VOL. 757, APRIL 22, 2015 59 of respondent amounted to P420,000.

00 which was above the

jurisdictional amount for MTCCs outside Metro Manila. The trial court
Sante vs. Claravall
also later issued Orders on July 7, 20048 and July 19,
G.R. No. 173915. February 22, 2010.*
2004,9respectively reiterating its denial of the motion to dismiss and
denying petitioners’ motion for reconsideration.
VILLARAMA, JR., J.:
Aggrieved, petitioners filed on August 2, 2004, a Petition
for Certiorari and Prohibition,10 docketed as CA-G.R. SP No. 85465,
Before this Court is a petition for certiorari1 under Rule 65 of the 1997
before the Court of Appeals. Meanwhile, on July 14, 2004, respondent
Rules of Civil Procedure, as amended, filed by petitioners Irene and
and her husband filed an Amended Complaint11 increasing the claim
Reynaldo Sante assailing the Decision2
for moral damages from P300,000.00 to P1,000,000.00. Petitioners filed
dated January 31, 2006 and the Resolution3 dated June 23, 2006 of the
a Motion to Dismiss with Answer Ad Cautelam and Counterclaim, but
Seventeenth Division of the Court of Appeals in CA-G.R. SP No. 87563.
the trial court denied their motion in an Order12 dated September 17,
The assailed decision affirmed the orders of the Regional Trial Court
2004.
(RTC) of Baguio City, Branch 60, denying their motion to dismiss the
Hence, petitioners again filed a Petition for Certiorari and
complaint for damages filed by respondent Vita Kalashian against
Prohibition13 before the Court of Appeals, docketed as CA-G.R. SP No.
them.
87563, claiming that the trial court committed grave abuse of
The facts, culled from the records, are as follows:
discretion in allowing the amendment of the complaint to increase the
On April 5, 2004, respondent filed before the RTC of Baguio City a
amount of moral damages from P300,000.00 to P1,000,000.00. The case
complaint for damages4 against petitioners. In her complaint, docketed
was raffled to the Seventeenth Division of the Court of Appeals.
as Civil Case No. 5794-R, respondent alleged that while she was inside
On January 23, 2006, the Court of Appeals, Seventh Division,
the Police Station of Natividad, Pangasinan, and in the presence of
promulgated a decision in CA-G.R. SP No. 85465, as follows:
other persons and police officers, petitioner Irene Sante uttered words,
“WHEREFORE, finding grave abuse of discretion on the part of
which when translated in English are as follows, “How many rounds of
[the] Regional Trial Court of Baguio, Branch 60, in rendering the
sex did you have last night with your boss, Bert? You fuckin’ bitch!” Bert
assailed Orders dated June 24, 2004 and July [19], 2004 in Civil Case
refers to Albert Gacusan, respondent’s friend and one (1) of her hired
No. 5794-R the instant petition for certiorari is GRANTED. The
personal security guards detained at the said station and who is a
assailed Orders are hereby ANNULLED and SET ASIDE. Civil Case
suspect in the killing of petitioners’ close relative. Petitioners also
No. 5794-R for damages is ordered DISMISSED for lack of jurisdiction.
allegedly went around Natividad, Pangasinan telling people that she
SO ORDERED.”14
is protecting and cuddling the suspects in the aforesaid killing. Thus,
The Court of Appeals held that the case clearly falls under the
respondent prayed that petitioners be held liable to pay moral damages
jurisdiction of the MTCC as the allegations show that plaintiff was
in the amount of P300,000.00; P50,000.00 as exemplary damages;
seeking to recover moral damages in the amount of P300,000.00, which
P50,000.00 attorney’s fees; P20,000.00 litigation expenses; and costs of
amount was well within the jurisdictional amount of the MTCC. The
suit.
Court of Appeals added that the totality of claim rule used for
Petitioners filed a Motion to Dismiss5 on the ground that it was the
determining which court had jurisdiction could not be applied to the
Municipal Trial Court in Cities (MTCC) and not the RTC of Baguio,
instant case because plaintiff’s claim for exemplary damages was not a
that had jurisdiction over the case. They argued that the amount of the
separate and distinct cause of action from her claim of moral damages,
claim for moral damages was not more than the jurisdictional amount
but merely incidental to it. Thus, the prayer for exemplary damages
of P300,000.00, because the claim for exemplary damages should be
should be excluded in computing the total amount of the claim.
excluded in computing the total claim.
On January 31, 2006, the Court of Appeals, this time in CA-G.R. SP
On June 24, 2004,6 the trial court denied the motion to dismiss
No. 87563, rendered a decision affirming the September 17, 2004 Order
citing our ruling in Movers-Baseco Integrated Port Services, Inc. v.
of the RTC denying petitioners’ Motion to Dismiss Ad Cautelam. In the
Cyborg Leasing Corporation.7 The trial court held that the total claim
said decision, the appellate court held that the total or aggregate
amount demanded in the complaint constitutes the basis of
jurisdiction. The Court of Appeals did not find merit in petitioners’
posture that the claims for exemplary damages and attorney’s fees are
merely incidental to the main cause and should not be included in the
computation of the total claim.
The Court of Appeals additionally ruled that respondent can amend
her complaint by increasing the amount of moral damages from
P300,000.00 to P1,000,000.00, on the ground that the trial court has
jurisdiction over the original complaint and respondent is entitled to
amend her complaint as a matter of right under the Rules.
Unable to accept the decision, petitioners are now before us raising
the following issues:
I.
WHETHER OR NOT THERE WAS GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION ON
THE PART OF THE (FORMER) SEVENTEENTH DIVISION OF THE
HONORABLE COURT OF APPEALS WHEN IT RESOLVED THAT
THE REGIONAL TRIAL COURT OF BAGUIO CITY BRANCH 60
HAS JURISDICTION OVER THE SUBJECT MATTER OF THE
CASE FOR DAMAGES AMOUNTING TO P300,000.00;
II.
WHETHER OR NOT THERE WAS GRAVE ABUSE OF DISCRETION
ON THE PART OF THE HONORABLE RESPONDENT JUDGE OF
THE REGIONAL TRIAL COURT OF BAGUIO BRANCH 60 FOR
ALLOWING THE COMPLAINANT TO AMEND THE COMPLAINT
(INCREASING THE AMOUNT OF DAMAGES TO 1,000,000.00 TO
CONFER JURISDICTION OVER THE SUBJECT MATTER OF THE
CASE DESPITE THE PENDENCY OF A PETITION
FOR CERTIORARI FILED AT THE COURT OF APPEALS,
SEVENTH DIVISION, DOCKETED AS CA G.R. NO. 85465.15
In essence, the basic issues for our resolution are:
1) Did the RTC acquire jurisdiction over the case? and
2) Did the RTC commit grave abuse of discretion in allowing the
amendment of the complaint?
Petitioners insist that the complaint falls under the exclusive
jurisdiction of the MTCC. They maintain that the claim for moral
damages, in the amount of P300,000.00 in the original complaint, is
the main action. The exemplary damages being discretionary should
not be included in the computation of the jurisdictional amount. And
having no jurisdiction over the subject matter of the case, the RTC
acted with grave abuse of discretion when it allowed the amendment
of the complaint to increase the claim for moral damages in order to
confer jurisdiction.
In her Comment,16 respondent averred that the nature of her
complaint is for recovery of damages. As such, the totality of the claim
for damages, including the exemplary damages as well as the other
damages alleged and prayed in the complaint, such as attorney’s fees
and litigation expenses, should be included in determining jurisdiction.
The total claim being P420,000.00, the RTC has jurisdiction over the
complaint.
We deny the petition, which although denominated as a petition
for certiorari, we treat as a petition for review on certiorari under Rule
45 in view of the issues raised.
Section 19(8) of Batas Pambansa Blg. 129,17 as amended by
Republic Act No. 7691,18 states:
“SEC. 19. Jurisdiction in civil cases.—Regional Trial Courts shall
exercise exclusive original jurisdiction:
xxxx
(8) In all other cases in which the demand, exclusive of interest,
damages of whatever kind, attorney’s fees, litigation expenses, and
costs or the value of the property in controversy exceeds One hundred
thousand pesos (P100,000.00) or, in such other cases in Metro Manila,
where the demand, exclusive of the abovementioned items exceeds Two
hundred thousand pesos (P200,000.00).”
Section 5 of Rep. Act No. 7691 further provides:
“SEC. 5. After five (5) years from the effectivity of this Act, the
jurisdictional amounts mentioned in Sec. 19(3), (4), and (8); and Sec.
33(1) of Batas Pambansa Blg. 129 as amended by this Act, shall be
adjusted to Two hundred thousand pesos (P200,000.00). Five (5) years
thereafter, such jurisdictional amounts shall be adjusted further to
Three hundred thousand pesos (P300,000.00): Provided, however, That
in the case of Metro Manila, the abovementioned jurisdictional
amounts shall be adjusted after five (5) years from the effectivity of this
Act to Four hundred thousand pesos (P400,000.00).”
Relatedly, Supreme Court Circular No. 21-99 was issued declaring
that the first adjustment in jurisdictional amount of first level courts
outside of Metro Manila from P100,000.00 to P200,000.00 took effect
on March 20, 1999. Meanwhile, the second adjustment from
P200,000.00 to P300,000.00 became effective on February 22, 2004 in
accordance with OCA Circular No. 65-2004 issued by the Office of the
Court Administrator on May 13, 2004.
Based on the foregoing, there is no question that at the time of the
filing of the complaint on April 5, 2004, the MTCC’s jurisdictional
amount has been adjusted to P300,000.00.
But where damages is the main cause of action, should the amount
of moral damages prayed for in the complaint be the sole basis for
determining which court has jurisdiction or should the total amount of
all the damages claimed regardless of kind and nature, such as
exemplary damages, nominal damages, and attorney’s fees, etc., be
used?
In this regard, Administrative Circular No. 09-9419 is instructive:
2. The exclusion of the term “damages of whatever kind” in
determining the jurisdictional amount under Section 19 (8) and Section
33 (1) of B.P. Blg. 129, as amended by R.A. No. 7691, applies to cases
where the damages are merely incidental to or a consequence of the
main cause of action. However, in cases where the claim for
damages is the main cause of action, or one of the causes of
action, the amount of such claim shall be considered in
determining the jurisdiction of the court.” (Emphasis ours.)
In the instant case, the complaint filed in Civil Case No. 5794-R is
for the recovery of damages for the alleged malicious acts of petitioners.
The complaint principally sought an award of moral and exemplary
damages, as well as attorney’s fees and litigation expenses, for the
alleged shame and injury suffered by respondent by reason of
petitioners’ utterance while they were at a police station in
Pangasinan. It is settled that jurisdiction is conferred by law based on
the facts alleged in the complaint since the latter comprises a concise
statement of the ultimate facts constituting the plaintiff’s causes of
action.20 It is clear, based on the allegations of the complaint, that
respondent’s main action is for damages. Hence, the other forms of
damages being claimed by respondent, e.g., exemplary damages,
attorney’s fees and litigation expenses, are not merely incidental to or
consequences of the main action but constitute the primary relief
prayed for in the complaint.
In Mendoza v. Soriano,21 it was held that in cases where the claim
for damages is the main cause of action, or one of the causes of action,
the amount of such claim shall be considered in determining the
jurisdiction of the court. In the said case, the respondent’s claim of
P929,000.06 in damages and P25,000 attorney’s fees plus P500 per
court appearance was held to represent the monetary equivalent for
compensation of the alleged injury. The Court therein held that the
total amount of monetary claims including the claims for damages was
the basis to determine the jurisdictional amount.
Also, in Iniego v. Purganan,22 the Court has held:
“The amount of damages claimed is within the jurisdiction of the
RTC, since it is the claim for all kinds of damages that is the basis of
determining the jurisdiction of courts, whether the claims for damages
arise from the same or from different causes of action.
Considering that the total amount of damages claimed was
P420,000.00, the Court of Appeals was correct in ruling that the RTC
had jurisdiction over the case.
Lastly, we find no error, much less grave abuse of discretion, on the
part of the Court of Appeals in affirming the RTC’s order allowing the
amendment of the original complaint from P300,000.00 to
P1,000,000.00 despite the pendency of a petition for certiorari filed
before the Court of Appeals. While it is a basic jurisprudential principle
that an amendment cannot be allowed when the court has no
jurisdiction over the original complaint and the purpose of the
amendment is to confer jurisdiction on the court,23here, the RTC
clearly had jurisdiction over the original complaint and amendment of
the complaint was then still a matter of right.24
WHEREFORE, the petition is DENIED, for lack of merit. The
Decision and Resolution of the Court of Appeals dated January 31,
2006 and June 23, 2006, respectively, are AFFIRMED. The Regional
Trial Court of Baguio City, Branch 60 is DIRECTED to continue with
the trial proceedings in Civil Case No. 5794-R with deliberate dispatch.
No costs. SO ORDERED.
 VOL. 757, APRIL 22, 2015 59 At upang may katunayan ang lahat ng napag usapan ay lumagda
sa ibaba nito at sa harap ng mga saksi ngayong ika-9 ng Hulyo, 1997.
Sebastian vs. Ng
Mrs. Angelita Lagmay – (Lagda)
G.R. No. 164594. April 22, 2015.*
Mr. Michael Sebastian – (Lagda)
BRION, J.:
Saksi: Kagawad Rolando Mendizabal – (Lagda)
Hepe Quirino Sapon – (Lagda)
We resolve the petition for review on certiorari,1 filed by petitioner
Benjamin Sebastian – (Lagda)
Michael Sebastian (Michael), assailing the March 31, 2004
Jun Roxas – (Lagda)
Decision,2 and the July 15, 2004 Resolution3 of the Court of Appeals
(CA) in C.A.-G.R. S.P. No. 65450.
Angelita alleged that the kasunduan was not repudiated within a
The CA decision reversed and set aside the decision of the Regional
period of ten (10) days from the settlement, in accordance with
Trial Court (RTC) of Palayan City, Branch 40, in SP Proc. Case No.
the Katarungang Pambarangay Law embodied in the Local
0096-P.
Government Code of 1991 [Republic Act (R.A.) No. 7160], and Section
14 of its Implementing Rules. When Michael failed to honor
Factual Background
the kasunduan, Angelita brought the matter back to the Barangay, but
the Barangay Captain failed to enforce the kasunduan, and instead,
Sometime in 1997, Angelita Lagmay (Angelita), acting as
issued a Certification to File Action.
representative and attorney-in-fact of her daughter Annabel Lagmay
After about one and a half years from the date of the execution of
Ng (Annabel), filed a complaint before the Barangay Justice of Siclong,
the kasunduan or on January 15, 1999, Angelita filed with the
Laur, Nueva Ecija. She sought to collect from Michael the sum of
Municipal Circuit Trial Court (MCTC) of Laur and Gabaldon, Nueva
P350,000.00 that Annabel sent to Michael. She claimed that Annabel
Ecija, a Motion for Execution of the kasunduan.
and Michael were once sweethearts, and that they agreed to jointly
Michael moved for the dismissal of the Motion for Execution, citing
invest their financial resources to buy a truck. She alleged that while
as a ground Angelita’s alleged violation of Section 15, Rule 13 of the
Annabel was working in Hongkong, Annabel sent Michael the amount
1997 Rules of Civil Procedure.
of P350,000.00 to purchase the truck. However, after Annabel and
On January 17, 2000, the MCTC rendered a decision5 in favor of
Michael’s relationship has ended, Michael allegedly refused to return
Annabel, the dispositive portion of which reads, as follows:
the money to Annabel, prompting the latter to bring the matter before
WHEREFORE, the plaintiff through counsel has satisfactorily
the Barangay Justice.
proven by preponderance of evidence based on Exhibits “A,” “B,” “C,”
On July 9, 1997, the parties entered into an amicable settlement,
“D,” and “F,” that defendant has obligation to the plaintiff in the
evidenced by a document denominated as “kasunduan”4 wherein
amount of P250,000.00.
Michael agreed to pay Annabel the amount of P250,000.00 on specific
IN VIEW OF THE FOREGOING, the Motion for Execution filed by
dates. The kasunduanwas signed by Angelita (on behalf of Annabel),
the plaintiff is hereby granted based on Sec. 2, Rule 7 of the
Michael, and the members of the pangkat ng tagapagkasundo.
Implementing Rules and Regulations of Republic Act No. 7160, and
The kasunduan reads:
therefore, defendant is hereby ordered within 15 days upon receipt of
KASUNDUAN
this decision to pay the plaintiff the amount of P250,000.00 as
Nagkasundo ang dalawang panig na pagkayari ng labing apat na
evidenced by the Kasunduan (Exhibit “C”) with legal interests from
buwan (14 months) simula ngayong July 9, 1997 hanggang September
July 9, 1997 until said obligation is fully paid, and to pay attorney’s
1998 ay kailangan ng maibigay ni Mr. Sebastian ang pera ni Ms.
fees for the plaintiff’s counsel in the amount of P15,000.00 and to pay
Anabelle Lagmay.
the cost of the suit.
At napagkasunduan ay dalawang hulog ang
SO ORDERED.
halagangP250,000.00 na pera ni Ms. Lagmay at simula ng pagbibigay
ni Mr. Sebastian ay sa buwan ng September 1998.
 Michael filed an appeal with the RTC arguing that the MCTC
committed grave abuse of discretion in prematurely deciding the case.
Michael also pointed out that a hearing was necessary for the
petitioner to establish the genuineness and due execution of
the kasunduan.
The Regional Trial Court’s Ruling
In its November 13, 2000 Decision,6 the RTC, Branch 40 of Palayan
City upheld the MCTC decision, finding Michael liable to pay Annabel
the sum of P250,000.00. It held that Michael failed to assail the validity
of the kasunduan, or to adduce any evidence to dispute Annabel’s
claims or the applicability of the Implementing Rules and Regulations
of R.A. No. 7160. The dispositive portion of the decision reads:
WHEREFORE, the assailed Decision and Order of the lower court
is hereby MODIFIED in that the appellant is ordered to pay the
appellee the amount of Two hundred Fifty Thousand pesos
(P250,000.00) plus twelve percent interest (12%) per annum from
September, 1998 up to the time it is actually paid and fifty Thousand
Pesos (P50,000.00) representing attorney’s fees.
Michael filed a Motion for Reconsideration arguing that: (i) an
amicable settlement or arbitration award can be enforced by
the Lupon within six (6) months from date of settlement or after the
lapse of six (6) months, by ordinary civil action in the appropriate City
or Municipal Trial Court and not by a mere Motion for execution; and
(ii) the MCTC does not have jurisdiction over the case since the amount
of P250,000.00 (as the subject matter of the kasunduan) is in excess
of MCTC’s jurisdictional amount of P200,000.00.7
In its March 13, 2001 Order, the RTC granted Michael’s Motion for
Reconsideration, and ruled that there is merit in the jurisdictional
issue he raised. It dismissed Angelita’s Motion for Execution, and set
aside the MCTC Decision. The dispositive portion of the said Order
reads:
WHEREFORE, the Motion for Reconsideration is GRANTED. The
Decision of the Court dated November 13, 2000 is hereby SET ASIDE.
The Decision of the Municipal Trial Court of Laur, Nueva Ecija dated
January 17, 2000 is likewise SET ASIDE and the Motion for Execution
of Kasunduan is DISMISSED, the said court having had no jurisdiction
to hear and decide the matter.8
Angelita moved for the reconsideration of the March 13, 2001
Order, but the motion was subsequently denied. Aggrieved, she filed a
Petition for Review9 with the CA.
The Court of Appeals’ Ruling
On August 2, 2001, the CA initially dismissed the petition for
review on a mere technical ground of failure to attach the Affidavit of
Service. Angelita moved for reconsideration, attaching in her motion
the Affidavit of Service. The CA granted the motion.
On March 31, 2004, the CA rendered its decision granting the
petition, and reversing the RTC’s decision. The CA declared that the
“appropriate local trial court” stated in Section 2, Rule VII of the
Implementing Rules of R.A. No. 7160 refers to the municipal trial
courts. Thus, contrary to Michael’s contention, the MCTC has
jurisdiction to enforce any settlement or arbitration award, regardless
of the amount involved.
The CA also ruled that Michael’s failure to repudiate
the kasunduan in accordance with the procedure prescribed under the
Implementing Rules of R.A. No. 7160, rendered the kasunduan final.
Hence, Michael can no longer assail the kasunduan on the ground of
forgery.
Michael moved to reconsider this decision, but the CA denied his
motion in its resolution dated July 15, 2004. Hence, this petition.
The Petition
In the present petition for review on certiorari, Michael alleges that
the kasunduan cannot be given the force and effect of a final judgment
because it did not conform to the provisions of the Katarungang
Pambarangay Law embodied in Book III, Title One, Chapter 7 of R.A.
No. 7160. He points out the following irregularities in the kasunduan’s
execution, and claims that the agreement forged between him and
Angelita was fictitious and simulated:
(1) there was no record of the complaint in the Barangay;
(2) there was no notice of mediation sent to him;
(3) there was no constitution of the Pangkat Ng Tagapagasundo;
(4) the parties were never called upon to choose the three (3)
members from among the Lupon members;
(5) he had no participation in the execution of the kasunduan;
(6) his signature in the kasunduan was forged;
 (7) he did not personally appear before the Barangay;
(8) there was no attestation clause;
(9) the kasunduan was neither reported nor filed before the MCTC;
and
(10) Annabel, the real party-in-interest, did not personally appear
before the Barangay as required by the law.
Michael additionally claims that the kasunduan is merely in the
nature of a private document. He also reiterates that since the amount
of P250,000.00 — the subject matter of the kasunduan — is in excess of
MCTC’s jurisdictional amount of P200,000.00, the kasunduan is
beyond the MCTC’s jurisdiction to hear and to resolve. Accordingly, the
proceedings in the Barangay are all nullity.
The Issues
The issues to be resolved in the present petition are:
1. Whether or not the MCTC has the authority and jurisdiction to
execute the kasunduan regardless of the amount involved;
2. Whether or not the kasunduan could be given the force and effect
of a final judgment; and
3. Whether or not the kasunduan can be enforced.
The Court’s Ruling
We deny the petition.
A perusal of the body of the motion for execution shows that it is
actually in the nature of an action for execution; hence, it was
a proper remedy;
We note at the outset that Michael raised — in his brief before the
CA — the issue of wrong remedy. He alleged that Angelita’s recourse
should have been to file a civil action, not a mere motion for execution,
in a regular court. However, the CA failed to address this issue and
only ruled on the issues of the kasunduan’s irregularities and the
MCTC’s jurisdiction.
