less than P5 million for each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable. "The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the reputations of the defendants and they should be held jointly and solidarily liable to them for moral damages of P100 million each. "In order to serve as an example for the public good and to deter similar baseless, bad faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable to the 16 defendants for exemplary damages of P100 million each."

their Dealership Agreement. In their Answer with Counterclaim, petitioners alleged that after incurring expenses in anticipation of the Dealership Agreement, they requested the plaintiff to allow them to get gas, but that it had refused. It claimed that they still had to post a surety bond which, initially fixed at P200,000, was later raised to P700,000. The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of the Dealership Agreement, which respondent continued to withhold from them. Later, petitioners discovered that respondent and its manager, Ricardo P. Cardenas, had intended all along to award the dealership to Island Air Product Corporation. In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its manager -- Ricardo P. Cardenas -- as defendants. They prayed that judgment be rendered, holding both jointly and severally liable for preoperation expenses, rental, storage, guarding fees, and unrealized profit including damages. After both Mobil and Cardenas failed to respond to their Answer to the Counterclaim, petitioners filed a "Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on Defendant's Counterclaim." Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original action, might nevertheless be impleaded in the counterclaim. We disposed of this issue as follows: "A counterclaim is defined as any claim for money or other relief which a defending party may have against an opposing party. However, the general rule that a defendant cannot by a counterclaim bring into the action any claim against persons other than the plaintiff admits of an exception under Section 14, Rule 6 which provides that 'when the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be brought in as defendants, if jurisdiction over them can be obtained.' The inclusion, therefore, of Cardenas in petitioners' counterclaim is 20 sanctioned by the rules." The prerogative of bringing in new parties to the action at any stage before judgment is intended to accord complete relief to all of them in a single action and to avert a duplicity and even a multiplicity of suits thereby. In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot be included in a counterclaim, except when no complete relief can be had. They add that "[i]n the present case, Messrs. Lim and Mariano are not necessary for petitioners to obtain complete relief from Respondent CCC as plaintiff in the lower court. This is because Respondent CCC as a

corporation with a separate [legal personality] has the juridical capacity to 21 indemnify petitioners even without Messrs. Lim and Mariano." We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim and Mariano in the instant case -- is not premised on the assumption that the plaintiff corporation does not have the financial ability to answer for damages, such that it has to share its liability with individual defendants. Rather, such inclusion is based on the allegations of fraud and bad faith on the part of the corporate officer or stockholder. These allegations may warrant the piercing of the veil of corporate fiction, so that the said individual may not seek refuge therein, but may be held individually and personally liable for his or her actions. In Tramat Mercantile v. Court of Appeals, the Court held that generally, it should only be the corporation that could properly be held liable. However, circumstances may warrant the inclusion of the personal liability of a corporate director, trustee, or officer, if the said individual is found guilty of bad faith or gross negligence in directing corporate affairs. Remo Jr. v. IAC has stressed that while a corporation is an entity separate and distinct from its stockholders, the corporate fiction may be disregarded if "used to defeat public convenience, justify a wrong, protect fraud, or defend crime." In these instances, "the law will regard the corporation as an association of persons, or in case of two corporations, will merge them into one." Thus, there is no debate on whether, in alleging bad faith on the part of Lim and Mariano the counterclaims had in effect made them "indispensable parties" thereto; based on the alleged facts, both are clearly parties in interest 24 to the counterclaim. Respondents further assert that "Messrs. Lim and Mariano cannot be held personally liable [because their assailed acts] are within the powers granted to them by the proper board resolutions; therefore, it is not a personal decision but rather that of the corporation as represented by its board of 25 directors." The foregoing assertion, however, is a matter of defense that should be threshed out during the trial; whether or not "fraud" is extant under the circumstances is an issue that must be established by convincing 26 evidence. Suability and liability are two distinct matters. While the Court does rule that the counterclaims against Respondent CCC's president and manager may be properly filed, the determination of whether both can in fact be held jointly and severally liable with respondent corporation is entirely another issue that should be ruled upon by the trial court.
23 22

However, while a compulsory counterclaim may implead persons not parties to the original complaint, the general rule -- a defendant in a compulsory counterclaim need not file any responsive pleading, as it is deemed to have adopted the allegations in the complaint as its answer -- does not apply. The filing of a responsive pleading is deemed a voluntary submission to the jurisdiction of the court; a new party impleaded by the plaintiff in a compulsory counterclaim cannot be considered to have automatically and unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in mischievous consequences whereby a party may be indiscriminately impleaded as a defendant in a compulsory counterclaim; and judgment rendered against it without its knowledge, much less participation in the proceedings, in blatant disregard of rudimentary due process requirements. The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of the Rules of Court, to "order [such impleaded parties] to be brought in as defendants, if jurisdiction over them can be obtained," by directing that summons be served on them. In this manner, they can be properly appraised of and answer the charges against them. Only upon service of summons can the trial court obtain jurisdiction over them. In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file any responsive pleading to the counterclaim leveled against him. Nevertheless, the Court gave due consideration to certain factual circumstances, particularly the trial court's treatment of the Complaint as the Answer of Cardenas to the compulsory counterclaim and of his seeming acquiescence thereto, as evidenced by his failure to make any objection despite his active participation in the proceedings. It was held thus: "It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against him on the ground of lack of jurisdiction. While it is a settled rule that the issue of jurisdiction may be raised even for the first time on appeal, this does not obtain in the instant case. Although it was only Mobil which filed an opposition to the motion to declare in default, the fact that the trial court denied said motion, both as to Mobil and Cardenas on the ground that Mobil's complaint should be considered as the answer to petitioners' compulsory counterclaim, leads us to the inescapable conclusion that the trial court treated the opposition as having been filed in behalf of both Mobil and Cardenas and that the latter had adopted as his answer the allegations raised in the complaint of Mobil. Obviously, it was this ratiocination which led the trial court to deny the motion to declare Mobil and Cardenas in default. Furthermore, Cardenas was not unaware of said incidents and the proceedings therein as he testified and was present during trial, not to speak of the fact that as manager of Mobil he would necessarily be interested in the case and could readily have access to the records and the pleadings filed therein.

