1.

G.R. No. 135803

March 28, 2006

O.B. JOVENIR CONSTRUCTION AND DEVELOPMENT CORPORATION, OSCAR B.

JOVENIR
and
GREGORIO
LIONGSON, Petitioners,
vs.
MACAMIR REALTY AND DEVELOPMENT CORPORATION, SPOUSES ROSAURO
and GLORIA MIRANDA and the HONORABLE COURT OF APPEALS, Respondents.
DECISION
TINGA, J.:
In denying the present petition, the Court affirms the right of a plaintiff to cause the dismissal of
the complaint at any time before service of the answer without need of affirmative action on the
part of the trial court. It must be qualified though that the incidents for adjudication occurred a few
months before the effectivity of the 1997 Rules of Civil Procedure 1 which now requires that upon
the filing of such notice, the court issue an order confirming the dismissal. 2 The precedental value
of this decision is thus qualified to instances occurring prior to the 1997 Rules of Civil Procedure.
On 3 February 1997,3 a complaint was filed before the Regional Trial Court (RTC) of Makati City,
with private respondents Macamir Realty and Development Corp. (Macamir Realty) and spouses
Rosauro and Gloria Miranda as plaintiffs, and petitioners O.B. Jovenir Construction and
Development Corp. (Jovenir Construction), Oscar B. Jovenir, and Gregorio Liongson being among
the defendants. The complaint, docketed as Civil Case No. 97-256, sought the annulment of
certain agreements between private respondents and petitioners, as well as damages. 4 It was
alleged that Jovenir Construction was contracted to complete the construction of private
respondents condominium project. Private respondents subsequently sought the termination of
their agreements with petitioners after it was discovered that Jovenir Construction had
misrepresented itself as a legitimate contractor.5Respondents likewise prayed for the issuance of a
writ of
preliminary injunction. A hearing on the prayer appears to have been conducted on 6 February
1997.6
It was also alleged in the complaint that Gloria Miranda was the principal stockholder and
President of Macamir Realty while her husband Rosauro was the owner of the real properties on
which the condominium project was being constructed.7
Almost immediately, two of the impleaded defendants filed their respective motions to dismiss.
Defendant Salud Madeja filed her motion on 6 February 1997, while Cesar Mangrobang, Sr. and
Cesar Mangrobang, Jr. followed suit with their motion dated 13 February 1997. Madeja
pertinently alleged that while the spouses Miranda had initiated the complaint on behalf of

Macamir Realty, the real party-in-interest, they failed to attach any Board Resolution authorizing
them to file suit on behalf of the corporation. Oddly enough, Madeja was a member of the Board
of Directors of Macamir Realty, and she averred as a fact that said Board of Directors had not
authorized the spouses Miranda to initiate the complaint against Jovenir Realty.8
On 13 February 1997, or 10 days after the filing of the complaint, private respondents filed a
Motion to Withdraw Complaint, alleging that during the initial hearing on the prayer for
preliminary injunction on 6 February 1997, counsel for plaintiffs "discovered a supposed technical
defect in the complaint x x x that x x x may be a ground for the dismissal of this case." 9 Thus,
private respondents prayed that the plaintiffs be allowed to withdraw the complaint without
prejudice.
Petitioners filed an opposition to the Motion to Withdraw Complaint on 18 February 1997,
wherein they adopted Madejas arguments as to the lack of authority on the part of the spouses
Miranda to sue on behalf of Macamir Realty. However, just one day earlier, or on 17 February
1997, private respondents filed another complaint against the same defendants save for Madeja,
and seeking the same reliefs as the first complaint. This time, a Board Resolution dated 10
February 1997 authorizing the spouses Miranda to file the Complaint on behalf of Macamir Realty
was attached to the complaint. This second complaint was also filed with the Makati RTC and
docketed as Civil Case No. 97-379. The Verification and Certification [of] Non-Forum Shopping
in the second complaint was accomplished by Rosauro Miranda, who averred as follows:
3. That other than Civil Case No. 97-256 filed on February 3, 1997 before the Regional Trial Court
of Makati City which was withdrawn on February 13, 1997, I further certify that we have not
commenced any other action or proceedings involving the same issue in the Supreme Court, or
Court of Appeals or any other tribunal or agency; x x x 10
On 24 February 1997, 11 days after the filing of the Motion to Withdraw Complaint and seven
days after the filing of the second Complaint, the Makati RTC, Branch 149, acting in Civil Case
No. 97-256, granted the Motion to Withdraw Complaint. The RTC noted in its Order 11 that "an
action may be dismissed by the plaintiffs even without Order of the Court by filing a notice of
dismissal at anytime before the service of the answer under Rule 17, Section 1 of the Rules of
Court," and accordingly considered the complaint withdrawn without prejudice.12
The battle then shifted to Civil Case No. 97-379, which had been raffled to Branch 136 of the
Makati RTC. On 4 March 1997, petitioners filed a Motion to Dismiss the second complaint on the
ground of forum-shopping. They pointed out that at the time of the filing of the second complaint
on 17 February 1997, the first complaint was still pending. The Makati RTC denied the Motion to
Dismiss in an Order13 dated 23 May 1997, observing that at the time the Motion to Withdraw
Complaint was filed, none of the defendants had filed any answer or any responsive pleading.
Thus, it was then within respondents right to cause the dismissal of the complaint without having
to await action of the court on their motion.14 This Order was affirmed by the Court of Appeals

Special Sixth Division in its Decision 15 dated 23 June 1998 after petitioners had assailed the RTCs
order via a special civil action for certiorari filed with the appellate court. 16 Hence, the present
petition.
Petitioners now argue that under Section 1 of Rule 17 of the Rules of Civil Procedure in effect at
the time of these antecedents, the plaintiff may obtain the dismissal of his own complaint before a
responsive pleading has been filed through the filing of a notice of dismissal. However,
respondents in this case did not file a notice of dismissal, but instead lodged a Motion to Withdraw
Complaint, a motion which requires affirmative action from the court before the complaint may be
deemed dismissed. Since the Makati RTC had granted the motion only on 24 February 1997, the
first complaint had not yet been withdrawn as of 17 February 1997, when the second complaint
was filed. It is thus posited that the Certification of Non-Forum Shopping attached to the second
complaint was false, in that it averred that the first complaint "was withdrawn on February 13,
1997" when in fact the motion to withdraw complaint was granted only 11 days after. In sum,
respondents had violated the procedural rules against forum-shopping, which at that time were
incorporated in Administrative Circular No. 04-94 of the Supreme Court.
We find no error on the part of the lower courts since the denial of the motion to dismiss is wholly
in accord with the Rules of Civil Procedure.
Section 1, Rule 17 of the 1964 Rules of Civil Procedure stated:
Dismissal by the plaintiff An action may be dismissed by the plaintiff without order of
court by filing a notice of dismissal at any time before service of the answer or of a motion
for summary judgment. Unless otherwise stated in the notice, the dismissal is without
prejudice, except that a notice operates as an adjudication upon the merits when filed by a
plaintiff who has once dismissed in a competent court an action based on or including the same
claim. A class suit shall not be dismissed or compromised without the approval of the court. 17
Indubitably, the provision ordained the dismissal of the complaint by the plaintiff as a matter of
right at any time before service of the answer.18 The plaintiff was accorded the right to dismiss the
complaint without the necessity of alleging in the notice of dismissal any ground nor of making
any reservation.19
In Go v. Cruz,20 the Court, through Chief Justice Narvasa, has recognized that "where the dismissal
of an action rests exclusively on the will of a plaintiff or claimant, to prevent which the defending
party and even the court itself is powerless, requiring in fact no action whatever on the part of the
court except the acceptance and recording of the causative document." 21 The facts in that case are
well worth considering. Therein, the notice of dismissal was filed by the plaintiff on 12 November
1981. Respondent filed his answer three days earlier, or on 9 November, but plaintiff was served a
copy of the answer by registered mail only on 16 November. Notwithstanding the fact that the
answer was filed with the trial court three days prior to the filing of the notice of dismissal, the
Court still affirmed the dismissal sought by the plaintiff. The Court declared that the right of the

plaintiff to cause the dismissal of the complaint by mere notice is lost not by the filing of the
answer with the trial court, but upon the actual service to the plaintiff of the answer.22
The Court further ruled that "[plaintiffs] notice ipso facto brought about the dismissal of the
action then pending in the Manila Court, without need of any order or other action by the
Presiding Judge. The dismissal was effected without regard to whatever reasons or motives
[plaintiff] might have had for bringing it about, and was, as the same Section 1, Rule 17 points out,
without prejudice, the contrary not being otherwise stated in the notice and it being the first
time the action was being so dismissed."23
It is quite clear that under Section 1, Rule 17 of the old Rules, the dismissal contemplated therein
could be accomplished by the plaintiff through mere notice of dismissal, and not through motion
subject to approval by the Court. Dismissal is ipso facto upon notice, and without prejudice unless
otherwise stated in the notice. It is due to these considerations that the petition should be denied.
Evidently, respondents had the right to dismiss their complaint by mere notice on 13 February
1997, since as of even date, petitioners had not yet served their answer on respondents. The
Motion to Withdraw Complaint makes clear respondents "desire to withdraw the complaint
without prejudice." That respondents resorted to a motion to effect what they could have instead
by mere notice may be indicative of a certain degree of ignorance of procedural rules on the part
of respondents counsel. Yet such "error," if it could be called as such, should hardly be of fatal
consequence. Petitioners posit that the "remedy" of filing a notice of dismissal is not exclusive,
respondents having the "option" of securing the courts approval to the dismissal. 24 On the
contrary, the trial court has no discretion or option to deny the motion, since dismissal by the
plaintiff under Section 1, Rule 17 is guaranteed as a matter of right to the plaintiffs. Even if
the motion cites the most ridiculous of grounds for dismissal, the trial court has no choice
but to consider the complaint as dismissed, since the plaintiff may opt for such dismissal as a
matter of right, regardless of ground.
We are in accord with the Court of Appeals when it pronounced:
While [the Motion to Withdraw Complaint] is styled as a "motion" and contains a "prayer", these
are innocuous errors and superfluities that do not detract from its being a notice of dismissal made
under said Section 1 of Rule 17 and which ipso facto dismissed the case. It is a hornbook rule that
it is not the caption of a pleading but the allegations thereat that determines its nature.[ 25] The
court order of dismissal is a mere surplusage under the circumstances and emphasized by the
court a quo itself when it granted the motion "[x x x] considering that an action may be dismissed
by the plaintiffs even without Order of the Court[x x x]"26
Thus, the complaint could be properly considered as having been dismissed or withdrawn as of 13
February 1997. Accordingly, when respondents filed their new complaint relating to the same
cause of action on 17 February 1997, the old complaint was no longer pending. The certification
against forum-shopping attached to the new complaint correctly asseverated that the old complaint
"was withdrawn on February 13, 1997."27

Petitioners are unable to propose any convincing legal argument or any jurisprudence that would
sway the Court to their point of view. At the same time, our present ruling must be distinguished
from Ortigas & Company Limited Partnership v. Velasco,28 wherein it was advanced that
"theoretically every final disposition of an action does not attain finality until after fifteen (15)
days therefrom, x x x the plaintiff may move to withdraw and set aside his notice of dismissal and
revive his action, before that period lapses." 29 That statement was made in the context of ruling
that a plaintiff may move for the revival of the complaint dismissed on his instance under Section
1 of Rule 17 only within 15 days upon notice; otherwise the remedy of the plaintiff would be to
file a new complaint. This observation in Ortigas does not detract from the fact that under Section
1, Rule 17 of the previous Rules, the complaint is deemed ipso facto dismissed on the day of the
filing of the notice. This again is because dismissal at the instance of the plaintiff under Section 1,
Rule 17 is a matter of right, and under the 1964 Rules of Civil Procedure, effective without need
of any affirmative action on the part of the trial court.
As noted at the onset, the 1997 Rules of Civil Procedure now requires that upon the filing of such
notice, the court issue an order confirming the dismissal. 30 The new requirement is intended to
qualify the right of a party to dismiss the action before the adverse party files an answer or asks for
summary judgment.31 Still, there is no cause to apply the 1997 Rules retroactively to this case. A
plaintiffs right to cause the dismissal of his complaint under the old rules was unqualified.
Procedural rules may not be given retroactive effect if vested rights would be disturbed, 32 or if
their
application would not be feasible or would work injustice.33 Since
respondents possessed an unqualified right to cause the dismissal of their complaint without need
of confirmation by the trial court, as enunciated in the 1964 Rules, they did not err in asserting that
their first complaint was withdrawn on the day of the filing of their motion to withdraw, and the
lower courts were correct in agreeing with respondents on this point.
WHEREFORE, the Petition is DENIED. Costs against petitioners.
SO ORDERED.

2.

G.R. No. 179556

February 13, 2009

CONCORDIA
MEDEL
vs.
CORAZON MEDEL ALCANTARA, Respondent.

GOMEZ, Petitioner,

DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside
(1) the Decision1 dated 31 May 2007 of the Court of Appeals in CA-G.R. SP No. 96790, which
dismissed, on the ground of res judicata, Civil Case No. 04-111160 before the Regional Trial
Court (RTC) of Manila, Branch 27; and (2) the Resolution 2 dated 28 August 2007 of the appellate
court denying the Motion for Reconsideration of herein petitioner Concordia Medel Gomez.
This case involves a dispute over the ownership of a parcel of land with an area of 373 square
meters, denominated as Lot No. 2259-A, located in Lamayan, Sta. Ana, Manila.
On 15 July 1997, petitioner filed a Complaint 3 for specific performance and damages against
respondent Corazon Medel Alcantara, docketed as Civil Case No. 97-84-159, and raffled to the
RTC of Manila, Branch 50. Petitioner made the following allegations in her Complaint.
Petitioner is a daughter of the spouses Ponciano and Isabel Medel. Aside from petitioner, the
spouses Ponciano and Isabel Medel had three other children, namely, Francisco, Teodora, and
Margarita. Respondent is Margaritas eldest daughter.
Sometime in 1950, petitioners father Ponciano demolished and renovated the dilapidated house
standing on Lot No. 2259-B. Ponciano then told petitioner that he was giving her not just Lot No.
2259-B and the house which stood thereon, but also the adjacent Lot No. 2259-A with an area of
373 square meters as his wedding gift, and that she was already the owner of the said properties.
Consequently, petitioner transferred to her home at Lot No. 2259-B with an area of 800 square
meters4 in 1951 and raised her family there.
Apparently already intending to distribute his assets to his children while he was still alive,
Ponciano, with his wife Isabels consent, executed a Deed of Absolute Sale dated 2 August 1962,
involving several parcels of land in San Andres, Manila, in favor of his four children. Francisco
acquired a parcel of land with an area of 1,000 square meters, while Teodora and Margarita each
received a parcel of land measuring 1,027 square meters. Petitioner received less in the
distribution of the properties by her father, as it was her fathers intention that Lot No. 2259-A
would ultimately be given to her.

In 1967, Ponciano constructed a new house on Lot No. 2259-A. It was agreed that the new house
and Lot No. 2259-A on which it stood would be initially registered in the name of petitioners
sister, Teodora, considering that she was the second eldest child, and still single and living with
her parents. Ponciano, thus, authorized the transfer of the title to Lot No. 2259-A from his name to
Teodoras. It was fully understood, however, that Teodora would hold the title to Lot No. 2259-A
only in trust for petitioner. Petitioners parents, Ponciano and Isabel, and sister, Teodora,
eventually transferred to the new house on Lot No. 2559-A, while petitioner and her family
remained at their old house on Lot No. 2559-B.
Petitioners mother, Isabel, died in 1969. Upon the death of his wife, Ponciano became sickly and
weak, such that he was no longer able to supervise his properties. In due time, Ponciano made
Teodora the administrator of all his properties, entrusting her with the pertinent documents relating
to said properties, among other valuables.
Ponciano passed away in 1972. After his death, Teodora lived alone at the house on Lot No. 2259A. Not too long thereafter, respondent and her children moved in to live with Teodora.
In 1993, petitioner discovered that the title to Lot No. 2259-A had been transferred to respondent
by virtue of a Deed of Donation 5 allegedly executed by Teodora in favor of respondent on 15
December 1980. Petitioner was totally unaware of the supposed donation, for it was done in
complete secrecy that not even any of their other relatives knew about it.1avvphi1
Upon learning of the transfer of the title to Lot No. 2259-A to respondents name, petitioner tried
to settle the matter amicably with respondent, but to no avail. Hence, petitioner was compelled to
institute on 15 July 1997, Civil Case No. 97-84159 for specific performance and Damages before
the RTC of Manila, Branch 50, against respondent, praying mainly that she be declared as the
owner of Lot No. 2259-A.
Initial trial was conducted by the RTC in Civil Case No. 97-84159, but it was suspended due to the
retirement of the presiding judge at said court. Judge Concepcion Alarcon-Vergara took over the
case and set the same for hearing on 31 May 2000.
Unfortunately, petitioners counsel, as well as respondent and her counsel, failed to appear at the
31 May 2000 hearing.6 Judge Alarcon-Vergara then, in her Order dated 31 May 2000, dismissed
Civil Case No. 97-84159 for petitioners failure to prosecute. Judge Alarcon-Vergaras Order
reads:
Records disclose that the testimony of the plaintiff was not completed at the time this case was
scheduled for trial during the incumbency of the former Presiding Judge of Branch 50, for the
reason, as the Order states, that her lawyer was newly hired. As seen from the records, plaintiff
was not able to complete her testimony due to her own fault. The lawyer hired by her as
replacement of her former counsel entered his appearance on January 8, 1999. The initial trial at
which she testified was had on March 12, 1999, or after over two (2) months from the time her

said lawyer entered his appearance, such that the resetting of the case for the reason that her
counsel was "newly hired" appears to be unfounded. Said plaintiff complained about the alleged
inaction of the Court and even gave the impression that the Court was blameworthy when she said
that all of those who have cases in said Branch were suffering from sleepless nights, anxiety and
tension.
As soon as the Court received the referral, it lost no time in setting the case and forthwith served
the notices to both parties thru their counsel. Both lawyers had to be served notices by the Process
Server of Branch 49 as Branch 50 has not up to this issuance, been provided with a Process Server.

On 19 December 2000, RTC Branch 50 in Civil Case No. 97-84159 issued another Order which
reads:
The records show that plaintiffs counsel received a copy of the Order denying the Motion for
Reconsideration dated June 30, 2000, on September 5, 2000. Thus, plaintiff had until September
20, 2000 within which to elevate the dismissal to the higher Courts. Failing to file any appeal or
petition with the higher Courts, the dismissal had already attained finality.11
Petitioner no longer appealed the dismissal of Civil Case No. 97-84159 to the Court of Appeals.

At the scheduled trial today, plaintiff was not again ready. Plaintiff, therefore, cannot properly be
said as helping the speedy disposition of her case, much less could she complain about the delay
for which she was contributory.

Less than four years later, on 13 October 2004, petitioner filed another Complaint 12 for recovery of
share of inheritance with damages against respondent, docketed as Civil Case No. 04-111160,
which was raffled to the RTC of Manila, Branch 27.

Wherefore, for failure of plaintiff to continue with her evidence in chief today, the Court is
constrained to order her testimony thus far adduced stricken off the record and this case dismissed
for plaintiffs failure to prosecute the same.

In answer, respondent moved for the dismissal of petitioners Complaint in Civil Case No. 04111160. She set up, among others, the affirmative defense that the cause of action in Civil Case
No. 04-111160 was barred by the prior judgment in Civil Case No. 97-84159, which was
dismissed by the RTC of Manila, Branch 50, for petitioners failure to prosecute. Respondent
likewise pointed out that petitioner was actually seeking the same relief in Civil Case No. 04111160 which she had earlier sought in Civil Case No. 97-84159. Respondent claimed that way
back 15 November 1967, Ponciano and Isabel Medel sold Lot No. 2259-A to their daughter
Teodora. OCT No. 5485,13 in the name of Ponciano married to Isabel Medel, was cancelled; and a
new title, TCT No. 90423,14 was issued in favor of Teodora. On 15 December 1980, Teodora
executed a Deed of Donation15 over Lot No. 2259-A in favor of respondent. TCT No. 90423 in the
name of Teodora was subsequently cancelled and a new one, TCT No. 155290, 16 was issued to
respondent.

Let a copy of this Order be furnished the Office of the Honorable Court Administrator.7
Petitioners counsel, Atty. Jaime B. Lumasag, Jr. filed a Motion for Reconsideration 8 of the 31
May 2000 Order of the RTC in Civil Case No. 97-84159, alleging that his failure to appear at the
hearing set for that day was due to the very short notice given him. The Order setting Civil Case
No. 97-84159 for hearing on 31 May 2000 was issued by the RTC only on 26 May 2000 and was
received at Atty. Lumasags office in the afternoon of the same day. Atty. Lumasag personally
came to know of the notice of hearing in Civil Case No. 97-84159 on 30 May 2000 and the
hearing was already scheduled for the next day, 31 May 2000. 9 Unfortunately, Atty. Lumasag
already had a previous commitment to appear on the same date at the RTC of Malolos; hence, he
filed with the RTC of Manila an urgent motion to transfer the date of hearing in Civil Case No. 9784159.
Atty. Lumasag set his Motion for Reconsideration for hearing on 30 June 2000 but, unfortunately,
he came late for the said hearing.lawphil.net Judge Alarcon-Vergara immediately issued an Order
denying petitioners Motion for Reconsideration and declaring her Order dated 31 May 2000 final.
According to the RTC Order dated 30 June 2000:
Today is June 30, 2000 and it is already past 8:30 a.m. Atty. Jaime Lumasag, in plaintiffs Motion
for Reconsideration, specially the greeting portion of said motion, manifested that he will present
his oral arguments today. This was his chosen date. His failure to appear on the exact time that he
prayed in his motion for him to present his oral arguments, and considering that there was already
an order dismissing this case for failure to prosecute, the Court is constrained to order, as it is
hereby orders, the denial of said Motion for Reconsideration and this order is final.10

On 18 October 2005, Judge Teresa P. Soriaso of the RTC of Manila, Branch 27, issued an
Order17 in Civil Case No. 04-111160 denying the Motion to dismiss filed by the respondent which
states:
Considering that the Order dated October 10, 2005 was an inadvertence as it ordered another
hearing on the affirmative defense on October 14, 2005 when one had already been made on July
22, 2005 and considering further that the assertions in the motions are evidentiary in nature and,
therefore, will require a full-blown hearing before the same could properly be determined by the
Court, the motion to dismiss (Affirmative Defenses) is denied.
Set this case for Pre-Trial on October 28, 2005 at 8:30 a.m.18
In another Order dated 1 August 2006, 19 Judge Soriaso denied respondents Motion for
Reconsideration of her 18 October 2005 Order.

Respondent filed before the Court of Appeals a Petition for Certiorari 20 under Rule 65 with prayer
for issuance of Temporary Restraining Order, docketed as CA-G.R. SP No. 96790. Respondent
assailed in her Petition the Orders dated 18 October 2005 and 1 August 2006 of Judge Soriaso
refusing to dismiss Civil Case No. 04-111160.
On 31 May 2007, the Court of Appeals promulgated its Decision sustaining respondents position
as follows:
There is no question that the parties, subject matter and causes of action in the prior action, Civil
Case No. 97-84159 and the present action, Civil Case No. 04-111160 are the same or at least
identical. Furthermore, the dismissal of [herein petitioners] first complaint in Civil Case No. 9784159 for failure to prosecute was not appealed, hence, it became final and executory several
years before [petitioner] filed her second complaint. The dismissal of the first complaint had, as
Rule 17, Section 3 clearly provides, the effect of an adjudication upon the merits, the RTC
Branch 50, not having declared otherwise.21
The Court of Appeals, thus, decreed:
WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The 18 October 2005
and 01 August 2006 Orders of the Regional Trial Court of Manila, Branch 27 in Civil Case No.
04-111160 are REVERSED and SET ASIDE.
Accordingly, Civil Case No. 04-111160 is hereby DISMISSED on the ground of res judicata.22
Petitioner is presently before this Court raising the following issues:
A.
WHETHER OR NOT THE PRINCIPLE OF RES JUDICATA APPLIED IN THE PRESENT
CASE CONSIDERING THAT THERE WAS NO TRIAL ON THE MERITS IN THE PRIOR
ACTION, CIVIL CASE NO. 97-84159, BUT THE SAME WAS DISMISSED DUE TO
TECHNICALITY.
B.
WHETHER OR NOT PETITIONER WAS DEPRIVED OF HER DAY IN COURT WHEN SHE
WAS PREVENTED FROM PRESENTING HER CASE DUE TO THE GROSS NEGLIGENCE
OF HER FORMER COUNSEL.23
The relevant rule in this case is Section 3, Rule 17 of the Rules of Court, which provides:
SEC. 3. Dismissal due to fault of plaintiff. If, for no justifiable cause, the plaintiff fails to
appear on the date of the presentation of his evidence in chief on the complaint, or to prosecute his

action for an unreasonable length of time, or to comply with these Rules or any order of the court,
the complaint may be dismissed upon motion of the defendant or upon the courts own motion,
without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a
separate action. This dismissal shall have the effect of an adjudication upon the merits, unless
otherwise declared by the court.
The afore-quoted provision enumerates the instances when a complaint may be dismissed due to
the plaintiff's fault: (1) if he fails to appear on the date for the presentation of his evidence in chief
on the complaint; (2) if he fails to prosecute his action for an unreasonable length of time; or (3) if
he fails to comply with the Rules or any order of the court. The dismissal of a case for failure to
prosecute has the effect of adjudication on the merits, and is necessarily understood to be with
prejudice to the filing of another action, unless otherwise provided in the order of dismissal. Stated
differently, the general rule is that dismissal of a case for failure to prosecute is to be regarded as
an adjudication on the merits and with prejudice to the filing of another action, and the only
exception is when the order of dismissal expressly contains a qualification that the dismissal is
without prejudice.
It is clear from the Order dated 31 May 2000 that Civil Case No. 97-84159 was dismissed by the
RTC of Manila, Branch 50, motu proprio, for failure of petitioner and her counsel to attend the
scheduled hearing on said date. Since the order of dismissal did not contain any qualification
whatsoever, the general rule under Section 3, Rule 17 of the Rules of Court shall apply and it shall
be deemed to be an adjudication on the merits and with prejudice to the filing of another action.24
This Court is not unaware that, although the dismissal of a case for failure to prosecute is a matter
addressed to the sound discretion of the court, that judgment, however, must not be abused. The
availability of this recourse must be determined according to the procedural history of each case,
the situation at the time of the dismissal, and the diligence of the plaintiff to proceed therein.
Stress must also be laid upon the official directive that courts must endeavor to convince parties in
a civil case to consummate a fair settlement and to mitigate damages to be paid by the losing party
who has shown a sincere desire for such give-and-take.25
Truly, the Court has held in the past that a court may dismiss a case on the ground of non
prosequitur, but the real test of the judicious exercise of such power is whether, under the
circumstances, plaintiff is chargeable with want of fitting assiduousness in not acting on his
complaint with reasonable promptitude. Unless a party's conduct is so indifferent, irresponsible,
contumacious or slothful as to provide substantial grounds for dismissal, i.e., equivalent to default
or non-appearance in the case, the courts should consider lesser sanctions which would still
amount to achieving the desired end. In the absence of a pattern or scheme to delay the disposition
of the case or of a wanton failure to observe the mandatory requirement of the rules on the part of
the plaintiff, as in the case at bar, courts should decide to dispense with rather than wield their
authority to dismiss.26
Nonetheless, the Court can no longer delve into the legality and validity of the Order dated 31
May 2000 of the RTC of Manila, Branch 50, dismissing Civil Case No. 97-84159 for petitioners

failure to prosecute. Petitioner no longer appealed the denial of her Motion for Reconsideration of
the said order of dismissal, thus, allowing it to become final and executory. Having failed to
appeal from that judgment, petitioner may not abuse court processes by re-filing the same case to
obviate the conclusive effects of dismissal. It now operates as res judicata. 27

plaintiff as the court. It must be remembered that a defendant in a case likewise has the right to the
speedy disposition of the action filed against him considering that any delay in the proceedings
entail prolonged anxiety and valuable time wasted.
xxxx

Based on the principle of res judicata, the petitioner is barred in another action (involving the same
subject matter, parties and issues) from raising a defense and from asking for a relief inconsistent
with an order dismissing an earlier case with prejudice.28
The requisites for res judicata to apply are: (1) the former judgment must be final; (2) the court
which rendered said judgment or Order must have jurisdiction over the subject matter and the
parties; (3) said judgment or order must be on the merits; and (4) there must be, between the first
and second actions, identity of parties, subject matter and cause of action.
All the requisites of res judicata are present in this case.
For petitioners failure to file an appeal from the order of dismissal dated 31 May 2000 by the
RTC in Civil Case No. 97-84159, the order attained finality. The jurisdiction of the trial court to
issue the order of dismissal is not in issue in this case. The order of dismissal in Civil Case No. 9784159 is considered an adjudication on the merits applying Rule 17, Section 3 of the Rules of
Court. There is no question that both Civil Case No. 04-111160 and Civil Case No. 97-84159
involved the same parties, subject matter and cause of action. Civil Case No. 97-84159 and Civil
Case No. 04-111160 indubitably involve the same parties, herein petitioner and respondent. Both
cases likewise revolve around the dispute between petitioner and respondent over Lot No. 2259-A.
Reliefs29 sought by petitioner in both complaints are also identical and are not lost to this Court.
To allow Civil Case No. 04-111160 is to effectively reinstate Civil Case No. 97-84159,
consequently circumventing the final order dismissing the latter case with prejudice.