A simple reading of Section 417 of the Local Government Code
readily discloses the two-tiered mode of enforcement of an amicable
settlement. The provision reads:
Section 417. Execution.—The amicable settlement or
arbitration award may be enforced by execution by the luponwithin six
(6) months from the date of the settlement. After the lapse of such time,
the settlement may be enforced by action in the appropriate city or
municipal court. [Emphasis ours]
Under this provision, an amicable settlement or arbitration award
that is not repudiated within a period of ten (10) days from the
settlement may be enforced by: first, execution by the Lupon within
six (6) months from the date of the settlement; or second, by
an action in the appropriate city or municipal trial court if more than
six (6) months from the date of settlement has already elapsed.
Under the first mode of enforcement, the execution of an amicable
settlement could be done on mere motion of the party entitled thereto
before the Punong Barangay.10 The proceedings in this case are
summary in nature and are governed by the Local Government Code
and the Katarungang Pambarangay Implementing Rules and
Regulations.
The second mode of enforcement, on the other hand, is judicial in
nature and could only be resorted to through the institution of an
action in a regular form before the proper City/Municipal Trial
Court.11 The proceedings shall be governed by the provisions of the
Rules of Court.
Indisputably, Angelita chose to enforce the kasunduanunder the
second mode and filed a motion for execution, which was docketed as
Special Proceedings No. 45-99. The question for our resolution
is: Whether the MCTC, through Angelita’s motion for execution, is
expressly authorized to enforce the kasunduan under Section 417 of the
Local Government Code?
The Court rules in the affirmative.
It is undisputed that what Angelita filed before the MCTC was
captioned “motion for execution,” rather than a petition/complaint for
execution.
A perusal of the motion for execution, however, shows that it
contains the material requirements of an initiatory action.
First, the motion is sufficient in form12 and substance.13 It is
complete with allegations of the ultimate facts constituting the cause
of action; the names and residences of the plaintiff and the defendant;
it contains the prayer for the MCTC to order the execution of
the kasunduan; and there was also a verification and certification
against forum shopping.
Furthermore, attached to the motion are: 1) the authenticated
special power of attorney of Annabel, authorizing Angelita to file the
present action on her behalf; and 2) the copy of the kasunduan whose
contents were quoted in the body of the motion for execution.
It is well-settled that what are controlling in determining the
nature of the pleading are the allegations in the body and not the
caption.14
Thus, the motion for execution that Angelita filed was
intended to be an initiatory pleading or an original action that
is compliant with the requirement under Section 3, Rule 6 of
the Rules of Court that the complaint should allege the
plaintiff’s cause of action and the names and residences of the
plaintiff and the defendant.
Angelita’s motion could therefore be treated as an original
action, and not merely as a motion/special proceeding. For this
reason, Annabel has filed the proper remedy prescribed under
Section 417 of the Local Government Code.
However, Angelita should pay the proper docket fees corresponding
to the filing of an action for execution. The docket fees shall be
computed by the Clerk of Court of the MCTC, with due consideration,
of course, of what Angelita had already paid when her motion for
execution was docketed as a special proceeding.
The kasunduan has the force and effect of a final judgment.
Under Section 416 of the Local Government Code, the amicable
settlement and arbitration award shall have the force and effect of a
final judgment of a court upon the expiration of ten (10) days from the
date of its execution, unless the settlement or award has been
repudiated or a petition to nullify the award has been filed before the
proper city or municipal court.
Moreover, Section 14, Rule VI of the Katarungang
Pambarangay Implementing Rules states that the party’s failure to
repudiate the settlement within the period of ten (10) days shall be
deemed a waiver of the right to challenge the settlement on the ground
that his/her consent was vitiated by fraud, violence or intimidation.
In the present case, the records reveal that Michael never
repudiated the kasunduan within the period prescribed by the law.
Hence, the CA correctly ruled that the kasunduan has the force and
effect of a final judgment that is ripe for execution.
Furthermore, the irregularities in the kasunduan’s execution, and
the claim of forgery are deemed waived since Michael never raised
these defenses in accordance with the procedure prescribed under the
Local Government Code. Thus, we see no reason to discuss these issues
in the present case.
The MCTC has the authority and jurisdiction to enforce
the kasunduan regardless of the amount involved.
The Court also finds that the CA correctly upheld the MCTC’s
jurisdiction to enforce any settlement or arbitration award issued by
the Lupon.
We again draw attention to the provision of Section 417 of the Local
Government Code that after the lapse of the six (6) month period from
the date of the settlement, the agreement may be enforced by action in
the appropriate city or municipal court.
The law, as written, unequivocally speaks of the “appropriate city
or municipal court” as the forum for the execution of the settlement or
arbitration award issued by the Lupon. Notably, in expressly
conferring authority over these courts, Section 417 made no distinction
with respect to the amount involved or the nature of the issue involved.
Thus, there can be no question that the law’s intendment was to grant
jurisdiction over the enforcement of settlement/arbitration awards to
the city or municipal courts the regardless of the amount. A basic
principle of interpretation is that words must be given their literal
meaning and applied without attempted interpretation where the
words of a statute are clear, plain and free from ambiguity.15
WHEREFORE, premises considered, we hereby DENY the
petitioner’s petition for review on certiorari, and AFFIRM the March
31, 2004 Decision of the Court of Appeals in C.A.-G.R. S.P. No. 65450.
Angelita Lagmay is ORDERED to pay the proper docket fees to be
computed by the Clerk of Court of the Municipal Circuit Trial Court of
Laur and Gabaldon, Nueva Ecija, with due consideration of what she
had paid when her motion for execution was docketed as a special
proceeding.
SO ORDERED.
 VOL. 738, OCTOBER 20, 2014 511 from following suit; and attorney’s fees of P2,000.00 and litigation
expenses of P575.00.
Barrido vs. Nonato
SO ORDERED.4
G.R. No. 176492. October 20, 2014.*
Nonato appealed the MTCC Decision before the RTC. On July 21,
2004, the Bacolod RTC reversed the ruling of the MTCC. It found that
PERALTA, ** J.:
even though the MTCC aptly applied Article 129 of the Family Code, it
nevertheless made a reversible error in adjudicating the subject
For the Court’s resolution is a Petition for Review filed by petitioner
property to Barrido. Its dispositive portion reads:
Marietta N. Barrido questioning the Decision1of the Court of Appeals
WHEREFORE, premises considered, the decision dated September
(CA), dated November 16, 2006, and its Resolution2 dated January 24,
17, 2003 is hereby REVERSED and SET ASIDE and a new judgment
2007 in C.A.-G.R. S.P. No. 00235. The CA affirmed the Decision3 of the
is hereby rendered ordering the parties:
Regional Trial Court (RTC) of Bacolod City, Branch 53, dated July 21,
(1) to equitably partition the house and lot covered by TCT No. T-
2004, in Civil Case No. 03-12123, which ordered the partition of the
140361;
subject property.
(2) to reimburse Joseph Raymund and Joseph Leo Nonato of the
The facts, as culled from the records, are as follows:
amount advanced by them in payment of the debts and obligation of
In the course of the marriage of respondent Leonardo V. Nonato and
TCT No. T-140361 with Philippine National Bank; and
petitioner Marietta N. Barrido, they were able to acquire a property
(3) to deliver the presumptive legitimes of Joseph Raymund and
situated in Eroreco, Bacolod City, consisting of a house and lot, covered
Joseph Leo Nonato pursuant to Article 51 of the Family Code.
by Transfer Certificate of Title (TCT) No. T-140361. On March 15,
SO ORDERED.5
1996, their marriage was declared void on the ground of psychological
incapacity. Since there was no more reason to maintain their co-
Upon appeal, the CA affirmed the RTC Decision on November 16,
ownership over the property, Nonato asked Barrido for partition, but
2006. It held that since the property’s assessed value was only
the latter refused. Thus, on January 29, 2003, Nonato filed a Complaint
P8,080.00, it clearly fell within the MTCC’s jurisdiction. Also, although
for partition before the Municipal Trial Court in Cities (MTCC) of
the RTC erred in relying on Article 129 of the Family Code, instead of
Bacolod City, Branch 3.
Article 147, the dispositive portion of its decision still correctly ordered
Barrido claimed, by way of affirmative defense, that the subject
the equitable partition of the property. Barrido filed a Motion for
property had already been sold to their children, Joseph Raymund and
Reconsideration, which was, however, denied for lack of merit.
Joseph Leo. She likewise moved for the dismissal of the complaint
Hence, Barrido brought the case to the Court via a Petition for
because the MTCC lacked jurisdiction, the partition case being an
Review. She assigned the following errors in the CA Decision:
action incapable of pecuniary estimation.
I.
The Bacolod MTCC rendered a Decision dated September 17, 2003,
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
applying Article 129 of the Family Code. It ruled in this wise:
THAT THE MTCC HAD JURISDICTION TO TRY THE PRESENT
WHEREFORE, PREMISES CONSIDERED, judgment is hereby
CASE.
rendered, ordering the conjugal property of the former Spouses
Leonardo and Marietta Nonato, a house and lot covered by TCT No. T-
II.
140361 located at Eroreco, Bacolod City, which was their conjugal
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
dwelling, adjudicated to the defendant Marietta Nonato, the spouse
THAT THE LOT COVERED BY TCT NO. T-140361 IS CONJUGAL
with whom the majority of the common children choose to remain.
AFTER BEING SOLD TO THE CHILDREN, JOSEPH LEO NONATO
Furthermore, defendant’s counterclaim is hereby granted, ordering
AND JOSEPH RAYMUND NONATO.
plaintiff to pay defendant P10,000.00 as moral damages for the mental
III.
anguish and unnecessary inconvenience brought about by this suit;
and an additional P10,000.00 as exemplary damages to deter others
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT ARTICLE 129 OF THE FAMILY CODE HAS NO
APPLICATION IN THE PRESENT CASE, ON THE ASSUMPTION
THAT THE TRIAL COURT HAD JURISDICTION OVER THE CASE.6
The petition lacks merit.
Contrary to Barrido’s contention, the MTCC has jurisdiction to take
cognizance of real actions or those affecting title to real property, or for
the recovery of possession, or for the partition or condemnation of, or
foreclosure of a mortgage on real property.7 Section 33 of Batas
Pambansa Bilang 1298 provides:
Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial Courts in civil cases.—
Metropolitan Trial Courts, Municipal Trial Courts, and Municipal
Circuit Trial Courts shall exercise:
xxxx
(3) Exclusive original jurisdiction in all civil actions which
involve title to, or possession of, real property, or any interest
therein where the assessed value of the property or interest
therein does not exceed Twenty thousand pesos (P20,000.00) or,
in civil actions in Metro Manila, where such assessed value does not
exceed Fifty thousand pesos (P50,000.00) exclusive of interest,
damages of whatever kind, attorney’s fees, litigation expenses and
costs: Provided, That value of such property shall be determined by the
assessed value of the adjacent lots. (as amended by R.A. No. 7691)9
Here, the subject property’s assessed value was merely P8,080.00,
an amount which certainly does not exceed the required limit of
P20,000.00 for civil actions outside Metro Manila to fall within the
jurisdiction of the MTCC. Therefore, the lower court correctly took
cognizance of the instant case.
The records reveal that Nonato and Barrido’s marriage had been
declared void for psychological incapacity under Article 3610 of the
Family Code. During their marriage, however, the conjugal
partnership regime governed their property relations. Although
Article 12911 provides for the procedure in case of dissolution of the
conjugal partnership regime, Article 147 specifically covers the effects
of void marriages on the spouses’ property relations. Article 147 reads:
Art. 147. When a man and a woman who are capacitated to marry
each other, live exclusively with each other as husband and wife
without the benefit of marriage or under a void marriage, their wages
and salaries shall be owned by them in equal shares and the property
acquired by both of them through their work or industry shall be
governed by the rules on co-ownership.
In the absence of proof to the contrary, properties acquired while they
lived together shall be presumed to have been obtained by their joint
efforts, work or industry, and shall be owned by them in equal shares.
For purposes of this Article, a party who did not participate in the
acquisition by the other party of any property shall be deemed to have
contributed jointly in the acquisition thereof if the former’s efforts
consisted in the care and maintenance of the family and of the
household.
Neither party can encumber or dispose by acts inter vivos of his or her
share in the property acquired during cohabitation and owned in
common, without the consent of the other, until after the termination
of their cohabitation.
When only one of the parties to a void marriage is in good faith, the
share of the party in bad faith in the co-ownership shall be forfeited in
favor of their common children. In case of default of or waiver by any
or all of the common children or their descendants, each vacant share
shall belong to the respective surviving descendants. In the absence of
descendants, such share shall belong to the innocent party. In all cases,
the forfeiture shall take place upon termination of the cohabitation.
This particular kind of co-ownership applies when a man and a
woman, suffering no illegal impediment to marry each other,
exclusively live together as husband and wife under a void marriage or
without the benefit of marriage.12 It is clear, therefore, that for Article
147 to operate, the man and the woman: (1) must be capacitated to
marry each other; (2) live exclusively with each other as husband and
wife; and (3) their union is without the benefit of marriage or their
marriage is void. Here, all these elements are present.13 The term
“capacitated” in the first paragraph of the provision pertains to the
legal capacity of a party to contract marriage.14 Any impediment to
marry has not been shown to have existed on the part of either Nonato
or Barrido. They lived exclusively with each other as husband and wife.
However, their marriage was found to be void under Article 36 of the
Family Code on the ground of psychological incapacity.15
 Under this property regime, property acquired by both spouses be owned in common by Nonato and Barrido, which should be divided
through their work and industry shall be governed by the rules on in accordance with the rules on co-ownership.
equal co-ownership. Any property acquired during the union is prima WHEREFORE, premises considered, the petition is DENIED. The
facie presumed to have been obtained through their joint efforts. A Decision of the Court of Appeals, dated November 16, 2006, as well as
party who did not participate in the acquisition of the property shall be its Resolution dated January 24, 2007 in C.A.-G.R. S.P. No. 00235, are
considered as having contributed to the same jointly if said party’s hereby AFFIRMED.
efforts consisted in the care and maintenance of the family SO ORDERED.
household.16 Efforts in the care and maintenance of the family and
household are regarded as contributions to the acquisition of common
property by one who has no salary or income or work or industry.17
In the analogous case of Valdez,18 it was likewise averred that the
trial court failed to apply the correct law that should govern the
disposition of a family dwelling in a situation where a marriage is
declared void ab initio because of psychological incapacity on the part
of either or both parties in the contract of marriage. The Court held
that the court a quo did not commit a reversible error in utilizing
Article 147 of the Family Code and in ruling that the former spouses
own the family home and all their common property in equal shares,
as well as in concluding that, in the liquidation and partition of the
property that they owned in common, the provisions on co-ownership
under the Civil Code should aptly prevail.19 The rules which are set up
to govern the liquidation of either the absolute community or the
conjugal partnership of gains, the property regimes recognized for valid
and voidable marriages, are irrelevant to the liquidation of the co-
ownership that exists between common-law spouses or spouses of void
marriages.20
Here, the former spouses both agree that they acquired the subject
property during the subsistence of their marriage. Thus, it shall be
presumed to have been obtained by their joint efforts, work or industry,
and shall be jointly owned by them in equal shares. Barrido, however,
claims that the ownership over the property in question is already
vested on their children, by virtue of a Deed of Sale. But aside from the
title to the property still being registered in the names of the former
spouses, said document of safe does not bear a notarization of a notary
public. It must be noted that without the notarial seal, a document
remains to be private and cannot be converted into a public
document,21 making it inadmissible in evidence unless properly
authenticated.22 Unfortunately, Barrido failed to prove its due
execution and authenticity. In fact, she merely annexed said Deed of
Sale to her position paper. Therefore, the subject property remains to
 VOL. 334, JUNE 20, 2000 127
Barangay San Roque, Talisay, Cebu vs. Heirs of Francisco Pastor
G.R. No. 138896. June 20, 2000.*
PANGANIBAN, J.:
An expropriation suit is incapable of pecuniary estimation.
Accordingly, it falls within the jurisdiction of the regional trial courts,
regardless of the value of the subject property.
The Case
Before us is a Petition for Review on Certiorari assailing the March 29,
1999 Order1 of the Regional Trial Court (RTC) of Cebu City (Branch
58) in Civil Case No. CEB-21978, in which it dismissed a Complaint for
eminent domain. It ruled as follows:
“Premises considered, the motion to dismiss is hereby granted on the
ground that this Court has no jurisdiction over the case. Accordingly,
the Orders dated February 19, 1999 and February 26, 1999, as well as
the Writ of Possession issued by virtue of the latter Order are hereby
recalled for being without force and effect.”2
Petitioner also challenges the May 14, 1999 Order of the RTC denying
reconsideration.
The Facts
Petitioner filed before the Municipal Trial Court (MTC) of Talisay,
Cebu (Branch 1)3 a Complaint to expropriate a property of the
respondents. In an Order dated April 8, 1997, the MTC dismissed the
Complaint on the ground of lack of jurisdiction. It reasoned that
“[e]minent domain is an exercise of the power to take private property
for public use after payment of just compensation. In an action for
eminent domain, therefore, the principal cause of action is the exercise
of such power or right. The fact that the action also involves real
property is merely incidental. An action for eminent domain is
therefore within the exclusive original jurisdiction of the Regional Trial
Court and not with this Court.”4
Assailed RTC Ruling
The RTC also dismissed the Complaint when filed before it, holding
that an action for eminent domain affected title to real property; hence,
the value of the property to be expropriated would determine whether
the case should be filed before the MTC or the RTC. Concluding that
the action should have been filed before the MTC since the value of the
subject property was less than P20,000, the RTC ratiocinated in this
wise:
“The instant action is for eminent domain. It appears from the current
Tax Declaration of the land involved that its assessed value is only One
Thousand Seven Hundred Forty Pesos (P1,740.00). Pursuant to
Section 3, paragraph (3), of Republic Act No. 7691, all civil actions
involving title to, or possession of, real property with an assessed value
of less than P20,000.00 are within the exclusive original jurisdiction of
the Municipal Trial Courts. In the case at bar, it is within the exclusive
original jurisdiction of the Municipal Trial Court of Talisay, Cebu,
where the property involved is located.
“The instant action for eminent domain or condemnation of real
property is a real action affecting title to or possession of real property,
hence, it is the assessed value of the property involved which
determines the jurisdiction of the court. That the right of eminent
domain or condemnation of real property is included in a real action
affecting title to or possession of real property, is pronounced by retired
Justice Jose Y. Feria, thus, ‘Real actions are those affecting title to or
possession of real property. These include partition or condemnation
of, or foreclosures of mortgage on, real property, x x x’ ”5
Aggrieved, petitioner appealed directly to this Court, raising a pure
question of law.6 In a Resolution dated July 28, 1999, the Court denied
the Petition for Review “for being posted out of time on July 2, 1999,
the due date being June 2, 1999, as the motion for extension of time to
file petition was denied in the resolution of July 14, 1999.”7 In a
subsequent Resolution dated October 6, 1999, the Court reinstated the
Petition.8
Issue
In its Memorandum, petitioner submits this sole issue for the
consideration of this Court:
“Which court, MTC or RTC, has jurisdiction over cases for eminent
domain or expropriation where the assessed value of the subject
property is below Twenty Thousand (P20,000.00) Pesos?”9
This Court’s Ruling
The Petition is meritorious.
Main Issue: Jurisdiction over an Expropriation Suit
In support of its appeal, petitioner cites Section 19 (1) of BP 129, which
provides that RTCs shall exercise exclusive original jurisdiction over
“all civil actions in which the subject of the litigation is incapable of
pecuniary estimation; x x x.” It argues that the present action involves
the exercise of the right to eminent domain, and that such right is
incapable of pecuniary estimation.
Respondents, on the other hand, contend that the Complaint for
Eminent Domain affects the title to or possession of real property.
Thus, they argue that the case should have been brought before the
MTC, pursuant to BP 129 as amended by Section 3 (3) of RA 7691. This
law provides that MTCs shall have exclusive original jurisdiction over
all civil actions that involve title to or possession of real property, the
assessed value of which does not exceed twenty thousand pesos or, in
civil actions in Metro Manila, fifty thousand pesos exclusive of interest,
damages of whatever kind, attorney’s fees, litigation expenses and
costs.
We agree with the petitioner that an expropriation suit is incapable
of pecuniary estimation. The test to determine whether it is so was laid
down by the Court in this wise:
“A review of the jurisprudence of this Court indicates that in
determining whether an action is one the subject matter of which is not
capable of pecuniary estimation, this Court has adopted the criterion
of first ascertaining the nature of the principal action or remedy
sought. If it is primarily for the recovery of a sum of money, the claim
is considered capable of pecuniary estimation, and whether jurisdiction
is in the municipal courts or in the courts of first instance would depend
on the amount of the claim. However, where the basic issue is
something other than the right to recover a sum of money, or where the
money claim is purely incidental to, or a consequence of, the principal
relief sought, like in suits to have the defendant perform his part of the
contract (specific performance) and in actions for support, or for
annulment of a judgment or to foreclose a mortgage, this Court has
considered such actions as cases where the subject of the litigation may
not be estimated in terms of money, and are cognizable exclusively by
courts of first instance. The rationale of the rule is plainly that the
second class cases, besides the determination of damages, demand an
inquiry into other factors which the law has deemed to be more within
the competence of courts of first instance, which were the lowest courts
of record at the time that the first organic laws of the Judiciary were
enacted allocating jurisdiction (Act 136 of the Philippine Commission
of June 11, 1901).”10
In the present case, an expropriation suit does not involve the recovery
of a sum of money. Rather, it deals with the exercise by the government
of its authority and right to take private property for public
use.11 In National Power Corporation v. Jocson,12 the Court ruled that
expropriation proceedings have two phases:
“The first is concerned with the determination of the authority of the
plaintiff to exercise the power of eminent domain and the propriety of
its exercise in the context of the facts involved in the suit. It ends with
an order, if not of dismissal of the action, ‘of condemnation declaring
that the plaintiff has a lawful right to take the property sought to be
condemned, for the public use or purpose
described in the complaint, upon the payment of just compensation to
be determined as of the date of the filing of the complaint.’ An order of
dismissal, if this be ordained, would be a final one, of course, since it
finally disposes of the action and leaves nothing more to be done by the
Court on the merits. So, too, would an order of condemnation be a final
one, for thereafter as the Rules expressly state, in the proceedings
before the Trial Court, ‘no objection to the exercise of the right of
condemnation (or the propriety thereof) shall be filed or heard.’