"By adopting as his answer the allegations in the complaint which seeks affirmative relief, Cardenas is deemed to have recognized the jurisdiction of the trial court over his person and submitted thereto. He 27 may not now be heard to repudiate or question that jurisdiction." Such factual circumstances are unavailing in the instant case. The records do not show that Respondents Lim and Mariano are either aware of the counterclaims filed against them, or that they have actively participated in the proceedings involving them. Further, in dismissing the counterclaims against the individual respondents, the court a quo -- unlike in Sapugay -- cannot be said to have treated Respondent CCC's Motion to Dismiss as having been filed on their behalf. Rules on Permissive Joinder of Causes of Action or Parties Not Applicable Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of causes of action. It argues that while the original Complaint was a suit for specific performance based on a contract, the counterclaim for 28 damages was based on the tortuous acts of respondents. In its Motion to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Civil Procedure, which we quote: "Section 5. Joinder of causes of action. A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may have against an opposing party, subject to the following conditions: (a) The party joining the causes of action shall comply with the rules on joinder of parties; x x x" Section 6. Permissive joinder of parties. All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist whether jointly, severally, or in the alternative, may, except as otherwise provided in these Rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest." The foregoing procedural rules are founded on practicality and convenience. They are meant to discourage duplicity and multiplicity of suits. This objective

is negated by insisting -- as the court a quo has done -- that the compulsory counterclaim for damages be dismissed, only to have it possibly re-filed in a separate proceeding. More important, as we have stated earlier, Respondents Lim and Mariano are real parties in interest to the compulsory counterclaim; it is imperative that they be joined therein. Section 7 of Rule 3 provides: "Compulsory joinder of indispensable parties. Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants." Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being consistent with the solidary nature of the liability alleged therein. Second Issue: CCC's Personality to Move to Dismiss the Compulsory Counterclaims Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as "joint and solidary," petitioners prayed: "WHEREFORE, it is respectfully prayed that after trial judgment be rendered: "1. Dismissing the complaint in its entirety; "2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to pay defendant actual damages in the sum of at least P2,700,000.00; "3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to pay the defendants LPI, LCLC, COC and Roseberg: "a. Exemplary damages of P100 million each; "b. Moral damages of P100 million each; and "c. Attorney's fees and costs of suit of at least P5 million each. Other reliefs just and equitable are likewise prayed for."
29

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

others. There can be but satisfaction. The release of one of the joint tort feasors by agreement generally operates to discharge all. x x x "Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not liable. The courts may release some for lack of evidence while condemning others of the alleged tort feasors. And this is true even though they are charged jointly and severally." In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint and several" obligation, the relationship between the active and the passive subjects is so close that each of them 31 must comply with or demand the fulfillment of the whole obligation. The fact that the liability sought against the CCC is for specific performance and tort, while that sought against the individual respondents is based solely on tort does not negate the solidary nature of their liability for tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point: "Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions." The solidary character of respondents' alleged liability is precisely why credence cannot be given to petitioners' assertion. According to such assertion, Respondent CCC cannot move to dismiss the counterclaims on 32 grounds that pertain solely to its individual co-debtors. In cases filed by the creditor, a solidary debtor may invoke defenses arising from the nature of the obligation, from circumstances personal to it, or even from those personal to its co-debtors. Article 1222 of the Civil Code provides: "A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible." (Emphasis supplied). The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim on grounds that pertain only to its individual codebtors -- is therefore allowed. However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it on behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be dismissed. Be that as it may, Respondent CCC cannot be declared in default. Jurisprudence teaches that if

the issues raised in the compulsory counterclaim are so intertwined with the allegations in the complaint, such issues are deemed automatically 33 joined. Counterclaims that are only for damages and attorney's fees and that arise from the filing of the complaint shall be considered as special defenses 34 and need not be answered. CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple reason that it lacks the requisite authority to do so. A corporation has a legal personality entirely separate and distinct from that of its officers and cannot act for and on their behalf, without being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory counterclaim filed by Respondent CCC has no force and effect as to them. In summary, we make the following pronouncements: 1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A. Mariano are compulsory. 2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A. Mariano, even if both were not parties in the original Complaint. 3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may include, in a Motion to Dismiss, defenses available to their co-defendants; nevertheless, the same Motion cannot be deemed to have been filed on behalf of the said co-defendants. 4. Summons must be served on Respondents Lim and Mariano before the trial court can obtain jurisdiction over them. WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners' Answer with Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim and Anthony A. Mariano. No costs. SO ORDERED.

