CIVPRO – VENUE – WHEN RULE NOT APPLICABLE The facts: On 16 July 1991, the Mindanao Kris, a newspaper of general
facts: On 16 July 1991, the Mindanao Kris, a newspaper of general circulation in Cotabato City,
G.R. No. 106847. March 5, 1993.
PATRICIO P. DIAZ, petitioner, vs. JUDGE SANTOS B. ADIONG, RTC, Br. 8, Marawi City, SULTAN
MACORRO L. MACUMBAL, SULTAN LINOG M. INDOL, MACABANGKIT LANTO and MOHAMADALI
SYLLABUS
1. REMEDIAL LAW; ACTIONS; VENUE OF LIBEL CASE WHERE OFFENDED PARTY IS AN PUBLIC
OFFICIAL. — From the provision of Article 360, third paragraph of the Revised Penal Code as
amended by R.A. 4363, it is clear that an offended party who is at the same time a public official
can only institute an action arising from libel in two (2) venues: the place where he holds office,
and the place where the alleged libelous articles were printed and first published.
2. ID.; ID.; IMPROPER VENUE; MUST BE RAISED IN A NOTION TO DISMISS PRIOR TO A RESPONSIVE
PLEADING. — Unless and until the defendant objects to the venue in a motion to dismiss prior to a
responsive pleading, the venue cannot truly be said to have been improperly laid since, for all
practical intents and purposes, the venue though technically wrong may yet be considered
acceptable to the parties for whose convenience the rules on venue had been devised.
3. ID.; ID.; ID.; WAIVED IN CASE AT BAR BY FILING ANSWER. — Petitioner Diaz then, as defendant in
the court below, should have timely challenged the venue laid in Marawi City in a motion to
dismiss, pursuant to Sec. 4, Rule 4, of the Rules of Court. Unfortunately, petitioner had already
submitted himself to the jurisdiction of the trial court when he filed his Answer to the Complaint
with Counterclaim. His motion to dismiss was therefore belatedly filed and could no longer deprive
the trial court of jurisdiction to hear and decide the instant civil action for damages. Well-settled is
the rule that improper venue may be waived and such waiver may occur by laches. Sec. 1 of Rule
16 provides that objections to improper venue must be made in a motion to dismiss before any
responsive pleading is filed. Responsive pleadings are those which seek affirmative relief and set
up defenses. Consequently, having already submitted his person to the jurisdiction of the trial
court, petitioner may no longer object to the venue which, although mandatory in the instant case,
is nevertheless waivable. As such, improper venue must be seasonably raised, otherwise, it may be
deemed waived.
4. ID.; ID.; ID.; RELATES TO TRIAL AND NOT TO JURISDICTION. — Indeed, the laying of venue is
procedural rather than substantive, relating as it does to jurisdiction of the court over the person
rather than the subject matter. Venue relates to trial and not to jurisdiction.
DECISION
BELLOSILLO, J p:
VENUE in the instant civil action for damages arising from libel was improperly laid; nonetheless,
the trial court refused to dismiss the complaint. Hence, this Petition for Certiorari, with prayer for
the issuance of a temporary restraining order, assailing that order of denial 1 as well as the order
denying reconsideration. 2
published in its front page the news article captioned "6-Point Complaint Filed vs. Macumbal," and
in its Publisher's Notes the editorial, "Toll of Corruption," which exposed alleged anomalies by key
officials in the Regional Office of the Department of Environment and Natural Resources. 3
On 22 July 1991, the public officers alluded to, namely, private respondents Sultan Macorro L.
Macumbal, Sultan Linog M. Indol, Atty. Macabangkit M. Lanto and Atty. Mohamadali Abedin,
instituted separate criminal and civil complaints arising from the libel before the City Prosecutor's
Office and the Regional Trial Court in Marawi City. The publisher-editor of the Mindanao Kris,
petitioner Patricio P. Diaz, and Mamala B. Pagandaman, who executed a sworn statement attesting
to the alleged corruption, were named respondents in both complaints. 4
On 2 September 1991, the City Prosecutor's Office dismissed the criminal case thus 5 —
"WHEREFORE . . . this investigation in the light of Agbayani vs. Sayo case finds that it has no
jurisdiction to handle this case and that the same be filed or instituted in Cotabato City where
complainant is officially holding office at the time respondents caused the publication of the
complained news item in the Mindanao Kris in Cotabato City, for which reason it is recommended
that this charge be dropped for lack of jurisdiction."