“The second phase of the eminent domain action is concerned with the
determination by the court of ‘the just compensation for the property
sought to be taken.’ This is done by the Court with the assistance of not
more than three (3) commissioners. The order fixing the just
compensation on the basis of the evidence before, and findings of, the
commissioners would be final, too. It would finally dispose of the second
stage of the suit, and leave nothing more to be done by the Court
regarding the issue, x x x’ ”
It should be stressed that the primary consideration in an
expropriation suit is whether the government or any of its
instrumentalities has complied with the requisites for the taking of
private property. Hence, the courts determine the authority of the
government entity, the necessity of the expropriation, and the
observance of due process.13 In the main, the subject of an
expropriation suit is the government’s exercise of eminent domain, a
matter that is incapable of pecuniary estimation.
True, the value of the property to be expropriated is estimated in
monetary terms, for the court is duty-bound to determine the just
compensation for it. This, however, is merely incidental to the
expropriation suit. Indeed, that amount is determined only after the
court is satisfied with the propriety of the expropriation.
Verily, the Court held in Republic of the Philippines v. Zurbano that
“condemnation proceedings are within the jurisdiction of Courts of
First Instance,”14 the forerunners of the regional trial courts. The said
case was decided during the effectivity of the Judiciary Act of 1948
which, like BP 129 in respect to RTCs, provided that courts of first
instance had original jurisdiction over “all civil actions in which the
subject of the litigation is not capable of pecuniary estimation.”15 The
1997 amendments to the Rules of Court were not intended to change
these jurisprudential precedents.
We are not persuaded by respondents’ argument that the present
action involves the title to or possession of a parcel of land. They cite
the observation of retired Justice Jose Y. Feria, an eminent authority
in remedial law, that condemnation or expropriation proceedings are
examples of real actions that affect the title to or possession of a parcel
of land.16
Their reliance is misplaced. Justice Feria sought merely to
distinguish between real and personal actions. His discussion on this
point pertained to the nature of actions, not to the jurisdiction of courts.
In fact, in his pre-bar lectures, he emphasizes that jurisdiction over
eminent domain cases is still within the RTCs under the 1997 Rules.
To emphasize, the question in the present suit is whether the
government may expropriate private property under the given set of
circumstances. The government does not dispute respondents’ title to
or possession of the same. Indeed, it is not a question of who has a
better title or right, for the government does not even claim that it has
a title to the property. It merely asserts its inherent sovereign power
to “‘appropriate and control individual property for the public benefit,
as the public necessity, convenience or welfare may demand.”17
WHEREFORE, the Petition is hereby GRANTED and the assailed
Orders SET ASIDE. The Regional Trial Court is directed to HEAR the
case. No costs.
SO ORDERED.
244 SUPREME COURT REPORTS ANNOTATED corporate dispute that is within the original and exclusive jurisdiction
of the RTCs designated as Special Commercial Courts. It pointed out
Gonzales vs. GJH Land, Inc. (formerly S.J. Land, Inc.)
that the RTC of Muntinlupa City, Branch 256 (Branch 256) was
G.R. No. 202664. November 10, 2015.*
specifically designated by the Court as the Special Commercial Court,
hence, Branch 276 had no jurisdiction over the case and cannot
PERLAS-BERNABE, J.:
lawfully exercise jurisdiction on the matter, including the issuance of
a Writ of Preliminary Injunction.15 Accordingly, it dismissed the case.
This is a direct recourse to the Court, via a petition for review
Dissatisfied, petitioners filed a motion for
on certiorari,1 from the Orders dated April 17, 20122and July 9, 20123 of
reconsideration,16 arguing that they filed the case with the Office of the
the Regional Trial Court (RTC) of Muntinlupa City, Branch 276
Clerk of Court of the RTC of Muntinlupa City which assigned the same
(Branch 276) dismissing Civil Case No. 11-077 for lack of jurisdiction.
to Branch 276 by raffle.17 As the raffle was beyond their control, they
should not be made to suffer the consequences of the wrong assignment
The Facts
of the case, especially after paying the filing fees in the amount of
On August 4, 2011, petitioners Manuel Luis C. Gonzales4 and
P235,825.00 that would be for naught if the dismissal is upheld.18 They
Francis Martin D. Gonzales (petitioners) filed a Complaint5 for
further maintained that the RTC has jurisdiction over intra-corporate
“Injunction with prayer for Issuance of Status Quo Order, Three (3)-
disputes under Republic Act No. (RA) 8799,19 but since the Court
and Twenty (20)-Day Temporary Restraining Orders, and Writ of
selected specific branches to hear and decide such suits, the case must,
Preliminary Injunction with Damages” against respondents GJH
at most, be transferred or raffled off to the proper branch.20
Land, Inc. (formerly known as S.J. Land, Inc.), Chang Hwan Jang,
In an Order21 dated July 9, 2012, Branch 276 denied the motion for
Sang Rak Kim, Mariechu N. Yap, and Atty. Roberto P. Mallari
reconsideration, holding that it has no authority or power to order the
II6 (respondents) before the RTC of Muntinlupa City seeking to enjoin
transfer of the case to the proper Special Commercial Court,
the sale of S.J. Land, Inc.’s shares which they purportedly bought from
citing Calleja v. Panday22(Calleja); hence, the present petition.
S.J. Global, Inc. on February 1, 2010. Essentially, petitioners alleged
that the subscriptions for the said shares were already paid by them in
full in the books of S.J. Land, Inc.,7but were nonetheless offered for sale
The Issue Before the Court
on July 29, 2011 to the corporation’s stockholders,8 hence, their plea
for injunction.
The essential issue for the Court’s resolution is whether or not
The case was docketed as Civil Case No. 11-077 and raffled
Branch 276 of the RTC of Muntinlupa City erred in dismissing the case
to Branch 276, which is not a Special Commercial Court. On
for lack of jurisdiction over the subject matter.
August 9, 2011, said branch issued a temporary restraining order,9 and
The Court’s Ruling
later, in an Order10 dated August 24, 2011, granted the application for
a writ of preliminary injunction.
The petition is meritorious.
After filing their respective answers11 to the complaint, respondents
At the outset, the Court finds Branch 276 to have correctly
filed a motion to dismiss12 on the ground of lack of jurisdiction over
categorized Civil Case No. 11-077 as a commercial case, more
the subject matter, pointing out that the case involves an intra-
particularly, an intra-corporate dispute,23considering that it relates to
corporate disputeand should, thus, be heard by the designated
petitioners’ averred rights over the shares of stock offered for sale to
Special Commercial Court of Muntinlupa City.13
other stockholders, having paid the same in full. Applying
therelationship test and the nature of the controversy test, the suit
between the parties is clearly rooted in the existence of an intra-
The RTC’s Ruling
corporate relationship and pertains to the enforcement of their
In an Order14 dated April 17, 2012, Branch 276 granted the motion
correlative rights and obligations under the Corporation Code and the
to dismiss filed by respondents. It found that the case involves an intra-
internal and intra-corporate regulatory rules of the
corporation,24 hence, intra-corporate, which should be heard by the
designated Special Commercial Court as provided under A.M. No. 03-
03-03-SC25 dated June 17, 2003 in relation to Item 5.2, Section 5 of RA
8799.
The present controversy lies, however, in the procedure to be
followed when a commercial case — such as the instant intra-
corporate dispute — has been properly filed in the official
station of the designated Special Commercial Court but is,
however, later wrongly assigned by raffle to a regular branch
of that station.
As a basic premise, let it be emphasized that a court’s acquisition
of jurisdiction over a particular case’s subject matter is different from
incidents pertaining to the exercise of its jurisdiction. Jurisdiction over
the subject matter of a case is conferred by law, whereas a
court’s exercise of jurisdiction, unless provided by the law itself, is
governed by the Rules of Court or by the orders issued from time to
time by the Court.26 In Lozada v. Bracewell,27 it was recently held
that the matter of whether the RTC resolves an issue in the
exercise of its general jurisdiction or of its limited jurisdiction
as a special court is only a matter of procedure and has nothing
to do with the question of jurisdiction.
Pertinent to this case is RA 8799 which took effect on August 8,
2000. By virtue of said law, jurisdiction over cases enumerated in
Section 528 of Presidential Decree No. 902-A29 was transferred from the
Securities and Exchange Commission (SEC) to the RTCs, being
courts of general jurisdiction. Item 5.2, Section 5 of RA 8799
provides:
SEC. 5. Powers and Functions of the Commission.—x x x
xxxx
5.2 The Commission’s jurisdiction over all cases
enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial
Court: Provided, that the Supreme Court in the exercise
of its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over the cases.
The Commission shall retain jurisdiction over pending cases
involving intra-corporate disputes submitted for final resolution
which should be resolved within one (1) year from the enactment
of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of
30 June 2000 until finally disposed. (Emphasis supplied)
The legal attribution of Regional Trial Courts as courts of
general jurisdiction stems from Section 19(6), Chapter II of Batas
Pambansa Bilang (BP) 129,30 known as “The Judiciary Reorganization
Act of 1980”:
Section 19. Jurisdiction in civil cases.—Regional Trial
Courts shall exercise exclusive original jurisdiction:
xxxx
(6) In all cases not within the exclusive jurisdiction of any
court, tribunal, person or body exercising jurisdiction or any
court, tribunal, person or body exercising judicial or quasi-
judicial functions. x x x x
As enunciated in Durisol Philippines, Inc. v. CA:31
The regional trial court, formerly the court of first instance,
is a court of general jurisdiction. All cases, the jurisdiction over
which is not specifically provided for by law to be within the
jurisdiction of any other court, fall under the jurisdiction of the
regional trial court.32
To clarify, the word “or” in Item 5.2, Section 5 of RA 8799 was
intentionally used by the legislature to particularize the fact that the
phrase “the Courts of general jurisdiction” is equivalent to the phrase
“the appropriate Regional Trial Court.” In other words, the jurisdiction
of the SEC over the cases enumerated under Section 5 of PD 902-A was
transferred to the courts of general jurisdiction, that is to say (or,
otherwise known as), the proper Regional Trial Courts. This
interpretation is supported by San Miguel Corp. v. Municipal
Council,33 wherein the Court held that:
[T]he word “or” may be used as the equivalent of “that is to
say” and gives that which precedes it the same significance as
that which follows it. It is not always disjunctive and is
sometimes interpretative or expository of the preceding word.34
Further, as may be gleaned from the following excerpt of the
Congressional deliberations:
Senator [Raul S.] Roco: x x x.
 xxxx
x x x. The first major departure is as regards the Securities
and Exchange Commission. The Securities and Exchange
Commission has been authorized under this proposal to
reorganize itself. As an administrative agency, we strengthened
it and at the same time we take away the quasi-judicial
functions. The quasi-judicial functions are now given back
to the courts of general jurisdiction — the Regional Trial
Court, except for two categories of cases.
In the case of corporate disputes, only those that are now
submitted for final determination of the SEC will remain with
the SEC. So, all those cases, both memos of the plaintiff and the
defendant, that have been submitted for resolution will
continue. At the same time, cases involving rehabilitation,
bankruptcy, suspension of payments and receiverships that
were filed before June 30, 2000 will continue with the SEC. In
other words, we are avoiding the possibility, upon approval of
this bill, of people filing cases with the SEC, in manner of
speaking, to select their court.35
x x x x (Emphasis supplied)
Therefore, one must be disabused of the notion that the transfer of
jurisdiction was made only in favor of particular RTC branches, and
not the RTCs in general.
Consistent with the foregoing, history depicts that when the
transfer of SEC cases to the RTCs was first implemented, they were
transmitted to the Executive Judges of the RTCs for raffle between or
among its different branches, unless a specific branch has been
designated as a Special Commercial Court, in which instance,
the cases were transmitted to said branch.36 It was only on
November 21, 2000 that the Court designated certain RTC branches to
try and decide said SEC cases37 without, however, providing for the
transfer of the cases already distributed to or filed with the regular
branches thereof. Thus, on January 23, 2001, the Court issued SC
Administrative Circular No. 08-200138 directing the transfer of said
cases to the designated courts (commercial SEC courts). Later, or on
June 17, 2003, the Court issued A.M. No. 03-03-03-SC consolidating
the commercial SEC courts and the intellectual property
courts39 in one RTC branch in a particular locality, i.e., the Special
Commercial Court, to streamline the court structure and to
promote expediency.40 Accordingly, the RTC branch so designated
was mandated to try and decide SEC cases, as well as those involving
violations of intellectual property rights, which were, thereupon,
required to be filed in the Office of the Clerk of Court in the official
station of the designated Special Commercial Courts, to wit:
1. The Regional Courts previously designated as SEC
Courts through the: (a) Resolutions of this Court dated 21
November 2000, 4 July 2001, 12 November 2002, and 9 July
2002 all issued in A.M. No. 00-11-03-SC; (b) Resolution dated 27
August 2001 in A.M. No. 01-5-298-RTC; and (c) Resolution dated
8 July 2002 in A.M. No. 01-12-656-RTC are hereby
DESIGNATED and shall be CALLED as Special Commercial
Courts to try and decide cases involving violations of Intellectual
Property Rights which fall within their jurisdiction and those
cases formerly cognizable by the Securities and Exchange
Commission;
xxxx
4. The Special Commercial Courts shall have jurisdiction
over cases arising within their respective territorial jurisdiction
with respect to the National Capital Judicial Region and within
the respective provinces with respect to the First to Twelfth
Judicial Regions. Thus, cases shall be filed in the Office of the
Clerk of Court in the official station of the designated Special
Commercial Court.41
x x x x (Underscoring supplied)
It is important to mention that the Court’s designation of Special
Commercial Courts was made in line with its constitutional authority
to supervise the administration of all courts as provided under Section
6, Article VIII of the 1987 Constitution:
Section 6. The Supreme Court shall have administrative
supervision over all courts and the personnel thereof.
The objective behind the designation of such specialized courts is to
promote expediency and efficiency in the exercise of the RTCs’
jurisdiction over the cases enumerated under Section 5 of PD 902-A.
Such designation has nothing to do with the statutory conferment of
jurisdiction to all RTCs under RA 8799 since in the first place, the
Court cannot enlarge, diminish, or dictate when jurisdiction shall be
removed, given that the power to define, prescribe, and
apportion jurisdiction is, as a general rule, a matter of
legislative prerogative.42Section 2, Article VIII of the 1987
Constitution provides:
Section 2. The Congress shall have the power to define,
prescribe, and apportion the jurisdiction of the various courts
but may not deprive the Supreme Court of its jurisdiction over
cases enumerated in Section 5 hereof.
xxxx
Here, petitioners filed a commercial case, i.e., an intra-corporate
dispute, with the Office of the Clerk of Court in the RTC of Muntinlupa
City, which is the official station of the designated Special Commercial
Court, in accordance with A.M. No. 03-03-03-SC. It is, therefore,
from the time of such filing that the RTC of Muntinlupa City
acquired jurisdiction over the subject matter or the nature of
the action.43 Unfortunately, the commercial case was wrongly
raffled to a regular branch, i.e., Branch 276, instead of being
assigned44 to the sole Special Commercial Court in the RTC of
Muntinlupa City, which is Branch 256. This error may have been
caused by a reliance on the complaint’s caption, i.e., “Civil Case for
Injunction with prayer for Status Quo Order, TRO and
Damages,”45 which, however, contradicts and more importantly, cannot
prevail over its actual allegations that clearly make out an intra-
corporate dispute:
16. To the surprise of MLCG and FMDG, however, in two
identical letters both dated 13 May 2011, under the letterhead
of GJH Land, Inc., Yap, now acting as its President, Jang and
Kim demanded payment of supposed unpaid
subscriptions of MLCG and FMDG amounting to
P10,899,854.30 and P2,625,249.41, respectively.
16.1 Copies of the letters dated 13 May 2011 are
attached hereto and made integral parts hereof as
Annexes “J” and “K,” respectively.
17. On 29 July 2011, MLCG and FMDG received an Offer
Letter addressed to stockholders of GJH Land, Inc. from Yap
informing all stockholders that GJH Land, Inc. is now offering
for sale the unpaid shares of stock of MLCG and FMDG. The
same letter states that the offers to purchase these shares will
be opened on 10 August 2011 with payments to be arranged by
deposit to the depository bank of GJH Land, Inc.
17.1 A copy of the undated Offer Letter is attached
hereto and made and made an integral part hereof as
Annex “L.”
18. The letter of GJH Land, Inc. through Yap, is totally
without legal and factual basis because as evidenced by the
Deeds of Assignment signed and certified by Yap herself, all the
S.J. Land, Inc. shares acquired by MLCG and FMDG have been
fully paid in the books of S.J. Land, Inc.
19. With the impending sale of the alleged unpaid
subscriptions on 10 August 2011, there is now a clear danger
that MLCG and FMDG would be deprived of these shares
without legal and factual basis.
20. Furthermore, if they are deprived of these shares
through the scheduled sale, both MLCG and FMDG would suffer
grave and irreparable damage incapable of pecuniary
estimation.
21. For this reason, plaintiffs now come to the Honorable
Court for injunctive relief so that after trial on the merits, a
permanent injunction should be issued against the defendants
preventing them from selling the shares of the plaintiffs, there
being no basis for such sale.46
According to jurisprudence, “it is not the caption but the allegations
in the complaint or other initiatory pleading which give meaning to the
pleading and on the basis of which such pleading may be legally
characterized.”47However, so as to avert any future confusion, the
Court requires henceforth, that all initiatory pleadings state the
action’s nature both in its caption and the body, which parameters are
defined in the dispositive portion of this Decision.
Going back to the case at bar, the Court nonetheless deems that the
erroneous raffling to a regular branch instead of to a Special
Commercial Court is only a matter of procedure — that is, an incident
related to the exercise of jurisdiction — and, thus, should not negate
the jurisdiction which the RTC of Muntinlupa City had already
acquired. In such a scenario, the proper course of action was not for the
commercial case to be dismissed; instead, Branch 276 should have
first referred the case to the Executive Judge for re-docketing
as a commercial case; thereafter, the Executive Judge should
then assign said case to the only designated Special
Commercial Court in the station, i.e., Branch 256.
Note that the procedure would be different where the RTC
acquiring jurisdiction over the case has multiple special
commercial court branches; in such a scenario, the Executive
Judge, after re-docketing the same as a commercial case, should
proceed to order its re-raffling among the said special branches.
Meanwhile, if the RTC acquiring jurisdiction has no branch
designated as a Special Commercial Court, then it
should refer the case to the nearest RTC with a designated Special
Commercial Court branch within the judicial region.48 Upon referral,
the RTC to which the case was referred to should re-docket the case as
a commercial case, and then: (a) if the said RTC has only one branch
designated as a Special Commercial Court, assign the case to the sole
special branch; or (b) if the said RTC has multiple branches designated
as Special Commercial Courts, raffle off the case among those special
branches.
In all the above mentioned scenarios, any difference regarding the
applicable docket fees should be duly accounted for. On the other hand,
all docket fees already paid shall be duly credited, and any excess,
refunded.
At this juncture, the Court finds it fitting to clarify that the RTC
mistakenly relied on the Calleja case to support its ruling. In Calleja,
an intra-corporate dispute49 among officers of a private corporation
with principal address at Goa, Camarines Sur, was filed with the RTC
of San Jose, Camarines Sur, Branch 58 instead of the RTC of Naga
City, which is the official station of the designated Special Commercial
Court for Camarines Sur. Consequently, the Court set aside the RTC
of San Jose, Camarines Sur’s order to transfer the case to the RTC of
Naga City and dismissed the complaint considering that it was filed
before a court which, having no internal branch designated as a Special
Commercial Court, had no jurisdiction over those kinds of actions, i.e.,
intra-corporate disputes. Calleja involved two different RTCs, i.e.,
the RTC of San Jose, Camarines Sur and the RTC of Naga City,
whereas the instant case only involves one RTC, i.e., the RTC of
Muntinlupa City, albeit involving two different branches of the same
court, i.e., Branches 256 and 276. Hence, owing to the variance in the
facts attending, it was then improper for the RTC to rely on
the Calleja ruling.
Besides, the Court observes that the fine line that distinguishes
subject matter jurisdiction and exercise of jurisdiction had been clearly
blurred in Calleja. Harkening back to the statute that had conferred
subject matter jurisdiction, two things are apparently clear: (a) that
the SEC’s subject matter jurisdiction over intra-corporate cases
under Section 5 of Presidential Decree No. 902-A was transferred to
the Courts of general jurisdiction, i.e., the appropriate Regional Trial
Courts; and (b) the designated branches of the Regional Trial Court, as
per the rules promulgated by the Supreme Court, shall exercise
jurisdiction over such cases. Item 5.2, Section 5 of RA 8799 provides:
SEC. 5. Powers and Functions of the Commission.—x x x
xxxx
5.2 The Commission’s jurisdiction over all cases
enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial
Court: Provided, that the Supreme Court in the exercise of
its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over the cases.
x x x.
In contrast, the appropriate jurisprudential reference to this case
would be Tan v. Bausch & Lomb, Inc.,50 which involves a criminal
complaint for violation of intellectual property rights filed before the
RTC of Cebu City but was raffled to a regular branch thereof (Branch
21), and not to a Special Commercial Court. As it turned out, the
regular branch subsequently denied the private complainant’s motion
to transfer the case to the designated special court of the same RTC,
on the ground of lack of jurisdiction. The CA reversed the regular
branch and, consequently, ordered the transfer of the case to the
designated special court at that time (Branch 9). The Court, affirming
the CA, declared that the RTC had acquired jurisdiction over the
subject matter. In view, however, of the designation of another court as
the Special Commercial Court in the interim (Branch 11 of the same
Cebu City RTC), the Court accordingly ordered the transfer of the case
and the transmittal of the records to said Special Commercial Court
instead.51 Similarly, the transfer of the present intra-corporate
dispute from Branch 276 to Branch 256 of the same RTC of
Muntinlupa City, subject to the parameters above discussed is
proper and will further the purposes stated in A.M. No. 03-03-
03-SC of attaining a speedy and efficient administration of
justice.