Petitioners had the opportunity to present their case and claim the relief they seek. But their
inadvertence and lack of circumspect renders the trial court's order dismissing their case final and
executory.
In the fairly recent case of Pasiona, Jr. v. Court of Appeals,31 this Court struck down the argument
that the aggrieved parties were denied due process of law, because they had the opportunity to be
heard at some point in the proceedings, even if they had not been able to fully exhaust all the
remedies available by reason of their counsel's negligence or mistake. Thus, in Dela Cruz v.
Andres,32 the Court held that "where a party was given the opportunity to defend his interests in
due course, he cannot be said to have been denied due process of law, for this opportunity to be
heard is the essence of due process." In the earlier case of Producers Bank of the Philippines v.
Court of Appeals,33 the decision of the trial court attained finality by reason of counsel's failure to
timely file a notice of appeal, and such negligence did not deprive petitioner of due process of law.
As elucidated by the Court in said case, to wit:
"The essence of due process is to be found in the reasonable opportunity to be heard and submit
any evidence one may have in support of one's defense. x x x. Where opportunity to be heard,
either through oral arguments or pleadings, is accorded, there is no denial of due process."
Verily, so long as a party is given the opportunity to advocate her cause or defend her interest in
due course, it cannot be said that there was denial of due process. x x x. (Emphases supplied.)
Also, in Victory Liner, Inc. v. Gammad,34 the Court held that:

Lastly, petitioner cannot claim that she was deprived of due process with the dismissal of Civil
Case No. 04-111160. The right to due process safeguards the opportunity to be heard and to submit
any evidence one may have in support of his claim or defense. Petitioner had the opportunity to be
heard and submit evidence when she filed her first case, Civil Case No. 97-84159. Unfortunately,
petitioner and her counsel failed to make use of the said opportunity, therefore losing the same due
to their lack of diligence. It must be emphasized that the court is also duty-bound to protect the
right of respondent to a just and speedy resolution of the case against her.
In Ko v. Philippine National Bank,30 this Court upheld the dismissal of the complaint on the
ground of lack of interest to prosecute for failure of therein petitioner and the latters counsel to
attend a scheduled trial. The Court explained therein that:
In every action, the plaintiff is duty-bound to prosecute the same with utmost diligence and with
reasonable dispatch to enable him to obtain the relief prayed for and, at the same time, minimize
the clogging of the court dockets. The expeditious disposition of cases is as much the duty of the

The question is not whether petitioner succeeded in defending its rights and interests, but simply,
whether it had the opportunity to present its side of the controversy. x x x. (Emphasis supplied.)
Wherefore, premises considered, the instant Petition is denied for lack of merit and the Decision
dated 31 May 2007 and Resolution dated 28 August 2007 of the Court of Appeals in CA-G.R. SP
No. 96790 are affirmed. Costs against the petitioner.
SO ORDERED.

3.

G.R. No. 182507

June 18, 2010

PHILIPPINE
NATIONAL
BANK, Petitioner,
vs.
THE INTESTATE ESTATE OF FRANCISCO DE GUZMAN, represented by HIS HEIRS:
ROSALIA, ELEUTERIO, JOE, ERNESTO, HARRISON, ALL SURNAMED DE
GUZMAN; and GINA DE GUZMAN,Respondents.
DECISION
NACHURA, J.:
Litigants should not be allowed to file identical motions repeatedly, speculating on the possible
change of opinion of the court or of its judges. 1 We emphasize this principle in the present case
and warn the parties to desist from the practice of filing several motions to dismiss which allege
the same ground.
This is a petition for review on certiorari of Court of Appeals (CA) Decision 2 dated October 22,
2007 and Resolution3 dated April 14, 2008, which affirmed the denial of petitioners motion to
dismiss.
Respondent Gina de Guzman obtained a P300,000.00 loan from petitioner, Philippine National
Bank, secured by a real estate mortgage over a parcel of land registered in her name. Gina
acquired the property from her father, Francisco de Guzman, through a Deed of Absolute Sale
dated August 28, 1978. Ginas sister, Rosalia de Guzman, the beneficiary of the family home
standing on the said lot, gave her consent to the mortgage.
Later, Rosalia filed a Complaint for Declaration of Nullity of Document, Cancellation of Title,
Reconveyance, Cancellation of Mortgage, and Damages 4 against Gina and petitioner, alleging that
the purported sale of the property by Francisco to Gina was fraudulent. The Complaint was then
amended to replace respondent Intestate Estate of Francisco de Guzman as plaintiff. 5
On January 21, 1999, the Regional Trial Court (RTC) dismissed the case due to plaintiffs failure
to comply with its order to pay the legal fees so that alias summons could be served, thus:
A review of the records discloses that the plaintiffs failed to comply, despite due notice, with the
order of this court dated November 17, 1998, as indicated in the registry return cards addressed to
plaintiff Rosalia de Guzman-Poyaoan and her counsel as attached at the dorsal side of said order.
WHEREFORE, this court is constrained to dismiss this case on the ground that plaintiffs failed to
comply with the aforementioned order to pay legal fees to the Clerk of Court within five (5) days
from receipt of the order so that an alias summons can be served by the sheriff of this court to

defendant Gina de Guzman at her new address in Metro Manila, in consonance with Section 3,
Rule 17 of the 1997 Rules of Civil Procedure.
SO ORDERED.6
No appeal was taken from this order; hence, the dismissal became final and executory.
Thereafter, on April 11, 2000, respondent Intestate Estate filed another Complaint, 7 also for
Declaration of Nullity of Documents, Cancellation of Title, Reconveyance, Cancellation of
Mortgage, and Damages, against Gina and petitioner, with essentially the same allegations as the
former Complaint.
On June 1, 2000, petitioner filed a Motion to Dismiss 8 on the ground of res judicata, alleging that
the Complaint is barred by prior judgment. In an Order 9 dated October 2, 2000, the RTC denied
the motion. The court ruled that, since there was no determination of the merits of the first case,
the filing of the second Complaint was not barred by res judicata. It also held that courts should
not be unduly strict in cases involving procedural lapses that do not really impair the proper
administration of justice.
On October 25, 2000, petitioner filed a Second Motion to Dismiss 10 on the ground of forum
shopping. Petitioner argued that respondent Intestate Estate violated the rule against forumshopping when it filed the Complaint despite knowing that a similar Complaint had been
previously dismissed by the court.
The RTC, in an Order11 dated March 13, 2001, denied the motion for lack of merit, and petitioner
was directed to file its answer within five days. The court said that there was forum-shopping if a
final judgment in one case would amount to res judicata in another case, and since it had already
ruled in its previous order that the dismissal of the first complaint did not constitute res judicata,
respondents were not guilty of forum-shopping.
Petitioner filed another Motion to Dismiss, raising the same ground, which was denied by the RTC
in an Order dated May 31, 2001.12
Petitioner then filed an Omnibus Motion for Reconsideration 13 of the three RTC Orders, this time,
raising the following grounds: (a) res judicata; (b) forum-shopping; (c) lack of jurisdiction over
the person; and (d) complaint states no cause of action.
On January 15, 2002, the RTC denied the omnibus motion for lack of merit and gave petitioner
five days within which to file its answer. The court held that the motion contained a mere rehash
of the arguments raised in the three earlier Motions to Dismiss which had already been passed
upon by the court in its three Orders and which contributed to the undue delay in the disposition of
the case.14

Finally, petitioner filed an Answer15 to the Complaint on February 19, 2002, again raising therein
the issue of res judicata. Thereafter, the case was set for pre-trial.1avvphi1
Three years later, specifically on February 15, 2005, petitioner filed another Motion to
Dismiss16 with leave of court, alleging res judicata and forum-shopping.
On October 4, 2005, the RTC issued an Order17 denying the Motion to Dismiss, declaring:
WHEREFORE, in view of the foregoing, the Motion to Dismiss is hereby DENIED.
No further Motion to Dismiss shall be entertained by this Court. Parties are directed to prosecute
this case with dispatch.
Set the cross-examination of plaintiff Rosalia de Guzman Poyaoan on November 18, 2005 at 8:30
oclock in the morning.
SO ORDERED.18
On November 6, 2006, the RTC denied petitioners motion for reconsideration.
Petitioner filed a petition for certiorari with the CA, assailing these Orders. On October 22, 2007,
the CA denied the petition, ruling in this wise:
WHEREFORE, the instant petition is hereby DENIED. ACCORDINGLY, the assailed Orders of
Branch 57, Regional Trial Court of San Carlos City, Pangasinan dated 4 October 2005 and 6
November 2006, respectively, are AFFIRMED.
SO ORDERED.19
On April 14, 2008, the CA denied petitioners motion for reconsideration.20
Petitioner then filed this petition for review on certiorari, raising the following issues:
The Court of Appeals erred in holding that an element of res judicata, i.e., that the disposition of
the case must be a judgment or order on the merits is absent in the case.
The Court of Appeals erred when it ruled that res judicata has not set in so as to bar the filing of
the second case.
The Court of Appeals erred in holding that the respondent had not violated the rule against forumshopping.21

The petition has no merit.

The Court finds insufferable petitioners repeated filing of Motions to Dismiss raising the same
ground. In the three previous Motions to Dismiss and in an omnibus motion for reconsideration,
petitioner argued that the present case was barred by prior judgment and that there was forumshopping. Correspondingly, the issues had been repetitively passed upon and resolved by the court
a quo.
The motions were apparently filed for no other reason than to gain time and gamble on a possible
change of opinion of the court or the judge sitting on the case. The Motions to Dismiss were filed
in a span of five years, the first one having been filed on June 1, 2000 and the last the subject
motion on February 15, 2005, three years after petitioner filed its answer. In fact, since the first
Motion to Dismiss, three judges had already sat on the case and resolved the motions. By filing
these motions, petitioner had disrupted the courts deliberation on the merits of the case. This
strategy cannot be tolerated as it will entail inevitable delay in the disposition of the case.
Although the ground stated in the second Motion to Dismiss was forum-shopping and the
subsequent motions included other grounds, nonetheless, all of these motions raised a similar
argumentthat since the dismissal in the first case is already final and executory and there is no
reservation made by the court in its judgment that the dismissal is without prejudice, the filing of
the second case is barred. Therefore, the subsequent motions, being reiterations of the first motion,
technically partook of the nature of a motion for reconsideration of the interlocutory order denying
the first Motion to Dismiss.
This is not the first time that the Court disallowed the repetitive filing of identical motions against
an interlocutory order. In a parallel case, San Juan, Jr. v. Cruz, 22 the Court acknowledged that there
is actually no rule prohibiting the filing of a pro forma motion against an interlocutory order as the
prohibition applies only to a final resolution or order of the court. The Court held, nonetheless,
that a second motion can be denied on the ground that it is merely a rehash or a mere reiteration of
the grounds and arguments already passed upon and resolved by the court.
In San Juan, the Court was also confronted with the question of when the reglementary period for
filing a petition for certiorari shall be reckoned. Petitioner therein filed second and third motions
for reconsideration from the interlocutory order and when he filed the petition for certiorari with
the CA, he counted the 60-day reglementary period from the notice of denial of his third motion
for reconsideration. He argued that, since there is no rule prohibiting the filing of a second or third
motion for reconsideration of an interlocutory order, the 60-day period should be counted from the
notice of denial of the last motion for reconsideration. Having declared that the filing of a second
motion for reconsideration that merely reiterates the arguments in the first motion is subject to
denial, the Court held that the 60-day period for filing a petition for certiorari shall be reckoned
from the trial courts denial of the first motion for reconsideration, otherwise, indefinite delays
will ensue.

Applying the ruling in San Juan, the petition for certiorari was evidently filed out of time, as its
filing was reckoned from the denial of the last motion. The subject Motion to Dismiss was filed in
an attempt to resurrect the remedy of a petition for certiorari, which had been lost long before its
filing.
In any case, we agree with the CAs conclusion that the trial court did not commit grave abuse of
discretion in denying petitioners Motion to Dismiss. However, we do not agree that the judgment
of dismissal in the first case was not on the merits. A ruling on a motion to dismiss, issued without
trial on the merits or formal presentation of evidence, can still be a judgment on the
merits.23 Section 324 of Rule 17 of the Rules of Court is explicit that a dismissal for failure to
comply with an order of the court shall have the effect of an adjudication upon the merits. In other
words, unless the court states that the dismissal is without prejudice, the dismissal should be
understood as an adjudication on the merits and is with prejudice.25
Nonetheless, bearing in mind the circumstances obtaining in this case, we hold that res judicata
should not be applied as it would not serve the interest of substantial justice. Proceedings on the
case had already been delayed by petitioner, and it is only fair that the case be allowed to proceed
and be resolved on the merits. Indeed, we have held that res judicata is to be disregarded if its rigid
application would involve the sacrifice of justice to technicality,26 particularly in this case where
there was actually no determination of the substantive issues in the first case and what is at stake is
respondents home.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision
dated October 22, 2007 and Resolution dated April 14, 2008 are AFFIRMED. Costs against
petitioner. The trial court is DIRECTED to proceed with the trial of the case, and to resolve the
same with dispatch.
SO ORDERED.

4.

G.R. No. 170354

June 30, 2006

EDGARDO
vs.
THE
HEIRS
OF
GERMAN,
SANTIAGO, Respondents.

PINGA, Petitioner,
SANTIAGO

represented

by

FERNANDO

DECISION
TINGA, J.:
The constitutional faculty of the Court to promulgate rules of practice and procedure 1 necessarily
carries the power to overturn judicial precedents on points of remedial law through the amendment
of the Rules of Court. One of the notable changes introduced in the 1997 Rules of Civil Procedure
is the explicit proviso that if a complaint is dismissed due to fault of the plaintiff, such dismissal is
"without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a
separate action."2 The innovation was instituted in spite of previous jurisprudence holding that the
fact of the dismissal of the complaint was sufficient to justify the dismissal as well of the
compulsory counterclaim.3
In granting this petition, the Court recognizes that the former jurisprudential rule can no longer
stand in light of Section 3, Rule 17 of the 1997 Rules of Civil Procedure.
The relevant facts are simple enough. Petitioner Eduardo Pinga was named as one of two
defendants in a complaint for injunction4 filed with Branch 29 of the Regional Trial Court
(RTC)5 of San Miguel, Zamboanga del Sur, by respondent Heirs of German Santiago, represented
by Fernando Santiago. The Complaint6 dated 28 May 1998 alleged in essence that petitioner and
co-defendant Vicente Saavedra had been unlawfully entering the coco lands of the respondent,
cutting wood and bamboos and harvesting the fruits of the coconut trees therein. Respondents
prayed that petitioner and Saavedra be enjoined from committing "acts of depredation" on their
properties, and ordered to pay damages.
In their Amended Answer with Counterclaim, 7 petitioner and his co-defendant disputed
respondents ownership of the properties in question, asserting that petitioners father, Edmundo
Pinga, from whom defendants derived their interest in the properties, had been in possession
thereof since the 1930s.8 They alleged that as far back as 1968, respondents had already been
ordered ejected from the properties after a complaint for forcible entry was filed by the heirs of
Edmundo Pinga. It was further claimed that respondents application for free patent over the
properties was rejected by the Office of the President in 1971. Defendants in turn prayed that
owing to respondents forcible re-entry in the properties and the irresponsible and reckless filing of
the case, they be awarded various types of damages instead in amounts totaling P2,100,000 plus
costs of suit.9

By July of 2005, the trial of the case had not yet been completed. Moreover, respondents, as
plaintiffs, had failed to present their evidence. It appears that on 25 October 2004, the RTC already
ordered the dismissal of the complaint after respondents counsel had sought the postponement of
the hearing scheduled then.10 However, the order of dismissal was subsequently reconsidered by
the RTC in an Order dated 9 June 2005, which took into account the assurance of respondents
counsel that he would give priority to that case.11
At the hearing of 27 July 2005, plaintiffs counsel on record failed to appear, sending in his stead a
representative who sought the postponement of the hearing. Counsel for defendants (who include
herein petitioner) opposed the move for postponement and moved instead for the dismissal of the
case. The RTC noted that it was obvious that respondents had failed to prosecute the case for an
unreasonable length of time, in fact not having presented their evidence yet. On that ground, the
complaint was dismissed. At the same time, the RTC allowed defendants "to present their evidence
ex-parte."12
Respondents filed a Motion for Reconsideration13 of the order issued in open court on 27 July
2005, opting however not to seek that their complaint be reinstated, but praying instead that the
entire action be dismissed and petitioner be disallowed from presenting evidence ex-parte.
Respondents claimed that the order of the RTC allowing petitioner to present evidence exparte was not in accord with established jurisprudence. They cited cases, particularly City of
Manila v. Ruymann14 and Domingo v. Santos,15 which noted those instances in which a
counterclaim could not remain pending for independent adjudication.
On 9 August 2005, the RTC promulgated an order granting respondents Motion for
Reconsideration and dismissing the counterclaim, citing as the only ground therefor that "there is
no opposition to the Motion for Reconsideration of the [respondents]." 16 Petitioner filed a Motion
for Reconsideration, but the same was denied by the RTC in an Order dated 10 October
2005.17 Notably, respondents filed an Opposition to Defendants Urgent Motion for
Reconsideration, wherein they argued that the prevailing jurisprudential rule 18 is that "compulsory
counterclaims cannot be adjudicated independently of plaintiffs cause of action," and "a
conversu, the dismissal of the complaint carries with it the dismissal of the compulsory
counterclaims."19
The matter was elevated to this Court directly by way of a Petition for Review under Rule 45 on a
pure question of law, the most relevant being whether the dismissal of the complaint necessarily
carries the dismissal of the compulsory counterclaim.
We hold that under Section 3, Rule 17 of the 1997 Rules of Civil Procedure, the dismissal of the
complaint due to the fault of plaintiff does not necessarily carry with it the dismissal of the
counterclaim, compulsory or otherwise. In fact, the dismissal of the complaint is without prejudice
to the right of defendants to prosecute the counterclaim.

On a prefatory note, the RTC, in dismissing the counterclaim, did not expressly adopt respondents
argument that the dismissal of their complaint extended as well to the counterclaim. Instead, the
RTC justified the dismissal of the counterclaim on the ground that "there is no opposition to
[plaintiffs] Motion for Reconsideration [seeking the dismissal of the counterclaim]." 20 This
explanation is hollow, considering that there is no mandatory rule requiring that an opposition be
filed to a motion for reconsideration without need for a court order to that effect; and, as posited
by petitioner, the "failure to file an opposition to the Plaintiffs Motion for Reconsideration is
definitely not one among the established grounds for dismissal [of the counterclaim]." 21 Still, the
dismissal of the counterclaim by the RTC betrays at very least a tacit recognition of respondents
argument that the counterclaim did not survive the dismissal of the complaint. At most, the
dismissal of the counterclaim over the objection of the defendant (herein petitioner) on grounds
other than the merits of the counterclaim, despite the provisions under Rule 17 of the 1997 Rules
of Civil Procedure, constitutes a debatable question of law, presently meriting justiciability
through the instant action. Indeed, in reviewing the assailed orders of the RTC, it is inevitable that
the Court consider whether the dismissal of the complaint, upon motion of the defendant, on the
ground of the failure to prosecute on plaintiffs part precipitates or carries with it the dismissal of
the pending counterclaims.
Our core discussion begins with Section 3, Rule 17 of the 1997 Rules of Civil Procedure, which
states:
SEC. 3. Dismissal due to fault of plaintiff.If, for no justifiable cause, the plaintiff fails to appear
on the date of the presentation of his evidence in chief on the complaint, or to prosecute his action
for an unreasonable length of time, or to comply with these Rules or any order of the court, the
complaint may be dismissed upon motion of defendant or upon the court's own motion, without
prejudice to the right of the defendant to prosecute his counterclaim in the same or in a separate
action. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise
declared by the court.
The express qualification in the provision that the dismissal of the complaint due to the plaintiffs
fault, as in the case for failure to prosecute, is without prejudice to the right of the defendant to
prosecute his counterclaim in the same or separate action. This stands in marked contrast to the
provisions under Rule 17 of the 1964 Rules of Court which were superseded by the 1997
amendments. In the 1964 Rules, dismissals due to failure to prosecute were governed by Section
3, Rule 17, to wit:

as "the nagging question of whether or not the dismissal of the complaint carries with it the
dismissal of the counterclaim."22 Jurisprudence construing the previous Rules was hardly silent on
the matter.
In their arguments before the RTC on the dismissal of the counterclaim, respondents cited in
support City of Manila v.
Ruymann,23 Domingo v. Santos,24 Belleza v. Huntington,25 and Froilan v. Pan Oriental Shipping
Co.,26 all of which were decided more than five decades ago. Notably though, none of the
complaints in these four cases were dismissed either due to the fault of the plaintiff or upon the
instance of the defendant.27
The distinction is relevant, for under the previous and current incarnations of the Rules of Civil
Procedure, it is Section 3, Rule 17 that governs the dismissals due to the failure of the plaintiff to
prosecute the complaint, as had happened in the case at bar. Otherwise, it is Section 2, Rule 17,
which then, and still is now, covered dismissals ordered by the trial court upon the instance of the
plaintiff.28 Yet, as will be seen in the foregoing discussion, a discussion of Section 2 cannot be
avoided as the postulate behind that provision was eventually extended as well in cases that should
have properly been governed by Section 3.
Even though the cases cited by respondents involved different factual antecedents, there exists
more appropriate precedents which they could have cited in support of their claim that the
counterclaim should have been dismissed even if the dismissal of the complaint was upon the
defendants motion and was predicated on the plaintiffs fault.BA Finance Corp. v.
Co29 particularly stands out in that regard, although that ruling is itself grounded on other
precedents as well. Elucidation of these cases is in order.
On the general effect of the dismissal of a complaint, regardless of cause, on the pending
counterclaims, previous jurisprudence laid emphasis on whether the counterclaim was compulsory
or permissive in character. The necessity of such distinction was provided in the 1964 Rules itself,
particularly Section 2, Rule 17, which stated that in instances wherein the plaintiff seeks the
dismissal of the complaint, "if a counterclaim has been pleaded by a defendant prior to the service
upon him of the plaintiffs motion to dismiss, the action shall not be dismissed against the
defendants objection unless the counterclaim can remain pending for independent adjudication by
the court."30 The

SEC. 3. Failure to prosecute. If plaintiff fails to appear at the time of the trial, or to prosecute
his action for an unreasonable length of time, or to comply with these rules or any order of the
court, the action may be dismissed upon motion of the defendant or upon the courts own motion.
This dismissal shall have the effect of an adjudication upon the merits, unless otherwise provided
by court.

vaunted commentaries of Chief Justice Moran, remarking on Section 2, Rule 17, noted that
"[t]here are instances in which a counterclaim cannot remain pending for independent
adjudication, as, where it arises out of, or is necessarily connected with, the transaction or
occurrence which is the subject matter of the opposing partys claim."31

Evidently, the old rule was silent on the effect of such dismissal due to failure to prosecute on the
pending counterclaims. As a result, there arose what one authority on remedial law characterized

This view expressed in Morans Commentaries was adopted by the Court in cases where the
application of Section 2, Rule 17 of the 1964 Rules of Court was called for, such as in Lim Tanhu
v. Ramolete,32 and Dalman v. City Court of Dipolog City.33 The latter case warrants brief

elaboration. Therein, the plaintiff in a civil case for damages moved for the withdrawal of her own
case on the ground that the dispute had not been referred to the barangay council as required by
law. Over the objection of the defendant, who feared that her own counterclaim would be
prejudiced by the dismissal, plaintiffs motion was granted, the complaint and the counterclaim
accordingly dismissed by the trial court. The Court refused to reinstate the counterclaim, opining
without elaboration, "[i]f the civil case is dismissed, so also is the counterclaim filed
therein."34 The broad nature of that statement gave rise to the notion that the mandatory
dismissal of the counterclaim upon dismissal of the complaint applied regardless of the cause of
the complaints dismissal.35
Notably, the qualification concerning compulsory counterclaims was provided in Section 2, Rule
17 of the 1964 Rules, the provision governing dismissals by order of the court, and not Section 3,
Rule 17. As stated earlier, Section 3, which covered dismissals for failure to prosecute upon
motion of the defendant or upon motu proprioaction of the trial court, was silent on the effect on
the counterclaim of dismissals of such nature.
Spouses Sta. Maria, Jr. v. Court of Appeals,36 decided in 1972, ostensibly supplied the gap on the
effect on the counterclaim of complaints dismissed under Section 3. The defendants therein
successfully moved before the trial court for the dismissal of the complaint without prejudice and
their declaration in default on the counterclaim after plaintiffs therein failed to attend the pre-trial.
After favorable judgment was rendered on the counterclaim, plaintiffs interposed an appeal, citing
among other grounds, that the counterclaim could no longer have been heard after the dismissal of
the complaint. While the Court noted that the adjudication of the counterclaim in question "does
not depend upon the adjudication of the claims made in the complaint since they were virtually
abandoned by the non-appearance of the plaintiffs themselves," it was also added that "[t]he
doctrine invoked is not available to plaintiffs like the petitioners, who prevent or delay the hearing
of their own claims and allegations."37 The Court, through Justice JBL Reyes, noted:

defendant as well. Two decisions from that period stand out in this regard,Metals Engineering
Resources Corp. v. Court of Appeals40 and International Container Terminal Services v. Court of
Appeals.41
In Metals, the complaint was expunged from the record after the defendant had filed a motion for
reconsideration of a trial court order allowing the filing of an amended complaint that corrected a
jurisdictional error in the original complaint pertaining to the specification of the amount of
damages sought. When the defendant was nonetheless allowed to present evidence on the
counterclaim, the plaintiff assailed such allowance on the ground that the counterclaim was
compulsory and could no longer remain pending for independent adjudication. The Court, in
finding for the plaintiff, noted that the counterclaim was indeed compulsory in nature, and as such,
was auxiliary to the proceeding in the original suit and derived its jurisdictional support
therefrom.42 It was further explained that the doctrine was in consonance with the primary
objective of a counterclaim, which was to avoid and prevent circuitry of action by allowing the
entire controversy between the parties to be litigated and finally determined in one action, and to
discourage multiplicity of suits.43 Also, the Court noted that since the complaint was dismissed for
lack of jurisdiction, it was as if no claim was filed against the defendant, and there was thus no
more leg for the complaint to stand on.44
In International Container, the defendant filed a motion to dismiss which was granted by the trial
court. The defendants counterclaim was dismissed as well. The Court summarized the key
question as "what is the effect of the dismissal of a complaint ordered at the instance of the
defendant upon a compulsory counterclaim duly raised in its answer." 45 Then it ruled that the
counterclaim did not survive such dismissal. After classifying the counterclaim therein as
compulsory, the Court noted that "[i]t is obvious from the very nature of the counterclaim that it
could not remain pending for independent adjudication, that is, without adjudication by the court
of the complaint itself on which the counterclaim was based."46

The doctrine that the complaint may not be dismissed if the counterclaim cannot be
independently adjudicated is not available to, and was not intended for the benefit of, a
plaintiff who prevents or delays the prosecution of his own complaint. Otherwise, the trial of
counterclaims would be made to depend upon the maneuvers of the plaintiff, and the rule would
offer a premium to vexing or delaying tactics to the prejudice of the counterclaimants. It is in the
same spirit that we have ruled that a complaint may not be withdrawn over the opposition of the
defendant where the counterclaim is one that arises from, or is necessarily connected with, the
plaintiffs action and cannot remain pending for independent adjudication.38

Then in 1993, a divided Court ruled in BA Finance that the dismissal of the complaint for
nonappearance of plaintiff at the pre-trial, upon motion of the defendants, carried with it the
dismissal of their compulsory counterclaim. 47The Court reiterated the rule that "a compulsory
counterclaim cannot remain pending for independent adjudication by the court as it is auxiliary
to the proceeding in the original suit and merely derives its jurisdictional support
therefrom."48 Express reliance was made on Metals, International Container, and even Dalman in
support of the majoritys thesis. BA Finance likewise advised that the proper remedy for
defendants desirous that their counterclaims not be dismissed along with the main complaint was
for them to move to declare the plaintiffs to be "non-suited" on their complaint and "as in default"
on their compulsory counterclaim, instead of moving for the dismissal of the complaint. 49

There is no doubt that under the 1964 Rules, the dismissal of a complaint due to the failure of the
plaintiff to appear during pre-trial, as what had happened in Sta. Maria, fell within the coverage of
Section 3, Rule 17. On the other hand, Section 2 was clearly limited in scope to those dismissals
sustained at the instance of the plaintiff. 39Nonetheless, by the early 1990s, jurisprudence was
settling on a rule that compulsory counterclaims were necessarily terminated upon the dismissal of
the complaint not only if such dismissal was upon motion of the plaintiff, but at the instance of the