In the interim, the civil complaint for damages, docketed as Civil Case No. 385-91 and raffled to
Branch 10 of the Regional Trial Court in Marawi City, was set for Pre-Trial Conference. The
defendants therein had already filed their respective Answers with Counterclaim.
On 18 November 1991, petitioner Diaz moved for the dismissal of the action for damages on the
ground that the trial court did not have jurisdiction over the subject matter. He vehemently argued
that the complaint should have been filed in Cotabato City and not in Marawi City. 6
Pending action on the motion, the presiding judge of Branch 10 inhibited himself from the case
which was thereafter reraffled to the sala of respondent judge.
On 15 June 1991, respondent judge denied petitioner's Motion to Dismiss for lack of merit. Diaz
thereafter moved for reconsideration of the order of denial. The motion was also denied in the
Order of 27 August 1991, prompting petitioner to seek relief therefrom.
Petitioner Diaz contends that the civil action for damages could not be rightfully filed in Marawi
City as none of the private respondents, who are all public officers, held office in Marawi City;
neither were the alleged libelous news items published in that city. Consequently, it is petitioner's
view that the Regional Trial Court in Marawi City has no jurisdiction to entertain the civil action for
damages.
The petitioner is correct. Not one of the respondents then held office in Marawi City: respondent
Macumbal was the Regional Director for Region XII of the DENR and held office in Cotabato City;
respondent Indol was the Provincial Environment and Natural Resources Officer of Lanao del Norte
and held office in that province; respondent Lanto was a consultant of the Secretary of the DENR
and, as averred in the complaint, was temporarily residing in Quezon City; and, respondent Abedin
was the Chief of the Legal Division of the DENR Regional Office in Cotabato City. 7 Indeed, private
respondents do not deny that their main place of work was not in Marawi City, although they had
sub-offices therein.
Apparently, the claim of private respondents that they maintained sub-offices in Marawi City is a
mere afterthought, considering that it was made following the dismissal of their criminal complaint
by the City Prosecutor of Marawi City. Significantly, in their complaint in civil Case No. 385-91
respondents simply alleged that they were residents of Marawi City, except for respondent Lanto
who was then temporarily residing in Quezon City, and that they were public officers, nothing
more. This averment is not enough to vest jurisdiction upon the Regional Trial Court of Marawi City
and may be properly assailed in a motion to dismiss.
The Comment of private respondents that Lanto was at the time of the commission of the offense
actually holding office in Marawi City as consultant of LASURECO can neither be given credence
because this is inconsistent with their allegation in their complaint that respondent Lanto, as
consultant of the Secretary of the DENR, was temporarily residing in Quezon City.
Moreover, it is admitted that the libelous articles were published and printed in Cotabato City.
Thus, respondents were limited in their choice of venue for their action for damages only to
Cotabato City where Macumbal, Lanto and Abedin had their office and Lanao del Norte where
Indol worked. Marawi City is not among those where venue can be laid.
The third paragraph of Art. 360 of the Revised Penal Code, as amended by R.A. No. 4363,
specifically requires that —
"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 (now Regional
Trial Court) of the province or 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,
however, that where one of the offended parties is a public officer . . . (who) does not hold office in
the City of Manila, the action shall be filed in the Court of First Instance (Regional Trial Court) of
the province or city where he held office at the time of the commission of the offense or where
the libelous article is printed and first published and in case one of the the offended parties is a
private individual, the action shall be filed in the Court of First Instance of the province or city
where he actually resides at the time of the commission of the offense or where the libelous
matter is printed and first published . . . . " (emphasis supplied)
From the foregoing provision, it is clear that an offended party who is at the same time a public
official can only institute an action arising from libel in two (2) venues: the place where he holds
office, and the place where the alleged libelous articles were printed and first published.
Private respondents thus appear to have misread the provisions of Art. 360 of the Revised Penal
Code, as amended, when they filed their criminal and civil complaints in Marawi City. They
deemed as sufficient to vest jurisdiction upon the Regional Trial Court of Marawi City the allegation
that "plaintiffs are all of legal age, all married, Government officials by occupation and residents of
Marawi City." 8 But they are wrong.
Consequently, it is indubitable that venue was improperly laid. However, unless and until the
defendant objects to the venue in a motion to dismiss prior to a responsive pleading, the venue
cannot truly be said to have been improperly laid since, for all practical intents and purposes, the
venue though technically wrong may yet be considered acceptable to the parties for whose
convenience the rules on venue had been devised. 9
Petitioner Diaz then, as defendant in the court below, should have timely challenged the venue laid
in Marawi City in a motion to dismiss, pursuant to Sec. 4, Rule 4, of the Rules of Court.