 For further guidance, the Court finds it apt to point out that the
same principles apply to the inverse situation of ordinary civil
cases filed before the proper RTCs but wrongly raffled to its
branches designated as Special Commercial Courts. In such a
scenario, the ordinary civil case should then be referred to the
Executive Judge for re-docketing as an ordinary civil case;
thereafter, the Executive Judge should then order the raffling
of the case to all branches of the same RTC, subject to
limitations under existing internal rules, and the payment of
the correct docket fees in case of any difference. Unlike the
limited assignment/raffling of a commercial case only to branches
designated as Special Commercial Courts in the scenarios stated
above, the re-raffling of an ordinary civil case in this instance to all
courts is permissible due to the fact that a particular branch which has
been designated as a Special Commercial Court does not shed the
RTC’s general jurisdiction over ordinary civil cases under
the imprimaturof statutory law, i.e., Batas Pambansa Bilang (BP)
129.52To restate, the designation of Special Commercial Courts was
merely intended as a procedural tool to expedite the resolution of
commercial cases in line with the court’s exercise of jurisdiction.
This designation was not made by statute but only by an internal
Supreme Court rule under its authority to promulgate rules governing
matters of procedure and its constitutional mandate to supervise the
administration of all courts and the personnel thereof.53 Certainly, an
internal rule promulgated by the Court cannot go beyond the
commanding statute. But as a more fundamental reason, the
designation of Special Commercial Courts is, to stress, merely an
incident related to the court’s exercise of jurisdiction, which, as first
discussed, is distinct from the concept of jurisdiction over the subject
matter. The RTC’s general jurisdiction over ordinary civil cases is
therefore not abdicated by an internal rule streamlining court
procedure.
In fine, Branch 276’s dismissal of Civil Case No. 11-077 is set aside
and the transfer of said case to Branch 256, the designated Special
Commercial Court of the same RTC of Muntinlupa City, under the
parameters above explained, is hereby ordered.
WHEREFORE, the petition is GRANTED. The Orders dated
April 17, 2012 and July 9, 2012 of the Regional Trial Court (RTC) of
Muntinlupa City, Branch 276 in Civil Case No. 11-077 are
hereby REVERSED and SET ASIDE. Civil Case No. 11-077
is REFERRED to the Executive Judge of the RTC of Muntinlupa City
for re-docketing as a commercial case. Thereafter, the Executive Judge
shall ASSIGN said case to Branch 256, the sole designated Special
Commercial Court in the RTC of Muntinlupa City, which
is ORDERED to resolve the case with reasonable dispatch. In this
regard, the Clerk of Court of said RTC shall DETERMINE the
appropriate amount of docket fees and, in so doing, ORDER the
payment of any difference or, on the other hand, refund any excess.
Furthermore, the Court hereby RESOLVES that henceforth, the
following guidelines shall be observed:
1. If a commercial case filed before the proper RTC is
wrongly raffled to its regular branch, the proper courses of
action are as follows:
1.1 If the RTC has only one branch designated as a
Special Commercial Court, then the case shall be referred
to the Executive Judge for re-docketing as a commercial
case, and thereafter, assigned to the sole special branch;
1.2 If the RTC has multiple branches designated as
Special Commercial Courts, then the case shall be
referred to the Executive Judge for re-docketing as a
commercial case, and thereafter, raffled off among those
special branches; and
1.3 If the RTC has no internal branch designated as
a Special Commercial Court, then the case shall be
referred to the nearest RTC with a designated Special
Commercial Court branch within the judicial region.
Upon referral, the RTC to which the case was referred to
should re-docket the case as a commercial case, and then:
(a) if the said RTC has only one branch designated as a
Special Commercial Court, assign the case to the sole
special branch; or (b) if the said RTC has multiple
branches designated as Special Commercial Courts, raffle
off the case among those special branches.
2. If an ordinary civil case filed before the proper RTC is
wrongly raffled to its branch designated as a Special
Commercial Court, then the case shall be referred to the
Executive Judge for re-docketing as an ordinary civil case.
Thereafter, it shall be raffled off to all courts of the same RTC
(including its designated special branches which, by statute, are
equally capable of exercising general jurisdiction same as
regular branches), as provided for under existing rules.
 3. All transfer/raffle of cases is subject to the payment of
the appropriate docket fees in case of any difference. On the
other hand, all docket fees already paid shall be duly credited,
and any excess, refunded.
4. Finally, to avert any future confusion, the Court requires
that all initiatory pleadings state the action’s nature both in its
caption and body. Otherwise, the initiatory pleading may, upon
motion or by order of the court motu proprio, be dismissed
without prejudice to its refiling after due rectification. This last
procedural rule is prospective in application.
5. All existing rules inconsistent with the foregoing are
deemed superseded.
SO ORDERED.
 VOL. 49, OCTOBER 19, 1926 461 statement to the effect of having received his share to his complete
satisfaction. After compliance with this requisite, and a showing to the
Larena, de Villanueva vs. Capistrano
court of the receipt of the properties pertaining to all the heirs as
[No. 25401. October 19, 1926]
mentioned in the said tentative partition, this administration shall be
held terminated upon payment of the debts thereof, and it will be
OSTRAND, J.:
ordered that the bond given by the administrator be cancelled."
On August 9, 1923, the heirs Asuncion Larena and Demetrio
This is a petition for a writ of mandamus to compel the respondent
Larena acknowledged in writing the receipt of their respective share of
judge to approve and certify a record of appeal to this court from certain
the inheritance in accordance with the order of the court and to their
orders in a probate case. It appears from the record that in the matter
entire satisfaction. Nothing further seems to have been done until
of the estate of the deceased Demetrio Larena, the Court of First
November 9, 1925, when the respondent judge, the successor in office
Instance of Oriental Negros, Judge Fermin Mariano presiding, on June
of Judge Mariano, on his own motion ordered the intestate proceedings
26, 1922, issued an order directing the committee of appraisers of the
set down for hearing on November 24, 1925, all of the inherited parties
estate to prepare and present to the court a scheme for the distribution
except Asuncion Larena being notified of the order. The record of the
and partition of the property of the estate among the heirs. The heirs
hearing is not before us, but presumably as a result of said hearing, the
were Josefina Rubio, the widow of the deceased; Asuncion Larena, an
court on December 21, 1925, issued an order directing that a new
acknowledged natural child; and four legitimate children Demetrio,
partition and distribution of the property of the deceased be had and
Enrique, Mariano and David Larena, the last three of whom were
appointing new commissioners for that purpose. The court also laid
minors at the time. In the same order the court, for the guidance of the
down new rules for the distribution, which rules differ somewhat from
committee, laid down certain rules for the distribution of the estate.
those stated by Judge Mariano in the order of June 26, 1922.
On August 3, 1923, Buenaventura Lopez, one of the commissioners,
Upon being notified of the order of November 21, 1925, the herein
presented a scheme of partition in conformity with said rules. This
petitioners Asuncion and Demetrio Larena on December 5, 1925, filed
scheme of partition was accepted in writing by the heirs, the minors
their exception to the same on the ground that the 'court had no
being represented by their guardian Juan Montenegro. On the same
jurisdiction to set aside the distribution already made and to order a
date Judge Fermin Mariano approved the scheme of partition in an
new one. On the same date they filed a notice of appeal and asked that
order which in part reads as follows:
the amount of the appeal bond be fixed. On December 7, 1925, the
"Said scheme of partition is hereby approved and the court awards
appellants filed the bond which was approved by the court. Thereupon
to Josefina Rubio Vda. de Larena each and all of the properties stated
on December 8, 1925, the appellants presented the record of appeal for
in her allotment and valued at P17,672.33; to Asuncion Larena each
approval, but the court in an order dated January 9, 1926, refused to
and all of the properties set forth in her allotment valued at P2,939; to
approve said record on the ground that the appeal was premature.
Demetrio Larena each and all of the properties listed in his allotment
The appellants thereupon filed the present petition in this court
and valued at P5,528 and to the minors Enrique, Mariano and David
setting forth the facts above stated and praying that a writ of
Larena there are hereby awarded pro indiviso each and all of the
mandamus issue ordering the respondent judge to approve and certify
properties mentioned in the allotment pertaining to said minors,
the aforesaid record of appeal.
valued at P16,583.87 which belong to them in equal parts.
In our opinion, the petition should be granted. It is true that where
"The administrator is hereby ordered to deliver to Josefina Rubio, the
there is no question as to the propriety of a partition or distribution of
widow of the deceased, the properties set out in her allotment, minus
property, an appeal will not lie until the partition or distribution
the cash item which is already in her possession; to Asuncion Larena
proceedings are terminated in the lower court, but it is otherwise when,
the properties enumerated in her allotment, and to Juan Montenegro,
as here, the appellant claims exclusive ownership of the whole or part
guardian of the minors Enrique, Mariano and David Larena, the
of the property in question and maintains that a partition or
properties pertaining to said minors, and the administrator being one
distribution of the same is improper. In such cases an appeal may be
of the heirs of the said deceased, he must also file in this proceeding a
taken directly from the order or judgment directing that a partition or
distribution be made and it is not necessary to await the termination
of the proceedings before perfecting the appeal. (Africa vs. Africa, 42
Phil., 902 and 934.)
The petition for a writ of mandamus is therefore granted, and it is
ordered that the Judge of the Court of First Instance of the Twenty-
first Judicial District approve the record of appeal presented by the
herein petitioners in the matter of the estate of deceased Demetrio
Larena on December 8, 1925, and certify it to this court. No costs will
be allowed in the present case. So ordered.
228 PHILIPPINE REPORTS ANNOTATED certain piece of land lying adjacent to its plant at the price of P5 per
square meter, the proof of which is evidenced by Exhibit C. That
Blossom & Co. vs. Manila Gas Corporation
pursuant to Exhibit C, defendant sold and conveyed the land to the
[No. 32958. November 8, 1930]
plaintiff which in turn executed a mortgage thereon to the defendant
for P17,140.20, to secure the payment o£ the balance of the purchase
STATEMENT
price.
It is then alleged:
In its complaint filed March 3, 1927, the plaintiff alleges that on
"VIII. That about the last part of July, 1920, the defendant herein,
September 10, 1918, it entered into a contract with the defendant in
the Manila Gas Corporation, willfully and deliberately breached its
which the plaintiff promised and undertook to purchase and receive
said contract, Exhibit C, with the plaintiff by ceasing to deliver any coal
from the defendant, and the defendant agreed to sell and deliver to the
and water gas tar to it thereunder solely because of the increased price
plaintiff, for a period of four years, three tons of water gas tar per
of its tar products and its desire to secure better prices therefor than
month from September to January 1, 1919, and twenty tons per month
plaintiff was obligated to pay to it, notwithstanding the frequent and
after January 1, 1919, for the remaining period of the contract; one-
urgent demands made by the plaintiff upon it to comply with its
half ton of coal gas tar a month from, September to January 1, 1919,
aforesaid contract by continuing to deliver the coal and water gas tar
and six tons per month after January 1, 1919, for the remainder of the
to the plaintiff thereunder, but the said defendant flatly refused to
contract, delivery to be made at the plant of the defendant in the City
make any deliveries under said contract, and finally on November 23,
of Manila, without containers, and at the price of P65 per ton for each
1923, the plaintiff was forced to commence action against the
kind of gas tar, it being agreed that this price should prevail only so
defendant herein in the Court of First Instance of Manila, being case
long as the raw materials—coal and crude oil—used by the defendant
No. 25352, of that court, entitled 'Blossom & Co., plaintiff, vs. Manila
in the manufacture of gas should cost the defendant the same price as
Gas Corporation, defendant to recover the damages which it had up to
that prevailing at the time of the contract, and that in the event of an
that time suffered by reason of such flagrant violation of said contract
increase or decrease in the cost of raw materials, there would be a
on the part of the defendant herein, and to obtain the specific
corresponding increase or decrease in the price of the tar. That on
performance of the said contract, and after due trial of that action,
January 31, 1919, this contract was amended so that it should continue
judgment was entered therein in favor of the plaintiff herein and
to remain in force for a period of ten years from January 1, 1919, and
against the said defendant, the Manila Gas Corporation, for the sum of
it was agreed that the plaintiff should not be obliged to take the
P26,119.08, as the damages suffered by this plaintiff by the defendant's
quantities of the tars required during the year 1919, but that it might
breach of said contract from July, 1920, up to and including September,
purchase tars in such quantities as it could use to advantage at the
1923, with legal interest thereon from November 23, 1923, and for the
stipulated price. That after the year 1919, the plaintiff would take at
costs but the court refused to order the said defendant to resume the
least the quantities specified in the contract of September 10, 1918, to
delivery of the coal and water gas tar to the plaintiff under said
be taken from and after January 1, 1919, and that at its option it would
contract, but left the plaintiff with its remedy for damages against said
have the right to take any quality of water gas tar in excess of the
defendant for the subsequent breaches of said contract, which said
minimum quantity specified in that contract, and up to the total
decision, as shown by the copy attached hereto as Exhibit G, and made
amount of output of that tar of defendant's plant, and also to take any
a part hereof, was affirmed by our Supreme Court on March 3, 1926;
quantity of coal gas tar in excess of the minimum quantity specified in
"IX. That after the defendant had willfully and deliberately violated
that contract and up to 50 per cent of defendant's entire output of coal
its said contract, as herein-before alleged, and the plaintiff had
gas tar, and that by giving the defendant ninety days' notice, it would
suffered great damage by reason thereof, the plaintiff claimed the right
have the right at its option to take the entire output of defendant's coal
to off-set its damages against the balance due from it to said defendant
gas tar, except such as it might need for its own use in and about its
on account of the purchase of said land from the defendant, and
plant. That in consideration of this modification of the contract of
immediately thereupon and notwithstanding said defendant was justly
September 10, 1918? plaintiff agreed to purchase from the defendant a
indebted to the plaintiff at that time, as shown by the judgment of the
court, Exhibit G, in more than four times the amount due to it from the
plaintiff, the said defendant caused to be presented against the
plaintiff a foreclosure action, known as the Manila Gas
Corporation versus Blossom & Company, No. 24267, of the Court of
First Instance of Manila, and obtained judgment therein ordering that
Blossom & Company pay the last installment and interest due on said
land or else the land and improvements placed thereon by the plaintiff
would be sold, as provided by law in such cases to satisfy the same, and
the said defendant proceeded with the sale of said property under said
judgment and did everything in its power to sell the same for the sole
purpose of crushing and destroying the plaintiff's business and thus
rendering it impossible for the plaintiff herein to continue with its said
contract in the event that said defendant might in the future consider
it more profitable to resume performance of the same, but fortunately
the plaintiff was able to redeem its property, as well as to comply with
its contract, and continued demanding that the defendant performed
its said contract and deliver to it the coal and water gas tar required
thereby."
That the defendant made no deliveries under its contract, Exhibit
C, from July, 1920, to March 26, 1926, or until after the Supreme Court
affirmed the judgment of the lower court for damages in the sum of
P26,119.08.1
It is then alleged that:
"* * * On March 26, 1926, the said defendant offered to resume delivery
to the plaintiff from that date of the minimum monthly quantities of
tars stated in its contract, and the plaintiff believing that the said
defendant was at least going to try to act in good faith in the further
performance of its said contract, commenced to accept deliveries of said
tars from it, and at once ascertained that the said defendant was
deliberately charging it prices much higher than the contract price, and
while the plaintiff accepted deliveries of the minimum quantities of
tars stated in said contract up to and including January, 1927,
(although it had demanded deliveries of larger quantities thereunder,
as hereinafter alleged) and paid the increased fces demanded by the
defendant, in the belief that it was its duty to minimize the damages
as much as possible which the defendant would. be required to pay to
it by reason of its violation of said contract, it has in all cases done so
under protest and with the express reservation of the right to demand
from the said defendant an adjustment of the prices charged in
violation of its contract, and the right to the payment of the losses
which it had and would suffer by reason of its refusal to make
additional deliveries under said contract, and it also has continuously
demanded that the said defendant furnish to it statements supported
by its invoices, showing the cost prices of its raw materials—-coal and
crude oil—upon which the contract price of the tars in question is fixed,
which is the only way the plaintiff has to calculate the true price of said
tars, but said defendant has and still refuses to furnish such
information, and will continue to refuse to do so, unless ordered to
furnish such information to the plaintiff by the court, and the plaintiff
believes from the information which it now has and so alleges that the
said defendant has overcharged it on the deliveries of said tars
mentioned in the sum of at least P10,000, all in violation of the rights
of the plaintiff under its said contract with the defendant."
That on January 31, 1926, and pursuant to Exhibit C, plaintiff notified
the defendant in writing that commencing with the month of August,
1926, it desired to take delivery of 50 per cent of defendant's coal tar
production for that month, and that on November 1, 1926, it desired to
take the entire output of defendant's coal gas tar, but that the
defendant refused and still refuses to make such deliveries, unless
plaintiff would take all of its water gas tar production with the desired
quantity of coal gas tar, which refusal was a plain violation of the
contract, That on January 29, 1927, and in accord with Exhibit C,
plaintiff notified the defendant in writing that within ninety days after
the initial delivery to it of its total coal gas tar production, or in
February, 1927, it would require 50 per cent of its total water gas tar
production, and that in April, 1927, it would require the total output of
the defendant of both coal and water gas tars, and that it refused to
make either of such deliveries.
It is then alleged:
"XIV. That as shown by the foregoing allegations of this complaint, it
is apparent that notwithstanding the plaintiff in this case has at all
times faithfully performed all the terms and conditions of said contract,
Exhibit C, on its part to be performed, and has at all times and is now
ready, able and willing to accept and pay for the deliveries of said coal
and water gas tars required by said contract and the notices given
pursuant thereto, the said defendant, the Manila Gas Corporation,
does not intend to comply with its said contract, Exhibit C, and deliver
to the plaintiff at the times and under the terms and conditions stated
therein the quantities of coal and water gas tars required by said
contract, and the several notices given pursuant thereto, and that it is
useless. for the plaintiff to insist further upon its performance of the
said contract, and for that reason the only feasible course for the
plaintiff to pursue is to ask the court for the rescission of said contract
and for the full damages which the plaintiff has suffered from
September, 1923, and will suffer for the remainder of said contract by
reason of the defendant's failure and refusal to perform the same, and
the plaintiff has so notified the said defendant."
That since September, 1923, by reason of the bad faith of the
defendant, the plaintiff has been damaged in the sum of P300,000, for
which it prays a corresponding judgment, and that the contract,
Exhibit C, be rescinded and declared void and without force and effect.
After the filing and overruling of its demurrer, the defendant filed
an answer in the nature of a general and specific denial, and on April
10, 1928, and upon stipulation of the parties, the court appointed W.
W. Larkin referee, "to take the evidence and, upon completion of the
trial, to report his findings of law and fact to the court."
July 18, 1928, the defendant filed an amended answer in which it
alleged as an affirmative defense, first, that the complaint does not
state facts sufficient to constitute a cause of action for the reason that
a prior adjudication has been had of all the issues involved in this
action, and, second, "that on or about the 16th day of- June, 1925, in
an action brought in the Court of First Instance of the City of Manila,
Philippine Islands, before the Honorable Geo. R. Harvey, Judge, by
Blossom & Company, plaintiff, vs. Manila Gas Corporation, defendant,
being civil case No. 25352, of said court, f or the same cause of action
as that set forth in the complaint herein, said plaintiff recovered
judgment upon the merits thereof, against said defendant, decreeing a
breach of the contract sued upon herein, and awarding damages
therefor in the sum of P26,119.08 with legal interest from November
23, 1923, and costs of suit, which judgment was upon appeal affirmed
by the Supreme Court of the Philippine Islands, in case G. R. No. 24777
of said court, on the 3d day of March, 1926, and reported in volume 48
Philippine Reports at page 848," and it prays that plaintiff's complaint
be dismissed, with costs.
After the evidence was taken, the referee made an exhaustive
report of sixty-six pages in which he found that the plaintiff was
entitled to P56,901.53 damages, with legal interest from the date (of
the filing of the complaint, to which both parties filed numerous
exceptions.
In its decision the court says:
"Incidental references have been made to the referee's report. It was
admirably prepared. Leaving aside the question of damages and the
facts upon which the referee assessed them, the facts are not in
dispute—at least not in serious dispute. They appear in the
documentary evidence and this decision is based upon documents
introduced into evidence by plaintiff. If I could have agreed with the
referee in respect to the question of law, I should have approved his
report in toto. If defendant is liable for the damages accruing from
November 23, 1923, the date the first complaint was filed, to April 1st,
1926, the date of resumption of relations; and if defendant, after such
resumption of relations, again violated the contract, the damages
assessed by the referee, are, to my way of thinking, as fair as could be
estimated. He went to tremendous pains in figuring out the details
upon which he based his decision. Unfortunately, I cannot agree with
his legal conclusions and the report is set aside except wherein
specifically approved.
"It is unnecessary to resolve specifically the many exceptions made
by both parties to the referee's report. It would take much time to do
so. Much time has already been spent in preparing this decision. Since
both parties have informed me that in case of adverse judgment, an
appeal would be taken, I desire to conclude the case so that delay will
be avoided.
"Let judgment be entered awarding damages to plaintiff in the sum
of P2,219.60, with costs."
From which plaintiff only appealed and assigns twenty four different
errors, of which the following are material to this opinion:
"I. The trial court erred in holding that this suit in so far as the
damages from November, 1923, to March 31, 1926, are concerned,
is res adjudicata.
"II. The trial court erred in holding that the defendant repudiated
the contract in question as a whole, and that the plaintiff when it
brought its first suit to collect damages had already elected and
consented to the dissolution of the contract, and its choice once
made, being final, it was estopped to claim that the contract was
alive when that suit was brought.
* * * * * * *
"VII. The trial court erred in refusing to sustain plaintiff's third
exception to the legal interpretation placed on the contract in this
case by the referee with reference to quantity of tars and his
conclusion with respect to the terms thereof that:
" 1. Plaintiff must take and defendant must deliver either the
minimum or maximum quantity of water gas tar and not any
quantity from the minimum to the maximum and/or
 " '2. Plaintiff must take either the minimum and any quantity up
to fifty per cent of entire output of coal gas tar.
" '3. With ninety days' notice by plaintiff to defendant the former
must take and the latter must deliver total output of both
tars, except such as might be needed by defendant for use in and
about its plant and not any quantity from the minimum up to total
output of both tars.' (See page 47, Referee's report.)
