G.R. No.

196795 retained the five (5)-year period of the existing lease contracts and stated the areas
that may be occupied by Offshore Construction:
INTRAMUROS ADMINISTRATION, Petitioner vs.OFFSHORE
CONSTRUCTION DEVELOPMENT COMPANY, Respondent FROM:

DECISION (1) Baluarte de San Andres

LEONEN, J.: TO:

The sole issue in ejectment proceedings is determining which of the parties has the (1) Only the stable house, the gun powder room and two (2)
better right to physical possession of a piece of property. The defendant's claims and
allegations in its answer or motion to dismiss do not oust a trial court's jurisdiction to Chambers with comfort rooms, will be utilized for restaurants. All other structures
resolve this issue. built and introduced including trellises shall be transferred/relocated to:

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, (a) Two (2) restaurants as Asean Garden. Each will have an aggregate area of two
assailing the April 14, 2011 Decision2 of Branch 173, Regional Trial Court, Manila hundred square meters (200 sq. mtrs.);
in Civil Case No. 10-124740. The Regional Trial Court affirmed in toto the October
19, 2010 Order3 of Branch 24, Metropolitan Trial Court, Manila in Civil Case No.
b) One (1) kiosk at Puerta Isabel Garden fronting Terraza de la Reyna with an
186955-CV, dismissing Intramuros Administration's (Intramuros) Complaint for
aggregate area of twenty (20) square meters;
Ejectment against Offshore Construction and Development Company (Offshore
Construction) on the grounds 6f forum shopping and lack of jurisdiction.
(c) Three (3) restaurants at the chambers of Puerta Isabel II with an aggregate area of
1,180.5 sq.m.;
In 1998, Intramuros leased certain real properties of the national government, which
it administered to Offshore Construction. Three (3) properties were subjects of
Contracts of Lease: Baluarte De San Andres, with an area of 2, 793 sq. m.; 4 Baluarte (d) One (1) restaurant at Fort Santiago American Barracks. Subject to IA Guidelines,
De San Francisco De Dilao, with an area of 1,880 sq. m.;5 and Revellin De the maximum floor area will be the perimeter walls of the old existing building;
Recoletos, with an area of 1,036 sq. m.6 All three (3) properties were leased for five
(5) years, from September 1, 1998 to August 31, 2003. All their lease contracts also FROM:
made reference to an August 20, 1998 memorandum of stipulations, which included
a provision for lease renewals every five (5) years upon the parties' mutual (2) Baluarte De San Francisco Dilao
agreement.7
TO:
Offshore Construction occupied and introduced improvements in the leased
premises. However, Intramuros and the Department of Tourism halted the projects (2) All seven (7) structures including the [Offshore Construction] Administration
due to Offshore Construction's non-conformity with Presidential Decree No. 1616, Building and Trellises shall be transferred [t]o Cuartel de Sta. Lucia, [O]therwise
which required 16th to 19th centuries' Philippine-Spanish architecture in the known as the PC Barracks[.]14
area.8 Consequently, Offshore Construction filed a complaint with prayer for
preliminary injunction and temporary restraining order against Intramuros and the
During the lease period, Offshore Construction failed to pay its utility bills and rental
Department of Tourism before the Manila Regional Trial Court, 9 which was
fees, despite several demand letters.15 Intramuros tolerated the continuing
docketed as Civil Case No. 98-91587.10
occupation, hoping that Offshore Construction would pay its arrears. As of July 31,
2004, these arrears allegedly totaled P6,762,153.70. 16
Eventually, the parties executed a Compromise Agreement on July 26, 1999, 11 which
the Manila Regional Trial Court approved on February 8, 2000. 12 In the Compromise
To settle its arrears, Offshore Construction proposed to pay the Department of
Agreement, the parties affirmed the validity of the two (2) lease contracts but
Tourism's monthly operational expenses for lights and sound equipment, electricity,
terminated the one over Revellin de Recoletos.13 The Compromise Agreement
and performers at the Baluarte Plano Luneta de Sta. Isabel. Intramuros and the
Department of Tourism accepted the offer, and the parties executed a Memorandum
of Agreement covering the period of August 15, 2004 to August 25, 2005. 17
However, Offshore Construction continued to fail to pay its arrears, which amounted
to ₱13,448,867.45 as of December 31, 2009. On March 26, 2010, Offshore
Construction received Intramuros' latest demand letter. 18
Intramuros filed a Complaint for Ejectment before the Manila Metropolitan Trial
Court on April 28, 2010.19 Offshore Construction filed its Answer with Special and
Affirmative Defenses and Compulsory Counterclaim.20
On July 12, 2010, Offshore Construction filed a Very Urgent Motion, 21 praying that
Intramuros' complaint be dismissed on the grounds of violation of the rule on non-
forum shopping, lack of jurisdiction over the case, and litis pendentia. First, it
claimed that Intramuros failed to inform the Metropolitan Trial Court that there were
two (2) pending cases with the Manila Regional Trial Court over Puerta de Isabel
II.22 Second, it argued that the Metropolitan Trial Court did not acquire jurisdiction
over the case since the relationship between the parties was not one of lessor-lessee
but governed by a concession agreement.23 Finally, it contended that Intramuros'
cause of action was barred by litis pendentia, since the pending Regional Trial Court
cases were over the same rights, claims, and interests of the parties. 24
In its October 19, 2010 Order,25 the Metropolitan Trial Court granted the motion and
dismissed the case. Preliminarily, it found that while a motion to dismiss is a
prohibited pleading under the Rule on Summary Procedure, Offshore Construction's
motion was grounded on the lack of jurisdiction over the subject matter. 26
The Metropolitan Trial Court found that Intramuros committed forum shopping and
that it had no jurisdiction over the case.27
First, it pointed out that there were two (2) pending cases at the time Intramuros filed
its complaint: Civil Case No. 08-119138 for specific performance filed by Offshore
Construction against Intramuros, and SP CA No. 10-123257 for interpleader against
Offshore Construction and Intramuros filed by 4H Intramuros, Inc. (4H
Intramuros),28 which claimed to be a group of respondent's tenants.29
The Metropolitan Trial Court found that the specific performance case was anchored
on Offshore Construction's rights under the Compromise Agreement. In that case,
Offshore Construction claimed that it complied with its undertakings, but Intramuros
failed to perform its obligations when it refused to offset Offshore Construction's
expenses with the alleged unpaid rentals. The interpleader case, on the other hand,
dealt with Offshore Construction's threats to evict the tenants of Puerta de Isabel II.
4H Intramuros prayed that the Regional Trial Court determine which between
Offshore Construction and Intramuros was the rightful lessor of Puerta de Isabel II.30
The Metropolitan Trial Court found that the cause of action in Intramuros' complaint
was similar with those in the specific performance and intetj)leader cases. Any
judgment in any of those cases would affect the resolution or outcome in the
ejectment case, since they would involve Offshore Construction's right to have its
expenses offset from the rentals it owed Intramuros, and the determination of the
rightful lessor of Puerta de Isabel II. The Metropolitan Trial Court pointed to the
arrears in rentals that Intramuros prayed for as part of its complaint. Further,
Intramuros failed to disclose the specific performance and interpleader cases in its
certification against forum shopping.31
Second, the Metropolitan Trial Court held that it had no jurisdiction over the
complaint. While there were lease contracts between the parties, the existence of the
other contracts between them made Intramuros and Offshore Construction's
relationship as one of concession. Under this concession agreement, Offshore
Construction undertook to develop several areas of the Intramuros District, for which
it incurred expenses. The trial court found that the issues could not be mere
possession and rentals only.32
Intramuros appealed the October 19, 2010 Order with the Regional Trial Court. On
April 14, 2011, the Regional Trial Court affirmed the Municipal Trial Court October
19, 2010 Order in toto.33
On May 25, 2011, Intramuros, through the Office of the Solicitor General, filed a
Motion for Extension of Time to File Petition for Review on Certiorari (Motion for
Extension) before this Court. It prayed for an additional 30 days, or until June 16,
2011, within which to file its petition for review on solely on questions of law. 34
On June 16, 2011, Intramuros filed its Petition for Review on Certiorari,35 assailing
the April 14, 2011 Decision of the Regional Trial Court.
In its Petition for Review, Intramuros argues that the Regional Trial Court erred in
upholding the Metropolitan Trial Court findings that it had no jurisdiction over
Intramuros' ejectment complaint36 and that it committed forum shopping.37
First, Intramuros argues that Offshore Construction's Very Urgent Motion should not
have been entertained by the Metropolitan Trial Court as it was a motion to dismiss,
which was prohibited under the Rule on Summary Procedure. 38 It claims that the
Metropolitan Trial Court could have determined the issue of jurisdiction based on the
allegations in its complaint. It points out that "jurisdiction over the subject matter is
determined by the allegations [in] the complaint" and that the trial court's jurisdiction
is not lost "just because the defendant makes a contrary allegation" in its
defense.39 In ejectment cases, courts do not lose jurisdiction by a defendant's mere
allegation that it has ownership over the litigated property. It holds that the
Metropolitan Trial Court did not lose jurisdiction when Offshore Construction
alleged that its relationship with Intramuros is one of concession, that the cause of
action accrued in 2003, and that there was litis pendentia and forum shopping. It
contends that the sole issue in an ejectment suit is the summary restoration of
possession of a piece of land or building to the party that was deprived of it. 40 Thus,
the Metropolitan Trial Court gravely erred in granting Offshore Construction's
motion to dismiss despite having jurisdiction over the subject matter of Intramuros'
complaint.41
Second, Intramuros avers that it did not commit forum shopping as to warrant the
dismissal of its complaint. It claims that while there were pending specific
performance and interpleader cases related to the ejectment case, Intramuros was not
guilty of forum shopping since it instituted neither action and did not seek a
favorable ruling as a result of an earlier adverse opinion in these cases. 42 Intramuros
points out that it was Offshore Construction and 4H Intramuros which filed the
specific performance and interpleader cases, respectively. 43 In both cases, Intramuros
was the defendant and did not seek fossession of Puerta de Isabel II as a relief in its
answers to the complaints.44 Moreover, the issues raised in these earlier cases were
different from the issue of possession in the ejectment case. The issue in the specific
performance case was whether or not Intramuros should offset the rentals in arrears
from Offshore Construction's expenses in continuing the WOW Philippines
Project.45 Meanwhile, the issue in the interpleader case was to determine which
between Intramuros and Offshore Construction was the rightful lessor of Puerta de
Isabel II.46
Finally, Intramuros maintains that there is no concession agreement between the
parties, only lease contracts that have already expired and are not renewed. It argues
that there is no basis for alleging the existence of a concession agreement. It points
out that in the Contracts of Lease and Memorandum of Agreement entered into by
Intramuros and Offshore Construction, the expiry of the leases would be on August
31, 2003. Afterwards, Intramuros tolerated Offshore Construction's continued
occupation of its properties in hopes that it would pay its arrears in due course. 47
On July 20, 2011, this Court issued its Resolution48 granting the Motion for
Extension and requiring Offshore Construction to comment on the Petition for
Review.
On October 10, 2011, Offshore Construction filed its Coniment 49 to the Petition for
Review. In its Comment, Offshore Construction argues that the Petition for Review
should be dismissed because it violates the principle of hierarchy of courts and raises
questions of fact.50 It points out that Intramuros did not move for the reconsideration
of the Regional Trial Court April 14, 2011 Decision. Instead of directly filing with
this Court, Intramuros should have filed a Petition for Review with the Court of
Appeals, in accordance with Rule 42 of the Rules of Court. 51 It claims that
Intramuros raises questions of fact in its Petition for Review, namely, the expiration
of the Contracts of Lease and the business concession in favor of Offshore
Construction.52
In its November 21, 2011 Resolution, this Court noted the Comment and required
Intramuros to file its Reply.53
On March 12, 2012, Intramuros filed its Reply54 to the Comment. It argues that direct
resort to this Court is proper because the issues it raises in its Petition for Review do
not require review of evidence to resolve, and the facts of the case are
undisputed.55 It claims that the nature of Intramuros and Offshore Construction's
relationship is never an issue because all the documents referenced and relied upon
by the parties were lease agreements.56
On August 23, 2012, this Court gave due course to the Petition for Review and
ordered both parties to submit their memoranda.57
On January 7, 2013, Intramuros filed its Memorandum, 58 while Offshore
Construction filed its Memorandum59 on August 16, 2013.
In its Memorandum, Offshore Construction claims that it occupies Puerta de Isabel II
by virtue of a legal concession based not only on the parties' contracts but also on the
contemporaneous and subsequent acts of Intramuros and Offshore Construction. It
argues that under the Contracts of Lease, Offshore Construction was required to
invest around ₱20,000,000.00 worth of investments in the leased properties and that
it lost its initial investments, which were demolished due to adverse criticism by then
Intramuros Administrator Anna Maria L. Harper. Under the Compromise
Agreement, Offshore Construction was again required to make new developments,
again worth millions of pesos. Offshore Construction claims that these conditions
make their relationship not one of mere lessor and lessee. 60
Further, it attests that Intramuros committed illegal and inhuman acts, and injustice
against it and its sublessees, allegedly because the Contracts of Lease had
expired.61 Moreover, it points out that Intramuros only filed the ejectment complaint
in 2010, even though the Contracts of Lease expired on August 31, 2003. It argues
that Intramuros was guilty of estoppel in pais, since it continued to accept rental
payments as late as July 10, 2009.62Assuming that the lease contracts had expired,
these contracts were impliedly renewed by the mutual and voluntary acts of the
parties, in accordance with Article 1670 of the Civil Code. 63 Offshore Construction
claims that there is now novation of the Contracts of Lease, and the courts may fix a
period for them,64 pursuant to Article 1687 of the Civil Code.65 It reiterates its prayer
that the Petition for Review be dismissed, due to questions of fact more properly
cognizable by the Court of Appeals.66
The issues to be resolved by this Court are:
First, whether or not direct resort to this Court is proper;
Second, whether or not the Metropolitan Trial Court had jurisdiction over the
ejectment complaint filed by Intramuros Administration;
Third, whether or not Intramuros Administration committed forum shopping when it
filed its ejectment complaint despite the pending cases for specific performance and
interpleader; and
Finally, whether or not Intramuros Administration is entitled to possess the leased
premises and to collect unpaid rentals.
I Section 2. Form and Contents. - The petition shall be filed in seven (7) legible
At the outset, petitioner should have filed a petition for review under Rule 42 of the
Rules of Court to assail the Regional Trial Court's ruling upholding the Metropolitan
Trial Court October 19, 2010 Order instead of filing a petition for review
on certiorari under Rule 45 with this Court.
Under Rule 42, Section 1 of the Rules of Court, the remedy from an adverse decision
rendered by a Regional Trial Court exercising its appellate jurisdiction is to file a
verified petition for review with the Court of Appeals:
Section 1. How appeal taken; time for filing. -A party desiring to appeal from a
decision of the Regional Trial Court rendered in the exercise of its appellate
jurisdiction may file a verified petition for review with the Court of Appeals, paying
at the same time to the clerk of said court the corresponding docket and other lawful
fees, depositing the amount of ₱500.00 for costs, and furnishing the Regional Trial
Court and the adverse party with a copy of the petition. The petition shall be filed
and served within fifteen (15) days from notice of the decision sought to be reviewed
or of the denial of petitioner's motion for new trial or reconsideration filed in due
time after judgment. Upon proper motion and the payment of the full amount of the
docket and other lawful fees and the deposit for costs before the expiration of the
reglementary period, the Court of Appeals may grant an additional period of fifteen
(15) days only within which to file the petition for review. No further extension shall
be granted except for the most compelling reason and in no case to exceed fifteen
(15) days.
Petitioner puts in issue before this Court the findings of the Metropolitan Trial Court
that it has no jurisdiction over the ejectment complaint and that petitioner committed
forum shopping when it failed to disclose two (2) pending cases, one filed by
respondent Offshore Construction and the other filed by respondent's group of
tenants, 4H Intramuros. Both of these cases raise questions of law, which are
cognizable by the Court of Appeals in a petition for review under Rule 42.
"A question of law exists when the law applicable to a particular set of facts is not
settled, whereas a question of fact arises when the truth or falsehood of alleged facts
is in doubt."67 This Court has ruled that the jurisdiction of a court over the subject
matter of a complaint68 and the existence of forum shopping69 are questions of law.
A petition for review under Rule 42 may include questions of fact, of law, or mixed
questions of fact and law.70 This Court has recognized that the power to hear cases
on appeal in which only questions of law are raised is not vested exclusively in this
Court.71 As provided in Rule 42, Section 2, errors of fact or law, or both, allegedly
committed by the Regional Trial Court in its decision must be specified in the
petition for review:
copies, with the original copy intended for the court being indicated as such by the
petitioner, and shall (a) state the full names of the parties to the case, without
impleading the lower courts or judges thereof either as petitioners or respondents; (b)
indicate the specific material dates showing that it was filed on time; (c) set forth
concisely a statement of the matters involved, the issues raised, the specification of
errors of fact or law, or both, allegedly committed by the Regional Trial Court, and
the reasons or arguments relied upon for the allowance of the appeal; (d) be
accompanied by clearly legible duplicate originals or true copies of the judgments or
final orders of both lower courts, certified correct by the clerk of court of the
Regional Trial Court, the requisite number of plain copies thereof and of the
pleadings and other material portions of the record as would support the allegations
of the petition.
The petitioner shall also submit together with the petition a certification under oath
that he has not theretofore commenced any other action involving the same issues in
the Supreme Court, the Court of Appeals or different divisions thereof, or any other
tribunal or agency; if there is such other action or proceeding, he must state the status
of the same; and if he should thereafter learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different
divisions thereof, or any other tribunal or agency, he undertakes to promptly inform
the aforesaid courts and other tribunal or agency thereof within five (5) days
therefrom. (Emphasis supplied)
Petitioner's direct resort to this Court, instead of to the Court of Appeals for
intermediate review as sanctioned by the rules, violates the principle of hierarchy of
courts.72 In Diocese of Bacolod v. Commission onElections:73
The doctrine that requires respect for the hierarchy of courts was created by this
court to ensure that every level of the judiciary performs its designated roles in an
effective and efficient manner. Trial courts do not only determine the facts from the
evaluation of the evidence presented before them. They are likewise competent to
determine issues of law which may include the validity of an ordinance, statute, or
even an executive issuance in relation to the Constitution. To effectively perform
these functions, they are territorially organized into regions and then into branches.
Their writs generally reach within those territorial boundaries. Necessarily, they
mostly perform the all-important task of inferring the facts from the evidence as
these are physically presented before them. In many instances, the facts occur within
their territorial jurisdiction, which properly present the 'actual case' that makes ripe a
determination of the constitutionality of such action. The consequences, of course,
would be national in scope. There are, however, some cases where resort to courts at
their level would not be practical considering their decisions could still be appealed
before the higher courts, such as the Court of Appeals. 74 (Citation omitted)
Nonetheless, the doctrine of hierarchy of courts is not inviolable, and this Court has
provided several exceptions to the doctrine.75 One of these exceptions is the exigency
of the situation being litigated.76 Here, the controversy between the parties has been
dragging on since 2010, which should not be the case when the initial dispute-an
ejectment case-is, by nature and design, a summary procedure and should have been
resolved with expediency.
Moreover, this Court's rules of procedure permit the direct resort to this Court from a
decision of the Regional Trial Court upon questions of law, such as those which
petitioner raises in this case. In Barcenas v. Spouses Tomas and Caliboso: 77
Nonetheless, a direct recourse to this Court can be taken for a review of the
decisions, final orders or resolutions of the RTC, but only on questions of law. Under
Section 5 of Article VIII of the Constitution, the Supreme Court has the power to
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari as the law or
the Rules of Court may provide, final judgments and orders of lower courts in:
....
(e) All cases in which only an error or question of law is involved.
This kind of direct appeal to this Court of RTC judgments, final orders or resolutions
is provided for in Section 2(c) of Rule 41, which reads:
SEC. 2. Modes of appeal. -
....
(c) Appeal by certiorari. - In all cases where only questions of law are raised or
involved, the appeal shall be to the Supreme Court by petition for review
on certiorari in accordance with Rule 45.
Procedurally then, petitioners could have appealed the RTC Decision affirming the
MTC (1) to this Court on questions of law only; or (2) if there are factual questions
involved, to the CA - as they in fact did.78
Thus, petitioner's resort to this Court is proper and warranted under the
circumstances.
II
In dismissing the complaint, the Metropolitan Trial Court found that "[t]he issues . . .
between the parties cannot be limited to a simple determination of who has the better
right of possession of the subject premises or whether or not [petitioner] is entitled
[to] rentals in arrears."79 It held that the relationship between the parties was a "more
complicated situation where jurisdiction is better lodged with the regional trial
court,"80 upon a finding that there was a concession, rather than a lease relationship
between the parties.81
It is settled that the only issue that must be settled in an ejectment proceeding is
physical possession of the property involved.82 Specifically, action for unlawful
detainer is brought against a possessor who unlawfully withholds possession after the
termination and expiration of the right to hold possession. 83
To determine the nature of the action and the jurisdiction of the court, the allegations
in the complaint must be examined. The jurisdictional facts must be evident on the
face of the complaint.84 There is a case for unlawful detainer if the complaint states
the following:
(1) initially, possession of property by the defendant was by contract with or by
tolerance of the plaintiff;
(2) eventually, such possession became illegal upon notice by plaintiff to defendant
of the termination of the latter's right of possession;
(3) thereafter, the defendant remained in possession of the property and deprived the
plaintiff of the enjoyment thereof; and
(4) within one year from the last demand on defendant to vacate the property, the
plaintiff instituted the complaint for ejectment.85 (Citation omitted)
A review of petitioner's Complaint for Ejectment shows that all of these allegations
were made.
First, petitioner alleges that respondent is its lessee by virtue of three (3) Contracts of
Lease. The validity of these contracts was later affirmed in a Compromise
Agreement, which modified certain provisions of the previous leases but retained the
original lease period. Respondent does not dispute these contracts' existence or their
validity.
Second, following respondent's failure to pay rentals, petitioner alleges that it has
demanded that respondent vacate the leased premises.
Third, respondent continues to occupy and possess the leased premises despite
petitioner's demand. This is admitted by respondent, which seeks to retain possession
and use of the properties to "recoup its multimillion pesos worth of investment." 86
Fourth, petitioner filed its Complaint for Ejectment on April 28, 2010,87 within one
(1) year of its last written demand to respondent, made on March 18, 2010 and
received by respondent on March 26, 2010.88 Contrary to respondent's claim, the one
(1)-year period to file the complaint must be reckoned from the date of last demand,
in instances when there has been more than one (1) demand to vacate. 89
The Metropolitan Trial Court seriously erred in finding that it did not have
jurisdiction over petitioner's complaint because the parties' situation has allegedly
become "more complicated"90 than one of lease. Respondent's defense that its
relationship with petitioner is one of concession rather than lease does not determine
whether or not the Metropolitan Trial Court has jurisdiction over petitioner’s
complaint. The pleas or theories set up by a defendant in its answer or motion to
dismiss do not affect the court’s jurisdiction.91 In Morta v. Occidental:92
It is axiomatic that what determines the nature of an action as well as which court has
jurisdiction over it, are the allegations in the complaint and the character of the relief
sought. "Jurisdiction over the subject matter is determined upon the allegations made
in the complaint, irrespective of whether the plaintiff is entitled to recover upon a
claim asserted therein - a matter resolved only after and as a result of the trial.
Neither can the jurisdiction of the court be made to depend upon the defenses made
by the defendant in his answer or motion to dismiss. If such were the rule, the
question of jurisdiction would depend almost entirely upon the
defendant."93 (Citations omitted)
Not even the claim that there is an implied new lease or tacita reconduccion will
remove the Metropolitan Trial Court's jurisdiction over the complaint. 94 To
emphasize, physical possession, or de facto possession, is the sole issue to be
resolved in ejectment proceedings. Regardless of the claims or defenses raised by a
defendant, a Metropolitan Trial Court has jurisdiction over an ejectment complaint
once it has been shown that the requisite jurisdictional facts have been alleged, such
as in this case. Courts are reminded not to abdicate their jurisdiction to resolve the
issue of physical possession, as there is a public need to prevent a breach of the
peace by requiring parties to resort to legal means to recover possession of real
property.95
III
In its October 19, 2010 Order, the Metropolitan Trial Court found that petitioner
committed forum shopping when it failed to disclose that there were two (2) pending
cases in other trial courts concerning the same parties and similar causes of action.
These two (2) cases were Civil Case No. 08- 119138 for specific performance filed
by respondent against petitioner; and SP CA Case No. 10-123257 for interpleader
filed by 4H Intramuros. Both cases were pending with the Manila Regional Trial
Court. The Metropolitan Trial Court found that if it decides petitioner's Complaint
for Ejectment, its ruling would conflict with any resolution in the specific
performance and interpleader cases, since the same contracts were involved in all
three (3) cases. It found that the parties were the same and the reliefs prayed for were
the same.
Forum shopping is the practice of resorting to multiple fora for the same relief, to
increase the chances of obtaining a favorable judgment.96 In Spouses Reyes v.
Spouses Chung:97
It has been jurisprudentially established that forum shopping exists when a party
avails himself of several judicial remedies in different courts, simultaneously or
successively, all substantially founded on the same transactions and the same
essential facts and circumstances, and all raising substantially the same issues either
pending in or already resolved adversely by some other courts.
The test to determine whether a party violated the rule against forum shopping is
whether the elements of litis pendentia are present, or whether a final judgment in
one case will amount to res judicata in another. Simply put, when litis
pendentia or res judicata does not exist, neither can forum shopping exist.
The requisites of litis pendentia are: (a) the identity of parties, or at least such as
representing the same interests in both actions; (b) the identity of rights asserted and
relief prayed for, the relief being founded on the same facts; and (c) the identity of
the two cases such that judgment in one, regardless of which party is successful,
would amount to res judicata in the other. On the other hand, the elements of res
judicata, also known as bar by prior judgment, are: (a) the former judgment must be
final; (b) the court which rendered it had jurisdiction over the subject matter and the
parties; (c) it must be a judgment on the merits; and (d) there must be, between the
first and second actions, identity of parties, subject matter, and causes of
action.98 (Citation omitted)
As observed by the Metropolitan Trial Court, there is an identity of parties in the
specific performance and interpleader cases, and the Complaint for Ejectment.
However, there is no identity of asserted rights or reliefs prayed for, and a judgment
in any of the three (3) cases will not amount to res judicata in the two others.
In respondent’s amended complaint for specific performance, it prays that petitioner
be compelled to offset respondent's unpaid rentals, with the expenses that respondent
supposedly incurred due to the Department of Tourism's WOW Philippines
project,99 pursuant to a July 27, 2004 Memorandum of Agreement. Concededly, one
of respondent's reliefs prayed for is for petitioner to respect respondent's lease over
Puerta de Isabel II, Asean Garden and Revellin de Recoletos:
2. Order [Department of Tourism], [Intramuros Administration] and [Anna Maria L.
Harper] to perform their obligation under the "Memorandum of Agreement" dated 27
July 2004 by OFFSETTING the rentals in arrears from the expenses incurred by
Offshore in the continuance of the Department of Tourism's WOW Philippines
Project and to allow Offshore to recover their investment at Intramuros by respecting
their lease over Puerta Isabel II, Asean Garden and Revellin de Recoletos[.]100
Nevertheless, the Memorandum of Agreement expressly stated that its purpose was
for respondent to pay petitioner and the Department of Tourism rentals in arrears as
of July 31, 2004:
WHEREAS, [respondent] has been indebted to [petitioner] in the form of rental and
utility consumption arrears for the occupancy of Puerta Isabel Chambers, Asean
Gardens and Baluarte de San Andres (Stable House) in the amount of Six Million
Seven Hundred Sixty[-]Two Thousand One Hundred Fifty[-]Three and 70/100
(P6,762,153.70) as of July 31, 2004 and as a way of settling said arrears,
[respondent] had proposed to pay its obligations with [petitioner] as shown in the
breakdown in "Annex A" hereof through [respondent's] assumption of [Department
of Tourism's] monthly operational expenses for lights and sound equipment,
electricity, and performers at the Baluarte Plano Luneta de Sta. Isabel in Intramuros,
Manila[.]101
This was affirmed in petitioner's May 29, 2005 letter to respondent, in which
petitioner stated:
During our meeting last May 5, 2005 with Mr. Rico Cordova, it was reiterated that
the subject of the [Memorandum of Agreement] for the lights and sound at Plano
Luneta de Sta. Isabel was your accumulated account as of July 2004. Subsequent
rentals have to be remitted to [Intramuros] as they become due and demandable. We
have emphasized this concern in our letter of November 12, 2004. 102
A final judgment in the specific performance case will not affect the outcome of the
ejectment case. As pointed out by petitioner, respondent's right to possess the leased
premises is founded initially on the Contracts of Lease and, upon their expiration, on
petitioner's tolerance in hopes of payment of outstanding arrears. The July 27, 2004
Memorandum of Agreement subject of the specific performance case cannot be the
source of respondent's continuing right of possession, as it expressly stated there that
the offsetting was only for respondent's outstanding arrears as of July 31, 2004. Any
favorable judgment compelling petitioner to comply with its obligation under this
agreement will not give new life to the expired Contracts of Lease, such as would
repel petitioner's unlawful detainer complaint.
In its Amended Answer in the specific performance case, petitioner sets up the
counterclaim that "[respondent] be ordered to pay its arrears of (₱13,448,867.45) as
of December 31, 2009 plus such rent and surcharges as may be incurred until
[respondent] has completely vacated the [leased] premises." 103 This counterclaim is
exactly the same as one of petitioner's prayers in its ejectment complaint:
WHEREFORE, premises considered, it is most respectfully prayed that
JUDGMENT be rendered ORDERING:
....
(2) DEFENDANT [OFFSHORE CONSTRUCTION] TO PAY ITS ARREARS OF
THIRTEEN MILLION FOUR HUNDRED FORTYEIGHT THOUSAND, EIGHT
HUNDRED SIXTY-SEVEN PESOS AND FORTY-FIVE CENTAVOS
(₱13,448,867.45), PLUS INTEREST OF 1% PER MONTH AS STIPULATED IN
THE LEASE CONTRACTS[.]104
A compulsory counterclaim is a defendant's claim for money or other relief which
arises out of, or is necessarily connected with, the subject matter of the complaint.
In Spouses Ponciano v. Hon. Parentela, Jr.:105
A compulsory counterclaim is any claim for money or other relief which a defending
party may have against an opposing party, which at the time of suit arises out of, or
is necessarily connected with, the same transaction or occurrence that is the subject
matter of plaintiff's complaint.
It is compulsory in the sense that if it is within the jurisdiction of the court, and does
not require for its adjudication the presence of third parties over whom the court
cannot acquire jurisdiction, it must be set up therein, and will be barred in the future
if not set up.106 (Citation omitted)
In its complaint for specific performance, respondent claimed that petitioner should
offset its outstanding rentals and that it was petitioner which had an outstanding debt
to respondent:
16. In compliance with the Memorandum of Agreement, Offshore incurred expenses
amounting to Seven Million Eight Hundred Twenty[] Five Thousand Pesos
(P7,825,000.00) by way of Expenses for Rentals of Lights & Sound System,
Electrical Bill and Performers Fees. This amount is excluding the expenses incurred
during the period Offshore supplied the Light & Sound System, as well as
Performers, aforementioned started in October 2004. A copy of the Statement of
Account is hereto appended as ANNEX "H" to "H-4";
17. Based on Offshore's records, upon re-computation of Actual Area used during all
these period[s] from July 2001 to March 30, 2008, copy of Statement of Accounts
has been sent to Intramuros Administration for reconciliation, Offshore’s total
obligation by way of back and current rentals up to March 30, 2008 is only in the
amount of Six Million Four Hundred Three Thousand Three Hundred Sixty[-]Four
Pesos (P6,403,364.00);
18. Obviously, when both accounts are offset, it will clearly show that [Intramuros]
still owes Offshore the amount of One Million Four Hundred Twenty[-]One
Thousand Six Hundred Thirty[-]Six Pesos (P1,421,636.00) as of March 2008;
19. Unfortunately, despite this glaring fact that [Intramuros] owes Offshore,
Defendant [Anna Maria L.] Harper (who has already showed sour and adverse
treatment of Offshore in the past), being the new Administrator of Intramuros
Administration, sent a Letter dated 09 April 2008 demanding from Offshore to pay
[Intramuros] alleged rentals in arrears in the amount of P12,478[,]461.74, within
seven (7) days from receipt. A copy of the Letter is hereto attached and marked as
Annex "I" to "1-1";
20. It can be deduced from the attachment to the aforementioned letter that
[Intramuros] did not honor the obligations imposed in the Memorandum of
Agreement because the monthly expenses incurred by Offshore for the payment of
the Lights and Sound System, Electricity and Performers Fees for the continuance of
the Department of Tourism WOW Project at Baluarte Plano, Luneta de Sta. Isabel
which were duly furnished [Intramuros] in the amount of Seven Million Eight
Hundred Twenty[-]Five Thousand Pesos (P7,825,000.00) as expressly agreed by
[Department of Tourism], [Intramuros] and Offshore in the Memorandum of
Agreement were NOT deducted from the rentals due[.] 107
Petitioner's counterclaim in its Amended Answer was set up to defend itself against
such a claim:
26. [Offshore Construction] has not established its right, or the reality is, [Offshore
Constructioin] has been delinquent in the payment of its financial obligations which
are specifically provided in its contract with defendant [Intramuros], such as rental
fees.
27. [Offshore Construction] has to pay rent for being still in possession of Puerta
Isabel II and Asean Garden. Moreover, plaintiff has enjoyed the fruits of subleasing
these premises for years and yet it has continuously failed to remit all rental fees and
surcharges despite repeated demands from defendants. It bears stressing that as of
December 31, 2009, [Offshore Construction's] arrears has already ballooned to
thirteen million four hundred and forty[-]eight thousand eight hundred and sixty[]
seven pesos and forty[-]five centavos (PB,448,867.45).
28. Glaringly, [Offshore Construction] has been remiss in performing its obligations
stated in the Lease Contracts (Annexes A to A- 15; B to B-14 and C to C-14 of the
Complaint), Compromise Agreement (Annexes E to E-17 of the Complaint) and
Memorandum of Agreement (Annexes F to F-16 of the Complaint). [Intramuros and
Anna Maria L. Harper] are therefore constrained to demand payment from [Offshore
Construction] for the latter's failure or refusal to honor its just and valid obligations.
Necessarily, [Intramuros and Anna Maria L. Harper] will not hesitate to seek legal
remedies if [Offshore Construction] continues to be delinquent.
29. Essentially, [Offshore Construction] is protesting the computation of its arrears
(P12,478,461.74) in the demand letter sent by Administrator [Anna Maria L.] Harper
on April 9, 2008. [Offshore Construction] also asserts that it only owes defendant
[Intramuros] six million four hundred three thousand and three hundred sixty[-]four
pesos (P6,403,364.00).
30. [Offshore Construction] is misguided. The [Memorandum of Agreement] dated
July 27, 2004 was executed because [Offshore Construction], at that time, had been
indebted to defendant [Intramuros] in the form of rental and utility consumption
arrears for the occupancy of Puerta Isabel Chambers, Asean Gardens and Baluarte de
San Andres in the amount of six million seven hundred sixty[-]two thousand one
hundred fifty[-]three and seventy centavos (P6, 762, 153. 70) ....
....
32. Even after July 27, 2004, and up to this time, [Offshore Construction] remained
in possession of, used and/or subleased the subject premises. As such, [Offshore
Construction] still has to pay rental fees, aside from the aforesaid arrears. The rental
fees continued to pile up and triggered the imposition of surcharges as [Offshore
Construction] again failed to remit payments thereon. This explains the demandable
amount of P13,448,867.45 (Annex I to 11 of Complaint). [Offshore Construction] is
therefore mistaken in believing that it only owes defendant [Intramuros] the arrears
subject of the [Memorandum of Agreement] of July 27, 2004 and nothing more. 108
Clearly, petitioner's counterclaim is compulsory, arising as it did out of, and being
necessarily connected with, the parties' respective obligations under the July 27,
2004 Memorandum of Agreement. Petitioner cannot be faulted for raising the issue
of unpaid rentals in the specific performance case or for raising the same issue in the
present ejectment case, since it appears that respondent's alleged failure to pay the
rent led to the nonrenewal of the Contracts of Lease. However, it must be
emphasized that any recovery made by petitioner of unpaid rentals in either its
ejectment case or in the specific performance case must bar recovery in the other,
pursuant to the principle of unjust enrichment.109
A judgment in the Complaint for Interpleader will likewise not be res
judicata against the ejectment complaint. The plaintiff in the interpleader case, 4H
Intramuros, allegedly representing the tenants occupying Puerta de Isabel II, does not
expressly disclose in its Complaint110 for Interpleader the source of its right to
occupy those premises. However, it can be determined from petitioner's
Answer111 and from respondent's Memorandum112 that the members of 4H
Intramuros are respondent's sublessees.
A sublessee cannot invoke a superior right over that of the sublessor. 113 A judgment
of eviction against respondent will affect its sublessees since the latter's right of
possession depends entirely on that of the former.114 A complaint for interpleader by
sublessees cannot bar the recovery by the rightful possessor of physical possession of
the leased premises.
Since neither the specific performance case nor the interpleader case constituted
forum shopping by petitioner, the Metropolitan Trial Court erred in dismissing its
Complaint for Ejectment.
IV
Ordinarily, this case would now be remanded to the Metropolitan Trial Court for the
determination of the rightful possessor of the leased premises. However, this would
cause needless delay inconsistent with the summary nature of ejectment
proceedings.115 Given that there appears sufficient evidence on record to make this
determination, judicial economy dictates that this Court now resolve the issue of
possession.116
It is undisputed that respondent's occupation and use of Baluarte de San Andres,
Baluarte de San Francisco de Dilao, and Revellin de Recoletos started on September
1, 1998 by virtue of Contracts of Lease all dated August 20, 1998. 117 The Contracts
of Lease were modified through Addendums to the Contracts likewise dated August
20, 1998.118
Then, to amicably settle Civil Case No. 98-91587 entitled Offshore Construction and
Development Company v. Hon. Gemma Cruz-Araneta and Hon. Dominador Ferrer,
Jr., then pending before Branch 47, Regional Trial Court, Manila,119 the parties and
the Department of Tourism entered into a July 26, 1999 Compromise Agreement. In
the Compromise Agreement, the parties affirmed the validity of the lease contracts,
but agreed to transfer the areas to be occupied and used by respondent in Baluarte de
San Andres and Baluarte de San Francisco de Dilao due to improvements that it had
introduced to the leased premises.120 The lease over Revellin de Recoletos was
terminated.121 It appears that under this Compromise Agreement, the original five
(5)-year period of the Contracts of Lease were retained, 122 such that the leases would
expire on August 31, 2003, and renewable for another five (5) years upon the parties'
mutual agreement.123
Thereafter, the Contracts of Lease expired. Respondent does not concede this, but
there is no proof that there has been any contract mutually agreed upon by the parties
for any extensions of the leases. Respondent can only argue that petitioner's
continuing tolerance of respondent's possession and acceptance of respondent's rental
payments impliedly renewed the Contracts of Lease.124
But petitioner's tolerance of respondent's occupation and use of the leased premises
after the end of the lease contracts does not give the latter a permanent and
indefeasible right of possession in its favor. When a demand to vacate has been
made, as what petitioner had done, respondent’s possession became illegal and it
should have left the leased premises.1âwphi1 In Caniza v. Court of Appeals:125
The Estradas’ first proffered defense derives from a literal construction of Section 1,
Rule 70 of the Rules of Court which inter alia authorizes the institution of an
unlawful detainer suit when "the possession of any land or building is unlawfully
withheld after the expiration or termination of the right to hold possession, by virtue
of any contract, express or implied." They contend that since they did not acquire
possession of the property in question "by virtue of any contract, express or implied"
- they having been, to repeat, "allowed to live temporarily ... (therein) for free, out of
... (Cañiza’s) kindness" - in no sense could there be a4n "expiration or termination of
. . . (their) right to hold possession, by virtue of any contract, express or implied."
Nor would an action for forcible entry lie against them, since there is no claim that
they had "deprived (Cañiza) of the possession of ... (her property) by force,
intimidation, threat, strategy, or stealth."
The argument is arrant sophistry. Cañiza’s act of allowing the Estradas to occupy her
house, rent-free, did not create a permanent and indefeasible right of possession in
the latter's favor. Common sense, and the most rudimentary sense of fairness clearly
require that act of liberality be implicitly, but no less certainly, accompanied by the
necessary burden on the Estradas of returning the house to Cañiza upon her demand.
More than once has this Court adjudged that a person who occupies the land of
another at the latter's tolerance or permission without any contract between them is
necessarily bound by an implied promise that he will vacate upon demand, failing
which a summary action for ejectment is the proper remedy against him. The
situation is not much different from that of a tenant whose lease expires but who
continues in occupancy by tolerance of the owner, in which case there is deemed to
be an unlawful deprivation or withholding of possession as of the date of the demand
to vacate. In other words, one whose stay is merely tolerated becomes a deforciant
illegally occupying the land or property the moment he is required to leave. Thus,
in Asset Privatization Trust vs. Court of Appeals,where a company, having lawfully
obtained possession of a plant upon its undertaking to buy the same, refused to return
it after failing to fulfill its promise of payment despite demands, this Court held that
"(a)fter demand and its repudiation, ... (its) continuing possession ... became illegal
and the complaint for unlawful detainer filed by the ... (plant’s owner) was its proper
remedy."126 (Emphasis supplied, citations omitted)
The existence of an alleged concession agreement between petitioner and respondent
is unsupported by the evidence on record. The Metropolitan Trial Court found that a
concession agreement existed due to the agreements entered into by the parties:
This Court agrees with the defendant. The various contracts of lease between the
parties notwithstanding, the existence of the other agreements involved herein cannot