Unfortunately, petitioner had already submitted himself to the jurisdiction of the trial court when
he filed his Answer to the Complaint with Counterclaim. 10
His motion to dismiss was therefore belatedly filed and could no longer deprive the trial court of
jurisdiction to hear and decide the instant civil action for damages. Well-settled is the rule that
improper venue may be waived and such waiver may occur by laches. 11
Petitioner was obviously aware of this rule when he anchored his motion to dismiss on lack of
cause of action over the subject matter, relying on this Court's ruling in Time, Inc. v. Reyes. 12
Therein, We declared that the Court of First Instance of Rizal was without jurisdiction to take
cognizance of Civil Case No. 10403 because the complainants held office in Manila, not in Rizal,
while the alleged libelous articles were published abroad.
It may be noted that in Time, Inc. v. Reyes, the defendant therein moved to dismiss the case
without first submitting to the jurisdiction of the lower court, which is not the case before Us.
More, venue in an action arising from libel is only mandatory if it is not waived by defendant. Thus
—
"The rule is that where a statute creates a right and provides a remedy for its enforcement, the
remedy is exclusive; and where it confers jurisdiction upon a particular court, that jurisdiction is
likewise exclusive, unless otherwise provided. Hence, the venue provisions of Republic Act No.
4363 should be deemed mandatory for the party bringing the action, unless the question of venue
should be waived by the defendant . . . . " 13
Withal, objections to venue in civil actions arising from libel may be waived; it does not, after all,
involve a question of jurisdiction. Indeed, the laying of venue is procedural rather than substantive,
relating as it does to jurisdiction of the court over the person rather than the subject matter. 14
Venue relates to trial and not to jurisdiction.
Finally, Sec. 1 of Rule 16 provides that objections to improper venue must be made in a motion to
dismiss before any responsive pleading is filed. Responsive pleadings are those which seek
affirmative relief and set up defenses. Consequently, having already submitted his person to the
jurisdiction of the trial court, petitioner may no longer object to the venue which, although
mandatory in the instant case, is nevertheless waivable. As such, improper venue must be
seasonably raised, otherwise, it may be deemed waived.
WHEREFORE, for lack of merit, the Petition for Certiorari is DISMISSED and the Temporary
Restraining Order heretofore issued is LIFTED.
This case is remanded to the court of origin for further proceedings.
SO ORDERED.
CIVPRO – VENUE – WHEN RULE NOT APPLICABLE
G.R. No. 145022 September 23, 2005
ARMAND NOCUM and THE PHILIPPINE DAILY INQUIRER, INC., Petitioners,
vs.
LUCIO TAN, Respondent.
DECISION
CHICO-NAZARIO, J.:
Assailed in a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure
are the decision1 of the Court of Appeals dated 19 April 2000 that affirmed the order of the
Regional Trial Court (RTC) of Makati City, Branch 56, in Civil Case No. 98-2288, dated 19 April 1999,
admitting respondent Lucio Tan’s Amended Complaint for Damages for the alleged malicious and
defamatory imputations against him in two (2) articles of the Philippine Daily Inquirer, and its
Resolution2 dated 15 September 2000 denying petitioners Armand Nocum and The Philippine Daily
Inquirer, Inc.’s motion for reconsideration.
The antecedents are summarized by the Court of Appeals.
On September 27, 1998, Lucio Tan filed a complaint against reporter Armand Nocum, Capt.
Florendo Umali, ALPAP and Inquirer with the Regional Trial Court of Makati, docketed as Civil Case
No. 98-2288, seeking moral and exemplary damages for the alleged malicious and defamatory
imputations contained in a news article.
INQUIRER and NOCUM filed their joint answer, dated October 27, 1998, wherein they alleged that:
(1) the complaint failed to state a cause of action; (2) the defamatory statements alleged in the
complaint were general conclusions without factual premises; (3) the questioned news report
constituted fair and true report on the matters of public interest concerning a public figure and
therefore, was privileged in nature; and (4) malice on their part was negated by the publication in
the same article of plaintiff’s or PAL’s side of the dispute with the pilot’s union.