"And in holding that the option contained in said contract, taking into
consideration the purposes of both parties in entering into the contract,
was as claimed by defendant: all the water gas tar and 50 per cent of
the coal gas tar upon immediate notice, and all tars upon ninety days'
notice.
"VIII. The trial court erred in refusing to sustain plaintiff's fourth
exception to the finding and conclusion of the referee that from
the correspondence between the parties, it was apparent that
plaintiff did not make a right use of its option, and that the letter
of June 25, 1926, and the subsequent demands, with exception of
the letter of July 31, 1926, were not made in pursuance to the
terms of the contract, and that defendant had no liability in
refusing to comply therewith, and in allowing plaintiff damages
only for the failure of the defendant to deliver quantities shown
in Exhibits Ref. 21 and 22. (See pages 51, 52, Referee's report.)
"IX. The trial court erred in finding and holding that the demands
of plaintiff for additional tars under its contract with the
defendant were extravagant and not made in good faith, and that
when it wrote to defendant that it desired maximum quantities of
coal gas tars and only minimum of water gas tars, but with the
reservation of going back to minimum quantities of both at any
time it chose, it announced its intention of breaching the contract,
and defendant was under no obligation to deliver maximum
quantities of either tars, and since this was the efficient cause of
the failure of defendant to deliver or plaintiff to accept tars, the
blame is attributable to plaintiff, and it cannot recover for a
rescission.
* * * * * * * and for the costs," in which the court refused to order the defendant to
"XXIII. The trial court erred in refusing to sustain plaintiff's
seventeenth exception to the finding and conclusion of the referee
that the plaintiff is entitled to recover from the defendant only the
following sums:
Water gas tar (Exhibit Ref. 21) P38,134.60
............................................................. ...
Coal gas tar (Exhibit Ref. 22) 16,547.33
....................................................................
Overcharges on deliveries (Exhibit Ref. 23) 2,219.60
..............................................
or a total of..................................................... 56,901.53
................................ ...
with interest, and in not awarding to the plaintiff as damages in
this case the sum of P319,253.40, with legal interest thereon from the
date of filing the complaint in this case, in the manner and form
computed by it, and in awarding damages to the plaintiff for the sum
of only P2,219.60, with costs."
* * * * * * *
JOHNS, J.:
In this action plaintiff seeks to recover damages from the defendant
which it claims to have sustained after September, 1923, arising from,
and growing out of, its original contract of September 10, 1918, as
modified on January 1, 1919, to continue for a period of ten years from
that date. In paragraph VIII of its complaint, plaintiff alleges that
about the last part of July, 1920, the defendant "willfully and
deliberately breached its said contract," and that it "flatly refused to
make any deliveries under said contract, and finally on November 23,
1923," it was forced to commence action in the Court of First Instance
against the defendant, known as case No. 25352, to recover the
damages which it had then sustained by reason of such flagrant
violation of said contract on the part of the defendant, in which
judgment was rendered in favor of the plaintiff and against the
defendant for P26,119.08, as damages "suffered by this plaintiff by the
defendant's breach of said contract from July, 1920, up to and including
September, 1923, with legal interest thereon from November 23, 1923,
resume the delivery of the coal and water gas tar to the plaintiff, in
accord with said contract, but left it with its remedy for damages
against the defendant for any subsequent breaches of the contract. A
copy of that judgment, which was later affirmed by this court, is
attached to, marked Exhibit G, and made a part of, the complaint in
this action.
 In their respective briefs, opposing counsel have much to say about
the purpose and intent of that judgment, and it is vigorously asserted
that it was never intended that it should be or become a bar to another
action by the plaintiff to recover any damages it may have sustained
after September, 1923, during the remainder of the ten-year period of
that contract. Be that as it may, it must be conceded that the question
as to what would be the legal force and effect of that judgment in that
case was never presented to, or decided by, the lower court or this court.
In the very nature of things, neither court in that case would have the
power to pass upon or decide the legal force and effect of its own
judgment, for the simple reason that it would be premature and outside
of the issues of any pleading, and could not be raised or presented until
after the judgment became final, and then only by an appropriate plea,
as in this case.
Plaintiff specifically alleges that the defendant willfully and
deliberately breached the contract, and "flatly refused to make any
deliveries under said contract," by reason of which it was forced to and
commenced its former action in which it was awarded P26,119.08
damages against the defendant by reason of its breach of the contract
from July, 1920, to September, 1923.
In the final analysis, plaintiff in this action seeks to recover
damages growing out of, and arising from, other and different breaches
of that same contract after November, 1923, for the remainder of the
ten-year period, and the question is thus squarely presented as to
whether the rendition of the former judgment is a bar to the right of
the plaintiff to recover damages from and after September, 1923,
arising from, and growing out of, breaches of the original contract of
September 10, 1918, as modified on January 1, 1919. That is to say,
whether the plaintiff, in a former action, having recovered judgment
for the damages which it sustained by reason of a breach of its contract
by the defendant up to September, 1923, can now in this action recover
damages it may have sustained after September, 1923, arising from,
and growing out of, a breach of the same contract, upon and for which
it recovered its judgment in the former action.
In the former action in which the judgment was rendered, it is
alleged in the complaint:
" '7. That about the last part of July or the first part of August, 1920,
the Manila Gas Corporation, the defendant herein, without any cause
ceased delivering coal and water gas tar to the plaintiff herein; and
that from that time up to the present date, the plaintiff corporation,
Blossom & Company, has frequently and urgently demanded of the
defendant, the Manila Gas Corporation, that it comply with its
aforesaid contract Exhibit A by continuing to deliver coal and water
gas tar to this plaintiff—but that the said defendant has refused, and
still refuses, to deliver to the plaintiff any coal and water gas tar
whatsoever under the said contract Exhibit A, since the said month of
July, 1920.
* * * * * * *
"'9. That owing to the bad faith of the said Manila Gas Corporation,
defendant herein, in not living up to its said contract Exhibit A, made
with this plaintiff, and ref using now to carry out the terms of the same,
by delivering to this plaintiff the coal and water gas tar mentioned in
the said Exhibit A, has caused to this plaintiff great and irreparable
damages amounting to the sum total of one hundred twenty-four
thousand eight hundred forty-eight pesos and seventy centavos
(P124,848.70); and that the said defendant corporation has refused,
and still refuses, to pay to this plaintiff the whole or any part of the
aforesaid sum.
" '10. That the said contract Exhibit A, was to be in force until
January 1, 1929, that is to say, for ten (10) years counted from January
1, 1919; and that, unless the defendant again commence to furnish and
supply this plaintiff with coal and water gas tar, as provided for in the
said contract Exhibit A, the damages already suffered by this plaintiff
will continually increase and become larger and larger in the course of
years preceding the termination of the said contract on January 1,
1929.'"
In that action plaintiff prays for judgment against the defendant:
" ' (a)That upon trial of this cause judgment be rendered in favor
of the plaintiff and against the defendant for the sum of
P124,848.70, with legal interests thereon from November 23,
1923;
"'(b)That the court specifically order the defendant to resume the
delivery of the coal and water gas tar to the plaintiff under the
terms of the said contract Exhibit A of this complaint.' "
In the final analysis, plaintiff must stand or fall on its own pleadings,
and tested by that rule, it must be admitted that the plaintiff's original
cause of action, in which it recovered judgment for damages, was
founded on the ten-year contract, and that the damages which it then
recovered were recovered for a breach of that contract.
Both actions are founded on one and the same contract. By the
terms of the original contract of September 10, 1918, the defendant was
to sell and the plaintiff' was to purchase three tons of water gas tar per
month from September to January 1, 1919, and twenty tons of water
gas tar per month after January 1, 1919, one-half ton of coal gas tar
per month from September to January 1, 1919, and six tons of coal gas
tar per month after January 1, 1919. That from and after January 1,
1919, plaintiff would take at least the quantities specified in the
contract of September 10, 1918, and that at its option, it would have
the right to take the total output of water gas tar of defendant's plant
and 50 per cent of the gross output of its coal gas tar, and upon giving
ninety days' notice, it would have the right to the entire output of coal
gas tar, except such as the defendant might need for its own use. That
is to say, the contract provided for the delivery to the plaintiff from
month to month of the specified amounts of the different tars as
ordered and requested by the plaintiff. In other words, under plaintiff's
own theory, the defendant was to make deliveries from month to month
of the tars during the period of ten years, and it is alleged in both
complaints that the defendant broke its contract, and in bad faith
refused to make any more deliveries.
In 34 Corpus Juris, p. 839, it is said:
"As a general rule a contract to do several things at several times is
divisible in its nature, so as to authorize successive actions; and a
judgment recovered for a single breach of a continuing contract or
covenant is no bar to a suit for a subsequent breach thereof. But where
the covenant or contract is entire, and the breach total, there can be
only one action, and plaintiff must therein recover all his damages."
In the case of Roehm vs. Horst, 178 U. S., 1; 44 Law. ed., 953, that court
said:
"An unqualified and positive refusal to perform a contract, though the
performance thereof is not yet due, may, if the renunciation goes to the
whole contract, be treated as a complete breach which will entitle the
injured party to bring his action at once."
15 Ruling Case Law, 966, 967, sec. 441, says:
"Similarly if there is a breach by the vendor of a contract for the sale of
goods to be delivered and paid for in installments, and the vendee
maintains an action therefor and recovers damages, he cannot
maintain a subsequent action to recover for the failure to deliver later
installments."
In Pakas vs. Hollingshead, 184 N. Y., 211; 77 N. E., 40; 3 L. R. A. (N.
S.), 1042, the syllabus says:
"Upon refusal, by the seller, after partial performance, longer to comply
with his contract to sell and deliver a quantity of articles in
installments, the buyer cannot keep the contract in force and maintain
actions for breaches as they occur, but must recover all his damages in
one suit."
And on page 1044 of its opinion, the court says:
"The learned counsel for the plaintiff contends that the former
judgment did not constitute a bar to the present action, but that the
plaintiff had the right to elect to waive or disregard the breach, keep
the contract in force, and maintain successive actions for damages from
time to time as the installments of goods were to be delivered, however
numerous these actions might be. It is said that this contention is
supported in reason and justice, and has the sanction of authority at
least in other jurisdictions. We do not think that the contention can be
maintained. There is not, as it seems to us, any judicial authority in
this state that gives it any substantial support. On the contrary, we
think that the cases, so far as we have been able to examine them, are
all the other way, and are to the effect that, inasmuch as there was a
total breach of the contract by the defendants' refusal to deliver, the
plaintiff cannot split up his demand and maintain successive actions,
but must either recover all his damages in the first suit or wait until
the contract matured or the time for the delivery of all the goods had
arrived. In other words, there can be but one action for damages for a
total breach of an entire contract to deliver goods, and the fact that
they were to be delivered in installment from time to time does not
change the general rule."
The case of L. Bucki & Son Lumber Co. vs. Atlantic Lumber Co. (109
Federal, 411), of the United States Circuit Court of Appeals for the
Fifth Circuit, is very similar.
The syllabus says:
"1. CONTRACTS—CONSTRUCTION—ENTIRE CONTRACT.—A
contract was made for the sale of a large quantity of logs to be delivered
in monthly installments during a period of eight years, payments to be
made also in installments at times having relation to the deliveries. It
contained stipulations as to such payments, and guaranties as to the
average size of the logs to be delivered in each installment. Held, that
it was an entire contract, and not a number of separate and
independent agreements for the sale of the quantity to be delivered and
paid for each month, although there might be breaches of the minor
stipulations and warranties with reference thereto which would
warrant suits without a termination of the contract.
"2. JUDGMENTS—MATTERS CONCLUDED—ACTION ?OR
BREACH OF INDIVISIBLE CONTRACT.—The seller declared the
contract terminated for alleged breaches by the purchaser, and brought
suit for general and special damages, the latter covering payments due
for installments of logs delivered. By way of set-off and recoupment
against this demand, the purchaser pleaded breaches of the warranty
as to the size of the logs delivered during the months for which payment
had not been made. Held, that the judgment in such action was
conclusive as to all claims or demands of either party against the other
growing out of the entire contract, and was a bar to a subsequent suit
brought by the purchaser to recover for other breaches of the same
warranty in relation to deliveries made in previous months."
On page 415 of the opinion, the court says:
"When the contract was ended, the claims of each party for alleged
breaches and damages therefor constituted an indivisible demand; and
when the same, or any part of the same, was pleaded, litigation had,
and final judgment rendered, such suit and judgment constitute a bar
to subsequent demands which were or might have been litigated.
(Baird vs.-U. S., 96 U. S., 430; 24 L. ed., 703.)"
In Watts vs. Weston (238 Federal, 149), Circuit Court of Appeals,
Second Circuit, the syllabus says:
"1. JUDGMENT—593—JUDGMENT AS BAR—MATTERS
CONCLUDED.—Where a continuing contract was terminated by the
absolute refusal of the party whose action was necessary to further
perform, a claim for damages on account of the breach constituted an
indivisible demand, and when the same or any part of the same was
pleaded, litigated, and final judgment rendered, such suit and
judgment constitute a bar to subsequent demands which were or might
have been litigated therein."
And on page 150 of the opinion, the court says:
"It is enough to show the lack of merit in the present contention to point
out as an inexorable rule of law that, when Knevals' contract was
discharged by his total repudiation thereof, Watts' claims for breaches
and damages therefor 'constituted an indivisible demand, and when
the same, or any part of the same, was pleaded, litigation had and final
judgment rendered, such suit and judgment constitute a bar to
subsequent demands which were or might have been litigated.' (Bucki,
etc., Co. vs. Atlantic, etc., Co., 109 Fed. at page 415; 48 C. C. A., 459; Cf.
Landon vs. Bulkley, 95 Fed., 344; 37 C. C. A., 96.)
"The rule is usually applied in cases of alleged or supposed
successive breaches, and consequently severable demands for
damages; but if the contract has been discharged by breach, if suit for
damages is all that is left, the rule is applicable, and every demand
arising from that contract and possessed by any given plaintiff must be
presented (at least as against any given defendant) in one action; what
the plaintiff does not advance he foregoes by conclusive presumption."
In Abbott vs. 76 Land and Water Co. (118 Pac., 425; 161 Cal., 42), at
page 428, the court said:
"In Fish vs. Folley, 6 Hill (N. Y.), 54, it was held, in accord with the rule
we have discussed, that, where the defendant had covenanted that
plaintiff should have a continual supply of water for his mill from a
dam, and subsequently totally failed to perform for nine years, and
plaintiff brought an action for the breach and recovered damages
sustained by him to that time, the judgment was a bar to a second
action arising from subsequent failure to perform, on the theory that,
although the covenant was a continuing one in one sense, it was an
entire contract, and a total breach put an end to it, and gave plaintiff
the right to sue for an equivalent in damages.
"In such a case it is no warrant for a second action that the party
may not be able to actually prove in the first action all the items of the
demand, or that all the damage may not then have been actually
suffered. He is bound to prove in the first action not only such damage
as has been actually suffered, but also such prospective damage by
reason of the breach as he may be legally entitled to, for the judgment
he recovers in such action will be a conclusive adjudication as to the
total damage on account of the breach."
It will thus be seen that, where there is a complete and total breach of
a continuous contract for a term of years, the recovery of a judgment
for damages by reason of the breach is a bar to another action on the
same contract for and on account of the continuous breach.
In the final analysis, there is no real dispute about any material
fact, and the important and decisive question is the legal construction
of the pleadings in the former case and in this case, and of the contract
between the plaintiff and the defendant of January 1, 1920.
The complaint in the former case specifically alleges that the defendant
"has refused, and still refuses, to deliver to the plaintiff any coal and
water gas tar whatsoever under the said contract Exhibit A, since the
said month of July, 1920." "That owing to the bad faith of the said
Manila, Gas Corporation, defendant herein, in not living up to its said
contract Exhibit A, made with this plaintiff, and refusing now to carry
out the terms of the same." That is a specific allegation not only of a
breach of the contract since the month of July, 1920, but of the bad
faith of the defendant in its continuous refusal to make deliveries of
any coal and water gas tar. That amended complaint was filed on July
11, 1924, or four years after the alleged bad faith in breaking the
contract.
Having recovered damages against it, covering a period of four
years, upon the theory that the defendant broke the contract, and in
bad faith refused to make deliveries of either of the tars, how can the
plaintiff now claim and assert that the contract is still in force and
effect? In the instant case the plaintiff alleges and relies upon the ten-
year contract of January 1, 1920, which in bad faith was broken by the
defendant. If the contract was then broken, how can it be enforced in
this action?
It is admitted that the defendant never made any deliveries of any
tar from July, 1920, to April, 1926. Also that it made nine deliveries to
plaintiff of the minimum quantities of coal and water gas tar from April
7, 1926, to January 5, 1927.
Plaintiff contends that such deliveries were made under and in
continuation of the old contract.
March 26, 1926, after the decision of this court affirming the
judgment in the original action, plaintiff wrote the defendant:
"* * * It is our desire to take deliveries of at least the minimum
quantities set forth therein and shall appreciate to have you advise us
how soon you will be in a position to make deliveries; * * *
"*** In view of the fact that you have only effected settlement up to
November 23, 1923, please inform us what adjustment you are willing
to make for the period of time that has since elapsed without your
complying with the contract."
In response to which on March 31, 1926, the defendant wrote this letter
to the plaintiff:
"In reply to your letter of March 26th, 1926, in regard to tar, we beg to
advise you that we are prepared to furnish the minimum quantities of
coal and water gas tars as per your letter, viz: twenty tons of water gas
tar and six tons of coal gas tar. The price figured on present costs of
raw materials is P39.01 (Thirty-nine and 01/100 Pesos) per ton of water
gas and P33.59 (Thirty-three and 59/100 Pesos) per ton of coal tar.
"We shall expect you to take delivery and pay for the above amount
of tars at our factory on or bef ore April 7th prox.
"Thereafter we shall be ready to furnish equal amounts on the first
of each month. Kindly make your arrangements accordingly."
On January 29, 1927, the plaintiff wrote the defendant that:
"On July 31st last, we made demand upon you, under the terms of our
tar contract, for 50 per cent of your total coal tar production for that
month and also served notice on you that beginning 90 days from
August 1st we would require your total output of coal tar monthly; this
in addition to the 20 tons of water gas tar provided for in the contract
to be taken monthly.
* * * * * * *
"We are here again calling on you for your total output of coal tar
immediately and the regular minimum monthly quantity of water gas
tar. In this connection we desire to advise you that within 90 days of
your initial delivery to us of your total coal tar output we will require
50 percent of your total water gas tar output, and, further, that two
months thereafter we will require your total output of both tars."
February 2, 1927, the defendant wrote the plaintiff:
"Replying to your letter of Jan. 29, we would say that we have already
returned to you the check enclosed therewith. As we have repeatedly
informed you we disagree with you as to the construction of your
contract and insist that you take the whole output of both tars if you
wish to secure the whole of the coal tar.
"With regard to your threat of further suits we presume that you
will act as advised. If you make it necessary we shall do the same."
From an analysis of these letters it clearly appears that the plaintiff
then sought to rely upon and enforce the contract of January 1, 1920,
and that defendant denied plaintiff's construction of the contract, and
insisted "that you take the whole output of both tars if you wish to
secure the whole of the coal tar."
February 28, 1927, the plaintiff wrote the defendant:
"In view of your numerous violations of and repeated refusal and
failure to comply with the terms and provisions of our contract dated
January 30-31, 1919, for the delivery to us of water and coal gas tars,
etc., we will commence action," which it did.
The record tends to show that the tars which the defendant
delivered after April 7, 1926, were not delivered under the old contract
of January 1, 1920, and that at all times since July, 1920, the defendant
has consistently refused to make any deliveries of any tars under that
contract.
The referee found as a fact that plaintiff was entitled to f=2,219.60
for and on account of overcharges which the defendant made for the
deliveries of fifty-four tons of coal gas tar, and one hundred eighty tons
of water gas tar after April, 1926, and upon that point the lower court
says:
"The fourth charge that plaintiff makes is meritorious. The price was
to be fixed on the basis of raw materials. The charge for deliveries
during 1926 were too high. In this I agree with entirely with the referee
and adopt his findings of fact and calculations. (See Referee's report, p.
83.) The referee awarded for overcharge during the period aforesaid,
the sum of P2,219.60. The defendant was trying to discourage plaintiff
from buying tars and made the price of raw material appear as high as
possible."
That finding is sustained upon the theory that the defendant broke its
contract which it made with the plaintiff for the sale and delivery of
the tars on and after April, 1926.
After careful study of the many important questions presented on
this appeal in the exhaustive brief of the appellant, we are clearly of
the opinion that, as found by the lower court, the plea of res
judicata must be sustained.
The judgment of the lower court is affirmed.
It is so ordered, with costs against the appellant.
 VOL. 455, APRIL 8, 2005 175
Swagman Hotels and Travel, Inc. vs. Court of Appeals
G.R. No. 161135. April 8, 2005.*
DAVIDE, JR., C.J.:
May a complaint that lacks a cause of action at the time it was filed be
cured by the accrual of a cause of action during the pendency of the
case? This is the basic issue raised in this petition for the Court’s
consideration.