Justice Regalado, joined by Chief Justice Narvasa, registered a strong objection to the theory of
the majority. They agreed that the trial court could no longer hear the counterclaim, but only on
the ground that defendants motion to be allowed to present evidence on the counterclaim was
filed after the order dismissing the complaint had already become final. They disagreed however
that the compulsory counterclaim was necessarily dismissed along with the main complaint,

pointing out that a situation wherein the dismissal of the complaint was occasioned by plaintiffs
failure to appear during pre-trial was governed under Section 3, Rule 17, and not Section 2 of the
same rule. Justice Regalado, who ironically penned the decision in Metals cited by the majority,
explained:
Turning back to Rule 17, it is readily apparent that Sections 2 and 3 thereof envisage different
factual and adjective situations. The dismissal of the complaint under Section 2 is at the instance
of plaintiff, for whatever reason he is minded to move for such dismissal, and, as a matter of
procedure, is without prejudice unless otherwise stated in the order of the court or, for that matter,
in plaintiff's motion to dismiss his own complaint. By reason thereof, to curb any dubious or
frivolous strategy of plaintiff for his benefit or to obviate possible prejudice to defendant, the
former may not dismiss his complaint over the defendant's objection if the latter has a compulsory
counterclaim since said counterclaim would necessarily be divested of juridical basis and
defendant would be deprived of possible recovery thereon in that same judicial proceeding.
Section 3, on the other hand, contemplates a dismissal not procured by plaintiff, albeit justified by
causes imputable to him and which, in the present case, was petitioner's failure to appear at the
pre-trial. This situation is also covered by Section 3, as extended by judicial interpretation, and is
ordered upon motion of defendant or motu proprio by the court. Here, the issue of whether
defendant has a pending counterclaim, permissive or compulsory, is not of determinative
significance. The dismissal of plaintiff's complaint is evidently a confirmation of the failure of
evidence to prove his cause of action outlined therein, hence the dismissal is considered, as a
matter of evidence, an adjudication on the merits. This does not, however, mean that there is
likewise such absence of evidence to prove defendant's counterclaim although the same arises out
of the subject matter of the complaint which was merely terminated for lack of proof. To hold
otherwise would not only work injustice to defendant but would be reading a further provision into
Section 3 and wresting a meaning therefrom although neither exists even by mere implication.
Thus understood, the complaint can accordingly be dismissed, but relief can nevertheless be
granted as a matter of course to defendant on his counterclaim as alleged and proved, with or
without any reservation therefor on his part, unless from his conduct, express or implied, he has
virtually consented to the concomitant dismissal of his counterclaim.50
Justice Regalado also adverted to Sta. Maria and noted that the objections raised and rejected by
the Court therein were the same as those now relied upon by the plaintiff. He pointed out
that Dalman and International Container, both relied upon by the majority, involved the
application of Section 2, Rule 17 and not Section 3, which he insisted as the applicable provision
in the case at bar.51
The partial dissent of Justice Regalado in BA Finance proved opportune, as he happened then to
be a member of the Rules of Court Revision Committee tasked with the revision of the 1964 Rules
of Court. Just a few months after BA Finance was decided, Justice Regalado proposed before the
Committee an amendment to Section 3, Rule 17 that would explicitly provide that the dismissal of
the complaint due to the fault of the plaintiff shall be "without prejudice to the right of the
defendant to prosecute his counterclaim in the same or in a separate action." The amendment,

which was approved by the Committee, is reflected in the minutes of the meeting of the
Committee held on 12 October 1993:
[Justice Regalado] then proposed that after the words "upon the courts own motion" in the 6th
line of the draft in Sec. 3 of Rule 17, the following provision be inserted: "without prejudice to
the right of the defendant to prosecute his counterclaim in the same or in a separate action."
The Committee agreed with the proposed amendment of Justice Regalado.
Justice Herrera observed that under Secs. 1 to 3 of Rule 17, it is not the action that is dismissed but
the complaint. He asked whether there is any distinction between "complaint" and "action." Justice
Regalado opined that the action of the plaintiff is initiated by his complaint.
Justice Feria then suggested that the dismissal be limited to the complaint[.] Thus, in the 1st
line of Sec. 1, the words "An action" will be changed to "a complaint"; in the 2nd line of Sec.
2, the words "an action" will be changed to "a complaint" and in Sec. 3, the word "action"
on the 5th line of the draft will be changed to "complaint." The Committee agreed with
Justice Ferias suggested amendments.
CA Pao believed that there is a need to clarify the counterclaim that the defendant will
prosecute, whether it is permissive or compulsory or all kinds of counterclaims.
Justice Regalado opined that there is no need of making a clarification because it is already
understood that it covers both counterclaims.52
It is apparent from these minutes that the survival of the counterclaim despite the dismissal of the
complaint under Section 3 stood irrespective of whether the counterclaim was permissive or
compulsory. Moreover, when the Court itself approved the revisions now contained in the 1997
Rules of Civil Procedure, not only did Justice Regalados amendment to Section 3, Rule 17 remain
intact, but the final version likewise eliminated the qualification formerly offered under Section 2
on "counterclaims that can remain pending for independent adjudication by the court." 53 At
present, even Section 2, concerning dismissals on motion of the plaintiff, now recognizes the right
of the defendant to prosecute the counterclaim either in the same or separate action
notwithstanding the dismissal of the complaint, and without regard as to the permissive or
compulsory nature of the counterclaim.
In his commentaries on the 1997 Rules of Civil Procedure, Justice Regalado expounds on the
effects of the amendments to Section 2 and 3 of Rule 17:
2. Under this revised section [2], where the plaintiff moves for the dismissal of his complaint to
which a counterclaim has been interposed, the dismissal shall be limited to the complaint. Such
dismissal shall be without prejudice to the right of the defendant to either prosecute his
counterclaim in a separate action or to have the same resolved in the same action. Should he opt
for the first alternative, the court should render the corresponding order granting and reserving his
right to prosecute his claim in a separate complaint. Should he choose to have his counterclaim

disposed of in the same action wherein the complaint had been dismissed, he must manifest such
preference to the trial court within 15 days from notice to him of plaintiffs motion to
dismiss. These alternative remedies of the defendant are available to him regardless of
whether his counterclaim is compulsory or permissive. A similar alternative procedure, with
the same underlying reason therefor, is adopted in Sec. 6, Rule 16 and Sec. 3 of this Rule, wherein
the complaint is dismissed on the motion of the defendant or, in the latter instance, also by the
court motu proprio.

in the same or separate action. We confirm that BA Finance and all previous rulings of the Court
that are inconsistent with this present holding are now abandoned.
Accordingly, the RTC clearly erred when it ordered the dismissal of the counterclaim, since
Section 3, Rule 17 mandates that the dismissal of the complaint is without prejudice to the right of
the defendant to prosecute the counterclaim in the same or separate action. If the RTC were to
dismiss the counterclaim, it should be on the merits of such counterclaim. Reversal of the RTC is
in order, and a remand is necessary for trial on the merits of the counterclaim.

xxxx
2. The second substantial amendment to [Section 3] is with respect to the disposition of the
defendants counterclaim in the event the plaintiffs complaint is dismissed. As already observed,
he is here granted the choice to prosecute that counterclaim in either the same or a separate action.
xxxx
3. With the aforestated amendments in Secs. 2 and 3 laying down specific rules on the
disposition of counterclaims involved in the dismissal actions, the controversial doctrine
in BA Finance Corporation vs. Co, et al., (G.R. No. 105751, June 30, 1993) has been
abandoned, together with the apparent confusion on the proper application of said Secs. 2
and 3. Said sections were distinguished and discussed in the authors separate opinion in that case,
even before they were clarified by the present amendments x x x.54
Similarly, Justice Feria notes that "the present rule reaffirms the right of the defendant to move for
the dismissal of the complaint and to prosecute his counterclaim, as stated in the separate opinion
[of Justice Regalado in BA Finance.]"55 Retired Court of Appeals Justice Herrera pronounces that
the amendment to Section 3, Rule 17 settles that "nagging question" whether the dismissal of the
complaint carries with it the dismissal of the counterclaim, and opines that by reason of the
amendments, the rulings in Metals Engineering, International Container, and BA Finance "may be
deemed abandoned."56 On the effect of amendment to Section 3, Rule 17, the commentators are in
general agreement,57 although there is less unanimity of views insofar as Section 2, Rule 17 is
concerned.58
To be certain, when the Court promulgated the 1997 Rules of Civil Procedure, including the
amended Rule 17, those previous jural doctrines that were inconsistent with the new rules
incorporated in the 1997 Rules of Civil Procedure were implicitly abandoned insofar as incidents
arising after the effectivity of the new procedural rules on 1 July 1997. BA Finance, or even the
doctrine that a counterclaim may be necessarily dismissed along with the complaint, clearly
conflicts with the 1997 Rules of Civil Procedure. The abandonment of BA Finance as doctrine
extends as far back as 1997, when the Court adopted the new Rules of Civil Procedure. If, since
then, such abandonment has not been affirmed in jurisprudence, it is only because no proper case
has arisen that would warrant express confirmation of the new rule. That opportunity is here and
now, and we thus rule that the dismissal of a complaint due to fault of the plaintiff is without
prejudice to the right of the defendant to prosecute any pending counterclaims of whatever nature

It would be perfectly satisfactory for the Court to leave this matter at that. Still, an explanation of
the reason behind the new rule is called for, considering that the rationale behind the previous rule
was frequently elaborated upon.
Under Act No. 190, or the Code of Procedure in Civil Actions promulgated in 1901, it was
recognized in Section 127(1) that the plaintiff had the right to seek the dismissal of the complaint
at any time before trial, "provided a counterclaim has not been made, or affirmative relief sought
by the cross-complaint or answer of the defendant." 59Note that no qualification was made then as
to the nature of the counterclaim, whether it be compulsory or permissive. The protection of the
defendants right to prosecute the counterclaim was indeed unqualified. In City of Manila, decided
in 1918, the Court explained:
By paragraph 1 [of Section 127], it will be seen that, where the defendant has interposed a
counterclaim, or is seeking affirmative relief by a cross-complaint, that then, and in that case, the
plaintiff cannot dismiss the action so as to affect the right of the defendant in his counterclaim or
prayer for affirmative relief. The reason for that exception is clear. When the answer sets up an
independent action against the plaintiff, it then becomes an action by the defendant against
the plaintiff, and, of course, the plaintiff has no right to ask for a dismissal of
the defendants action.60
Nonetheless, a new rule was introduced when Act No. 190 was replaced by the 1940 Rules of
Court. Section 2, Rule 30 of the 1940 Rules specified that if a counterclaim is pleaded by a
defendant prior to the service of the plaintiffs motion to dismiss, the action shall not be dismissed
against the defendants objection unless the counterclaim can remain pending for independent
adjudication by the court. This qualification remained intact when the 1964 Rules of Court was
introduced.61 The rule referred only to compulsory counterclaims, or counterclaims which arise out
of or are necessarily connected with the transaction or occurrence that is the subject matter of the
plaintiffs claim, since the rights of the parties arising out of the same transaction should be settled
at the same time.62 As was evident in Metals, International Container and BA Finance, the rule
was eventually extended to instances wherein it was the defendant with the pending counterclaim,
and not the plaintiff, that moved for the dismissal of the complaint.
We should not ignore the theoretical bases of the rule distinguishing compulsory counterclaims
from permissive counterclaims insofar as the dismissal of the action is concerned. There is a
particular school of thought that informs the broad proposition in Dalman that "if the civil case is

dismissed, so also is the counterclaim filed therein," 63 or the more nuanced discussions offered
in Metals, International Container, and BA Finance. The most potent statement of the theory may
be found in Metals,64 which proceeds from the following fundamental premisesa compulsory
counterclaim must be set up in the same proceeding or would otherwise be abated or barred in a
separate or subsequent litigation on the ground of auter action pendant, litis pendentia or res
judicata; a compulsory counterclaim is auxiliary to the main suit and derives its jurisdictional
support therefrom as it arises out of or is necessarily connected with the transaction or occurrence
that is the subject matter of the complaint; 65and that if the court dismisses the complaint on the
ground of lack of jurisdiction, the compulsory counterclaim must also be dismissed as it is merely
ancilliary to the main action and no jurisdiction remained for any grant of relief under the
counterclaim.
The first point is derived from Section 4, Rule 9, of the 1964 Rules of Court, while the two latter
points are sourced from American jurisprudence. There is no disputing the theoretical viability of
these three points. In fact, the requirement that the compulsory counterclaim must be set up in the
same proceeding remains extant under the 1997 Rules of Civil Procedure. 66 At the same time,
other considerations rooted in actual practice provide a counterbalance to the above-cited
rationales.
Whatever the nature of the counterclaim, it bears the same integral characteristics as a complaint;
namely a cause (or causes) of action constituting an act or omission by which a party violates the
right of another. The main difference lies in that the cause of action in the counterclaim is
maintained by the defendant against the plaintiff, while the converse holds true with the complaint.
Yet, as with a complaint, a counterclaim without a cause of action cannot survive.
It would then seemingly follow that if the dismissal of the complaint somehow eliminates the
cause(s) of the counterclaim, then the counterclaim cannot survive. Yet that hardly is the case,
especially as a general rule. More often than not, the allegations that form the counterclaim
are rooted in an act or omission of the plaintiff other than the plaintiffs very act of filing the
complaint. Moreover, such acts or omissions imputed to the plaintiff are often claimed to
have occurred prior to the filing of the complaint itself. The only apparent exception to this
circumstance is if it is alleged in the counterclaim that the very act of the plaintiff in filing
the complaint precisely causes the violation of the defendants rights. Yet even in such an
instance, it remains debatable whether the dismissal or withdrawal of the complaint is
sufficient to obviate the pending cause of action maintained by the defendant against the
plaintiff.67
These considerations persist whether the counterclaim in question is permissive or compulsory. A
compulsory counterclaim arises out of or is connected with the transaction or occurrence
constituting the subject matter of the opposing partys claim, does not require for its adjudication
the presence of third parties, and stands within the jurisdiction of the court both as to the amount
involved and the nature of the claim. 68 The fact that the culpable acts on which the counterclaim is
based are founded within the same transaction or occurrence as the complaint, is insufficient
causation to negate the counterclaim together with the complaint. The dismissal or withdrawal of

the complaint does not traverse the boundaries of time to undo the act or omission of the plaintiff
against the defendant, or vice versa. While such dismissal or withdrawal precludes the pursuit of
litigation
by the plaintiff, either through his/her own initiative or fault, it would be iniquitous to similarly
encumber the defendant who maintained no such initiative or fault. If the defendant similarly
moves for the dismissal of the counterclaim or neglects to timely pursue such action, let the
dismissal of the counterclaim be premised on those grounds imputable to the defendant, and not
on the actuations of the plaintiff.
The other considerations supplied in Metals are anchored on the premise that the jurisdictional
foundation of the counterclaim is the complaint itself. The theory is correct, but there are other
facets to this subject that should be taken into account as well. On the established premise that a
counterclaim involves separate causes of action than the complaint even if derived from the same
transaction or series of transactions, the counterclaim could have very well been lodged as a
complaint had the defendant filed the action ahead of the complainant. 69 The terms "ancillary" or
"auxiliary" may mislead in signifying that a complaint innately possesses more credence than a
counterclaim, yet there are many instances wherein the complaint is trivial but the counterclaim is
meritorious. In truth, the notion that a counterclaim is, or better still, appears to be merely
"ancillary" or "auxiliary" is chiefly the offshoot of an accident of chronology, more than anything
else.
The formalistic distinction between a complaint and a counterclaim does not detract from the fact
that both of them embody causes of action that have in their end the vindication of rights. While
the distinction is necessary as a means to facilitate order and clarity in the rules of procedure, it
should be remembered that the primordial purpose of procedural rules is to provide the means for
the vindication of rights. A party with a valid cause of action against another party cannot be
denied the right to relief simply because the opposing side had the good fortune of filing the case
first. Yet this in effect was what had happened under the previous procedural rule and
correspondent doctrine, which under their final permutation, prescribed the automatic dismissal of
the compulsory counterclaim upon the dismissal of the complaint, whether upon the initiative of
the plaintiff or of the defendant.
Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more equitable
disposition of the counterclaims by ensuring that any judgment thereon is based on the merit of the
counterclaim itself and not on the survival of the main complaint. Certainly, if the counterclaim is
palpably without merit or suffers jurisdictional flaws which stand independent of the complaint,
the trial court is not precluded from dismissing it under the amended rules, provided that the
judgment or order dismissing the counterclaim is premised on those defects. At the same time, if
the counterclaim is justified, the amended rules now unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the complaint.
WHEREFORE, the petition is GRANTED. The Orders dated 9 August 2005 and 10 October 2005
of Branch 29, Regional Trial Court of San Miguel, Zamboanga del Sur in Civil Case No. 98-012

are SET ASIDE. Petitioners counterclaim as defendant in Civil Case. No. 98-012 is
REINSTATED. The Regional Trial Court is ORDERED to hear and decide the counterclaim with
deliberate dispatch.
SO ORDERED.

5.

G.R. No. 172242

August 14, 2007

PERKIN
ELMER
SINGAPORE
vs.
DAKILA TRADING CORPORATION, Respondent.

PTE

LTD., Petitioner,

On 2 August 1997, however, PEIA unilaterally terminated the Distribution Agreement, prompting
respondent to file before the RTC of Mandaluyong City, Branch 212, a Complaint 6 for Collection
of Sum of Money and Damages with Prayer for Issuance of a Writ of Attachment against PEIA
and PEIP, docketed as Civil Case No. MC99-605.
The RTC issued an Order,7 dated 26 March 1999, denying respondents prayer for the issuance of
a writ of attachment. The respondent moved for the reconsideration of the said Order but it was
denied in another Order, dated 11 January 2000.8

DECISION
CHICO-NAZARIO, J.:
1

The case before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure seeking to annul and set aside the Decision, 2 dated 4 April 2006,
of the Court of Appeals in CA-G.R. SP No. 78981, which affirmed the Orders, dated 4 November
20023 and 20 June 2003,4 of the Mandaluyong City Regional Trial Court (RTC), Branch 212, in
Civil Case No. MC99-605, which, in turn, denied the Motion to Dismiss and subsequent Motion
for Reconsideration of herein petitioner Perkin Elmer Singapore Pte Ltd.
Petitioner is a corporation duly organized and existing under the laws of Singapore. It is not
considered as a foreign corporation "doing business" in the Philippines. Herein respondent Dakila
Trading Corporation is a corporation organized and existing under Philippine laws, and engaged in
the business of selling and leasing out laboratory instrumentation and process control
instrumentation, and trading of laboratory chemicals and supplies.
The antecedents of the present case are as follows:
Respondent entered into a Distribution Agreement 5 on 1 June 1990 with Perkin-Elmer Instruments
Asia Pte Ltd. (PEIA), a corporation duly organized and existing under the laws of Singapore and
engaged in the business of manufacturing, producing, selling or distributing various
laboratory/analytical instruments. By virtue of the said agreement, PEIA appointed the respondent
as the sole distributor of its products in the Philippines. The respondent was likewise granted the
right to purchase and sell the products of PEIA subject to the terms and conditions set forth in the
Distribution Agreement. PEIA, on the other hand, shall give respondent a commission for the sale
of its products in the Philippines.
Under the same Distribution Agreement, respondent shall order the products of PEIA, which it
shall sell in the Philippines, either from PEIA itself or from Perkin-Elmer Instruments
(Philippines) Corporation (PEIP), an affiliate of PEIA. PEIP is a corporation duly organized and
existing under Philippine laws, and involved in the business of wholesale trading of all kinds of
scientific, biotechnological, and analytical instruments and appliances. PEIA allegedly owned 99%
of the shares of PEIP.

Respondent then filed Ex-Parte Motions for Issuance of Summons and for Leave of Court to
Deputize Respondents General Manager, Richard A. Tee, to Serve Summons Outside of the
Philippines,9 which the RTC granted in its Order, dated 27 April 2000. 10 Thus, an Alias Summons,
dated 4 September 2000, was issued by the RTC to PEIA. But the said Alias Summons was served
on 28 September 2000 and received by Perkinelmer Asia, a Singaporean based sole proprietorship,
owned by the petitioner and, allegedly, a separate and distinct entity from PEIA.
PEIP moved to dismiss11 the Complaint filed by respondent on the ground that it states no cause of
action. Perkinelmer Asia, on the other hand, through its counsel, sent letters, dated 12 October
200012 and 15 November 2000,13 to the respondent and to the RTC, respectively, to inform them of
the wrongful service of summons upon Perkinelmer Asia.
Accordingly, respondent filed an Ex-Parte Motion to Admit Amended Complaint, together with
the Amended Complaint claiming that PEIA had become a sole proprietorship 14 owned by the
petitioner, and subsequently changed its name to Perkinelmer Asia. Being a sole proprietorship of
the petitioner, a change in PEIAs name and juridical status did not detract from the fact that all its
due and outstanding obligations to third parties were assumed by the petitioner. Hence, in its
Amended Complaint15 respondent sought to change the name of PEIA to that of the petitioner. In
an Order, dated 24 July 2001,16 the RTC admitted the Amended Complaint filed by the respondent.
Respondent then filed another Motion17 for the Issuance of Summons and for Leave of Court to
Deputize Respondents General Manager, Richard A. Tee, to Serve Summons Outside the
Philippines. In another Order, dated 4 March 2002,18 the RTC deputized respondents General
Manager to serve summons on petitioner in Singapore. The RTC thus issued summons 19 to the
petitioner. Acting on the said Order, respondents General Manager went to Singapore and served
summons on the petitioner.
Meanwhile, in an Order, dated 10 October 2001, the RTC denied the Motion to Dismiss filed by
PEIP, compelling the latter to file its Answer to the Amended Complaint.
Petitioner subsequently filed with the RTC a Special Appearance and Motion to
Dismiss20 respondents Amended Complaint on 30 May 2002 based on the following grounds: (1)
the RTC did not acquire jurisdiction over the person of the petitioner; (2) the respondent failed to
state a cause of action against the petitioner because it is not the real party-in-interest; (3) even
assuming arguendo that the respondent correctly filed the case against the petitioner, the

Distribution Agreement which was the basis of its claim grants PEIA the right to terminate the
contract at any time; and (4) the venue was improperly laid. The RTC in its Order, dated 4
November 2002, denied petitioners Motion to Dismiss, ratiocinating as follows:

The stipulation as to the venue of a prospective action does not preclude the filing of the suit in the
residence of the [respondent] under Section 2, Rule 4, Rules of Court, especially where the venue
stipulation was imposed by the [petitioner] for its own benefits.

Prescinding from the above arguments of both parties, the [RTC] is inclined to DENY the Motion
to Dismiss.

xxxx

A careful scrutiny on (sic) the allegation in the (Amended) Complaint would show that [herein
respondent] alleges ownership by the [herein petitioner] of shares of stocks in the [PEIP]. Such
allegation of ownership of shares of stocks by the [petitioner] would reveal that there is an
allegation of personal property in the Philippines. Shares of stocks represent personal property of
the shareholder. Thus, it follows that even though the Amended Complaint is primarily for
damages, it does relate to a property of the [petitioner], to which the latter has a claim interest
(sic), or an actual or contingent lien, which will make it fall under one of the requisite (sic) for
extraterritorial service under Section 15, Rule 14, of the Rules of Court. Thus, it could be gainfully
said that the summons had been validly served for [RTC] to acquire jurisdiction over the
[petitioner].
The [petitioner] hinges its dismissal on the failure of the [respondent] to state a cause of action.
The [RTC] would like to emphasize that in a Motion to Dismiss, it hypothetically admits the truth
of the facts alleged in a complaint.
When the ground for dismissal is that the complaint states no cause of action, such fact can be
determined only from the facts alleged in the complaint x x x and from no other x x x and the
Court cannot consider other matters aliunde x x x. This implies that the issue must be passed upon
on the basis of the allegations and declare them to be false, otherwise it would be a procedural
error and a denial of due process to the [respondent] x x x.
The three (3) essential elements of a cause of action are the following:

The [RTC] further believes that it is imperative that in order to ferret out the truth, a full-blown
trial is necessary for parties to be able to prove or disprove their allegations. 21
Petitioner moved for the reconsideration of the aforesaid Order but, it was denied by the RTC in its
Order, dated 20 June 2003.
Consequently, petitioner filed a Petition for Certiorari under Rule 65 of the 1997 Revised Rules of
Civil Procedure with application for temporary restraining order and/or preliminary injunction
before the Court of Appeals alleging that the RTC committed grave abuse of discretion amounting
to lack or excess of jurisdiction in refusing to dismiss the Amended Complaint. The Court of
Appeals never issued any temporary restraining order or writ of injunction. On 4 April 2006, the
Court of Appeals rendered a Decision affirming the RTC Orders of 4 November 2002 and 20 June
2003.
This brings us to the present Petition before this Court wherein petitioner raised the following
issues.
I.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
NOT RULING THAT THE SERVICE OF SUMMONS ON PETITIONER WAS DEFECTIVE
AND THAT THE TRIAL COURT THUS FAILED TO ACQUIRE JURISDICTION OVER THE
PERSON OF THE PETITIONER.

a) The plaintiffs legal rights;

II.

b) A correlative obligation of the defendant;

WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN

RULING THAT THE "SOLE ISSUE" IN THE PETITION FOR CERTIORARI FILED BEFORE
IT IS THE QUESTION OF WHETHER THE TRIAL COURT ACQUIRED JURISDICTION
OVER THE PERSON OF THE PETITIONER THROUGH THE EXTRATERRITORIAL
SERVICE OF SUMMONS.

c) The omission of the defendant in violation of the legal rights.

A cursory reading of the Amended Complaint would reveal that all of the essential elements of a
cause of action are attendant in the Amended Complaint.