EVANGELINE ALDAY, petitioner, vs. FGU INSURANCE CORPORATION, respondent. GONZAGA-REYES, J.: On 5 May 1989, respondent FGU Insurance Corporation filed a complaint with 1 the Regional Trial Court of Makati alleging that petitioner Evangeline K. Alday owed it P114,650.76, representing unliquidated cash advances, unremitted costs of premiums and other charges incurred by petitioner in the course of 2 her work as an insurance agent for respondent. Respondent also prayed for 3 exemplary damages, attorney's fees, and costs of suit. Petitioner filed her answer and by way of counterclaim, asserted her right for the payment of P104,893.45, representing direct commissions, profit commissions and contingent bonuses earned from 1 July 1986 to 7 December 1986, and for accumulated premium reserves amounting to P500,000.00. In addition, petitioner prayed for attorney's fees, litigation expenses, moral damages and exemplary damages for the allegedly unfounded action filed by 4 respondent. On 23 August 1989, respondent filed a "Motion to Strike Out Answer With Compulsory Counterclaim And To Declare Defendant In Default" 5 because petitioner's answer was allegedly filed out of time. However, the trial court denied the motion on 25 August 1989 and similarly rejected 6 respondent's motion for reconsideration on 12 March 1990. A few weeks later, on 11 April 1990, respondent filed a motion to dismiss petitioner's counterclaim, contending that the trial court never acquired jurisdiction over 7 the same because of the non-payment of docket fees by petitoner. In response, petitioner asked the trial court to declare her counterclaim as exempt from payment of docket fees since it is compulsory and that respondent be declared in default for having failed to answer such 8 counterclaim. In its 18 September 1990 Order, the trial court granted respondent's motion to dismiss petitioner's counterclaim and consequently, denied petitioner's motion. The court found petitioner's counterclaim to be merely permissive in nature and held that petitioner's failure to pay docket fees prevented the court 10 from acquiring jurisdiction over the same. The trial court similar denied petitioner's motion for reconsideration on 28 February 1991.1wphi1.nt On 23 December 1998, the Court of Appeals sustained the trial court, finding that petitioner's own admissions, as contained in her answer, show that her counterclaim is merely permissive. The relevant portion of the appellate 12 court's decision is quoted herewith Contrary to the protestations of appellant, mere reading of the allegations in the answer a quo will readily show that her counterclaim
11 9

can in no way be compulsory. Take note of the following numbered paragraphs in her answer: "(14) That, indeed, FGU's cause of action which is not supported by any document other than the self-serving 'Statement of Account' dated March 28, 1988 x x x (15) That it should be noted that the cause of action of FGU is not the enforcement of the Special Agent's Contract but the alleged 'cash accountabilities which are not based on written agreement x x x. x x x x

(19) x x x A careful analysis of FGU's three-page complaint will show that its cause of action is not for specific performance or enforcement of the Special Agent's Contract rather, it is for the payment of the alleged cash accountabilities incurred by defendant during the period form [sic] 1975 to 1986 which claim is executory and has not been ratified. It is the established rule that unenforceable contracts, like this purported money claim of FGU, cannot be sued upon or enforced unless ratified, thus it is as if they have no effect. x x x." To support the heading "Compulsory Counterclaim" in her answer and give the impression that the counterclaim is compulsory appellant alleged that "FGU has unjustifiably failed to remit to defendant despite repeated demands in gross violation of their Special Agent's Contract x x x." The reference to said contract was included purposely to mislead. While on one hand appellant alleged that appellee's cause of action had nothing to do with the Special Agent's Contract, on the other hand, she claim that FGU violated said contract which gives rise of [sic] her cause of action. Clearly, appellant's cash accountabilities cannot be the offshoot of appellee's alleged violation of the aforesaid contract. On 19 May 1999, the appellate court denied petitioner's motion for 13 reconsideration, giving rise to the present petition. Before going into the substantive issues, the Court shall first dispose of some procedural matters raised by the parties. Petitioner claims that respondent is estopped from questioning her non-payment of docket fees because it did not raise this particular issue when it filed its motion - the "Motion to Strike out Answer With Compulsory Counterclaim And To Declare Defendant In Default"

- with the trial court; rather, it was only nine months after receiving petitioner's answer that respondent assailed the trial court's lack of jurisdiction over petitioner's counterclaims based on the latter's failure to pay docket 14 fees. Petitioner's position is unmeritorious. Estoppel by laches arises from the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has 15 abandoned or declined to assert it. In the case at bar, respondent cannot be considered as estopped from assailing the trial court's jurisdiction over petitioner's counterclaim since this issue was raised by respondent with the trial court itself - the body where the action is pending - even before the presentation of any evidence by the parties and definitely, way before any judgment could be rendered by the trial court. Meanwhile, respondent questions the jurisdiction of the Court of Appeals over the appeal filed by petitioner from the 18 September 1990 and 28 February 1991 orders of the trial court. It is significant to note that this objection to the appellate court's jurisdiction is raised for the first time before this Court; respondent never having raised this issue before the appellate court. Although the lack of jurisdiction of a court may be raised at any stage of the action, a party may be estopped from raising such questions if he has actively taken part in the very proceedings which he questions, belatedly objecting to the court's jurisdiction in the event that the judgment or order subsequently 16 rendered is adverse to him. In this case, respondent actively took part in the proceedings before the Court of Appeals by filing its appellee's brief with the 17 same. Its participation, when taken together with its failure to object to the appellate court's jurisdiction during the entire duration of the proceedings before such court, demonstrates a willingness to abide by the resolution of the case by such tribunal and accordingly, respondent is now most decidedly estopped from objecting to the Court of Appeals' assumption of jurisdiction 18 over petitioner's appeal. The basic issue for resolution in this case is whether or not the counterclaim of petitioner is compulsory or permissive in nature. A compulsory counterclaim is one which, being cognizable by the regular courts of justice, arises out of or is connected with the transaction or occurrence constituting the subject matter of the opposing party's claim and does not require for its adjudication the 19 presence of third parties of whom the court cannot acquire jurisdiction. In Valencia v. Court of Appeals, this Court capsulized the criteria or tests that may be used in determining whether a counterclaim is compulsory or permissive, summarized as follows: 1. Are the issues of fact and law raised by the claim and counterclaim largely the same?
20