Sometime in 1996 and 1997, petitioner Swagman Hotels and
Travel, Inc., through Atty. Leonor L. Infante and Rodney David
Hegerty, its president and vice-president, respectively, obtained from
private respondent Neal B. Christian loans evidenced by three
promissory notes dated 7 August 1996, 14 March 1997, and 14 July
1997. Each of the promissory notes is in the amount of US$50,000
payable after three years from its date with an interest of 15% per
annum payable every three months.1 In a letter dated 16 December
1998, Christian informed the petitioner corporation that he was
terminating the loans and demanded from the latter payment in the
total amount of US$150,000 plus unpaid interests in the total amount
of US$13,500.2
On 2 February 1999, private respondent Christian filed with the
Regional Trial Court of Baguio City, Branch 59, a complaint for a sum
of money and damages against the petitioner corporation, Hegerty, and
Atty. Infante. The complaint alleged as follows: On 7 August 1996, 14
March 1997, and 14 July 1997, the petitioner, as well as its president
and vice-president obtained loans from him in the total amount of
US$150,000 payable after three years, with an interest of 15% per
annum payable quarterly or every three months. For a while, they paid
an interest of 15% per annum every three months in accordance with
the three promissory notes. However, starting January 1998 until
December 1998, they paid him only an interest of 6% per annum,
instead of 15% per annum, in violation of the terms of the three
promissory notes. Thus, Christian prayed that the trial court order
them to pay him jointly and solidarily the amount of US$150,000
representing the total amount of the loans; US$13,500 representing
unpaid interests from January 1998 until December 1998; P100,000 for
moral damages; P50,000 for attorney’s fees; and the cost of the suit.3
The petitioner corporation, together with its president and vice-
president, filed an Answer raising as defenses lack of cause of action
and novation of the principal obligations. According to them, Christian
had no cause of action because the three promissory notes were not yet
due and demandable. In December 1997, since the petitioner
corporation was experiencing huge losses due to the Asian financial
crisis, Christian agreed (a) to waive the interest of 15% per annum, and
(b) accept payments of the principal loans in installment basis, the
amount and period of which would depend on the state of business of
the petitioner corporation. Thus, the petitioner paid Christian capital
repayment in the amount of US$750 per month from January 1998
until the time the complaint was filed in February 1999. The petitioner
and its co-defendants then prayed that the complaint be dismissed and
that Christian be ordered to pay P1 million as moral damages;
P500,000 as exemplary damages; and P100,000 as attorney’s fees.4
In due course and after hearing, the trial court rendered a
decision5 on 5 May 2000 declaring the first two promissory notes dated
7 August 1996 and 14 March 1997 as already due and demandable and
that the interest on the loans had been reduced by the parties from
15% to 6% per annum. It then ordered the petitioner corporation to pay
Christian the amount of $100,000 representing the principal obligation
covered by the promissory notes dated 7 August 1996 and 14 March
1997, “plus interest of 6% per month thereon until fully paid, with all
interest payments already paid by the defendant to the plaintiff to be
deducted therefrom.”
The trial court ratiocinated in this wise:
(1) There was no novation of defendant’s obligation to the plaintiff.
Under Article 1292 of the Civil Code, there is an implied novation only
if the old and the new obligation be on every point incompatible with
one another.
The test of incompatibility between the two obligations or contracts,
according to an imminent author, is whether they can stand together,
each one having an independent existence. If they cannot, they are
incompatible, and the subsequent obligation novates the first
(Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., p. 384).
Otherwise, the old obligation will continue to subsist subject to the
modifications agreed upon by the parties. Thus, it has been written
that accidental modifications in an existing obligation do not
extinguish it by novation. Mere modifications of the debt agreed upon
between the parties do not constitute novation. When the changes refer
to secondary agreement and not to the object or principal conditions of
the contract, there is no novation; such changes will produce
modifications of incidental facts, but will not extinguish the original
obligation. Thus, the acceptance of partial payments or a partial
remission does not involve novation (Id., p. 387). Neither does the
reduction of the amount of an obligation amount to a novation because
it only means a partial remission or condonation of the same debt.
In the instant case, the Court is of the view that the parties merely
intended to change the rate of interest from 15% per annum to 6% per
annum when the defendant started paying $750 per month which
payments were all accepted by the plaintiff from January 1998 onward.
The payment of the principal obligation, however, remains unaffected
which means that the defendant should still pay the plaintiff $50,000
on August 9, 1999, March 14, 2000 and July 14, 2000.
(2) When the instant case was filed on February 2, 1999, none of the
promissory notes was due and demandable. As of this date however,
the first and the second promissory notes have already matured.
Hence, payment is already due.
Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a
complaint which states no cause of action may be cured by evidence
presented without objection. Thus, even if the plaintiff had no cause of
action at the time he filed the instant complaint, as defendants’
obligation are not yet due and demandable then, he may nevertheless
recover on the first two promissory notes in view of the introduction of
evidence showing that the obligations covered by the two promissory
notes are now due and demandable.
(3) Individual defendants Rodney Hegerty and Atty. Leonor L.
Infante can not be held personally liable for the obligations contracted
by the defendant corporation it being clear that they merely acted in
representation of the defendant corporation in their capacity as
General Manager and President, respectively, when they signed the
promissory notes as evidenced by Board Resolution No. 1(94) passed by
the Board of Directors of the defendant corporation (Exhibit “4”).6
In its decision7 of 5 September 2003, the Court of Appeals denied
petitioner’s appeal and affirmed in toto the decision of the trial court,
holding as follows:
In the case at bench, there is no incompatibility because the changes
referred to by appellant Swagman consist only in the manner of
payment. . . .
Appellant Swagman’s interpretation that the three (3) promissory
notes have been novated by reason of appellee Christian’s acceptance
of the monthly payments of US$750.00 as capital repayments
continuously even after the filing of the instant case is a little bit
strained considering the stiff requirements of the law on novation that
the intention to novate must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be
mistaken. Under the circumstances, the more reasonable
interpretation of the act of the appellee Christian in receiving the
monthly payments of US$750.00 is that appellee Christian merely
allowed appellant Swagman to pay whatever amount the latter is
capable of. This interpretation is supported by the letter of demand
dated December 16, 1998 wherein appellee Christian demanded from
appellant Swagman to return the principal loan in the amount of
US$150,000 plus unpaid interest in the amount of US$13,500.00
...
Appellant Swagman, likewise, contends that, at the time of the
filing of the complaint, appellee Christian ha[d] no cause of action
because none of the promissory notes was due and demandable.
Again, We are not persuaded.
...
In the case at bench, while it is true that appellant Swagman raised
in its Answer the issue of prematurity in the filing of the complaint,
appellant Swagman nonetheless failed to object to appellee Christian’s
presentation of evidence to the effect that the promissory notes have
become due and demandable.
The afore-quoted rule allows a complaint which states no cause of
action to be cured either by evidence presented without objection or, in
the event of an objection sustained by the court, by an amendment of
the complaint with leave of court (Herrera, Remedial Law, Vol. VII,
1997 ed., p. 108).8
Its motion for reconsideration having been denied by the Court of
Appeals in its Resolution of 4 December 2003,9 the petitioner came to
this Court raising the following issues:
I.WHERE THE DECISION OF THE TRIAL COURT DROPPING
TWO DEFENDANTS HAS BECOME FINAL AND
EXECUTORY, MAY THE RESPONDENT COURT OF APPEALS
STILL STUBBORNLY CONSIDER THEM AS APPELLANTS
WHEN THEY DID NOT APPEAL?
II.WHERE THERE IS NO CAUSE OF ACTION, IS THE
DECISION OF THE LOWER COURT VALID?
 III.MAY THE RESPONDENT COURT OF APPEALS VALIDLY
AFFIRM A DECISION OF THE LOWER COURT WHICH IS
INVALID DUE TO LACK OF CAUSE OF ACTION?
IV.WHERE THERE IS A VALID NOVATION, MAY THE
ORIGINAL TERMS OF CONTRACT WHICH HAS BEEN
NOVATED STILL PREVAIL?10
The petitioner harps on the absence of a cause of action at the time the
private respondent’s complaint was filed with the trial court. In
connection with this, the petitioner raises the issue of novation by
arguing that its obligations under the three promissory notes were
novated by the renegotiation that happened in December 1997 wherein
the private respondent agreed to waive the interest in each of the three
promissory notes and to accept US$750 per month as installment
payment for the principal loans in the total amount of US$150,000.
Lastly, the petitioner questions the act of the Court of Appeals in
considering Hegerty and Infante as appellants when they no longer
appealed because the trial court had already absolved them of the
liability of the petitioner corporation.
On the other hand, the private respondent asserts that this petition
is “a mere ploy to continue delaying the payment of a just obligation.”
Anent the fact that Hegerty and Atty. Infante were considered by the
Court of Appeals as appellants, the private respondent finds it
immaterial because they are not affected by the assailed decision
anyway.
Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of
Civil Procedure, is the act or omission by which a party violates the
right of another. Its essential elements are as follows:
1.A right in favor of the plaintiff by whatever means and under
whatever law it arises or is created;
2.An obligation on the part of the named defendant to respect or
not to violate such right; and
3.Act or omission on the part of such defendant in violation of the
right of the plaintiff or constituting a breach of the obligation of
the defendant to the plaintiff for which the latter may maintain
an action for recovery of damages or other appropriate relief.11
It is, thus, only upon the occurrence of the last element that a cause of
action arises, giving the plaintiff the right to maintain an action in
court for recovery of damages or other appropriate relief.
It is undisputed that the three promissory notes were for the
amount of $50,000 each and uniformly provided for (1) a term of three
years; (2) an interest of 15 % per annum, payable quarterly; and (3) the
repayment of the principal loans after three years from their respective
dates. However, both the Court of Appeals and the trial court found
that a renegotiation of the three promissory notes indeed happened in
December 1997 between the private respondent and the petitioner
resulting in the reduction—not waiver—of the interest from 15% to
6% per annum, which from then on was payable monthly, instead of
quarterly. The term of the principal loans remained unchanged in that
they were still due three years from the respective dates of the
promissory notes. Thus, at the time the complaint was filed with the
trial court on 2 February 1999, none of the three promissory notes was
due yet; although, two of the promissory notes with the due dates of 7
August 1999 and 14 March 2000 matured during the pendency of the
case with the trial court. Both courts also found that the petitioner had
been religiously paying the private respondent US$750 per month from
January 1998 and even during the pendency of the case before the trial
court and that the private respondent had accepted all these monthly
payments.
With these findings of facts, it has become glaringly obvious that
when the complaint for a sum of money and damages was filed with
the trial court on 2 February 1999, no cause of action has as yet existed
because the petitioner had not committed any act in violation of the
terms of the three promissory notes as modified by the renegotiation in
December 1997. Without a cause of action, the private respondent had
no right to maintain an action in court, and the trial court should have
therefore dismissed his complaint.
Despite its finding that the petitioner corporation did not violate
the modified terms of the three promissory notes and that the payment
of the principal loans were not yet due when the complaint was filed,
the trial court did not dismiss the complaint, citing Section 5, Rule 10
of the 1997 Rules of Civil Procedure, which reads:
Section 5. Amendment to conform to or authorize presentation of
evidence.—When issues not raised by the pleadings are tried with the
express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. Such amendment
of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does not
affect the result of the trial of these issues. If evidence is objected to at
the trial on the ground that it is not within the issues made by the
pleadings, the court may allow the pleadings to be amended and shall
do so with liberality if the presentation of the merits of the action and
the ends of substantial justice will be subserved thereby. The court may
grant a continuance to enable the amendment to be made.
According to the trial court, and sustained by the Court of Appeals, this
Section allows a complaint that does not state a cause of action to be
cured by evidence presented without objection during the trial. Thus,
it ruled that even if the private respondent had no cause of action when
he filed the complaint for a sum of money and damages because none
of the three promissory notes was due yet, he could nevertheless
recover on the first two promissory notes dated 7 August 1996 and 14
March 1997, which became due during the pendency of the case in view
of the introduction of evidence of their maturity during the trial.
Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil
Procedure is erroneous.
Amendments of pleadings are allowed under Rule 10 of the 1997
Rules of Civil Procedure in order that the actual merits of a case may
be determined in the most expeditious and inexpensive manner
without regard to technicalities, and that all other matters included in
the case may be determined in a single proceeding, thereby avoiding
multiplicity of suits.12 Section 5 thereof applies to situations wherein
evidence not within the issues raised in the pleadings is presented by
the parties during the trial, and to conform to such evidence the
pleadings are subsequently amended on motion of a party.
Thus, a complaint which fails to state a cause of action may be cured
by evidence presented during the trial.
However, the curing effect under Section 5 is applicable only if a
cause of action in fact exists at the time the complaint is filed, but the
complaint is defective for failure to allege the essential facts. For
example, if a complaint failed to allege the fulfillment of a condition
precedent upon which the cause of action depends, evidence showing
that such condition had already been fulfilled when the complaint was
filed may be presented during the trial, and the complaint may
accordingly be amended thereafter.13Thus, in Roces v. Jalandoni,14 this
Court upheld the trial court in taking cognizance of an otherwise
defective complaint which was later cured by the testimony of the
plaintiff during the trial. In that case, there was in fact a cause of action
and the only problem was the insufficiency of the allegations in the
complaint. This ruling was reiterated in Pascua v. Court of Appeals.15
It thus follows that a complaint whose cause of action has not yet
accrued cannot be cured or remedied by an amended or supplemental
pleading alleging the existence or accrual of a cause of action while the
case is pending.16Such an action is prematurely brought and is,
therefore, a groundless suit, which should be dismissed by the court
upon proper motion seasonably filed by the defendant. The underlying
reason for this rule is that a person should not be summoned before the
public tribunals to answer for complaints which are immature. As this
Court eloquently said in Surigao Mine Exploration Co., Inc. v. Harris:17
It is a rule of law to which there is, perhaps, no exception, either at law
or in equity, that to recover at all there must be some cause of
action at the commencement of the suit. As observed by counsel
for appellees, there are reasons of public policy why there should be no
needless haste in bringing up litigation, and why people who are in no
default and against whom there is yet no cause of action should not be
summoned before the public tribunals to answer complaints which are
groundless. We say groundless because if the action is immature, it
should not be entertained, and an action prematurely brought is a
groundless suit.
It is true that an amended complaint and the answer thereto take
the place of the originals which are thereby regarded as abandoned
(Reynes vs. Compañía General de Tabacos [1912], 21 Phil. 416; Ruyman
and Farris vs. Director of Lands [1916], 34 Phil. 428) and that “the
complaint and answer having been superseded by the amended
complaint and answer thereto, and the answer to the original
complaint not having been presented in evidence as an exhibit, the trial
court was not authorized to take it into account.” (Bastida vs. Menzi &
Co. [1933], 58 Phil. 188.) But in none of these cases or in any other case
have we held that if a right of action did not exist when the original
complaint was filed, one could be created by filing an amended
complaint. In some jurisdictions in the United States what was termed
an “imperfect cause of action” could be perfected by suitable
amendment (Brown vs. Galena Mining & Smelting Co., 32 Kan.,
528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is virtually
permitted in Banzon and Rosauro vs. Sellner ([1933], 58 Phil.
453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil. 683); and
recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however,
which is no cause of action whatsoever cannot by amendment
or supplemental pleading be converted into a cause of action: Nihil
de re accrescit ei qui nihil in re quando jus accresceret habet.
 We are therefore of the opinion, and so hold, that unless the
plaintiff has a valid and subsisting cause of action at the time
his action is commenced, the defect cannot be cured or
remedied by the acquisition or accrual of one while the action
is pending, and a supplemental complaint or an amendment
setting up such after-accrued cause of action is not
permissible. (Emphasis ours).
Hence, contrary to the holding of the trial court and the Court of
Appeals, the defect of lack of cause of action at the commencement of
this suit cannot be cured by the accrual of a cause of action during the
pendency of this case arising from the alleged maturity of two of the
promissory notes on 7 August 1999 and 14 March 2000.
Anent the issue of novation, this Court observes that the petitioner
corporation argues the existence of novation based on its own version
of what transpired during the renegotiation of the three promissory
notes in December 1997. By using its own version of facts, the
petitioner is, in a way, questioning the findings of facts of the trial court
and the Court of Appeals.
As a rule, the findings of fact of the trial court and the Court of
Appeals are final and conclusive and cannot be reviewed on appeal to
the Supreme Court18 as long as they are borne out by the record or are
based on substantial evidence.19 The Supreme Court is not a trier of
facts, its jurisdiction being limited to reviewing only errors of law that
may have been committed by the lower courts. Among the exceptions
is when the finding of fact of the trial court or the Court of Appeals is
not supported by the evidence on record or is based on a
misapprehension of facts. Such exception obtains in the present case.20
This Court finds to be contrary to the evidence on record the finding
of both the trial court and the Court of Appeals that the renegotiation
in December 1997 resulted in the reduction of the interest from 15% to
6% per annum and that the monthly payments of US$750 made by the
petitioner were for the reduced interests.
It is worthy to note that the cash voucher dated January 199821 states
that the payment of US$750 represents “INVESTMENT PAYMENT.”
All the succeeding cash vouchers describe the payments from February
1998 to September 1999 as “CAPITAL REPAYMENT.”22 All these cash
vouchers served as receipts evidencing private respondent’s
acknowledgment of the payments made by the petitioner: two of which
were signed by the private respondent himself and all the others were
signed by his representatives. The private respondent even identified
and confirmed the existence of these receipts during the
hearing.23 Significantly, cognizant of these receipts, the private
respondent applied these payments to the three consolidated principal
loans in the summary of payments he submitted to the court.24
Under Article 1253 of the Civil Code, if the debt produces interest,
payment of the principal shall not be deemed to have been made until
the interest has been covered. In this case, the private respondent
would not have signed the receipts describing the payments made by
the petitioner as “capital repayment” if the obligation to pay the
interest was still subsisting. The receipts, as well as private
respondent’s summary of payments, lend credence to petitioner’s claim
that the payments were for the principal loans and that the interests
on the three consolidated loans were waived by the private respondent
during the undisputed renegotiation of the loans on account of the
business reverses suffered by the petitioner at the time.
There was therefore a novation of the terms of the three promissory
notes in that the interest was waived and the principal was payable in
monthly installments of US$750. Alterations of the terms and
conditions of the obligation would generally result only in modificatory
novation unless such terms and conditions are considered to be the
essence of the obligation itself.25 The resulting novation in this case
was, therefore, of the modificatory type, not the extinctive type, since
the obligation to pay a sum of money remains in force.
Thus, since the petitioner did not renege on its obligation to pay the
monthly installments conformably with their new agreement and even
continued paying during the pendency of the case, the private
respondent had no cause of action to file the complaint. It is only upon
petitioner’s default in the payment of the monthly amortizations that
a cause of action would arise and give the private respondent a right to
maintain an action against the petitioner.
Lastly, the petitioner contends that the Court of Appeals
obstinately included its President Infante and Vice-President Hegerty
as appellants even if they did not appeal the trial court’s decision since
they were found to be not personally liable for the obligation of the
petitioner. Indeed, the Court of Appeals erred in referring to them as
defendants-appellants; nevertheless, that error is no cause for alarm
because its ruling was clear that the petitioner corporation was the one
solely liable for its obligation. In fact, the Court of Appeals affirmed in
toto the decision of the trial court, which means that it also upheld the
latter’s ruling that Hegerty and Infante were not personally liable for
the pecuniary obligations of the petitioner to the private respondent.
 In sum, based on our disquisition on the lack of cause of action when
the complaint for sum of money and damages was filed by the private
respondent, the petition in the case at bar is impressed with merit.
WHEREFORE, the petition is hereby GRANTED. The Decision of
5 September 2003 of the Court of Appeals in CA-G.R. CV No. 68109,
which affirmed the Decision of 5 May 2000 of he Regional Trial Court
of Baguio, Branch 59, granting in part private respondent’s complaint
for sum of money and damages, and its Resolution of 4 December 2003,
which denied petitioner’s motion for reconsideration are hereby
REVERSED and SET ASIDE. The complaint docketed as Civil Case
No. 4282-R is hereby DISMISSED for lack of cause of action.
No costs.
SO ORDERED.
 294 SUPREME COURT REPORTS ANNOTATED the latter’s complaint, whereas Rita actually owned 10 parcels of
land 10 out of the 43 parcels which the petitioners sought to partition,
Ada vs. Baylon
while the remaining 11 parcels of land are separately owned by Petra
G.R. No. 182435. August 13, 2012.*
Cafino Adanza,11 Florante,12 Meliton Adalia,13 Consorcia
REYES, J.:
Adanza,14 Lilia15 and Santiago Mendez.16 Further, they claimed that
Before this Court is a petition for review on certiorari under Rule
Lot No. 4709 and half of Lot No. 4706 were acquired by Rita using her
45 of the Rules of Court seeking to annul and set aside the
own money. They denied that Rita appropriated solely for herself the
Decision1 dated October 26, 2007 rendered by the Court of Appeals
income of the estate of Spouses Baylon, and expressed no objection to
(CA) in CA-G.R. CV No. 01746. The assailed decision partially reversed
the partition of the estate of Spouses Baylon, but only with respect to
and set aside the Decision2 dated October 20, 2005 issued by the
the co-owned parcels of land.
Regional Trial Court (RTC), Tanjay City, Negros Oriental, Branch 43
During the pendency of the case, Rita, through a Deed of Donation
in Civil Case No. 11657.
dated July 6, 1997, conveyed Lot No. 4709 and half of Lot No. 4706 to
Florante. On July 16, 2000, Rita died intestate and without any issue.
The Antecedent Facts
Thereafter, learning of the said donation inter vivos in favor of
Florante, the petitioners filed a Supplemental Pleading17 dated
This case involves the estate of spouses Florentino Baylon and
February 6, 2002, praying that the said donation in favor of the
Maximina Elnas Baylon (Spouses Baylon) who died on November 7,
respondent be rescinded in accordance with Article 1381(4) of the Civil
1961 and May 5, 1974, respectively.3At the time of their death, Spouses
Code. They further alleged that Rita was already sick and very weak
Baylon were survived by their legitimate children, namely, Rita Baylon
when the said Deed of Donation was supposedly executed and, thus,
(Rita), Victoria Baylon (Victoria), Dolores Baylon (Dolores), Panfila
could not have validly given her consent thereto.
Gomez (Panfila), Ramon Baylon (Ramon) and herein petitioner Lilia B.
Florante and Panfila opposed the rescission of the said donation,
Ada (Lilia).
asserting that Article 1381(4) of the Civil Code applies only when there
Dolores died intestate and without issue on August 4, 1976. Victoria
is already a prior judicial decree on who between the contending
died on November 11, 1981 and was survived by her daughter, herein
parties actually owned the properties under litigation.18
petitioner Luz B. Adanza. Ramon died intestate on July 8, 1989 and
The RTC Decision
was survived by herein respondent Florante Baylon (Florante), his
On October 20, 2005, the RTC rendered a Decision,19 the decretal
child from his first marriage, as well as by petitioner Flora Baylon, his
portion of which reads:
second wife, and their legitimate children, namely, Ramon, Jr. and
Wherefore judgment is hereby rendered:
herein petitioners Remo, Jose, Eric, Florentino and Ma. Ruby, all
(1) declaring the existence of co-ownership over parcels nos. 1, 2,
surnamed Baylon.
3, 5, 7, 10, 13, 14, 16, 17, 18, 26, 29, 30, 33, 34, 35, 36, 40 and 41
On July 3, 1996, the petitioners filed with the RTC a Complaint4 for
described in the complaint;
partition, accounting and damages against Florante, Rita and Panfila.