A.
As for the contention that venue was improperly laid, x x x, the [RTC] in its ultimate desire that
the ends of justice could be served in its fullest, cannot rule that venue was improperly laid.
xxxx

WHETHER OR NOT THE COURT OF APPEALS SHOULD HAVE GRANTED THE

PETITION FOR CERTIORARI AND REVERSED THE RTC ORDERS ON THE

GROUND THAT THE AMENDED COMPLAINT FAILED TO STATE A CAUSE OF

ACTION AGAINST PETITIONER.
1. BASED ON THE ALLEGATIONS IN THE EX-PARTE MOTION TO
ADMIT AMENDED COMPLAINT, AMENDED COMPLAINT, AND ALL
DOCUMENTS ATTACHED AND/OR RELATED THERETO, PETITIONER
IS NOT THE REAL PARTY-IN-INTEREST DEFENDANT IN THE CASE
BELOW.
2. ASSUMING ARGUENDO THAT RESPONDENT DAKILA FILED THIS
CASE AGAINST THE CORRECT [PARTY], INASMUCH AS THE
DISTRIBUTION AGREEMENT DATED 1 JUNE 1990 GRANTS [PEIA] THE
RIGHT TO TERMINATE THE CONTRACT AT ANY TIME, RESPONDENT
DAKILA FAILS TO STATE A CAUSE OF ACTION IN THE CASE BELOW.
B.
WHETHER OR NOT THE COURT OF APPEALS SHOULD HAVE GRANTED THE
PETITION FOR CERTIORARI AND REVERSED THE RTC ORDERS ON THE
GROUND OF IMPROPER VENUE.
III.
WHETHER OR NOT PETITIONER IS ENTITLED TO A TEMPORARY RESTRAINING
ORDER AND/OR WRIT OF INJUNCTION.
The foregoing issues raised by petitioner essentially requires this Court to make a determination of
the (1) proper service of summons and acquisition of jurisdiction by the RTC over the person of
the petitioner; (2) existence of a cause of action against petitioner in respondents Amended
Complaint; and (3) proper venue for respondents civil case against petitioner.
Petitioner contends that Civil Case No. MC99-605 involves an action for collection of sum of
money and damages arising from the alleged breach of the Distribution Agreement. The action is
one in personam, or an action against a person based on his personal liability; and for the court a
quo to acquire jurisdiction over the person of the petitioner, personal service of summons, and not
extraterritorial service of summons, must be made within the state even if the petitioner is a nonresident. Petitioner avers that extraterritorial service of summons stated under Section 15, Rule 14
of the 1997 Revised Rules of Civil Procedure, is only proper in in rem and quasi in rem cases;
thus, resort to an extraterritorial service of summons in the case at bar was erroneous. Petitioner
asseverates that the allegations in the respondents Amended Complaint that the petitioner has
personal properties within the Philippines does not make the present case one that relates to, or the
subject of which is, property within the Philippines warranting the extraterritorial service of
summons under Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure. Petitioner
states that for an action to be considered as one that relates to, or the subject of which is, property

within the Philippines, the main subject matter of the action must be the property within the
Philippines itself, and such was not the situation in this case. Likewise, the prayer in respondents
Amended Complaint for the issuance of a writ of attachment over the personal property of PEIP,
which is 99% owned by petitioner (as the supposed successor of PEIA), did not convert the action
from one in personam to one that is quasi in rem. Also, the petitioner points out that since the
respondents prayer for the issuance of a writ of attachment was denied by the RTC in its Order,
dated 26 March 1999, then the nature of Civil Case No. MC99-605 remains in personam, contrary
to the ruling of the Court of Appeals that by the attachment of the petitioners interest in PEIP the
action in personam was converted to an action quasi in rem. Resultantly, the extraterritorial service
of summons on the petitioner was not validly effected, and did not give the RTC jurisdiction over
the petitioner.
Petitioner further argues that the appellate court should have granted its Petition for Certiorari on
the ground that the RTC committed grave abuse of discretion amounting to lack or excess of
jurisdiction in refusing to dismiss respondents Amended Complaint for failure to state a cause of
action against petitioner which was not the real party-in-interest in Civil Case No. MC99-605.
Petitioner claims that it had never used the name PEIA as its corporate name, and neither did it
change its name from that of PEIA. Petitioner stresses that PEIA is an entirely different corporate
entity that is not connected in whatever manner to the petitioner. Even assuming arguendo that
petitioner is the real party-in-interest in Civil Case No. MC99-605 or that petitioner and PEIA are
one and the same entity, petitioner still avows that the respondent failed to state a cause of action
against it because the Distribution Agreement expressly grants PEIA the right to terminate the said
contract at any time.
Lastly, it is the contention of the petitioner that the appellate court should have granted its Petition
for Certiorari because the RTC committed grave abuse of discretion amounting to lack or excess
of jurisdiction in refusing to dismiss Civil Case No. MC99-605 for having been filed in an
improper venue. Petitioner asserts that in the Distribution Agreement entered into between the
respondent and PEIA, both had mutually agreed to the exclusive jurisdiction of the courts of
Singapore or of the Philippines as elected by PEIA. Absent any waiver by PEIA of its right to
choose the venue of the dispute, the Complaint filed by the respondent before the RTC in the
Philippines should have been dismissed on the ground of improper venue.
The Petition is meritorious.
Jurisdiction is the power with which courts are invested for administering justice; that is, for
hearing and deciding cases. In order for the court to have authority to dispose of the case on the
merits, it must acquire jurisdiction over the subject matter and the parties. 22
Jurisdiction of the court over the subject matter is conferred only by the Constitution or by law. It
is determinable on the basis of allegations in the complaint.23
Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint, while jurisdiction
over the defendants in a civil case is acquired either through the service of summons upon them in

the manner required by law or through their voluntary appearance in court and their submission to
its authority. If the defendants have not been summoned, unless they voluntarily appear in court,
the court acquires no jurisdiction over their persons and a judgment rendered against them is null
and void. To be bound by a decision, a party should first be subjected to the courts jurisdiction.24
Thus, one of the modes of acquiring jurisdiction over the person of the defendant or respondent in
a civil case is through service of summons. It is intended to give notice to the defendant or
respondent that a civil action has been commenced against him. The defendant or respondent is
thus put on guard as to the demands of the plaintiff or the petitioner.25
The proper service of summons differs depending on the nature of the civil case instituted by the
plaintiff or petitioner: whether it is in personam, in rem, or quasi in rem. Actions in personam, are
those actions brought against a person on the basis of his personal liability; actions in rem are
actions against the thing itself instead of against the person; and actions are quasi in rem, where an
individual is named as defendant and the purpose of the proceeding is to subject his or her interest
in a property to the obligation or loan burdening the property.26
Under Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure, there are only four
instances wherein a defendant who is a non-resident and is not found in the country may be served
with summons by extraterritorial service, to wit: (1) when the action affects the personal status of
the plaintiff; (2) when the action relates to, or the subject of which is property, within the
Philippines, in which the defendant claims a lien or an interest, actual or contingent; (3) when the
relief demanded in such action consists, wholly or in part, in excluding the defendant from any
interest in property located in the Philippines; and (4) when the defendant non-residents property
has been attached within the Philippines. In these instances, service of summons may be effected
by (a) personal service out of the country, with leave of court; (b) publication, also with leave of
court; or (c) any other manner the court may deem sufficient.27
Undoubtedly, extraterritorial service of summons applies only where the action is in rem or quasi
in rem, but not if an action is in personam.
When the case instituted is an action in rem or quasi in rem, Philippine courts already have
jurisdiction to hear and decide the case because, in actions in rem and quasi in rem, jurisdiction
over the person of the defendant is not a prerequisite to confer jurisdiction on the court, provided
that the court acquires jurisdiction over the res. 28 Thus, in such instance, extraterritorial service of
summons can be made upon the defendant. The said extraterritorial service of summons is not for
the purpose of vesting the court with jurisdiction, but for complying with the requirements of fair
play or due process, so that the defendant will be informed of the pendency of the action against
him and the possibility that property in the Philippines belonging to him or in which he has an
interest may be subjected to a judgment in favor of the plaintiff, and he can thereby take steps to
protect his interest if he is so minded. 29 On the other hand, when the defendant or respondent does
not reside and is not found in the Philippines, 30 and the action involved is in personam, Philippine
courts cannot try any case against him because of the impossibility of acquiring jurisdiction over
his person unless he voluntarily appears in court.31

In the case at bar, this Court sustains the contention of the petitioner that there can never be a valid
extraterritorial service of summons upon it, because the case before the court a quo involving
collection of a sum of money and damages is, indeed, an action in personam, as it deals with the
personal liability of the petitioner to the respondent by reason of the alleged unilateral termination
by the former of the Distribution Agreement. Even the Court of Appeals, in its Decision dated 4
April 2004, upheld the nature of the instant case as an action in personam. In the said Decision the
appellate court ruled that:
In the instant petition, [respondents] cause of action in Civil Case No. MC99-605 is anchored on
the claim that petitioner unilaterally terminated the Distribution Agreement. Thus, [respondent]
prays in its [C]omplaint that "Upon the filing of the Complaint, issue an Order fixing the amount
of the bond and issue a writ of attachment requiring the sheriff to attach the properties of [PerkinElmer Philippines], which are not exempt from execution, and as much as may be sufficient to
satisfy [respondents] demands."
The action instituted by [respondent] affects the parties alone, not the whole world. Hence, it is an
action in personam, i.e., any judgment therein is binding only upon the parties properly impleaded.
xxxx
The objective sought in [respondents] [C]omplaint was to establish a claim against petitioner for
its alleged unilateral termination of [D]istribution [A]greement. Hence, to repeat, Civil Case No.
MC99-605 is an action in personam because it is an action against persons, namely, herein
petitioner, on the basis of its personal liability. As such, personal service of summons upon the
[petitioner] is essential in order for the court to acquire of (sic) jurisdiction over [its
person].32 (Emphasis supplied.)
Thus, being an action in personam, personal service of summons within the Philippines is
necessary in order for the RTC to validly acquire jurisdiction over the person of the petitioner, and
this is not possible in the present case because the petitioner is a non-resident and is not found
within the Philippines. Respondents allegation in its Amended Complaint that petitioner had
personal property within the Philippines in the form of shares of stock in PEIP did not make Civil
Case No. MC99-605 fall under any of the four instances mentioned in Section 15, Rule 14 of the
Rules of Court, as to convert the action in personam to an action in rem or quasi in rem and,
subsequently, make the extraterritorial service of summons upon the petitioner valid.
It is incorrect for the RTC to have ruled that the allegations made by the respondent in its
Amended Complaint, which is primarily for collection of a sum of money and damages, that the
petitioner owns shares of stock within the Philippines to which the petitioner claims interest, or an
actual or contingent lien, would make the case fall under one of the aforesaid instances wherein
extraterritorial service of summons under Section 15, Rule 14 of the 1997 Revised Rules of Civil
Procedure, would be valid. The RTC in arriving at such conclusions relied on the second instance,
mentioned under Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure (i.e., when the
action relates to, or the subject of which is property, within the Philippines, in which the defendant

claims a lien or interest, actual or contingent), where extraterritorial service of summons can be
properly made. However, the aforesaid second instance has no application in the case before this
Court. Primarily, the Amended Complaint filed by the respondent against the petitioner was for the
collection of sum of money and damages. The said case was neither related nor connected to any
property of the petitioner to which it claims a lien or interest. The action for collection of a sum of
money and damages was purely based on the personal liability of the petitioner towards the
respondent. The petitioner is correct in saying that "mere allegations of personal property within
the Philippines does not necessarily make the action as one that relates to or the subject of which
is, property within the Philippines as to warrant the extraterritorial service of summons. For the
action to be considered one that relates to, or the subject of which, is the property within the
Philippines, the main subject matter of the action must be the property itself of the petitioner in the
Philippines." By analogy, an action involving title to or possession of real or personal property -such as the foreclosure of real estate or chattel mortgage where the mortgagor does not reside or is
not found in the Philippines -- can be considered as an action which relates to, or the subject of
which is, property within the Philippines, in which the defendant claims a lien or interest, actual or
contingent; and in such instance, judgment will be limited to the res. 33

Respondents allegation in its Amended Complaint that petitioner had personal property within the
Philippines in the form of shares of stock in PEIP does not convert Civil Case No. MC99-605
from an action in personam to one quasi in rem, so as to qualify said case under the fourth instance
mentioned in Section 15, Rule 14 of the 1997 Revised Rules of Civil Procedure (i.e., when the
non-resident defendants property has been attached within the Philippines), wherein
extraterritorial service of summons upon the petitioner would have been valid. It is worthy to note
that what is required under the aforesaid provision of the Revised Rules of Civil Procedure is not a
mere allegation of the existence of personal property belonging to the non-resident defendant
within the Philippines but, more precisely, that the non-resident defendants personal property
located within the Philippines must have been actually attached. This Court in the case of
Venturanza v. Court of Appeals35 ruled that when the attachment was void from the beginning, the
action in personam which required personal service of summons was never converted into an
action in rem where service by publication would have been valid. Hence, the appellate court erred
in declaring that the present case, which is an action in personam, was converted to an action quasi
in rem because of respondents allegations in its Amended Complaint that petitioner had personal
property within the Philippines.

Moreover, the allegations made by the respondent that the petitioner has property within the
Philippines were in support of its application for the issuance of a writ of attachment, which was
denied by the RTC. Hence, it is clear from the foregoing that the Complaint filed by the
respondent against the petitioner does not really relate to, or the subject of which is, property
within the Philippines of the petitioner.

Glaringly, respondents prayer in its Amended Complaint for the issuance of a writ of attachment
over petitioners purported shares of stock in PEIP located within the Philippines was denied by
the court a quo in its Order dated 26 March 1999. Respondents Motion for Reconsideration of the
said Order was likewise denied by the RTC in its subsequent Order, dated 11 January 2000.
Evidently, petitioners alleged personal property within the Philippines, in the form of shares of
stock in PEIP, had not been attached; hence, Civil Case No. MC99-605, for collection of sum of
money and damages, remains an action in personam. As a result, the extraterritorial service of
summons was not validly effected by the RTC against the petitioner, and the RTC thus failed to
acquire jurisdiction over the person of the petitioner. The RTC is therefore bereft of any authority
to act upon the Complaint filed before it by the respondent insofar as the petitioner is concerned.

This Court also finds error in the Decision of the Court of Appeals. It is provided for in the said
Decision, thus:
However, let it be emphasized that in the [C]omplaint filed before the trial court, [respondent]
prayed that "Upon the filing of the Complaint, issue an Order fixing the amount of the bond and
issue a writ of attachment requiring the sheriff to attach the properties of [Perkin-Elmer
Philippines], which are not exempt from execution, and as much as may be sufficient to satisfy
[respondents] demands.
In other words, although the [C]omplaint before the trial court does not involve the personal status
of the [respondent], nevertheless, the case involves property within the Philippines in which the
[petitioner] has or claim an interest, or which the [respondent] has attached, which is one of the
instances where extraterritorial service of summons is proper.
xxxx
Hence, it is submitted that one of the instances when exterritorial service of summons under
Section 15, Rule 14 of the Rules of Court is proper may be considered to have been met. This is
because the [C]omplaint for collection of sum of money which is an action in personam was
converted into an action quasi in rem by the attachment of [petitioners] interest in [Perkin-Elmer
Philippines].34 (Emphasis supplied.)

If there was no valid summons served upon petitioner, could RTC have acquired jurisdiction over
the person of the petitioner by the latters voluntary appearance? As a rule, even if the service of
summons upon the defendant or respondent in a civil case is defective, the court can still acquire
jurisdiction over his person when he voluntary appears in court or submits himself to its authority.
Nonetheless, voluntary appearance, as a mode of acquiring jurisdiction over the person of the
defendant, is likewise inapplicable in this case.
It is settled that a party who makes a special appearance in court for the purpose of challenging the
jurisdiction of said court, based on the invalidity of the service of summons, cannot be considered
to have voluntarily submitted himself to the jurisdiction of the court. 36 In the present case,
petitioner has been consistent in all its pleadings in assailing the service of summons upon it and
the jurisdiction of the RTC over its person. Thus, the petitioner cannot be declared in estoppel
when it filed an Answer ad cautelam with compulsory counterclaim before the RTC while the
instant Petition was still pending before this Court. The petitioner was in a situation wherein it had
no other choice but to file an Answer; otherwise, the RTC would have already declared that
petitioner had waived its right to file responsive pleadings. 37 Neither can the compulsory
counterclaim contained in petitioners Answer ad cautelam be considered as voluntary appearance

of petitioner before the RTC. Petitioner seeks to recover damages and attorneys fees as a
consequence of the unfounded suit filed by respondent against it. Thus, petitioners compulsory
counterclaim is only consistent with its position that the respondent wrongfully filed a case against
it and the RTC erroneously exercised jurisdiction over its person.
Distinction must be made in Civil Case No. MC99-605 as to the jurisdiction of the RTC over
respondents complaint and over petitioners counterclaim -- while it may have no jurisdiction
over the former, it may exercise jurisdiction over the latter. The compulsory counterclaim attached
to petitioners Answer ad cautelam can be treated as a separate action, wherein petitioner is the
plaintiff while respondent is the defendant. 38 Petitioner could have instituted a separate action for
the very same claims but, for the sake of expediency and to avoid multiplicity of suits, it chose to
demand the same in Civil Case No. MC99-605. 39 Jurisdiction of the RTC over the subject matter
and the parties in the counterclaim must thus be determined separately and independently from the
jurisdiction of the same court in the same case over the subject matter and the parties in
respondents complaint.
Moreover, even though the petitioner raised other grounds in its Motion to Dismiss aside from
lack of jurisdiction over its person, the same is not tantamount to its voluntary appearance or
submission to the authority of the court a quo. While in De Midgely v. Ferandos, 40 it was held that,
in a Motion to Dismiss, the allegation of grounds other than lack of jurisdiction over the person of
the defendant, including a prayer "for such other reliefs as" may be deemed "appropriate and
proper" amounted to voluntary appearance, such ruling must be deemed superseded by the
declaration of this Court in La Naval Drug Corporation v. Court of Appeals 41 that estoppel by
jurisdiction must be unequivocal and intentional. It would be absurd to hold that petitioner
unequivocally and intentionally submitted itself to the jurisdiction of the court by seeking other
reliefs to which it might be entitled when the only relief that it could properly ask from the trial
court is the dismissal of the complaint against it. 42 Thus, the allegation of grounds other than lack
of jurisdiction with a prayer "for such other reliefs" as may be deemed "appropriate and proper"
cannot be considered as unequivocal and intentional estoppel. Most telling is Section 20, Rule 14
of the Rules of Court, which expressly provides:
SEC. 20. Voluntary appearance. - The defendants voluntary appearance in the action shall be
equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside
from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary
appearance.43 (Emphasis supplied.)
In sum, this Court finds that the petitioner did not submit itself voluntarily to the authority of the
court a quo; and in the absence of valid service of summons, the RTC utterly failed to acquire
jurisdiction over the person of the petitioner.
Anent the existence of a cause of action against petitioner and the proper venue of the case, this
Court upholds the findings of the RTC on these issues.

Dismissal of a Complaint for failure to state a cause of action is provided for by the Rules of
Court.44 When a Motion to Dismiss is grounded on the failure to state a cause of action, a ruling
thereon should be based only on the facts alleged in the complaint. The court must pass upon this
issue based solely on such allegations, assuming them to be true. For it to do otherwise would be a
procedural error and a denial of plaintiffs right to due process. 45 While, truly, there are wellrecognized exceptions46 to the rule that the allegations are hypothetically admitted as true and
inquiry is confined to the face of the complaint,47 none of the exceptions apply in this case. Hence,
the general rule applies. The defense of the petitioner that it is not the real party-in-interest is
evidentiary in nature which must be proven in trial. The appellate court, then, cannot be faulted for
not granting petitioners Motion to Dismiss on the ground of failure to state a cause of action.
In the same way, the appellate court did not err in denying petitioners Motion to Dismiss Civil
Case No. MC99-605 on the ground of improper venue. In arriving at such conclusion, this Court
quotes with approval the following ratiocination of the RTC:
As for the contention that venue was improperly laid, x x x, the [trial court] in its ultimate desire
that the ends of justice could be served in its fullest, cannot rule that venue was improperly laid.
xxxx
The stipulation as to the venue of a prospective action does not preclude the filing of the suit in the
residence of the [respondent] under Section 2, Rule 4, Rules of Court, especially where the venue
stipulation was imposed by the [petitioner] for its own benefits.48 (Emphasis supplied.)
Despite the venue stipulation found in the Distribution Agreement stipulating that the exclusive
jurisdiction over disputes arising from the same shall lie in the courts of Singapore or of the
Territory (referring to the Philippines), whichever is elected by PEIA (or petitioner, as PEIAs
alleged successor), the RTC of the Philippines cannot be considered as an improper venue. Truly,
the venue stipulation used the word "exclusive," however, a closer look on the Distribution
Agreement would reveal that the venue stipulation was really in the alternative i.e., courts of
Singapore or of the Territory, meaning, the Philippines; thus, the court a quo is not an improper
venue for the present case.
Nonetheless, it bears to emphasize that despite our findings that based on the allegations in
respondents Complaint in Civil Case No. MC99-605, respondent appears to have a cause of
action against the petitioner and that the RTC is the proper venue for the said case, Civil Case No.
MC99-605 is still dismissible, for the RTC never acquired jurisdiction over the person of the
petitioner. The extraterritorial service of summons upon the petitioner produces no effect because
it can only be done if the action is in rem or quasi in rem. The case for collection of sum of money
and damages filed by the respondent against the petitioner being an action in personam, then
personal service of summons upon the petitioner within the Philippines is essential for the RTC to
validly acquire jurisdiction over the person of the petitioner. Having failed to do so, the RTC can
never subject petitioner to its jurisdiction. The mere allegation made by the respondent that the
petitioner had shares of stock within the Philippines was not enough to convert the action from

one in personam to one that was quasi in rem, for petitioners purported personal property was
never attached; thus, the extraterritorial service of summons upon the petitioner remains invalid. In
light of the foregoing findings, this Court concludes that the RTC has no power to hear and decide
the case against the petitioner, because the extraterritorial service of summons was not validly
effected upon the petitioner and the RTC never acquired jurisdiction over its person.
Finally, as regards the petitioners counterclaim, which is purely for damages and attorneys fees
by reason of the unfounded suit filed by the respondent against it, it has long been settled that the
same truly falls under the classification of compulsory counterclaim and it must be pleaded in the
same action, otherwise, it is barred.49 In the case at bar, this Court orders the dismissal of the
Complaint filed by the respondent against the petitioner because the court a quo failed to acquire
jurisdiction over the person of the latter. Since the Complaint of the respondent was dismissed,
what will happen then to the counterclaim of the petitioner? Does the dismissal of the complaint
carry with it the dismissal of the counterclaim?
In the cases of Metal Engineering Resources Corp. v. Court of Appeals, 50 International Container
Terminal Services, Inc. v. Court of Appeals,51 and BA Finance Corporation v. Co.,52 the Court
ruled that if the court does not have jurisdiction to entertain the main action of the case and
dismisses the same, then the compulsory counterclaim, being ancillary to the principal
controversy, must likewise be dismissed since no jurisdiction remained for any grant of relief
under the counterclaim.53 If we follow the aforesaid pronouncement of the Court in the cases
mentioned above, the counterclaim of the herein petitioner being compulsory in nature must also
be dismissed together with the Complaint. However, in the case of Pinga vs. Heirs of German
Santiago,54 the Court explicitly expressed that:
Similarly, Justice Feria notes that "the present rule reaffirms the right of the defendant to move for
the dismissal of the complaint and to prosecute his counterclaim, as stated in the separate opinion
[of Justice Regalado in BA Finance]. Retired Court of Appeals Justice Hererra pronounces that the
amendment to Section 3, Rule 17 [of the 1997 Revised Rules of Civil Procedure] settles that
"nagging question "whether the dismissal of the complaint carries with it the dismissal of the
counterclaim, and opines that by reason of the amendments, the rulings in Metals Engineering,
International Container, and BA Finance "may be deemed abandoned." x x x.
x x x, when the Court promulgated the 1997 Rules of Civil Procedure, including the amended
Rule 17, those previous jural doctrines that were inconsistent with the new rules incorporated in
the 1997 Rules of Civil Procedure were implicitly abandoned insofar as incidents arising after the
effectivity of the new procedural rules on 1 July 1997. BA Finance, or even the doctrine that a
counterclaim may be necessarily dismissed along with the complaint, clearly conflicts with the
1997 Rules of Civil Procedure. The abandonment of BA Finance as doctrine extends as far back as
1997, when the Court adopted the new Rules of Civil Procedure. If, since then, abandonment has
not been affirmed in jurisprudence, it is only because no proper case has arisen that would warrant
express confirmation of the new rule. That opportunity is here and now, and we thus rule that the
dismissal of a complaint due to fault of the plaintiff is without prejudice to the right of the
defendant to prosecuteany pending counterclaims of whatever nature in the same or separate

action. We confirm that BA Finance and all previous rulings of the Court that are inconsistent with
this present holding are now abandoned.55 [Emphasis supplied].
It is true that the aforesaid declaration of the Court refers to instances covered by Section 3, Rule
17 of the 1997 Revised Rules of Civil Procedure56 on dismissal of the complaint due to the fault of
the plaintiff. Nonetheless, it does not also preclude the application of the same to the instant case
just because the dismissal of respondents Complaint was upon the instance of the petitioner who
correctly argued lack of jurisdiction over its person.
Also in the case of Pinga v. Heirs of German Santiago, the Court discussed the situation wherein
the very filing of the complaint by the plaintiff against the defendant caused the violation of the
latters rights. As to whether the dismissal of such a complaint should also include the dismissal of
the counterclaim, the Court acknowledged that said matter is still debatable, viz:
Whatever the nature of the counterclaim, it bears the same integral characteristics as a complaint;
namely a cause (or causes) of action constituting an act or omission by which a party violates the
right of another. The main difference lies in that the cause of action in the counterclaim is
maintained by the defendant against the plaintiff, while the converse holds true with the complaint.
Yet, as with a complaint, a counterclaim without a cause of action cannot survive.
x x x if the dismissal of the complaint somehow eliminates the cause(s) of the counterclaim, then
the counterclaim cannot survive. Yet that hardly is the case, especially as a general rule. More
often than not, the allegations that form the counterclaim are rooted in an act or omission of the
plaintiff other than the plaintiffs very act of filing the complaint. Moreover, such acts or
omissions imputed to the plaintiff are often claimed to have occurred prior to the filing of the
complaint itself. The only apparent exception to this circumstance is if it is alleged in the
counterclaim that the very act of the plaintiff in filing the complaint precisely causes the violation
of the defendants rights. Yet even in such an instance, it remains debatable whether the dismissal
or withdrawal of the complaint is sufficient to obviate the pending cause of action maintained by
the defendant against the plaintiff.571awphi1
Based on the aforequoted ruling of the Court, if the dismissal of the complaint somehow
eliminates the cause of the counterclaim, then the counterclaim cannot survive. Conversely, if the
counterclaim itself states sufficient cause of action then it should stand independently of and
survive the dismissal of the complaint. Now, having been directly confronted with the problem of
whether the compulsory counterclaim by reason of the unfounded suit may prosper even if the
main complaint had been dismissed, we rule in the affirmative.
It bears to emphasize that petitioners counterclaim against respondent is for damages and
attorneys fees arising from the unfounded suit. While respondents Complaint against petitioner is
already dismissed, petitioner may have very well already incurred damages and litigation expenses
such as attorneys fees since it was forced to engage legal representation in the Philippines to
protect its rights and to assert lack of jurisdiction of the courts over its person by virtue of the

improper service of summons upon it. Hence, the cause of action of petitioners counterclaim is
not eliminated by the mere dismissal of respondents complaint.
It may also do well to remember that it is this Court which mandated that claims for damages and
attorneys fees based on unfounded suit constitute compulsory counterclaim which must be
pleaded in the same action or, otherwise, it shall be barred. It will then be iniquitous and the height
of injustice to require the petitioner to make the counterclaim in the present action, under threat of
losing his right to claim the same ever again in any other court, yet make his right totally
dependent on the fate of the respondents complaint.
If indeed the Court dismisses petitioners counterclaim solely on the basis of the dismissal of
respondents Complaint, then what remedy is left for the petitioner? It can be said that he can still
file a separate action to recover the damages and attorneys fees based on the unfounded suit for he
cannot be barred from doing so since he did file the compulsory counterclaim in the present
action, only that it was dismissed when respondents Complaint was dismissed. However, this
reasoning is highly flawed and irrational considering that petitioner, already burdened by the
damages and attorneys fees it may have incurred in the present case, must again incur more
damages and attorneys fees in pursuing a separate action, when, in the first place, it should not
have been involved in any case at all.
Since petitioners counterclaim is compulsory in nature and its cause of action survives that of the
dismissal of respondents complaint, then it should be resolved based on its own merits and
evidentiary support.
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision of
the Court of Appeals, dated 4 April 2006, in CA-G.R. SP No. 78981, affirming the Orders, dated 4
November 2002 and 20 June 2003, of the Regional Trial Court of Mandaluyong City, Branch 212,
in Civil Case No. MC99-605, is hereby REVERSED AND SET ASIDE. Respondents Amended
Complaint in Civil Case No. MC99-605 as against the petitioner is hereby ordered DISMISSED,
and all the proceedings against petitioner in the court a quo by virtue thereof are hereby
DECLARED NULL AND VOID. The Regional Trial Court of Mandaluyong City, Branch 212, is
DIRECTED to proceed without further delay with the resolution of respondents Complaint in
Civil Case No. MC99-605 as to defendant PEIP, as well as petitioners counterclaim. No costs.
SO ORDERED.

6.

G.R. Nos. 169131-32

January 20, 2006

LULLETE
S.
KO
and
ARLETTE
SIMPLICIANO
BASILIO, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Laoag Branch, and the REGISTER OF DEEDS OF
ILOCOS NORTE,Respondents.

Respondent bank countered that from the time the complaint was filed, a period of three years had
elapsed but petitioners failed to prosecute their case, showing lack of interest in the early
resolution thereof. The trial court denied the motion for reconsideration.
Hence, the instant petition for review on the following grounds:
I

DECISION
YNARES-SANTIAGO, J.:

THE TRIAL COURT ERRED IN LAW IN DISMISSING PETITIONERS COMPLAINT ON

THE GROUND OF THEIR FAILURE TO APPEAR AT THE SCHEDULED HEARING
DESPITE THAT DEFENDANT PNB HAS BEEN EQUALLY GUILTY LIKEWISE.

This is a petition for review on certiorari assailing the April 27, 2005 Order 1 of the Regional Trial
Court of Laoag City, Branch 14, in Civil Case No. 12523-14 dismissing petitioners complaint,
and the July 28, 2005 Resolution2denying petitioners motion for reconsideration.

II

The case stemmed from an action filed by petitioners in the trial court for Annulment of Mortgage,
Extra-judicial Foreclosure Sale, Annulment of Transfer Certificate of Title Nos. T-21064 and T21065 and Deed of Sale with a Prayer for Preliminary Injunction and Restraining Order. The
complaint alleged that the assailed mortgage and the foreclosure proceedings were null and void
since the written consent of petitioners, as beneficiaries of the mortgaged property, were not
secured. Respondent bank denied the claim and alleged that in the execution of the mortgage,
petitioners in fact gave their consent.
During the course of the proceedings, petitioners and their counsel failed to attend a scheduled
trial. Upon motion of respondent bank, the complaint was dismissed. In its order dated April 27,
2005, the trial court stated:
When the case was called, Atty. Lorenzo Castillo, counsel for the plaintiffs did not appear despite
proper notice. No plaintiff appeared. Atty. Eduardo Alcantara, counsel for defendant bank
appeared.
Atty. Alcantara manifested that there were numerous occasions in the past when plaintiffs and
counsel did not attend. He pointed out that there is an apparent lack of interest on the part of
plaintiff to prosecute the action. He moved to dismiss the case on that legal ground.
WHEREFORE, in view of the above premises, the above-entitled case is hereby ordered
dismissed.
SO ORDERED.3
Petitioners filed a motion for reconsideration claiming that they have been continuously pursuing
negotiations with respondent bank to purchase back the property and have gained positive results.