ALPAP and UMALI likewise filed their joint answer, dated October 31, 1998, and alleged therein
that: (1) the complaint stated no cause of action; (2) venue was improperly laid; and (3) plaintiff
Lucio Tan was not a real party in interest. It appeared that the complaint failed to state the
residence of the complainant at the time of the alleged commission of the offense and the place
where the libelous article was printed and first published.
Thus, the Regional Trial Court of Makati issued an Order dated February 10, 1999, dismissing the
complaint without prejudice on the ground of improper venue.
Aggrieved by the dismissal of the complaint, respondent Lucio Tan filed an Omnibus Motion dated
February 24, 1999, seeking reconsideration of the dismissal and admission of the amended
complaint. In par. 2.01.1 of the amended complaint, it is alleged that "This article was printed and
first published in the City of Makati" (p. 53, Rollo, CA-G.R. SP No. 55192), and in par. 2.04.1, that
"This caricature was printed and first published in the City of Makati" (p. 55, id.).
The lower court, after having the case dismissed for improper venue, admitted the amended
complaint and deemed set aside the previous order of dismissal, supra, stating, inter alia, that:
"The mistake or deficiency in the original complaint appears now to have been cured in the
Amended Complaint which can still be properly admitted, pursuant to Rule 10 of the 1997 Rules of
Civil Procedure, inasmuch as the Order of dismissal is not yet final. Besides, there is no substantial
amendment in the Amended Complaint which would affect the defendants’ defenses and their
Answers. The Amendment is merely formal, contrary to the contention of the defendants that it is
substantial."
Dissatisfied, petitioners, together with defendants Capt. Florendo Umali and the Airline Pilots
Association of the Philippines, Inc. (ALPAP), appealed the RTC decision to the Court of Appeals.
Two petitions for certiorari were filed, one filed by petitioners which was docketed as CA-G.R. SP
No. 55192, and the other by defendants Umali and ALPAP which was docketed as CA-G.R. SP No.
54894. The two petitions were consolidated.
On 19 April 2000, the Court of Appeals rendered its decision the dispositive portion of which
reads:
WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE and DISMISSED for
lack of merit. The Order of the court a quo is hereby AFFIRMED.
The motions for reconsideration filed by petitioners and by defendants Umali and ALPAP were
likewise denied in a resolution dated 15 September 2000.
Both petitioners and defendants Umali and ALPAP appealed to this Court. Under consideration is
the petition for review filed by petitioners.
On 11 December 2000, the Court required respondent Tan to comment on the petition filed by
petitioners.3
Respondent filed his comment on 22 January 2001 4 to which petitioners filed a reply on 26 April
2001.5
In a Manifestation filed on 19 February 2001, respondent stated that the petition 6 filed by
defendants Umali and ALPAP has already been denied by the Court in a resolution dated 17
January 2001.7
On 20 August 2003, the Court resolved to give due course to the petition and required the parties
to submit their respective memoranda within thirty (30) days from notice. 8 Both petitioners and
respondent complied.9
Petitioners assigned the following as errors:
A. THE COURT OF APPEALS ERRED IN RULING (1) THAT THE LOWER COURT HAD JURISDICTION
OVER THE CASE (ON THE BASIS OF THE ORIGINAL COMPLAINT) NOTWITHSTANDING THE FACT
THAT THE LOWER COURT HAD EARLIER DISMISSED THE ORIGINAL COMPLAINT FOR ITS FAILURE TO
CONFER JURISDICTION UPON THJE COURT; AND (2) THAT THE AMENDED COMPLAINT WAS
PROPERLY ALLOWED OR ADMITTED BECAUSE THE LOWER COURT WAS "NEVER DIVESTED" OF
JURISDICTION OVER THE CASE;
B. THE COURT OF APPEALS ERRED IN NOT RULING THAT THE ORIGINAL COMPLAINT OF
RESPONDENT WAS AMENDED PURPOSELY TO CONFER UPON THE LOWER COURT JURISDICTION
OVER THE CASE.10
Petitioners state that Article 360 of the Revised Penal Code vests jurisdiction over all civil and
criminal complaints for libel on the RTC of the place: (1) where the libelous article was printed and
first published; or (2) where the complainant, if a private person, resides; or (3) where the
complainant, if a public official, holds office. They argue that since the original complaint only
contained the office address of respondent and not the latter’s actual residence or the place where
the allegedly offending news reports were printed and first published, the original complaint, by
reason of the deficiencies in its allegations, failed to confer jurisdiction on the lower court.
The question to be resolved is: Did the lower court acquire jurisdiction over the civil case upon the
filing of the original complaint for damages?