(2) directing that the above mentioned parcels of land be
They alleged therein that Spouses Baylon, during their lifetime, owned
partitioned among the heirs of Florentino Baylon and Maximina
43 parcels of land5 all situated in Negros Oriental. After the death of
Baylon;
Spouses Baylon, they claimed that Rita took possession of the said
(3) declaring a co-ownership on the properties of Rita Baylon
parcels of land and appropriated for herself the income from the same.
namely parcels no[s]. 6, 11, 12, 20, 24, 27, 31, 32, 39 and 42 and
Using the income produced by the said parcels of land, Rita allegedly
directing that it shall be partitioned among her heirs who are
purchased two parcels of land, Lot No. 47096 and half of Lot No.
the plaintiffs and defendant in this case;
4706,7 situated in Canda-uay, Dumaguete City. The petitioners
(4) declaring the donation inter vivos rescinded without
averred that Rita refused to effect a partition of the said parcels of land.
prejudice to the share of Florante Baylon to the estate of
In their Answer,8 Florante, Rita and Panfila asserted that they and
Rita Baylon and directing that parcels nos. 1 and 2
the petitioners co-owned 229 out of the 43 parcels of land mentioned in
 paragraph V of the complaint be included in the division
of the property as of Rita Baylon among her heirs, the
parties in this case;
(5) excluding from the co-ownership parcels nos. 20, 21, 22, 9, 43,
4, 8, 19 and 37.
Considering that the parties failed to settle this case amicably and
could not agree on the partition, the parties are directed to nominate a
representative to act as commissioner to make the partition. He shall
immediately take [his] oath of office upon [his] appointment. The
commissioner shall make a report of all the proceedings as to the
partition within fifteen (15) days from the completion of this partition.
The parties are given ten (10) days within which to object to the report
after which the Court shall act on the commissioner report.
SO ORDERED.”20 (Emphasis ours)
The RTC held that the death of Rita during the pendency of the
case, having died intestate and without any issue, had rendered the
issue of ownership insofar as parcels of land which she claims as her
own moot since the parties below are the heirs to her estate. Thus, the
RTC regarded Rita as the owner of the said 10 parcels of land and,
accordingly, directed that the same be partitioned among her heirs.
Nevertheless, the RTC rescinded the donation inter vivos of Lot No.
4709 and half of Lot No. 4706 in favor of Florante. In rescinding the
said donation inter vivos, the RTC explained that:
However[,] with respect to lot [nos.] 4709 and 4706 which [Rita] had
conveyed to Florante Baylon by way of donation inter vivos, the
plaintiffs in their supplemental pleadings (sic) assailed the same to be
rescissible on the ground that it was entered into by the defendant Rita
Baylon without the knowledge and approval of the litigants [or] of
competent judicial authority. The subject parcels of lands are involved
in the case for which plaintiffs have ask[ed] the Court to partition the
same among the heirs of Florentino Baylon and Maximina Elnas.
Clearly, the donation inter vivos in favor of Florante Baylon was
executed to prejudice the plaintiffs[’] right to succeed to the estate of
Rita Baylon in case of death considering that as testified by Florante
Baylon, Rita Baylon was very weak and he tried to give her vitamins x
x x. The donation inter vivos executed by Rita Baylon in favor of
Florante Baylon is rescissible for the reason that it refers to the parcels
of land in litigation x x x without the knowledge and approval of the
plaintiffs or of this Court. However[,] the rescission shall not affect the
share of Florante Baylon to the estate of Rita Baylon.21
Florante sought reconsideration of the Decision dated October 20,
2005 of the RTC insofar as it rescinded the donation of Lot No. 4709
and half of Lot No. 4706 in his favor.22 He asserted that, at the time of
Rita’s death on July 16, 2000, Lot No. 4709 and half of Lot No. 4706
were no longer part of her estate as the same had already been
conveyed to him through a donation inter vivos three years earlier.
Thus, Florante maintained that Lot No. 4709 and half of Lot No. 4706
should not be included in the properties that should be partitioned
among the heirs of Rita.
On July 28, 2006, the RTC issued an Order23 which denied the
motion for reconsideration filed by Florante.
The CA Decision
On appeal, the CA rendered a Decision24 dated October 26, 2007,
the dispositive portion of which reads:
WHEREFORE, the Decision dated October 20, 2005 and Order
dated July 28, 2006 are REVERSED and SET ASIDE insofar as they
decreed the rescission of the Deed of Donation dated July 6, 1997 and
the inclusion of lot no. 4709 and half of lot no. 4706 in the estate of Rita
Baylon. The case is REMANDED to the trial court for the
determination of ownership of lot no. 4709 and half of lot no. 4706.
SO ORDERED.25
The CA held that before the petitioners may file an action for
rescission, they must first obtain a favorable judicial ruling that Lot
No. 4709 and half of Lot No. 4706 actually belonged to the estate of
Spouses Baylon and not to Rita. Until then, the CA asserted, an action
for rescission is premature. Further, the CA ruled that the petitioners’
action for rescission cannot be joined with their action for partition,
accounting and damages through a mere supplemental pleading. Thus:
If [Lot No. 4709 and half of Lot No. 4706] belonged to the Spouses’
estate, then Rita Baylon’s donation thereof in favor of Florante Baylon,
in excess of her undivided share therein as co-heir, is void. Surely, she
could not have validly disposed of something she did not own. In such
a case, an action for rescission of the donation may, therefore, prosper.
If the lots, however, are found to have belonged exclusively to Rita
Baylon, during her lifetime, her donation thereof in favor of Florante
Baylon is valid. For then, she merely exercised her ownership right to
dispose of what legally belonged to her. Upon her death, the lots no
longer form part of her estate as their ownership now pertains to
Florante Baylon. On this score, an action for rescission against such
donation will not prosper. x x x.
Verily, before plaintiffs-appellees may file an action for rescission,
they must first obtain a favorable judicial ruling that lot no. 4709 and
half of lot no. 4706 actually belonged to the estate of Spouses Florentino
and Maximina Baylon, and not to Rita Baylon during her lifetime.
Until then, an action for rescission is premature. For this matter, the
applicability of Article 1381, paragraph 4, of the New Civil Code must
likewise await the trial court’s resolution of the issue of ownership.
Be that as it may, an action for rescission should be filed by the
parties concerned independent of the proceedings below. The first
cannot simply be lumped up with the second through a mere
supplemental pleading.26 (Citation omitted)
The petitioners sought reconsideration27 of the Decision dated
October 26, 2007 but it was denied by the CA in its Resolution28 dated
March 6, 2008.
Hence, this petition.
Issue
The lone issue to be resolved by this Court is whether the CA erred
in ruling that the donation inter vivos of Lot No. 4709 and half of Lot
No. 4706 in favor of Florante may only be rescinded if there is already
a judicial determination that the same actually belonged to the estate
of Spouses Baylon.
The Court’s Ruling
The petition is partly meritorious.
Procedural Matters
Before resolving the lone substantive issue in the instant case, this
Court deems it proper to address certain procedural matters that need
to be threshed out which, by laxity or otherwise, were not raised by the
parties herein.
Misjoinder of Causes of Action
The complaint filed by the petitioners with the RTC involves two
separate, distinct and independent actions—partition and
rescission. First, the petitioners raised the refusal of their co-heirs,
Florante, Rita and Panfila, to partition the properties which they
inherited from Spouses Baylon. Second, in their supplemental
pleading, the petitioners assailed the donation inter vivos of Lot No.
4709 and half of Lot No. 4706 made by Rita in favor of
Florante pendente lite.
The actions of partition and rescission cannot be joined in
a single action.
By a joinder of actions, or more properly, a joinder of causes of
action is meant the uniting of two or more demands or rights of action
in one action, the statement of more than one cause of action in a
declaration. It is the union of two or more civil causes of action, each of
which could be made the basis of a separate suit, in the same
complaint, declaration or petition. A plaintiff may under certain
circumstances join several distinct demands, controversies or rights of
action in one declaration, complaint or petition.29
The objectives of the rule or provision are to avoid a multiplicity of
suits where the same parties and subject matter are to be dealt with
by effecting in one action a complete determination of all matters in
controversy and litigation between the parties involving one subject
matter, and to expedite the disposition of litigation at minimum cost.
The provision should be construed so as to avoid such multiplicity,
where possible, without prejudice to the rights of the litigants.30
Nevertheless, while parties to an action may assert in one pleading,
in the alternative or otherwise, as many causes of action as they may
have against an opposing party, such joinder of causes of action is
subject to the condition, inter alia, that the joinder shall not include
special civil actions governed by special rules.31
Here, there was a misjoinder of causes of action. The action for
partition filed by the petitioners could not be joined with the action for
the rescission of the said donation inter vivos in favor of Florante. Lest
it be overlooked, an action for partition is a special civil action governed
by Rule 69 of the Rules of Court while an action for rescission is an
ordinary civil action governed by the ordinary rules of civil procedure.
The variance in the procedure in the special civil action of partition and
in the ordinary civil action of rescission precludes their joinder in one
complaint or their being tried in a single proceeding to avoid confusion
in determining what rules shall govern the conduct of the proceedings
as well as in the determination of the presence of requisite elements of
each particular cause of action.32
A misjoined cause of action, if not severed upon motion of a
party or by the court sua sponte, may be
adjudicated by the court together with the other causes of
action.
Nevertheless, misjoinder of causes of action is not a ground for
dismissal. Indeed, the courts have the power, acting upon the motion
of a party to the case or sua sponte, to order the severance of the
misjoined cause of action to be proceeded with separately.33 However,
if there is no objection to the improper joinder or the court did not motu
proprio direct a severance, then there exists no bar in the simultaneous
adjudication of all the erroneously joined causes of action. On this
score, our disquisition in Republic of the Philippines v. Herbieto34 is
instructive, viz.:
This Court, however, disagrees with petitioner Republic in this
regard. This procedural lapse committed by the respondents should not
affect the jurisdiction of the MTC to proceed with and hear their
application for registration of the Subject Lots.
xxxx
Considering every application for land registration filed in strict
accordance with the Property Registration Decree as a single cause of
action, then the defect in the joint application for registration filed by
the respondents with the MTC constitutes a misjoinder of causes of
action and parties. Instead of a single or joint application for
registration, respondents Jeremias and David, more appropriately,
should have filed separate applications for registration of Lots No. 8422
and 8423, respectively.
Misjoinder of causes of action and parties do not involve a question
of jurisdiction of the court to hear and proceed with the case. They are
not even accepted grounds for dismissal thereof. Instead, under the
Rules of Court, the misjoinder of causes of action and parties involve
an implied admission of the court’s jurisdiction. It acknowledges the
power of the court, acting upon the motion of a party to the case or on
its own initiative, to order the severance of the misjoined cause of
action, to be proceeded with separately (in case of misjoinder of causes
of action); and/or the dropping of a party and the severance of any claim
against said misjoined party, also to be proceeded with separately (in
case of misjoinder of parties).35 (Citations omitted)
It should be emphasized that the foregoing rule only applies if the
court trying the case has jurisdiction over all of the causes of action
therein notwithstanding the misjoinder of the same. If the court trying
the case has no jurisdiction over a misjoined cause of action, then such
misjoined cause of action has to be severed from the other causes of
action, and if not so severed, any adjudication rendered by the court
with respect to the same would be a nullity.
Here, Florante posed no objection, and neither did the RTC direct
the severance of the petitioners’ action for rescission from their action
for partition. While this may be a patent omission on the part of the
RTC, this does not constitute a ground to assail the validity and
correctness of its decision. The RTC validly adjudicated the issues
raised in the actions for partition and rescission filed by the petitioners.
Asserting a New Cause of Action in a
Supplemental Pleading
In its Decision dated October 26, 2007, the CA pointed out that the
said action for rescission should have been filed by the petitioners
independently of the proceedings in the action for partition. It opined
that the action for rescission could not be lumped up with the action
for partition through a mere supplemental pleading.
We do not agree.
A supplemental pleading may raise a new cause of action as
long as it has some relation to the original cause of action set
forth in the original complaint.
Section 6, Rule 10 of the Rules of Court reads:
Sec. 6. Supplemental Pleadings.—Upon motion of a party the
court may, upon reasonable notice and upon such terms as are just,
permit him to serve a supplemental pleading setting forth
transactions, occurrences or events which have happened since the
date of the pleading sought to be supplemented. The adverse party may
plead thereto within ten (10) days from notice of the order admitting
the supplemental pleading.
In Young v. Spouses Sy,36 this Court had the opportunity to
elucidate on the purpose of a supplemental pleading. Thus:
As its very name denotes, a supplemental pleading only serves to
bolster or add something to the primary pleading. A supplement exists
side by side with the original. It does not replace that which it
supplements. Moreover, a supplemental pleading assumes that the
original pleading is to stand and that the issues joined with the original
pleading remained an issue to be tried in the action. It is but a
continuation of the complaint. Its usual office is to set up new facts
which justify, enlarge or change the kind of relief with respect
to the same subject matter as the controversy referred to in the
original complaint.
The purpose of the supplemental pleading is to bring into
the records new facts which will enlarge or change the kind of
relief to which the plaintiff is entitled; hence, any supplemental
facts which further develop the original right of action, or
extend to vary the relief, are available by way of supplemental
complaint even though they themselves constitute a right of
action.37 (Citations omitted and emphasis ours)
 Thus, a supplemental pleading may properly allege transactions,
occurrences or events which had transpired after the filing of the
pleading sought to be supplemented, even if the said supplemental
facts constitute another cause of action.
Admittedly, in Leobrera v. Court of Appeals,38 we held that a
supplemental pleading must be based on matters arising subsequent
to the original pleading related to the claim or defense presented
therein, and founded on the same cause of action. We further stressed
therein that a supplemental pleading may not be used to try a new
cause of action.
However, in Planters Development Bank v. LZK Holdings and
Development Corp.,39 we clarified that, while a matter stated in a
supplemental complaint should have some relation to the cause of
action set forth in the original pleading, the fact that the supplemental
pleading technically states a new cause of action should not be a bar to
its allowance but only a matter that may be considered by the court in
the exercise of its discretion. In such cases, we stressed that a broad
definition of “cause of action” should be applied.
Here, the issue as to the validity of the donation inter vivos of Lot
No. 4709 and half of Lot No. 4706 made by Rita in favor of Florante is
a new cause of action that occurred after the filing of the original
complaint. However, the petitioners’ prayer for the rescission of the
said donation inter vivos in their supplemental pleading is germane to,
and is in fact, intertwined with the cause of action in the partition case.
Lot No. 4709 and half of Lot No. 4706 are included among the
properties that were sought to be partitioned.
The petitioners’ supplemental pleading merely amplified the
original cause of action, on account of the gratuitous conveyance of Lot
No. 4709 and half of Lot No. 4706 after the filing of the original
complaint and prayed for additional reliefs, i.e., rescission. Indeed, the
petitioners claim that the said lots form part of the estate of Spouses
Baylon, but cannot be partitioned unless the gratuitous conveyance of
the same is rescinded. Thus, the principal issue raised by the
petitioners in their original complaint remained the same.
Main Issue: Propriety of Rescission
After having threshed out the procedural matters, we now proceed
to adjudicate the substantial issue presented by the instant petition.
The petitioners assert that the CA erred in remanding the case to
the RTC for the determination of ownership of Lot No. 4709 and half of
Lot No. 4706. They maintain that the RTC aptly rescinded the said
donation inter vivos of Lot No. 4709 and half of Lot No. 4706 pursuant
to Article 1381(4) of the Civil Code.
In his Comment,40 Florante asserts that before the petitioners may
file an action for rescission, they must first obtain a favorable judicial
ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged to
the estate of Spouses Baylon. Until then, Florante avers that an action
for rescission would be premature.
The petitioners’ contentions are well-taken.
The resolution of the instant dispute is fundamentally contingent
upon a determination of whether the donation inter vivos of Lot No.
4709 and half of Lot No. 4706 in favor of Florante may be rescinded
pursuant to Article 1381(4) of the Civil Code on the ground that the
same was made during the pendency of the action for partition with
the RTC.
Rescission is a remedy to address the damage or injury caused
to the contracting parties or third persons.
Rescission is a remedy granted by law to the contracting parties
and even to third persons, to secure the reparation of damages caused
to them by a contract, even if it should be valid, by means of the
restoration of things to their condition at the moment prior to the
celebration of said contract.41 It is a remedy to make ineffective a
contract, validly entered into and therefore obligatory under normal
conditions, by reason of external causes resulting in a pecuniary
prejudice to one of the contracting parties or their creditors.42
Contracts which are rescissible are valid contracts having all the
essential requisites of a contract, but by reason of injury or damage
caused to either of the parties therein or to third persons are considered
defective and, thus, may be rescinded.
The kinds of rescissible contracts, according to the reason for their
susceptibility to rescission, are the following: first, those which are
rescissible because of lesion or prejudice;43 second, those which are
rescissible on account of fraud or bad faith;44 and third, those which,
by special provisions of law,45 are susceptible to rescission.46
Contracts which refer to things subject of litigation is
rescissible pursuant to Article 1381(4) of the Civil Code.
Contracts which are rescissible due to fraud or bad faith include
those which involve things under litigation, if they have been entered
into by the defendant without the knowledge and approval of the
litigants or of competent judicial authority. Thus, Article 1381(4) of the
Civil Code provides:
Art. 1381. The following contracts are rescissible:
 xxxx
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority[.]
The rescission of a contract under Article 1381(4) of the Civil Code
only requires the concurrence of the following: first, the defendant,
during the pendency of the case, enters into a contract which refers to
the thing subject of litigation; and second, the said contract was
entered into without the knowledge and approval of the litigants or of
a competent judicial authority. As long as the foregoing requisites
concur, it becomes the duty of the court to order the rescission of the
said contract.
The reason for this is simple. Article 1381(4) seeks to remedy the
presence of bad faith among the parties to a case and/or any fraudulent
act which they may commit with respect to the thing subject of
litigation.
When a thing is the subject of a judicial controversy, it should
ultimately be bound by whatever disposition the court shall render.
The parties to the case are therefore expected, in deference to the
court’s exercise of jurisdiction over the case, to refrain from doing acts
which would dissipate or debase the thing subject of the litigation or
otherwise render the impending decision therein ineffectual.
There is, then, a restriction on the disposition by the parties of the
thing that is the subject of the litigation. Article 1381(4) of the Civil
Code requires that any contract entered into by a defendant in a case
which refers to things under litigation should be with the knowledge
and approval of the litigants or of a competent judicial authority.
Further, any disposition of the thing subject of litigation or any act
which tends to render inutile the court’s impending disposition in such
case, sans the knowledge and approval of the litigants or of the court,
is unmistakably and irrefutably indicative of bad faith. Such acts
undermine the authority of the court to lay down the respective rights
of the parties in a case relative to the thing subject of litigation and
bind them to such determination.
It should be stressed, though, that the defendant in such a case is
not absolutely proscribed from entering into a contract which refer to
things under litigation. If, for instance, a defendant enters into a
contract which conveys the thing under litigation during the pendency
of the case, the conveyance would be valid, there being no definite
disposition yet coming from the court with respect to the thing subject
of litigation. After all, notwithstanding that the subject thereof is a
thing under litigation, such conveyance is but merely an exercise of
ownership.
This is true even if the defendant effected the conveyance without
the knowledge and approval of the litigants or of a competent judicial
authority. The absence of such knowledge or approval would not
precipitate the invalidity of an otherwise valid contract. Nevertheless,
such contract, though considered valid, may be rescinded at the
instance of the other litigants pursuant to Article 1381(4) of the Civil
Code.
Here, contrary to the CA’s disposition, the RTC aptly ordered the
rescission of the donation inter vivos of Lot No. 4709 and half of Lot No.
4706 in favor of Florante. The petitioners had sufficiently established
the presence of the requisites for the rescission of a contract pursuant
to Article 1381(4) of the Civil Code. It is undisputed that, at the time
they were gratuitously conveyed by Rita, Lot No. 4709 and half of Lot
No. 4706 are among the properties that were the subject of the
partition case then pending with the RTC. It is also undisputed that
Rita, then one of the defendants in the partition case with the RTC, did
not inform nor sought the approval from the petitioners or of the RTC
with regard to the donation inter vivos of the said parcels of land to
Florante.
Although the gratuitous conveyance of the said parcels of land in
favor of Florante was valid, the donation inter vivos of the same being
merely an exercise of ownership, Rita’s failure to inform and seek the
approval of the petitioners or the RTC regarding the conveyance gave
the petitioners the right to have the said donation rescinded pursuant
to Article 1381(4) of the Civil Code.
Rescission under Article 1381(4) of the Civil Code is not
preconditioned upon the judicial determination as to the
ownership of the thing subject of litigation.
In this regard, we also find the assertion that rescission may only
be had after the RTC had finally determined that the parcels of land
belonged to the estate of Spouses Baylon intrinsically amiss. The
petitioners’ right to institute the action for rescission pursuant to
Article 1381(4) of the Civil Code is not preconditioned upon the RTC’s
determination as to the ownership of the said parcels of land.
It bears stressing that the right to ask for the rescission of a
contract under Article 1381(4) of the Civil Code is not contingent upon
the final determination of the ownership of the thing subject of
litigation. The primordial purpose of Article 1381(4) of the Civil Code
is to secure the possible effectivity of the impending judgment by a
court with respect to the thing subject of litigation. It seeks to protect
the binding effect of a court’s impending adjudication vis-à-vis the
thing subject of litigation regardless of which among the contending
claims therein would subsequently be upheld. Accordingly, a definitive
judicial determination with respect to the thing subject of litigation is
not a condition sine qua non before the rescissory action contemplated
under Article 1381(4) of the Civil Code may be instituted.
Moreover, conceding that the right to bring the rescissory action
pursuant to Article 1381(4) of the Civil Code is preconditioned upon a
judicial determination with regard to the thing subject litigation, this
would only bring about the very predicament that the said provision of
law seeks to obviate. Assuming arguendo that a rescissory action under
Article 1381(4) of the Civil Code could only be instituted after the
dispute with respect to the thing subject of litigation is judicially
determined, there is the possibility that the same may had already
been conveyed to third persons acting in good faith, rendering any
judicial determination with regard to the thing subject of litigation
illusory. Surely, this paradoxical eventuality is not what the law had
envisioned.