2. Would res judicata bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule? 3. Will substantially the same evidence support or refute plaintiff's claim as well s defendant's counterclaim? 4. Is there any logical relation between the claim and the counterclaim? Another test, applied in the more recent case of Quintanilla v. Court of 21 Appeals, is the "compelling test of compulsoriness" which requires "a logical relationship between the claim and counterclaim, that is, where conducting separate trials of the respective claims of the parties would entail a substantial duplication of effort and time by the parties and the court." As contained in her answer, petitioner's counterclaims are as follows: (20) That defendant incorporates and repleads by reference all the foregoing allegations as may be material to her Counterclaim against FGU. (21) That FGU is liable to pay the following just, valid and legitimate claims of defendant: (a) the sum of at least P104,893.45 plus maximum interest thereon representing, among others, direct commissions, profit commissions and contingent bonuses legally due to defendant; and (b) the minimum amount of P500,000.00 plus the maximum allowable interest representing defendant's accumulated premium reserve for 1985 and previous years, which FGU has unjustifiably failed to remit to defendant despite repeated demands in gross violation of their Special Agent's Contract and in contravention of the principle of law that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." (22) That as a result of the filing of this patently baseless, malicious and unjustified Complaint, and FGU's unlawful, illegal and vindictive termination of their Special Agent's Contract, defendant was unnecessarily dragged into this litigation and to defense [sic] her side and assert her rights and claims against FGU, she was compelled to

hire the services of counsel with whom she agreed to pay the amount of P30,000.00 as and for attorney's fees and stands to incur litigation expenses in the amount estimated to at least P20,000.00 and for which FGU should be assessed and made liable to pay defendant. (23) That considering further the malicious and unwarranted action of defendant in filing this grossly unfounded action, defendant has suffered and continues to suffer from serious anxiety, mental anguish, fright and humiliation. In addition to this, defendant's name, good reputation and business standing in the insurance business as well as in the community have been besmirched and for which FGU should be adjudged and made liable to pay moral damages to defendant in the amount of P300,000.00 as minimum. (24) That in order to discourage the filing of groundless and malicious suits like FGU's Complaint, and by way of serving [as] an example for the public good, FGU should be penalized and assessed exemplary damages in the sum of P100,000.00 or such amount as the 22 Honorable Court may deem warranted under the circumstances. Tested against the abovementioned standards, petitioner's counterclaim for commissions, bonuses, and accumulated premium reserves is merely permissive. The evidence required to prove petitioner's claims differs from that needed to establish respondent's demands for the recovery of cash accountabilities from petitioner, such as cash advances and costs of premiums. The recovery of respondent's claims is not contingent or dependent upon establishing petitioner's counterclaim, such that conducting separate trials will not result in the substantial duplication of the time and effort of the court and the parties. One would search the records in vain for a logical connection between the parties' claims. This conclusion is further reinforced by petitioner's own admissions since she declared in her answer that respondent's cause of action, unlike her own, was not based upon the Special 23 Agent's Contract. However, petitioner's claims for damages, allegedly suffered as a result of the filing by respondent of its complaint, are 24 compulsory. There is no need for need for petitioner to pay docket fees for her compulsory 25 counterclaim. On the other hand, in order for the trial court to acquire jurisdiction over her permissive counterclaim, petitioner is bound to pay the 26 prescribed docket fees. The rule on the payment of filing fees has been laid down by the Court in the case ofSun Insurance Office, Ltd. V. Hon. Maximiano 27 Asuncion 1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a

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

compulsory counterclaim of petitioner for damages based on the filing by respondent of an allegedly unfounded and malicious suit need not be answered since it is inseparable from the claims of respondent. If respondent were to answer the compulsory counterclaim of petitioner, it would merely 32 result in the former pleading the same facts raised in its complaint. WHEREFORE, the assailed Decision of the Court of Appeals promulgated on 23 December 1998 and its 19 May 1999 Resolution are hereby MODIFIED. The compulsory counterclaim of petitioner for damages filed in Civil Case No. 89-3816 is ordered REINSTATED. Meanwhile, the Regional Trial Court of Makati (Branch 134) is ordered to require petitioner to pay the prescribed docket fees for her permissive counterclaim (direct commissions, profit commissions, contingent bonuses and accumulated premium reserves), after 33 ascertaining that the applicable prescriptive period has not yet set in. SO ORDERED.1wphi1.nt