escape the scrutiny of this Court. Although couched in such words as "contracts of
lease", the relationship between the parties has evolved into another kind - that of a
concession agreement whereby defendant [Offshore Construction] undertook to
develop several areas of the Intramuros District, defendant [Offshore Construction]
actually commenced the development of the subject premises and incurred expenses
for the said development, effectively making the relationship more than an ordinary
lessor-lessee but one governed by concession whereby both parties undertook other
obligations in addition to their basic obligations under the contracts of
lease. Consensus facit legem (The parties make their own law by their agreement). It
behooves this Court to respect the parties' contracts, including the memoranda of
agreement that ensued after it. ...127
Respondent claims that the parties’ agreement was for it to operate the leased
premises to recover its investments and to make profits.1âwphi1 However, a review
of the Contracts of Lease show that they are lease contracts, as defined in Article
1643 of the Civil Code:
Article 1643. In the lease of things, one of the parties binds himself to give to another
the enjoyment or use of a thing for a price certain, and for a period which may be
definite or indefinite. However, no lease for more than ninety-nine years shall be
valid.
The restrictions and limitations on respondent's use of the leased premises are
consistent with petitioner’s right as lessor to stipulate the use of the properties being
leased.128 Neither the Contracts of Lease nor their respective Addendums to the
Contract contain any stipulation that respondent may occupy and use the leased
premises until it recovers the expenses it incurred for improvements it introduced
there. Instead, the lease period was fixed at five (5) years, renewable for another five
(5) years upon mutual agreement:
3. CONTRACT TERM. (Leased Period) This lease shall be for a period of FIVE
YEARS (5 YRS) commencing from September 1, 1998 to August 31, 2003,
renewable for another period of FIVE YEARS (5 YRS) under such terms and
condition that may be mutually agreed upon in writing by the parties[.] 129
The subsequent contracts, namely, the July 26, 1999 Compromise Agreement and the
July 27, 2004 Memorandum of Agreement, also do not point to any creation of a
"concession" in favor of respondent. The Compromise Agreement affirms the
validity of the lease contracts, while the Memorandum of Agreement was for the
payment of respondent's arrears until July 2004.
However, this Court cannot award unpaid rentals to petitioner pursuant to the
ejectment proceeding, since the issue of rentals in Civil Case No. 08-119138 is
currently pending with Branch 37, Regional Trial Court, Manila, by virtue of
petitioner's counterclaim. As the parties dispute the amounts to be offset under the
July 27, 2004 Memorandum of Agreement and respondent’s actual back and current
rentals due,130 the resolution of that case is better left to the Regional Trial Court for
trial on the merits.
WHEREFORE, the Petition for Review on Certiorari is GRANTED. The April 14,
2011 Decision of Branch 173, Regional Trial Court, Manila in Civil Case No. 10-
124740 is REVERSED AND SET ASIDE, and a new decision is hereby rendered
ordering respondent Offshore Construction and Development Company and any and
all its sublessees and successors-in-interest to vacate the leased premises
immediately.
Branch 37, Regional Trial Court, Manila is DIRECTED to resolve Civil Case No.
08-119138 with dispatch.
SO ORDERED.
G.R. No. 185894, August 30, 2017
BELO MEDICAL GROUP, INC., Petitioner, v. JOSE L. SANTOS AND
VICTORIA G. BELO,Respondents.
DECISION
LEONEN, J.:
A conflict between two (2) stockholders of a corporation does not automatically
render their dispute as intra-corporate. The nature of the controversy must also be
examined.1
In this Petition for Review on Certiorari2 under Rule 45 of the Rules of Court, Belo
Medical Group, Inc. (Belo Medical Group) assails the Regional Trial Court
December 8, 2008 Joint Resolution in Civil Case No. 08-397.3 This Joint Resolution
granted respondent Jose L. Santos' (Santos) Motion to Dismiss and Belo Medical
Group's Complaint for interpleader and Supplemental Complaint for Declaratory
Relief against Santos and Victoria G. Belo (Belo), and declared all other pending
incidents as moot.4
The controversy began on May 5, 20085 when Belo Medical Group received a
request from Santos for the inspection of corporate records. 6 Santos claimed that he
was a registered shareholder and a co-owner of Belo's shares, as these were acquired
while they cohabited as husband and wife.7 Santos sought advice on his probable
removal as director of the corporation considering that he was not notified of
meetings where he could have been removed. He also inquired on the election of
Alfredo Henares (Henares) as Corporate Secretary in 2007 when Santos had not been
notified of a meeting for Henares' possible election. Finally, he sought explanation
on the corporation's failure to inform him of the 2007 annual meeting and the holding
of an annual meeting in 2008.8 Santos' concern over the corporate operations arose
from the alleged death of a patient in one (1) of its clinics. 9
Santos was unsuccessful in inspecting the corporate books as Henares, the officer-in-
charge of corporate records, was travelling. Belo Medical Group asked for time in
order for Henares to accommodate Santos' request.10
After the first attempt to inspect, Belo wrote Belo Medical Group on May 14, 2007
to repudiate Santos' co-ownership of her shares and his interest in the corporation.
She claimed that Santos held the 25 shares in his name merely in trust for her, as she,
and not Santos, paid for these shares. She informed Belo Medical Group that Santos
already had a pending petition with the Regional Trial Court to be declared as co-
owner of her properties. She asserted that unless a decision was rendered in Santos'
favor, he could not exercise ownership rights over her properties. 11
Belo also informed Belo Medical Group that Santos had a business in direct
competition with it. She suspected that Santos' request to inspect the records of Belo
Medical Group was a means to obtain a competitor's business information, and was,
therefore, in bad faith.12
A second inspection was attempted through a written demand by Santos on May 15,
2008.13 Again, he was unsuccessful.
Belo wrote to Belo Medical Group on May 20, 2008 to reiterate her objections to
Santos' attempts at inspecting corporate books and his inquiry regarding a patient.
Belo further manifested that she was exercising her right as a shareholder to inspect
the books herself to establish that the 25 shares were not owned by Santos, and that
he did not pay for these shares.14
Thus, Belo Medical Group filed a Complaint for Interpleader 15 with Branch 149,
Regional Trial Court, Makati City on May 21, 2008. Belo Medical Group alleged
that while Santos appeared to be a registered stockholder, there was nothing on the
record to show that he had paid for the shares under his name. The Complaint was
filed "to protect its interest and compel [Belo and Santos] to interplead and litigate
their conflicting claims of ownership of, as well as the corresponding right of
inspection arising from, the twenty-five (25) [Belo Medical Group] shares between
themselves pursuant to Rule 62 of the 1997 Rules of Civil Procedure . . ."16 The
following reliefs were prayed for:
(i) issue an Order summoning and requiring defendants Santos and Belo to interplead
with each other to resolve their conflicting claims of ownership of the 25 shares of
stock of [Belo Medical Group], including their opposing claims of exclusive
entitlement to inspect [Belo Medical Group] corporate records;
(ii) after due proceedings render judgment in favor of the proper defendant; and
(iii) allow plaintiff [Belo Medical Group] to recover attorney's fees and litigation
expenses in the amount of at least Php1,000,000.00 jointly and solidarity against
both defendants and for them to pay the costs of suit. 17
On the same day, Henares wrote Belo's and Santos' respective counsels to inform
them of the Complaint.18 Despite receipt, Santos' counsel still proceeded to Belo
Medical Group's Makati office on May 22, 2008, where, again, they were
unsuccessful in inspecting the corporate books.19
Santos, for the third time, sent a letter on May 22, 2008 to schedule an inspection of
the corporate books and warned that continued rejection of his request exposed the
corporation to criminal liability.20 Nothing came out of this last attempt as well.
Bela and Bela Medical Group wrote to Santos on May 27, 2008 to inform him that
he was barred from accessing corporate records because doing so would be inimical
to Belo Medical Group's interests.21Through another letter on May 28, 2008, Santos
was reminded of his majority share in The Obagi Skin Health, Inc. the owner and
operator of the House of Obagi (House of Obagi) clinics. He was likewise reminded
of the service of a notice of the 2007 special meeting of stockholders to his address at
Valero Street, Makati City, contrary to his claim.22
On May 29, 2008, Belo Medical Group filed a Supplemental Complaint23 for
declaratory relief under Rule 63 of the Rules of Court. In its Supplemental
Complaint, Belo Medical Group relied on Section 74 24 of the Corporation Code to
deny Santos' request for inspection. It prayed that Santos be perpetually barred from
inspecting its books due to his business interest in a competitor. 25 Should the ruling
for interpleader be in favor of Santos, Belo Medical Group prayed that the trial court:
a. exercise its power under Rule 63 of the Revised Rules of Civil Procedure and give
a proper construction of Sections 74 and 75 of the Corporation Code in relation to
the facts presented above, and declare that plaintiff can rightfully decline defendant
Santos's request for inspection under those sections and related provisions and
jurisprudence; and
b. allow plaintiff to recover attorney's fees and litigation expenses from defendant
Santos in the amount of at least PHP1,000,000.00 and the costs of suit. 26
Belo Medical Group's Complaint and Supplemental Complaint were raffled to
Branch 149 of the Regional Trial Court of Makati, a special commercial court, 27 thus
classifying them as intra-corporate.28
Belo filed her Answer Ad Cautelam with Cross-Claim to put on record her defenses
that Santos had no right to inspect the books as he was not the owner of the 25 shares
of stock in his name and that he was acting in bad faith because he was a majority
owner of House of Obagi.29
Belo further argued that the proceedings should not have been classified as intra-
corporate because while their right of inspection as shareholders may be considered
intra-corporate, "it ceases to be that and becomes a full-blown civil law question if
competing rights of ownership are asserted as the basis for the right of inspection." 30
Meanwhile, on several dates, the trial court sheriff attempted to personally serve
Santos with summons.31 After unsuccessful attempts,32 the sheriff resorted to
substituted service in Santos' Makati office condominium unit.33
On July 4, 2008, Belo Medical Group filed an Omnibus Motion for Clarificatory
Hearing and for Leave to File Consolidated Reply,34 praying that the case be tried as
a civil case and not as an intra-corporate controversy. It argued that the Interim Rules
of Procedure Governing Intra-Corporate Controversies35 did not include special civil
actions for interpleader and declaratory relief found under the Rules of Court. Belo
Medical Group clarified that the issue on ownership of the shares of stock must first
be resolved before the issue on inspection could even be considered ripe for
determination.36
Belo Medical Group later on moved that Santos be declared in default. 37 Instead of
filing an answer Santos filed a Motion to Dismiss.38
Apart from procedural infirmities, Santos argued that Belo Medical Group's
Complaint and Supplemental Complaint must be dismissed "for its failure to state,
and ultimately, lack of, a cause of action." 39 No ultimate facts were given to establish
the act or omission of Santos and Belo that violated Belo Medical Group's rights.
There was simply no conflict on the ownership of the 25 shares of stock under
Santos' name. Based on the corporation's 2007 Articles of Incorporation and General
Information Sheet, Santos was reflected as a stockholder and owner of the 25 shares
of stock. No documentary evidence was submitted to prove that Belo owned these
shares and merely transferred them to Santos as nominal shares. 40
Santos further argued that the filing of the complaints was an afterthought to take
attention away from Belo Medical Group's criminal liability when it refused Santos'
demand to inspect the records of the corporation. For years, neither Belo Medica1
Group nor Belo questioned Santos' standing in the corporation. No change in
ownership from Santos to another person was reflected in the company's General
Information Sheet.41
Santos also invoked the doctrine of piercing the corporate veil as Belo owned 90% of
Belo Medical Group. Her claim over the 25 shares was a ploy to defeat Santos' right
to inspect corporate records. He asserts that the Complaint for interpleader was an
anticipatory move by the company to evade criminal liability upon its denial of
Santos' requests.42
In addition, Santos argued that a prerequisite to filing these cases is that the plaintiff
has not yet incurred liability to any of the parties. Since Belo Medical Group had
already incurred criminal liability, it could no longer file a complaint for interpleader
or declaratory relief.43
Santos denied any conflict of interest because Belo Medical Group's products and
services differed from House of Obagi's44 Belo Medical Group's primary purpose
was the management and operation of skin clinics45 while the House of Obagi's main
purpose was the sale and distribution of high-end facial products.46
On October 29, 2008, Belo Medical Group filed its Opposition47 and argued that the
Motion to Dismiss was a prohibited pleading under Section 8 of the Interim Rules of
Procedure Governing Intra-Corporate Controversies.
Belo Medical Group reiterated that Belo and Santos must litigate against each other
to determine who rightfully owned the 25 shares. An accommodation of one of them,
absent a resolution to this issue, would make Belo Medical Group liable to the
other.48
On its supposed criminal liability when it refused Santos access to corporate records,
Belo Medical Group explained that the independent liability necessary to defeat
complaints for interpleader arose from a final judgment and not merely a cause of
action that has accrued.49
Finally, Belo Medical Group averred that substantiation must be done during trial.
The dismissal of the case would be premature.50
Belo's Opposition dated October 29, 2008 raised the same arguments of Belo
Medical Group.51
Santos filed his Reply to the Oppositions on November 18, 2008.52 He agreed that
the controversy was not intra-corporate but civil in nature, as it involved
ownership.53 However, he stood firm on his arguments that the case should be
dismissed due to the Complaints' failure to state a cause of action54and the trial
court's failure to acquire jurisdiction over his person. 55
On December 8, 2008, the assailed Joint Resolution56 was issued by the trial court
resolving the following incidents: Belo Medical Group's Omnibus Motion for
Clarificatory Hearing and for Leave to File Consolidated Reply and Motion to
Declare Santos in Default, and Santos' Motion to Dismiss. The trial court declared
the case as an intra-corporate controversy but dismissed the Complaints.57
The trial court characterized the dispute as "intrinsically connected with the
regulation of the corporation as it involves the right of inspection of corporate
records."58 Included in Santos and Belo's conflict was a shareholder's exclusive right
to inspect corporate records. In addition, the issue on the ownership of shares
requires the application of laws and principles regarding corporations. 59
However, the Complaint could not flourish as Belo Medical Group "failed to
sufficiently allege conflicting claims of ownership over the subject shares." 60 In
justifying failure to state a cause of action, the trial court reasoned:
Plaintiff clearly admits in the complaint that defendant Santos is the registered
stockholder of the subject shares albeit no records show that he made any payments
thereof. Also, notwithstanding defendant Belo's claim that she is the true owner
thereof, there was no allegation that defendant Santos is no longer the holder on
record of the same or that it is now defendant Belo who is the registered stockholder
thereof. In fact, the complaint even alleges that defendant Santos holds the 25 BMGI
shares merely as nominal qualifying shares in trust for defendant Belo. Thus, the
complaint failed to state a cause of action that would warrant the resort to an action
for interpleader.61
Though a motion to dismiss is a prohibited pleading under the Interim Rules of
Procedure Governing Intra-Corporate Controversies, the trial court ruled that Section
2, Rule 1 of these rules allowed for the Rules of Court to apply suppletorily.
According to the Rules of Court, motions to dismiss are allowed in interpleader
cases.62
Finally, the Complaint for Declaratory Relief was struck down as improper because
it sought an initial determination on whether Santos was in bad faith and if he should
be barred from inspecting the books of the corporation. Only after resolving these
issues can the trial court determine his rights under Sections 74 and 75 of the
Corporation Code. The act of resolving these issues is not within the province of the
special civil action as declaratory relief is limited to the construction and declaration
of actual rights and does not include the determination of issues. 63
From the Joint Resolution, Belo and Belo Medical Group pursued different remedies.
Belo filed her Petition for Review before the Court of Appeals docketed as CA G.R.
No. 08-397.64
Belo Medical Group, on the other hand, directly filed its Petition for Review with
this Court, alleging that purely questions of law are at issue.
Belo Medical Group argues that it is enough that there are two (2) people who have
adverse claims against each other and who are in positions to make effective claims
for interpleader to be given due course.65 Belo Medical Group cites Lim v.
Continental Development Corporation,66 which allowed a complaint for interpleader
to continue because two (2) parties claimed ownership over the same shares of
stock.67
On January 30, 2009, Belo Medical Group filed a
Manifestation/Disclosure68 informing this Court that on January 28, 2009, it received
Belo's Petition for Review filed before the Court of Appeals. On February 4, 2009,
this Court also received Belo's Manifestation69 that she filed a Petition for Review
before the Court of Appeals, assailing the Joint Resolution primarily because it
dismissed her counterclaims. She also furnished this Court a copy of her
Manifestation filed with the Court of Appeals to inform it of Belo Medical Group's
Petition for Review before this Court.70
On April 15, 2009, Belo filed her Comment71 and manifested that she agrees with the
arguments raised by Belo Medical Group.
On April 28, 2009, Santos filed his Comment.72 He argues that the Petition filed by
Belo Medical Group should be dismissed as the wrong mode of appeal. It should
have filed an appeal under Rule 43, pursuant to the Interim Rules on Intra-Corporate
Disputes.73 He alleges that Belo Medical Group committed forum shopping. It filed
the present Petition for Review after Belo had already filed an appeal under Rule 43
before the Court of Appeals. He asserts that Belo and Belo Medical Group have the
san1e interest. Belo, owner of 90% of the shares of stock of the corporation, dictates
Belo Medical Group's actions, which were ultimately for Belo's benefit and
interests.74
Meanwhile, on July 31, 2009, the Court of Appeals dismissed Belo's Petition for
Review and ruled that the pending case before this Court was the more appropriate
vehicle to determine the issues.75
The issues for this Court's resolution are as follows:
First, whether or not Belo Medical Group, Inc. committed forum shopping;
Second, whether or not the present controversy is intra-corporate; Third, whether or
not Belo Medical Group, Inc. came to this Court using the correct mode of appeal;
and
Finally, whether or not the trial court had basis in dismissing Belo Medica] Group,
Inc.'s Complaint for Declaratory Relief.
I
Neither Belo nor the Belo Medical Group is guilty of forum shopping.
Forum shopping exists when parties seek multiple judicial remedies simultaneously
or successively, involving the same causes of action, facts, circumstances, and
transactions, in the hopes of obtaining a favorable decision.76 It may be accomplished
by a party defeated in one forum, in an attempt to obtain a favorable outcome in
another, "other than by appeal or a special civil action for certiorari."77
Forum shopping trivializes rulings of courts, abuses their processes, cheapens the
administration of justice, and clogs court dockets.78 In Top Rate Construction &
General Services, Inc. v. Paxton Development Corporation:79
What is critical is the vexation brought upon the courts and the litigants by a party
who asks different courts to rule on the same or related causes and grant the same or
substantially the same reliefs and in the process creates the possibility of conflicting
decisions being rendered by the different fora upon the same issues. 80
Rule 7, Section 5 of the Rules of Court contains the rule against forum shopping:
Section 5. Certification against forum shopping. - The plaintiff or principal party
shall certify under oath in the complaint or other initiatory pleading asserting a claim
for relief, or in a sworn certification annexed thereto and simultaneously filed
therewith: (a) that he has not theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasi-judicial agency and, to the
best of his knowledge, no such other action or claim is pending therein; (b) if there is
such other per ding action or claim, a complete statement of the present status
thereof; and (c) if he should thereafter learn that the same or similar action or claim
has been filed or is pending, he shall report that fact within five (5) days therefrom to
the court wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere
amendment of the complaint or other initiatory pleading but shall be cause for the
dismissal of the case without prejudice; unless otherwise provided, upon motion and
after hearing. The submission of a false certification or non-compliance with any of
the undertakings therein shall constitute indirect contempt of court, without prejudice
to the corresponding administrative and criminal actions. If the acts of the party or
his counsel clearly constitute willful and deliberate forum shopping, the same shall
be ground for summary dismissal with prejudice and shall constitute direct contempt,
as well as a cause for administrative sanctions.
When willful and deliberate violation is clearly shown, it can be a ground for all
pending cases' summary dismissal with prejudice81 and direct contempt 82
Belo Medical Group filed its Petition for Review on Certiorari under Rule 45 before
this Court to appeal against the Joint Resolution of the trial court. It did not file any
other petition related to the case, as indicated in it verification and certification
against forum shopping. It was Belo, a defendant in Belo Medical Groups
Complaint, who filed a separate appeal under Rule 43 with the Court of Appeals
primarily to protect her counterclaims. Belo and Belo Medical Group both filed their
respective Petitions for Review on January 28, 2009, the lat day within the period
allowed to do so.83 The Court of Appeals already ruled that litis pendencia was
present when Belo and Belo Medical Group filed their respective petitions on the
same date before different fora. The two petitions involved the same parties, rights
and reliefs sought, and causes of action.84 This is a decision this Court can no longer
disturb.
Neither Belo Medical Group nor Belo can be faulted for willful and deliberate
violation of the rule against forum shopping. Their prompt compliance of the
certification against forum shopping appended to their Petitions negates willful and
deliberate intent.
Belo Medical Group was not remiss in its duty to inform this Court of a similar
action or proceeding related to its Petition. It promptly manifested before this Court
its receipt of Belo's Petition before the Court of Appeals. Belo Medical Group and
Belo manifested before this Court that Belo filed a Rule 43 petition to protect her
counterclaims and to question the same Joint Resolution issued by the trial court.
Both did so within five (5) days from discovery, as they undertook in their respective
certificates against forum� shopping.
The issue of forum shopping has become moot. The appeal under Rule 43 filed by
Belo has been dismissed by the Court of Appeals on the ground of litis
pendencia.85 The purpose of proscribing forum shopping is the proliferation of
contradictory decisions on the same controversy.86 This possibility no longer exists
in this case.
II
Belo Medical Group filed a case for interpleader, the proceedings of which are
covered by the Rules of Court. At its core, however, it is an intra�-corporate
controversy.
A.M. No. 01-2-04-SC, or the Interim Rules of Procedure Governing Intra-Corporate
Controversies, enumerates the cases where the rules will apply:
Section 1. (a) Cases Covered - These Rules shall govern the procedure to be
observed in civil cases involving the following:
1. Devices or schemes employed by, or any act of, the board of directors,
business associates, officers or partners, amounting to fraud or
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of any corporation,
partnership, or association;
2. Controversies arising out of intra-corporate, partnership, or association
relations, between and among stockholders, members, or associates; and
between, any or all of them and the corporation, partnership, or association
of which they are stockholders, members, or associates, respectively;
3. Controversies in the election or appointment of directors, trustees, officers,
or managers of corporations, partnerships, or associations;
4. Derivative suits; and
5. Inspection of corporate books.87
The same rules prohibit the filing of a motion to dismiss:
Section 8. Prohibited Pleadings. -The following pleadings are prohibited: (1) Motion
to dismiss;
(2) Motion for a bill of particulars;
(3) Motion for new trial or for reconsideration of judgment or order, or for
re�opening of trial;
(4) Motion for extension of time to file pleadings, affidavits or any other paper,
except those filed due to clearly compelling reasons. Such motion must be verified
and under oath; and
(5) Motion for postponement and other motions of similar intent, except those filed
due to clearly compelling reasons. Such motion must be verified and under oath.
To determine whether an intra-corporate dispute exists and whether this case requires
the application of these rules of procedure, this Court evaluated the relationship of
the parties. The types of intra-corporate relationships were reviewed in Union Glass
& Container Corporation v. Securities and Exchange Commission:88
[a] between the corporation, partnership or association and the public; [b] between
the corporation, partnership or association and its stockholders, partners, members,
or officers; [c] between the corporation, partnership or association and the state in so
far as its franchise, permit or license to operate is concerned; and [d] among the
stockholders, partners or associates themselves.89
For as long as any of these intra-corporate relationships exist between the parties, the
controversy would be characterized as intra-corporate.90 This is known as the
"relationship test."
DMRC Enterprises v. Este del Sol Mountain Reserve, Inc. 91 employed what would
later be called as the "nature of controversy test." It became another means to
determine if the dispute should be considered as intra�-corporate.
In DMRC Enterprises, Este del Sol leased equipment from DMRC Enterprises. Part
of Este del Sol's payment was shares of stock in the company. When Este del Sol
defaulted, DMRC Enterprises filed a collection case before the Regional Trial Court.
Este del Sol argued that it should have been filed before the Securities and Exchange
Commission as it involved an intra-corporate dispute where a corporation was being
compelled to issue its shares of stock to subscribers. This Court held that it was not
just the relationship of the parties that mattered but also the conflict between them:
The purpose and the wording of the law escapes the respondent. Nowhere in said
decree do we find even so much as an intimidation that absolute jurisdiction and
control is vested in the Securities and Exchange Commission in all matters affecting
corporations. To uphold the respondent's argument would remove without legal
imprimatur from the regular courts all conflicts over matters involving or affecting
corporations, regardless of the nature of the transactions which give rise to such
disputes. The courts would then be divested of jurisdiction not by reason of the
nature of the dispute submitted to them for adjudication, but solely for the reason that
the dispute involves a corporation. This cannot be done. To do so would not only be
to encroach on the legislative prerogative to grant and revoke jurisdiction of the
courts but such a sweeping interpretation may suffer constitutional infirmity. Neither
can we reduce jurisdiction of the courts by judicial fiat (Article X, Section 1, The
Constitution).92
This Court now uses both the relationship test and the nature of the controversy test
to determine if an intra-corporate controversy is present.93
Applying the relationship test, this Court notes that both Belo and Santos are named
shareholders in Belo Medical Group's Articles of Incorporation94 and General
Information Sheet for 2007.95 The conflict is clearly intra-corporate as it involves
two (2) shareholders although the ownership of stocks of one stockholder is
questioned. Unless Santos is adjudged as a stranger to the corporation because he
holds his shares only in trust for Belo, then both he and Belo, based on official
records, are stockholders of the corporation. Belo Medical Group argues that the case
should not have been characterized as intra-corporate because it is not between two
shareholders as only Santos or Belo can be the rightful stockholder of the 25 shares
of stock. This may be true. But this finding can only be made after trial where
ownership of the shares of stock is decided.
The trial court cannot classify the case based on potentialities. The two defendants in
that case are both stockholders on record. They continue to be stockholders until a
decision is rendered on the true ownership of the 25 shares of stock in Santos' name.
If Santos' subscription is declared fictitious and he still insists on inspecting
corporate books and exercising rights incidental to being a stockholder, then, and
only then, shall the case cease to be intra-corporate.
Applying the nature of the controversy test, this is still an intra-�corporate dispute.
The Complaint for interpleader seeks a determination of the true owner of the shares
of stock registered in Santos' name. Ultimately, however, the goal is to stop Santos
from inspecting corporate books. This goal is so apparent that, even if Santos is
declared the true owner of the shares of stock upon completion of the interpleader
case, Belo Medical Group still seeks his disqualification from inspecting the
corporate books based on bad faith. Therefore, the controversy shifts from a mere
question of ownership over movable property to the exercise of a registered
stockholder's proprietary right to inspect corporate books.
Belo Medical Group argues that to include inspection of corporate books to the
controversy is premature considering that there is still no determination as to who,
between Belo and Santos, is the rightful owner of the 25 shares of stock. Its actions
belie its arguments. Belo Medical Group wants the trial court not to prematurely
characterize the dispute as intra-corporate when, in the same breath, it prospectively
seeks Santos' perpetual disqualification from inspecting its books. This case was
never about putting into light the ownership of the shares of stock in Santos' name. If
that was a concern at all, it was merely secondary. The primary aim of Belo and Belo
Medical Group was to defeat his right to inspect the corporate books, as can be seen
by the filing of a Supplemental Complaint for declaratory relief.
The circumstances of the case and the aims of the parties must not be taken in
isolation from one another. The totality of the controversy must be taken into account
to improve upon the existing tests. This Court notes that Belo Medical Group used its
Complaint for interpleader as a subterfuge in order to stop Santos, a registered
stockholder, from exercising his right to inspect corporate books.
Belo made no claims to Santos' shares before he attempted to inspect corporate
books, and inquired about the Henares' election as corporate secretary and the
conduct of stockholders' meetings. Even as she claimed Santos' shares as hers, Belo
proffered no initial proof that she had paid for these shares. She failed to produce any
document except her bare allegation that she had done so. Even her Answer Ad
Cautelam with Cross-Claim96 contained bare allegations of ownership.
According to its Complaint, although Belo Medical Group's records reflect Santos as
the registered stockholder of the 25 shares, they did not show that Santos had made
payments to Belo Medical Group for these shares, "consistent with Bela's claim of
ownership over them."97 The absence of any document to establish that Santos had
paid for his shares does not bolster Belo's claim of ownership of the same shares.
Santos remains a stockholder on record until the contrary is shown.
Belo Medical Group cites Lim v. Continental Development Corporation98 as its basis
for filing its Complaint for interpleader. In Lim, Benito Gervasio Tan (Tan) appeared
as a stockholder of Continental Development Corporation. He repeatedly requested
the corporation to issue certificates of shares of stock in his name but Continental
Development Corporation could not do this due to the claims of Zoila Co Lim (Lim).
Lim alleged that her mother, So Bi, was the actual owner of the shares that were
already registered in the corporate books as Lim's, and she delivered these in trust to
Lim before she died. Lim wanted to have the certificates of shares cancelled and new
ones re-issued in his name. This Court ruled that Continental Development
Corporation was correct in filing a case for interpleader:
Since there is an active conflict of interests between the two defendants, now herein
respondent Benito Gervasio Tan and petitioner Zoila Co Lim, over the disputed
shares of stock, the trial court gravely abused its discretion in dismissing the
complaint for interpleader, which practically decided ownership of the shares of
stock in favor of defendant Benito Gervasio Tan. The two defendants, now
respondents in G.R. No. L-41831, should be given full opportunity to litigate their
respective claims.
Rule 63, Section 1 of the New Rules of Court tells us when a cause of action exists to
support a complaint in interpleader:
Whenever conflicting claims upon the same subject matter are or may be made
against a person, who claims no interest whatever in the subject matter, or an interest
which in whole or in part is not disputed by the claimants, he may bring an action
against the conflicting claimants to compel them to interplead and litigate their
several claims among themselves . . .
This provision only requires as an indispensable requisite:
that conflicting claims upon the same subject matter are or may be made against the
plaintiff-in-interpleader who claims no interest whatever in the subject matter or an
interest which in whole or in part is not disputed by the claimants (Beltran vs.
People's Homesite and Housing Corporation, No. L-25138, 29 SCRA 145).
This ruling, penned by Mr. Justice Teehankee, reiterated the principle in Alvarez vs.
Commonwealth (65 Phil. 302), that
The action of interpleader, under section 120, is a remedy whereby a person who has
personal property in his possession. or an obligation to render wholly or partially,
without claiming any right in both comes to court and asks that the persons who
claim the said personal property or who consider themselves entitled to demand
compliance with the obligation. be required to litigate among themselves, in order to
determine finally who is entitled to one or the other thing. The remedy is afforded
not to protect a person against a double liability but to protect him against a double
vexation in respect of one liability.
An interpleader merely demands as a sine qua non element
. . . that there be two or more claimants to the fund or thing in dispute through
separate and different interests. The claims must be adverse before relief can be
granted and the parties sought to be interpleaded must be in a position to make
effective claims (33 C.J. 430).
Additionally, the fund thing, or duty over which the parties assert adverse claims
must be one and the same and derived from the same source (33 C.J., 328; Martin,
Rules of Court, 1969 ed., Vol. 3, 133-134; Moran, Rules of Court, 1970 ed., Vol. 3,
134-136).
Indeed, petitioner corporation is placed in the same situation as a lessee who does not
know the person to whom he will pay the rentals due to the conflicting claims over
t[h]e property leased, or a sheriff who finds himself puzzled by conflicting claims to
a property seized by him. In these examples, the lessee (Pangkalinawan vs. Rodas,
80 Phil. 28) and the sheriff (Sy-Quia vs. Sheriff, 46 Phil. 400) were each allowed to
file a complaint in interpleader to determine the respective rights of the claimants.99
In Lim, the corporation was presented certificates of shares of stock in So Bi's name.
This proof was sufficient for Continental Development Corporation to reasonably
conclude that controversy on ownership of the shares of stock existed.
Furthermore, the controversy in Lim was between a registered stockholder in the
books of the corporation and a stranger who claimed to be the rightful transferee of
the shares of stock of her mother. The relationship of the parties and the
circumstances of the case establish the civil nature of the controversy, which was
plainly, ownership of shares of stock. Interpleader was not filed to evade or defeat a
registered stockholder's right to inspect corporate books. It was borne by the sincere
desire of a corporation, not interested in the certificates of stock to be issued to either
claimant, to eliminate its liability should it favor one over the other.
On the other hand, based on the facts of this case and applying the relationship and
nature of the controversy tests, it was understandable how the trial court could
classify the interpleader case as intra-corporate and dismiss it. There was no
ostensible debate on the ownership of the shares that called for an interpleader case.
The issues and remedies sought have been muddled when, ultimately, at the front
and center of the controversy is a registered stockholder's right to inspect corporate
books.
As an intra-corporate dispute, Santos should not have been allowed to file a Motion
to Dismiss.100 The trial court should have continued on with the case as an intra-
corporate dispute considering that it called for the judgments on the relationship
between a corporation and its two warring stockholders and the relationship of these
two stockholders with each other.
III
Rule 45 is the wrong mode of appeal.
A.M. No. 04-9-07-SC promulgated by this Court En Banc on September 14, 2004
laid down the rules on modes of appeal m cases formerly cognizable by the
Securities and Exchange Commission:
1. All decisions and final orders in cases falling under the Interim Rules of Corporate
Rehabilitation and the Interim Rules of Procedure Governing Intra-Corporate
Controversies under Republic Act No. 8799 shall be appealable to the Court of
Appeals through a petition for review under Rule 43 of the Rules of Court.
2. The petition for review shall be taken within fifteen (15) days from notice of the
decision or final order of the Regional Trial Court. Upon proper motion and the
payment of the full amount of the legal fee prescribed in Rule 141 as amended before
the expiration of the reglementary period, the Court of Appeals may grant an
additional period of fifteen (15) days within which to file the petition for review. No
further extension shall be granted except for the most compelling reasons and in no
case to exceed fifteen (15) days.
On the other hand, Rule 43 of the Rules of Court allows for appeals to the Court of
Appeals to raise questions of fact, of law, or a mix of both. Hence, a party assailing a
decision or a final order of the trial court acting as a special commercial court, purely
on questions of law, must raise these issues before the Court of Appeals through a
petition for review.101 A.M. No. 04-9-07-SC mandates it. Rule 43 allows it.
Belo Medical Group argues that since it raises only questions of law, the proper
mode of appeal is Rule 45 filed directly to this Court. This is correct assuming there
were no rules specific to intra-corporate disputes. Considering that the controversy
was still classified as intra-corporate upon filing of appeal, special rules, over general
ones, must apply.
Based on the policy of judicial economy and for practical considerations, 102 this
Court will not dismiss the case despite the wrong mode of appeal utilized. For one, it
would be taxing in time and resources not just for Belo Medical Group but also for
Santos and Belo to dismiss this case and have them refile their petitions for review
before the Court of Appeals. There would be no benefit to any of the parties to
dismiss the case especially since the issues can already be resolved based n the
records before this Court. Also, the Court of Appeals already referred the matter to
this Court when it dismissed Belo's Petition for Review. Remanding this case to the
Court of Appeals would not only be unprecedented, it would further delay its
resolution.
IV
At the outset, this Court notes that two cases were filed by Belo Medical Group: the
Complaint for interpleader and the Supplemental Complaint for Declaratory Relief.
Under Rule 2, Section 5 of the Rules of Court, a joinder of cause of action is
allowed, provided that it follows the conditions enumerated below:
Section 5. Joinder of Causes of Action. A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an
opposing party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules on joinder of
parties;
(b) The joinder shall not include special civil actions or actions governed by
special rules;
(c) Where the causes of action are between the same parties but pertain to different
venues or jurisdictions, the joinder may be allowed in the Regional Trial Court
provided one of the causes of action falls within the jurisdiction of said court and the
venue lies therein; and
(d) Where the claims in all the causes of action are principally for recovery of
money, the aggregate amount claimed shall be the test of jurisdiction. (Emphasis
supplied)
Assuming this case continues on as an interpleader, it cannot be joined with the
Supplemental Complaint for declaratory relief as both are special civil actions.
However, as the case was classified and will continue as an intra-corporate dispute,
the simultaneous complaint for declaratory relief becomes superfluous. The right of
Santos to inspect the books of Belo Medical Group and the appreciation for his
motives to do so will necessarily be determined by the trial court together with
determining the ownership of the shares of stock under Santos' name.
The trial court may make a declaration first on who owns the shares of stock and
suspend its ruling on whether Santos should be allowed to inspect corporate records.
Or, it may rule on whether Santos has the right to inspect corporate books in the
meantime while there has yet to be a resolution on the ownership of shares.
Remedies are available to Belo Medical Group and Belo at any stage of the
proceeding, should they carry on in prohibiting Santos from inspecting the corporate
books.
WHEREFORE, the Petition for Review of Belo Medical Group, Inc.
is PARTIALLY GRANTED. The December 8, 2008 Joint Resolution of Branch
149, Regional Trial Court, Makati City in Civil Case No. 08-397
is REVERSED regarding its dismissal of the intra-corporate case. Let this case
be REMANDED to the commercial court of origin for further proceedings.
G.R. No. 213233, August 05, 2015
BLISS DEVELOPMENT CORP./HOME GUARANTY
CORPORATION, Petitioner, v. MONTANO DIAZ, DOMINGO TAPAY, AND
EDGAR H. ARREZA, Respondents.
DECISION
VELASCO JR., J.:
The Case
This is a Petition for Review on Certiorari assailing the Decision1 of the Court of
Appeals (CA), promulgated on January 21, 2014, and its subsequent Resolution
dated June 27, 2014, both in CA-G.R. CV No. 99179. The assailed Decision reversed
and set aside the Decision of the Regional Trial Court (RTC), Makati City, Branch
59, dated November 21, 2011, in Civil Case No. 96-1372. The assailed Resolution,
meanwhile, denied petitioner�s Motion for Reconsideration.
The Facts
Petitioner Bliss Development Corporation (BDC) (subsequently reorganized as
Home Guaranty Corporation) is the registered owner of Lot No. 27, Block 30, New
Capitol Estates I, Brgy. Matandang Balara, Diliman, Quezon City, and covered by
Transfer Certificate of Title (TCT) No. 331582. On October 19, 1984, it entered into
and executed a Deed of Sale over the said property in favor of Spouses Emiliano and
Leonila Melgazo (Sps. Melgazo), both of whom are now deceased. 2redarclaw
On May 7, 1991, a certain Rodolfo Nacua (Nacua) sent a letter to BDC, saying that
Sps. Melgazo transferred to him their rights over the property. He further expressed
willingness to pay the outstanding obligations of Sps. Melgazo to BDC. Before the
property was fully paid, however, Nacua sold his rights to Olivia Garcia (Garcia),
through a Deed of Transfer of Rights. Later, Garcia transferred her rights to
Elizabeth Reyes (Reyes). Reyes then transferred her rights to Domingo Tapay
(Tapay), who then later sold his rights to herein respondent Montano Diaz (Diaz) for
Six Hundred Thousand Pesos (P600,000.00). Diaz then paid BDC the amortizations
due on the property, amounting to P406,915.15, and BDC issued a permit to occupy
the property in favor of Diaz. Diaz then introduced improvements on the property,
amounting to P700,000.00.
On April 14, 1992, BDC executed a Contract to Sell in favor of Diaz. 3 On April 15,
1994, however, BDC informed Diaz that respondent Edgar Arreza (Arreza) was
claiming that the heirs of Sps. Melgazo sold to him the rights over the
property.4 BDC then placed Diaz�s account in �inactive status.� To resolve the
conflicting claims of Arreza and Diaz, BDC filed a complaint for Interpleader
against them, before the RTC, Makati City, Branch 146. On March 27, 1996, the
Makati City RTC Branch 146 ruled that the signatures of Sps. Melgazo transferring
their rights to Nacua were mere forgeries. Thus, it ruled that Arreza had a better right
over the property. This decision became final and executory. 5redarclaw
On August 27, 1996, Diaz filed the present complaint for sum of money against BDC
before the RTC, Makati City, Branch 59.6 This was later amended to include Arreza
and Tapay as defendants. Diaz argued that BDC and Tapay�s representations led
him to believe that he had a good title over the property, but due to the court�s
ruling in the interpleader case, he was constrained to transfer the property to Arreza.
Thus, he prayed for the following:LawlibraryofCRAlaw
(1) For BDC and Arreza to pay him P1,106,915.58, plus interest, representing the
amount he paid for the assumption of Tapay�s rights;
(2) For Tapay to pay him P600,000.00, plus interests, representing the amount he
paid Tapay;
(3) For BDC and Tapay to pay him P500,000.00 as moral damages;
(4) For BDC to pay him P500,000 as exemplary damages; and
(5) For BDC, Tapay, and Arreza to pay him P100,000 as attorney�s fees and costs
of suit.7
Both BDC and Tapay argued that their respective acts were lawful and done in good
faith.Arreza filed a Motion to Dismiss, citing res judicata, arguing that the claim of
Diaz is a compulsory counterclaim that should have been pleaded in the Interpleader
case. The RTC denied the Motion to Dismiss, which the CA, on certiorari, affirmed.
When the issue reached this Court in G.R. No. 133113, 8 this Court ruled that the
claim as against Arreza is barred by res judicata. The Court upheld the argument that
the claim is in the nature of a compulsory counterclaim. Thus, the case against
Arreza was dismissed.
The Decision of the RTC