THE TRIAL COURT ERRED IN LAW IN DISMISING THE CASE DESPITE THAT THE
CASE INVOLVES A PROPERTY OF SIGNIFICANT IMPORTANCE AND VALUE TO THE
LIFE AND DIGNITY OF THE PETITIONERS THIS (sic) CALLING FOR THE OVERRIDING
CONSIDERATION OF A JUDGMENT BASED ON THE MERITS OVER THE PRIMORDIAL
INTEREST OF PROCEDURE AND TECHNICALITIES.4
The petition lacks merit.
On the procedural aspect, we find that petitioners erred in filing a petition for review on certiorari
under Rule 45 of the Rules of Court instead of filing an appeal with the Court of Appeals. Section
3, Rule 17 of the Rules of Court provides:
SEC. 3. Dismissal due to fault of plaintiff.If, for no justifiable cause, the plaintiff fails to appear
on the date of the presentation of his evidence in chief on the complaint, or to prosecute his action
for an unreasonable length of time, or to comply with these Rules or any order of the court, the
complaint may be dismissed upon the motion of the defendant or upon the courts own motion,
without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a
separate action. This dismissal shall have the effect of an adjudication upon the merits, unless
otherwise declared by the court. (Emphasis supplied)
Upon the order of dismissal, petitioners counsel filed a timely motion for reconsideration which
was denied by the trial court. Considering that an order of dismissal for failure to prosecute has the
effect of an adjudication on the merits, petitioners counsel should have filed a notice of appeal
with the appellate court within the reglementary period.5 Instead of filing a petition under Rule 45
of the Rules of Court, the proper recourse was an ordinary appeal with the Court of Appeals under
Rule 41, which provides:
Sec. 2. Modes of Appeal.

(a) Ordinary appeal. The appeal to the Court of Appeals in cases decided by the Regional
Trial Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal
with the court which rendered the judgment or final order appealed from and serving a copy
thereof upon the adverse party x x x. (Emphasis supplied)
The rule is clear. In order to perfect an appeal all that is required is a pro forma notice of appeal.
Perhaps due to failure to file a notice of appeal within the remaining two days of the appeal period,
petitioners counsel instead filed the instant petition. The rules of procedure, however, do not exist
for the convenience of the litigants. These rules are established to provide order to and enhance the
efficiency of our judicial system. They are not to be trifled with lightly or overlooked by mere
expedience of invoking "substantial justice." In Balindong v. Court of Appeals6 we stated:
Hence, rules of procedure must be faithfully followed except only when for persuasive reasons,
they may be relaxed to relieve a litigant of an injustice not commensurate with his failure to
comply with the prescribed procedure. Concomitant to a liberal application of the rules of
procedure should be an effort on the part of the party invoking liberality to explain its failure to
comply with the rules. Procedural law has its own rationale in the orderly administration of
justice, namely, to ensure the effective enforcement of substantive rights by providing for a
system that obviates arbitrariness, caprice, despotism or whimsicality in the settlement of
disputes. The enforcement of procedural rules is not antithetical to the substantive rights of
the litigants. The policy of the courts is to give effect to both procedural and substantive laws, as
complementing each other, in the just and speedy resolution of the dispute between the parties.
(Emphasis supplied)
Even on the merits, petitioners cause must still fail. The trial court dismissed the complaint due to
petitioners and counsels apparent lack of interest to prosecute the case. Petitioners counsel
argued that their repeated failure to attend the hearing was caused by conflicts in his schedule and
by his lack of knowledge of the trial dates. He also contended that respondent bank and counsel
have been similarly guilty thereof, and that petitioners have informed the court of ongoing
negotiations for the re-purchase of the foreclosed property. Hence, petitioners invoke liberality and
the primordial interest of substantial justice over the strict enforcement of the rules of technicality.
We are not persuaded. In every action, the plaintiff is duty-bound to prosecute the same with
utmost diligence and with reasonable dispatch to enable him to obtain the relief prayed for and, at
the same time, minimize the clogging of the court dockets. The expeditious disposition of cases is
as much the duty of the plaintiff as the court. It must be remembered that a defendant in a case
likewise has the right to the speedy disposition of the action filed against him 7 considering that any
delay in the proceedings entail prolonged anxiety and valuable time wasted.
In the case at bar, three years have since lapsed from the filing of the complaint on May 3, 2002
and the order of dismissal on April 27, 2005. Petitioners failure to prosecute their case and
proceed with the trial during the span of three years leads to no other conclusion than that
petitioners have no interest in seeing their case terminated at the earliest possible time; or that

petitioners case is unmeritorious from inception. Whichever the case may be, the dismissal order
of the trial court stand and is now immutable.
Petitioners cannot claim that they were deprived of due process. True, the right to due process
safeguards the opportunity to be heard and to submit any evidence one may have in support of his
claim or defense.8Nonetheless, we have time and again held that where the opportunity to be
heard, either through verbal arguments or pleadings, is accorded, and the party can "present its
side" or defend its "interest in due course," there is no denial of due process. 9 What the law
proscribes is the lack of opportunity to be heard.10
Petitioners had the opportunity to present their case and claim the relief they seek. But their
inadvertence and lack of circumspect renders the trial courts order dismissing their case final and
executory.
WHEREFORE, the petition is DENIED. The assailed April 27, 2005 Order of the Regional Trial
Court of Laoag City, Branch 14 and its July 28, 2005 Resolution in Civil Case No. 12523-14
are AFFIRMED.
SO ORDERED.

7.

G.R. No. 171805

May 30, 2011

The facts of this case, as stated in the Decision dated September 29, 2005 of the Court of Appeals,
are as follows:

PHILIPPINE
NATIONAL
BANK, Petitioner,
vs.
MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR (deceased), represented
by his heirs; RAMON A. BARCENILLA; ROSARIO T. BARCENILLA; JOSE B. ENAD
(deceased), represented by his heirs; and RICARDO GABUYA (deceased), represented by
his heirs, Respondents.

In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to rehabilitate
RISCO, they contributed a total amount of P212,720.00 which was used in the purchase of the
three (3) parcels of land described as follows:
"A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No.
3732) situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx
containing an area of SEVENTY[-]EIGHT THOUSAND ONE HUNDRED
EIGHTY[-]FIVE SQUARE METERS (78,185) more or less. x x x" covered by Transfer
Certificate of Title No. 8921 in the name of Rural Insurance & Surety Co., Inc.";

x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 172021
MERELO
B.
AZNAR
and
MATIAS
vs.
PHILIPPINE NATIONAL BANK, Respondent.

B.

AZNAR

"A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No.
3732), situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx
containing an area of THREE HUNDRED TWENTY[-]NINE THOUSAND FIVE
HUNDRED FORTY[-]SEVEN SQUARE METERS (329,547), more or less. xxx"
covered by Transfer Certificate of Title No. 8922 in the name of Rural Insurance &
Surety Co., Inc." and

III, Petitioners,

DECISION
LEONARDO-DE CASTRO, J.:
Before the Court are two petitions for review on certiorari under Rule 45 of the Rules of Court
both seeking to annul and set aside the Decision 1 dated September 29, 2005 as well as the
Resolution2 dated March 6, 2006 of the Court of Appeals in CA-G.R. CV No. 75744, entitled
"Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased) represented by his heirs, Ramon
A. Barcenilla (deceased) represented by his heirs, Rosario T. Barcenilla, Jose B. Enad (deceased)
represented by his heirs, and Ricardo Gabuya (deceased) represented by his heirs v. Philippine
National Bank, Jose Garrido and Register of Deeds of Cebu City." The September 29, 2005
Decision of the Court of Appeals set aside the Decision 3 dated November 18, 1998 of the Regional
Trial Court (RTC) of Cebu City, Branch 17, in Civil Case No. CEB-21511. Furthermore, it ordered
the Philippine National Bank (PNB) to pay Merelo B. Aznar; Matias B. Aznar III; Jose L. Aznar
(deceased), represented by his heirs; Ramon A. Barcenilla (deceased), represented by his heirs;
Rosario T. Barcenilla; Jose B. Enad (deceased), represented by his heirs; and Ricardo Gabuya
(deceased), represented by his heirs (Aznar, et al.), the amount of their lien based on the Minutes
of the Special Meeting of the Board of Directors 4 (Minutes) of the defunct Rural Insurance and
Surety Company, Inc. (RISCO) duly annotated on the titles of three parcels of land, plus legal
interests from the time of PNBs acquisition of the subject properties until the finality of the
judgment but dismissing all other claims of Aznar, et al. On the other hand, the March 6, 2006
Resolution of the Court of Appeals denied the Motion for Reconsideration subsequently filed by
each party.

"A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988), situated in the District
of Lahug, City of Cebu, Island of Cebu. xxx containing an area of FIFTY[-]FIVE
THOUSAND SIX HUNDRED FIFTY[-]THREE (55,653) SQUARE METERS, more or
less." covered by Transfer Certificate of Title No. 24576 in the name of Rural Insurance
& Surety Co., Inc."
After the purchase of the above lots, titles were issued in the name of RISCO. The amount
contributed by plaintiffs constituted as liens and encumbrances on the aforementioned properties
as annotated in the titles of said lots. Such annotation was made pursuant to the Minutes of the
Special Meeting of the Board of Directors of RISCO (hereinafter referred to as the "Minutes") on
March 14, 1961, pertinent portion of which states:
xxxx
3. The President then explained that in a special meeting of the stockholders previously called for
the purpose of putting up certain amount of P212,720.00 for the rehabilitation of the Company, the
following stockholders contributed the amounts indicated opposite their names:
CONTRIBUTED SURPLUS

x x x x"
MERELO B. AZNAR

P50,000.00

MATIAS B. AZNAR

50,000.00

JOSE L. AZNAR

27,720.00

RAMON A. BARCENILLA

25,000.00

Thereafter, various subsequent annotations were made on the same titles, including the Notice of
Attachment and Writ of Execution both dated August 3, 1962 in favor of herein defendant PNB, to
wit:
On TCT No. 8921 for Lot 3597:
Entry No. 7416-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case
No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff, versus
Iluminada Gonzales, et al., Defendants", attaching all rights, interest and participation of the
defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of the two parcels of land
covered by T.C.T. Nos. 8921, Attachment No. 330 and 185.
Date of Instrument August 3, 1962.

ROSARIO T. BARCENILLA

JOSE B. ENAD

25,000.00

17,500.00

Date of Inscription August 3, 1962, 3:00 P.M.

Entry No. 7417-V-4-D.B. Writ of Execution By the Court of First Instance of Manila,
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to make
the sum of Seventy[-]One Thousand Three Hundred Pesos (P71,300.00) plus interest etc., in
connection with Civil Case No. 47725, File No. T-8021.
Date of Instrument July 21, 1962.

RICARDO GABUYA

17,500.00

212,720.00

Date of Inscription August 3, 1962, 3:00 P.M.

Entry No. 7512-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case
Nos. IV-74065, 73929, 74129, 72818, in the Municipal Court of the City of Manila, entitled "Jose
Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als., Defendants", attaching all
rights, interests and participation of the defendants, to the parcels of land covered by T.C.T. Nos.
8921 & 8922 Attachment No. 186, File No. T-8921.
Date of the Instrument August 16, 1962.

xxxx
Date of Inscription August 16, 1962, 2:50 P.M.
And that the respective contributions above-mentioned shall constitute as their lien or interest on
the property described above, if and when said property are titled in the name of RURAL
INSURANCE & SURETY CO., INC., subject to registration as their adverse claim in pursuance
of the Provisions of Land Registration Act, (Act No. 496, as amended) until such time their
respective contributions are refunded to them completely.

Entry No. 7513-V-4-D.B. Writ of Execution By the Municipal Court of the City of Manila,
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to make
the sum of Three Thousand Pesos (P3,000.00), with interest at 12% per annum from July 20,
1959, in connection with Civil Case Nos. IV-74065, 73929, 74613 annotated above.
File No. T-8921

Date of the Instrument August 11, 1962.

Date of the Instrument August 16, 1962.

Date of the Inscription August 16, 1962, 2:50 P.M.

Date of the Instription August 16, 1962 2:50 P.M.

On TCT No. 8922 for Lot 7380:

Entry No. 1862-V-7-D.B. Writ of Execution by the Municipal Court of Manila, commanding
the Provincial Sheriff of Cebu, of the lands and buildings of the Defendants, to make the sum of
Three Thousand Pesos (P3,000.00), with interest at 12% per annum from July 20, 1959, in
connection with Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871 annotated above.

(Same as the annotations on TCT 8921)

On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c per court order):
Entry No. 1660-V-7-D.B. Notice of Attachment by the Provincial Sheriff of Cebu, Civil Case
No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff, versus,
Iluminada Gonzales, et al., Defendants", attaching all rights, interest, and participation of the
defendants Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of the parcel of land herein
described.
Attachment No. 330 & 185.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 1661-V-7-D.B. Writ of Execution by the Court of First Instance of Manila
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants to make
the sum of Seventy[-]One Thousand Three Hundred Pesos (P71,300.00), plus interest, etc., in
connection with Civil Case No. 47725.
File No. T-8921.
Date of the Instrument July 21, 1962.

File No. T-8921.

Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962 at 2:50 P.M.
As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the lone
and highest bidder of the three (3) parcels of land known as Lot Nos. 3597 and 7380, covered by
T.C.T. Nos. 8921 and 8922, respectively, both situated at Talisay, Cebu, and Lot No. 1328-C
covered by T.C.T. No. 24576 situated at Cebu City, for the amount of Thirty-One Thousand Four
Hundred Thirty Pesos (P31,430.00). Thereafter, a Final Deed of Sale dated May 27, 1991 in favor
of the Philippine National Bank was also issued and Transfer Certificate of Title No. 24576 for Lot
1328-C (corrected to 1323-C) was cancelled and a new certificate of title, TCT 119848 was issued
in the name of PNB on August 26, 1991.
This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their
supposed title to the subject properties, declaratory relief, cancellation of TCT and reconveyance
with temporary restraining order and preliminary injunction. Plaintiffs alleged that the subsequent
annotations on the titles are subject to the prior annotation of their liens and encumbrances.
Plaintiffs further contended that the subsequent writs and processes annotated on the titles are all
null and void for want of valid service upon RISCO and on them, as stockholders. They argued
that the Final Deed of Sale and TCT No. 119848 are null and void as these were issued only after
28 years and that any right which PNB may have over the properties had long become stale.

Date of the Inscription August 3, 1962 3:00 P.M.

Entry No. 1861-V-7-D.B. - Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case
Nos. IV-74065, 73929, 74129, 72613 & 72871, in the Municipal Court of the City of Manila,
entitled "Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als., Defendants",
attaching all rights, interest and participation of the defendants, to the parcel of land herein
described.
Attachment No. 186.
File No. T-8921.

Defendant PNB on the other hand countered that plaintiffs have no right of action for quieting of
title since the order of the court directing the issuance of titles to PNB had already become final
and executory and their validity cannot be attacked except in a direct proceeding for their
annulment. Defendant further asserted that plaintiffs, as mere stockholders of RISCO do not have
any legal or equitable right over the properties of the corporation. PNB posited that even if
plaintiffs monetary lien had not expired, their only recourse was to require the reimbursement or
refund of their contribution.51awphi1
Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings 6 on October 5, 1998.
Thus, the trial court rendered the November 18, 1998 Decision, which ruled against PNB on the

basis that there was an express trust created over the subject properties whereby RISCO was the
trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui que trust. The
dispositive portion of the said ruling reads:

annotated on the titles, plus legal interests from the time of appellants acquisition of the subject
properties until the finality of this judgment.
All other claims of the plaintiffs-appellees are hereby DISMISSED.8

WHEREFORE, judgment is hereby rendered as follows:

a) Declaring the Minutes of the Special Meeting of the Board of Directors of RISCO
approved on March 14, 1961 (Annex "E," Complaint) annotated on the titles to subject
properties on May 15, 1962 as an express trust whereby RISCO was a mere trustee and
the above-mentioned stockholders as beneficiaries being the true and lawful owners of
Lots 3597, 7380 and 1323;
b) Declaring all the subsequent annotations of court writs and processes, to wit: Entry No.
7416-V-4-D.B., 7417-V-4-D.B., 7512-V-4-D.B., and 7513-V-4-D.B. in TCT No. 8921 for
Lot 3597 and TCT No. 8922 for Lot 7380; Entry No. 1660-V-7-D.B., Entry No. 1661-V7-D.B., Entry No. 1861-V-7-D.B., Entry No. 1862-V-7-D.B., Entry No. 4329-V-7-D.B.,
Entry No. 3761-V-7-D.B. and Entry No. 26522 v. 34, D.B. on TCT No. 24576 for Lot
1323-C, and all other subsequent annotations thereon in favor of third persons, as null
and void;
c) Directing the Register of Deeds of the Province of Cebu and/or the Register of Deeds
of Cebu City, as the case may be, to cancel all these annotations mentioned in paragraph
b) above the titles;
d) Directing the Register of Deeds of the Province of Cebu to cancel and/or annul TCTs
Nos. 8921 and 8922 in the name of RISCO, and to issue another titles in the names of the
plaintiffs; and
e) Directing Philippine National Bank to reconvey TCT No. 119848 in favor of the
plaintiffs.7
PNB appealed the adverse ruling to the Court of Appeals which, in its September 29, 2005
Decision, set aside the judgment of the trial court. Although the Court of Appeals agreed with the
trial court that a judgment on the pleadings was proper, the appellate court opined that the
monetary contributions made by Aznar, et al., to RISCO can only be characterized as a loan
secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB to pay
Aznar, et al., the amount of their contributions plus legal interest from the time of acquisition of
the property until finality of judgment.lawphil The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Judgment is hereby SET ASIDE.
A new judgment is rendered ordering Philippine National Bank to pay plaintiffs-appellees the
amount of their lien based on the Minutes of the Special Meeting of the Board of Directors duly

Both parties moved for reconsideration but these were denied by the Court of Appeals. Hence,
each party filed with this Court their respective petitions for review on certiorari under Rule 45 of
the Rules of Court, which were consolidated in a Resolution9 dated October 2, 2006.
In PNBs petition, docketed as G.R. No. 171805, the following assignment of errors were raised:
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS OF THE
TRIAL COURT THAT A JUDGMENT ON THE PLEADINGS WAS WARRANTED
DESPITE THE EXISTENCE OF GENUINE ISSUES OF FACTS ALLEGED IN
PETITIONER PNBS ANSWER.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT
OF RESPONDENTS TO REFUND OR REPAYMENT OF THEIR CONTRIBUTIONS
HAD NOT PRESCRIBED AND/OR THAT THE MINUTES OF THE SPECIAL
MEETING OF THE BOARD OF DIRECTORS OF RISCO CONSTITUTED AS AN
EFFECTIVE ADVERSE CLAIM.
III
THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE DISMISSAL OF
THE COMPLAINT ON GROUNDS OF RES JUDICATA AND LACK OF CAUSE OF
ACTION ALLEGED BY PETITIONER IN ITS ANSWER.10
On the other hand, Aznar, et al.s petition, docketed as G.R. No. 172021, raised the following
issue:
THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE
CONTRIBUTIONS MADE BY THE STOCKHOLDERS OF RISCO WERE MERELY
A LOAN SECURED BY THEIR LIEN OVER THE PROPERTIES, SUBJECT TO
REIMBURSEMENT OR REFUND, RATHER THAN AN EXPRESS TRUST.11
Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment on the pleadings was
not proper because its Answer,12 which it filed during the trial court proceedings of this case,
tendered genuine issues of fact since it did not only deny material allegations in Aznar, et al.s

Complaint13 but also set up special and affirmative defenses. Furthermore, PNB maintains that, by
virtue of the trial courts judgment on the pleadings, it was denied its right to present evidence and,
therefore, it was denied due process.

However, a careful reading of Aznar, et al.s Complaint and of PNBs Answer would reveal that
both parties raised several claims and defenses, respectively, other than what was cited by the
Court of Appeals, which requires the presentation of evidence for resolution, to wit:

The contention is meritorious.

The legal basis for rendering a judgment on the pleadings can be found in Section 1, Rule 34 of
the Rules of Court which states that "[w]here an answer fails to tender an issue, or otherwise
admits the material allegations of the adverse partys pleading, the court may, on motion of that
party, direct judgment on such pleading. x x x."
Judgment on the pleadings is, therefore, based exclusively upon the allegations appearing in the
pleadings of the parties and the annexes, if any, without consideration of any evidence
aliunde.14 However, when it appears that not all the material allegations of the complaint were
admitted in the answer for some of them were either denied or disputed, and the defendant has set
up certain special defenses which, if proven, would have the effect of nullifying plaintiffs main
cause of action, judgment on the pleadings cannot be rendered.15
In the case at bar, the Court of Appeals justified the trial courts resort to a judgment on the
pleadings in the following manner:
Perusal of the complaint, particularly, Paragraph 7 thereof reveals:
"7. That in their desire to rehabilitate RISCO, the above-named stockholders contributed a total
amount of PhP212,720.00 which was used in the purchase of the above-described parcels of land,
which amount constituted liens and encumbrances on subject properties in favor of the abovenamed stockholders as annotated in the titles adverted to above, pursuant to the Minutes of the
Special Meeting of the Board of Directors of RISCO approved on March 14, 1961, a copy of
which is hereto attached as Annex "E".
On the other hand, defendant in its Answer, admitted the aforequoted allegation with the
qualification that the amount put up by the stockholders was "used as part payment" for the
properties. Defendant further averred that plaintiffs liens and encumbrances annotated on the
titles issued to RISCO constituted as "loan from the stockholders to pay part of the purchase price
of the properties" and "was a personal obligation of RISCO and was thus not a claim adverse to
the ownership rights of the corporation." With these averments, We do not find error on the part of
the trial court in rendering a judgment on the pleadings. For one, the qualification made by
defendant in its answer is not sufficient to controvert the allegations raised in the complaint. As to
defendants contention that the money contributed by plaintiffs was in fact a "loan" from the
stockholders, reference can be made to the Minutes of the Special Meeting of the Board of
Directors, from which plaintiffs-appellees anchored their complaint, in order to ascertain the true
nature of their claim over the properties. Thus, the issues raised by the parties can be resolved on
the basis of their respective pleadings and the annexes attached thereto and do not require further
presentation of evidence aliunde.16

Complaint (Aznar, et al.)

Answer (PNB)

11. That these subsequent annotations on the titles of the

properties in question are subject to the prior annotation of liens
and encumbrances of the above-named stockholders per Entry
No. 458-V-7-D.B. inscribed on TCT No. 24576 on May 15,
1962 and per Entry No. 6966-V-4-D.B. on TCT No. 8921 and
TCT No. 8922 on May 15, 1962;

10) Par. 11 is denied as the loan

stockholders to pay part of the
price of the properties was a
obligation of RISCO and was th
claim adverse to the ownership
the corporation;

12. That these writs and processes annotated on the titles are all 11) Par. 12 is denied as in fact
null and void for total want of valid service upon RISCO and RISCO had been sent to its la
the above-named stockholders considering that as early as address at Plaza Goite, Manila;
sometime in 1958, RISCO ceased operations as earlier stated,
and as early as May 15, 1962, the liens and encumbrances of the
above-named stockholders were annotated in the titles of
subject properties;

13. That more particularly, the Final Deed of Sale (Annex "G")
and TCT No. 119848 are null and void as these were issued
only after 28 years and 5 months (in the case of the Final Deed
of Sale) and 28 years, 6 months and 29 days (in the case of TCT
119848) from the invalid auction sale on December 27, 1962,
hence, any right, if any, which PNB had over subject properties
had long become stale;

12) Par. 13 is denied for no law

the final deed of sale to be
immediately after the end
redemption period. Moreover,
court of competent jurisdic
already ruled that PNB was ent
final deed of sale;

14. That plaintiffs continue to have possession of subject

properties and of their corresponding titles, but they never
received any process concerning the petition filed by PNB to
have TCT 24576 over Lot 1323-C surrendered and/or cancelled;

13) Par. 14 is denied as plaintiff

in actual possession of the lan
they were, their possession was
for the creditors of RISCO like P

the drafters thereof, the courts may not read into it any other intention that would contradict its
plain import.
15. That there is a cloud created on the aforementioned titles of 14) Par. 15 is denied as the court orders
RISCO by reason of the annotate writs, processes and directing the issuance of titles to PNB in
proceedings caused by Jose Garrido and PNB which were lieu of TCT 24576 and TCT The
8922term
are lien as used in the Minutes is defined as "a discharge on property usually for the
payment
apparently valid or effective, but which are in truth and in fact valid judgments which cannot be set asideof some debt or obligation. A lien is a qualified right or a proprietary interest which may
be instant
exercised over the property of another. It is a right which the law gives to have a debt satisfied
invalid and ineffective, and prejudicial to said titles and to the in a collateral proceeding like the
18
out
of a particular thing. It signifies a legal claim or charge on property; whether real or personal,
rights of the plaintiffs, which should be removed and the titles case.
17
as
a
collateral or security for the payment of some debt or obligation." Hence, from the use of the
quieted.
word "lien" in the Minutes, We find that the money contributed by plaintiffs-appellees was in the
nature of a loan, secured by their liens and interests duly annotated on the titles. The annotation of
their lien serves only as collateral and does not in any way vest ownership of property to
plaintiffs.20(Emphases supplied.)
Furthermore, apart from refuting the aforecited material allegations made by Aznar, et al., PNB
also indicated in its Answer the special and affirmative defenses of (a) prescription; (b) res
judicata; (c) Aznar, et al., having no right of action for quieting of title; (d) Aznar, et al.s lien
We are not persuaded by the contention of Aznar, et al., that the language of the subject Minutes
being ineffective and not binding to PNB; and (e) Aznar, et al.s having no personality to file the
created an express trust.
suit.19
From the foregoing, it is indubitably clear that it was error for the trial court to render a judgment
on the pleadings and, in effect, resulted in a denial of due process on the part of PNB because it
was denied its right to present evidence. A remand of this case would ordinarily be the appropriate
course of action. However, in the interest of justice and in order to expedite the resolution of this
case which was filed with the trial court way back in 1998, the Court finds it proper to already
resolve the present controversy in light of the existence of legal grounds that would dispose of the
case at bar without necessity of presentation of further evidence on the other disputed factual
claims and defenses of the parties.
A thorough and comprehensive scrutiny of the records would reveal that this case should be
dismissed because Aznar, et al., have no title to quiet over the subject properties and their true
cause of action is already barred by prescription.
At the outset, the Court agrees with the Court of Appeals that the agreement contained in the
Minutes of the Special Meeting of the RISCO Board of Directors held on March 14, 1961 was a
loan by the therein named stockholders to RISCO. We quote with approval the following
discussion from the Court of Appeals Decision dated September 29, 2005:
Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim, showed that their
contributions shall constitute as "lien or interest on the property" if and when said properties are
titled in the name of RISCO, subject to registration of their adverse claim under the Land
Registration Act, until such time their respective contributions are refunded to them completely.
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation
shall control. When the language of the contract is explicit leaving no doubt as to the intention of

Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in
another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary. Trust relations between parties may either be express or implied. An
express trust is created by the intention of the trustor or of the parties. An implied trust comes into
being by operation of law.21
Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and
positive acts of the settlor or the trustor - by some writing, deed, or will or oral declaration. It is
created not necessarily by some written words, but by the direct and positive acts of the
parties.22 This is in consonance with Article 1444 of the Civil Code, which states that "[n]o
particular words are required for the creation of an express trust, it being sufficient that a trust is
clearly intended."
In other words, the creation of an express trust must be manifested with reasonable certainty and
cannot be inferred from loose and vague declarations or from ambiguous circumstances
susceptible of other interpretations.23
No such reasonable certitude in the creation of an express trust obtains in the case at bar. In fact, a
careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes does not offer
any indication that the parties thereto intended that Aznar, et al., become beneficiaries under an
express trust and that RISCO serve as trustor.
Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the properties at
issue because they have no legal and/or equitable rights over the properties that are derived from
the previous registered owner which is RISCO, the pertinent provision of the law is Section 2 of
the Corporation Code (Batas Pambansa Blg. 68), which states that "[a] corporation is an artificial
being created by operation of law, having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence."