ESTHERLITA CRUZ-AGANA, Petitioner, vs. HON. JUDGE AURORA SANTIAGO-LAGMAN (In her capacity as Presiding Judge of Regional Trial Court, Branch 77, Malolos, Bulacan) and B. SERRANO ENTERPRISES, INC., Respondents. DECISION

following the ruling in Santo Tomas University Hospital v. Surla. On 4 June 1999, the trial court again reversed itself and recalled its Order dismissing respondent's counterclaim. Petitioner now comes before this Court through Rule 65 of the 1997 Rules of Civil Procedure. The Trial Court's Ruling

CARPIO, J.: The Case This petition for certiorari seeks to reverse the Order of the Regional Trial Court, Branch 77, Malolos, Bulacan ("trial court"), dated 4 June 1999, recalling its previous Order dated 25 May 1999 dismissing B. Serrano Enterprises, Inc.'s ("respondent") counterclaim upon a motion to dismiss filed by petitioner Estherlita Cruz-Agana ("petitioner"). Antecedent Facts On 18 March 1996, petitioner filed a Complaint for annulment of title with prayer for preliminary mandatory injunction against respondent. Petitioner claims that as the sole heir of one Teodorico Cruz, she is the sole owner of a lot covered by Transfer Certificate of Title No. T-3907. Petitioner further claims that the lot was fraudulently sold to Eugenio Lopez, Jr. who later on transferred the lot to respondent. The case was raffled to the Regional Trial Court, Branch 77, Malolos, Bulacan presided by Judge Aurora SantiagoLagman and docketed as Civil Case No. 210-M-96. Respondent seasonably filed its Answer with compulsory counterclaim. Petitioner moved to dismiss respondent's counterclaim for lack of a certificate of non-forum shopping. In an Order dated 11 March 1999, the trial court denied petitioner's motion to dismiss respondent's counterclaim. The trial court reasoned that respondent's counterclaim is compulsory and therefore excluded from the coverage of Section 5, Rule 7 of the Rules of Court. Petitioner moved that the trial court reconsider its Order invoking the mandatory nature of a certificate of non2 forum shopping under Supreme Court Administrative Circular No. 04-94. On 25 May 1999, the trial court reversed its 11 March 1999 Order and dismissed respondent's counterclaim for lack of a certificate of non-forum shopping. Respondent seasonably filed a motion for reconsideration arguing that Administrative Circular No. 04-94 does not apply to compulsory counterclaims
1

The trial court found that respondent's counterclaim is compulsory in nature. The trial court ruled that the filing of a compulsory counterclaim does not require a certificate of non-forum shopping. On the effect of Santo Tomason Administrative Circular No. 04-94, the trial court explained: It is settled rule that it is one of the inherent powers of the court to amend and control its processes and orders so as to make them conformable to law and justice. This power includes the right to reverse itself, specially when in its honest opinion, it has committed an error or mistake in judgment, and that to adhere to its decision will cause injustice to a party litigant. The Issue Petitioner raises the following issue: WHETHER THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN REFUSING TO DISMISS RESPONDENT'S COUNTERCLAIM. The Ruling of the Court The petition lacks merit. The issue presented is not novel. This Court has squarely settled this issue 3 in Santo Tomas University Hospital v. Surla. Writing for the Court, Justice Jose C. Vitug began his ponencia thus: Can a compulsory counterclaim pleaded in an Answer be dismissed on the ground of a failure to accompany it with a certificate of nonforum shopping? This question is the core issue presented for resolution in the instant petition. Santo Tomas clarified the scope of Administrative Circular No. 04-94 with respect to counterclaims. The Court pointed out that this circular is intended

primarily to cover "an initiatory pleading or an incipient application of a party asserting a claim for relief." The distinction between a compulsory and a permissive counterclaim is vital in the application of the circular. The Court explained: It should not be too difficult, the foregoing rationale of the circular aptly taken, to sustain the view that the circular in question has not, in fact, been contemplated to include a kind of claim which, by its very nature as being auxiliary to the proceedings in the suit and as deriving its substantive and jurisdictional support therefrom, can only be appropriately pleaded in the answer and not remain outstanding for independent resolution except by the court where the main case pends. Prescinding from the foregoing, the proviso in the second paragraph of Section 5, Rule 8 of the 1997 Rules of Civil Procedure, i.e., that the violation of the anti-forum shopping rule "shall not be curable by mere amendment xxx but shall be cause for the dismissal of the case without prejudice," being predicated on the applicability of the need for a certification against forum-shopping, obviously does not include a claim which cannot be independently set up. The Court reiterated this ruling in Ponciano v. Judge Parentela, Jr.
4