After trial, the RTC rendered its Decision on November 21, 2011, finding that Diaz
failed to prove that he is an assignee in good faith, and thus dismissed the complaint
for lack of merit in this wise:LawlibraryofCRAlaw
Plaintiff must show that he inquired not only into the title of the assignor but also
into the assignor�s capacity to convey. The failure of plaintiff to diligently inquire
as such, indicated that he is not an assignee in good faith. Plaintiff Diaz downplays
the need to extend his examination to intervening transferor farther than Domingo
Tapay from whom he acquired the subject property. Such attitude, however, is not in
accord with what a reasonably prudent person would do under the circumstances.
xxxx
WHEREFORE, premises considered, plaintiff�s Complaint is hereby DISMISSED
for lack of merit. Defendant Domingo Tapay�s [counterclaim] is likewise
dismissed. No costs.9
Aggrieved, Diaz appealed to the CA.
The Decision of the CA
In its presently assailed Decision promulgated on January 21, 2014, the CA reversed
the ruling of the RTC and, instead,ruled that Diaz is entitled to be paid
reimbursement and damages. The CA anchored its ruling on its finding that Diaz is
both a buyer in good faith and a builder in good faith, thus:LawlibraryofCRAlaw
A careful examination of the records convinces Us that Diaz is both a buyer and
builder in good faith. We note that while Bliss executed a Deed of Sale with
Mortgage in favor of the spouses Emiliano and Leonila Melgazo, title over the
property was in Bliss� name. The title remained in Bliss� name when Tapay
offered to transfer his rights over the property to Diaz. Considering that the property
involved is registered land, Diaz need not go beyond the title to be considered a
buyer in good faith. Indeed, after Diaz accepted Tapay�s offer, he dealt directly
with Bliss which received the monthly amortizations due on the property. For almost
three years, from 1991 to 1994, Bliss accepted Diaz�s payment without informing
Diaz of Arreza�s conflicting claim over the property. Bliss even issued Diaz a
permit to occupy the property in 1992; thus, allowing Diaz to introduce
improvements on the property. In other words, at the time when Diaz purchased the
property from Tapay and when he introduced the improvements, he had no notice
that some other person has a right over the property. He also had a well-founded
belief that the property he was building on was his. Accordingly, Diaz is a buyer and
builder in good faith.10
In ruling that Diaz is a buyer in good faith, the CA noted that Diaz need not go
beyond the title to be considered a buyer in good faith, because what is involved is a
registered land.
With regard to the liability of BDC, the CA ruled that the provision in the Contract to
Sell excusing it from reimbursing the monthly amortizations to Diaz cannot exempt
it from liability, because it acted in bad faith. The CA said:LawlibraryofCRAlaw
Next, Bliss� argument that the Additional Provision in the Contract to Sell excuses
it from reimbursing the monthly amortizations paid by Diaz cannot be given
credence. Any stipulation exempting the vendor from the obligation to answer for
eviction shall be void, if he acted in bad faith. The vendor�s bad faith consists in his
knowledge beforehand at the time of the sale, of the presence of the fact giving rise
to eviction, and its possible consequence. It is undisputed that Bliss knew about
Arreza�s claim in 1991. It even received amortization payments from Arreza. Yet,
Bliss is aware that should Arreza pursue his claim in court, Diaz may be evicted from
the property. Yet, Bliss only informed Diaz about Arreza�s claim in 1994 when
Arreza followed up his claim. Indubitably, Bliss acted in bad faith in dealing with
Diaz and should not be absolved from liability by the Additional Provision in the
Contract to Sell.11
Thus, the CA dispositively held:LawlibraryofCRAlaw
FOR THESE REASONS, the November 21, 2011 Decision of the Regional Trial
Court of Makati City, Branch 59, is SET ASIDE. The Court hereby DIRECTS: (1)
Defendant-appellee Bliss Development Corporation/Home Guaranty Corporation
to PAY plaintiff-apellant Montano Diaz P1,106,915.58 for the amortizations paid
and amount spent on improvements on the property, P100,000.00 as moral damages,
P50,000.00 as exemplary damages, and P25,000.00 as attorney�s fee; and (2)
defendant-appellee Domingo Tapay to PAY plaintiff-appellant Montano M. Diaz
P600,000.00, the amount he paid for the transfer of rights.
Petitioner BDC moved for reconsideration, insisting that Diaz cannot be declared a
buyer in good faith, in light of the March 27, 1996 Decision of the Makati City RTC,
Branch 146 in the Interpleader case, which had long been final and executory. Tapay
also moved for reconsideration, arguing that he was not aware of the defect in the
title sold to Diaz, and, hence, he should not be made liable for the P600,000.00 that
Diaz paid to him. In the CA�s assailed Resolution dated June 27, 2014,12 the CA
denied both motions for reconsideration.
Hence, the present Petition for Review on Certiorari filed by BDC, raising the
following issues:LawlibraryofCRAlaw
I.
WHETHER THE CA ERREDIN NOT DISMISSING THE APPEAL, IN VIEW OF
THE APPLICATION OF THE DOCTRINE OF IMMUTABILITY OF JUDGMENT
IN THE DECISION OF THE COURT IN G.R. NO. 133113
 II.
WHETHER THE CA ERRED IN DECLARING BDC IN BAD FAITH
III.
WHETHER THE CA ERRED IN DECLARING THAT THERE WAS UNJUST
ENRICHMENT ON THE PART OF BDC
IV.
WHETHER DIAZ CAN STILL CLAIM REIMBURSEMENT EVEN IF UNDER
THE CONTRACT, HIS POSSESSION IS IN THE NATURE OF A LESSOR
V.
WHETHER BDC IS LIABLE TO REIMBURSE DIAZ OF THE AMOUNT OF
P1,106,915.58
In fine, petitioner argues that it is not liable to respondent Diaz, both for the
amortizations that Diaz paid to it, and the value of the improvements that Diaz
introduced to the property.
Meanwhile, Tapay failed to elevate before this Court the CA�s ruling against him.
The Court�s Ruling
The petition is partially granted. The CA committed reversible error in ruling that
Diaz was a buyer in good faith and for value. Nevertheless, BDC is liable to Diaz
because it acted in bad faith, as discussed below.
The claim is not barred by the
doctrine of immutability of judgment
First, We dispose of the issue of the applicability of the doctrine of immutability of
judgment, in view of the ruling of this Court in G.R. No. 133113. We find that the
present claim is not barred by the court�s ruling in G.R. No. 133113��to the
effect that Diaz can no longer claim reimbursement from Arrezabecause of res
judicata��for his failure to allege the claim in the interpleader case between them.
In G.R. No. 133113, We ruled that the claim against Arreza is barred by res
judicata, because of a prior Interpleader case between Arreza and Diaz. We ruled
that the claim for reimbursement should have been alleged and proved in the prior
case, and failure to do so bars any future action on such claims. We reiterated the
rule on res judicata, thus:LawlibraryofCRAlaw
In cases involving res adjudicata, the parties and the causes of action are identical or
substantially the same in the prior as well as the subsequent action. The judgment in
the first action is conclusive as to every matter offered and received therein and as to
any other matter admissible therein and which might have been offered for that
purpose, hence said judgment is an absolute bar to a subsequent action for the same
cause.The bar extends to questions necessarily involved in an issue, and necessarily
adjudicated, or necessarily implied in the final judgment, although no specific
finding may have been made in reference thereto, and although such matters were
directly referred to in the pleadings and were not actually or formally presented. Said
prior judgment is conclusive in a subsequent suit between the same parties on
the same subject matter, and on the same cause of action, not only as to matters
which were decided in the first action, but also as to every other matter which the
parties could have properly set up in the prior suit.13 (emphasis added)
In the case at bar, We find that the essential elements of res judicata are not
present. First, the interpleader case was between Arreza and Diaz. While it was BDC
that initiated the interpleader case, the opposing parties in that prior case is, in fact,
Arreza and Diaz. Second, the issues resolved in the interpleader case revolved around
the conflicting claims of Arreza and Diaz, and not whatever claim either of them
may have against BDC. Thus, there is no identity of parties, nor identity of subject
matter, between the interpleader case and the one at bar.
Petitioner BDC acted in bad faith
in dealing with respondent Diaz
On the second issue, We find that the CA committed no reversible error in finding
that BDC acted in bad faith, when it allowed Diaz to take over the payment of the
amortizations over the subject property. As the CA correctly noted, �It is
undisputed that Bliss knew about Arreza�s claim in 1991. It even received
amortization payments from Arreza. Yet, Bliss acknowledged the transfer to Diaz
and received the monthly amortizations paid by Diaz. Also, Bliss is aware that
should Arreza pursue his claim in court, Diaz may be evicted from the
property.�14redarclaw
BDC anchors its claim of good faith on the fact that it did not act as seller to Diaz.
Rather, BDC claims, it was Diaz who came forward and presented himself to BDC
as the lawful successor-in-interest of Emiliano and Leonila Melgazo, by virtue of the
several deeds of transfer of rights, all of which he presented to BDC. It was on the
basis of this claim that BDC allowed Diaz to occupy the property and pay
amortizations accruing over the property.15redarclaw
Nevertheless, BDC does not dispute that as early as 1991, even before respondent
came forward presenting the deeds of transfer to BDC, BDC was already aware of
the claim of Arreza. In fact, it even received amortizations from Arreza. Despite this,
BDC also later acknowledged the transfer to Diaz, and also accepted amortizations
from him.16 This uncontroverted sequence of events led the CA to correctly rule that
BDC, indeed, acted in bad faith.
When Diaz came forward and presented the deeds of transfer, including the deed of
transfer executed by Tapay in his favor, BDC was already well aware of a conflicting
claim by Arreza. Instead of waiting for the resolution on the matter, BDC
immediately accepted the deed of transfer presented by Diaz, as well as the
amortizations he paid over the property. It was only in 1994 that BDC filed the
Interpleader case to resolve the conflicting case. This is nothing short of evident bad
faith.
Respondent Diaz is not a purchaser
for value and in good faith
We,however, fail to find sufficient basis for the CA�s ruling that Diaz is a
purchaser for value and in good faith. In a long line of cases, this Court had ruled
that a purchaser in good faith and for value is one who buys property of another
without notice that some other person has a right to, or interest in, such property and
pays full and fair price for the same at the time of such purchase or before he or she
has notice of the claim or interest of some other person in the property. 17For one to
be considered a purchaser in good faith, the following requisites must concur: (1)
that the purchaser buys the property of another without notice that some other person
has a right to or interest in such property; and (2) that the purchaser pays a full and
fair price for the property at the time of such purchase or before he or she has notice
of the claim of another.18 We find that in the case at bar, the first element is lacking.
The CA, in disposing the issue of Diaz�s good faith, merely said that �considering
that the property involved is registered land, Diaz need not go beyond the title to be
considered a buyer in good faith.�19We find this to be a serious and reversible error
on the part of the CA. In the first place, while it is true that the subject lot is
registered lot, the doctrine of not going beyond the face of the title does not apply in
the case here, because what was subjected to a series of sales was not the lot itself
but the right to purchase the lot from BDC. The CA itself observed: �while [BDC]
executed a Deed of Sale with Mortgage in favor of the spouses Emiliano and Leonila
Melgazo, title over the property was in [BDC�s] name. The title remained in
[BDC�s] name when Tapay offered to transfer his rights over the property to
Diaz.�20Notably, the several transfers themselves did not purport to be Deeds of
Absolute Sale, but merely deeds of assignment of rights. The subject of those deeds
of assignment was never the real right over the subject property, but merely the
personal right to purchase it. Therefore, the mirror doctrine finds no application in
the case at bar.
A careful review of the records of this case reveals that Diaz, in fact, failed to
diligently inquire into the title of his predecessor before entering into the contract of
sale. As such, he cannot be considered a buyer in good faith. There is no issue that
despite the several transfers of rights from Nacua to Garcia to Reyes to Tapay to
Diaz, title over the property remained in BDC�s name.When Diaz transacted with
Tapay, it was also clear that what was being transferred was merely rights to
purchase the property, and not title over the lot itself; if it were, the sale would have
been void because Tapay never had ownership over the subject property. As the
buyer in such a transaction, it was incumbent upon Diaz not only to inquire as to the
right of Tapay to transfer his rights, but also to trace the source of that right to
purchase the property. Had he discharged this duty diligently, he would have found
out that Nacua�s right was without basis, because it was founded on a forged deed.
For his failure to inquire diligently and trace the source of the right to purchase the
property, Diaz cannot claim to be a purchaser in good faith and for value.
Petitioner BDC is liable to return the
amortizations paid by respondent Diaz,
under the doctrine of unjust enrichment
Notwithstanding the fact that Diaz is not an innocent purchaser in good faith and for
value, BDC is nevertheless liable to return to him the amortizations which he already
paid on the property, applying the rule on unjust enrichment.
Unjust enrichment exists when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience. Under Article 22 of
the Civil Code,21 there is unjust enrichment when (1) a person is unjustly benefited
and (2) such benefit is derived at the expense of or with damages to
another.22redarclaw
Allowing BDC to keep the amortizations paid by Diaz is tantamount to unjust
enrichment. It would result in BDC receiving amortizations twice the amount it
should have received, that is, the amortizations paid by Diaz and Arreza. While BDC
claims that it did not receive amortizations from both Diaz and Arreza covering the
same period, such a claim is self-serving, and is not amply supported by any
documentary evidence.
Even if BDC can prove that there was no overlap between the payments made by
Diaz and those made by Arreza, allowing it to keep the amortizations paid by Diaz
still amounts to unjust enrichment. As a direct result of the final and executory ruling
that Arreza is the rightful buyer of the subject property, the buyer-seller relationship
between Diaz and BDC is rendered null and void. Consequently, there remains no
valid consideration whatsoever for the payments made by Diaz to BDC. There being
no indication of intent to donate, because such payments were made under the
impression that Diaz is the rightful buyer of the property, it is only but just that Diaz
be allowed to claim back what he has paid. This is only a natural consequence of the
final and executory ruling that Diaz is not the rightful buyer of the subject property.
Allowing BDC to keep such payments, at the expense of and to the damage of Diaz,
still amounts to unjust enrichment.
Both parties being in bad faith,
BDC is liable to Diaz for the value
of the improvements he introduced
on the subject property
Next, We resolve the issue of whether BDC is liable to Diaz for the value of the
improvements that Diaz introduced to the property. Arts. 448, 453, 546, and 548 of
the Civil Code are material in resolving the issue:LawlibraryofCRAlaw
Art. 448. The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing or
planting, after payment of the indemnity provided for in Articles 546 and 548, or to
oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent. However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building or trees. In such case,
he shall pay reasonable rent, if the owner of the land does not choose to appropriate
the building or trees after proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix the terms thereof.
Art. 453. If there was bad faith, not only on the part of the person who built, planted
or sowed on the land of another, but also on the part of the owner of such land, the
rights of one and the other shall be the same as though both had acted in good faith.
It is understood that there is bad faith on the part of the landowner whenever the act
was done with his knowledge and without opposition on his part.
Art. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same
right of retention, the person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying the increase in value
which the thing may have acquired by reason thereof.
Art. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the
possessor in good faith; but he may remove the ornaments with which he has
embellished the principal thing if it suffers no injury thereby, and if his successor in
the possession does not prefer to refund the amount expended.
The CA may have made the erroneous conclusion that Diaz acted in good faith, but
because BDC equally acted in bad faith, Art. 453 of the Civil Code commands that
the rights of one and the other shall be the same as though both had acted in good
faith. The CA made the correct observation then, when it said:LawlibraryofCRAlaw
Under Article 448, the landowner is given the option, either to appropriate the
improvement as his own upon payment of the proper amount of indemnity or to sell
the land to the possessor in good faith. Relatedly Article 546 provides that a builder
in good faith is entitled to full reimbursement for all the necessary and useful
expenses incurred. In this case, however, the option of selling the land to the builder
in good faith is no longer viable in light of the ruling in the interpleader case. Hence,
there is only one thing left for [BDC] to do: indemnify Diaz for the improvements
introduced on the property.23
Nevertheless, because the law treats both parties as if they acted in good faith, the
CA committed reversible error in awarding moral and exemplary damages, there
being no basis therefor. We find it proper to delete the award of P100,000.00 as
moral damages, P50,000.00 as exemplary damages, and P25,000.00 as attorney�s
fees.
In sum, the CA correctly reversed the ruling of the RTC, and ordered BDC to pay
Diaz the amount he paid as amortizations, as well as the value of the improvements
that he introduced on the subject property. However, because both parties acted in
bad faith, there is no basis for the award of moral and exemplary damages, as well as
attorney�s fees.
WHEREFORE, in view of the foregoing, the January 21, 2014 Decision of the
Court of Appeals in CA-G.R. CV No. 99179 is hereby MODIFIED to read as
follows: (1) petitioner Bliss Development Corporation/Home Guaranty Corporation
is ordered topay respondent Montano M. Diaz the amount of P1,106,915.58 for the
amortizations paid and the amount spent on improvements on the property; and (2)
Domingo Tapay is ordered to pay respondent Montano M. Diaz the amount of
P600,000.00, the amount he paid for the transfer of rights.
G.R. No. 181723 August 11, 2014
ELIZABETH DEL CARMEN, Petitioner,
vs.
SPOUSES RESTITUTO SABORDO and MIMA MAHILUM-
SABORDO, Respondents.
DECISION
PERALTA, J.:
This treats of the petition for review on certiorari assailing the Decision1 and
Resolution2 of the Court of Appeals (CA), dated May 25, 2007 and January 24, 2008,
respectively, in CA-G.R. CV No. 75013.
The factual and procedural antecedents of the case are as follows:
Sometime in 1961, the spouses Toribio and Eufrocina Suico (Suico spouses), along
with several business partners, entered into a business venture by establishing a rice
and com mill at Mandaue City, Cebu. As part of their capital, they obtained a loan
from the Development Bank of the Philippines (DBP), and to secure the said loan,
four parcels of land owned by the Suico spouses, denominated as Lots 506, 512, 513
and 514, and another lot owned by their business partner, Juliana Del Rosario, were
mortgaged. Subsequently, the Suico spouses and their business partners failed to pay
their loan obligations forcing DBP to foreclose the mortgage. After the Suico
spouses and their partners failed to redeem the foreclosed properties, DBP
consolidated its ownership over the same. Nonetheless, DBP later allowed the Suico
spouses and Reginald and Beatriz Flores (Flores spouses), as substitutes for Juliana
Del Rosario, to repurchase the subject lots by way of a conditional sale for the sum
of ₱240,571.00. The Suico and Flores spouses were able to pay the downpayment
and the first monthly amortization, but no monthly installments were made
thereafter. Threatened with the cancellation of the conditional sale, the Suico and
Flores spouses sold their rights over the said properties to herein respondents
Restituto and Mima Sabordo, subject to the condition that the latter shall pay the
balance of the sale price. On September 3, 1974, respondents and the Suico and
Flores spouses executed a supplemental agreement whereby they affirmed that what
was actually sold to respondents were Lots 512 and 513, while Lots 506 and 514
were given to them as usufructuaries. DBP approved the sale of rights of the Suico
and Flores spouses in favor of herein respondents. Subsequently, respondents were
able to repurchase the foreclosed properties of the Suico and Flores spouses.
On September 13, 1976, respondent Restituto Sabordo (Restituto) filed with the then
Court of First Instance of Negros Occidental an original action for declaratory relief
with damages and prayer for a writ of preliminary injunction raising the issue of
whether or not the Suico spouses have the right to recover from respondents Lots 506
and 514.
In its Decision dated December 17, 1986, the Regional Trial Court (RTC) of San
Carlos City, Negros Occidental, ruled in favor of the Suico spouses directing that the
latter have until August 31, 1987 within which to redeem or buy back from
respondents Lots 506 and 514.
3
On appeal, the CA, in its Decision in CA-G.R. CV No. 13785, dated April 24, 1990,
modified the RTC decision by giving the Suico spouses until October 31, 1990
within which to exercise their option to purchase or redeem the subject lots from
respondents by paying the sum of ₱127,500.00. The dispositive portion of the
CADecision reads as follows:
xxxx
For reasons given, judgment is hereby rendered modifying the dispositive portion of
[the] decision of the lower court to read:
1) The defendants-appellees are granted up to October 31, 1990 within
which toexercise their option to purchase from the plaintiff-appellant
Restituto Sabordo and Mima Mahilum Lot No. 506, covered by Transfer
Certificate of Title No. T-102598 and Lot No. 514, covered by Transfer
Certificate of Title No. T-102599, both of Escalante Cadastre, Negros
Occidental by reimbursing or paying to the plaintiff the sum of ONE
HUNDRED TWENTY-SEVEN THOUSAND FIVE HUNDRED PESOS
(₱127,500.00);
2) Within said period, the defendants-appellees shall continue to have
usufructuary rights on the coconut trees on Lots Nos. 506 and 514,
Escalante Cadastre, Negros Occidental;
3) The Writ of Preliminary Injunction dated August 12, 1977 shall be
effective untildefendants-appellees shall have exercised their option to
purchase within said period by paying or reimbursing to the plaintiff-
appellant the aforesaid amount.
No pronouncement as to costs.
SO ORDERED.4
In a Resolution5 dated February 13, 1991, the CA granted the Suico spouses an
additional period of 90 days from notice within which to exercise their option to
purchase or redeem the disputed lots.
In the meantime, Toribio Suico (Toribio) died leaving his widow, Eufrocina, and
several others, includingherein petitioner, as legal heirs. Later, they discovered that
respondents mortgaged Lots 506 and 514 with Republic Planters Bank (RPB) as
security for a loan which, subsequently, became delinquent.
Thereafter, claiming that theyare ready with the payment of ₱127,500.00, but
alleging that they cannot determine as to whom such payment shall be made,
petitioner and her co-heirs filed a Complaint6 with the RTC of San Carlos City,
Negros Occidental seeking to compel herein respondents and RPB to interplead and
litigate between themselves their respective interests on the abovementioned sum of
money.1âwphi1 The Complaint also prayed that respondents be directed to substitute
Lots 506 and 514 with other real estate properties as collateral for their outstanding
obligation with RPB and that the latter be ordered toaccept the substitute collateral
and release the mortgage on Lots 506 and 514. Upon filing of their complaint, the
heirs of Toribio deposited the amount of ₱127,500.00 with the RTC of San Carlos
City, Branch 59.
Respondents filed their Answer7 with Counterclaim praying for the dismissal of the
above Complaint on the grounds that (1) the action for interpleader was improper
since RPB isnot laying any claim on the sum of ₱127,500.00; (2) that the period
withinwhich the complainants are allowed to purchase Lots 506 and 514 had already
expired; (3) that there was no valid consignation, and (4) that the case is barred by
litis pendenciaor res judicata.
On the other hand, RPB filed a Motion to Dismiss the subject Complaint on the
ground that petitioner and her co-heirs had no valid cause of action and that they
have no primary legal right which is enforceable and binding against RPB.
On December 5, 2001, the RTC rendered judgment, dismissing the Complaint of
petitioner and her co-heirs for lack of merit.8 Respondents' Counterclaim was
likewise dismissed.
Petitioner and her co-heirs filed an appeal with the CA contending that the judicial
deposit or consignation of the amount of ₱127,500.00 was valid and binding and
produced the effect of payment of the purchase price of the subject lots.
In its assailed Decision, the CA denied the above appeal for lack of merit and
affirmed the disputed RTC Decision.
Petitioner and her co-heirs filed a Motion for Reconsideration,9 but it was likewise
denied by the CA.
Hence, the present petition for review on certiorariwith a lone Assignment of Error,
to wit:
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE
LOWER COURT WHICH HELD THAT THE JUDICIAL DEPOSIT OF
₱127,500.00 MADE BY THE SUICOS WITH THE CLERK OF COURT OF THE
RTC, SAN CARLOS CITY, IN COMPLIANCE WITH THE FINAL AND
EXECUTORY DECISION OF THE COURT OF APPEALS IN CA-G.R. CV-13785
WAS NOT VALID.10
Petitioner's main contention is that the consignation which she and her co-heirs made
was a judicial deposit based on a final judgment and, as such, does not require
compliance with the requirements of Articles 125611 and 125712of the Civil Code.
The petition lacks merit. At the outset, the Court quotes withapproval the discussion
of the CA regarding the definition and nature of consignation, to wit: … consignation
[is] the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment, and it generally requires a
prior tender of payment. It should be distinguished from tender of payment which is
the manifestation by the debtor to the creditor of his desire to comply with his
obligation, with the offer of immediate performance.Tender is the antecedent of
consignation, thatis, an act preparatory to the consignation, which is the principal,
and from which are derived the immediate consequences which the debtor desires or
seeks to obtain. Tender of payment may be extrajudicial, while consignation is
necessarily judicial, and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of consignation. Tender and
consignation, where validly made, produces the effect of payment and extinguishes
the obligation.13
In the case of Arzaga v. Rumbaoa,14 which was cited by petitioner in support of his
contention, this Court ruled that the deposit made with the court by the plaintiff-
appellee in the saidcase is considered a valid payment of the amount adjudged, even
without a prior tender of payment thereof to the defendants-appellants,because the
plaintiff-appellee, upon making such deposit, expressly petitioned the court that the
defendants-appellees be notified to receive the tender of payment.This Court held
that while "[t]he deposit, by itself alone, may not have been sufficient, but with the
express terms of the petition, there was full and complete offer of payment made
directly to defendants-appellants."15 In the instant case, however, petitioner and her
co-heirs, upon making the deposit with the RTC, did not ask the trial court that
respondents be notified to receive the amount that they have deposited. In fact, there
was no tender of payment. Instead, what petitioner and her co-heirs prayed for is
thatrespondents and RPB be directed to interplead with one another to determine
their alleged respective rights over the consigned amount; that respondents be
likewise directed to substitute the subject lots with other real properties as collateral
for their loan with RPB and that RPB be also directed to accept the substitute real
properties as collateral for the said loan. Nonetheless,the trial court correctly ruled
that interpleader is not the proper remedy because RPB did notmake any claim
whatsoever over the amount consigned by petitioner and her co-heirs with the court.
In the cases of Del Rosario v. Sandico16 and Salvante v. Cruz,17 likewise cited as
authority by petitioner, this Court held that, for a consignation or deposit with the
court of an amount due on a judgment to be considered as payment, there must
beprior tender to the judgment creditor who refuses to accept it. The same principle
was reiterated in the later case of Pabugais v. Sahijwani.18 As stated above, tender of
payment involves a positive and unconditional act by the obligor of offering legal
tender currency as payment to the obligee for the former’s obligation and demanding
that the latter accept the same.19 In the instant case, the Court finds no cogent reason
to depart from the findings of the CA and the RTC that petitioner and her co-heirs
failed to make a prior valid tender of payment to respondents.
It is settled that compliance with the requisites of a valid consignation is
mandatory.20 Failure to comply strictly with any of the requisites will render the
consignation void. One of these requisites is a valid prior tender of payment. 21
Under Article 1256, the only instances where prior tender of payment is excused are:
(1) when the creditor is absent or unknown, or does not appear at the place of
payment; (2) when the creditor is incapacitated to receive the payment at the time it
is due; (3) when, without just cause, the creditor refuses to give a receipt; (4) when
two or more persons claim the same right to collect; and (5) when the title of the
obligation has been lost. None of these instances are present in the instant case.
Hence, the fact that the subject lots are in danger of being foreclosed does not excuse
petitioner and her co-heirs from tendering payment to respondents, as directed by the
court.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of
Appeals, dated May 25, 2007, and its Resolution dated January 24, 2008, both in
CA-G.R. CV No. 75013, are AFFIRMED.
March 12, 2014
G.R. No. 193494
LUI ENTERPRISES, INC., Petitioners, vs. ZUELLIG PHARMA
CORPORATION and the PHILIPPINE BANK OF
COMMUNICATIONS, Respondents.
DECISION
LEONEN, J.:
There should be no inexplicable delay in the filing of a motion to set aside order of
default. Even when a motion is filed within the required period, excusable negligence
must be properly alleged and proven.
This is a petition for review on certiorari of the Court of Appeals' decision 1 dated
May 24, 2010 and resoluticm2dated August 13, 2010 in CA- G.R. CV No. 88023.
The Court of Appeals affirmed in toto the Regional
Trial Court of Makati’s decision3 dated July 4, 2006.
The facts as established from the pleadings of the parties are as follows:
On March 9, 1995, Lui Enterprises, Inc. and Zuellig Pharma Corporation entered into
a 10-year contract of lease4over a parcel of land located in Barrio Tigatto, Buhangin,
Davao City. The parcel of land was covered by Transfer Certificate of Title No. T-
166476 and was registered under Eli L. Lui.5
On January 10, 2003, Zuellig Pharma received a letter 6 from the Philippine Bank of
Communications. Claiming to be the new owner of the leased property, the bank
asked Zuellig Pharma to pay rent directly to it. Attached to the letter was a copy of
Transfer Certificate of Title No. 336962 under the name of the Philippine Bank of
Communications.7Transfer Certificate ofTitle No. 336962 was derived fromTransfer
Certificate ofTitle No.T-166476.8
Zuellig Pharma promptly informed Lui Enterprises of the Philippine Bank of
Communications’ claim. On January 28, 2003, Lui Enterprises wrote to Zuellig
Pharma and insisted on its right to collect the leased property’srent. 9
Due to the conflicting claims of Lui Enterprises and the Philippine Bank of
Communications over the rental payments, Zuellig Pharma filed a complaint 10 for
interpleader with the Regional Trial Court of Makati. In its complaint, Zuellig
Pharma alleged that it already consigned in court P604,024.35 as rental payments.
Zuellig Pharma prayed that it be allowed to consign in court its succeeding monthly
rental payments and that Lui Enterprises and the Philippine Bank of
Communications be ordered to litigate their conflicting claims.11
The Philippine Bank of Communications filed its answer12 to the complaint. On the
other hand, Lui Enterprises filed a motion to dismiss13 on the ground that Zuellig
Pharma’s alleged representative did not have authority to file the complaint for
interpleader on behalf of the corporation. Under the secretary’s certificate 14 dated
May 6, 2003 attached to the complaint, Atty. Ana L.A. Peralta was only authorized
to "initiate and represent [Zuellig Pharma] in the civil proceedings for consignation
of rental payments to be filed against Lui Enterprises, Inc. and/or [the Philippine
Bank of Communications]."15
According to Lui Enterprises, an earlier filed nullification of deed of dation in
payment case pending with the Regional Trial Court of Davao barred the filing of the
interpleader case.16 Lui Enterprises filed this nullification case against the Philippine
Bank of Communications with respect to several properties it dationed to the bank in
payment of its obligations. The property leased by Zuellig Pharma was among those
allegedly dationed to the Philippine Bank of Communications.17
In the nullification of deed of dation in payment case, Lui Enterprises raised the issue
of which corporation had the better right over the rental payments. 18 Lui Enterprises
argued that the same issue was involved in the interpleader case. To avoid possible
conflicting decisions of the Davao trial court and the Makati trial court on the same
issue, Lui Enterprises argued that the subsequently filed interpleader case be
dismissed.
To support its argument, Lui Enterprises cited a writ of preliminary
injunction19 dated July 2, 2003 issued by the Regional Trial Court of Davao, ordering
Lui Enterprises and the Philippine Bank of Communications "[to maintain] status
quo"20 with respect to the rent. By virtue of the writ of preliminary injunction, Lui
Enterprises argued that it should continue collecting the rental payments from its
lessees until the nullification of deed of dation in payment case was resolved. The
writ of preliminary injunction dated July 2, 2003 reads:
WHEREAS, on June 30, 2003, the Court issued an Order, a portion of which is
quoted:
WHEREFORE, PREMISES CONSIDERED, let a Writ of Preliminary Injunction
issue, restraining and enjoining [the Philippine Bank of Communications], its agents
or [representative], the Office of the Clerk of Court- Sheriff and all persons acting on
their behalf, from conducting auction sale on the properties of [Lui Enterprises] in
EJF-REM Case No. 6272-03 scheduled on July 3, 2003 at 10:00 a.m. at the Hall of
Justice, Ecoland, Davao City, until the final termination of the case, upon plaintiff
[sic] filing of a bond in the amount of P1,000,000.00 to answer for damages that the
enjoined parties may sustain by reason of the injunction if the Court should finally
decide that applicant is not entitled thereto.
WHEREAS, that plaintiff posted a bond of P1,000,000.00 duly approved by this
Court.
IT IS HEREBY ORDERED by the undersigned Judge that, until further orders, [the
Philippine Bank of Communications] and all [its] attorneys, representatives, agents
and any other persons assisting [the bank], are directed to restrain from conducting
auction sale on the Properties of [Lui Enterprises] in EJF-REM Case No. 6272-03
scheduled on July 3, 2003 at 10:00 a.m. at the Hall of Justice, Ecoland, Davao City,
until the final termination of the case.21
Zuellig Pharma filed its opposition22 to the motion to dismiss. It argued that the
motion to dismiss should be denied for having been filed late. Under Rule 16,
Section 1 of the 1997 Rules of Civil Procedure, a motion to dismiss should be filed
within the required time given to file an answer to the complaint, which is 15 days
from service of summons on the defendant.23 Summons was served on Lui
Enterprises on July 4, 2003. It had until July 19, 2003 to file a motion to dismiss, but
Lui Enterprises filed the motion only on July23, 2003. 24
As to Lui Enterprises’ claim that the interpleader case was filed without authority,
Zuellig Pharma argued that an action interpleader "is a necessary consequence of the
action for consignation."25 Zuellig Pharma consigned its rental payments because of
"the clearly conflicting claims of [Lui Enterprises] and [the Philippine Bank of
Communications]."26 Since Atty. Ana L.A. Peralta was authorized to file a
consignation case, this authority necessarily included an authority to file the
interpleader case.
Nevertheless, Zuellig Pharma filed in court the secretary’s certificate dated August
28, 2003,27 which expressly stated that Atty. Ana L.A. Peralta was authorized to file
a consignation and interpleader case on behalf of Zuellig Pharma.28
With respect to the nullification of deed of dation in payment case, Zuellig Pharma
argued that its pendency did not bar the filing of the interpleader case. It was not a
party to the nullification case.29
As to the writ of preliminary injunction issued by the Regional Trial Court of Davao,
Zuellig Pharma argued that the writ only pertained to properties owned by Lui
Enterprises. Under the writ of preliminary injunction, the Regional Trial Court of
Davao enjoined the July 3, 2003 auction sale of Lui Enterprises’ properties, the
proceeds of which were supposed to satisfy its obligations to the Philippine Bank of
Communications. As early as April 21, 2001, however, the Philippine Bank of
Communications already owned the leased property as evidenced by Transfer
Certificate of Title No. 336962. Thus, the writ of preliminary injunction did not
apply to the leased property.30
Considering that Lui Enterprises filed its motion to dismiss beyond the 15-day period
to file an answer, Zuellig Pharma moved that Lui Enterprises be declared in default. 31
In its compliance32 dated September 15, 2003, the Philippine Bank of
Communications "[joined Zuellig Pharma] in moving to declare [Lui Enterprises] in
default, and in [moving for] the denial of [Lui Enterprises’] motion to dismiss."33
The Regional Trial Court of Makati found that Lui Enterprises failed to file its
motion to dismiss within the reglementary period. Thus, in its order 34 dated October
6, 2003, the trial court denied Lui Enterprises’motion to dismiss and declared it in
default.35
Lui Enterprises did not move for the reconsideration of the order dated October 6,
2003. Thus, the Makati trial court heard the interpleader case without Lui
Enterprises’participation.
Despite having been declared in default, Lui Enterprises filed the manifestation with
prayer36 dated April 15, 2004. It manifested that the Regional Trial Court of Davao
allegedly issued the order37 dated April 1, 2004, ordering all of Lui Enterprises’
lessees to "observe status quo with regard to the rental payments" 38 and continue
remitting their rental payments to Lui Enterprises while the nullification of deed of
dation in payment case was being resolved. The order dated April 1, 2004 of the
Regional Trial Court of Davao reads:
ORDER
Posed for Resolution is the Motion for Amendment of Order filed by [Lui
Enterprises] on September 23, 2003 seeking for the preservation of status quo on the
payment/remittance of rentals to [it] and the disposal/construction of the properties
subject matter of this case.
As elsewhere stated, [the Philippine Bank of Communications] did not oppose the
instant motion up to the present. In fact, during the hearing held on March 15, 2004,
[the bank’s] counsel manifested in open court that except for the rentals due from
[Zuellig Pharma] which are the subject of a consignation suit before a Makati Court,
the other rental payments are continuously received by [Lui Enterprises].
There being no objection from [the Philippine Bank of Communications], and in
order to protect the right of [Lui Enterprises] respecting the subject of the action
during the pendency of this case, this Court, in the exercise of its discretion hereby
grants the motion.
Accordingly, consistent with the order of this Court dated June 30, 2003, the parties
are hereby directed to further observe status quo with regard to the rental payments
owing or due from the lessees of the properties subject of the first set of deeds of
dacion and that the defendants are enjoined from disposing of the properties located
at Green Heights Village, Davao City until the case is finally resolved.
With the order dated April 1, 2004 issued by the Regional Trial Court of Davao as
basis, Lui Enterprises argued that Zuellig Pharma must remit its rental payments to it
and prayed that the interpleader case be dismissed.
The Regional Trial Court of Makati only noted the manifestation with prayer dated
April 15, 2004.39
It was only on October 21, 2004, or one year after the issuance of the order of
default, that Lui Enterprises filed a motion to set aside order of default 40 in the
Makati trial court on the ground of excusable negligence. Lui Enterprises argued that
its failure to file a motion to dismiss on time "was caused by the negligence of [Lui
Enterprises’] former counsel." 41 This negligence was allegedly excusable because