Even if the donation inter vivos is validly rescinded, a
determination as to the ownership of the subject parcels of
land is still necessary.
Having established that the RTC had aptly ordered the rescission
of the said donation inter vivos in favor of Florante, the issue that has
to be resolved by this Court is whether there is still a need to determine
the ownership of Lot No. 4709 and half of Lot No. 4706.
In opting not to make a determination as to the ownership of Lot
No. 4709 and half of Lot No. 4706, the RTC reasoned that the parties
in the proceedings before it constitute not only the surviving heirs of
Spouses Baylon but the surviving heirs of Rita as well. As intimated
earlier, Rita died intestate during the pendency of the proceedings with
the RTC without any issue, leaving the parties in the proceedings
before the RTC as her surviving heirs. Thus, the RTC insinuated, a
definitive determination as to the ownership of the said parcels of land
is unnecessary since, in any case, the said parcels of land would
ultimately be adjudicated to the parties in the proceedings before it.
We do not agree.
Admittedly, whoever may be adjudicated as the owner of Lot No.
4709 and half of Lot No. 4706, be it Rita or Spouses Baylon, the same
would ultimately be transmitted to the parties in the proceedings
before the RTC as they are the only surviving heirs of both Spouses
Baylon and Rita. However, the RTC failed to realize that a definitive
adjudication as to the ownership of Lot No. 4709 and half of Lot No.
4706 is essential in this case as it affects the authority of the RTC to
direct the partition of the said parcels of land. Simply put, the RTC
cannot properly direct the partition of Lot No. 4709 and half of Lot No.
4706 until and unless it determines that the said parcels of land indeed
form part of the estate of Spouses Baylon.
It should be stressed that the partition proceedings before the RTC
only covers the properties co-owned by the parties therein in their
respective capacity as the surviving heirs of Spouses Baylon. Hence,
the authority of the RTC to issue an order of partition in the
proceedings before it only affects those properties which actually
belonged to the estate of Spouses Baylon.
In this regard, if Lot No. 4709 and half of Lot No. 4706, as
unwaveringly claimed by Florante, are indeed exclusively owned by
Rita, then the said parcels of land may not be partitioned
simultaneously with the other properties subject of the partition case
before the RTC. In such case, although the parties in the case before
the RTC are still co-owners of the said parcels of land, the RTC would
not have the authority to direct the partition of the said parcels of land
as the proceedings before it is only concerned with the estate of Spouses
Baylon.
WHEREFORE, in consideration of the foregoing disquisitions, the
petition is PARTIALLY GRANTED. The Decision dated October 26,
2007 issued by the Court of Appeals in CA-G.R. CV No. 01746 is
MODIFIED in that the Decision dated October 20, 2005 issued by the
Regional Trial Court, Tanjay City, Negros Oriental, Branch 43 in Civil
Case No. 11657, insofar as it decreed the rescission of the Deed of
Donation dated July 6, 1997 is hereby REINSTATED. The case is
REMANDED to the trial court for the determination of the ownership
of Lot No. 4709 and half of Lot No. 4706 in accordance with this
Decision. SO ORDERED.
534 SUPREME COURT REPORTS ANNOTATED pegged at P689,000.00. After making a total payment of
P400,000.00,11 he executed a promissory note12dated February 20,
Marilag vs. Martinez
1998 (subject PN), binding himself to pay on or before March 31, 1998
G.R. No. 201892. July 22, 2015.*
the amount of P289,000.00, “representing the balance of the agreed
financial obligation of [his] father to [petitioner].”13 After learning of
PERLAS-BERNABE, J.:
the January 30, 1998 Decision, respondent refused to pay the amount
covered by the subject PN despite demands, prompting petitioner to
Assailed in this petition for review on certiorari1 are the
file a complaint14for sum of money and damages before the court a
Decision2 dated November 4, 2011 and the Resolution3dated May 14,
quo on July 2, 1998, docketed as Civil Case No. 98-0156 (collection
2012 of the Court of Appeals (CA) in C.A.-G.R. CV No. 81258 which
case).
recalled and set aside the Orders dated November 3, 20034 and
Respondent filed his answer,15 contending that petitioner has no
January 14, 20045 of the Regional Trial Court (RTC) of Las Piñas City,
cause of action against him. He averred that he has fully settled
Branch 202 (court a quo) in Civil Case No. 98-0156, and reinstated the
Rafael’s obligation and that he committed a mistake in paying more
Decision6 dated August 28, 2003 directing petitioner Norlinda S.
than the amount due under the loan, i.e., the amount of P229,200.00
Marilag (petitioner) to return to respondent Marcelino B. Martinez
as adjudged by the RTC-Imus in the judicial foreclosure case which,
(respondent) the latter’s excess payment, plus interest, and to pay
thus, warranted the return of the excess payment. He therefore prayed
attorney’s fees and the costs of suit.
for the dismissal of the complaint, and interposed a compulsory
counterclaim for the release of the mortgage, the return of the excess
The Facts
payment, and the payment of moral and exemplary damages,
attorney’s fees and litigation expenses.16
On July 30, 1992, Rafael Martinez (Rafael), respondent’s father,
obtained from petitioner a loan in the amount of P160,000.00, with a
The Court A Quo’s Ruling
stipulated monthly interest of five percent (5%), payable within a
period of six (6) months. The loan was secured by a real estate
In a Decision17 dated August 28, 2003 (August 28, 2003 Decision),
mortgage over a parcel of land covered by Transfer Certificate of Title
the court a quo denied recovery on the subject PN. It found that the
(TCT) No. T-208400. Rafael failed to settle his obligation upon
consideration for its execution was Rafael’s indebtedness to petitioner,
maturity and despite repeated demands, prompting petitioner to file a
the extinguishment of which necessarily results in the consequent
Complaint for Judicial Foreclosure of Real Estate Mortgage before the
extinguishment of the cause therefor. Considering that the RTC-Imus
RTC of Imus, Cavite, Branch 907(RTC-Imus) on November 10,
had adjudged Rafael liable to petitioner only for the amount of
1995,8 docketed as Civil Case No. 1208-95 (judicial foreclosure case).
P229,200.00, for which a total of P400,000.00 had already been paid,
Rafael failed to file his answer and, upon petitioner’s motion, was
the court a quo found no valid or compelling reason to allow petitioner
declared in default. After an ex parte presentation of petitioner’s
to recover further on the subject PN. There being an excess payment of
evidence, the RTC-Imus issued a Decision9 dated January 30, 1998,
P171,000.00, it declared that a quasi-contract (in the concept of solutio
(January 30, 1998 Decision) in the foreclosure case, declaring the
indebiti) exists between the parties and, accordingly, directed
stipulated 5% monthly interest to be usurious and reducing the same
petitioner to return the said amount to respondent, plus 6% interest
to 12% per annum (p.a.). Accordingly, it ordered Rafael to pay
p.a.18 reckoned from the date of judicial demand19 on August 6, 1998
petitioner the amount of P229,200.00, consisting of the principal of
until fully paid, and to pay attorney’s fees and the costs of suit.20
P160,000.00 and accrued interest of P59,200.00 from July 30, 1992 to
In an Order21 dated November 3, 2003 (November 3, 2003 Order),
September 30, 1995.10 Records do not show that this Decision had
however, the court a quo granted petitioner’s motion for
already attained finality.
reconsideration, and recalled and set aside its August 28, 2003
Meanwhile, prior to Rafael’s notice of the above decision,
Decision. It declared that the causes of action in the collection and
respondent agreed to pay Rafael’s obligation to petitioner which was
foreclosure cases are distinct, and respondent’s failure to comply with
his obligation under the subject PN justifies petitioner to seek judicial
relief. It further opined that the stipulated 5% monthly interest is no
longer usurious and is binding on respondent considering the
suspension of the Usury Law pursuant to Central Bank Circular 905,
Series of 1982. Accordingly, it directed respondent to pay the amount
of P289,000.00 due under the subject PN, plus interest at the legal rate
reckoned from the last extrajudicial demand on May 15, 1998, until
fully paid, as well as attorney’s fees and the costs of suit.22
Aggrieved, respondent filed a motion for reconsideration23 which
was denied in an Order24 dated January 14, 2004, prompting him to
elevate the matter to the CA.25
The CA’s Ruling
In a Decision26 dated November 4, 2011, the CA recalled and set
aside the court a quo’s November 3, 2003 and January 14, 2004 Orders,
and reinstated the August 28, 2003 Decision. It held that the doctrine
of res judicata finds application in the instant case,27 considering that
both the judicial foreclosure and collection cases were filed as a
consequence of the nonpayment of Rafael’s loan, which was the
principal obligation secured by the real estate mortgage and the
primary consideration for the execution of the subject PN. Since res
judicata only requires substantial, not actual, identity of causes of
action and/or identity of issue,28 it ruled that the judgment in the
judicial foreclosure case relating to Rafael’s obligation to petitioner is
final and conclusive on the collection case.
Petitioner’s motion for reconsideration was denied in a
Resolution29 dated May 14, 2012; hence, this petition.
The Issue Before the Court
The essential issue for the Court’s resolution is whether or not the
CA committed reversible error in upholding the dismissal of the
collection case.
The Court’s Ruling
The petition lacks merit.
A case is barred by prior judgment or res judicata when the
following elements concur: (a) the judgment sought to bar the new
action must be final; (b) the decision must have been rendered by a
court having jurisdiction over the subject matter and the parties; (c)
the disposition of the case must be a judgment on the merits; and (d)
there must be as between the first and second action, identity of
parties, subject matter, and causes of action.30
After a punctilious review of the records, the Court finds the
principle of res judicata to be inapplicable to the present case. This is
because the records are bereft of any indication that the August 28,
2003 Decision in the judicial foreclosure case had already attained
finality, evidenced, for instance, by a copy of the entry of judgment in
the said case. Accordingly, with the very first element of res
judicata missing, said principle cannot be made to obtain.
This notwithstanding, the Court holds that petitioner’s prosecution
of the collection case was barred, instead, by the principle of litis
pendentia in view of the substantial identity of parties and singularity
of the causes of action in the foreclosure and collection cases, such that
the prior foreclosure case barred petitioner’s recourse to the
subsequent collection case.
To lay down the basics, litis pendentia, as a ground for the
dismissal of a civil action, refers to that situation
wherein another action is pending between the same parties
for the same cause of action, such that the second action
becomes unnecessary and vexatious. For the bar of litis
pendentia to be invoked, the following requisites must concur:
(a) identity of parties, or at least such parties as represent the same
interests in both actions; (b) identity of rights asserted and relief
prayed for, the relief being founded on the same facts; and (c) the
identity of the two preceding particulars is such that any judgment
rendered in the pending case, regardless of which party is successful
would amount to res judicata in the other.31 The underlying principle
of litis pendentia is the theory that a party is not allowed to vex another
more than once regarding the same subject matter and for the same
cause of action. This theory is founded on the public policy that the
same subject matter should not be the subject of controversy in courts
more than once, in order that possible conflicting judgments may be
avoided for the sake of the stability of the rights and status of persons,
and also to avoid the costs and expenses incident to numerous
suits.32 Consequently, a party will not be permitted to split up a single
cause of action and make it a basis for several suits as the whole cause
must be determined in one action.33 To be sure, splitting a cause of
action is a mode of forum shopping by filing multiple cases
based on the same cause of action, but with different prayers,
where the ground of dismissal is litis pendentia (or res
judicata, as the case may be).34
In this relation, it must be noted that the question of whether a
cause of action is single and entire or separate is not always easy to
determine and the same must often be resolved, not by the general
rules, but by reference to the facts and circumstances of the particular
case. The true rule, therefore, is whether the entire amount arises
from one and the same act or contract which must, thus, be
sued for in one action, or the several parts arise from distinct
and different acts or contracts, for which a party may maintain
separate suits.35
In loan contracts secured by a real estate mortgage, the rule is that
the creditor-mortgagee has a single cause of action against the
debtor-mortgagor, i.e., to recover the debt, through the filing of a
personal action for collection of sum of money or the
institution of a real action to foreclose on the mortgage
security. The two remedies are alternative,36 not cumulative or
successive,37and each remedy is complete by itself. Thus, if the creditor-
mortgagee opts to foreclose the real estate mortgage, he waives the
action for the collection of the unpaid debt,38except only for the
recovery of whatever deficiency may remain in the outstanding
obligation of the debtor-mortgagor after deducting the bid price in
the public auction sale of the mortgaged
properties.39 Accordingly, a deficiency judgment shall only issue after
it is established that the mortgaged property was sold at public auction
for an amount less than the outstanding obligation.
In the present case, records show that petitioner, as creditor-
mortgagee, instituted an action for judicial foreclosure pursuant to the
provisions of Rule 68 of the Rules of Court in order to recover on
Rafael’s debt. In light of the foregoing discussion, the availment of such
remedy thus bars recourse to the subsequent filing of a personal action
for collection of the same debt, in this case, under the principle of litis
pendentia, considering that the foreclosure case only remains pending
as it was not shown to have attained finality.
While the ensuing collection case was anchored on the promissory
note executed by respondent who was not the original debtor, the same
does not constitute a separate and distinct contract of loan which would
have given rise to a separate cause of action upon breach. Notably,
records are bereft of any indication that respondent’s agreement to pay
Rafael’s loan obligation and the execution of the subject PN
extinguished by novation40 the contract of loan between Rafael and
petitioner, in the absence of express agreement or any act of equal
import. Well-settled is the rule that novation is never presumed, but
must be clearly and unequivocally shown. Thus, in order for a new
agreement to supersede the old one, the parties to a contract must
expressly agree that they are abrogating their old contract in favor of
a new one,41which was not shown here.
On the contrary, it is significant to point out that: (a) the
consideration for the subject PN was the same consideration that
supported the original loan obligation of Rafael; (b) respondent merely
assumed to pay Rafael’s remaining unpaid balance in the latter’s
behalf, i.e., as Rafael’s agent or representative;42 and (c) the subject PN
was executed after respondent had assumed to pay Rafael’s obligation
and made several payments thereon. Case law states that the fact that
the creditor accepts payments from a third person, who has assumed
the obligation, will result merely in the addition of debtors, not
novation, and the creditor may enforce the obligation against both
debtors.43For ready reference, the subject PN reads in full:
February 20, 1998
PROMISSORY NOTE
P289,000.00
I, MARCELINO B. MARTINEZ, son of Mr. RAFAEL MARTINEZ,
of legal age, Filipino, married and a resident of No. 091 Anabu I-A,
Imus, Cavite, by these presents do hereby specifically and categorically
PROMISE, UNDERTAKE and bind myself in behalf of my father, to
pay to Miss NORLINDA S. MARILAG, Mortgagee-Creditor of my said
father, the sum of TWO HUNDRED EIGHTY-NINE THOUSAND
PESOS (P289,000.00), Philippine Currency, on or before MARCH 31,
1998, representing the balance of the agreed financial
obligation of my said father to her. (Emphases supplied)
Executed at Pamplona I, Las Piñas City, Metro Manila, this
20th day of February, 1998.
Sgd.
MARCELINO B. MARTINEZ
Promissor44
Petitioner’s contention that the judicial foreclosure and collection
cases enforce independent rights45 must, therefore, fail because the
Deed of Real Estate Mortgage46and the subject PN both refer to one
and the same obligation, i.e., Rafael’s loan obligation. As such, there
exists only one cause of action for a single breach of that obligation.
Petitioner cannot split her cause of action on Rafael’s unpaid loan
obligation by filing a petition for the judicial foreclosure of the real
estate mortgage covering the said loan, and, thereafter, a personal
action for the collection of the unpaid balance of said obligation not
comprising a deficiency arising from foreclosure, without violating the
proscription against splitting a single cause of action, where the ground
for dismissal is either res judicata or litis pendentia, as in this case.
As elucidated by this Court in the landmark case of Bachrach Motor
Co., Inc. v. Icarangal:47
For nonpayment of a note secured by mortgage, the creditor
has a single cause of action against the debtor. This single cause
of action consists in the recovery of the credit with execution of the
security. In other words, the creditor in his action may make two
demands, the payment of the debt and the foreclosure of his mortgage.
But both demands arise from the same cause, the nonpayment of the
debt, and, for that reason, they constitute a single cause of
action. Though the debt and the mortgage constitute separate
agreements, the latter is subsidiary to the former, and both
refer to one and the same obligation. Consequently, there
exists only one cause of action for a single breach of that
obligation. Plaintiff, then, by applying the rule above stated,
cannot split up his single cause of action by filing a complaint
for payment of the debt, and thereafter another complaint for
foreclosure of the mortgage. If he does so, the filing of the first
complaint will bar the subsequent complaint. By allowing the creditor
to file two separate complaints simultaneously or successively, one to
recover his credit and another to foreclose his mortgage, we will, in
effect, be authorizing him plural redress for a single breach of contract
at so much cost to the courts and with so much vexation and oppression
to the debtor. (Emphases and underscoring supplied)
Further on the point, the fact that no foreclosure sale appears to
have been conducted is of no moment because the remedy of foreclosure
of mortgage is deemed chosen upon the filing of the
complaint therefor.48 In Suico Rattan & Buri Interiors, Inc. v. CA,49 it
was explained:
x x x x In sustaining the rule that prohibits mortgage creditors from
pursuing both the remedies of a personal action for debt or a real action
to foreclose the mortgage, the Court held in the case of Bachrach Motor
Co., Inc. v. Esteban Icarangal, et al. that a rule which would authorize
the plaintiff to bring a personal action against the debtor and
simultaneously or successively another action against the mortgaged
property, would result not only in multiplicity of suits so offensive to
justice and obnoxious to law and equity, but also in subjecting the
defendant to the vexation of being sued in the place of his residence or
of the residence of the plaintiff, and then again in the place where the
property lies. Hence, a remedy is deemed chosen upon the filing
of the suit for collection or upon the filing of the complaint in
an action for foreclosure of mortgage, pursuant to the
provisions of Rule 68 of the Rules of Court. As to extrajudicial
foreclosure, such remedy is deemed elected by the mortgage creditor
upon filing of the petition not with any court of justice but with the
office of the sheriff of the province where the sale is to be made, in
accordance with the provisions of Act No. 3135, as amended by Act No.
4118. (Emphases supplied)
As petitioner had already instituted judicial foreclosure
proceedings over the mortgaged property, she is now barred
from availing herself of an ordinary action for
collection, regardless of whether or not the decision in the foreclosure
case had attained finality. In fine, the dismissal of the collection case
is in order. Considering, however, that respondent’s claim for return of
excess payment partakes of the nature of a compulsory counterclaim
and, thus, survives the dismissal of petitioner’s collection suit, the
same should be resolved based on its own merits and evidentiary
support.50
Records show that other than the matter of interest, the principal
loan obligation and the payments made were not disputed by the
parties. Nonetheless, the Court finds the stipulated 5% monthly
interest to be excessive and unconscionable. In a plethora of cases, the
Court has affirmed that stipulated interest rates of three percent
(3%) per month and higher are excessive, iniquitous,
unconscionable, and exorbitant,51 hence, illegal52 and void for
being contrary to morals.53 In Agner v. BPI Family Savings Bank,
Inc.,54 the Court had the occasion to rule:
Settled is the principle which this Court has affirmed in a number
of cases that stipulated interest rates of three percent (3%) per month
and higher are excessive, iniquitous, unconscionable, and exorbitant.
While Central Bank Circular No. 905-82, which took effect on January
1, 1983, effectively removed the ceiling on interest rates for both
secured and unsecured loans, regardless of maturity, nothing in the
said circular could possibly be read as granting carte blanche authority
to lenders to raise interest rates to levels which would either enslave
their borrowers or lead to a hemorrhaging of their assets. Since the WHEREFORE, the petition is DENIED. The Decision dated
stipulation on the interest rate is void for being contrary to November 4, 2011 and the Resolution dated May 14, 2012 of the Court
morals, if not against the law, it is as if there was no express of Appeals in C.A.-G.R. CV No. 81258 reinstating the court a quo’s
contract on said interest rate; thus, the interest rate may be Decision dated August 28, 2003 in Civil Case No. 98-0156 are
reduced as reason and equity demand. (Emphases supplied) hereby AFFIRMED with the MODIFICATIONS: (a) directing
petitioner Norlinda S. Marilag to return to respondent Marcelino B.
As such, the stipulated 5% monthly interest should be equitably Martinez the latter’s excess payments in the total amount of
reduced to 1% per month or 12% p.a. reckoned from the execution of P134,400.00, plus legal interest at the rate of 6% p.a. from the filing of
the real estate mortgage on July 30, 1992. In order to determine the Answer on August 6, 1998 until full satisfaction; and (b) deleting
whether there was any overpayment as claimed by respondent, we first the award of attorney’s fees.
compute the interest until January 30, 199855 when he made a SO ORDERED.
payment in the amount of P300,000.00 on Rafael’s loan obligation.
Accordingly, the amount due on the loan as of the latter date is hereby
computed as follows:
Thus, as of January 30, 1998, only the amount of P265,600.00 was
due under the loan contract, and the receipt of an amount more than
that renders petitioner liable for the return of the excess. Respondent,
however, made further payment in the amount of P100,000.0057 on the
belief that the subject loan obligation had not yet been satisfied. Such
payments were, therefore, clearly made by mistake, giving rise to the
quasi-contractual obligation of solutio indebiti under Article 215458 in
relation to Article 216359 of the Civil Code. Not being a loan or
forbearance of money, an interest of 6% p.a. should be imposed on the
amount to be refunded and on the damages and attorney’s fees
awarded, if any, computed from the time of demand60until its
satisfaction.61 Consequently, petitioner must return to respondent the
excess payments in the total amount of P134,400.00, with legal interest
at the rate of 6% p.a. from the filing of the Answer on August 6,
199862 interposing a counterclaim for such overpayment, until fully
settled.
However, inasmuch as the court a quo failed to state in the body of
its decision the factual or legal basis for the award of attorney’s fees to
the respondent, as required under Article 220863 of the New Civil Code,
the Court resolves to delete the same. The rule is well-settled that the
trial court must clearly state the reasons for awarding attorney’s fees
in the body of its decision, not merely in its dispositive portion, as the
appellate courts are precluded from supplementing the bases for such
award.64
Finally, in the absence of showing that the court a quo’s award of
the costs of suit in favor of respondent was patently capricious,65 the
Court finds no reason to disturb the same.