As a consequence thereof, a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. 24 Thus, we had previously ruled
in Magsaysay-Labrador v. Court of Appeals 25 that the interest of the stockholders over the
properties of the corporation is merely inchoate and therefore does not entitle them to intervene in
litigation involving corporate property, to wit:
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits thereof
and in the properties and assets thereof on dissolution, after payment of the corporate debts and
obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the property,
his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no
legal sense the owners of corporate property, which is owned by the corporation as a distinct legal
person.26
In the case at bar, there is no allegation, much less any proof, that the corporate existence of
RISCO has ceased and the corporate property has been liquidated and distributed to the
stockholders. The records only indicate that, as per Securities and Exchange Commission (SEC)
Certification27 dated June 18, 1997, the SEC merely suspended RISCOs Certificate of
Registration beginning on September 5, 1988 due to its non-submission of SEC required reports
and its failure to operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the properties
at issue in this case on the strength of the Minutes which, at most, is merely evidence of a loan
agreement between them and the company. There is no indication or even a suggestion that the
ownership of said properties were transferred to them which would require no less that the said
properties be registered under their names. For this reason, the complaint should be dismissed
since Aznar, et al., have no cause to seek a quieting of title over the subject properties.
At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO.
Unfortunately, the right to seek repayment or reimbursement of their contributions used to
purchase the subject properties is already barred by prescription.
Section 1, Rule 9 of the Rules of Court provides that when it appears from the pleadings or the
evidence on record that the action is already barred by the statute of limitations, the court shall
dismiss the claim, to wit:
Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings or the evidence on record that the court has
no jurisdiction over the subject matter, that there is another action pending between the same

parties for the same cause, or that the action is barred by a prior judgment or by statute of
limitations, the court shall dismiss the claim. (Emphasis supplied.)
In Feliciano v. Canoza,28 we held:
We have ruled that trial courts have authority and discretion to dismiss an action on the ground of
prescription when the parties pleadings or other facts on record show it to be indeed time-barred x
x x; and it may do so on the basis of a motion to dismiss, or an answer which sets up such ground
as an affirmative defense; or even if the ground is alleged after judgment on the merits, as in a
motion for reconsideration; or even if the defense has not been asserted at all, as where no
statement thereof is found in the pleadings, or where a defendant has been declared in
default. What is essential only, to repeat, is that the facts demonstrating the lapse of the
prescriptive period, be otherwise sufficiently and satisfactorily apparent on the record;
either in the averments of the plaintiffs complaint, or otherwise established by the
evidence.29 (Emphasis supplied.)
The pertinent Civil Code provision on prescription which is applicable to the issue at hand is
Article 1144(1), to wit:
The following actions must be brought within ten years from the time the right of action accrues:
1. Upon a written contract;
2. Upon an obligation created by law;
3. Upon a judgment. (Emphasis supplied.)
Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 30 we held that the term
"written contract" includes the minutes of the meeting of the board of directors of a corporation,
which minutes were adopted by the parties although not signed by them, to wit:
Coming now to the question of prescription raised by defendant Lepanto, it is contended by the
latter that the period to be considered for the prescription of the claim regarding participation in
the profits is only four years, because the modification of the sharing embodied in the
management contract is merely verbal, no written document to that effect having been presented.
This contention is untenable. The modification appears in the minutes of the special meeting of the
Board of Directors of Lepanto held on August 21, 1940, it having been made upon the authority of
its President, and in said minutes the terms of modification had been specified. This is sufficient to
have the agreement considered, for the purpose of applying the statute of limitations, as a written
contract even if the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held
that a writing containing the terms of a contract if adopted by two persons may constitute a
contract in writing even if the same is not signed by either of the parties (3 A.L.R., 2d, pp. 812813). Another authority says that an unsigned agreement the terms of which are embodied in a

document unconditionally accepted by both parties is a written contract (Corbin on Contracts, Vol.
I, p. 85).31
Applied to the case at bar, the Minutes which was approved on March 14, 1961 is considered as a
written contract between Aznar, et al., and RISCO for the reimbursement of the contributions of
the former. As such, the former had a period of ten (10) years from 1961 within which to enforce
the said written contract. However, it does not appear that Aznar, et al., filed any action for
reimbursement or refund of their contributions against RISCO or even against PNB. Instead the
suit that Aznar, et al., brought before the trial court only on January 28, 1998 was one to quiet title
over the properties purchased by RISCO with their contributions. It is unmistakable that their right
of action to claim for refund or payment of their contributions had long prescribed. Thus, it was
reversible error for the Court of Appeals to order PNB to pay Aznar, et al., the amount of their
liens based on the Minutes with legal interests from the time of PNBs acquisition of the subject
properties.
In view of the foregoing, it is unnecessary for the Court to pass upon the other issues raised by the
parties.
WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit.
The petition of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil Case
No. CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No costs.
SO ORDERED.

8.

G.R. No. 170026

June 20, 2012

SHIMIZU
PHILIPPINES
CONTRACTORS,
INC., Petitioner,
vs.
MRS. LETICIA B. MAGSALIN, doing business under the trade name "KAREN'S
TRADING," FGU INSURANCE CORPORATION, GODOFREDO GARCIA,
CONCORDIA GARCIA, and REYNALDO BAETIONG, Respondents.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by Shimizu Philippines Contractors, Inc.
(petitioner) to challenge the twin resolutions of the Court of Appeals (CA)2 in CA-G.R. CV No.
83096 which dismissed the appeal of the petitioner on the ground of lack of jurisdiction 3 and
denied the petitioners subsequent motion for reconsideration. 4 The appeal in CA-G.R. CV No.
83096 had sought to nullify the December 16, 2003 order 5 of the Regional Trial Court (RTC)
dismissing the petitioners complaint for sum of money and damages on the ground of non
prosequitur.
The Antecedents
The antecedent facts of the petition before us are not disputed.
An alleged breach of contract was the initial event that led to the present petition. The petitioner
claims that one Leticia Magsalin, doing business as "Karens Trading," had breached their
subcontract agreement for the supply, delivery, installation, and finishing of parquet tiles for
certain floors in the petitioners Makati City condominium project called "The Regency at
Salcedo." The breach triggered the agreements termination. When Magsalin also refused to return
the petitioners unliquidated advance payment and to account for other monetary liabilities despite
demand, the petitioner sent a notice to respondent FGU Insurance Corporation (FGU Insurance)
demanding damages pursuant to the surety and performance bonds the former had issued for the
subcontract.
On April 30, 2002, the petitioner filed a complaint docketed as Civil Case No. 02-488 against both
Magsalin and FGU Insurance. It was raffled to Branch 61 of the RTC of Makati City. The
complaint sought Two Million Three Hundred Twenty-Nine Thousand One Hundred Twenty Four
Pesos and Sixty Centavos (P2,329,124.60) as actual damages for the breach of contract.
FGU Insurance was duly served with summons. With respect to Magsalin, however, the
corresponding officers return declared that both she and "Karens Trading" could not be located at
their given addresses, and that despite further efforts, their new addresses could not be determined.

In August 2002, FGU Insurance filed a motion to dismiss the complaint. The petitioner filed its
opposition to the motion. The motion to dismiss was denied as well as the ensuing motion for
reconsideration, and FGU Insurance was obliged to file an answer.
In October 2002, in an effort to assist the RTC in acquiring jurisdiction over Magsalin, the
petitioner filed a motion for leave to serve summons on respondent Magsalin by way of
publication. In January 2003, the petitioner filed its reply to FGU Insurances answer.
In February 2003, FGU Insurance filed a motion for leave of court to file a third-party complaint.
Attached to the motion was the subject complaint,6 with Reynaldo Baetiong, Godofredo Garcia
and Concordia Garcia named as third-party defendants. FGU Insurance claims that the three had
executed counter-guaranties over the surety and performance bonds it executed for the subcontract
with Magsalin and, hence, should be held jointly and severally liable in the event it is held liable
in Civil Case No. 02-488.
The RTC admitted the third-party complaint and denied the motion to serve summons by
publication on the ground that the action against respondent Magsalin was in personam.
In May 2003, the RTC issued a notice setting the case for hearing on June 20, 2003. FGU
Insurance filed a motion to cancel the hearing on the ground that the third-party defendants had
not yet filed their answer. The motion was granted.
In June 2003, Baetiong filed his answer to the third-party complaint. He denied any personal
knowledge about the surety and performance bonds for the subcontract with Magsalin. 7 Of the
three (3) persons named as third-party defendants, only Baetiong filed an answer to the third-party
complaint; the officers returns on the summons to the Garcias state that both could not be located
at their given addresses. Incidentally, the petitioner claims, and Baetiong does not dispute, that it
was not served with a copy of Baetiongs answer. The petitioner now argues before us that FGU
Insurance, which is the plaintiff in the third-party complaint, had failed to exert efforts to serve
summons on the Garcias. It suggests that a motion to serve summons by publication should have
been filed for this purpose. The petitioner also asserts that the RTC should have scheduled a
hearing to determine the status of the summons to the third-party defendants. 8
The Order Of Dismissal
With the above procedural events presented by both parties as the only backdrop, on December 16,
2003 the RTC issued a tersely worded order 9 dismissing Civil Case No. 02-488. For clarity, we
quote the dismissal order in full:
ORDER
For failure of [petitioner] to prosecute, the case is hereby DISMISSED.

SO ORDERED.
The RTC denied the petitioners motion for reconsideration,10 prompting the latter to elevate its
case to the CA via a Rule 41 petition for review.11

respondent Leticia B. Magsalin as well as third-party defendant-respondents Godofredo

and Concordia Garcias whereabouts were unknown, hence no service yet on them of the
copy of the summons and complaint with annexes[.]
IV. The lower court erred in declaring that Petitioner failed to prosecute the case despite
the fact that it was party respondent FGU which caused the cancellation of the hearing.

The Ruling of the Appellate Court

FGU Insurance moved for the dismissal of the appeal on the ground of lack of jurisdiction. It
argued that the appeal raised a pure question of law as it did not dispute the proceedings before the
issuance of the December 16, 2003 dismissal order.
12

The petitioner, on the other hand, insisted that it had raised questions of fact in the appeal. Thus While, the instant appeal does not involve the merits of the case, the same involves questions of
fact based on the records of the case. It must be emphasized that the lower courts dismissal of
the case based on alleged failure to prosecute on the part of plaintiff-appellant was too sudden and
precipitate. This being the case, the facts [sic] to be determined is whether based on the records of
the case, was there a definite inaction on the part of plaintiff-appellant? A careful examination of
all pleadings filed as well as the orders of the lower court vis--vis the rules should now be made
in order to determine whether there was indeed a "failure to prosecute" on the part of plaintiffappellant[.]13 (emphases supplied)
The CA agreed with FGU Insurance and dismissed the appeal, and denied as well the subsequent
motion for reconsideration.14 The petitioner thus filed the present petition for review on certiorari.
The Present Petition

V. It is evident that the lower courts dismissal of the case is a clear denial of due
process.15
In our Resolution dated February 13, 2006,16 we required the respondents to comment. FGU
Insurances comment17 alleges that the present petition is "fatally defective" for being
unaccompanied by material portions of the record. It reiterates that the appeal in CA-G.R. CV No.
83096 was improperly filed under Rule 41 and should have been filed directly with this Court
under Rule 45 of the Rules of Court. Baetiong, in his comment, 18 asserts that the dismissal of the
appeal was in accord with existing laws and applicable jurisprudence.
The Ruling Of The Court
Preliminarily, we resolve the claim that the petition violates Rule 45 of the Rules of Court on the
attachment of material portions of the record. We note that FGU Insurance fails to discharge its
burden of proving this claim by not specifying the material portions of the record the petitioner
should have attached to the petition. At any rate, after a careful perusal of the petition and its
attachments, the Court finds the petition to be sufficient. In other words, we can judiciously assess
and resolve the present petition on the basis of its allegations and attachments.

The petitioner pleads five (5) grounds to reverse the CAs resolutions and to reinstate Civil Case
No. 02-488. In an effort perhaps to make sense of the dismissal of the case (considering that the
trial court had not stated the facts that justify it), the petitioner draws this Courts attention to
certain facts and issues that we find to be of little materiality to the disposition of this petition:

After due consideration, we resolve to grant the petition on the ground that the December 16, 2003
dismissal orderis null and void for violation of due process. We are also convinced that the appeal
to challenge the dismissal order was properly filed under Rule 41 of the Rules of Court. We further
find that the dismissal of Civil Case No. 02-488 for failure to prosecute is not supported by facts,
as shown by the records of the case.

Grounds/ Statement of Matters Involved

The Dismissal Order is Void

I. The Appellate Court has jurisdiction to determine the merits of the Appeal as the
matters therein involve both questions of law and fact.
II. The lower court erred in declaring that petitioner failed to prosecute the case despite
the fact that petitioner never received a copy of the Answer of Third-party defendantrespondent Reynaldo Baetiong.
III. The lower court erred in declaring that petitioner failed to prosecute the case despite
the fact that there is no joinder of indispensable parties and issues yet because defendant-

The nullity of the dismissal order is patent on its face. It simply states its conclusion that the case
should be dismissed for non prosequitur, a legal conclusion, but does not state the facts on which
this conclusion is based.
Dismissals of actions for failure of the plaintiff to prosecute is authorized under Section 3, Rule 17
of the Rules of Court. A plain examination of the December 16, 2003 dismissal order shows that
it is an unqualified order and, as such, is deemed to be a dismissal with prejudice. "Dismissals of
actions (under Section 3) which do not expressly state whether they are with or without prejudice
are held to be with prejudice[.]"19 As a prejudicial dismissal, the December 16, 2003

dismissal order is also deemed to be a judgment on the merits so that the petitioners complaint in
Civil Case No. 02-488 can no longer be refiled on the principle of res judicata. Procedurally, when
a complaint is dismissed for failure to prosecute and the dismissal is unqualified, the dismissal has
the effect of an adjudication on the merits.20
As an adjudication on the merits, it is imperative that the dismissal order conform with Section 1,
Rule 36 of the Rules of Court on the writing of valid judgments and final orders. The rule states:
RULE
Judgments, Final Orders and Entry Thereof

36

Section 1. Rendition of judgments and final orders. A judgment or final order determining the
merits of the case shall be in writing personally and directly prepared by the judge, stating clearly
and distinctly the facts and the law on which it is based, signed by him, and filed with the clerk of
the court.
The December 16, 2003 dismissal order clearly violates this rule for its failure to disclose how and
why the petitioner failed to prosecute its complaint. Thus, neither the petitioner nor the reviewing
court is able to know the particular facts that had prompted the prejudicial dismissal. Had the
petitioner perhaps failed to appear at a scheduled trial date? Had it failed to take appropriate
actions for the active prosecution of its complaint for an unreasonable length of time? Had it failed
to comply with the rules or any order of the trial court? The December 16, 2003 dismissal
order does not say.
We have in the past admonished trial courts against issuing dismissal orders similar to that
appealed in CA-G.R. CV No. 83096. A trial court should always specify the reasons for a
complaints dismissal so that on appeal, the reviewing court can readily determine the prima
facie justification for the dismissal.21 A decision that does not clearly and distinctly state the facts
and the law on which it is based leaves the parties in the dark and is especially prejudicial to the
losing party who is unable to point the assigned error in seeking a review by a higher tribunal. 22
We thus agree with the petitioner that the dismissal of Civil Case No. 02-488 constituted a denial
of due process. Elementary due process demands that the parties to a litigation be given
information on how the case was decided, as well as an explanation of the factual and legal
reasons that led to the conclusions of the court. 23Where the reasons are absent, a decision (such as
the December 16, 2003 dismissal order) has absolutely nothing to support it and is thus a nullity.24
For this same reason, we are not moved by respondent FGU Insurances statement that the
disposition of the present petition must be limited to the issue of whether the CA had correctly
dismissed the appeal in CA-G.R. CV No. 83096. 25 This statement implies that we cannot properly
look into the validity of the December 16, 2003 dismissal order in this Rule 45 petition. A void
decision, however, is open to collateral attack. While we note that the validity of the dismissal
order with respect to Section 1, Rule 36 of the Rules of Court was never raised by the petitioner as
an issue in the present petition, the Supreme Court is vested with ample authority to review an

unassigned error if it finds that consideration and resolution are indispensable or necessary in
arriving at a just decision in an appeal. 26 In this case, the interests of substantial justice warrant the
review of an obviously void dismissal order.
The
appeal
under Rule 41 of the Rules of Court

was

properly

filed

While the nullity of the December 16, 2003 dismissal order constitutes the ratio decidendi for this
petition, we nevertheless rule on the contention that the appeal was erroneously filed. 27
In dismissing the appeal, the CA relied on the premise that since the facts presented in the
petitioners appeal were admitted and not disputed, the appeal must thereby raise a pure question
of law proscribed in an ordinary appeal. This premise was effectively the legal principle
articulated in the case of Joaquin v. Navarro,28 cited by the CA in its April 8, 2005 resolution.
Respondent FGU Insurance thus contends that the proper remedy to assail the dismissal of Civil
Case No. 02-488 was an appeal filed under Rule 45 of the Rules of Court.
The reliance on Joaquin is misplaced as it is based on the conclusion the appellate court made in
its April 8, 2005 resolution i.e., that the pleading of undisputed facts is equivalent to a
prohibited appeal. The reliance is inattentive to both the averments of the subject appeal and to the
text of the cited case. The operative legal principle in Joaquin is this: "[W]here a case is submitted
upon an agreement of facts, or where all the facts are stated in the judgment and the issue is the
correctness of the conclusions drawn therefrom, the question is one of law which [is properly
subject to the review of this Court.]" 29 In this case, as already pointed out above, the facts
supposedly supporting the trial courts conclusion of non prosequitur were not stated in the
judgment. This defeats the application of Joaquin.
At any rate, we believe that the filing of the appeal in CA-G.R. CV No. 83096 under Rule 41 of
the Rules of Court was proper as it necessarily involved questions of fact.
An authority material to this case is the case of Olave v. Mistas.30 Directly addressed in Olave was
the CAs jurisdiction over an ordinary appeal supported by undisputed facts and seeking the
review of a prejudicial order of dismissal. In this case, a complaint was filed before the RTC in
Lipa City to nullify an instrument titled "Affidavit of Adjudication By The Heirs of the Estate of
Deceased Persons With Sale." The RTC dismissed the complaint, with prejudice, after the
plaintiffs had moved to set the case for pre-trial only after more than three (3) months had lapsed
from the service and filing of the last pleading in the case. The plaintiffs thereafter went to the CA
on a Rule 41 petition, contending, among others, that the trial court had erred and abused its
discretion. As in the present case, the defendants moved to dismiss the appeal on the ground that
the issues therein were legal; they pointed out that the circumstances on record were
admitted.31 They argued that the proper remedy was a petition for review on certiorari under Rule
45 of the Rules of Court.

The CA denied the motion and entertained the appeal. It rendered a decision reinstating the
complaint on the ground that there was no evidence on record that the plaintiffs had deliberately
failed to prosecute their complaint.

(b) Failure of the plaintiff to prosecute his action for an unreasonable length of time;

When the case was elevated to this court on a Rule 45 petition, we squarely addressed the
propriety of the plaintiffs appeal. Though mindful that the circumstances pleaded in the appeal
were all admitted, we categorically held in Olave that the appeal was correctly filed. We observed
that despite undisputed records, the CA, in its review, still had to respond to factual questions such
as the length of time between the plaintiffs receipt of the last pleading filed up to the time they
moved to set the case for pre-trial, whether there had been any manifest intention on the plaintiffs
part not to comply with the Rules of Court, and whether the plaintiffs counsel was negligent.

(d) Failure of the plaintiff to obey any order of the court.

(c) Failure of the plaintiff to comply with the Rules of Court; or

In our view, the developments in the present case do not satisfy the stringent standards set in law
and jurisprudence for a non prosequitur.33 The fundamental test for non prosequitur is whether,
under the circumstances, the plaintiff is chargeable with want of due diligence in failing to proceed
with reasonable promptitude.34 There must be unwillingness on the part of the plaintiff to
prosecute.35

Significantly, in Olave, we agreed with the plaintiffs that among the critical factual questions was
whether, based on the records, there had been factual basis for the dismissal of the subject
complaint. This same question is particularly significant in the present case given that the order
appealed from in CA-G.R. CV No. 83096 does not even indicate the factual basis for the dismissal
of Civil Case No. 02-488. Due to the absence of any stated factual basis, and despite the
admissions of the parties, the CA, in CA-G.R. CV No. 83096, still had to delve into the records to
check whether facts to justify the prejudicial dismissal even exist. Since the dismissal of Civil
Case No. 02-488 appears to have been rendered motu proprio (as the December 16, 2003 dismissal
order does not state if it was issued upon the respondents or the trial courts motion), the facts to
be determined by the CA should include the grounds specified under Section 3, Rule 17 of the
Rules of Court. A court could only issue a motu proprio dismissal pursuant to the grounds
mentioned in this rule and for lack of jurisdiction over the subject matter. 32 These grounds are
matters of facts. Thus, given that the dismissal order does not disclose its factual basis, we are thus
persuaded that the petitioner had properly filed its appeal from the dismissal order under Rule 41
of the Rules of Court.

In this case, the parties own narrations of facts demonstrate the petitioners willingness to
prosecute its complaint.1wphi1 Indeed, neither respondents FGU Insurance nor Baetiong was
able to point to any specific act committed by the petitioner to justify the dismissal of their case.

The Dismissal of Civil Case No. 02-488 is not Supported by the Facts of the Case

Wherefore, premises considered, the instant petition is Granted. The resolutions of the Court of
Appeals dated April 8, 2005 and October 4, 2005 are REVERSED and SET ASIDE. The
order dated December 16, 2003 of the Regional Trial Court, Branch 61, Makati City, in Civil Case
No. 02-488 is declared NULL and VOID, and the petitioners complaint therein is
ordered REINSTATED for further proceedings. No costs.

We also find that the dismissal of Civil Case No. 02-488 is not warranted. Based on available
records and on the averments of the parties, the following events were chronologically proximate
to the dismissal of Civil Case No. 02-488: (a) on March 24, 2003, the court admitted FGU
Insurances third-party complaint; (b) the trial court cancelled the June 20, 2003 hearing upon
FGU Insurances motion; and (c) on June 16, 2003, Baetiong filed hisAnswer to the thirdparty complaint but did not serve it upon the petitioner.
None of these events square with the grounds specified by Section 3, Rule 17 of the Rules of
Court for the motu proprio dismissal of a case for failure to prosecute. These grounds are as
follows:
(a) Failure of the plaintiff, without justifiable reasons, to appear on the date of the
presentation of his evidence in chief;

While it is discretionary on the trial court to dismiss cases, dismissals of actions should be made
with care. The repressive or restraining effect of the rule amounting to adjudication upon the
merits may cut short a case even before it is fully litigated; a ruling of dismissal may forever bar a
litigant from pursuing judicial relief under the same cause of action. Hence, sound discretion
demands vigilance in duly recognizing the circumstances surrounding the case to the end that
technicality shall not prevail over substantial justice. 36
This court is thus of the opinion that the dismissal of Civil Case No. 02-488 is not warranted.
Neither facts, law or jurisprudence supports the RTCs finding of failure to prosecute on the part of
the petitioner.

SO ORDERED.

9.

G.R. No. 147902

March 17, 2006

SPOUSES
VICENTE
YU
AND
DEMETRIA
LEE-YU, Petitioners,
vs.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari of the Decision 1 dated November 14, 2000
of the Court of Appeals (CA) in CA-G.R. SP No. 58982 and the CA Resolution dated April 26,
2001, which denied petitioners Motion for Reconsideration.
The factual background of the case is as follows:
Under a Real Estate Mortgage dated August 15, 1994 2 and Amendments of Real Estate Mortgage
dated April 4, 19953 and December 4, 1995,4 spouses Vicente Yu and Demetria Lee-Yu
(petitioners) and spouses Ramon T. Yu and Virginia A. Tiu, or Yu Tian Hock aka Victorino/Vicente
Yu, mortgaged their title, interest, and participation over several parcels of land located in
Dagupan City and Quezon City, in favor of the Philippine Commercial International Bank
(respondent) as security for the payment of a loan in the amount of P9,000,000.00.5
As the petitioners failed to pay the loan, the interest, and the penalties due thereon, respondent
filed on July 21, 1998 with the Office of the Clerk of Court and Ex-Officio Sheriff of the Regional
Trial Court of Dagupan City a Petition for Extra-Judicial Foreclosure of Real Estate Mortgage on
the Dagupan City properties.6 On August 3, 1998, the City Sheriff issued a Notice of ExtraJudicial Sale scheduling the auction sale on September 10, 1998 at 10:00 oclock in the morning
or soon thereafter in front of the Justice Hall, Bonuan, Tondaligan, Dagupan City.7
At the auction sale on September 10, 1998, respondent emerged as the highest bidder.8 On
September 14, 1998, a Certificate of Sale was issued in favor of respondent. 9 On October 1, 1998,
the sale was registered with the Registry of Deeds of Dagupan City.
About two months before the expiration of the redemption period, or on August 20, 1999,
respondent filed an Ex-Parte Petition for Writ of Possession before the Regional Trial Court of
Dagupan City, docketed as Special Proceeding No. 99-00988-D and raffled to Branch 43 (RTC
Branch 43).10 Hearing was conducted on September 14, 1999 and respondent presented its
evidence ex-parte.11 The testimony of Rodante Manuel was admitted ex-parte and thereafter the
petition was deemed submitted for resolution.

On September 30, 1999, petitioners filed a Motion to Dismiss and to Strike Out Testimony of
Rodante Manuel stating that the Certificate of Sale dated September 14, 1998 is void because
respondent violated Article 2089 of the Civil Code on the indivisibility of the mortgaged by
conducting two separate foreclosure proceedings on the mortgage properties in Dagupan City and
Quezon City and indicating in the two notices of extra-judicial sale that petitioners obligation
is P10,437,015.2012 as of March 31, 1998, when petitioners are not indebted for the total amount
of P20,874,031.56.13
In the meantime, petitioners filed a complaint for Annulment of Certificate of Sale before the
Regional Trial Court of Dagupan City, docketed as Civil Case No. 99-03169-D and raffled to
Branch 44 (RTC Branch 44).
On February 14, 2000, RTC Branch 43 denied petitioners Motion to Dismiss and to Strike Out
Testimony of Rodante Manuel, ruling that the filing of a motion to dismiss is not allowed in
petitions for issuance of writ of possession under Section 7 of Act No. 3135.14
On February 24, 2000, petitioners filed a Motion for Reconsideration, further arguing that the
pendency of Civil Case No. 99-03169-D in RTC Branch 44 is a prejudicial issue to Spec. Proc.
No. 99-00988-D in RTC Branch 43, the resolution of which is determinative on the propriety of
the issuance of a writ of possession.15
On May 8, 2000, RTC Branch 43 denied petitioners Motion for Reconsideration, holding that the
principle of prejudicial question is not applicable because the case pending before RTC Branch 44
is also a civil case and not a criminal case.16
On June 1, 2000, petitioners filed a Petition for Certiorari with the CA. 17 On November 14, 2000,
the CA dismissed petitioners Petition for Certiorari on the grounds that petitioners violated
Section 8 of Act No. 3135 and disregarded the rule against multiplicity of suits in filing Civil Case
No. 99-03169-D in RTC Branch 44 despite full knowledge of the pendency of Spec. Proc. No. 9900988-D in RTC Branch 43; that since the one-year period of redemption has already lapsed, the
issuance of a writ of possession in favor of respondent becomes a ministerial duty of the trial
court; that the issues in Civil Case No. 99-03169-D are not prejudicial questions to Spec. Proc.
No. 99-00988-D because: (a) the special proceeding is already fait accompli, (b) Civil Case No.
99-03169-D is deemed not filed for being contrary to Section 8 of Act No. 3135, (c) the filing of
Civil Case No. 99-03169-D is an afterthought and dilatory in nature, and (d) legally speaking what
seems to exist is litis pendentia and not prejudicial question.18
Petitioners filed a Motion for Reconsideration19 but it was denied by the CA on April 26, 2001.20
Hence, the present Petition for Review on Certiorari.
Petitioners pose two issues for resolution, to wit:

A. Whether or not a real estate mortgage over several properties located in different
locality [sic] can be separately foreclosed in different places.

indivisibility of a real estate mortgage is provided for in Article 2089 of the Civil Code, which
provides:

B. Whether or not the pendency of a prejudicial issue renders the issues in Special
Proceedings No. 99-00988-D as [sic] moot and academic.21

Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the
successors in interest of the debtor or of the creditor.

Anent the first issue, petitioners contend that since a real estate mortgage is indivisible, the
mortgaged properties in Dagupan City and Quezon City cannot be separately foreclosed.
Petitioners further point out that two notices of extra-judicial sale indicated that petitioners
obligation is P10,437,015.2022 each as of March 31, 1998 or a total ofP20,874,030.40,23 yet their
own computation yields only P9,957,508.90 as of February 27, 1998.

Therefore, the debtors heir who has paid a part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as the debt is not completely satisfied.

As to the second issue, petitioners posit that the pendency of Civil Case No. 99-03169-D is a
prejudicial issue, the resolution of which will render the issues in Spec. Proc. No. 99-00988-D
moot and academic. Petitioners further aver that they did not violate Section 8 of Act No. 3135 in
filing a separate case to annul the certificate of sale since the use of the word "may" in said
provision indicates that they have the option to seek relief of filing a petition to annul the
certificate of sale in the proceeding involving the application for a writ of possession or in a
separate proceeding.

From these provisions is excepted the case in which, there being several things given in mortgage
or pledge, each one of them guarantees only a determinate portion of the credit.