interpret, amend or revise the rules it promulgates, as long as the rules do not diminish, increase, or modify substantive rights. This is precisely the purpose of Santo Tomas as far as Administrative Circular No. 04-94 is concerned. Petitioner's counsel fails or simply refuses to accept the distinction between a permissive counterclaim and a compulsory counterclaim. This distinction was the basis for the ruling in Santo Tomas and Ponciano. The sole issue for resolution in the present case is whether respondent's counterclaim is compulsory or permissive. If it is a permissive counterclaim, the lack of a certificate of non-forum shopping is fatal. If it is a compulsory counterclaim, the lack of a certificate of non-forum shopping is immaterial. A compulsory counterclaim is any claim for money or other relief, which a defending party may have against an opposing party, which at the time of suit arises out of, or is necessarily connected with, the same transaction or 8 occurrence that is the subject matter of plaintiff's complaint. It is compulsory in the sense that it is within the jurisdiction of the court, does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction, and will be barred in the future if not set up in the answer to the complaint in the same case. Any other counterclaim is permissive. Respondent's counterclaim as set up in its answer states: 3. That because of the unwarranted, baseless, and unjustified acts of the plaintiff, herein defendant has suffered and continue to suffer actual damages in the sum of at least P400,000,000.00 which the law, equity, and justice require that to be paid by the plaintiff and further to 9 reimburse the attorney's fees ofP2,000,000.00; It is clear that the counterclaim set up by respondent arises from the filing of plaintiff's complaint. The counterclaim is so intertwined with the main case that it is incapable of proceeding independently. The counterclaim will require a re-litigation of the same evidence if the counterclaim is allowed to proceed in a separate action. Even petitioner recognizes that respondent's counterclaim 10 is compulsory. A compulsory counterclaim does not require a certificate of non-forum shopping because a compulsory counterclaim is not an initiatory pleading. WHEREFORE, the instant petition is DENIED for lack of merit. We AFFIRM the Order of the Regional Trial Court, Branch 77, Malolos Bulacan, dated 4 June 1999 recalling the Order dated 25 May 1999 which dismissed the compulsory counterclaim of respondent B. Serrano Enterprises, Inc. SO ORDERED.

Administrative Circular No. 04-94 does not apply to compulsory counterclaims. The circular applies to initiatory and similar pleadings. A compulsory counterclaim set up in the answer is not an "initiatory" or similar pleading. The initiatory pleading is the plaintiff's complaint. A respondent has no choice but to raise a compulsory counterclaim the moment the plaintiff files the complaint. Otherwise, respondent waives the compulsory 5 counterclaim. In short, the compulsory counterclaim is a reaction or response, mandatory upon pain of waiver, to an initiatory pleading which is the complaint. Petitioner argues, however, that the Court's rulings in Santo Tomas and Ponciano are "contrary to the mandate of Administrative Circular 6 No. 04-94" and other procedural laws. Petitioner is mistaken. The Constitution expressly bestows on this Court the power to promulgate rules concerning the pleading, practice and procedure in all 7 courts. Procedural matters are within the sole jurisdiction of this Court to prescribe. Administrative Circular No. 04-94 is an issuance of this Court. It covers a matter of procedure. Administrative Circular No. 04-94 is not an enactment of the Legislature. This Court has the exclusive jurisdiction to

SPOUSES CONRADO ANTONIO and AVELYN ANTONIO, Petitioners, - versus JULITA SAYMAN VDA. DE MONJE, substituted by her heirs, namely: ANGELINA MONJE-VILLAMOR, LUZVISMINDA MONJE-CORTEL, MARRIETA MONJE-ORTICO, LEOPOLDO MONJE, CONCEPCION SAYMAN-MONJE, and ROLINDA MONJE-CALO, Respondents.

G.R. No. 149624 Macedonio Monje immediately took possession thereof and constructed a house worth P30,000.00. Present: CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ. Promulgated: On 16 January 1967, the heirs of spouses Catalino Manguiob and Andrea Pansaon who also died, sold the subject property which was already sold to Macedonio Monje in 1962, in favor of Nicanor Manguiob and Carolina V. Manguiob. Immediately thereafter, spouses Nicanor Manguiob and Carolina V. Manguiob had executed an absolute deed of sale in favor of the formers sister-in-law, Avelyn B. Antonio, the entire Lot No. [1] consisting of 15,903 square meters. The sale was entered in the notarial book of Notary Public Juanito T. Hernandez as Doc. No. 645; Page 31; Book 5, Series of 1967. Macedonio Monje knew it only on 11 August 1967 when he received a letter from Avelyn B. Antonio, informing him that she is now the registered owner of the subject property under a new Transfer Certificate of Title No. TCT No. T-9643. Aggrieved, Macedonio Monje filed on 12 October 1967 before the CFI of Baganga, Davao Oriental, a complaint for the annulment of the deed of sale between the heirs of Catalino Manguiob and Carolina Balanay/Nicanor Manguiob, as well as the subsequent deed of absolute sale by the latter in favor [of] Avelyn Antonio and the cancellation of TCT No. T9643, docketed as Civil Case No. 007-125. On 27 August 1981, the aforesaid court rendered a decision the decretal portion thereof reads as follows: WHEREFORE, judgment is hereby nd rd rendered, declaring the 2 and 3 deeds of sale of the property in question null and void and transfer certificate of title No. 9643 likewise null and void; ordering the defendants jointly and solidarily to pay the plaintiff moral damages of P30,000.00 and actual damages of P20,000.00, with legal interest until the amount is fully paid; and to pay the costs.

September 29, 2010 x-----------------------------------------------------------------------------------------x DECISION

PERALTA, J.:

Assailed in the present petition are the Decision

[1]

and Resolution

[2]

of

the Court of Appeals (CA) dated May 4, 2001 and August 3, 2001, respectively.