"[Lui Enterprises] was prejudiced and prevented from fairly presenting [its] case."42
For its allegedly meritorious defense, Lui Enterprises argued that the earlier filed
nullification of deed of dation in payment case barred the filing of the interpleader
case. The two actions allegedly involved the same parties and the same issue of
which corporation had the better right over the rental payments. To prevent "the
possibility of two courts x x x rendering conflicting rulings [on the same
issue],"43 Lui Enterprises argued that the subsequently filed interpleader case be
dismissed.
Zuellig Pharma filed its opposition44 to the motion to set aside order of default. It
argued that a counsel’s failure to file a timely answer was inexcusable negligence
which bound his client.
Further, Zuellig Pharma argued that the pending case for nullification of deed of
dation in payment "[did] not preclude [Zuellig Pharma] from seeking the relief
prayed for in the [interpleader case]." 45
While the motion to set aside order of default was still pending for resolution, Lui
Enterprises filed the manifestation and motion to dismiss46 dated April 21, 2005 in
the Makati trial court. It manifested that the Davao trial court issued another
order47 dated April 18, 2005 in the nullification of deed of dation in payment case. In
this order, the Davao trial court directed the Philippine Bank of Communications to
inform Zuellig Pharma to pay rent to Lui Enterprises while the Davao trial court’s
order dated April 1, 2004 was subsisting. The order datedApril 18, 2005 of the
Davao trial court reads:
ORDER
Plaintiffs move for execution or implementation of the Order dated September 14,
2004. In substance, [Lui Enterprises] seek[s] to compel the remittance in their favor
of the rentals from [Zuellig Pharma], one of the lessees alluded to in the September
14, 2004 Order whose rental payments "must be remitted to and collected by [Lui
Enterprises]." [The Philippine Bank of Communications] did not submit any
opposition.
It appears from the records that sometime in February 2003, after being threatened
with a lawsuit coming from [the Philippine Bank of Communications], [Zuellig
Pharma] stopped remitting its rentals to [Lui Enterprises] and instead, has reportedly
deposited the monthly rentals before a Makati court for consignation.
As aptly raised by the plaintiffs, a possible impasse may insist should the Makati
Court’s ruling be contrary to or in conflict with the status quo order issued by this
Court. To preclude this spectacle, Zuellig Pharma should accordingly be advised
with the import of the Order dated September 14, 2004, the salient portion of which
is quoted:
x x x prior to the institution of the instant case and by agreement of the parties,
plaintiffs were given as they did exercise the right to collect, receive and enjoy rental
payments x x x.
Since the April 1, 2004 status quo order was a necessary implement of the writ of
preliminary injunction issued on June 30, 2003, it follows that plaintiff's right to
collect and receive rental payments which he enjoyed prior to the filing of this case,
must be respected and protected and maintained until the case is resolved. As such,
all rentals due from the above-enumerated lessees must be remitted to and
collectedby the Plaintiffs.
Status quo simply means the last actual peaceable uncontested status that preceded
the actual controversy. (Searth Commodities Corp. v. Court ofAppeals, 207 SCRA
622).
As such, the [Philippine Bank of Communications] [is] hereby directed to forthwith
inform [Zuellig Pharma] of the April 1, 2004 status quo order and the succeeding
September 14, 2004 Order, and consequently, for the said lessee to remit all rentals
due from February 23, 2003 and onwards to [Lui Enterprises] in the meanwhile that
the status quo order is subsisting.
In its manifestation and motion to dismiss, Lui Enterprises reiterated its prayer for
the dismissal of the interpleader case to prevent "the possibility of [the Regional
Trial Court, Branch 143, Makati City] and [the Regional Trial Court, Branch 16,
Davao City] rendering conflicting rulings [on the same issue of which corporation
has the better right to the rental payments]." 48
Without resolving the motion to set aside order of default, the Makati trial court
denied the manifestation with motion to dismiss dated April 21, 2005 on the ground
that Lui Enterprises already lost its standing in court.49
Lui Enterprises did not file any motion for reconsideration of the denial of the
manifestation and motion to dismiss dated April 21, 2005.
In its decision50 dated July 4, 2006, the Regional Trial Court of Makati ruled that Lui
Enterprises "[was] barred from any claim in respect of the [rental payments]" 51 since
it was declared in default. Thus, according to the trial court, there was no issue as to
which corporation had the better right over the rental payments. 52 The trial court
awarded the total consigned amount of P6,681,327.30 to the Philippine Bank of
Communications and ordered Lui Enterprises to pay Zuellig Pharma P50,000.00 in
attorney’s fees.53
Lui Enterprises appealed to the Court of Appeals.54
The Court of Appeals found Lui Enterprises’ appellant’s brief insufficient. Under
Rule 44, Section 13 of the 1997 Rules of Civil Procedure, an appellant’s brief must
contain a subject index, page references to the record, table of cases, textbooks and
statutes cited, and the statement of issues, among others. However, Lui Enterprises’
appellant’s brief did not contain these requirements.55
As to the denial of Lui Enterprises’ motion to dismiss, the Court of Appeals
sustained the trial court. The Court of Appeals found that Lui Enterprises filed its
motion to dismiss four days late.56
With respect to Lui Enterprises’ motion to set aside order of default, the Court
ofAppeals found that Lui Enterprises failed to show the excusable negligence that
prevented it from filing its motion to dismiss on time. On its allegedly meritorious
defense, the Court of Appeals ruled that the nullification of deed of dation in
payment case did not bar the filing of the interpleader case, with Zuellig Pharma not
being a party to the nullification case.57
On the award of attorney’s fees, the Court of Appeals sustained the trial court since
"Zuellig Pharma x x x was constrained to file the action for interpleader with
consignation inorder to protect its interests x x x." 58
Thus, in its decision59 promulgated on May 24, 2010, the Court of Appeals dismissed
Lui Enterprises’appeal and affirmed in toto the Regional Trial Court of Makati’s
decision.
Lui Enterprises filed a motion for reconsideration.60
The Court of Appeals denied Lui Enterprises’ motion for reconsideration in its
resolution promulgated on August 13, 2010.61 Hence, this petition.
In this petition for review on certiorari,62 Lui Enterprises argued that the Court of
Appeals applied "the rules of procedure strictly" 63 and dismissed its appeal on
technicalities. According to Lui Enterprises, the Court of Appeals should have taken
a liberal stance and allowed its appeal despite the lack of subject index, page
references to the record, table of cases, textbooks and statutes cited, and the
statement of issues in its appellant’s brief.64
Lui Enterprises also claimed that the trial court should have set aside the order of
default since its failure to file a motion to dismiss on time was due to excusable
negligence.65
For its allegedly meritorious defense, Lui Enterprises argued that the pending
nullification of deed of dation in payment case barred the filing of the interpleader
case.The nullification of deed of dation in payment case and the interpleader case
allegedly involved the same issue of which corporation had the better right to the
rent. To avoid conflicting rulings on the same issue, Lui Enterprises argued that the
subsequently filed interpleader case be dismissed.66
No attorney’s fees should have been awarded to Zuellig Pharma as argued by Lui
Enterprises. Zuellig Pharma filed the interpleader case despite its knowledge of the
nullification of deed of dation in payment case filed in the Davao trial court where
the same issue of which corporation had the better right over the rental payments was
being litigated. Thus, Zuellig Pharma filed the interpleader case in bad faith for
which it was not entitled to attorney’s fees.67
The Philippine Bank of Communications filed its comment68 on the petition for
review on certiorari. It argued that Lui Enterprises failed to raise any error of law and
prayed that we affirm in toto the Court of Appeals’ decision.
For Zuellig Pharma, it manifested that it was adopting the Philippine Bank of
Communications’arguments in its comment.69
The issues for our resolution are:
I. Whether the Court of Appeals erred in dismissing Lui Enterprises’ appeal
for lack of subject index, page references to the record, table of cases,
textbooks and statutes cited, and the statement of issues in Lui
Enterprises’appellant’s brief;
II. Whether the Regional Trial Court of Makati erred in denying Lui
Enterprises’motion to set aside order of default;
III. Whether the annulment of deed of dation in payment pending in the
Regional Trial Court of Davao barred the subsequent filing of the
interpleader case in the Regional Trial Court of Makati; and
IV. Whether Zuellig Pharma was entitled to attorney’s fees.
Lui Enterprises’ petition for review on certiorari is without merit. However, we
delete the award of attorney’s fees.
I record, and table of cases, textbooks and statutes cited. Under Rule 50, Section 1 of
Lui Enterprises did not comply with the rules on the contents of the appellant’s
brief
Under Rule 50, Section 1, paragraph (f) of the 1997 Rules of Civil Procedure, the
Court of Appeals may, on its own motion or that of the appellee, dismiss an appeal
should the appellant’s brief lack specific requirements under Rule 44, Section 13,
paragraphs (a), (c), (d), and (f):
Section 1. Grounds for dismissal of appeal. – An appeal may be dismissed by the
Court of Appeals, on its own motion or on that of the appellee, on the following
grounds:
(f) Absence of specific assignment of errors in the appellant’s brief, or of page
references to the record as required in Section 13, paragraphs (a), (c), (d), and (f) of
Rule 44.
These requirements are the subject index of the matter in brief, page references to the
record, and a table of cases alphabetically arranged and with textbooks and statutes
cited:
Section 13. Contents of the appellant’s brief. – The appellant’s brief shall contain, in
the order herein indicated, the following:
(a) A subject index of the matter in brief with a digest of the arguments and page
references, and a table of cases alphabetically arranged, textbooks and statutes cited
with references to the pages where they are cited;
(c) Under the heading "Statement of the Case," a clear and concise statement of the
nature of the action, a summary of the proceedings, the appealed rulings and orders
of the court, the nature of the controversy, with page references to the record;
(d) Under the heading "Statement of Facts," a clear and concise statement in a
narrative form of the facts admitted by both parties and of those in controversy,
together with the substance of the proof relating thereto in sufficient detail to make it
clearly intelligible, with page references to the record;
(f) Under the heading "Argument," the appellant’s arguments on each assignment of
error with page references to the record. The authorities relied upon shall be cited by
the page of the report at which the case begins and the page of the report on which
the citation isfound;
Lui Enterprises’ appellant’s brief lacked a subject index, page references to the
the 1997 Rules of Civil Procedure, the Court of Appeals correctly dismissed Lui
Enterprises’ appeal.
Except for cases provided in the Constitution,70 appeal is a "purely statutory
right."71 The right to appeal "must be exercised in the manner prescribed by
law"72 and requires strict compliance with the Rules of Court on appeals. 73Otherwise,
the appeal shall be dismissed, and its dismissal shall not be a deprivation of due
process of law.
In Mendoza v. United Coconut Planters Bank, Inc.,74 this court sustained the Court of
Appeals’ dismissal of Mendoza’s appeal. Mendoza’s appellant’s brief lacked a
subject index, assignment of errors, and page references to the record. In De Liano v.
Court of Appeals,75 this court also sustained the dismissal of De Liano’s appeal. De
Liano’s appellant’s brief lacked a subject index, a table of cases and authorities, and
page references to the record.
There are exceptions to this rule. In Philippine Coconut Authority v. Corona
International, Inc.,76 the Philippine Coconut Authority’s appellant’s brief lacked a
clear and concise statement of the nature of the action, a summary of the
proceedings, the nature of the judgment, and page references to the record. However,
this court found that the Philippine Coconut Authority substantially complied with
the Rules. Its appellant’s brief "apprise[d] [the Court of Appeals] of the essential
facts and nature of the case as well as the issues raised and the laws necessary [to
dispose of the case]."77 This court "[deviated] from a rigid enforcement of the
rules"78 and ordered the Court of Appeals to resolve the Philippine Coconut
Authority’s appeal.
In Go v. Chaves,79 Go’s 17-page appellant’s brief lacked a subject index. However,
Go subsequently filed a subject index. This court excused Go’s procedural lapse
since the appellant’s brief "[consisted] only of 17 pages which [the Court of Appeals]
may easily peruse to apprise it of [the case] and of the relief sought." 80 This court
ordered the Court of Appeals to resolve Go’s appeal "in the interest of justice." 81
In Philippine Coconut Authority and Go, the appellants substantially complied with
the rules on the contents of the appellant’s brief. Thus, this court excused the
appellants’procedural lapses.
In this case, Lui Enterprises did not substantially comply with the rules on the
contents of the appellant’s brief. It admitted that its appellant’s brief lacked the
required subject index, page references to the record, and table of cases, textbooks,
and statutes cited. However, it did not even correct its admitted "technical
omissions"82 by filing an amended appellant’s brief with the required
contents.83 Thus, this case does not allow a relaxation of the rules. The Court of
Appeals did not err in dismissing Lui Enterprises’ appeal.
Rules on appeal "are designed for the proper and prompt disposition of cases before
the Court ofAppeals."84 With respect to the appellant’s brief, its required contents are
designed "to minimize the [Court ofAppeals’] labor in [examining]the record
uponwhich the appeal is heard and determined." 85
The subject index serves as the brief’s table of contents.86 Instead of "[thumbing]
through the [appellant’s brief]" 87every time the Court of Appeals Justice encounters
an argument or citation, the Justice deciding the case only has to refer to the subject
index for the argument or citation he or she needs.88 This saves the Court ofAppeals
time in reviewing the appealed case. Efficiency allows the justices of the appellate
court to substantially attend to this case as well as other cases.
Page references to the record guarantee that the facts stated in the appellant’s brief
are supported by the record.89Astatement of fact without a page reference to the
record creates the presumption that it is unsupported by the record and, thus, "may be
stricken or disregarded altogether." 90
As for the table of cases, textbooks, and statutes cited, this is required so that the
Court of Appeals can easily verify the authorities cited "for accuracy and aptness." 91
Lui Enterprises’ appellant’s brief lacked a subject index, page references to the
record, and a table of cases, textbooks, and statutes cited. These requirements "were
designed to assist the appellate court in the accomplishment of its tasks, and, overall,
to enhance the orderly administration of justice." 92 This court will not disregard rules
on appeal "in the guise of liberal construction." 93 For this court to liberally construe
the Rules, the party must substantially comply with the Rules and correct its
procedural lapses.94 Lui Enterprises failed to remedy these errors.
All told, the Court of Appeals did not err in dismissing Lui Enterprises’ appeal. It
failed to comply with Rule 44, Section 13, paragraphs (a), (c), (d), and (f) of the
1997 Rules of Civil Procedure on the required contents of the appellant’s brief.
II
Lui Enterprises failed to show that its failure to answer the complaint within the
required period was due to excusable negligence
When a defendant is served with summons and a copy of the complaint, he or she is
required to answer within 15 days from the day he or she was served with
summons.95 The defendant may also move to dismiss the complaint "[w]ithin the
time for but before filing the answer." 96
Fifteen days is sufficient time for a defendant to answer with good defenses against
the plaintiff’s allegations in the complaint. Thus, a defendant who fails to answer
within 15 days from service of summons either presents no defenses against the
plaintiff’s allegations in the complaint or was prevented from filing his or her answer
within the required period due to fraud, accident, mistake or excusable negligence. 97
In either case, the court may declare the defendant in default on plaintiff’s motion
and notice to defendant.98 The court shall then try the case until judgment without
defendant’s participation99 and grant the plaintiff such relief as his or her complaint
may warrant.100
A defendant declared in default loses his or her standing in court.101 He or she is
"deprived of the right to take part in the trial and forfeits his [or her] rights as a party
litigant,"102 has no right "to present evidence [supporting his or her]
allegations,"103 and has no right to "control the proceedings [or] cross-examine
witnesses."104 Moreover, he or she "has no right to expect that [the court] would [act]
upon [his or her pleadings]"105 or that he or she "may [oppose]motions filed against
him [or her]."106
However, the defendant declared in default "does not [waive] all of [his or her]
rights."107 He or she still has the right to "receive notice of subsequent
proceedings."108 Also, the plaintiff must still present evidence supporting his or her
allegations "despite the default of [the defendant]." 109
Default, therefore, is not meant to punish the defendant but to enforce the prompt
filing of the answer to the complaint. For a defendant without good defenses, default
saves him or her "the embarrassment of openly appearing to defend the
indefensible."110 As this court explained in Gochangco v. The Court of First Instance
of Negros Occidental, Branch
IV:111
It does make sense for a defendant without defenses, and who accepts the correctness
of the specific relief prayed for in the complaint, to forego the filing of the answer or
any sort of intervention in the action at all. For even if he did intervene, the result
would be the same: since he would be unable to establish any good defense, having
none in fact, judgment would inevitably go against him. And this would be an
acceptable result, if not being in his power to alter or prevent it, provided that the
judgment did not go beyond or differ from the specific relief stated in the complaint.
x x x.112 (Emphasis in the original)
On the other hand, for a defendant with good defenses, "it would be unnatural for
him [or her] not to set x x x up [his or her defenses] properly and timely." 113 Thus, "it
must be presumed that some insuperable cause prevented him [or her] from
[answering the complaint]."114 In which case, his or her proper remedy depends on
when he or she discovered the default and whether the default judgment was already
rendered by the trial court.
After notice of the declaration of default but before the court renders the default
judgment, the defendant may file, under oath, a motion to set aside order of default.
The defendant must properly show that his or her failure to answer was due to fraud,
accident,115 mistake116 or excusable negligence.117 The defendant must also have a
meritorious defense. Rule 9, Section 3, paragraph (b) of the1997 Rules of Civil
Procedure provides:
Section 3. Default; declaration of. – x x x x
(b) Relief from order of default. – A party declared in default may at any time after
notice thereof and before judgment file a motion under oath to set aside the order of
default upon proper showing that his failure to answer was due to fraud, accident,
mistake or excusable negligence and that he has a meritorious defense. In such case,
the order of default may be set aside on such terms and conditions as the judge may
impose in the interest of justice.
If the defendant discovers his or her default after judgment but prior to the judgment
becoming final and executory, he or she may file a motion for new trial under Rule
37, Section 1, paragraph (a) of the 1997 Rules of Civil Procedure.118 If he or she
discovers his or her default after the judgment has become final and executory, a
petition for relief from judgment under Rule 38, Section 1 of the 1997 Rules of Civil
Procedure may be filed.119
Appeal is also available to the defendant declared in default. He or she may appeal
the judgment for being contrary to the evidence or to the law under Rule 41, Section
2 of the 1997 Rules of Civil Procedure.120 He or she may do so even if he or she did
not file a petition to set aside order of default.121
A petition for certiorari may also be filed if the trial court declared the defendant in
default with grave abuse of discretion.122
The remedies of the motion to set aside order of default, motion for new trial, and
petition for relief from judgment are mutually exclusive, not alternative or
cumulative. This is to compel defendants to remedy their default at the earliest
possible opportunity. Depending on when the default was discovered and whether a
default judgment was already rendered, a defendant declared in default may avail of
onlyone of the three remedies.
Thus, if a defendant discovers his or her default before the trial court renders
judgment, he or she shall file a motion to set aside order of default. If this motion to
set aside order of default is denied, the defendant declared in default cannot await the
rendition of judgment, and he or she cannot file a motion for new trial before the
judgment becomes final and executory, or a petition for relief from judgment after
the judgment becomes final and executory.
Also, the remedies against default become narrower and narrower as the trial nears
judgment. The defendant enjoys the most liberality from this court with a motion to
set aside order of default, as he or she has no default judgment to contend with, and
he or she has the whole period before judgment to remedy his or her default.
With a motion for new trial, the defendant must file the motion within the period for
taking an appeal123 or within 15 days from notice of the default judgment. Although a
default judgment has already been rendered, the filing of the motion for new trial
tolls the reglementary period of appeal, and the default judgment cannot be executed
against the defendant.
A petition for relief from judgment is filed after the default judgment has become
final and executory. Thus, the filing of the petition for relief from judgment does not
stay the execution of the default judgment unless a writ of preliminary injunction is
issued pending the petition’s resolution.124
Upon the grant of a motion to set aside order of default, motion for new trial, or a
petition for relief from judgment, the defendant is given the chance to present his or
her evidence against that of plaintiff’s. With an appeal, however, the defendant has
no right to present evidence on his or her behalf and can only appeal the judgment
for being contrary to plaintiff’s evidence or the law.
Similar to an appeal, a petition for certiorari does not allow the defendant to present
evidence on his or her behalf. The defendant can only argue that the trial court
committed grave abuse of discretion in declaring him or her in default.
Thus, should a defendant prefer to present evidence on his or her behalf, he or she
must file either a motion to set aside order of default, motion for new trial, or a
petition for relief from judgment.
In this case, Lui Enterprises had discovered its default before the Regional Trial
Court of Makati rendered judgment. Thus, it timely filed a motion to set aside order
of default, raising the ground of excusable negligence.
Excusable negligence is "one which ordinary diligence and prudence could not have
guarded against."125 The circumstances should be properly alleged and proved. In
this case, we find that Lui Enterprises’ failure to answer within the required period is
inexcusable.
Lui Enterprises’ counsel filed its motion to dismiss four days late. It did not
immediately take steps to remedy its default and took one year from discovery of
default to file a motion to set aside order of default. In its motion to set aside order of
default, Lui Enterprises only "conveniently blamed its x x x counsel [for the late
filing of the answer]"126without offering any excuse for the late filing. This is not
excusable negligence under Rule 9, Section 3, paragraph (b)127 of the 1997 Rules of
Civil Procedure. Thus, the Regional Trial Court of Makati did not err in refusing to
set aside the order of default.
Lui Enterprises argued that the Regional Trial Court of Makati should have been
liberal in setting aside its order of default. After it had been declared in default, Lui
Enterprises filed several manifestations informing the Makati trial court of the earlier
filed nullification of deed of dation in payment case which barred the filing of the
interpleader case. Lui Enterprises’ president, Eli L. Lui, and counsel even flew in
from Davao to Makati to "formally [manifest that] a [similar] action between [Lui
Enterprises] and [the Philippine Bank of Communications]" 128 was already pending
in the Regional Trial Court of Davao. However, the trial court did not recognize Lui
Enterprises’standing incourt.
The general rule is that courts should proceed with deciding cases on the merits and
set aside orders of default as default judgments are "frowned upon." 129 As much as
possible, cases should be decided with both parties "given every chance to fight their
case fairly and in the open, without resort to technicality." 130
However, the basic requirements of Rule 9, Section 3, paragraph (b) of the 1997
Rules of Civil Procedure must first be complied with.131 The defendant’s motion to
set aside order of default must satisfy three conditions. First is the time element. The
defendant must challenge the default order before judgment. Second, the defendant
must have been prevented from filing his answer due to fraud, accident, mistake or
excusable negligence. Third, he must have a meritorious defense. As this court held
in SSS v. Hon. Chaves:132
Procedural rules are not to be disregarded or dismissed simply because their non-
observance may have resulted in prejudice to a party’s substantive rights. Like all
rules[,] they are to be followed, except only when for the most persuasive of reasons
they may be relaxed to relieve a litigant of an injustice not commensurate with the
degree of his thoughtlessness in not complying with the procedure prescribed. x x
x.133
As discussed, Lui Enterprises never explained why its counsel failed to file the
motion to dismiss on time. It just argued that courts should be liberal in setting aside
orders of default. Even assuming that it had a meritorious defense and that its
representative and counsel had to fly in from Davao to Makati to personally appear
and manifest in court its meritorious defense, Lui Enterprises must first show that its
failure to answer was due to fraud, accident, mistake or excusable negligence. This
Lui Enterprises did not do.
Lui Enterprises argued that Zuellig Pharma filed the interpleader case to compel Lui
Enterprises and the Philippine Bank of Communications to litigate their claims.
Thus, "[d]eclaring the other claimant in default would ironically defeat the very
purpose of the suit."134 The RegionalTrial Court of Makati should not have declared
Lui Enterprises in default.
Under Rule 62, Section 1 of the 1997 Rules of Civil Procedure, a person may file a
special civil action for interpleader if conflicting claims are made against him or her
over a subject matter in which he or she has no interest. The action is brought against
the claimants to compel them to litigate their conflicting claims among themselves.
Rule 62, Section 1 of the 1997 Rules of Civil Procedure provides:
Section 1. When interpleader proper. – Whenever conflicting claims upon the same
subject matter are or may be made against a person who claims no interest whatever
in the subject matter, or an interest which in whole or in part is not disputed bythe
claimants, he may bring an action against the conflicting claimants to compel them to
interplead and litigate their several claims among themselves.
An interpleader complaint may be filed by a lessee against those who have
conflicting claims over the rent due for the property leased. 135 This remedy is for the
lessee to protect him or her from "double vexation in respect of one liability." 136 He
or she may file the interpleader case to extinguish his or her obligation to pay rent,
remove him or her from the adverse claimants’dispute, and compel the parties with
conflicting claims to litigate among themselves.
In this case, Zuellig Pharma filed the interpleader case to extinguish its obligation to
pay rent. Its purpose in filing the interpleader case "was not defeated" 137 when the
Makati trial court declared Lui Enterprises in default.
At any rate, an adverse claimant in an interpleader case may be declared in default.
Under Rule 62, Section 5 of the 1997 Rules of Civil Procedure, a claimant who fails
to answer within the required period may, on motion, be declared in default. The
consequence of the default is that the court may "render judgment barring [the
defaulted claimant] from any claim in respect to the subject matter." 138 The Rules
would not have allowed claimants in interpleader cases to be declared in default if it
would "ironically defeat the very purpose of the suit." 139
The Regional Trial Court of Makati declared Lui Enterprises in default when it failed
to answer the complaint within the required period. Lui Enterprises filed a motion to
set aside order of default without an acceptable excuse why its counsel failed to
answer the complaint. It failed to prove the excusable negligence. Thus, the Makati
trial court did not err in refusing to set aside the order of default.
III
The nullification of deed in dation in payment case did not bar the filing of the
interpleader case. Litis pendentia is not present in this case.
Lui Enterprises allegedly filed for nullification of deed of dation in payment with the
Regional Trial Court of Davao. It sought to nullify the deed of dation in payment
through which the Philippine Bank of Communications acquired title over the leased
property. Lui Enterprises argued that this pending nullification case barred the
Regional Trial Court of Makati from hearing the interpleader case. Since the
interpleader case was filed subsequently to the nullification case, the interpleader
case should be dismissed.
Under Rule 16, Section 1, paragraph (e) of the 1997 Rules of Civil Procedure, a
motion to dismiss may be filed on the ground of litis pendentia:
Section 1. Grounds. – Within the time for but before filing the answer to the
complaint or pleading asserting a claim, a motion to dismiss may be made on any of
the following grounds:
xxxx
(e)That there is another action pending between the same parties for the same cause;
xxxx
Litis pendentia is Latin for "a pending suit."140 It exists when "another action is
pending between the same parties for the same cause of actionx x x."141 The
subsequent action is "unnecessary and vexatious"142 and is instituted to "harass the
respondent [in the subsequent action]." 143
The requisites of litis pendentia are:
(1)Identity of parties or at least such as represent the same interest in both
actions;
(2)Identity of rights asserted and reliefs prayed for, the reliefs being
founded on the same facts; and
(3)The identity in the two cases should be such that the judgment that may
be rendered in one would, regardless of which party is successful, amount to
res judicata in the other.144
All of the requisites must be present.145 Absent one requisite, there is no litis
pendentia.146
In this case, there is no litis pendentia since there is no identity of parties in the
nullification of deed of dation in payment case and the interpleader case. Zuellig
Pharma is not a party to the nullification case filed in the Davao trial court.
There is also no identity of rights asserted and reliefs prayed for. Lui Enterprises
filed the first case to nullify the deed of dation in payment it executed in favor of the
Philippine Bank of Communications. Zuellig Pharma subsequently filed the
interpleader case to consign in court the rental payments and extinguish its obligation
as lessee. The interpleader case was necessary and was not instituted to harass either
Lui Enterprises or the Philippine Bank of Communications.
Thus, the pending nullification case did not bar the filing of the interpleader case.
Lui Enterprises cited Progressive Development Corporation, Inc. v. Court of
Appeals147 as authority to set aside the subsequently filed interpleader case. In this
cited case, petitioner Progressive Development Corporation, Inc. entered into a lease
contract with Westin Seafood Market, Inc. The latter failed to pay rent. Thus,
Progressive Development Corporation, Inc. repossessed the leased premises,
inventoried the movable properties inside the leased premises, and scheduled the
public sale of the inventoried properties as they agreed upon in their lease contract.
Westin Seafood Market, Inc. filed for forcible entry with damages against
Progressive Development Corporation, Inc. It subsequently filed an action for
damages against Progressive Development Corporation for its "forcible takeover of
the leased premises."148
This court ordered the subsequently filed action for damages dismissed as the
pending forcible entry with damages case barred the subsequently filed damages
case.
Progressive Development Corporation, Inc. does not apply in this case. The action
for forcible entry with damages and the subsequent action for damages were filed by
the same plaintiff against the same defendant. There is identity of parties in both
cases.
In this case, the nullification of deed of dation in payment case was filed by Lui
Enterprises against the Philippine Bank of Communications. The interpleader case
was filed by Zuellig Pharma against Lui Enterprises and the Philippine Bank of
Communications. A different plaintiff filed the interpleader case against Lui
Enterprises and the Philippine Bank of Communications. Thus, there is no identity of
parties, and the first requisite of litis pendentia is absent.
As discussed, Lui Enterprises filed the nullification of deed of dation in payment to
recover ownership of the leased premises. Zuellig Pharma filed the interpleader case
to extinguish its obligation to pay rent.There is no identity of reliefs prayed for, and
the second requisite of litis pendentia is absent.
Since two requisites of litis pendentia are absent, the nullification of deed of dation
in payment case did not bar the filing of the interpleader case.
Lui Enterprises alleged that the Regional Trial Court of Davao issued a writ of
preliminary injunction against the Regional Trial Court of Makati. The Regional
Trial Court of Davao allegedly enjoined the Regional Trial Court of Makati from
taking cognizance of the interpleader case. Lui Enterprises argued that the Regional
Trial Court of Makati "should have respected the orders issued by the Regional Trial
Court of Davao."149 Lui Enterprises cited Compania General de Tabacos de Filipinas
v. Court of Appeals150 where this court allegedly held:
x x x [T]he issuance of the said writ by the RTC ofAgoo, La Union not only seeks to
enjoin Branch 9 of the RTC of Manila from proceeding with the foreclosure case but
also has the effect of pre-empting the latter’s orders. x x x.151
Compania General de Tabacos de Filipinas is not an authority for the claim that a
court can issue a writ of preliminary injunction against a co- equal
court.1âwphi1 The cited sentence was taken out of context. In Compania General de
Tabacos de Filipinas, this court held that the Regional Trial Court ofAgoo had no
power to issue a writ of preliminary injunction against the Regional Trial Court of
Manila.152 Acourt cannot enjoin the proceedings of a co-equal court.
Thus, when this court said that the Regional Trial Court of Agoo’s writ of
preliminary injunction "not only seeks to enjoin x x x [the Regional Trial Court of
Manila] from proceeding with the foreclosure case but also has the effect of pre-
empting the latter’s orders,"153 this court followed with "[t]his we cannot
countenance."154
At any rate, the Regional Trial Court of Davao’s order datedApril 18, 2005 was not a
writ of preliminary injunction. It was a mere order directing the Philippine Bank of
Communications to inform Zuellig Pharma to pay rent to Lui Enterprises while the
status quo order between Lui Enterprises and the Philippine Bank of
Communications was subsisting. The Regional Trial Court of Davao did not enjoin
the proceedings before the Regional Trial Court of Makati.The order datedApril 18,
2005 provides:
As such, [the Philippine Bank of Communications] [is] hereby directed to forthwith
inform Zuellig Pharma Corp., of the April 1, 2004 status quo order and the
succeeding September 14, 2004 Order, and consequently, for the said lessee to remit
all rentals due from February 23, 2003 and onwards to plaintiff Lui Enterprises, Inc.,
in the meanwhile that the status quo order is subsisting.155
Thus, the Regional Trial Court of Davao did not enjoin the Regional Trial Court of
Makati fromhearing the interpleader case.
All told, the trial court did not err in proceeding with the interpleader case. The
nullification of deed of dation in payment case pending with the Regional Trial Court
of Davao did not bar the filing of the interpleader case with the RegionalTrial Court
of Makati.
IV
The Court of Appeals erred in awarding attorney’s fees
In its ordinary sense, attorney’s fees "represent the reasonable compensation [a client
pays his or her lawyer] [for legal service rendered]."156 In its extraordinary sense,
attorney’s fees "[are] awarded x x x as indemnity for damages [the losing party pays
the prevailingparty]."157
The award of attorney’s fees is the exception rather than the rule. 158 It is not awarded
to the prevailing party "as a matter of course." 159 Under Article 2208 of the Civil
Code, attorney’s fees cannot be recovered in the absence of stipulation, except under
specific circumstances:
(1)When exemplary damages are awarded;
(2)When the defendant’s act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
(3)In criminal cases of malicious prosecution against the plaintiff;
(4)In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5)Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff’s plainly valid, just and demandable claim;
(6)In actions for legal support;
(7)In actions for the recovery of wages of household helpers, laborers and
skilled workers;
(8)In actions for indemnity under workmen’s compensation and employer’s
liability laws;
(9)In a separate civil action to recover civil liability arising froma crime;
(10)When at least double judicial costs are awarded;
(11)In any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered. 160
Even if a party is "compelled to litigate with third persons or to incur expenses to
protect his [or her] rights," 161attorney's fees will not be awarded if no bad faith
"could be reflected in a party's persistence in a case." 162
To award attorney's fees, the court must have "factual, legal, [and] equitable
justification."163 The court must state the award's basis in its decision.164These rules
are based on the policy that "no premium should be placed.on the right to litigate." 165
In this case, the Court of Appeals awarded attorney's fees as "[Zuellig Pharma] was
compelled to litigate with third persons or to incur expenses to protect [its]
interest[s]."166 This is not a compelling reason to award attorney's fees. That Zuellig
Pharma had to file an interpleader case to consign its rental payments did not mean
that Lui Enterprises was in bad faith in insisting that rental payments be paid to it.
Thus, the Court. of Appeals erred in awarding attorney's fees to Zuellig Pharma.
All told, the Court of Appeals' award of P50,000.00 as attorney's fees must be
deleted.
WHEREFORE, in view of the foregoing, the petition for review on certiorari is
DENIED. The Court of Appeals' decision and resolution in CA- G.R. CV No. 88023
are AFFIRMED with MODIFICATION. The award of PS0,000.00 attorney's fees to
Zuellig Pharma Corporation is DELETED.
G.R. Nos. 154470-71 September 24, 2012
BANK OF COMMERCE, Petitioner, vs. PLANTERS DEVELOPMENT BANK
and BANGKO SENTRAL NG PILIPINAS, Respondent.
x-----------------------x
G.R. Nos. 154589-90
BANGKO SENTRAL NG PILIPINAS, Petitioner, vs. PLANTERS
DEVELOPMENT BANK, Respondent.
DECISION
BRION, J.:
Before the Court are two consolidated petitions for review on certiorari under Rule
45,1 on pure questions of law, filed by the petitioners Bank of Commerce (BOC) and
the Bangko Sentral ng Pilipinas (BSP). They assail the January 10, 2002 and July 23,
2002 Orders (assailed orders) of the Regional Trial Court (RTC) of Makati City,
Branch 143, in Civil Case Nos. 94-3233 and 94-3254. These orders dismissed (i) the
petition filed by the Planters Development Bank (PDB), (ii) the "counterclaim" filed
by the BOC, and (iii) the counter-complaint/cross-claim for interpleader filed bythe
BSP; and denied the BOC’s and the BSP’s motions for reconsideration.
THE ANTECEDENTS
The Central Bank bills
I. First set of CB bills
The Rizal Commercial Banking Corporation (RCBC) was the registered owner of On November 16, 1994, the RCBC sold back to All Asia one of these 4 CB bills.
seven Central Bank (CB) bills with a total face value of ₱ 70 million, issued on When the BSP refused to release the amount of this CB bill on maturity, the BOC
January 2, 1994 and would mature on January 2, 1995. 2 As evidenced by a "Detached purchased from All Asia this lone CB bill,15 particularly described as follows:16
Assignment" dated April 8, 1994,3 the RCBC sold these CB bills to the BOC.4 As
evidenced by another "Detached Assignment" 5 of even date, the BOC, in turn, sold
these CB bills to the PDB.6 The BOC delivered the Detached Assignments to the Serial No.: 2BB XM 045348
PDB.7
Quantity: One (1)