Respondent contends24 that, with respect to the first issue, the filing of two separate foreclosure
proceedings did not violate Article 2089 of the Civil Code on the indivisibility of a real estate
mortgage since Section 2 of Act No. 3135 expressly provides that extra-judicial foreclosure may
only be made in the province or municipality where the property is situated. Respondent further
submits that the filing of separate applications for extra-judicial foreclosure of mortgage involving
several properties in different locations is allowed by A.M. No. 99-10-05-0, the Procedure on
Extra-Judicial Foreclosure of Mortgage, as further amended on August 7, 2001.
As to the second issue, respondent maintains that there is no prejudicial question between Civil
Case No. 99-03169-D and Spec. Proc. No. 99-00988-D since the pendency of a civil action
questioning the validity of the mortgage and the extra-judicial foreclosure thereof does not bar the
issuance of a writ of possession. Respondent also insists that petitioners should have filed their
Petition to Annul the Certificate of Sale in the same case where possession is being sought, that is,
in Spec. Proc. No. 99-00988-D, and not in a separate proceeding (Civil Case No. 99-01369-D)
because the venue of the action to question the validity of the foreclosure is not discretionary since
the use of the word "may" in Section 8 of Act No. 3135 refers to the filing of the petition or action
itself and not to the venue. Respondent further argues that even if petitioners filed the Petition to
Annul the Certificate of Sale in Spec. Proc. No. 99-00988-D, the writ of possession must still be
issued because issuance of the writ in favor of the purchaser is a ministerial act of the trial court
and the one-year period of redemption has already lapsed.
Anent the first issue, the Court finds that petitioners have a mistaken notion that the indivisibility
of a real estate mortgage relates to the venue of extra-judicial foreclosure proceedings. The rule on

Neither can the creditors heir who received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of the other heirs who have not been paid.

The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the
portion of the debt for which each thing is specially answerable is satisfied.
This rule presupposes several heirs of the debtor or creditor 25 and therefore not applicable to the
present case. Furthermore, what the law proscribes is the foreclosure of only a portion of the
property or a number of the several properties mortgaged corresponding to the unpaid portion of
the debt where, before foreclosure proceedings, partial payment was made by the debtor on his
total outstanding loan or obligation. This also means that the debtor cannot ask for the release of
any portion of the mortgaged property or of one or some of the several lots mortgaged unless and
until the loan thus secured has been fully paid, notwithstanding the fact that there has been partial
fulfillment of the obligation. Hence, it is provided that the debtor who has paid a part of the debt
cannot ask for the proportionate extinguishment of the mortgage as long as the debt is not
completely satisfied.26 In essence, indivisibility means that the mortgage obligation cannot be
divided among the different lots,27 that is, each and every parcel under mortgage answers for the
totality of the debt.28
On the other hand, the venue of the extra-judicial foreclosure proceedings is the place where each
of the mortgaged property is located, as prescribed by Section 2 of Act No. 3135,29 to wit:
SECTION 2. Said sale cannot be made legally outside of the province in which the property sold
is situated; and in case the place within said province in which the sale is to be made is subject to
stipulation, such sale shall be made in said place or in the municipal building of the municipality
in which the property or part thereof is situated.
A.M. No. 99-10-05-0,30 the Procedure on Extra-Judicial Foreclosure of Mortgage, lays down the
guidelines for extra-judicial foreclosure proceedings on mortgaged properties located in different
provinces. It provides that the venue of the extra-judicial foreclosure proceedings is the place
where each of the mortgaged property is located. Relevant portion thereof provides:

Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or
chattels in different locations covering one indebtedness, only one filing fee corresponding to such
indebtedness shall be collected. The collecting Clerk of Court shall, apart from the official receipt
of the fees, issue a certificate of payment indicating the amount of indebtedness, the filing fees
collected, the mortgages sought to be foreclosed, the real estates and/or chattels mortgaged and
their respective locations, which certificate shall serve the purpose of having the application
docketed with the Clerks of Court of the places where the other properties are located and of
allowing the extrajudicial foreclosures to proceed thereat. (Emphasis supplied)
The indivisibility of the real estate mortgage is not violated by conducting two separate
foreclosure proceedings on mortgaged properties located in different provinces as long as each
parcel of land is answerable for the entire debt. Petitioners assumption that their total obligation
is P20,874,030.40 because the two notices of extra-judicial sale indicated that petitioners
obligation is P10,437,015.2031 each, is therefore flawed. Considering the indivisibility of a real
estate mortgage, the mortgaged properties in Dagupan City and Quezon City are made to answer
for the entire debt of P10,437,015.29.32
As to the second issue, that is, whether a civil case for annulment of a certificate of sale is a
prejudicial question to a petition for issuance of a writ of possession, this issue is far from novel
and, in fact, not without precedence. In Pahang v. Vestil,33 the Court said:
A prejudicial question is one that arises in a case the resolution of which is a logical antecedent of
the issue involved therein, and the cognizance of which pertains to another tribunal. It generally
comes into play in a situation where a civil action and a criminal action are both pending and there
exists in the former an issue that must be preemptively resolved before the criminal action may
proceed, because howsoever the issue raised in the civil action is resolved would be determinative
juris et de jure of the guilt or innocence of the accused in the criminal case. The rationale behind
the principle of prejudicial question is to avoid two conflicting decisions. 1avvph!l.net
In the present case, the complaint of the petitioners for Annulment of Extrajudicial Sale is a civil
action and the respondents petition for the issuance of a writ of possession of Lot No. 3-A, Block
1, Psd-07-021410, TCT No. 44668 is but an incident in the land registration case and, therefore, no
prejudicial question can arise from the existence of the two actions. A similar issue was raised in
Manalo v. Court of Appeals, where we held that:
At any rate, it taxes our imagination why the questions raised in Case No. 98-0868 must be
considered determinative of Case No. 9011. The basic issue in the former is whether the
respondent, as the purchaser in the extrajudicial foreclosure proceedings, may be compelled to
have the property repurchased or resold to a mortgagors successor-in-interest (petitioner); while
that in the latter is merely whether the respondent, as the purchaser in the extrajudicial foreclosure
proceedings, is entitled to a writ of possession after the statutory period for redemption has
expired. The two cases, assuming both are pending, can proceed separately and take their own
direction independent of each other.34

In the present case, Civil Case No. 99-01369-D and Spec. Proc. No. 99-00988-D are both civil in
nature. The issue in Civil Case No. 99-01369-D is whether the extra-judicial foreclosure of the
real estate mortgage executed by the petitioners in favor of the respondent and the sale of their
properties at public auction are null and void, whereas, the issue in Spec. Proc. No. 99-00988-D is
whether the respondent is entitled to a writ of possession of the foreclosed properties. Clearly, no
prejudicial question can arise from the existence of the two actions. The two cases can proceed
separately and take their own direction independently of each other.
Nevertheless, there is a need to correct the CAs view that petitioners violated Section 8 of Act No.
3135 and disregarded the proscription on multiplicity of suits by instituting a separate civil suit for
annulment of the certificate of sale while there is a pending petition for issuance of the writ of
possession in a special proceeding.
Section 8 of Act No. 3135 provides:
Sec. 8. Setting aside of sale and writ of possession. The debtor may, in the proceedings in which
possession was requested, but not later than thirty days after the purchaser was given possession,
petition that the sale be set aside and the writ of possession cancelled, specifying the damages
suffered by him, because the mortgage was not violated or the sale was not made in accordance
with the provisions hereof, and the court shall take cognizance of this petition in accordance with
the summary procedure provided for in section one hundred and twelve of Act Numbered Four
hundred and ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in his
favor of all or part of the bond furnished by the person who obtained possession. Either of the
parties may appeal from the order of the judge in accordance with section fourteen of Act
Numbered Four hundred and ninety-six; but the order of possession shall continue in effect during
the pendency of the appeal. (Emphasis supplied)
Under the provision above cited, the mortgagor may file a petition to set aside the sale and for the
cancellation of a writ of possession with the trial court which issued the writ of possession within
30 days after the purchaser mortgagee was given possession. It provides the plain, speedy, and
adequate remedy in opposing the issuance of a writ of possession. 35 Thus, this provision
presupposes that the trial court already issued a writ of possession. In Sps. Ong v. Court of
Appeals,36 the Court elucidated:
The law is clear that the purchaser must first be placed in possession of the mortgaged property
pending proceedings assailing the issuance of the writ of possession. If the trial court later finds
merit in the petition to set aside the writ of possession, it shall dispose in favor of the mortgagor
the bond furnished by the purchaser. Thereafter, either party may appeal from the order of the
judge in accordance with Section 14 of Act 496, which provides that "every order, decision, and
decree of the Court of Land Registration may be reviewedin the same manner as an order,
decision, decree or judgment of a Court of First Instance (RTC) might be reviewed." The rationale
for the mandate is to allow the purchaser to have possession of the foreclosed property without
delay, such possession being founded on his right of ownership.37

Accordingly, Section 8 of Act No. 3135 is not applicable to the present case since at the time of
the filing of the separate civil suit for annulment of the certificate of sale in RTC Branch 44, no
writ of possession was yet issued by RTC Branch 43.
Similarly, the Court rejects the CAs application of the principle of litis pendentia to Civil Case
No. 99-03169-D in relation to Spec. Proc. No. 99-00988-D. Litis pendentia refers to that situation
wherein another action is pending between the same parties for the same cause of actions and that
the second action becomes unnecessary and vexatious. For litis pendentia to be invoked, the
concurrence of the following requisites is necessary: (a) identity of parties or at least such as
represent the same interest in both actions; (b) identity of rights asserted and reliefs prayed for, the
reliefs being founded on the same facts; and, (c) the identity in the two cases should be such that
the judgment that may be rendered in one would, regardless of which party is successful, amount
to res judicatain the other.38
Applying the foregoing criteria in the instant case, litis pendentia does not obtain in this case
because of the absence of the second and third requisites. The issuance of the writ of possession
being a ministerial function, and summary in nature, it cannot be said to be a judgment on the
merits, but simply an incident in the transfer of title. Hence, a separate case for annulment of
mortgage and foreclosure sale cannot be barred by litis pendentia orres judicata.39 Thus, insofar as
Spec. Proc. No. 99-00988-D and Civil Case No. 99-03169-D pending before different branches of
RTC Dagupan City are concerned, there is no litis pendentia.
To sum up, the Court holds that the rule on indivisibility of the real estate mortgage cannot be
equated with the venue of foreclosure proceedings on mortgaged properties located in different
provinces since these are two unrelated concepts. Also, no prejudicial question can arise from the
existence of a civil case for annulment of a certificate of sale and a petition for the issuance of a
writ of possession in a special proceeding since the two cases are both civil in nature which can
proceed separately and take their own direction independently of each other.
Furthermore, since the one-year period to redeem the foreclosed properties lapsed on October 1,
1999, title to the foreclosed properties had already been consolidated under the name of the
respondent. As the owner of the properties, respondent is entitled to its possession as a matter of
right.40 The issuance of a writ of possession over the properties by the trial court is merely a
ministerial function. As such, the trial court neither exercises its official discretion nor
judgment.41 Any question regarding the validity of the mortgage or its foreclosure cannot be a
legal ground for refusing the issuance of a writ of possession. 42 Regardless of the pending suit for
annulment of the certificate of sale, respondent is entitled to a writ of possession, without
prejudice of course to the eventual outcome of said case.43
WHEREFORE, the petition is DENIED.
SO ORDERED.

10.

G.R. No. 141528

October 31, 2006

OSCAR
P.
vs.
EDITHA ALCANTARA, respondent.

WHEREFORE, for Forum Shopping and Multiplicity of Suits, the Motion to Dismiss is
GRANTED. This case is DISMISSED.
MALLION, petitioner,
SO ORDERED.8
Petitioners motion for reconsideration was also denied in an order9 dated January 21, 2000.
Hence, this petition which alleges, as follows:

DECISION

AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court raising a question of
law: Does a previous final judgment denying a petition for declaration of nullity on the ground of
psychological incapacity bar a subsequent petition for declaration of nullity on the ground of lack
of marriage license?
The facts are not disputed:

A. IN DISMISSING PETITIONERS PETITION FOR THE DECLARATION OF HIS

MARRIAGE AS NULL AND VOID AB INITIO FOR LACK OF THE REQUISITE
MARRIAGE LICENSE BECAUSE OF (THE) DISMISSAL OF AN EARLIER
PETITION FOR DECLARATION OF NULLITY OF THE SAME MARRIAGE ON
THE GROUND OF HIS WIFES PSYCHOLOGICAL INCAPACITY UNDER
ARTICLE 36 OF THE FAMILY CODE, THE TRIAL COURT HAD DECIDED A
QUESTION OF SUBSTANCE WHICH HAS PROBABLY NOT HERETOFORE BEEN
DETERMINED SQUARELY AND DEFINITIVELY BY THIS COURT, OR HAD
DECIDED IT IN A WAY NOT IN ACCORD WITH LAW.
B. IN DISMISSING PETITIONERS PETITION FOR THE DECLARATION OF
NULLITY OF HIS MARRIAGE FOR LACK OF THE REQUISITE MARRIAGE
LICENSE, THE TRIAL COURT HAD CONFUSED, DISTORTED AND MISAPPLIED
THE FUNDAMENTAL RULES AND CONCEPTS ON RES JUDICATA, SPLITTING
OF A CAUSE OF ACTION AND FORUM SHOPPING.10

On October 24, 1995, petitioner Oscar P. Mallion filed a petition 1 with the Regional Trial Court
(RTC), Branch 29, of San Pablo City seeking a declaration of nullity of his marriage to respondent
Editha Alcantara under Article 36 of Executive Order No. 209, as amended, otherwise known as
the Family Code, citing respondents alleged psychological incapacity. The case was docketed as
Civil Case No. SP 4341-95. After trial on the merits, the RTC denied the petition in a
decision2 dated November 11, 1997 upon the finding that petitioner "failed to adduce preponderant
evidence to warrant the grant of the relief he is seeking." 3 The appeal filed with the Court of
Appeals was likewise dismissed in a resolution 4 dated June 11, 1998 for failure of petitioner to pay
the docket and other lawful fees within the reglementary period.

Petitioner argues that while the relief prayed for in the two cases was the same, that is, the
declaration of nullity of his marriage to respondent, the cause of action in the earlier case was
distinct and separate from the cause of action in the present case because the operative facts upon
which they were based as well as the evidence required to sustain either were different. Because
there is no identity as to the cause of action, petitioner claims that res judicata does not lie to bar
the second petition. In this connection, petitioner maintains that there was no violation of the rule
on forum shopping or of the rule which proscribes the splitting of a cause of action.

After the decision in Civil Case No. SP 4341-95 attained finality, petitioner filed on July 12, 1999
another petition5for declaration of nullity of marriage with the RTC of San Pablo City, this time
alleging that his marriage with respondent was null and void due to the fact that it was celebrated
without a valid marriage license. For her part, respondent filed an answer with a motion to
dismiss6 dated August 13, 1999, praying for the dismissal of the petition on the ground of res
judicata and forum shopping.

On the other hand, respondent, in her comment dated May 26, 2000, counters that while the
present suit is anchored on a different ground, it still involves the same issue raised in Civil Case
No. SP 4341-95, that is, the validity of petitioner and respondents marriage, and prays for the
same remedy, that is, the declaration of nullity of their marriage. Respondent thus contends that
petitioner violated the rule on forum shopping. Moreover, respondent asserts that petitioner
violated the rule on multiplicity of suits as the ground he cites in this petition could have been
raised during the trial in Civil Case No. SP 4341-95.

In an order7 dated October 8, 1999, the RTC granted respondents motion to dismiss, the
dispositive portion of which reads:

The petition lacks merit.

The issue before this Court is one of first impression. Should the matter of the invalidity of a
marriage due to the absence of an essential requisite prescribed by Article 4 of the Family Code be
raised in the same proceeding where the marriage is being impugned on the ground of a partys
psychological incapacity under Article 36 of the Family Code?
Petitioner insists that because the action for declaration of nullity of marriage on the ground of
psychological incapacity and the action for declaration of nullity of marriage on the ground of
absence of marriage license constitute separate causes of action, the present case would not fall
under the prohibition against splitting a single cause of action nor would it be barred by the
principle of res judicata.
The contention is untenable.
Res judicata is defined as "a matter adjudged; a thing judicially acted upon or decided; a thing or
matter settled by judgment. It also refers to the rule that 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 on points and matters determined in the former suit."11
This doctrine is a rule which pervades every well-regulated system of jurisprudence and is
founded upon the following precepts of common law, namely: (1) public policy and necessity,
which makes it to the interest of the State that there should be an end to litigation, and (2) the
hardship on the individual that he should be vexed twice for the same cause. A contrary doctrine
would subject the public peace and quiet to the will and neglect of individuals and prefer the
gratification of the litigious disposition on the part of suitors to the preservation of the public
tranquility and happiness.12
In this jurisdiction, the concept of res judicata is embodied in Section 47 (b) and (c) of Rule 39 of
the Rules of Court, thus:
SEC. 47. Effect of judgments or final orders. The effect of a judgment or final order
rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or
final order, may be as follows:
(a) In case of a judgment or final order against a specific thing or in respect to the probate
of a will, or the administration of the estate of a deceased person, or in respect to the
personal, political, or legal condition or status of a particular person or his relationship to
another, the judgment or final order is conclusive upon the title to the thing, the will or
administration, or the condition, status or relationship of the person; however, the probate
of a will or granting of letters of administration shall only be prima facie evidence of the
death of the testator or intestate;
(b) In other cases, the judgment or final order is, with respect to the matter directly
adjudged or as to any other matter that could have been raised in relation thereto,
conclusive between the parties and their successors in interest by title subsequent to

the commencement of the action or special proceeding, litigating for the same thing
and under the same title and in the same capacity; and,
(c) In any other litigation between the same parties or their successors in interest,
that only is deemed to have been adjudged in a former judgment or final order
which appears upon its face to have been so adjudged, or which was actually and
necessarily included therein or necessary thereto.
The above provision outlines the dual aspect of res judicata.13 Section 47 (b) pertains to it in its
concept as "bar by prior judgment" or "estoppel by verdict," which is the effect of a judgment as a
bar to the prosecution of a second action upon the same claim, demand or cause of action. On the
other hand, Section 47 (c) pertains tores judicata in its concept as "conclusiveness of judgment" or
otherwise known as the rule of auter action pendantwhich ordains that issues actually and directly
resolved in a former suit cannot again be raised in any future case between the same parties
involving a different cause of action.14 Res judicata in its concept as a bar by prior judgment
obtains in the present case.
Res judicata in this sense requires the concurrence of the following requisites: (1) the former
judgment is final; (2) it is rendered by a court having jurisdiction over the subject matter and the
parties; (3) it is a judgment or an orderon the merits; and (4) there is -- between the first and the
second actions -- identity of parties, of subject matter, and of causes of action.15
Petitioner does not dispute the existence of the first three requisites. What is in issue is the
presence of the fourth requisite. In this regard, the test to determine whether the causes of action
are identical is to ascertain whether the same evidence will sustain both actions, or whether there
is an identity in the facts essential to the maintenance of the two actions. If the same facts or
evidence would sustain both, the two actions are considered the same, and a judgment in the first
case is a bar to the subsequent action.16
Based on this test, petitioner would contend that the two petitions brought by him seeking the
declaration of nullity of his marriage are anchored on separate causes of action for the evidence
necessary to sustain the first petition which was anchored on the alleged psychological incapacity
of respondent is different from the evidence necessary to sustain the present petition which is
anchored on the purported absence of a marriage license.
Petitioner, however, forgets that he is simply invoking different grounds for the same cause of
action. By definition, a cause of action is the act or omission by which a party violates the right of
another.17 In both petitions, petitioner has the same cause - the declaration of nullity of his
marriage to respondent. What differs is the ground upon which the cause of action is predicated.
These grounds cited by petitioner essentially split the various aspects of the pivotal issue that
holds the key to the resolution of this controversy, that is, the actual status of petitioner and
respondents marriage.

Furthermore, the instant case is premised on the claim that the marriage is null and void because
no valid celebration of the same took place due to the alleged lack of a marriage license. In Civil
Case No. SP 4341-95, however, petitioner impliedly conceded that the marriage had been
solemnized and celebrated in accordance with law. Petitioner is now bound by this admission. The
alleged absence of a marriage license which petitioner raises now could have been presented and
heard in the earlier case. Suffice it to state that parties are bound not only as regards every matter
offered and received to sustain or defeat their claims or demand but as to any other admissible
matter which might have been offered for that purpose and of all other matters that could have
been adjudged in that case.18
It must be emphasized that a party cannot evade or avoid the application of res judicata by simply
varying the form of his action or adopting a different method of presenting his case. 19 As this
Court stated in Perez v. Court of Appeals:20
x x x the statement of a different form of liability is not a different cause of action,
provided it grows out of the same transaction or act and seeks redress for the wrong. Two
actions are not necessarily for different causes of action simply because the theory of the
second would not have been open under the pleadings in the first. A party cannot preserve
the right to bring a second action after the loss of the first merely by having
circumscribed and limited theories of recovery opened by the pleadings in the first.
It bears stressing that a party cannot divide the grounds for recovery. A plaintiff is
mandated to place in issue in his pleading, all the issues existing when the suit
began. A lawsuit cannot be tried piecemeal. The plaintiff is bound to set forth in his
first action every ground for relief which he claims to exist and upon which he
relied, and cannot be permitted to rely upon them by piecemeal in successive action
to recover for the same wrong or injury.
A party seeking to enforce a claim, legal or equitable, must present to the court,
either by the pleadings or proofs, or both, on the grounds upon which to expect a
judgment in his favor. He is not at liberty to split up his demands, and prosecute it
by piecemeal or present only a portion of the grounds upon which a special relief is
sought and leave the rest to the presentment in a second suit if the first fails. There
would be no end to litigation if such piecemeal presentation is allowed. (Citations
omitted.)
In sum, litigants are provided with the options on the course of action to take in order to obtain
judicial relief. Once an option has been taken and a case is filed in court, the parties must ventilate
all matters and relevant issues therein. The losing party who files another action regarding the
same controversy will be needlessly squandering time, effort and financial resources because he is
barred by law from litigating the same controversy all over again. 21
Therefore, having expressly and impliedly conceded the validity of their marriage celebration,
petitioner is now deemed to have waived any defects therein. For this reason, the Court finds that

the present action for declaration of nullity of marriage on the ground of lack of marriage license
is barred by the decision dated November 11, 1997 of the RTC, Branch 29, of San Pablo City, in
Civil Case No. SP 4341-95.
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.

11.

G.R. No. 158895

February 16, 2006

SPS. THELMA and GREGORIO ABRAJANO, SPS. VIRGINIA and RODEL LAVA and
OSCAR
DACILLO,Petitioners,
vs.
HEIRS OF AUGUSTO F. SALAS, JR., namely: TERESITA D. SALAS, FABRICE CYBILL
D. SALAS, MA. CRISTINA S. LESACA and KARINA D. SALAS, and COURT OF
APPEALS Respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari 1 dated August 2, 2003, assailing the Decision 2 of
the Court of Appeals in CA-G.R. SP No. 75882 dated April 30, 2003, which ruled that the trial
court judge should have inhibited himself from hearing the case and directed that it be raffled off
to another branch, and its Resolution3 dated July 15, 2003 which denied petitioners motion for
reconsideration.
The facts as condensed from the records are as follows:

the properties. The Complaint was docketed as Civil Case No. 98-0047 and raffled to the sala of
Judge Avelino G. Demetria (Judge Demetria). The Heirs of Salas alleged that they suffered lesion
on account of the simulated sales of Salas properties by Laperal for which they demanded
accounting from the latter and damages from the buyers.
Laperal filed a Motion to Dismiss 5 on the ground of failure to comply with the arbitration clause in
the Owner-Contractor Agreement.
Vacuna and Capellan filed an Answer with Compulsory Counterclaim and Cross-Claim, 6 alleging
that the Complaint states no cause of action; that plaintiffs have no capacity to sue; that the
condition precedent of resorting to arbitration was not complied with; that they were buyers in
good faith and for value; and that plaintiffs claim over the subject properties is a virtual opening
of Salass succession prior to the required 10-year period of disappearance under Art. 390 of the
Civil Code.7
Marahani and dela Cruz filed an Answer with Compulsory Counterclaim and CrossClaim,8 raising as affirmative defenses the prescription of the cause of action for rescission; the
lack of capacity to sue of one of the plaintiffs; that they were buyers in good faith; that the sale to
them of a portion of Salass property was for a consideration; and that the arbitration clause in the
Owner-Contractor Agreement should have first been complied with.

Augusto L. Salas, Jr. (Salas) was the registered owner of a large parcel of land located in Lipa
City, Batangas. On May 15, 1987, Salas and Laperal Realty Development Corporation (Laperal)
entered into an Owner-Contractor Agreement whereby the latter undertook the horizontal
development of Salass Lipa properties. Salas also subsequently executed a Special Power of
Attorney authorizing Laperal to exercise general control, supervision and management of the sale,
for cash or installment, of the lands or portions thereof covered by the Owner-Contractor
Agreement.

The Abrajanos, the Lavas, and Dacillo filed a Joint Answer with Counterclaim and CrossClaim,9 raising essentially the same affirmative defenses as the rest of the defendants.

On August 6, 1996, Teresita Salas filed with the Regional Trial Court (RTC) of Makati City a
verified petition for the declaration of presumptive death of her husband, Augusto, who had then
been missing for more than seven (7) years. The petition, docketed as Sp. Proc. No. M-4394, was
granted on December 12, 1996.

The Heirs of Salas opposed Laperals Motion to Dismiss, arguing that the arbitration clause is
inapplicable since there are defendants who are not privy to the Owner-Contractor Agreement.
Besides, the agreement purportedly allows any of the parties to seek its cancellation.

Meanwhile, Laperal subdivided the properties and sold portions thereof to Rockway Real Estate
Corporation (Rockway), South Ridge Village, Inc. (South Ridge), spouses Gregorio and Thelma
Abrajano (Abrajanos), spouses Rodel and Virginia Lava (Lavas), Oscar Dacillo (Dacillo), Eduardo
A. Vacuna (Vacuna), Marahani Development Corporation (Marahani), Florante dela Cruz (dela
Cruz) and Jesus Vicente B. Capellan (Capellan).
On February 3, 1998, the Heirs of Salas filed a Complaint 4 for declaration of nullity of sale,
conveyance, cancellation of contract, accounting and damages against the above-named buyers of

For their part, Southridge and Rockway filed separate Answers, 10 claiming that plaintiffs
Complaint is tantamount to opening Salass succession before the mandatory 10-year period of
absence under the Civil Code. Southridge further averred that it is a purchaser in good faith and
that the arbitration clause should have first been resorted to.

In an Order11 dated August 19, 1998, Judge Demetria granted the motion to dismiss, prompting the
Heirs of Salas to question the order of dismissal before the Supreme Court in G.R. No. 135362.
On December 13, 1999, the Supreme Court set aside the order of dismissal and directed the trial
court to proceed with the hearing of the case.12
When the case was remanded to the trial court, Vacuna and Capellan filed a Motion for Leave to
Conduct Preliminary Hearing on the Defendants Affirmative Defenses, 13 praying that the
affirmative defenses in their answer be heard in a preliminary hearing pursuant to Sec. 6, Rule 16
of the 1997 Rules of Civil Procedure (Rules of Court).

The Heirs of Salas filed a Comment, 14 contending that the affirmative defense of lack of capacity
to sue has no basis in view of the issuance of letters of administration in favor of Teresita D. Salas
by the RTC of Makati in Sp. Proc. No. M-4394.
Judge Demetria granted the motion to conduct preliminary hearing in his Order 15 dated August 17,
2001. Accordingly, hearings on the affirmative defenses were conducted at which the Heirs of
Salas participated. On March 31, 2002, the Abrajanos, the Lavas, and Dacillo filed a Formal Offer
of Evidence16 to which the Heirs of Salas filed their Comments/Objections.17
Subsequently, they also filed a motion to inhibit Judge Demetria from further hearing the case
pursuant to Sec. 1, Par. 2, Rule 137 of the Rules of Court, averring that the previous dismissal of
the complaint by the judge, as well as the preliminary hearing ordered by him on motion of the
defendants, "have rendered the plaintiffs uneasy and doubtful as to whether they will ever obtain
an impartial judgment."18 Defendants opposed the Motion for Inhibition.

In their Comment22 dated October 27, 2003, respondents counter that the validity of the hearing on
the affirmative defenses was not raised as an issue in CA-G.R. SP. No. 75882. Rather, what was at
issue was whether Judge Demetria should inhibit himself from hearing the case considering that
respondents had already lost faith that they will obtain impartial judgment. Moreover, they stress
that the case had been rendered moot and academic because Judge Demetria issued an Order 23 on
May 8, 2003, inhibiting himself from the case.
Petitioners filed a Reply24 dated January 28, 2004, arguing that the propriety of the preliminary
hearings conducted is necessarily connected to the issue of whether Judge Demetria should have
inhibited himself. They further contend that the case has not been rendered moot and academic by
Judge Demetrias inhibition because should the latters Order granting the motion to conduct
preliminary hearings be upheld, then the new presiding judge could make a ruling based on the
evidence already presented.
First, the issue of mootness.