The facts of the case, as summarized by the CA, are as follows: Spouses Catalino Manguiob and Andrea Pansaon were the original owners of the subject parcel of coconut land, consisting of 15,903 square meters, particularly known as Lot No. 1 covered by Original Certificate of Title No. 1020 of the Register of Deeds of Davao. On 02 September 1962, Andrea Pansaon who survived her husband Catalino Manguiob, together with some other heirs, sold to Macedonio Monje Seven Thousand Five Hundred (7,500) square meters only of the aforesaid property. The said deed of absolute sale was duly notarized by Notary Public Ricardo Reyes and entered in his notarial book as Doc. No. 48; page 10; Book No. 5; Series of 1962.

Let a copy of this decision be served on the Register of Deeds at Mati, Davao Oriental, for appropriate action. SO ORDERED. Plaintiff-appellants, Spouses Antonio appealed the above-mentioned decision all the way to the Supreme Court. On 07 December 1992, the Supreme Court in G.R. No. 69696, rendered a decision, the pertinent portion of which states as follows: We find that while the principle of res judicata is better disregarded if its application would involve the sacrifice of justice to technicality; to so disregard it now and reopen the case would further delay its disposition. However, the lower court should take note of its erroneous order to deliver to Monje an area larger than what he bought from the heirs of Manguiob and claimed in the action he had filed, in the eventual execution of its decision. In the same way that the power of the court in the execution of its judgment extends only over properties belonging to the judgment debtor, the court below may not, in the execution of its decision of August 27, 1981, deliver to Monje the entire area covered by TCT No. T-9643 as it is more than double that of the property he had bought. (pp. 15-16, rollo). Prescinding from the decision of the Supreme Court, plaintiff-appellants [herein petitioners] filed a case for a sum of money, accounting of the proceeds of the copra, damages and attorneys fees against herein defendant-appellees, docketed as Civil Case No. 506 before the Regional Trial Court of Baganga, Davao Oriental, Branch 7. In the aforesaid alleged, among others that: complaint, plaintiffs-appellants

1967 which possession and enjoyment thereof has been continued by the herein defendants when Monje died; 9. That as earlier pointed out, Monje is only entitled to 7,500 square meters of this subject property, hence, plaintiffs were deprived of the possession and proceeds of the copra of their property consisting of 8,403 square meters since 1967 (the year plaintiffs became the owner of this property) continuously up to the present. 10. That the possession by Macedonio Monje and the defendants of the whole 15,903 square meters of the aforesaid land and their appropriation of the proceeds of the copra was made in bad faith for they know very well that they are only entitled to 7,500 square meters portion of the land which is the only area they bought from the heirs of Catalino Manguiob. (Please refer to Annex 'B') xxxx 12. That since 1967 up to the present or a period of 27 years, Monje and the defendants appropriated unto themselves the proceeds of the copra of the land belonging to the plaintiffs (8,403 square meters area) in the estimated net amount of P420,714.00); xxxx Defendants-appellees [herein respondents], instead of filing an answer to the aforesaid complaint had opted to file a motion to dismiss on the grounds of res judicata and violation of Supreme Court Circular No. 04-94 on non-forum shopping. [3] xxx

On December 16, 1994, the Regional Trial Court (RTC) issued an Order dismissing herein petitioners' complaint on the ground of res judicata.
[4]

8. That the late Macedonio Monje has been in possession of this 15,903 square meters coconut land covered by TCT No. T-9643 since

Aggrieved by the Order of the RTC, petitioners filed an appeal with the CA. Despite due notice, respondents failed to file their appellees' brief. Consequently, the CA deemed the case submitted for decision without the said brief.

or decree on the merits by a court of competent jurisdiction is conclusive of the rights of the parties or their privies in all later suits on all points and matters determined in the former suit.
[8]

The principle of res judicata is applicable by way of (1) bar by prior On May 4, 2001, the CA rendered its presently assailed Decision affirming the judgment of the RTC and dismissing the appeal of herein petitioners. There is bar by prior judgment when, as between the first case where the judgment was rendered and the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action. In this instance, the judgment in the first case constitutes an absolute bar to the second action. Otherwise put, the judgment or decree of the court of competent jurisdiction on the merits concludes the litigation between the parties, as well as their privies, and constitutes a bar to a new action or suit involving the same cause of action before the same or other tribunal. But where there is identity of parties in the first and second cases, but no identity of causes of action, the first judgment is conclusive only as to those matters actually and directly controverted and determined and not as to matters merely involved therein. This is the concept of res judicata known as conclusiveness of judgment. Stated differently, any right, fact or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court in which judgment is rendered on the merits is conclusively settled by the judgment therein and cannot again be litigated between the parties and their privies whether or not the claim, demand, purpose, or subject matter of the two actions is [9] the same. judgment and (2) conclusiveness of judgment. This Court had occasion to explain the difference between these two aspects of res judicata as follows:

Petitioners filed a Motion for Reconsideration, but the same was dismissed by the CA in its Resolution dated August 3, 2001.

Hence, the instant petition raising the lone issue of whether or not the CA erred in applying the principle of res judicata with respect to Civil Case No. 007-125 and Civil Case No. 506.
[5]

At the outset, the Court notes that respondents failed to file their comment on the present petition. As borne by the records, several Court resolutions addressed to the respondents were returned either unserved or unheeded. Thus, the Court dispensed with the filing of respondents' comment.