On April 15, 1994 (April 15 transaction), the PDB, in turn, sold to the BOC Treasury Denomination: Php 10 million
Bills worth ₱ 70 million, with maturity date of June 29, 1994, as evidenced by a
Trading Order8 and a Confirmation of Sale.9 However, instead of delivering the Total Face Value: Php 10 million
Treasury Bills, the PDB delivered the seven CB bills to the BOC, as evidenced by a
PDB Security Delivery Receipt, bearing a "note: ** substitution in lieu of 06-29-94"
As the registered owner of the remaining three CB bills, the RCBC sold them to IVI
– referring to the Treasury Bills.10 Nevertheless, the PDB retained possession of the
Capital and Insular Savings Bank. Again, when the BSP refused to release the
Detached Assignments. It is basically the nature of this April 15 transaction that the
amount of this CB bill on maturity, the RCBC paid back its transferees, reacquired
PDB and the BOC cannot agree on.
these three CB bills and sold them to the BOC – ultimately, the BOC acquired these
three CB bills.
The transfer of the first set of seven CB bills
All in all, the BOC acquired the first set of seven CB bills.
i. CB bill nos. 45351-53
II. Second set of CB bills
On April 20, 1994, according to the BOC, it "sold back" 11 to the PDB three of the
seven CB bills. In turn, the PDB transferred these three CB bills to Bancapital
On April 19, 1994, the RCBC, as registered owner, (i) sold two CB bills with a total
Development Corporation (Bancap). On April 25, 1994, the BOC bought the three
face value of ₱ 20 million to the PDB and (ii) delivered to the PDB the
CB bills from Bancap – so, ultimately, the BOC reacquired these three CB
corresponding Detached Assignment.17 The two CB bills were particularly described
bills,12 particularly described as follows:
as follows:

Serial No.: 2BB XM 045351

Serial No.: BB XM 045373
2BB XM 045352
BB XM 045374
2BB XM 045353
Issue date: January 3, 1994
Quantity: Three (3)
Maturity date: January 2, 1995
Denomination: Php 10 million
Denomination: Php 10 million
Total Face Value: Php 30 million
Total Face value: Php 20 million
ii. CB bill nos. 45347-50
On even date, the PDB delivered to Bancap the two CB bills 18 (April 19 transaction).
On April 20, 1994, the BOC sold the remaining four (4) CB bills to Capital One In turn, Bancap sold the CB bills to Al-Amanah Islamic Investment Bank of the
Equities Corporation13 which transferred them to All-Asia Capital and Trust Philippines, which in turn sold it to the BOC.19
Corporation (All Asia). On September 30, 1994, All Asia further transferred the four
CB bills back to the RCBC.14 PDB’s move against the transfer of
the first and second sets of CB bills
On June 30, 1994, upon learning of the transfers involving the CB bills, the PDB
informed20 the Officer-in-Charge of the BSP’s Government Securities
Department,21 Lagrimas Nuqui, of the PDB’s claim over these CB bills, based on the
Detached Assignments in its possession. The PDB requested the BSP 22 to record its
claim in the BSP’s books, explaining that its non-possession of the CB bills is "on
account of imperfect negotiations thereof and/or subsequent setoff or transfer." 23
Nuqui denied the request, invoking Section 8 of CB Circular No. 28 (Regulations
Governing Open Market Operations, Stabilization of the Securities Market, Issue,
Servicing and Redemption of the Public Debt)24 which requires the presentation of
the bond before a registered bond may be transferred on the books of the BSP.25
In a July 25, 1994 letter, the PDB clarified to Nuqui that it was not "asking for the
transfer of the CB Bills…. rather it intends to put the BSP on formal notice that
whoever is in possession of said bills is not a holder in due course," and, therefore
the BSP should not make payment upon the presentation of the CB bills on
maturity.26 Nuqui responded that the BSP was "not in a position at that point in time
to determine who is and who is not the holder in due course since it is not privy to all
acts and time involving the transfers or negotiation" of the CB bills. Nuqui added
that the BSP’s action shall be governed by CB Circular No. 28, as amended. 27
On November 17, 1994, the PDB also asked BSP Deputy Governor Edgardo Zialcita
that (i) a notation in the BSP’s books be made against the transfer, exchange, or
payment of the bonds and the payment of interest thereon; and (ii) the presenter of
the bonds upon maturity be required to submit proof as a holder in due course (of the
first set of CB bills). The PDB relied on Section 10 (d) 4 of CB Circular No.
28.28 This provision reads:
(4) Assignments effected by fraud – Where the assignment of a registered bond is
secured by fraudulent representations, the Central Bank can grant no relief if the
assignment has been honored without notice of fraud. Otherwise, the Central Bank,
upon receipt of notice that the assignment is claimed to have been secured by
fraudulent representations, or payment of the bond the payment of interest thereon,
and when the bond is presented, will call upon the owner and the person presenting
the bond to substantiate their respective claims.If it then appears that the person
presenting the bond stands in the position of bonafide holder for value, the Central
Bank, after giving the owner an opportunity to assert his claim, will pass the bond for
transfer, exchange or payments, as the case may be, without further question.
In a December 29, 1994 letter, Nuqui again denied the request, reiterating the BSP’s
previous stand.
In light of these BSP responses and the impending maturity of the CB bills, the PDB
filed29 with the RTC two separate petitions for Mandamus, Prohibition and Injunction
with prayer for Preliminary Injunction and Temporary Restraining Order, docketed
as Civil Case No. 94-3233 (covering the first set of CB bills) and Civil Case 94-3254
(covering the second set of CB bills) against Nuqui, the BSP and the RCBC. 30
The PDB essentially claims that in both the April 15 transaction (involving the first
set of CB bills) and the April 19 transaction (involving the second set of CB bills),
there was no intent on its part to transfer title of the CB bills, as shown by its non-
issuance of a detached assignment in favor of the BOC and Bancap, respectively.
The PDB particularly alleges that it merely "warehoused" 31 the first set of CB bills
with the BOC, as security collateral.
On December 28, 1994, the RTC temporarily enjoined Nuqui and the BSP from
paying the face value of the CB bills on maturity.32 On January 10, 1995, the PDB
filed an Amended Petition, additionally impleading the BOC and All Asia. 33 In a
January 13, 1995 Order, the cases were consolidated.34 On January 17, 1995, the
RTC granted the PDB’s application for a writ of preliminary prohibitory
injunction.35 In both petitions, the PDB identically prayed:
WHEREFORE, it is respectfully prayed x x x that, after due notice and hearing, the
Writs of Mandamus, Prohibition and Injunction, be issued; (i) commanding the BSP
and Nuqui, or whoever may take her place -
(a) to record forthwith in the books of BSP the claim of x x x PDB on the [two sets
of] CB Bills in accordance with Section 10 (d) (4) of revised C.B. Circular No. 28;
and
(b) also pursuant thereto, when the bills are presented on maturity date for payment,
to call (i) x x x PDB, (ii) x x x RCBC x x x, (iii) x x x BOC x x x, and (iv) x x x
ALL-ASIA x x x; or whoever will present the [first and second sets of] CB Bills for
payment, to submit proof as to who stands as the holder in due course of said bills,
and, thereafter, act accordingly;
and (ii) ordering the BSP and Nuqui to pay jointly and severally to x x x PDB the
following:
(a) the sum of ₱ 100,000.00, as and for exemplary damages;
(b) the sum of at least ₱ 500,000.00, or such amount as shall be proved at
the trial, as and for attorney’s fees;
(c) the legal rate of interest from the filing of this Petition until full payment
of the sums mentioned in this Petition; and
(d) the costs of suit.36
After the petitions were filed, the BOC acquired/reacquired all the nine CB bills –
the first and second sets of CB bills (collectively, subject CB bills).
Defenses of the BSP and of the BOC37
The BOC filed its Answer, praying for the dismissal of the petition. It argued that the
PDB has no cause of action against it since the PDB is no longer the owner of the CB
bills. Contrary to the PDB’s "warehousing theory," 38 the BOC asserted that the (i)
April 15 transaction and the (ii) April 19 transaction – covering both sets of CB bills
- were valid contracts of sale, followed by a transfer of title (i) to the BOC (in the
April 15 transaction) upon the PDB’s delivery of the 1st set of CB bills in
substitution of the Treasury Bills the PDB originally intended to sell, and (ii) to
Bancap (in the April 19 transaction) upon the PDB’s delivery of the 2nd set of CB
bills to Bancap, likewise by way of substitution.
The BOC adds that Section 10 (d) 4 of CB Circular No. 28 cannot apply to the
PDB’s case because (i) the PDB is not in possession of the CB bills and (ii) the BOC
acquired these bills from the PDB, as to the 1st set of CB bills, and from Bancap, as
to the 2nd set of CB bills, in good faith and for value. The BOC also asserted a
compulsory counterclaim for damages and attorney’s fees.
On the other hand, the BSP countered that the PDB cannot invoke Section 10 (d) 4 of
CB Circular No. 28 because this section applies only to an "owner" and a "person
presenting the bond," of which the PDB is neither. The PDB has not presented to the
BSP any assignment of the subject CB bills, duly recorded in the BSP’s books, in its
favor to clothe it with the status of an "owner." 39 According to the BSP –
Section 10 d. (4) applies only to a registered bond which is assigned. And the
issuance of CB Bills x x x are required to be recorded/registered in BSP’s books. In
this regard, Section 4 a. (1) of CB Circular 28 provides that registered bonds "may be
transferred only by an assignment thereon duly executed by the registered owner or
his duly authorized representative x x x and duly recorded on the books of the
Central Bank."
xxxx
The alleged assignment of subject CB Bills in PDB’s favor is not recorded/registered
in BSP’s books.40(underscoring supplied)
Consequently, when Nuqui and the BSP refused the PDB’s request (to record its
claim), they were merely performing their duties in accordance with CB Circular No.
28.
Alternatively, the BSP asked that an interpleader suit be allowed between and among
the claimants to the subject CB bills on the position that while it is able and willing
to pay the subject CB bills’ face value, it is duty bound to ensure that payment is
made to the rightful owner. The BSP prayed that judgment be rendered:
a. Ordering the dismissal of the PDB’s petition for lack of merit;
b. Determining which between/among [PDB] and the other claimants is/are
lawfully entitled to the ownership of the subject CB bills and the proceeds
thereof;
c. x x x;
d. Ordering PDB to pay BSP and Nuqui such actual/compensatory and
exemplary damages… as the RTC may deem warranted; and
e. Ordering PDB to pay Nuqui moral damages… and to pay the costs of the
suit.41
Subsequent events
The PDB agreed with the BSP’s alternative response for an interpleader –
4. PDB agrees that the various claimants should now interplead and substantiate their
respective claims on the subject CB bills. However, the total face value of the subject
CB bills should be deposited in escrow with a private bank to be disposed of only
upon order of the RTC.42
Accordingly, on June 9, 199543 and August 4, 1995,44 the BOC and the PDB entered
into two separate Escrow Agreements.45 The first agreement covered the first set of
CB bills, while the second agreement covered the second set of CB bills. The parties
agreed to jointly collect from the BSP the maturity proceeds of these CB bills and to
deposit said amount in escrow, "pending final determination by Court judgment, or
amicable settlement as to who shall be eventually entitled thereto." 46 The BOC and
the PDB filed a Joint Motion,47 submitting these Escrow Agreements for court
approval. The RTC gave its approval to the parties’ Joint Motion.48 Accordingly, the
BSP released the maturity proceeds of the CB bills by crediting the Demand Deposit
Account of the PDB and of the BOC with 50% each of the maturity proceeds of the
amount in escrow.49
In view of the BOC’s acquisition of all the CB bills, All Asia 50 moved to be dropped
as a respondent (with the PDB’s conformity51 ), which the RTC granted.52 The RCBC
subsequently followed suit.53
In light of the developments, on May 4, 1998, the RTC required the parties to
manifest their intention regarding the case and to inform the court of any amicable
settlement; "otherwise, th[e] case shall be dismissed for lack of
interest."54 Complying with the RTC’s order, the BOC moved (i) that the case be set
for pre-trial and (ii) for further proceeding to resolve the remaining issues between
the BOC and the PDB, particularly on "who has a better right over the subject CB
bills."55 The PDB joined the BOC in its motion.56
On September 28, 2000, the RTC granted the BSP’s motion to interplead and,
accordingly, required the BOC to amend its Answer and for the conflicting claimants
to comment thereon.57 In October 2000, the BOC filed its Amended Consolidated
Answer with Compulsory Counterclaim, reiterating its earlier arguments asserting
ownership over the subject CB bills.58
In the alternative, the BOC added that even assuming that there was no effective
transfer of the nine CB bills ultimately to the BOC, the PDB remains obligated to
deliver to the BOC, as buyer in the April 15 transaction and ultimate successor-in-
interest of the buyer (Bancap) in the April 19 transaction, either the original subjects
of the sales or the value thereof, plus whatever income that may have been earned
during the pendency of the case.59
That BOC prayed:
1. To declare BOC as the rightful owner of the nine (9) CB bills and as the
party entitled to the proceeds thereof as well as all income earned pursuant
to the two (2) Escrow Agreements entered into by BOC and PDB.
2. In the alternative, ordering PDB to deliver the original subject of the sales
transactions or the value thereof and whatever income earned by way of
interest at prevailing rate.
Without any opposition or objection from the PDB, on February 23, 2001, the RTC
admitted60 the BOC’s Amended Consolidated Answer with Compulsory
Counterclaims.
In May 2001, the PDB filed an Omnibus Motion,61 questioning the RTC’s
jurisdiction over the BOC’s "additional counterclaims." The PDB argues that its
petitions pray for the BSP (not the RTC) to determine who among the conflicting
claimants to the CB bills stands in the position of the bona fide holder for value. The
RTC cannot entertain the BOC’s counterclaim, regardless of its nature, because it is
the BSP which has jurisdiction to determine who is entitled to receive the proceeds
of the CB bills.
The BOC opposed62 the PDB’s Omnibus Motion. The PDB filed its Reply.63
In a January 10, 2002 Order, the RTC dismissed the PDB’s petition, the BOC’s
counterclaim and the BSP’s counter-complaint/cross-claim for interpleader, holding
that under CB Circular No. 28, it has no jurisdiction (i) over the BOC’s
"counterclaims" and (ii) to resolve the issue of ownership of the CB bills. 64 With the
denial of their separate motions for Reconsideration,65 the BOC and the BSP
separately filed the present petitions for review on certiorari. 66
THE BOC’S and THE BSP’S PETITIONS
The BOC argues that the present cases do not fall within the limited provision of
Section 10 (d) 4 of CB Circular No. 28, which contemplates only of three situations:
first, where the fraudulent assignment is not coupled with a notice to the BSP, it can
grant no relief; second, where the fraudulent assignment is coupled with a notice of
fraud to the BSP, it will make a notation against the assignment and require the
owner and the holder to substantiate their claims; and third, where the case does not
fall on either of the first two situations, the BSP will have to await action on the
assignment pending settlement of the case, whether by agreement or by court order.
The PDB’s case cannot fall under the first two situations. With particular regard to
the second situation, CB Circular No. 28 requires that the conflict must be between
an "owner" and a "holder," for the BSP to exercise its limited jurisdiction to resolve
conflicting claims; and the word "owner" here refers to the registered owner giving
notice of the fraud to the BSP. The PDB, however, is not the registered owner nor is
it in possession (holder) of the CB bills.67Consequently, the PDB’s case can only
falls under the third situation which leaves the RTC, as a court of general
jurisdiction, with the authority to resolve the issue of ownership of a registered bond
(the CB bills) not falling in either of the first two situations.
The BOC asserts that the policy consideration supportive of its interpretation of CB
Circular No. 28 is to have a reliable system to protect the registered owner; should he
file a notice with the BSP about a fraudulent assignment of certain CB bills, the BSP
simply has to look at its books to determine who is the owner of the CB bills
fraudulently assigned. Since it is only the registered owner who complied with the
BSP’s requirement of recording an assignment in the BSP’s books, then "the
protective mantle of administrative proceedings" should necessarily benefit him
only, without extending the same benefit to those who chose to ignore the Circular’s
requirement, like the PDB.68
Assuming arguendo that the PDB’s case falls under the second situation – i.e., the
BSP has jurisdiction to resolve the issue of ownership of the CB bills – the more
recent CB Circular No. 769-80 (Rules and Regulations Governing Central Bank
Certificates of Indebtedness) already superseded CB Circular No. 28, and, in
particular, effectively amended Section 10 (d) 4 of CB Circular No. 28. The pertinent
provisions of CB Circular No. 769-80 read:
Assignment Affected by Fraud. – Any assignment for transfer of ownership of
registered certificate obtained through fraudulent representation if honored by the
Central Bank or any of its authorized service agencies shall not make the Central
Bank or agency liable therefore unless it has previous formal notice of the fraud. The
Central Bank, upon notice under oath that the assignment was secured through
fraudulent means, shall immediately issue and circularize a "stop order" against the
transfer, exchange, redemption of the Certificate including the payment of interest
coupons. The Central Bank or service agency concerned shall continue to withhold
action on the certificate until such time that the conflicting claims have been finally
settled either by amicable settlement between the parties or by order of the Court.
Unlike CB Circular No. 28, CB Circular No. 769-80 limited the BSP’s authority to
the mere issuance and circularization of a "stop order" against the transfer, exchange
and redemption upon sworn notice of a fraudulent assignment. Under this Circular,
the BSP shall only continue to withhold action until the dispute is ended by an
amicable settlement or by judicial determination. Given the more passive stance of
the BSP – the very agency tasked to enforce the circulars involved - under CB
Circular No. 769-80, the RTC’s dismissal of the BOC’s counterclaims is palpably
erroneous.
Lastly, since Nuqui’s office (Government Securities Department) had already been
abolished,69 it can no longer adjudicate the dispute under the second situation
covered by CB Circular No. 28. The abolition of Nuqui’s office is not only consistent
with the BSP’s Charter but, more importantly, with CB Circular No. 769-80, which
removed the BSP’s adjudicative authority over fraudulent assignments.
THE PDB’S COMMENT
The PDB claims that jurisdiction is determined by the allegations in the
complaint/petition and not by the defenses set up in the answer. 70 In filing the
petition with the RTC, the PDB merely seeks to compel the BSP to determine,
pursuant to CB Circular No. 28, the party legally entitled to the proceeds of the
subject CB bills, which, as the PDB alleged, have been transferred through
fraudulent representations – an allegation which properly recognized the BSP’s
jurisdiction to resolve conflicting claims of ownership over the CB bills.
The PDB adds that under the doctrine of primary jurisdiction, courts should refrain
from determining a controversy involving a question whose resolution demands the
exercise of sound administrative discretion. In the present case, the BSP’s special
knowledge and experience in resolving disputes on securities, whose assignment and
trading are governed by the BSP’s rules, should be upheld.
The PDB counters that the BOC’s tri-fold interpretation of Section 10 (d) 4 of CB
Circular No. 28 sanctions split jurisdiction which is not favored;but even this tri-fold
interpretation which, in the second situation, limits the meaning of the "owner" to the
registered owner is flawed. Section 10 (d) 4 aims to protect not just the registered
owner but anyone who has been deprived of his bond by fraudulent representation in
order to deter fraud in the secondary trading of government securities.
The PDB asserts that the existence of CB Circular No. 769-80 or the abolition of
Nuqui’s office does not result in depriving the BSP of its jurisdiction: first, CB
Circular No. 769-80 expressly provides that CB Circular No. 28 shall have
suppletory application to CB Circular No. 769-80; and second, the BSP can always
designate an office to resolve the PDB’s claim over the CB bills.
Lastly, the PDB argues that even assuming that the RTC has jurisdiction to resolve
the issue of ownership of the CB bills, the RTC has not acquired jurisdiction over the
BOC’s so-called "compulsory" counterclaims (which in truth is merely "permissive")
because of the BOC’s failure to pay the appropriate docket fees. These counterclaims
should, therefore, be dismissed and expunged from the record.
THE COURT’S RULING
We grant the petitions.
At the outset, we note that the parties have not raised the validity of either CB
Circular No. 28 or CB Circular No. 769-80 as an issue. What the parties largely
contest is the applicable circular in case of an allegedly fraudulently assigned CB
bill. The applicable circular, in turn, is determinative of the proper remedy available
to the PDB and/or the BOC as claimants to the proceeds of the subject CB bills.
Indisputably, at the time the PDB supposedly invoked the jurisdiction of the BSP in
1994 (by requesting for the annotation of its claim over the subject CB bills in the
BSP’s books), CB Circular No. 769-80 has long been in effect. Therefore, the
parties’ respective interpretations of the provision of Section 10 (d) 4 of CB Circular
No. 28 do not have any significance unless it is first established that that Circular
governs the resolution of their conflicting claims of ownership. This conclusion is
important, given the supposed repeal or modification of Section 10 (d) 4 of CB
Circular No. 28 by the following provisions of CB Circular No. 769-80:
ARTICLE XI
SUPPLEMENTAL RULES
Section 1. Central Bank Circular No. 28 – The provisions of Central Bank Circular
No. 28 shall have suppletory application to matters not specially covered by these
Rules.
ARTICLE XII
EFFECTIVITY
Effectivity – The rules and regulations herein prescribed shall take effect upon
approval by the Monetary Board, Central Bank of the Philippines, and all circulars,
memoranda, or office orders inconsistent herewith are revoked or modified
accordingly. (Emphases added)
We agree with the PDB that in view of CB Circular No. 28’s suppletory application,
an attempt to harmonize the apparently conflicting provisions is a prerequisite before
one may possibly conclude that an amendment or a repeal exists. 71 Interestingly,
however, even the PDB itself failed to submit an interpretation based on its own
position of harmonization.
The repealing clause of CB Circular No. 769-80 obviously did not expressly repeal
CB Circular No. 28; in fact, it even provided for the suppletory application of CB
Circular No. 28 on "matters not specially covered by" CB Circular No. 769-80.
While no express repeal exists, the intent of CB Circular No. 769-80 to operate as an
implied repeal,72or at least to amend earlier CB circulars, is supported by its text
"revoking" or "modif[ying" "all circulars" which are inconsistent with its terms.
At the outset, we stress that none of the parties disputes that the subject CB bills fall
within the category of a certificate or evidence of indebtedness and that these were
issued by the Central Bank, now the BSP. Thus, even without resorting to statutory
construction aids, matters involving the subject CB bills should necessarily be
governed by CB Circular No. 769-80. Even granting, however, that reliance on CB
Circular No. 769-80 alone is not enough, we find that CB Circular No. 769-80
impliedly repeals CB Circular No. 28.
An implied repeal transpires when a substantial conflict exists between the new and
the prior laws. In the absence of an express repeal, a subsequent law cannot be
construed as repealing a prior law unless an irreconcilable inconsistency and
repugnancy exist in the terms of the new and the old laws. 73 Repeal by implication is
not favored, unless manifestly intended by the legislature, or unless it is convincingly
and unambiguously demonstrated, that the laws or orders are clearly repugnant and
patently inconsistent with one another so that they cannot co-exist; the legislature is
presumed to know the existing law and would express a repeal if one is intended.74
There are two instances of implied repeal. One takes place when the provisions in the
two acts on the same subject matter are irreconcilably contradictory, in which case,
the later act, to the extent of the conflict, constitutes an implied repeal of the earlier
one. The other occurs when the later act covers the whole subject of the earlier one
and is clearly intended as a substitute; thus, it will operate to repeal the earlier law. 75
A general reading of the two circulars shows that the second instance of implied
repeal is present in this case. CB Circular No. 28, entitled "Regulations Governing
Open Market Operations, Stabilization of Securities Market, Issue, Servicing and
Redemption of Public Debt," is a regulation governing the servicing and redemption
of public debt, including the issue, inscription, registration, transfer, payment and
replacement of bonds and securities representing the public debt. 76 On the other hand,
CB Circular No. 769-80, entitled "Rules and Regulations Governing Central Bank
Certificate of Indebtedness," is the governing regulation on matters77 (i) involving
certificate of indebtedness78issued by the Central Bank itself and (ii) which are
similarly covered by CB Circular No. 28.
The CB Monetary Board issued CB Circular No. 28 to regulate the servicing and
redemption of public debt, pursuant to Section 124 (now Section 119 of Republic
Act R.A. No. 7653) of the old Central Bank law79 which provides that "the servicing
and redemption of the public debt shall also be effected through the Bangko Sentral."
However, even as R.A. No. 7653 continued to recognize this role by the BSP, the
law required a phase-out of all fiscal agency functions by the BSP, including Section
119 of R.A. No. 7653.
In other words, even if CB Circular No. 28 applies broadly to both government-
issued bonds and securities and Central Bank-issued evidence of indebtedness, given
the present state of law, CB Circular No. 28 and CB Circular No. 769-80 now
operate on the same subject – Central Bank-issued evidence of indebtedness. Under
Section 1, Article XI of CB Circular No. 769-80, the continued relevance and
application of CB Circular No. 28 would depend on the need to supplement any
deficiency or silence in CB Circular No. 769-80 on a particular matter.
In the present case, both CB Circular No. 28 and CB Circular No. 769-80 provide the
BSP with a course of action in case of an allegedly fraudulently assigned certificate
of indebtedness. Under CB Circular No. 28, in case of fraudulent assignments, the
BSP would have to "call upon the owner and the person presenting the bond to
substantiate their respective claims" and, from there, determine who has a better right
over the registered bond. On the other hand, under CB Circular No. 769-80, the BSP
shall merely "issue and circularize a ‘stop order’ against the transfer, exchange,
redemption of the [registered] certificate" without any adjudicative function (which
is the precise root of the present controversy). As the two circulars stand, the patent
irreconcilability of these two provisions does not require elaboration. Section 5,
Article V of CB Circular No. 769-80 inescapably repealed Section 10 (d) 4 of CB
Circular No. 28.
The issue of BSP’s jurisdiction, lay hidden
On that note, the Court could have written finis to the present controversy by simply
sustaining the BSP’s hands-off approach to the PDB’s problem under CB Circular
No. 769-80. However, the jurisdictional provision of CB Circular No. 769-80 itself,
in relation to CB Circular No. 28, on the matter of fraudulent assignment, has given
rise to a question of jurisdiction - the core question of law involved in these petitions
- which the Court cannot just treat sub-silencio.
Broadly speaking, jurisdiction is the legal power or authority to hear and determine a
cause.80 In the exercise of judicial or quasi-judicial power, it refers to the authority of
a court to hear and decide a case.81 In the context of these petitions, we hark back to
the basic principles governing the question of jurisdiction over the subject matter.
First, jurisdiction over the subject matter is determined only by the Constitution and
by law.82 As a matter of substantive law, procedural rules alone can confer no
jurisdiction to courts or administrative agencies.83 In fact, an administrative agency,
acting in its quasi-judicial capacity, is a tribunal of limited jurisdiction and, as such,
could wield only such powers that are specifically granted to it by the enabling
statutes. In contrast, an RTC is a court of general jurisdiction, i.e., it has jurisdiction
over cases whose subject matter does not fall within the exclusive original
jurisdiction of any court, tribunal or body exercising judicial or quasi-judicial
functions.84
Second, jurisdiction over the subject matter is determined not by the pleas set up by
the defendant in his answer85but by the allegations in the complaint,86 irrespective of
whether the plaintiff is entitled to favorable judgment on the basis of his
assertions.87 The reason is that the complaint is supposed to contain a concise
statement of the ultimate facts constituting the plaintiff's causes of action. 88
Third, jurisdiction is determined by the law in force at the time of the filing of the
complaint.89
Parenthetically, the Court observes that none of the parties ever raised the issue of
whether the BSP can simply disown its jurisdiction, assuming it has, by the simple
expedient of promulgating a new circular (specially applicable to a certificate of
indebtedness issued by the BSP itself), inconsistent with an old circular, assertive of
its limited jurisdiction over ownership issues arising from fraudulent assignments of
a certificate of indebtedness. The PDB, in particular, relied solely and heavily on CB
Circular No. 28.
In light of the above principles pointing to jurisdiction as a matter of substantive law,
the provisions of the law itself that gave CB Circular 769-80 its life and jurisdiction
must be examined.
The Philippine Central Bank
On January 3, 1949, Congress created the Central Bank of the Philippines (Central
Bank) as a corporate body with the primary objective of (i) maintaining the internal
and external monetary stability in the Philippines; and (ii) preserving the
international value and the convertibility of the peso.90 In line with these broad
objectives, the Central Bank was empowered to issue rules and regulations
"necessary for the effective discharge of the responsibilities and exercise of the
powers assigned to the Monetary Board and to the Central Bank." 91 Specifically, the
Central Bank is authorized to organize (other) departments for the efficient conduct
of its business and whose powers and duties "shall be determined by the Monetary
Board, within the authority granted to the Board and the Central Bank" 92 under its
original charter.
With the 1973 Constitution, the then Central Bank was constitutionally made as the
country’s central monetary authority until such time that Congress93 shall have
established a central bank. The 1987 Constitution continued to recognize this
function of the then Central Bank until Congress, pursuant to the Constitution,
created a new central monetary authority which later came to be known as the
Bangko Sentral ng Pilipinas.
Under the New Central Bank Act (R.A. No. 7653),94 the BSP is given the
responsibility of providing policy directions in the areas of money, banking and
credit; it is given, too, the primary objective of maintaining price stability, conducive
to a balanced and sustainable growth of the economy, and of promoting and
maintaining monetary stability and convertibility of the peso.95
The Constitution expressly grants the BSP, as the country’s central monetary
authority, the power of supervision over the operation of banks, while leaving with
Congress the authority to define the BSP’s regulatory powers over the operations of
finance companies and other institutions performing similar functions. Under R.A.
No. 7653, the BSP’s powers and functions include (i) supervision over the operation
of banks; (ii) regulation of operations of finance companies and non-bank financial
institutions performing quasi banking functions; (iii) sole power and authority to
issue currency within the Philippine territory; (iv) engaging in foreign exchange
transactions; (v) making rediscounts, discounts, loans and advances to banking and
other financial institutions to influence the volume of credit consistent with the
objective of achieving price stability; (vi) engaging in open market operations; and
(vii) acting as banker and financial advisor of the government.1âwphi1
On the BSP’s power of supervision over the operation of banks, Section 4 of R.A.
No. 8791 (The General Banking Law of 2000) elaborates as follows:
CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL
SECTION 4. Supervisory Powers. — The operations and activities of banks shall be
subject to supervision of the Bangko Sentral. "Supervision" shall include the
following:
4.1. The issuance of rules of conduct or the establishment of standards of
operation for uniform application to all institutions or functions covered,
taking into consideration the distinctive character of the operations of
 institutions and the substantive similarities of specific functions to which
such rules, modes or standards are to be applied;
4.2. The conduct of examination to determine compliance with laws and
regulations if the circumstances so warrant as determined by the Monetary
Board;
4.3. Overseeing to ascertain that laws and regulations are complied with;
4.4. Regular investigation which shall not be oftener than once a year from
the last date of examination to determine whether an institution is
conducting its business on a safe or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution (2-D); or
4.6. Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions
which under special laws are subject to Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the
borrowing of funds through the issuance, endorsement or assignment with recourse
or acceptance of deposit substitutes as defined in Section 95 of Republic Act No.
7653 (hereafter the "New Central Bank Act") for purposes of relending or purchasing
of receivables and other obligations. [emphasis ours]
While this provision empowers the BSP to oversee the operations and activities of
banks to "ascertain that laws and regulations are complied with," the existence of the
BSP’s jurisdiction in the present dispute cannot rely on this provision. The fact
remains that the BSP already made known to the PDB its unfavorable position on the
latter’s claim of fraudulent assignment due to the latter’s own failure to
comply96 with existing regulations:
In this connection, Section 10 (b) 2 also requires that a "Detached assignment will be
recognized or accepted only upon previous notice to the Central Bank x x x." In fact,
in a memo dated September 23, 1991 xxx then CB Governor Jose L. Cuisia advised
all banks (including PDB) xxx as follows:
In view recurring incidents ostensibly disregarding certain provisions of CB circular
No. 28 (as amended) covering assignments of registered bonds, all banks and all
concerned are enjoined to observe strictly the pertinent provisions of said CB
Circular as hereunder quoted:
Under Section 10.b. (2)
x x x Detached assignment will be recognized or accepted only upon previous notice
to the Central Bank and its use is authorized only under the following circumstances:
(c) assignments of treasury notes and certificates of indebtedness in
registered form which are not provided at the back thereof with assignment
form.
(d) Assignment of securities which have changed ownership several times.
Non-compliance herewith will constitute a basis for non-action or withholding of
action on redemption/payment of interest coupons/transfer transactions or
denominational exchange that may be directly affected thereby. [Boldfacing
supplied]
Again, the books of the BSP do not show that the supposed assignment of subject CB
Bills was ever recorded in the BSP’s books. [Boldfacing supplied]
However, the PDB faults the BSP for not recording the assignment of the CB bills in
the PDB’s favor despite the fact that the PDB already requested the BSP to record its
assignment in the BSP’s books as early as June 30, 1994. 97
The PDB’s claim is not accurate. What the PDB requested the BSP on that date was
not the recording of the assignment of the CB bills in its favor but the annotation of
its claim over the CB bills at the time when (i) it was no longer in possession of the
CB bills, having been transferred from one entity to another and (ii) all it has are the
detached assignments, which the PDB has not shown to be compliant with Section
10 (b) 2 above-quoted. Obviously, the PDB cannot insist that the BSP take
cognizance of its plaint when the basis of the BSP’s refusal under existing regulation,
which the PDB is bound to observe, is the PDB’s own failure to comply therewith.
True, the BSP exercises supervisory powers (and regulatory powers) over banks (and
quasi banks). The issue presented before the Court, however, does not concern the
BSP’s supervisory power over banks as this power is understood under the General
Banking Law. In fact, there is nothing in the PDB’s petition (even including the
letters it sent to the BSP) that would support the BSP’s jurisdiction outside of CB
Circular No. 28, under its power of supervision, over conflicting claims to the
proceeds of the CB bills.
BSP has quasi-judicial powers over a
class of cases which does not include
the adjudication of ownership of the
CB bills in question
In United Coconut Planters Bank v. E. Ganzon, Inc.,98 the Court considered the BSP
as an administrative agency,99exercising quasi-judicial functions through its
Monetary Board. It held:
A quasi-judicial agency or body is an organ of government other than a court and
other than a legislature, which affects the rights of private parties through either
adjudication or rule-making. The very definition of an administrative agency
includes its being vested with quasi-judicial powers. The ever increasing variety of
powers and functions given to administrative agencies recognizes the need for the
active intervention of administrative agencies in matters calling for technical
knowledge and speed in countless controversies which cannot possibly be handled
by regular courts. A "quasi-judicial function" is a term which applies to the action,
discretion, etc., of public administrative officers or bodies, who are required to
investigate facts, or ascertain the existence of facts, hold hearings, and draw
conclusions from them, as a basis for their official action and to exercise discretion
of a judicial nature.
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasi-
judicial powers or functions. As aptly observed by the Court of Appeals, the BSP
Monetary Board is an independent central monetary authority and a body corporate
with fiscal and administrative autonomy, mandated to provide policy directions in
the areas of money, banking and credit. It has power to issue subpoena, to sue for
contempt those refusing to obey the subpoena without justifiable reason, to
administer oaths and compel presentation of books, records and others, needed in its
examination, to impose fines and other sanctions and to issue cease and desist order.
Section 37 of Republic Act No. 7653, in particular, explicitly provides that the BSP
Monetary Board shall exercise its discretion in determining whether administrative
sanctions should be imposed on banks and quasi-banks, which necessarily implies
that the BSP Monetary Board must conduct some form of investigation or hearing
regarding the same. [citations omitted]
The BSP is not simply a corporate entity but qualifies as an administrative agency
created, pursuant to constitutional mandate,100 to carry out a particular governmental
function.101 To be able to perform its role as central monetary authority, the
Constitution granted it fiscal and administrative autonomy. In general, administrative
agencies exercise powers and/or functions which may be characterized as
administrative, investigatory, regulatory, quasi-legislative, or quasi-judicial, or a mix
of these five, as may be conferred by the Constitution or by statute. 102
While the very nature of an administrative agency and the raison d'être for its
creation103 and proliferation dictate a grant of quasi-judicial power to it, the matters
over which it may exercise this power must find sufficient anchorage on its enabling
law, either by express provision or by necessary implication. Once found, the quasi-
judicial power partakes of the nature of a limited and special jurisdiction, that is, to
hear and determine a class of cases within its peculiar competence and expertise. In
other words, the provisions of the enabling statute are the yardsticks by which the
Court would measure the quantum of quasi-judicial powers an administrative agency
may exercise, as defined in the enabling act of such agency. 104
Scattered provisions in R.A. No. 7653 and R.A. No. 8791, inter alia, exist, conferring
jurisdiction on the BSP on certain matters.105 For instance, under the situations
contemplated under Section 36, par. 2106 (where a bank or quasi bank persists in
carrying on its business in an unlawful or unsafe manner) and Section 37 107 (where
the bank or its officers willfully violate the bank’s charter or by-laws, or the rules
and regulations issued by the Monetary Board) of R.A. No. 7653, the BSP may place
an entity under receivership and/or liquidation or impose administrative sanctions
upon the entity or its officers or directors.
Among its several functions under R.A. No. 7653, the BSP is authorized to engage in
open market operations and thereby "issue, place, buy and sell freely negotiable
evidences of indebtedness of the Bangko Sentral" in the following manner.
SEC. 90. Principles of Open Market Operations. – The open market purchases and
sales of securities by the Bangko Sentral shall be made exclusively in accordance
with its primary objective of achieving price stability.
xxxx
SEC. 92. Issue and Negotiation of Bangko Sentral Obligations. – In order to provide
the Bangko Sentral with effective instruments for open market operations, the
Bangko Sentral may, subject to such rules and regulations as the Monetary Board
may prescribe and in accordance with the principles stated in Section 90 of this Act,
issue, place, buy and sell freely negotiable evidences of indebtedness of the Bangko
Sentral: Provided, That issuance of such certificates of indebtedness shall be made
only in cases of extraordinary movement in price levels. Said evidences of
indebtedness may be issued directly against the international reserve of the Bangko
Sentral or against the securities which it has acquired under the provisions of Section
91 of this Act, or may be issued without relation to specific types of assets of the
Bangko Sentral.
The Monetary Board shall determine the interest rates, maturities and other
characteristics of said obligations of the Bangko Sentral, and may, if it deems it
advisable, denominate the obligations in gold or foreign currencies.
Subject to the principles stated in Section 90 of this Act, the evidences of
indebtedness of the Bangko Sentral to which this section refers may be acquired by
the Bangko Sentral before their maturity, either through purchases in the open
market or through redemptions at par and by lot if the Bangko Sentral has reserved
the right to make such redemptions. The evidences of indebtedness acquired or
redeemed by the Bangko Sentral shall not be included among its assets, and shall be
immediately retired and cancelled.108 (italics supplied; emphases ours)
The primary objective of the BSP is to maintain price stability. 109 The BSP has a
number of monetary policy instruments at its disposal to promote price stability. To
increase or reduce liquidity in the financial system, the BSP uses open market
operations, among others.110 Open market operation is a monetary tool where the
BSP publicly buys or sells government securities111 from (or to) banks and financial
institutions in order to expand or contract the supply of money. By controlling the
money supply, the BSP is able to exert some influence on the prices of goods and
services and achieve its inflation objectives.112
Once the issue and/or sale of a security is made, the BSP would necessarily make a
determination, in accordance with its own rules, of the entity entitled to receive the
proceeds of the security upon its maturity. This determination by the BSP is an
exercise of its administrative powers113 under the law as an incident to its power to
prescribe rules and regulations governing open market operations to achieve the
"primary objective of achieving price stability." 114As a matter of necessity, too, the
same rules and regulations facilitate transaction with the BSP by providing for an
orderly manner of, among others, issuing, transferring, exchanging and paying
securities representing public debt.
Significantly, when competing claims of ownership over the proceeds of the
securities it has issued are brought before it, the law has not given the BSP the quasi-
judicial power to resolve these competing claims as part of its power to engage in
open market operations. Nothing in the BSP’s charter confers on the BSP the
jurisdiction or authority to determine this kind of claims, arising out of a subsequent
transfer or assignment of evidence of indebtedness – a matter that appropriately falls
within the competence of courts of general jurisdiction. That the statute withholds
this power from the BSP is only consistent with the fundamental reasons for the
creation of a Philippine central bank, that is, to lay down stable monetary policy and
exercise bank supervisory functions. Thus, the BSP’s assumption of jurisdiction over
competing claims cannot find even a stretched-out justification under its corporate
powers "to do and perform any and all things that may be necessary or proper to
carry out the purposes" of R.A. No. 7653. 115
To reiterate, open market operation is a monetary policy instrument that the BSP
employs, among others, to regulate the supply of money in the economy to influence
the timing, cost and availability of money and credit, as well as other financial
factors, for the purpose of stabilizing the price level. 116 What the law grants the BSP
is a continuing role to shape and carry out the country’s monetary policy – not the
authority to adjudicate competing claims of ownership over the securities it has
issued – since this authority would not fall under the BSP’s purposes under its
charter.
While R.A. No. 7653117 empowers the BSP to conduct administrative hearings and
render judgment for or against an entity under its supervisory and regulatory powers
and even authorizes the BSP Governor to "render decisions, or rulings x x x on
matters regarding application or enforcement of laws pertaining to institutions
supervised by the BSP and laws pertaining to quasi-banks, as well as regulations,
policies or instructions issued by the Monetary Board," it is precisely the text of the
BSP’s own regulation (whose validity is not here raised as an issue) that points to the
BSP’s limited role in case of an allegedly fraudulent assignment to simply (i) issuing
and circularizing a ‘"stop order" against the transfer, exchange, redemption of the
certificate of indebtedness, including the payment of interest coupons, and (ii)
withholding action on the certificate.
A similar conclusion can be drawn from the BSP’s administrative adjudicatory
power in cases of "willful failure or refusal to comply with, or violation of, any
banking law or any order, instruction or regulation issued by the Monetary Board, or
any order, instruction or ruling by the Governor." 118 The non-compliance with the
pertinent requirements under CB Circular No. 28, as amended, deprives a party from
any right to demand payment from the BSP.
In other words, the grant of quasi-judicial authority to the BSP cannot possibly
extend to situations which do not call for the exercise by the BSP of its supervisory
or regulatory functions over entities within its jurisdiction.119
The fact alone that the parties involved are banking institutions does not necessarily
call for the exercise by the BSP of its quasi-judicial powers under the law.120
The doctrine of primary jurisdiction
argues against BSP’s purported
authority to adjudicate ownership
issues over the disputed CB bills
Given the preceding discussions, even the PDB’s invocation of the doctrine of
primary jurisdiction is misplaced.
In the exercise of its plenary legislative power, Congress may create administrative
agencies endowed with quasi-legislative and quasi-judicial powers. Necessarily,
Congress likewise defines the limits of an agency’s jurisdiction in the same manner
as it defines the jurisdiction of courts.121 As a result, it may happen that either a court
or an administrative agency has exclusive jurisdiction over a specific matter or both
have concurrent jurisdiction on the same. It may happen, too, that courts and
agencies may willingly relinquish adjudicatory power that is rightfully theirs in favor
of the other. One of the instances when a court may properly defer to the
adjudicatory authority of an agency is the applicability of the doctrine of primary
jurisdiction.122
As early as 1954, the Court applied the doctrine of primary jurisdiction under the
following terms:
6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in
administrative commissions and boards the power to resolve specialized disputes xxx
ruled that Congress in requiring the Industrial Court's intervention in the resolution
of labor-management controversies xxx meant such jurisdiction to be exclusive,
although it did not so expressly state in the law. The Court held that under the
"sense-making and expeditious doctrine of primary jurisdiction ... the courts cannot
or will not determine a controversy involving a question which is within the
jurisdiction of an administrative tribunal, where the question demands the exercise of
sound administrative discretion requiring the special knowledge, experience, and
services of the administrative tribunal to determine technical and intricate matters of
fact, and a uniformity of ruling is essential to comply with the purposes of the
regulatory statute administered."123 (emphasis ours)
In Industrial Enterprises, Inc. v. Court of Appeals, 124 the Court ruled that while an
action for rescission of a contract between coal developers appears to be an action
cognizable by regular courts, the trial court remains to be without jurisdiction to
entertain the suit since the contract sought to be rescinded is "inextricably tied up
with the right to develop coal-bearing lands and the determination of whether or not
the reversion of the coal operating contract over the subject coal blocks to [the
plaintiff] would be in line with the country’s national program and objective on coal-
development and over-all coal-supply-demand balance." It then applied the doctrine
of primary jurisdiction –
In recent years, it has been the jurisprudential trend to apply the doctrine of primary
jurisdiction in many cases involving matters that demand the special competence of
administrative agencies. It may occur that the Court has jurisdiction to take
cognizance of a particular case, which means that the matter involved is also judicial
in character. However, if the case is such that its determination requires the expertise,
specialized skills and knowledge of the proper administrative bodies because
technical matters or intricate questions of facts are involved, then relief must first be
obtained in an administrative proceeding before a remedy will be supplied by the
courts even though the matter is within the proper jurisdiction of a court. This is the
doctrine of primary jurisdiction. It applies "where a claim is originally cognizable in
the courts, and comes into play whenever enforcement of the claim requires the
resolution of issues which, under a regulatory scheme, have been placed within the
special competence of an administrative body."
Clearly, the doctrine of primary jurisdiction finds application in this case since the
question of what coal areas should be exploited and developed and which entity
should be granted coal operating contracts over said areas involves a technical
determination by the Bureau of Energy Development as the administrative agency in
possession of the specialized expertise to act on the matter. The Trial Court does not
have the competence to decide matters concerning activities relative to the
exploration, exploitation, development and extraction of mineral resources like coal.
These issues preclude an initial judicial determination. [emphases ours]
The absence of any express or implied statutory power to adjudicate conflicting
claims of ownership or entitlement to the proceeds of its certificates of indebtedness
finds complement in the similar absence of any technical matter that would call for
the BSP’s special expertise or competence.125 In fact, what the PDB’s petitions bear
out is essentially the nature of the transaction it had with the subsequent transferees
of the subject CB bills (BOC and Bancap) and not any matter more appropriate for
special determination by the BSP or any administrative agency.
In a similar vein, it is well-settled that the interpretation given to a rule or regulation
by those charged with its execution is entitled to the greatest weight by the courts
construing such rule or regulation.126 While there are exceptions127 to this rule, the
PDB has not convinced us that a departure is warranted in this case. Given the non-
applicability of the doctrine of primary jurisdiction, the BSP’s own position, in light
of Circular No. 769-80, deserves respect from the Court.
Ordinarily, cases involving the application of doctrine of primary jurisdiction are
initiated by an action invoking the jurisdiction of a court or administrative agency to
resolve the substantive legal conflict between the parties. In this sense, the present
case is quite unique since the court’s jurisdiction was, originally, invoked to compel
an administrative agency (the BSP) to resolve the legal conflict of ownership over
the CB bills - instead of obtaining a judicial determination of the same dispute.
The remedy of interpleader
Based on the unique factual premise of the present case, the RTC acted correctly in
initially assuming jurisdiction over the PDB’s petition for mandamus, prohibition
and injunction.128 While the RTC agreed (albeit erroneously) with the PDB’s view
(that the BSP has jurisdiction), it, however, dismissed not only the BOC’s/the BSP’s
counterclaims but the PDB’s petition itself as well, on the ground that it lacks
jurisdiction.
This is plain error.
Not only the parties themselves, but more so the courts, are bound by the rule on
non-waiver of jurisdiction.129believes that jurisdiction over the BOC’s counterclaims
and the BSP’s counterclaim/crossclaim for interpleader calls for the application of
the doctrine of primary jurisdiction, the allowance of the PDB’s petition even
becomes imperative because courts may raise the issue of primary jurisdiction sua
sponte.130
Of the three possible options available to the RTC, the adoption of either of these
two would lead the trial court into serious legal error: first, if it granted the PDB’s
petition, its decision would have to be set aside on appeal because the BSP has no
jurisdiction as previously discussed; and second when it dismissed the PDB’s
petitions and the BOC’s counterclaims on the ground that it lacks jurisdiction, the
trial court seriously erred because precisely, the resolution of the conflicting claims
over the CB bills falls within its general jurisdiction.
Without emasculating its jurisdiction, the RTC could have properly dismissed the
PDB’s petition but on the ground that mandamus does not lie against the BSP; but
even this correct alternative is no longer plausible since the BSP, as a respondent
below, already properly brought before the RTC the remaining conflicting claims
over the subject CB bills by way of a counterclaim/crossclaim for interpleader.
Section 1, Rule 62 of the Rules of Court provides when an interpleader is proper:
SECTION 1. When interpleader proper. – Whenever conflicting claims upon the
same subject matter are or may be made against a person who claims no interest
whatever in the subject matter, or an interest which in whole or in part is not disputed
by the claimants, he may bring an action against the conflicting claimants to compel
them to interplead and litigate their several claims among themselves.
The remedy of an action of interpleader131 is designed to protect a person against
double vexation in respect of a single liability.7 It requires, as an indispensable
requisite, that conflicting claims upon the same subject matter are or may be made
against the stakeholder (the possessor of the subject matter) who claims no interest
whatever in the subject matter or an interest which in whole or in part is not disputed
by the claimants.132
Through this remedy, the stakeholder can join all competing claimants in a single
proceeding to determine conflicting claims without exposing the stakeholder to the
possibility of having to pay more than once on a single liability. 133
When the court orders that the claimants litigate among themselves, in reality a new
action arises,134 where the claims of the interpleaders themselves are brought to the
fore, the stakeholder as plaintiff is relegated merely to the role of initiating the suit.
In short, the remedy of interpleader, when proper, merely provides an avenue for the
conflicting claims on the same subject matter to be threshed out in an action. Section
2 of Rule 62 provides:
SEC. 2. Order. – Upon the filing of the complaint, the court shall issue an order
requiring the conflicting claimants to interplead with one another. If the interests of
justice so require, the court may direct in such order that the subject matter be paid or
delivered to the court.
This is precisely what the RTC did by granting the BSP’s motion to interplead. The
PDB itself "agreed that the various claimants should now interplead." Thus, the PDB
and the BOC subsequently entered into two separate escrow agreements, covering
the CB bills, and submitted them to the RTC for approval.
In granting the BSP’s motion, the RTC acted on the correct premise that it has
jurisdiction to resolve the parties’ conflicting claims over the CB bills - consistent
with the rules and the parties’ conduct - and accordingly required the BOC to amend
its answer and for the PDB to comment thereon. Suddenly, however, the PDB made
an about-face and questioned the jurisdiction of the RTC. Swayed by the PDB’s
argument, the RTC dismissed even the PDB’s petition - which means that it did not
actually compel the BSP to resolve the BOC’s and the PDB’s claims.
Without the motion to interplead and the order granting it, the RTC could only
dismiss the PDB’s petition since it is the RTC which has jurisdiction to resolve the
parties’ conflicting claims – not the BSP. Given that the motion to interplead has
been actually filed, the RTC could not have really granted the relief originally sought
in the PDB’s petition since the RTC’s order granting the BSP’s motion to interplead
- to which the PDB in fact acquiesced into - effectively resulted in the dismissal of
the PDB’s petition. This is not altered by the fact that the PDB additionally prayed in
its petition for damages, attorney’s fees and costs of suit "against the public
respondents" because the grant of the order to interplead effectively sustained the
propriety of the BSP’s resort to this procedural device.
Interpleader
1. as a special civil action
What is quite unique in this case is that the BSP did not initiate the interpleader suit
through an original complaint but through its Answer. This circumstance becomes
understandable if it is considered that insofar as the BSP is concerned, the PDB does
not possess any right to have its claim recorded in the BSP’s books; consequently,
the PDB cannot properly be considered even as a potential claimant to the proceeds
of the CB bills upon maturity. Thus, the interpleader was only an alternative position,
made only in the BSP’s Answer.135
The remedy of interpleader, as a special civil action, is primarily governed by the
specific provisions in Rule 62 of the Rules of Court and secondarily by the
provisions applicable to ordinary civil actions.136 Indeed, Rule 62 does not expressly
authorize the filing of a complaint-in-interpleader as part of, although separate and
independent from, the answer. Similarly, Section 5, Rule 6, in relation to Section 1,
Rule 9 of the Rules of Court137 does not include a complaint-in-interpleader as a
claim,138 a form of defense,139 or as an objection that a defendant may be allowed to
put up in his answer or in a motion to dismiss. This does not mean, however, that the
BSP’s "counter-complaint/cross-claim for interpleader" runs counter to general
procedures.
Apart from a pleading,140 the rules141 allow a party to seek an affirmative relief from
the court through the procedural device of a motion. While captioned "Answer with
counter complaint/cross-claim for interpleader," the RTC understood this as in the
nature of a motion,142 seeking relief which essentially consists in an order for the
conflicting claimants to litigate with each other so that "payment is made to the
rightful or legitimate owner"143 of the subject CB bills.
The rules define a "civil action" as "one by which a party sues another for the
enforcement or protection of a right, or the prevention or redress of a wrong."
Interpleader may be considered as a stakeholder’s remedy to prevent a wrong, that is,
from making payment to one not entitled to it, thereby rendering itself vulnerable to
lawsuit/s from those legally entitled to payment.
Interpleader is a civil action made special by the existence of particular rules to
govern the uniqueness of its application and operation. Under Section 2, Rule 6 of
the Rules of Court, governing ordinary civil actions, a party’s claim is asserted "in a
complaint, counterclaim, cross-claim, third (fourth, etc.)-party complaint, or
complaint-in-intervention." In an interpleader suit, however, a claim is not required
to be contained in any of these pleadings but in the answer-(of the conflicting
claimants)-in-interpleader. This claim is different from the counter-claim (or cross-
claim, third party-complaint) which is separately allowed under Section 5, par. 2 of
Rule 62.
2. the payment of docket fees covering BOC’s counterclaim
The PDB argues that, even assuming that the RTC has jurisdiction over the issue of
ownership of the CB bills, the BOC’s failure to pay the appropriate docket fees
prevents the RTC from acquiring jurisdiction over the BOC’s "counterclaims."
We disagree with the PDB.
To reiterate and recall, the order granting the "PDB’s motion to interplead," already
resulted in the dismissal of the PDB’s petition. The same order required the BOC to
amend its answer and for the conflicting claimants to comment, presumably to
conform to the nature of an answer-in interpleader. Perhaps, by reason of the BOC’s
denomination of its claim as a "compulsory counterclaim" and the PDB’s failure to
fully appreciate the RTC’s order granting the "BSP’s motion for interpleader" (with
the PDB’s conformity), the PDB mistakenly treated the BOC’s claim as a
"permissive counterclaim" which necessitates the payment of docket fees.
As the preceding discussions would show, however, the BOC’s "claim" - i.e., its
assertion of ownership over the CB bills – is in reality just that, a "claim" against the
stakeholder and not as a "counterclaim,"144 whether compulsory145or permissive. It is
only the BOC’s alternative prayer (for the PDB to deliver to the BOC, as the buyer in
the April 15 transaction and the ultimate successor-in-interest of the buyer in the
April 19 transaction, either the original subjects of the sales or the value thereof plus
whatever income that may have been earned pendente lite) and its prayer for
damages that are obviously compulsory counterclaims against the PDB and,
therefore, does not require payment of docket fees.146
The PDB takes a contrary position through its insistence that a compulsory
counterclaim should be one where the presence of third parties, of whom the court
cannot acquire jurisdiction, is not required. It reasons out that since the RCBC and
All Asia (the intervening holders of the CB bills) have already been dropped from
the case, then the BOC’s counterclaim must only be permissive in nature and the
BOC should have paid the correct docket fees.
We see no reason to belabor this claim. Even if we gloss over the PDB’s own
conformity to the dropping of these entities as parties, the BOC correctly argues that
a remedy is provided under the Rules. Section 12, Rule 6 of the Rules of Court reads:
SEC. 12. Bringing new parties. – When the presence of parties other than those to the
original action is required for the granting of complete relief in the determination of a
counterclaim or cross-claim, the court shall order them to be brought in as
defendants, if jurisdiction over them can be obtained.
Even then, the strict characterization of the BOC’s counterclaim is no longer material
in disposing of the PDB’s argument based on non-payment of docket fees.
When an action is filed in court, the complaint must be accompanied by the payment
of the requisite docket and filing fees by the party seeking affirmative relief from the
court. It is the filing of the complaint or appropriate initiatory pleading, accompanied
by the payment of the prescribed docket fee, that vests a trial court with jurisdiction
over the claim or the nature of the action.147 However, the non-payment of the docket
fee at the time of filing does not automatically cause the dismissal of the case, so
long as the fee is paid within the applicable prescriptive or reglementary period,
especially when the claimant demonstrates a willingness to abide by the rules
prescribing such payment.148
In the present case, considering the lack of a clear guideline on the payment of
docket fee by the claimants in an interpleader suit, compounded by the unusual
manner in which the interpleader suit was initiated and the circumstances
surrounding it, we surely cannot deduce from the BOC’s mere failure to specify in its
prayer the total amount of the CB bills it lays claim to (or the value of the subjects of
the sales in the April 15 and April 19 transactions, in its alternative prayer) an payment of docket fees cannot be made dependent on the outcome of the case,
intention to defraud the government that would warrant the dismissal of its claim. 149 except when the claimant is a pauper-litigant.152

At any rate, regardless of the nature of the BOC’s "counterclaims," for purposes of
payment of filing fees, both the BOC and the PDB, properly as defendants-in-
interpleader, must be assessed the payment of the correct docket fee arising from
their respective claims. The seminal case of Sun Insurance Office, Ltd. v. Judge
Asuncion150 provides us guidance in the payment of docket fees, to wit:
1. x x x Where the filing of the initiatory pleading is not accompanied by
payment of the docket fee, the court may allow payment of the fee within a
reasonable time but in no case beyond the applicable prescriptive or
reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and
similar pleadings, which shall not be considered filed until and unless the
filing fee prescribed therefor is paid. The court may also allow payment of
said fee within a reasonable time but also in no case beyond its applicable
prescriptive or reglementary period. [underscoring ours]
This must be the rule considering that Section 7, Rule 62 of which reads:
WHEREFORE, premises considered the consolidated PETITIONS are GRANTED.
The Planters Development Bank is hereby REQUIRED to file with the Regional
Trial Court its comment or answer-in-interpleader to Bank of Commerce’s Amended
Consolidated Answer with Compulsory Counterclaim, as previously ordered by the
Regional Trial Court. The Regional Trial Court of Makati City, Branch 143, is
hereby ORDERED to assess the docket fees due from Planters Development Bank
and Bank of Commerce and order their payment, and to resolve with DELIBERATE
DISPATCH the parties’ conflicting claims of ownership over the proceeds of the
Central Bank bills.
The Clerk of Court of the Regional Trial Court of Makati City, Branch 143, or his
duly authorized representative is hereby ORDERED to assess and collect the
appropriate amount of docket fees separately due the Bank of Commerce and
Planters Development Bank as conflicting claimants in Bangko Sentral ng Pilipinas’
interpleader suit, in accordance with this decision.
SO ORDERED.