On September 13, 2002, Judge Demetria issued an Order 19 denying the Motion for Inhibition on
the ground that his previous dismissal of the case on the issue of arbitration was just an
interpretation of the law, rules and jurisprudence without any intent to give undue advantage to the
other parties.
Their Motion for Reconsideration20 having been denied,21 the Heirs of Salas filed a petition for
certiorari before the Court of Appeals, assailing Judges Demetrias Order on the ground that his
denial of the Motion for Inhibition is a violation of their right to due process as it deprived them of
the "cold neutrality of an impartial judge." Judge Demetria allegedly allowed the delay in the
resolution of the main case by dismissing the same without considering all of the issues raised by
the buyers only to allow the latter to relitigate the same issues in a preliminary hearing.
Interpreting Sec. 6, Rule 16 of the Rules of Court, the appellate court held that the provision
applies only if no motion to dismiss had been filed. If a motion to dismiss had been filed and
denied, the defendant may also reiterate the grounds thereof as affirmative defenses but no
preliminary hearing may be had thereon because a motion to dismiss had already been filed and
decided. According to the Court of Appeals, the reversal by the Supreme Court of the trial courts
order of dismissal operated as a denial of the motion to dismiss. Hence, a preliminary hearing on
the affirmative defenses should no longer have been conducted.
Accordingly, even as the Court of Appeals found no indication of bias and partiality on the part of
Judge Demetria, it ordered his inhibition because the Heirs of Salas had already allegedly lost faith
in his actions.
With the denial of their Motion for Reconsideration, petitioners are now before this Court
asserting that the Court of Appeals erroneously applied Sec. 6, Rule 16 of the Rules of Court. They
contend that respondents participated fully in the preliminary hearings on the affirmative defenses
and that it was only after the admission of the evidence presented by petitioners that they filed a
motion to inhibit Judge Demetria.

As a general rule, courts of justice constituted to pass upon substantial rights will not consider
questions where no actual interests are involved. 25 Courts generally decline jurisdiction when the
issues are already moot.
It does not escape our attention, however, that the preliminary hearings on petitioners affirmative
defenses are nearing conclusion with the filing of petitioners Formal Offer of Evidence and
respondents Comments/Objections. To put to naught the proceedings already taken only to repeat
them during trial serves no practical purpose. Clearly, the Courts declaration on the issues raised
would still be of practical use and value.
Besides, this case presents an important procedural issue which is capable of repetition if left
unresolved. Hence, we shall not refrain from expressing an opinion and rendering a decision on
the merits.
At the heart of the present controversy is the question of the propriety of Judge Demetrias Order
granting petitioners motion to conduct preliminary hearings on their affirmative defenses.
Sec. 6, Rule 16 of the Rules of Court provides:
Sec. Pleading grounds as affirmative defenses.If no motion to dismiss has been filed, any of the
grounds for dismissal provided for in this Rule may be pleaded as an affirmative defense in the
answer and, in the discretion of the court, a preliminary hearing may be had thereon as if a motion
to dismiss had been filed.
The dismissal of the complaint under this section shall be without prejudice to the prosecution in
the same or separate action of a counterclaim pleaded in the answer.

This section is explicit in stating that the defendant may reiterate any of the grounds for dismissal
provided under Rule 16 of the Rules of Court as affirmative defenses but that a preliminary
hearing may no longer be had thereon if a motion to dismiss had already been filed. The section,
however, does not contemplate a situation, such as the one obtaining in this case, where there are
several defendants but only one filed a motion to dismiss.
In such a case, should the denial of the motion to dismiss prejudice the other defendants such that
they may no longer move for a preliminary hearing on their own affirmative defenses?
The answer is no. Translated in terms of this case, the Motion to Dismiss filed by Laperal does not
affect the right of the other defendants, including petitioners herein, to plead their own affirmative
defenses and be preliminarily heard thereon. The trial court is likewise not proscribed from
granting, in its discretion, such a motion for preliminary hearing. The only caveat is that the
ground of non-compliance with the condition precedent of resorting to arbitration, which was
raised in Laperals Motion to Dismiss, may no longer be included in the preliminary hearing
because it has already been heard and finally resolved.
That said, we now examine whether the Court of Appeals erred in ordering Judge Demetrias
inhibition. The rule on inhibition and disqualification of judges is laid down in Sec. 1, Rule 137 of
the Rules of Court:
Sec. 1. Disqualification of judges.No judge or judicial officer shall sit in any case in which he,
or his wife or child, is pecuniarily interested as heir, legatee, creditor or otherwise, or in which he
is related to either party within the sixth degree of consanguinity or affinity, or to counsel within
the fourth degree, computed according to the rules of the civil law, or in which he has been
executor, administrator, guardian, trustee or counsel, or in which he has presided in any inferior
court when his ruling or decision is the subject of review, without the written consent of all parties
in interest, signed by them and entered upon the record.
A judge may, in the exercise of his sound discretion, disqualify himself from sitting in a case, for
just or valid reasons other than those mentioned above.
Thus stated, the rule contemplates two kinds of inhibition: compulsory disqualification assumes
that a judge cannot actively or impartially sit on a case for the reasons stated in the first paragraph,
while voluntary inhibitionunder the second paragraph leaves to the judges discretion whether he
should desist from sitting in a case for other just and valid reasons with only his conscience to
guide him.26
The issue of voluntary inhibition is primarily a matter of conscience and sound discretion on the
part of the judge.27 This discretion is an acknowledgement of the fact that judges are in a better
position to determine the issue of inhibition, as they are the ones who directly deal with the
parties-litigants in their courtrooms.28 The decision on whether he should inhibit himself, however,
must be based on his rational and logical assessment of the circumstances prevailing in the case
brought before him.29

The rule does not give the judge the unfettered discretion to decide whether he should desist from
hearing a case. The inhibition must be for just and valid causes. 30 The mere imputation of bias,
partiality and prejudgment will not suffice in the absence of clear and convincing evidence to
overcome the presumption that the judge will undertake his noble role to dispense justice
according to law and evidence and without fear or favor.31 The disqualification of a judge cannot
be based on mere speculations and surmises or be predicated on the adverse nature of the judges
rulings towards the movant for inhibition.32
The basis of the motion for inhibition filed by respondents in this case is Judge Demetrias Order
dismissing the Complaint and subsequent grant of petitioners motion for preliminary hearing on
their affirmative defenses. This situation has allegedly made respondents uneasy and doubtful as to
whether they will obtain impartial judgment.
We believe that these circumstances give Judge Demetria a just and valid reason for inhibiting
himself. When the situation is such that would induce doubt as to a judges actuations and probity,
or incite such a state of mind, he should conduct a careful self-examination.33
In this case, Judge Demetrias Order dismissing the Complaint already caused considerable delay
in the proceedings. His subsequent order granting the motion for preliminary hearing, while
correct, caused further prejudice to respondents of a character that would make them doubt his
probity and neutrality. Rightly so, Judge Demetria ultimately thought it more prudent to inhibit
himself than to have any order, resolution or decision he would make in the case put under a cloud
of distrust and skepticism.
In view of the foregoing, we deem it best that Civil Case No. 98-0047 be forthwith tried by the
presiding judge of Branch 12 of the Regional Trial Court of Lipa City, Hon. Vicente F. Landicho,
to whom the case was re-raffled upon Judge Demetrias inhibition.
WHEREFORE, the instant petition is hereby GRANTED IN PART. The Decision of the Court of
Appeals dated April 30, 2003 and its Resolution dated July 15, 2003 are hereby REVERSED and
SET ASIDE. Civil Case No. 98-0047 is hereby REMANDED to Branch 12, Regional Trial Court
of Lipa City, for further proceedings in accordance with this Decision.
SO ORDERED.

12.

G.R. No. 140777. April 8, 2005

ANTONIO ABACAN, JR., RUFO C. VENUS, JR., ENRIQUETO I. MAGPANTAY and

MARIETA
Y.
PALANCA,Petitioners,
vs.
NORTHWESTERN UNIVERSITY, INC., Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari seeking the annulment of the Court of Appeals
(CAs) Decision1dated July 22, 1999 and the Resolution 2 dated November 12, 1999, denying the
motion for reconsideration.
The facts are as follows:
Two opposing factions within respondent Northwestern University, Inc. (NUI), the "Castro" and
the "Nicolas" factions, seek control as the legitimate board thereof. 3 These two factions are parties
to Securities and Exchange Commission (SEC) Case No. 12-96-5469 4 which is an action filed by
the "Nicolas faction" to nullify the election of the directors of NUI belonging to the "Castro
faction" and SEC Case No. 12-96-55115 which is a counter-suit initiated by the "Castro faction"
seeking the nullification of several board resolutions passed by the "Nicolas faction." 6 On
December 19, 1996, SEC Hearing Officer Rolando G. Andaya, Jr., pursuant to SEC Case No. 1296-5511, issued an Order authorizing the "Castro faction" and the Metropolitan Bank (Metrobank)
Laoag City branch to withdraw the amount of P2,555,274.99 from the account of NUI with said
bank.7 Metrobank complied and released P1.4 M8 in favor of the "Castro faction." The "Nicolas
faction" then initiated a criminal complaint forestafa against the "Castro faction" as well as the
petitioners herein who are officers of Metrobank, to wit: Antonio Abacan, Jr., President; Rufo C.
Venus, Jr. and Enriqueto I. Magpantay, legal officers; and Marieta Y. Palanca, assistant branch
manager of its Laoag City branch. The criminal case was later dismissed insofar as petitioners are
concerned.9
On July 16, 1997, NUI, through Roy A. Nicolas of the "Nicolas faction," filed a complaint,
docketed as Civil Case No. 11296-14, before the Regional Trial Court (RTC) of Laoag, for
damages with application for attachment against petitioners together with the employees of NUI
belonging to the "Castro faction," namely: Jose G. Castro, Ernesto B. Asuncion, Gervacio A.
Velasco, Mariel S. Hernando and Virginio C. Rasos as well as their counsel, Edgar S. Asuncion,
and SEC Hearing Officer Rolando G. Andaya, Jr. NUI claims that between December 16 and
December 20, 1996, defendants from the "Castro faction," acting together, and helping one
another, with herein petitioners taking undue and unlawful advantage of their respective positions
in Metrobank, withdrew and released to themselves, for their own personal gain and benefit,
corporate funds of NUI deposited with said bank in the sum of P1.4 M without the knowledge,

consent or approval of NUI to the grave and serious damage and prejudice of the latter. NUI also
claims that defendants have not accounted for the said amount despite several demands for them to
do so.10
On September 15, 1997, defendant, herein petitioner, Marieta Y. Palanca filed a motion to dismiss
alleging that: (1) the complaint fails to state a cause of action against her since she is not a real
party in interest; (2) plaintiff has no legal capacity to sue; and (3) the complaint is dismissible
under Section 5, Rule 7 of the New Rules of Civil Procedure on the certification against forum
shopping.11 She likewise pointed out that SEC Case No. 12-96-5469 must take precedence over
the civil case since it is a logical antecedent to the issue of standing in said case. 12
On April 28, 1998, the RTC issued an Order, denying Palancas motion and ordering her and her
co-defendants to file their respective answers.13 Pertinent portions of the Order read as follows:
At first impression, the controversy commenced by the complaint appears to be one involving an
intra-corporate dispute. A closer scrutiny of the allegations in the complaint, however, shows
otherwise. Considering the doctrine that a motion to dismiss hypothetically admits the allegations
in the complaint, what is admitted is that the action is one for a sum of money. The Court
examined Exhibit "C" of movant and found out that it refers to a case in the Securities and
Exchange Commission docketed as Sec. Case No. 12-96-5511 where the petitioners in said SEC
case (some are defendants in the instant case) were "authorized to withdraw from Metrobank
(Laoag City Branch) the amount of P2,555,274.99 from the Bank account of Northwestern
University, Inc. . . ." On the other hand, the herein complaint avers that plaintiff Northwestern
University, Inc. seeks recovery of the amount ofP1,600,000.0014 allegedly withdrawn by the herein
defendants during the period from December 16 to December 20, 1996 from the corporate funds
of plaintiff deposited with Metrobank Laoag City Branch under Current Account No. 7-140525096 and Savings Account No. 3-140-52509. The SEC Order (Exhibit "C") was issued
December 19, 1996. There is, therefore, an inference that the withdrawal referred to in the
complaint as having been effected between December 16 to 20, 1996, could possibly be the
withdrawal in consequence of the SEC Order of December 19, 1996. However, the inference
remains as such and cannot ripen to a legal conclusion because the evidence on hand does not
sufficiently preponderate to warrant such a conclusion. In the first place, there is no evidence
adduced that the purported withdrawal, if ever made, was drawn against the current/savings
accounts mentioned in the complaint. In the second place, the amount authorized to be withdrawn
was P2,555,274.99 while the amount sought to be recovered is P1,600,000.00.15 The Court cannot
rely on inference or speculation to cogently resolve a matter. While it appears that movants are
invoking the issue of forum-shopping, they cannot overcome the issues raised in the complaint,
which as earlier stated, have been hypothetically admitted, and which issues have to be joined by
the filing of the answer by the defendants. The Court notes that in the instant case, plaintiff is a
corporation and is not a respondent in SEC Case No. 12-96-5511. Moreover, the issues raised
therein and in the instant case are entirely different. There is also no showing that there is legal
basis to pierce the veil of corporate fiction. In the other case (SEC Case No. 12-96-5469), while it
appears that Northwestern University, Inc. is one of the plaintiffs therein, the complaint refers to a

declaration of nullity of the special stockholders meeting of 3 October 1996 of the election of
directors and of the October 3, 1996 amended by-laws, and is essentially an action for damages.
The complaint in this case, for a sum of money, is also far removed from the nature of the action in
the said SEC Case. Thus, it is clear that there are genuine issues to be tried in this case, which calls
for a trial on the merits. The motion to dismiss must, perforce, be denied. (Emphasis supplied)
...
As above shown, the alleged fraud is stated in generalities. In this jurisdiction, fraud is never
presumed (Benitez vs. IAC, 154 SCRA 41).
Instead of filing their answers or a motion for reconsideration of the said Order, herein petitioners
Abacan, Magpantay, Venus and Palanca went to the CA on a petition for certiorari and prohibition
raising the same issues.16
On July 22, 1999, the CA rendered the herein assailed decision which dismissed the petition
explaining thus:
A careful review and consideration of the records of the case, reveal that petitioner failed to
comply with a condition sine qua non for the filing of the Petition, which is to file a motion for
reconsideration. In Tan vs. CA, 275 SCRA 568 the Supreme Court specifically ruled that: The
special civil action of certiorari will not lie unless a motion for reconsideration is first filed before
the respondent court to allow it an opportunity to correct its errors.
In filing this instant petition before Us, petitioners in its petition, while admitting failure to file a
Motion for Reconsideration, justified the same, when it alleged thus:
13.01 Under the circumstances, the filing of a motion for reconsideration may be dispensed with.
All issues are essentially legal and have been squarely raised and passed upon by the lower court.
[Klaveness Maritime Agency, Inc. vs. Palmos, 232 SCRA 448.]
Regrettably, however, the case relied upon by petitioner, a 1994 decision, is the exception to the
rule, and not applicable to the case at Bench. In the said case the Supreme Court said and We
quote "a prior Motion for Reconsideration is not indispensable for commencement
of certiorari proceedings if the errors sought to be corrected in said proceedings had been duly
heard and passed upon or were similar to the issue/s resolved by the tribunal or agency below."
(underlining for emphasis) A reading of the Order of public respondent clearly shows that no
hearing on the issues was had. The penultimate paragraph of the Order of public respondent judge
states:
WHEREFORE, in view of the foregoing, the Court hereby denies:
1. The motion to dismiss;

2. The application for a writ of preliminary attachment; and

3. The appointment of a special sheriff.
Defendant Jose G. Castro is hereby given eleven (11) days from receipt of a copy of this denial
within which to file his answer; defendant Marietta [sic] Young Palanca and the other defendants
who have not filed their answer are given five (5) days from receipt of the Order to file their
respective answers.
SO ORDERED.
As it was, the only thing resolved by the court a quo was in relation to the motion to dismiss the
application for a writ of preliminary attachment and the appointment of a special sheriff. Petitioner
has not filed any answer which would outline the issues that he would want the court a quo to
resolve.
Under such situation, therefore, since no proceedings were done to hear and pass upon the issues
to be raised by petitioner, then the general rule that a motion for reconsideration must first be filed
before a petition under Sec. 1 of Rule 65 must be applied. Having failed to do so, petitioners
petition must be, as it is hereby DENIED.17
A motion for reconsideration was thereafter filed by petitioners but was denied by the CA on
November 12, 1999.18
Hence the present petition.
Petitioners argue that: (1) following the case of Klaveness Maritime Agency, Inc. vs.
Palmos,19 prior resort to a motion for reconsideration before the filing of a petition
for certiorari or prohibition is not a mandatory rule and may be dispensed with in this case since
the issues involved herein are purely legal and have already been passed upon; (2) it is contrary to
the policy against judicial delay and multiplicity of suits for a higher court to remand the case to
the trial court when the former is in a position to resolve the dispute based on the records before it;
(3) the impleaded bank officers are not real parties-in-interest since they are not privy to the
contract of deposit between NUI and Metrobank, and they merely complied with the SEC Order
authorizing the release of funds from the account of NUI with Metrobank; (4) the "Nicolas
faction" has no legal capacity to sue in behalf of NUI not being the de jure board of trustees; and
(5) intra-corporate case No. 12-96-5469, lodged before the SEC, must take precedence over the
damage suit pending before the trial court.20
Petitioners then prayed for the dismissal of the complaint in Civil Case No. 11296-14 against
them, or in the alternative, to hold in abeyance the proceedings therein until after the final
determination of SEC Case No. 12-96-5469.21

NUI in its Comment contends that: the Klaveness case does not apply in the case at bar since the
issues raised herein are dependent upon facts the proof of which have neither been entered into the
records of the case nor admitted by the parties; petitioners cannot, on their bare and self-serving
representation that reconsideration is unnecessary, unilaterally disregard what the law requires and
deny the trial court its right to review its pronouncements before being hailed to a higher court to
account therefor; and contrary to petitioners assertion, no hearing for the presentation of evidence
was had before the trial court on the factual matters raised in petitioners motion to dismiss. 22
NUI further argues: it did not fail to state a cause of action; the complaint alleged that petitioners
acted in connivance with their co-defendants and as joint tortfeasors, are solidarily liable with their
principal for the wrongful act; as officers and employees of the bank, they are also considered
agents thereof who are liable for fraud and negligence; the complaint charged the perpetration of
the unlawful and unjust deprivation by the petitioners of NUIs right to its property for which
petitioners may be held liable for damages making them real parties-in-interest; petitioners, as
officers and employees of Metrobank had an obligation to protect the funds of NUI and it was the
petitioners act of conniving to unlawfully withdraw NUIs funds which violated NUIs legal right,
thus entitling the latter to sue for such tortuous act; it is also not true that petitioners could not be
held liable for damages since they merely complied with the order of the SEC; as pointed out in
the Order dated April 28, 1998, the amount allegedly authorized to be withdrawn
was P2,555,274.99 while the amount sought to be recovered in the complaint was P1.6 M; it
cannot be inferred conclusively therefore that the amount subject of the complaint refers to the
same amount authorized by the SEC to be withdrawn; in any case, such argument is more a
subject of defense rather than a proper ground for a motion to dismiss.23
NUI disagrees with the contention of petitioners that it has no legal capacity to sue, stating that
NUI had already conducted subsequent elections wherein Roy A. Nicolas was elected as member
of the board of directors and concurrently the administrator of NUI.24
NUI further avers that: there is no merit to the claim of petitioners that there exists a prejudicial
question which should prompt the trial court to suspend its proceedings; the rule on prejudicial
question finds no application between the civil complaint below and the case before the SEC as
the rule presupposes the pendency of a civil action and a criminal action; and even
assuming arguendo that the issues pending before the SEC bear a similarity to the cause of action
below, the complaint of NUI can stand and proceed separately from the SEC case inasmuch as
there is no identity in the reliefs prayed for.25
Evaluating the issues raised, it is clear that the only questions that need to be answered in order to
resolve the present petition are the following: (1) Whether the complaint states a cause of action;
(2) Whether a motion for reconsideration of the order of the RTC dismissing a motion to dismiss
prior to the filing of a petition for certioraribefore the CA is dispensable; and (3) Whether the
proceedings in Civil Case No. 11296-14 must be held in abeyance pending resolution of SEC Case
No. 12-96-5469.

First issue. Whether the complaint states a cause of action against petitioners. We rule in the
affirmative.
It is settled that the existence of a cause of action is determined by the allegations in the complaint.
In resolving a motion to dismiss based on the failure to state a cause of action, only the facts
alleged in the complaint must be considered. The test is whether the court can render a valid
judgment on the complaint based on the facts alleged and the prayer asked for.26 Indeed, the
elementary test for failure to state a cause of action is whether the complaint alleges facts which if
true would justify the relief demanded. Only ultimate facts and not legal conclusions or
evidentiary facts, which should not be alleged in the complaint in the first place, are considered for
purposes of applying the test. 27
In this case the complaint alleges that:
...
10. Between December 16 and December 20, 1996, the defendants, acting together and helping
one another, with defendants Andaya, Abacan, Magpantay, Venus and Palanca taking undue and
unlawful advantage of their respective positions, withdrew and released to themselves, for their
own personal gain and benefit, the corporate funds of plaintiff deposited with Metrobank Laoag
City Branch under Current Account No. 7-140-525096 and Savings Account No. 3 140 52509 in
the sum of P1,400,000.00 without the knowledge, consent or approval of plaintiff to the grave and
serious damage and prejudice of the latter.28
From this statement alone, it is clear that a cause of action is present in the complaint filed a quo.
NUI has specifically alleged an act, that is, the undue withdrawal of funds from its account with
Metrobank, which the petitioners and the other defendants committed, to the prejudice of NUIs
rights.
Petitioners argue that as mere officers and employees of Metrobank, they are not privy to the
contract of deposit between their bank and NUI, thus they cannot be held liable for any erroneous
withdrawal made in NUIs account with their bank. They also do not stand to be benefited or
injured by the judgment, i.e., they are not real parties-in-interest, thus the complaint a quo is
dismissible on the ground of failure to state a cause of action.
We are not persuaded.
As aptly explained by respondent NUI in its comment, petitioners are being sued and held liable
for their alleged participation in the wrongdoing of the other defendants. The complaint is not
based on the contract of deposit between Metrobank and NUI but on the alleged tortuous act of
defendants of wrongfully withdrawing NUIs funds. As contracts are not the only sources of
obligations, petitioners cannot escape responsibility on the bare assertion that the have no contract
with NUI.

Second issue. Whether a motion for reconsideration is dispensable in the case at bar. We rule in the
affirmative.
Indeed, it is settled that the filing of a motion for reconsideration is a prerequisite to the filing of a
special civil action for certiorari. This is to give the lower court the opportunity to correct
itself.29 It is also the rule that since an order denying a motion to dismiss is only interlocutory,
which is neither appealable until final judgment nor could it generally be assailed on certiorari,
the remedy of the aggrieved party is to file an answer and interpose as defenses the objections
raised in his motion to dismiss.30
However, the following have been recognized as exceptions to the general rule:
(a) where the order is a patent nullity, as where the court a quo has no jurisdiction;
(b) where the questions raised in the certiorari proceedings have been duly raised and passed
upon by the lower court, or are the same as those raised and passed upon in the lower court;
(c) where there is an urgent necessity for the resolution of the question and any further delay
would prejudice the interests of the Government or of the petitioner or the subject matter of the
action is perishable;
(d) where, under the circumstances, a motion for reconsideration would be useless;
(e) where petitioner was deprived of due process and there is extreme urgency for relief;
(f) where, in a criminal case, relief from an order of arrest is urgent and the granting of such relief
by the trial court is improbable;
(g) where the proceedings in the lower court are a nullity for lack of due process;
(h) where the proceeding was ex parte or in which the petitioner had no opportunity to object; and
(i) where the issue raised is one purely of law or where public interest is involved. 31 (Emphasis
supplied)
Circumstances (b) and (d) above are present in this case.
In Klaveness Maritime Agency, Inc. vs. Palmos,32 which is being invoked by petitioners, we held
that:
A prior motion for reconsideration is not indispensable for commencement
of certiorari proceedings if the errors sought to be corrected in such proceedings had been duly

heard and passed upon, or were similar to the issues already resolved by the tribunal or agency
below. Accordingly, the Court has excused the non-filing of a motion for reconsideration when
such a motion would be basically pro forma in nature and content, and where, as in the present
Petition, the questions raised are essentially legal in nature.33
We agree with the argument of petitioners that a motion for reconsideration of the order of the trial
court, prior to the filing of their petition for certiorari before the CA, was dispensable since the
questions involved are essentially legal in nature and the errors sought to be corrected had already
been heard and passed upon. One of the errors sought to be corrected is the ruling of the trial court
that there exists a cause of action against petitioners. This issue that was raised in the motion to
dismiss has been heard and passed upon by the trial court.
The other crucial issue that has been raised in the motion to dismiss and duly passed upon by the
trial court is the question whether the case before the trial court should be held in abeyance until
resolution of SEC Case No. 12-96-5469. Palanca pointed out in her motion that said SEC case,
which is an action to nullify the election of the directors of NUI belonging to the "Castro faction,"
must take precedence over Civil Case No. 11296-14 before the trial court since it is determinative
of whether or not Roy Nicolas has the legal standing to file the suit in behalf of NUI. The trial
court ruled in the negative and held that the civil and the SEC cases can proceed independently of
each other since they involve different parties and issues. Thus, inasmuch as this issue has already
been raised and passed upon in the trial court, we agree with petitioners that motion for
reconsideration in this instance may be dispensed with.
Third issue. Whether the proceedings in Civil Case No. 11296-14 must be held in abeyance
pending resolution of SEC Case No. 12-96-5469. We rule in the affirmative.
Petitioners argue that SEC Case No. 12-96-5469, which is an action to nullify the election of the
directors of NUI belonging to the "Castro faction," is a necessary and logical antecedent of the
issue of whether the withdrawal ofP1.4 M or P1.6 M, as the case may be, as well as the institution
of this suit for the recovery thereof was authorized by the NUI.
Technically, there would be no prejudicial question to speak of in this case, if we are to consider
the general rule that a prejudicial question comes into play in a situation where a civil action and a
criminal action are both pending and there exists in the former an issue which must be
preemptively resolved before the criminal action may proceed, because howsoever the issue in the
civil action is resolved would be determinative juris et de jure of the guilt or innocence of the
accused in the criminal case.34 However, considering the rationale behind the principle of
prejudicial question, being to avoid two conflicting decisions, 35 prudence dictates that we apply
the principle underlying the doctrine to the case at bar.
A prejudicial question is that which arises in a case, the resolution of which is a logical antecedent
of the issue involved therein and the cognizance of which pertains to another tribunal. 36 The
prejudicial question must be determinative of the case before the court but the jurisdiction to try
and resolve it must be lodged in another court or tribunal.37

In the present case, the question of which between the Castro and the Nicolas factions are the de
jure board of directors of NUI is lodged before the SEC. The complaint before the RTC of Laoag
meanwhile alleges that petitioners, together with their co-defendants, comprised of the "Castro
faction," wrongfully withdrew the amount of P1.4 M from the account of NUI with Metrobank.
Moreover, whether or not Roy Nicolas of the "Nicolas faction" is a duly elected member of the
Board of NUI and thus with capacity to institute the herein complaint in behalf of the NUI
depends on the findings of the SEC in the case pending before it. It would finally determine
whether Castro, et al. legally withdrew the subject amount from the bank and whether Nicolas
lawfully initiated the complaint in behalf of herein respondent NUI. It is petitioners claim, and we
agree, that the presence or absence of their liability for allowing the withdrawal of P1.4 M from
the account of NUI with Metrobank in favor of the "Castro faction" is reliant on the findings of the
SEC as to which of the two factions is the de jure board. Since the determination of the SEC as to
which of the two factions is the de jure board of NUI is crucial to the resolution of the case before
the RTC, we find that the trial court should suspend its proceedings until the SEC comes out with
its findings.
We apply by analogy our pronouncement in Quiambao vs. Osorio,38 to wit:
Faced with these distinct possibilities, the more prudent course for the trial court to have taken is
to hold the ejectment proceedings in abeyance until after a determination of the administrative
case. Indeed, logic and pragmatism, if not jurisprudence, dictate such move. To allow the parties to
undergo trial notwithstanding the possibility of petitioners right of possession being upheld in the
pending administrative case is to needlessly require not only the parties but the court as well to
expend time, effort and money in what may turn out to be a sheer exercise in futility. Thus, 1 Am
Jur 2d tells us:

The court in which an action is pending may, in the exercise of a sound discretion, upon proper
application for a stay of that action, hold the action in abeyance to abide the outcome of another
pending in another court, especially where the parties and the issues are the same, for there is
power inherent in every court to control the disposition of causes on its dockets with economy of
time and effort for itself, for counsel, and for litigants. Where the rights of parties to the second
action cannot be properly determined until the questions raised in the first action are settled the
second action should be stayed.
While this rule is properly applicable to instances involving two [2] court actions, the existence in
the instant case of the same considerations of identities of parties and issues, economy of time and
effort for the court, the counsels and the parties as well as the need to resolve the parties right of
possession before the ejectment case may be properly determined, justifies the rules analogous
application to the case at bar.39
WHEREFORE, the petition is GRANTED. The Court of Appeals Decision dated July 22, 1999
and Resolution dated November 12, 1999 are SET ASIDE. The RTC of Laoag City, Branch 14, is
hereby DIRECTED to suspend further proceedings in Civil Case No. 11296-14 until after a final
determination is made in SEC Case No. 12-96-5469.
No costs.
SO ORDERED.