Going to the merits of the case, res judicata is defined as a matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by judgment.
[6]

According to the doctrine of res judicata, an existing final

judgment or decree rendered on the merits, and without fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first suit.
[7]

Stated differently, conclusiveness of judgment finds application when a fact or question has been squarely put in issue, judicially passed upon, and adjudged in a former suit by a court of competent

To state simply, a final judgment

jurisdiction.

[10]

The fact or question settled by final judgment or order binds The Court agrees, however, with the CA that the causes of action in these cases are not identical.

the parties to that action (and persons in privity with them or their successorsin-interest), and continues to bind them while the judgment or order remains standing and unreversed by proper authority on a timely motion or petition; the conclusively-settled fact or question cannot again be litigated in any future or other action between the same parties or their privies and successors-ininterest, in the same or in any other court of concurrent jurisdiction, either for the same or for a different cause of action.
[12] [11]

The Court has previously employed various tests in determining whether or not there is identity of causes of action as to warrant the application of the principle of res judicata. One test of identity is the absence of inconsistency test where it is determined whether the judgment sought will be inconsistent with the prior judgment.
[13]

Thus, only the identities of

parties and issues are required for the operation of the principle of conclusiveness of judgment.

If no inconsistency is shown, the prior judgment

[14]

shall not constitute a bar to subsequent actions.

In the instant case, the

reliefs prayed for in Civil Case No. 506 are the payment of a sum representing In the present case, there is no question that there is identity of parties in Civil Case No. 007-125 and Civil Case No. 506. the proceeds of the copra supposedly harvested from petitioners' property and purportedly misappropriated by respondents. Petitioners also pray for the award of moral and exemplary damages, as well as attorney's fees and However, as to identity of issues, a perusal of the records and other pleadings would show that the issue raised in Civil Case No. 007-125 is whether the sale to petitioners of the 7,500 square meter portion of Lot No. 1 being contested by respondents is valid. On the other hand, in Civil Case No. 506, the issues are whether petitioners were deprived of possession of the remaining 8,403 square meter portion of Lot No. 1 which was validly sold to them and whether they are entitled to an accounting of the proceeds of the copra harvested from their property which was supposedly appropriated by respondents. The Court finds that there is no identity of issues as the issue raised in Civil Case No. 007-125 is different from, and does not overlap with, the issue raised in Civil Case No. 506. The more common approach in ascertaining identity of causes of action is the same evidence test, whereby the following question serves as a sufficient criterion: would the same evidence support and establish both the present and former causes of action? If the answer is in the affirmative, then the prior judgment is a bar to the subsequent action; conversely, it is not.
[15]

litigation expenses. In the event that a judgment is rendered in favor of herein petitioners, who are the complainants in Civil Case No. 506, the Court finds no possible inconsistency in the judgment sought in Civil Case No. 506 with the judgment rendered in Civil Case No. 007-125.

In

the instant case, it is unmistakable that the pieces of evidence that would back up the cause of action in Civil Case No. 007-125 are different from the set of

Respondents insist in their Motion to Dismiss filed with the RTC that the cause of action in Civil Case No. 506 is barred by the prior judgment rendered in Civil Case No. 007-125.

evidence that would prove the cause of action in Civil Case No. 506.

Aside from the absence of inconsistency test and same evidence test, we have also ruled that a previous judgment operates as a bar to a subsequent one when it had touched on [a] matter already decided, or if the parties are in effect litigating for the same thing.
[16]

Lastly, petitioners' claims for accounting and recovery of the proceeds of the sale of copra, as well as for damages, do not take the nature of a compulsory counterclaim that should have been barred if not set up in the action. These claims do not arise out of, or are necessarily connected with, the transaction or occurrence constituting the subject matter of the respondents' claim. Thus, petitioners' claims may be filed in a separate action, which they did.

A reading of the

decisions of the lower and appellate courts in Civil Case No. 007-125 would show that there were neither discussions nor disposition of the issues raised in Civil Case No. 506.

The Court, nevertheless, does not agree with the conclusion of the RTC and the CA that Civil Case No. 007-125 and Civil Case No. 506 involve the same subject matter. The final and executory judgment in Civil Case No. 007-125 cannot bar the filing of Civil Case No. 506, since these cases involve entirely different subject matters. The bone of contention in Civil Case No. 007-125 is confined to the 7,500 square meter portion of Lot No. 1 bought by the predecessor-ininterest of respondents, while the subject matter in Civil Case No. 506 is the remaining 8,403 square meter parcel of the same lot. Since there is no identity of subject matter between the two cases, it is but logical to conclude that there is likewise no identity of causes of action.
[17]

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated May 4, 2001 and its Resolution dated August 3, 2001 in CA-G.R. CV No. 49356 are REVERSED and SET ASIDE. The case is REMANDED for appropriate proceedings to the court of origin, Regional Trial Court, Branch 7, of Baganga, Davao Oriental, which is DIRECTED to decide on the merits WITH REASONABLE DISPATCH. SO ORDERED.

Both the questioned rulings of the RTC and the CA may have arisen from an apparent confusion that the whole of Lot No. 1, consisting of 15,903 square meters, is owned by respondents. It is clear, however, from the December 7, 1992 ruling of this Court in G.R. No. 69696
[18]

that respondents'

predecessor-in-interest acquired only a 7,500 square meter portion of Lot No. 1 and not the entirety thereof and that the remaining 8,403 square meters are still owned by petitioners.

In sum, the Court finds that there is no res judicata in the present case.