SEC. 7. Docket and other lawful fees, costs and litigation expenses as liens. – The
docket and other lawful fees paid by the party who filed a complaint under this Rule,
as well as the costs and litigation expenses, shall constitute a lien or charge upon the
subject matter of the action, unless the court shall order otherwise.

only pertain to the docket and lawful fees to be paid by the one who initiated the
interpleader suit, and who, under the Rules, actually "claims no interest whatever in
the subject matter." By constituting a lien on the subject matter of the action, Section
7 in effect only aims to actually compensate the complainant-in-interpleader, who
happens to be the stakeholder unfortunate enough to get caught in a legal crossfire
between two or more conflicting claimants, for the faultless trouble it found itself
into. Since the defendants-in-interpleader are actually the ones who make a claim -
only that it was extraordinarily done through the procedural device of interpleader -
then to them devolves the duty to pay the docket fees prescribed under Rule 141 of
the Rules of Court, as amended.151

The importance of paying the correct amount of docket fee cannot be

overemphasized:

The matter of payment of docket fees is not a mere triviality. These fees are
necessary to defray court expenses in the handling of cases. Consequently, in order
to avoid tremendous losses to the judiciary, and to the government as well, the
 The facts of the case, as culled from the records, are as follows:

Respondent Don Luis Dison Realty, Inc. and petitioners executed two Contracts of
Lease3 whereby the former, as lessor, agreed to lease to the latter Units 22, 24, 32,
33, 34, 35, 36, 37 and 38 of the San Luis Building, located at 1006 M.Y. Orosa cor.
T.M. Kalaw Streets, Ermita, Manila. Petitioners, in turn, agreed to pay monthly
rentals, as follows:

For Rooms 32/35:

From March 1, 1991 to August 31, 1991 – ₱5,000.00/₱10,000.00

From September 1, 1991 to February 29, 1992 – ₱5,500.00/₱11,000.00

From March 1, 1992 to February 28, 1993 – ₱6,050.00/₱12,100.00

From March 1, 1993 to February 28, 1994 – ₱6,655.00/₱13,310.00

From March 1, 1994 to February 28, 1995 – ₱7,320.50/₱14,641.00

From March 1, 1995 to February 28, 1996 – ₱8,052.55/₱16,105.10

Republic of the Philippines From March 1, 1996 to February 29, 1997 – ₱8,857.81/₱17,715.61
SUPREME COURT
Manila From March 1, 1997 to February 28, 1998 – ₱9,743.59/₱19,487.17

THIRD DIVISION From March 1, 1998 to February 28, 1999 – ₱10,717.95/₱21,435.89

G.R. No. 136409 March 14, 2008 From March 1, 1999 to February 28, 2000 – ₱11,789.75/₱23,579.484

SUBHASH C. PASRICHA and JOSEPHINE A. PASRICHA, Petitioners, For Rooms 22 and 24:
vs.
DON LUIS DISON REALTY, INC., Respondent. Effective July 1, 1992 – ₱10,000.00 with an increment of 10% every two
years.5
DECISION
For Rooms 33 and 34:
NACHURA, J.:
Effective April 1, 1992 – ₱5,000.00 with an increment of 10% every two
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking years.6
the reversal of the Decision1 of the Court of Appeals (CA) dated May 26, 1998 and
its Resolution2 dated December 10, 1998 in CA-G.R. SP No. 37739 dismissing the For Rooms 36, 37 and 38:
petition filed by petitioners Josephine and Subhash Pasricha.
Effective when tenants vacate said premises – ₱10,000.00 with an increment of 10%
every two years.7
Petitioners were, likewise, required to pay for the cost of electric consumption, water
bills and the use of telephone cables.8
The lease of Rooms 36, 37 and 38 did not materialize leaving only Rooms 22, 24, 32,
33, 34 and 35 as subjects of the lease contracts.9 While the contracts were in effect,
petitioners dealt with Francis Pacheco (Pacheco), then General Manager of private
respondent. Thereafter, Pacheco was replaced by Roswinda Bautista (Ms.
Bautista).10Petitioners religiously paid the monthly rentals until May 1992. 11 After
that, however, despite repeated demands, petitioners continuously refused to pay the
stipulated rent. Consequently, respondent was constrained to refer the matter to its
lawyer who, in turn, made a final demand on petitioners for the payment of the
accrued rentals amounting to ₱916,585.58.12 Because petitioners still refused to
comply, a complaint for ejectment was filed by private respondent through its
representative, Ms. Bautista, before the Metropolitan Trial Court (MeTC) of
Manila.13The case was raffled to Branch XIX and was docketed as Civil Case No.
143058-CV.
Petitioners admitted their failure to pay the stipulated rent for the leased premises
starting July until November 1992, but claimed that such refusal was justified
because of the internal squabble in respondent company as to the person authorized
to receive payment.14 To further justify their non-payment of rent, petitioners alleged
that they were prevented from using the units (rooms) subject matter of the lease
contract, except Room 35. Petitioners eventually paid their monthly rent for
December 1992 in the amount of ₱30,000.00, and claimed that respondent waived its
right to collect the rents for the months of July to November 1992 since petitioners
were prevented from using Rooms 22, 24, 32, 33, and 34.15 However, they again
withheld payment of rents starting January 1993 because of respondent’s refusal to
turn over Rooms 36, 37 and 38.16 To show good faith and willingness to pay the
rents, petitioners alleged that they prepared the check vouchers for their monthly
rentals from January 1993 to January 1994.17 Petitioners further averred in their
Amended Answer18 that the complaint for ejectment was prematurely filed, as the
controversy was not referred to the barangay for conciliation.
For failure of the parties to reach an amicable settlement, the pre-trial conference was
terminated. Thereafter, they submitted their respective position papers.
On November 24, 1994, the MeTC rendered a Decision dismissing the complaint for
ejectment.19 It considered petitioners’ non-payment of rentals as unjustified. The
court held that mere willingness to pay the rent did not amount to payment of the
obligation; petitioners should have deposited their payment in the name of
respondent company. On the matter of possession of the subject premises, the court
did not give credence to petitioners’ claim that private respondent failed to turn over
possession of the premises. The court, however, dismissed the complaint because of
Ms. Bautista’s alleged lack of authority to sue on behalf of the corporation.
Deciding the case on appeal, the Regional Trial Court (RTC) of Manila, Branch 1, in
Civil Case No. 94-72515, reversed and set aside the MeTC Decision in this wise:
WHEREFORE, the appealed decision is hereby reversed and set aside and another
one is rendered ordering defendants-appellees and all persons claiming rights under
them, as follows:
(1) to vacate the leased premised (sic) and restore possession thereof to
plaintiff-appellant;
(2) to pay plaintiff-appellant the sum of ₱967,915.80 representing the
accrued rents in arrears as of November 1993, and the rents on the leased
premises for the succeeding months in the amounts stated in paragraph 5 of
the complaint until fully paid; and
(3) to pay an additional sum equivalent to 25% of the rent accounts as and
for attorney’s fees plus the costs of this suit.
SO ORDERED.20
The court adopted the MeTC’s finding on petitioners’ unjustified refusal to pay the
rent, which is a valid ground for ejectment. It, however, faulted the MeTC in
dismissing the case on the ground of lack of capacity to sue. Instead, it upheld Ms.
Bautista’s authority to represent respondent notwithstanding the absence of a board
resolution to that effect, since her authority was implied from her power as a general
manager/treasurer of the company.21
Aggrieved, petitioners elevated the matter to the Court of Appeals in a petition for
review on certiorari.22 On March 18, 1998, petitioners filed an Omnibus Motion23 to
cite Ms. Bautista for contempt; to strike down the MeTC and RTC Decisions as legal
nullities; and to conduct hearings and ocular inspections or delegate the reception of
evidence. Without resolving the aforesaid motion, on May 26, 1998, the CA
affirmed24 the RTC Decision but deleted the award of attorney’s fees. 25
Petitioners moved for the reconsideration of the aforesaid decision. 26 Thereafter, they
filed several motions asking the Honorable Justice Ruben T. Reyes to inhibit from
further proceeding with the case allegedly because of his close association with Ms.
Bautista’s uncle-in-law.27
In a Resolution28 dated December 10, 1998, the CA denied the motions for lack of
merit. The appellate court considered said motions as repetitive of their previous
arguments, irrelevant and obviously dilatory.29 As to the motion for inhibition of the
Honorable Justice Reyes, the same was denied, as the appellate court justice stressed
that the decision and the resolution were not affected by extraneous matters. 30 Lastly,
the appellate court granted respondent’s motion for execution and directed the RTC
to issue a new writ of execution of its decision, with the exception of the award of
attorney’s fees which the CA deleted.31
Petitioners now come before this Court in this petition for review on certiorari
raising the following issues:
I.
Whether this ejectment suit should be dismissed and whether petitioners are
entitled to damages for the unauthorized and malicious filing by Rosario
(sic) Bautista of this ejectment case, it being clear that [Roswinda] –
whether as general manager or by virtue of her subsequent designation by
the Board of Directors as the corporation’s attorney-in-fact – had no legal
capacity to institute the ejectment suit, independently of whether Director
Pacana’s Order setting aside the SEC revocation Order is a mere scrap of
paper.
II.
Whether the RTC’s and the Honorable Court of Appeals’ failure and refusal
to resolve the most fundamental factual issues in the instant ejectment case
render said decisions void on their face by reason of the complete
abdication by the RTC and the Honorable Justice Ruben Reyes of their
constitutional duty not only to clearly and distinctly state the facts and the
law on which a decision is based but also to resolve the decisive factual
issues in any given case.
III.
Whether the (1) failure and refusal of Honorable Justice Ruben Reyes to
inhibit himself, despite his admission – by reason of his silence – of
petitioners’ accusation that the said Justice enjoyed a $7,000.00 scholarship
grant courtesy of the uncle-in-law of respondent "corporation’s" purported
general manager and (2), worse, his act of ruling against the petitioners and
in favor of the respondent "corporation" constitute an unconstitutional
deprivation of petitioners’ property without due process of law. 32
In addition to Ms. Bautista’s lack of capacity to sue, petitioners insist that respondent
company has no standing to sue as a juridical person in view of the suspension and
eventual revocation of its certificate of registration.33 They likewise question the
factual findings of the court on the bases of their ejectment from the subject
premises. Specifically, they fault the appellate court for not finding that: 1) their non-
payment of rentals was justified; 2) they were deprived of possession of all the units
subject of the lease contract except Room 35; and 3) respondent violated the terms of
the contract by its continued refusal to turn over possession of Rooms 36, 37 and 38.
Petitioners further prayed that a Temporary Restraining Order (TRO) be issued
enjoining the CA from enforcing its Resolution directing the issuance of a Writ of
Execution. Thus, in a Resolution34 dated January 18, 1999, this Court directed the
parties to maintain the status quo effective immediately until further orders.
The petition lacks merit.
We uphold the capacity of respondent company to institute the ejectment case.
Although the Securities and Exchange Commission (SEC) suspended and eventually
revoked respondent’s certificate of registration on February 16, 1995, records show
that it instituted the action for ejectment on December 15, 1993. Accordingly, when
the case was commenced, its registration was not yet revoked.35 Besides, as correctly
held by the appellate court, the SEC later set aside its earlier orders of suspension
and revocation of respondent’s certificate, rendering the issue moot and academic. 36
We likewise affirm Ms. Bautista’s capacity to sue on behalf of the company despite
lack of proof of authority to so represent it. A corporation has no powers except
those expressly conferred on it by the Corporation Code and those that are implied
from or are incidental to its existence. In turn, a corporation exercises said powers
through its board of directors and/or its duly authorized officers and agents. Physical
acts, like the signing of documents, can be performed only by natural persons duly
authorized for the purpose by corporate by-laws or by a specific act of the board of
directors.37 Thus, any person suing on behalf of the corporation should present proof
of such authority. Although Ms. Bautista initially failed to show that she had the
capacity to sign the verification and institute the ejectment case on behalf of the
company, when confronted with such question, she immediately presented the
Secretary’s Certificate38 confirming her authority to represent the company.
There is ample jurisprudence holding that subsequent and substantial compliance
may call for the relaxation of the rules of procedure in the interest of justice. 39 In
Novelty Phils., Inc. v. Court of Appeals,40 the Court faulted the appellate court for
dismissing a petition solely on petitioner’s failure to timely submit proof of authority
to sue on behalf of the corporation. In Pfizer, Inc. v. Galan, 41 we upheld the
sufficiency of a petition verified by an employment specialist despite the total
absence of a board resolution authorizing her to act for and on behalf of the
corporation. Lastly, in China Banking Corporation v. Mondragon International
Philippines, Inc,42 we relaxed the rules of procedure because the corporation ratified
the manager’s status as an authorized signatory. In all of the above cases, we brushed
aside technicalities in the interest of justice. This is not to say that we disregard the
requirement of prior authority to act in the name of a corporation. The relaxation of
the rules applies only to highly meritorious cases, and when there is substantial
compliance. While it is true that rules of procedure are intended to promote rather
than frustrate the ends of justice, and while the swift unclogging of court dockets is a
laudable objective, we should not insist on strict adherence to the rules at the expense
of substantial justice.43 Technical and procedural rules are intended to help secure,
not suppress, the cause of justice; and a deviation from the rigid enforcement of the
rules may be allowed to attain that prime objective, for, after all, the dispensation of
justice is the core reason for the existence of courts.44
As to the denial of the motion to inhibit Justice Reyes, we find the same to be in
order. First, the motion to inhibit came after the appellate court rendered the assailed
decision, that is, after Justice Reyes had already rendered his opinion on the merits of
the case. It is settled that a motion to inhibit shall be denied if filed after a member of
the court had already given an opinion on the merits of the case, the rationale being
that "a litigant cannot be permitted to speculate on the action of the court x x x (only
to) raise an objection of this sort after the decision has been rendered." 45 Second, it is
settled that mere suspicion that a judge is partial to one of the parties is not enough;
there should be evidence to substantiate the suspicion. Bias and prejudice cannot be
presumed, especially when weighed against a judge’s sacred pledge under his oath of
office to administer justice without regard for any person and to do right equally to
the poor and the rich. There must be a showing of bias and prejudice stemming from
an extrajudicial source, resulting in an opinion on the merits based on something
other than what the judge learned from his participation in the case. 46 We would like
to reiterate, at this point, the policy of the Court not to tolerate acts of litigants who,
for just about any conceivable reason, seek to disqualify a judge (or justice) for their
own purpose, under a plea of bias, hostility, prejudice or prejudgment. 47
We now come to the more substantive issue of whether or not the petitioners may be
validly ejected from the leased premises.
Unlawful detainer cases are summary in nature. In such cases, the elements to be
proved and resolved are the fact of lease and the expiration or violation of its
terms.48 Specifically, the essential requisites of unlawful detainer are: 1) the fact of
lease by virtue of a contract, express or implied; 2) the expiration or termination of
the possessor’s right to hold possession; 3) withholding by the lessee of possession
of the land or building after the expiration or termination of the right to possess; 4)
letter of demand upon lessee to pay the rental or comply with the terms of the lease
and vacate the premises; and 5) the filing of the action within one year from the date
of the last demand received by the defendant.49
It is undisputed that petitioners and respondent entered into two separate contracts of
lease involving nine (9) rooms of the San Luis Building. Records, likewise, show
that respondent repeatedly demanded that petitioners vacate the premises, but the
latter refused to heed the demand; thus, they remained in possession of the premises.
The only contentious issue is whether there was indeed a violation of the terms of the
contract: on the part of petitioners, whether they failed to pay the stipulated rent
without justifiable cause; while on the part of respondent, whether it prevented
petitioners from occupying the leased premises except Room 35.
This issue involves questions of fact, the resolution of which requires the evaluation
of the evidence presented. The MeTC, the RTC and the CA all found that petitioners
failed to perform their obligation to pay the stipulated rent. It is settled doctrine that
in a civil case, the conclusions of fact of the trial court, especially when affirmed by
the Court of Appeals, are final and conclusive, and cannot be reviewed on appeal by
the Supreme Court.50 Albeit the rule admits of exceptions, not one of them obtains in
this case.51
To settle this issue once and for all, we deem it proper to assess the array of factual
findings supporting the court’s conclusion.
The evidence of petitioners’ non-payment of the stipulated rent is overwhelming.
Petitioners, however, claim that such non-payment is justified by the following: 1)
the refusal of respondent to allow petitioners to use the leased properties, except
room 35; 2) respondent’s refusal to turn over Rooms 36, 37 and 38; and 3)
respondent’s refusal to accept payment tendered by petitioners.
Petitioners’ justifications are belied by the evidence on record. As correctly held by
the CA, petitioners’ communications to respondent prior to the filing of the
complaint never mentioned their alleged inability to use the rooms. 52 What they
pointed out in their letters is that they did not know to whom payment should be
made, whether to Ms. Bautista or to Pacheco.53 In their July 26 and October 30, 1993
letters, petitioners only questioned the method of computing their electric billings
without, however, raising a complaint about their failure to use the
rooms.54 Although petitioners stated in their December 30, 1993 letter that
respondent failed to fulfill its part of the contract,55 nowhere did they specifically
refer to their inability to use the leased rooms. Besides, at that time, they were
already in default on their rentals for more than a year.
If it were true that they were allowed to use only one of the nine (9) rooms subject of
the contract of lease, and considering that the rooms were intended for a business
purpose, we cannot understand why they did not specifically assert their right. If we
believe petitioners’ contention that they had been prevented from using the rooms for
more than a year before the complaint for ejectment was filed, they should have
demanded specific performance from the lessor and commenced an action in court.
With the execution of the contract, petitioners were already in a position to exercise
their right to the use and enjoyment of the property according to the terms of the
lease contract.56 As borne out by the records, the fact is that respondent turned over
to petitioners the keys to the leased premises and petitioners, in fact, renovated the
rooms. Thus, they were placed in possession of the premises and they had the right to
the use and enjoyment of the same. They, likewise, had the right to resist any act of
intrusion into their peaceful possession of the property, even as against the lessor
itself. Yet, they did not lift a finger to protect their right if, indeed, there was a
violation of the contract by the lessor.
What was, instead, clearly established by the evidence was petitioners’ non-payment
of rentals because ostensibly they did not know to whom payment should be made.
However, this did not justify their failure to pay, because if such were the case, they
were not without any remedy. They should have availed of the provisions of the
Civil Code of the Philippines on the consignation of payment and of the Rules of
Court on interpleader.
Article 1256 of the Civil Code provides:
Article 1256. If the creditor to whom tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
xxxx
(4) When two or more persons claim the same right to collect;
x x x x.
Consignation shall be made by depositing the things due at the disposal of a judicial
authority, before whom the tender of payment shall be proved in a proper case, and
the announcement of the consignation in other cases.57
In the instant case, consignation alone would have produced the effect of payment of
the rentals. The rationale for consignation is to avoid the performance of an
obligation becoming more onerous to the debtor by reason of causes not imputable to
him.58 Petitioners claim that they made a written tender of payment and actually
prepared vouchers for their monthly rentals. But that was insufficient to constitute a
valid tender of payment. Even assuming that it was valid tender, still, it would not
constitute payment for want of consignation of the amount. Well-settled is the rule
that tender of payment must be accompanied by consignation in order that the effects
of payment may be produced.59
Moreover, Section 1, Rule 62 of the Rules of Court provides:
Section 1. When interpleader proper. – Whenever conflicting claims upon the same
subject matter are or may be made against a person who claims no interest whatever
in the subject matter, or an interest which in whole or in part is not disputed by the
claimants, he may bring an action against the conflicting claimants to compel them to
interplead and litigate their several claims among themselves.
Otherwise stated, an action for interpleader is proper when the lessee does not know
to whom payment of rentals should be made due to conflicting claims on the
property (or on the right to collect).60 The remedy is afforded not to protect a person
against double liability but to protect him against double vexation in respect of one
liability.61
Notably, instead of availing of the above remedies, petitioners opted to refrain from
making payments.
Neither can petitioners validly invoke the non-delivery of Rooms 36, 37 and 38 as a
justification for non-payment of rentals. Although the two contracts embraced the
lease of nine (9) rooms, the terms of the contracts - with their particular reference to
specific rooms and the monthly rental for each - easily raise the inference that the
parties intended the lease of each room separate from that of the
others.lavvphil There is nothing in the contract which would lead to the conclusion
that the lease of one or more rooms was to be made dependent upon the lease of all
the nine (9) rooms. Accordingly, the use of each room by the lessee gave rise to the
corresponding obligation to pay the monthly rental for the same. Notably, respondent
demanded payment of rentals only for the rooms actually delivered to, and used by,
petitioners.
It may also be mentioned that the contract specifically provides that the lease of
Rooms 36, 37 and 38 was to take effect only when the tenants thereof would vacate
the premises. Absent a clear showing that the previous tenants had vacated the
premises, respondent had no obligation to deliver possession of the subject rooms to
petitioners. Thus, petitioners cannot use the non-delivery of Rooms 36, 37 and 38 as
an excuse for their failure to pay the rentals due on the other rooms they
occupied.1avvphil
In light of the foregoing disquisition, respondent has every right to exercise his right
to eject the erring lessees. The parties’ contracts of lease contain identical provisions,
to wit:
In case of default by the LESSEE in the payment of rental on the fifth (5th) day of
each month, the amount owing shall as penalty bear interest at the rate of FOUR
percent (4%) per month, to be paid, without prejudice to the right of the LESSOR to
terminate his contract, enter the premises, and/or eject the LESSEE as hereinafter set
forth;62
Moreover, Article 167363 of the Civil Code gives the lessor the right to judicially
eject the lessees in case of non-payment of the monthly rentals. A contract of lease is
a consensual, bilateral, onerous and commutative contract by which the owner
temporarily grants the use of his property to another, who undertakes to pay the rent
therefor.64 For failure to pay the rent, petitioners have no right to remain in the leased
premises.
WHEREFORE, premises considered, the petition is DENIED and the Status Quo
Order dated January 18, 1999 is hereby LIFTED. The Decision of the Court of
Appeals dated May 26, 1998 and its Resolution dated December 10, 1998 in CA-
G.R. SP No. 37739 are AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 148182 March 7, 2007
URSULA MAGLENTE, CONSOLACION BERJA, MERCEDITA FERRER,
THELMA ABELLA and ANTONIO NGO, Petitioners,
vs.
HON. PRISCILLA BALTAZAR-PADILLA, in her capacity as the Presiding
Judge of the RTC, Manila Branch 38, VISITACION GABELO, ERLINDA
ABELLA, PETRA PEREZ, ERLINDA TRAQUENA, BEN CARDINAL,
EDUARDO TRAQUENA, LEOPOLDO TRAQUENA, MARIFE TUBALAS,
ULYSIS MATEO, JOCELYN FERNANDEZ, ALFONSO PLACIDO,
LEONARDO TRAQUENA, SUSAN RENDON and MATEO
TRINIDAD,Respondents.
DECISION
CORONA, J.:
At bar is a special civil action for certiorari under Rule 65 of the Rules of Court
assailing the order1 of the Regional Trial Court (RTC) of Manila, Branch 38, dated
April 20, 2001, denying petitioners’ motion for the issuance of a writ of possession
in their favor.
The antecedent facts follow.
On January 15, 1985, Philippine Realty Corporation (PRC), owner of a 687.80-
square meter parcel of land at 400 Solana St., Intramuros, Manila, entered into a
contract of lease for three years with one of the petitioners, Ursula Maglente. In the
contract, it was stated that, if PRC were to sell the leased property, Maglente would
be given the first priority (right of first refusal) to buy it. Both parties likewise agreed
that the lessee was prohibited from subleasing any portion of the property without
the consent of the lessor. However, after the execution of the lease contract,
petitioner Maglente subleased portions of the property to respondents.
On March 9, 1987, when the lease contract was about to expire, PRC sent a written
offer to sell the leased property to Maglente. In response, the latter intimated that she
would exercise her right of first refusal to purchase the property with co-petitioners
as her co-buyers. In February 1989, PRC received a letter from respondents
expressing their desire to purchase the same property.
On February 23, 1989, PRC filed a complaint for interpleader 2 in the RTC against
both petitioners and respondents so they could litigate among themselves on who had
the right to purchase the property.3 On March 11, 1991, the trial court ruled in favor
of petitioners and declared them as the rightful parties to purchase PRC’s property.
The dispositive portion of the decision read:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Declaring [petitioners] Ursula Maglente, Consolacion Berja, Mercedita
Ferrer, Thelma Abella and Antonio Ngo as the rightful [parties] to purchase
the land in controversy; and
2. Ordering…[PRC] to execute the corresponding contract of sale/contract
to sell in favor of [petitioners] aforementioned in accordance with this
Decision within 30 days from notice hereof.4
Dissatisfied with the above decision, respondents appealed to the Court of Appeals
(CA) which affirmed the judgment of the trial court.
Undaunted, respondents found their way to this Court, assigning as sole error the
ruling of the CA upholding the right of petitioners. The case was docketed as G.R.
No. 111743.
On October 8, 1999, we affirmed the decision of the CA and denied respondents’
petition for lack of merit.5 We declared:
In the case under consideration, the contract of sale was already perfected – PRC
offered the subject lot for sale to [petitioners] Maglente and her group… Respondent
Maglente and her group accepted such offer…manifesting their intention to purchase
the property as provided for under the lease contract. Thus, there was already an
offer and acceptance giving rise to a valid contract. As a matter of fact, [petitioners]
have already completed payment of their downpayment of ₱100,000. Therefore, as
borne by evidence on record, the requisites under Article 1318 of the Civil Code for
a perfected contract have been met.
On April 11, 2000,6 we ordered entry of judgment.
On motion of petitioners, a writ of execution was later issued by the RTC directing
PRC to execute the contract of sale/contract to sell in favor of petitioners.
As ordered, PRC executed a "deed of sale" in favor of petitioners. The latter then
filed a motion for the issuance of a writ of possession but respondents (who were
occupying the property) objected on the ground that the trial court’s decision on the
interpleader case merely resolved petitioners’ right to purchase the leased property
but did not declare them as the owners entitled to possession. The trial court
sustained respondents’ argument and denied petitioners’ motion. 7
Petitioners are now before us via this special civil action for certiorari raising this
sole query: whether or not they are entitled to a writ of possession after being
adjudged (in the interpleader case) as the proper parties to buy the subject property,
considering that a "deed of sale" has already been executed in their favor.8
In this petition for certiorari under Rule 65, petitioners assail the Manila RTC’s
denial of their motion for the issuance of the writ of possession. However, they do
not allege that the trial court was without jurisdiction or exceeded its jurisdiction, or
that it committed grave abuse of discretion in denying said motion, as required in all
Rule 65 petitions.
The remedy of certiorari is limited to acts of any tribunal or board exercising judicial
functions without or in excess of jurisdiction or with grave abuse of discretion. 9 It
must be based on jurisdictional grounds like want of jurisdiction or grave abuse of
discretion; otherwise, any error committed by it will amount to nothing more than an
error of judgment which may be questioned only on ordinary appeal. 10
Considering, however, that a question of law11 is involved, that is, whether a writ of
possession should be granted to a party with the right of first refusal in an
interpleader case, we give due course to this petition.
Indeed, should petitioners be granted the writ of possession they seek? We rule in the
negative.
A writ of possession shall issue only in the following instances: (1) land registration
proceedings; (2) extrajudicial foreclosure of mortgage of real property; (3) judicial
foreclosure of property provided that the mortgagor has possession and no third party
has intervened, and (4) execution sales.12 Here, petitioners seek the writ as a
consequence of the trial court’s decision ordering the execution of a contract of
sale/contract to sell in their favor. The writ does not lie in such a case.
Furthermore, the trial court’s decision in the interpleader case (affirmed by both the
CA and the SC) merely resolved the question of who, between petitioners and
respondents, had the right to purchase PRC’s property. The directive was only for
PRC to execute the necessary contract in favor of petitioners as the winning parties,
nothing else. The trial court’s writ of execution read:
NOW THEREFORE, [PRC] is hereby ordered to execute a contract of
sale/contract to sell in favor of [petitioners] within thirty (30) days from the date
of execution hereof. The Branch Sheriff shall return this Writ to the Court within
thirty (30) days from the date of receipt… until the judgment is satisfied in full or its
effectivity expires. The returns of periodic reports shall set forth the whole of the
proceedings taken and shall be filed with the Court and copies thereof promptly
furnished the parties…13 (emphasis supplied)
It was clear that, at that point, petitioners were not yet the owners of the property.
The execution of the "deed of sale" in their favor was only preliminary to their
eventual acquisition of the property.14 Likewise, although we stated in G.R. No.
11174315 that the contract of sale between petitioners and PRC had already been
perfected, we refrained from declaring them the owners since, pending the execution
of the deed of sale or delivery of the property, ownership had yet to transfer to them
at that time.16
Thus, petitioners’ argument that the trial court’s writ of execution17 in the
interpleader case carried with it the corollary right to a writ of possession is without
merit. A writ of possession complements the writ of execution onlywhen the right of
possession or ownership has been validly determined in a case directly relating to
either.18 The interpleader case obviously did not delve into that issue.
Furthermore, the rule is that the enforcement of a judgment may not vary or alter the
tenor of the judgment but must strictly conform to it.19 It should be in harmony with
the judgment that gives it life and not exceed it.20 We thus cannot fault the trial court
for refusing to issue a writ of possession to petitioners as its issuance would not be in
conformity with the trial court’s judgment in the interpleader case.
Finally, petitioners cannot recover possession of the property via a mere motion.
They must file the appropriate action in court against respondents to recover
possession. While this remedy can delay their recovery, this Court cannot permit an
abbreviated method without subverting the rules and processes established for the
orderly administration of justice.
WHEREFORE, the assailed order of the Regional Trial Court of Manila, Branch
38, is hereby AFFIRMED. Accordingly, the petition is DISMISSED.
Costs against petitioners.
SO ORDERED.
 Republic of the Philippines 3. DONATO ENTERPRISES COMPANY, LIMITED was a duly
SUPREME COURT constituted and registered partnership composed of only three (3)
Manila partners, the brothers and sister, Arnold L. Donato, Napoleon L.
Donato and Adoracion Donato, who had equal contributions and
SECOND DIVISION shares or interests therein.

4. DONATO ENTERPRISES COMPANY, LIMITED was the

registered owner per Transfer Certificate of Title No. T-16000 of a
residential-commercial lot situated in Centro, Tuguegarao,
G.R. No. 97547 July 29, 1994
Cagayan more particularly bounded and described as follows:
ROLANDO T. DIWA, BLESIDA G. DIWA, petitioners,
vs. xxx xxx xxx
ARNOLD L. DONATO, NAPOLEON L. DONATO, respondents.
5. Partner Adoracion L. Donato who died single on
October 20, 1985 with neither ascendant nor descendant was
Jezarene C. Aquino for petitioners.
survived by the (respondents) who were her brothers;
Luis B. Donato for Napoleon L. Donato.
6. The death of partner Adoracion L. Donato ipso jure dissolved
the DONATO ENTERPRISES COMPANY, LIMITED so that her
Pedro I. Rodriguez for Arnold L. Donato. one-third (1/3) share and interest in the above-described lot
devolved upon her heir or heirs;

7. Sometime in November 1986 (respondents) jointly sold the

PUNO, J.:
This is a petition for certiorari under Rule 45 of the Revised Rules of Court from
two Orders of the RTC of Tuguegarao, Cagayan, Br. 1. 1 The first, dated January 8,
1990, dismissed Civil Case No. 4117-(Tug '90) on the ground of res judicata; ;and
the second, dated January 31, 1991, denied petitioners' motion for reconsideration of
the earlier Order.
Petitioners first filed a Complaint for Interpleader And Execution Of Registerable
Deed Of Sale With Damages against respondents docketed as Civil Case No. 3892,
and raffled to Branch 4 of the RTC of Tuguegarao, Cagayan. 2 The Complaint
alleged:
1. Plaintiffs (petitioners herein) are spouses, of legal age, Filipinos
and residents of Tuguegarao, Cagayan;
2. Defendants (respondents herein) who are brothers are of legal
age; Arnold L. Donato is however a Filipino and a resident of and
with postal address at 10 Masbate Street, Quezon City while
Napoleon L. Donato is an American citizen and resident of
Tuguegarao, Cagayan;
above-described lot to the (petitioners) for P504,000.00 Philippine
currency and accordingly delivered to the latter the said lot;
8. (Petitioners) forthwith took exclusive possession of said lot and
have been possessing it since then continuously up to the present;
9. Of the total consideration of P504,000.00 (respondent) Arnold
L. Donato already received from (petitioners) P168,000.00 on
November 19, 1986 as per xerox copy of a Receipt which he
signed and (respondent) Napoleon L. Donato also already received
from (petitioners) on June 10, 1988 the same amount of
P168,000.00 per xerox copy of a Receipt which he likewise signed,
both of which are hereto attached . . .;
10. Since November 1986 when the sale of said lot was made by
(respondents) to the (petitioners) the latter had been tendering the
payment of the balance of P168,000.00 to (respondents); the
(respondent) Arnold L. Donato wanted to get and receive the
whole balance asserting that his late sister Adoracion L.
Donato inter alia conveyed her share and interest in said lot to him
which was however denied by (respondent) Napoleon L. Donato
who claimed that being one of the two intestate heirs of deceased
 Adoracion L. Donato, he is entitled to one-half of said balance
which is P84,000.00;
11. In the light of the conflicting claims of the (respondents) over
the balance of P168,000.00 and in order to finally relieve
(petitioners) of further obligation vis a vis said lot, the latter hereby
deliver and deposit said amount of money with this Honorable
Court which will determine who is/are entitled to receive it and to
dispose of it accordingly;
12. Despite the consummation of the sale of the said lot to the
(petitioners) the (respondents) have not yet executed a registerable
deed of sale to evidence the same, hence (petitioners) have a legal
right to demand the execution of the said documents;
13. In fact since June 1988, (petitioners) had been demanding of
(respondents) to execute the said registerable deed of sale with a
proposal to deposit the balance of P168,000.00 in escrow in a
commercial bank in favor of whoever would finally be judicially
declared entitled to it but although (respondent) Napoleon L.
Donato is willing, (respondent) Arnold L. Donato without just
cause refussed;
14. Since the sale of the lot to the (petitioners) in November 1986,
they intended to build a commercial building thereon with the
proceeds of a loan which they planned to secure from a banking
institution with the lot as their collateral;
15. The delay in the execution of the registerable deed of sale
necessarily delayed the issuance of a title over said lot in the names
of the (petitioners) which resulted in the delay in securing the loan
and ultimately in the construction of the said building;
16. The delay mentioned in the preceding paragraph is directly
attributable to the intransigence of (respondent) Arnold L. Donato
which caused (petitioners) to suffer damages consisting of the big
increase in the prices of construction materials and cost of labor
from their index in November 1986 and the present index which is
reasonably estimated to be P200,000.00;
17. (Petitioners) were constrained to engage the services of the
undersigned counsel for an agreed fee of P20,000.00; 3
Petitioners prayed for judgment: (1) declaring them the owners of the lot in
question; (2) ordering respondents to execute in their favor a registerable
deed of sale over the lot; (3) declaring who is/are entitled to the
P168,000.00 balance; and (4) condemning respondent Arnold L. Donato to
pay damages, attorney's fees and costs.
The Complaint was dismissed on December 29, 1988 on the ground that interpleader
is not the proper remedy for breach of contract. This court 4 affirmed the dismissal in
a Resolution, dated September 20, 1989.
Accordingly, on February 13, 1990, petitioners filed Civil Case No. 4117-(Tug '90)
for Specific Performance (Execution of Registerable Deed of Sale and Delivery of
Certificate of Title) With Damages. The Complaint contains basically the same
allegations and prayers as the Complaint in the interpleader case, except for the
following added allegation, viz:
That even if the transaction between (petitioners) and
(respondents) constitutes only a contract to sell the said land, still
(petitioners) who have partially complied with their obligation and
are willing to fully comply with it have the right to compel
(respondents) to perform their obligation to sell the land to them; 5
and the prayer, which reads as follows:
WHEREFORE, (petitioners) pray this Honorable Court to render
judgment:
1. Declaring (petitioners) to be the owners of the lot described
above or compelling the (respondents) to sell the lot to the former
and ordering (respondent) Arnold L. Donato to execute with his
co-(respondent) Napoleon L. Donato the registerable deed of sale
over said lot in favor of (petitioners) and to deliver to the latter the
owner's duplicate copy of Transfer Certificate of Title No. T-
16000;
2. Applying the deposited amount of P168,000.00 in payment of
the balance upon the price of said land;
3. Condemning (respondent) Arnold L. Donato to pay the
(petitioners) a damage of P100,000.00 and attorney's fees of
P20,000.00 and cost of this suit;
4. Granting other proper reliefs. 6
Private respondents filed separate Answers to the second Complaint. Their
Affirmative Defenses constituting grounds for dismissal were heard by the trial
court.
On January 8, 1990, the trial court issued the first impugned Order. It dismissed with
prejudice the Complaint for specific performance. It held, inter alia:
There is no dispute that the first case entitled Interpleader and
Execution of Registerable Deed of Sale with Damages, Civil Case
No. 3892 was upon review by the Supreme Court denied for lack
of merit.
It was held in the case of Leonor Magdangal, et al. vs. City of
Olongapo, et al., . . . "that a party cannot by varying the form of
action or adopting a different method of presenting the case, escape
the application of the rule of res judicata." This was reiterated in
the case of Filipinas Investment, et al. vs. Intermediate Appellate
Court, et al., . . . (Citations omitted.) 7
In its Order of January 31, 1991 denying petitioners' motion for
reconsideration, the same court held:
This Court made a comparison between the first civil case No.
3892 between the same parties is entitled Interpleader and
Execution of Registerable Deed of Sale with Damages while the
instant case is for specific performance (execution of registerable
deed of sale and delivery of certificate of title with damages).
Basically, the two complaints are the same as they involve the
same parties, the same cause of action and the subject matter. The
only difference is in the caption.
Granting for the sake of argument that there is no res judicata and
that the present case is for specific performance, will the latter
remedy lie?
Specific performance is not an absolute right, but
one which rests entirely in judicial discretion;
exercised according to the settled principles of
equity and with reference to the facts of the
particular case, and not arbitrarily or capriciously
....
One of the requisites for the specific performance of the agreement
is that there must be contract and the contract must be in writing
(Statute of Frauds).
The contract must be clearly and unequivocally
proved and its subject matter, consideration and
all other essentials must be specific and
unambiguous . . . .
Definitely the receipts by Arnold Donato and Napoleon Donato are
not contracts for the following reasons:
(1) They are not in the prescribed form as provided by law;
(2) They are not specific as indicated by the wording of last
paragraph of Annex "A",
However, should the circumstances occur
whereby the transaction will not push through,
then this amount will be refundable to Mr.
Rolando T. Diwa.
(3) It is doubted whether the Supreme Court made a
pronouncement that there was a contract to sell considering that the
petition for review was denied for lack of merit for failure of
counsel to comply with certain requirements with regards to his
petition. 8 (Citation omitted.)
In this petition, petitioners contend:
The errors of the lower court are the following:
1. It erroneously applied res judicata to dismiss with prejudice
Civil Case No. 4117 (90-Tug).
2. It mistakenly ruled that there was no contract between the
petitioners and respondents.
3. It incorrectly held that specific performance was not the proper
remedy.
4. It blundered when it impliedly applied the Statute of Frauds to
the agreement between the parties.
5. It goofed when it dismissed Civil Case No. 4117 (90-Tug) with
prejudice. 9
The petition is meritorious.
The elements of res judicata are: (1) the previous judgment has become final; (2) the
prior judgment was rendered by a court having jurisdiction over the subject matter
and the parties; (3) the first judgment was made on the merits; and (4) there was
substantial identity of parties, subject matter and causes of action, as between the
prior and subsequent actions.
We hold that the trial court erred in considering our September 20, 1989 Resolution
in the interpleader case as an adjudication on the merits. Said Resolution held:
xxx xxx xxx
After a careful review of the Petition, its Annexes and the
Comment thereto, the Court finds that no reversible error was
committed by the RTC in dismissing petitioners' complaint. The
RTC correctly applied the doctrine laid down by this Court in the
case of Beltran vs. PHHC, G.R. No. L-25138, August 28, 1969, 29
SCRA 145, that if the conflicting claims of the two defendants are
only between themselves and are not against the plaintiff-in-
interpleader nor do they involve or affect him, the special civil
action of interpleader will not lie.
xxx xxx xxx
While it is true that petitioners have a cause of action to compel
private respondents to execute a registrable deed of sale pursuant
to their contract, the proper remedy should be an ordinary civil
action for breach of contract or an action for specific performance
and not an action for interpleader. 10
A judgment on the merits is one rendered after argument and investigation, and when
there is determination which party is right, as distinguished from a judgment
rendered upon some preliminary or formal or merely technical point, or by default
and without trial. 11 By not stretch of the imagination can our Resolution of
September 20, 1989 be considered a judgment on the merits. All it resolved is the
issue of the proper action that petitioners should file in light of the allegations of
their Complaint. We ruled that they should file an action for specific performance
and not an action for interpleader. Only after the filing of the proper action can the
substantive rights of the parties be adjudicated. Needless to state, we did not
adjudicate the substantive rights of the parties in our Resolution of September 20,
1989.
The trial court also erred when it further held that specific performance does not lie
against respondent, by applying the Statute of Frauds. Under said Statute, agreements
for the sale of real property "shall be unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents." 12 Non-compliance with
this provision, while not invalidating the contract which is not in writing, makes
ineffective the action for specific performance. 13
It is settled, however, that the Statute of Frauds applies only to executory and not to
completed, executed, or partially executed contracts. 14 Thus, as early as 1925, we
held that where the land has been delivered under the oral contract of sale, and the
vendees have already paid part of the purchase price, the heirs of the vendor cannot
invoke the statute of frauds in a proceeding where the vendees seek to have the land
registered in their names. 15
In the case at bench, the agreement to sell the lot in question was already partially
executed when the present action was commenced. No specific denial was made by
their respondent that petitioners have paid a part of the contract price, and that
possession of the land has been delivered to them. Respondent Arnold L. Donato's
argument in his Memorandum filed on July 2, 1991 that petitioners' act of refunding
the amount of P168,000.00 covered by a receipt dated November 19, 1986, and
consigning it with the trial court effectively revoked the contract to sell over the
property does not persuade us. In the first place, the alleged refunding is not
supported by evidence; and in the second place, even assuming it did occur, there is
still the P168,000.00 partial payment made by petitioners to respondent Napoleon L.
Donato that makes for the partial execution of the contract to sell.
Finally, we do not see how the trial court could have doubted our finding as to the
existence of a contract to sell. We clearly stated in our Resolution in the interpleader
case that:
In the present case, the two private respondents do not dispute the
existence of the contract to sell the commercial land in question to
petitioners nor do they demand adverse claims against petitioners.
In fact, private respondents did not object when the petitioners
deposited in court the balance of the purchase price. The
conflicting claims of the two private respondents over the sharing
of the balance of the purchase price cannot be the subject of an
interpleader case since they are exclusively between the private
respondents and are not against the petitioners. Neither do they
involve or affect the petitioners' interest in the commercial land.
xxx xxx xxx
While it is true that petitioners have a cause of action to compel
private respondents to execute a registrable deed of sale pursuant
to their contract, the proper remedy should be an ordinary civil
 action for breach of contract or an action for specific performance
and not an action for interpleader. 16(Emphasis supplied.)
IN VIEW WHEREOF, the instant Petition is GRANTED. The Orders, dated January
8, 1990 and January 31, 1991 in Civil Case No. 4117 (90-Tug) are REVERSED
AND SET ASIDE. The RTC of Tuguegarao, Cagayan, Branch 1, is hereby ordered
to hear the reinstated case on its merits. No Costs.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Mendoza, JJ., concur.
The case which provoked this issue eighteen (18) years ago was then one of first
impression. However, its early resolution did not seem to merit priority from the
parties and so it became one of the many "move in the premises" cases of this Court.
Subsequent events had significantly dimmed the glow of the issue's novelty. In the
1982 case of Caños vs. Peralta, et al., 1 this Court enunciated a new doctrine which
significantly touched upon and indirectly, albeit partly, resolved this issue. Then
followed amendments to the Rules on Criminal Procedure, some of which allowed,
in certain instances, the consolidation of the civil suit with the criminal action for the
recovery of the civil liability arising from the latter. 2 In a later case, Naguiat vs.
Intermediate Appellate Court, et al., 3 decided in 1988, this Court went further by
allowing the consolidation with the criminal action for violation of a special law of a
civil case for specific performance with damages arising from said law. Be that as it
may, there is still the need to meet the issue squarely.

Republic of the Philippines The parties do not dispute the following antecedents:
SUPREME COURT
Manila
In the 14 June 1972 issue of the GRAPHIC, a weekly magazine of general
circulation in the Philippines, under the column Social Climbing by one "Conde de
THIRD DIVISION Makati," later identified as George F. Sison, the following item appeared:

G.R. No. L-37404 November 18, 1991 ONCE UPON A time a beautiful Blue Lady (GOC) used to frequent the
office of the Honorable Sir.
EDUARDO COJUANGCO, JR. and GRETCHEN
OPPENCOJUANGCO, petitioners, Because of her well-known beauty and charm, the frequency of her visits
vs. did not pass unnoticed by our Lady of the House by Pasig. An investigation
THE HONORABLE COURT OF APPEALS, GEORGE F. SISON and LUIS R. by her battery of personal "spies" revealed the beautiful Blue Lady was
MAURICIO, respondents. "following up" her three-million-peso to from one of our leading
government-lending institutions.
Jalandoni, Cope & Suarez for private respondent.
"Ang mahal naman ng hanyang ...! exclaimed our Lady of the House.
Sison, Dominguez & Associates for respondents.
Aba, floating rate yata tayo ngayon. Even my friend Marquessa de Culi-
Culi has upped her price by 50 percent, "kasi ang mahal na bilihin ngayon,
kahit bulak at alkohol."

DAVIDE, JR., J.:
May a criminal case for libel and an independent civil action for damages arising
therefrom, filed pursuant to Article 33 of the Civil Code, be consolidated for joint
trial?
Claiming that the publication alludes to petitioners-spouses and that it is false,
malicious and constitutes a vicious attack on petitioner-wife's virtue, honor and
character as it imputes her not only the corrupt and immoral act of "following up" a
alleged loan, but also the commission of corrupt and immortal acts of adultery and/or
prostitution, petitioners filed on 11 July 1972 with the then Court of First Instnce
(now Regional Trial Court) of Quezon City a civil action for Damages based on
Libel against the Graphic Publishing Co., Inc., as owner; J. Antoni Araneta, as
publisher; Luis R. Mauricio, as general manager and editor; and Conde de Makati, as
writer, of the GRAPHIC magazine. The case, docketed as Civil Case No. Q-16725,
wa raffled to Branch XVI of said court. The complaint was amended on 20
September 1972 4 to specifically Identity Conde de Makati herein private respondent
George P. Sison.
On 29 December 1972, the City Fiscal of Quezon City with the above court a
criminal case for libel against defendants Sison, Mauricio and Araneta. 5 The case
was docketed as Criminal Case No. Q-2713 and was raffled to Branch V thereof.
On 7 March 1973, after issues in Civil Case No. Q-16725 joined and the accused in
Criminal Case No. Q-2713 arraigned, petitioners filed therein separate motions to
consolidate the criminal case with the civil case in Branch XVI alleging that the
evidence to be presented in both would be the same much valuable time and effort of
the court as well as that of the parties would be saved by such consolidation; and,
moreover Article 360 of the Revised Penal Code, as amended, provides, inter alia,
that in libel the civil action shall be filed in the same court where the criminal action
is filed and vice-versa, provided, however, that the court where the criminal action or
civil action for damages is first filed, shall acquire jurisdiction to the exclusion of
other courts.
Only defendants Mauricio and Araneta, now private respondents, filed their
opposition to the motions. They claim tha petitioners, having filed a separate civil
action, have no legal standing to intervene in the criminal case; there is no provision
in the Rules of Court authorizing the consolidation of the criminal case with the
separate civil action; the rule contemplate the consolidation of the hearing of two (2)
or more cases pending before the same judge, and not when the cases are before
different courts or different branches of the same court; different rules on the
competency of witnesses and the weight o evidence necessary to make proper
findings in the two (2 proceedings always exist; and consolidation would circumvent
the rules giving the prosecution in the criminal action, thru th fiscal, direction and
control over the case, and granting the offended parties the right to intervene in the
criminal prosecution once they opt to pursue a civil action.
On 13 October 1973, then Judge Pacifico de Castro of Brane V of the above court
handed down an Order in Criminal Cas No. Q-2713 overruling the opposition,
granting the motion to consolidate, and ordering the transfer of the records of said
cas to Branch XVI for consolidation with Civil Case No. Q-16725. 6 In overruling
the opposition, the judge held that the Court may in appropriate cases, order motu
proprio the consolidation of cases as such power is inherent in the court. 7 The mere
absene of any specific rule authorizing the consolidation of the trial of criminal and
civil case does not necessarily deprive the court of its inherent power to do so as long
as it does not prejudice th parties or place difficulties during trial, thereby defeating
th avowed purpose of consolidation, which is to avoid unnecessary costs, delay and
incovenience to the parties. The interpretation of the rule as urged in the opposition
was clearly not meant exclude consolidation of cases pending in different courts or
branches of the same court as long as such branches or courts agree to the
consolidation. Generally, the rules on evidence are the same in all courts and in all
trials and hearings, whether civil or criminal, and the fact that there, nevertheless,
would be different rules governing the competency of witnesses and weight of
evidence necessary to make proper findings in the two (2) cases could not present
special difficulties. Furthermore, it is not clear in what way the fiscal would be
divested of his control and supervision over the criminal prosecution.
Mauricio filed a motion to reconsider the Order, which Sison adopted.
In the order of 10 April 1973, the trial court denied the motion. Mauricio and Sison
went to the Court of Appeals on a petition for certiorari, prohibition and mandamus
with preliminary injunction to seek annulment of the aforesaid Orders of 13 March
and 10 April 1973. The herein petitioners were among the respondents therein. The
petition was docketed as C.A.G.R. SP-02026-R.
On 25 June 1975, the Court of Appeals promulgated a decision 8 granting the petition
and setting aside the challenged Orders on the basis of the following grounds:
l st. — There is really no law nor (sic) rule that expressly permits
consolidation even quasi-consolidation of joint trial, of a criminal and a
civil case; ....
2nd — Not only this, in cases of defamation, fraud or physical injuries,
pursuant to Art. 33 and Rule 111, Sec. 2, the civil can be filed
independently of the criminal which is the case here, but in that situation,
the law and the rules expressly dictate that such civil action,
"shall proceed independently of the criminal prosecution and shall
require only a preponderance of evidence."
going to show that the apparent intent of the Law and Rule Maker was to
command that where offended party should choose to file an independent
civil action, then said civil action should proceed entirely separate (sic),
independent of and disconnected with, the criminal, and this can well be
invoked to show that the law and the rules would and should be interpreted
not to authorize consolidation;
3rd. — Since Fiscal controls criminal prosecution but complainan plaintiff
in civil controls the civil complaint, it might well happen that Fiscal might
insist on proving for prosecution of criminal, what complainant might
refuse to prove for civil, or vice-versa, Fiscal might refuse to present
evidence for criminal what complainant would wish to present for civil; and
when it comes to turn (sic) of petitioners present their evidence, it might
well happen that Fiscal might object and insist in objecting but
complainants as plaintiffs, in civil might permit, and so on, — this Court
can hardly see who should be obeyed captain in such emergencies;
 Therefore, a joint trial of the two case where filed independently but tried
consolidatedly would be not (sic) clear and orderly trial; but a confusing and
chaotic one; THE COURT OF APPEALS ERRED IN DECLARING THAT JOINT TRIAL OF THESE TWO CASES WOULD PUT THE
TRIAL JUDGE IN A PREDICAMENT TO THE PREJUDICE OF THE ACCUSED IN THE CRIMINAL CASE. 10

4th. — Still worse, since petitioners as accused are entitled to be silent, but
as defendants in civil, may be called upon as hosti witnesses, it might as In compliance with the Resolution of 20 September 1973, 11
private respondents Mauricio and Sison filed
well happen that complainants as plaintiffs might call them in that capacity, their Comment on 4 October 1973. 12 However, instead of opposing the petition, they
and perhaps petitioners would have valid ground to refuse to testify, but it manifested that considering the important question of law not yet resolved, it would
being a joint trial, this Court can hardly see how in such a possibility, even be advisable for this Court to give due course to the petition to enable it to pass upon
probability, the Judge can divide his brain, but let it not be forgotten that the such a novel question and make an authoritative ruling for the guidance of the bench
rest sufficiency of proof in both cases unfortunately is different, me and the bar.
preponderance in the civil, beyond reasonable doubt in the criminal and yet,
in the final analysis, the determination must rest in t conscience of trial This Court gave due course to the petition in the Resolution of 10 October 1973. 13
Judge as Filangiere has written, XXVI Enciclope Juridica Española 399,
and conscience is indivisible; On 1 December 1973, petitioners filed their Brief 14
reiterating, as assignments of errors, the
aforementioned grounds. Private respondents filed their Brief on 29 January 1974. 15
5th. — There further is the point of elementary fair play; sin under law, Art.
33 and the Rules, Rule 111, complainants were free vindicate their rights by
either just intervening in the criminal case offended parties, or by filing an
independent civil cation, and since they cannot and are not permitted, to do
As We stated in the opening paragraph, the core issue presented in this case is whether the criminal case and the separate and
both, having made the choice, it would not be very fair that they should be
independent civil action to enforce the civil liability arising from the former, filed pursuant to Article 33 of the Civil Code, may be
permitted retrace (sic) their steps and reap the benefit of a joint trial which
consolidated for joint trial. We also pointed that the issue had been partly resolved by the Caños and Naguiat cases and the
they have opted to refuse at the beginning by filing an independent civil
subsequent amendments to the Rules Criminal Procedure.
action ... 9

In Caños, We affirmed the Order of respondent Judge Peralta of the then Court of First Instance of Davao del Sur ordering
consolidation of Criminal Case No. 326 and Civil Case No. 5 The former was for violation of Section 3 (a) of R.A. No. 602,
amended, otherwise known as the Minimum Wage Law, alleged non-payment by Caños of the minimum wage to employee,
The motion for reconsideration of the decision by responde Judge de Castro having been denied by the Court of Appeal the
Rolando Apas, filed by the fiscal against the fo on 23 December 1971. The latter was a civil action filed on August 1972 by Apas
petitioners filed on 15 September 1973 the instant petition for the review of the decision. In support thereof, petition interposed the
against Caños for collection of differential, overtime and termination pay, plus damages. Caños maitained that after the institution
following grounds:
of Criminal Case No. 326, proceedings in Civil Case No. 558 should be suspended final judgment in the criminal action pursuant
to paragraph (a) and (b), Section 3 of Rule 111 of the Rules of Court which read:
I

[a] Criminal and civil actions arising from the same offense may be instituted separately, but after the criminal action
THE COURT OF APPEALS ERRED IN DECLARING THAT ARTICLE 33 OF THE NEW CIVIL CODE AND SECTION 2,
has been commenced the civil action cannot be instituted until final judgment has been rendered in the criminal
RULE 111 OF THE NEW RULES OF COURT PROHIBIT THE CONSOLDATION, FOR JOINT TRIAL, OR (SIC) THESE
action;
CRIMINAL CASES.

[b] After a criminal action has been commenced, no civil action arising from the same offense can be prosecuted, and
II
the same shall be suspended, in whatever stage it may be found, until final judgment in the criminal proceedings has
been rendered;
THE COURT OF APPEALS ERRED IN DECLARING THE (SIC) A JOINT TRIAL OF TWO CASES WOULD ONLY CAUSE
CONFUSION AND CHAOS.
In affirming the challenged consolidation Order, this Court, per Justice Escolin held:

III
The argument fails to consider the provisions of Article 31 of the Civil Code. Civil Case No. 558 is a separate and
distinct action from Criminal Case No. 326. The former is based upon a contract of services entered into by the
 parties, not upon the civil liability arising from the offense charged in Criminal Case No. 326, i.e., non-payment of
the minimum wage, punishable under Section 3 (a) of Rep. Act 602, as amended, in relation to Section 15 (a) of the
same Act. Being essentially an action for enforcement of an obligation ex-contractual, the civil case can proceed
independently of the latter, in accordance with Article 31 of the Civil Code:
Art, 31. When the civil action is based on an obligation not arising from the act or omission complained
of as a felony, such civil action may proceed independently of the criminal proceedings and regardless
of the result of the latter.
But did respondent judge abuse his discretion in ordering the consolidation and joint trial of the criminal and civil
cases? A court may order several actions pending before it to be tried together where they arise from the same act,
event or transaction, involve the same or like issues, and depend largely or substantially on the same evidence,
provided that the court has jurisdiction over the case to be consolidated and that a joint trial will not give one party an
undue advantage or prejudice the substantial rights of any of the parties (citing 1 CJS, 1347). Consolidation of
actions is expressly authorized under Section 1, Rule 31 of the Rules of Court:
Section 1. Consolidation. — When actions involving a common question of law or fact are pending
before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it
may order all the actions consolidated; and it may make such orders concerning proceedings therein as
may tend to avoid unnecessary costs or delay.
The obvious purpose of the above rule is to avoid multiplicity of suits, to guard against oppression and abuse, to
prevent delays, to clear congested dockets, to simplify the work of the trial court; in short the attainment of justice
with the least expense and vexation to the parties litigants (citing 1 CJS 1342-1343).
Consolidation of actions is addressed to the sound discretion of the court, and its action in consolidating will not be
held in the absence of manifest abuse of discretion. In the instant case, respondent iudge did not abuse his discretion
in ordering the joint trial of the two cases. There is no showing that such joint trial would prejudice any substantial
right of petitioner. Neither does the latter question the court's jurisdiction to try and decide the two cases.
In Naguiat, We set aside the 20 March 1985 decision of Intermediate Appellate Court annulling the Order of Branch LX of the
Regional Trial Court of Angeles City which decre the consolidation of Criminal Case No. 6727 for violation Section 25, P.D. No.
957 16
(on delivery of title of lot or unit up full payment thereof) which was filed, at
Naguiat's instance, the fiscal on 13 September 1984 against Manuel Lazatin,
president of the Timog-Silangan Development Corp. (TSDC), Civil Case No. 4224
in the same court, a complaint for specific performance with damages filed by
Naguiat against TSDC a Lazatin; We then reinstated said Order. In the civil case,
Naguiat prayed for judgment ordering, inter alia, said defendants deliver to him the
transfer certificates of title to three (3) lots which he had allegedly paid in full. Both
cases were raffled Branch LX of the above court. The Intermediate Appellate Court
disagreed with the trial court and ordered instead suspension of the civil case until
final determination of criminal case, in line with the spilit of Section 3, Rule 111 of
Rules of Court. It further disallowed the intervention of Naguiat in the criminal case.
In overruling the Intermediate Appell Court, We held:
In the cases at bar, the nature of the issues involved, at least, factual issues
in the civil and criminal actions are almost Identical i.e., whether or not
petitioner had fully paid for the lots he purchase from the private
respondents, so as to entitle him to the delivery of certificates of title to said
lots. The evidence in both cases, likewise would virtually be the same,
which are, the Contract to Sell, the letter which contains the conditions for
the purchase of the lots and which petitioner allegedly affixed his
conformity, the official receipts for the alleged payments made by the
petitioner, and other related documents.
Based on the foregoing, and considering that the criminal action filed is one
for violation of a special law where, irrespective of motives, mere
commission of the act prohibited by said special constitutes the offense,
then the intervention of the petitioner's counsel, as private prosecutor in the
criminal action, will not prejudice the substantial rights of the accused.
The consolidation of the two (2) cases in question, where petitioner's
counsel may act as counsel for the plaintiff in the civil case and private
proseutor in the criminal case, will instead be conducive to the early
termination of the two (2) cases, and will redound to the benefit and
convenience of the parties; as well as to the speedy administration of justice.
The aforesaid Section 3 of Rule 111 was subsequently amended, and is now Section
2 thereof, and reads in full as follows:
SECTION 2. Institution of separate civil action. — Except in the cases
provided for in Section 3 hereof, after the criminal action has been
commenced, the civil action which has been reserved cannot be instituted
until final judgment has been rendered in the criminal action.
(a) Whenever the offended party shall have instituted the civil action as
provided for in the first paragraph of Section 1 hereof before the filing of
the criminal action and the criminal action is subsequently commenced, the
pending civil action shall be suspended, in whatever stage before final
judgment it may be found, until final judgment in the criminal action has
been rendered. However, if no final judgment has been rendered by the trial
court in the civil action, the same may be consolidated with the criminal
action upon application with the court trying the criminal action. If the
application is granted, the evidence presented and admitted in the civil
action shall be deemed automatically reproduced in the criminal action,
without prejudice to the admission of additional evidence that any party
 may wish to present. In case of consolidation, both the criminal and the civil
actions shall be tried and decided jointly.
(b) Extinction of the penal action does not carry with it extinction of the
civil, unless the extinction proceeds from a declaration in a final judgment
that the fact from which the civil might arise did not exist. (3a)
Section 3 of said Rule referred to in the opening paragraph of Section 2 reads as
follows:
SECTION 3. When civil action may proceed independently. — In the cases
provided for in Articles 32, 33, 34 and 2176 of the Civil Code of the
Philippines, the independent civil action which has been reserved may be
brought by the offended party, shall proceed independently of the criminal
action, and shall require only a preponderance evidence. (2a)
while the first paragraph of Section 1, referred to in subsection (a) of Section 2,
reads:
SECTION 1. Institution of criminal and civil actions. — When a criminal
action is instituted, the civil action for the recovery of civil liability is
impliedly instituted with the criminal action, unless offended party waives
the civil action, reserves his right to institute separately, or institutes the
civil action prior to the criminal action ...
From the foregoing, it is clear that the Civil action for recovery of damages arising
from a crime, or ex delicto, may filed separately from the criminal case either before
the institution of the latter, which may be done without reservation, after such
institution, provided, however, that a reservation that effect has been made. If in the
meantine the criminal action is instituted, the civil action which has been reserve
cannot be commenced until final judgment has been render in the former. This
restriction does not, however, apply to the cases provided for in the aforecited
Section 3. Thus, in the case provided for in Articles 32, 33 (as in the instant case), 34
and 2176 of the Civil Code, the civil action may be filed even a the institution of the
criminal case, provided that prior proper reservation had been made.
Subsection (a) of Section 2 refers to civil cases filed before the institution of the
criminal cases. Since it makes reference to first paragraph of Section 1, and the latter
necessarily include the cases under Articles 32, 33, 34 and 2176 ofthe Civil Code
expressly recognized in the second paragraph thereof which reads:
Such civil action includes recovery of indemnit under the Revsed Penal
Code, and damages under Article 32, 33, 34 and 2176 the Civil Code of the
Philippines arising from the same act or omission of the accused.
it follows without saying that an independent civil action for t recovery of civil
liability, authorized under Articles 32, 33, 34 or 2176 of the Civil Code, filed before
the institution of the criminal case, may be consolidated with the latter, subject to the
condition that no final judgment has been rendered in the criminal case. If this is
permitted, there is neither rhyme nor reason why, given the existence of the
condition, an independent civil action under any of the said Articles, but filed after
the institution of the criminal case, may not be consolidated with the latter. This
second scenario is equally and logically addressed by the reasoning behind the
provision for the first situation.
That these provisions were incorporated into the Rules after this petition was filed
may not be interposed to deny their retroactive application since procedural laws
may be given retroactive application. 17
Furthermore, Section 1, Rule 31 of the Rules of Court authorizes consolidation of actions involving common questions of law or
fact pending before the court. The purpose or object of consolidation is to avoid multiplicity of suits, guard against oppression or
abuse, prevent delay, clear congested dockets, simplify the work of the trial court, and save unnecessary costs or expense; in short,
the attainment of justice with the least expense and vexation to the parties litigants. 18
This provision applies to
both civil and criminal actions. Caños and Naguiat had removed any doubt on this
point.
It is self-evident that Civil Case No. Q-16725 and Criminal Case No. Q-2713 involve
common or Identical questions of fact and law, and that they would even have the
same witnesses. These considerations alone justify the exercise by the court of its
discretion to consolidate the cases for joint hearing to attain the salutary purpose of
consolidation.
There is yet a further consideration why in the instant case consolidation of Civil
Case No. Q-16725 and Criminal Case No. Q-2713 should be allowed. What is
involved is the crime of libel. As correctly stated by petitioners, per the third
paragraph of Article 360 of the Revised Penal Code, as amended, the criminal case
for libel and the civil action for damages arising therefrom must be filed in the same
court. The pertinent portion there reads as follows:
xxx xxx xxx
The criminal and civil action for damages in cases of written defamations as
provided for in this chapter, shall be filed simultaneously or separately with
the court of first instance of the province city where the libelous article is
printed and first published or where any of the offended parties actually
resides at the time of the commission of the offense. ... Provided, further,
That the civil action shall be filed in the same court where the criminal
action if filed and vice versa: Provided, furthermore, That the court where
the criminal action or civil action for damages is first filed, shall acquire
jurisdiction to the exclusion of other courts: ...
If the court referred to is a multi-sala court, it may happen, as in this case, that the
criminal and civil actions are raffled or assigned to different salas. In this situation,
consolidation one with another earlier filed would not only be practical and
economical — it would subserve the very purpose of the law Consolidation of cases
assigned to different branches of a court had earlier been recognized. In Raymundo,
et al. vs. Felipe, et al., 19 We held:

[A]lthough consolidation of several cases involving the same parties and

subject matter is a matter addressed to the discretion of the trial court, joint
hearing becomes a matter of duty if two or more cases are tried before the
same judge, or even if filed with the different branches of the same court of
first instance, provided one of such case has not been partially tried.

This modified what this Court stated in PAL, et al., vs. Teodoro et al., 20 that the
provision on consolidation 21 refers to the consolidation of hearings of two (2) or
more cases which are before the same judge, and not when the cases are pending
before different courts or different branches of the same court.

In view of the foregoing, it would no longer be necessary consider the other reasons
adduced by respondent Court of Appeals in setting aside the Orders of the trial court.
Suffice to say that the feared chaos or confusion in procedure is at be speculative and
the possible difficulty the judge may face in light of the different tests of sufficiency
of proof in each case unfounded for it fails to consider the instances when the civil
aspect is impliedly instituted with the criminal action.

WHEREFORE, the Petition is GRANTED. The challenge Decision of 25 June 1973

and Resolution of 7 August 1973 of the Court of Appeals in C.A.-G.R. No. SP-
02026-R are hereby SE ASIDE and the Order of the trial court of Quezon City of 13
March 1973 consolidating for joint trial Civil Case No. Q-16725 and Criminal Case
No. Q-2713, and its Order of 10 April 1973 denying the motion to reconsider the
former, are hereby REINSTATED.

No pronouncement as to costs.

IT IS SO ORDERED.