We rule in the affirmative.
It is settled that jurisdiction is conferred by law based on the facts alleged in the complaint since
the latter comprises a concise statement of the ultimate facts constituting the plaintiff's causes of
action.11 In the case at bar, after examining the original complaint, we find that the RTC acquired
jurisdiction over the case when the case was filed before it. From the allegations thereof,
respondent’s cause of action is for damages arising from libel, the jurisdiction of which is vested
with the RTC. Article 360 of the Revised Penal Code provides that it is a Court of First Instance 12
that is specifically designated to try a libel case.13
Petitioners are confusing jurisdiction with venue. A former colleague, the Hon. Florenz D.
Regalado,14 differentiated jurisdiction and venue as follows: (a) Jurisdiction is the authority to hear
and determine a case; venue is the place where the case is to be heard or tried; (b) Jurisdiction is a
matter of substantive law; venue, of procedural law; (c) Jurisdiction establishes a relation between
the court and the subject matter; venue, a relation between plaintiff and defendant, or petitioner
and respondent; and, (d) Jurisdiction is fixed by law and cannot be conferred by the parties; venue
may be conferred by the act or agreement of the parties.
In the case at bar, the additional allegations in the Amended Complaint that the article and the
caricature were printed and first published in the City of Makati referred only to the question of
venue and not jurisdiction. These additional allegations would neither confer jurisdiction on the
RTC nor would respondent’s failure to include the same in the original complaint divest the lower
court of its jurisdiction over the case. Respondent’s failure to allege these allegations gave the
lower court the power, upon motion by a party, to dismiss the complaint on the ground that venue
was not properly laid.
In Laquian v. Baltazar,15 this Court construed the term "jurisdiction" in Article 360 of the Revised
Penal Code as referring to the place where actions for libel shall be filed or "venue."
In Escribano v. Avila,16 pursuant to Republic Act No. 4363,17 we laid down the following rules on the
venue of the criminal and civil actions in written defamations.
1. General rule: The action may be filed in the Court of First Instance of the province or 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.
2. If the offended party is a public officer with office in Manila at the time the offense was
committed, the venue is Manila or the city or province where the libelous article is printed and
first published.
3. Where an offended party is a public official with office outside of Manila, the venue is the
province or the city where he held office at the time of the commission of the offense or where
the libelous article is printed and first published.
4. If an offended party is a private person, the venue is his place of residence at the time of the
commission of the offense or where the libelous article is printed and first published.
The common feature of the foregoing rules is that whether the offended party is a public officer or
a private person, he has always the option to file the action in the Court of First Instance of the
province or city where the libelous article is printed or first published.
We further restated18 the rules on venue in Article 360 as follows:
1. Whether the offended party is a public official or a private person, the criminal action may be
filed in the Court of First Instance of the province or city where the libelous article is printed and
first published.
2. If the offended party is a private individual, the criminal action may also be filed in the Court of
First Instance of the province where he actually resided at the time of the commission of the
offense.
3. If the offended party is a public officer whose office is in Manila at the time of the commission
of the offense, the action may be filed in the Court of First Instance of Manila.
4. If the offended party is a public officer holding office outside of Manila, the action may be filed
in the Court of First Instance of the province or city where he held office at the time of the
commission of the offense.
We fully agree with the Court of Appeals when it ruled:
We note that the amended complaint or amendment to the complaint was not intended to vest
jurisdiction to the lower court, where originally it had none. The amendment was merely to
establish the proper venue for the action. It is a well-established rule that venue has nothing to do
with jurisdiction, except in criminal actions. Assuming that venue were properly laid in the court
where the action was instituted, that would be procedural, not a jurisdictional impediment. In fact,
in civil cases, venue may be waived.

Consequently, by dismissing the case on the ground of improper venue, the lower court had
jurisdiction over the case. Apparently, the herein petitioners recognized this jurisdiction by filing
their answers to the complaint, albeit, questioning the propriety of venue, instead of a motion to
dismiss.

...

We so hold that dismissal of the complaint by the lower court was proper considering that the
complaint, indeed, on its face, failed to allege neither the residence of the complainant nor the
place where the libelous article was printed and first published. Nevertheless, before the finality of
the dismissal, the same may still be amended as in fact the amended complaint was admitted, in
view of the court a quo’s jurisdiction, of which it was never divested. In so doing, the court acted
properly and without any grave abuse of discretion.19

It is elementary that objections to venue in CIVIL ACTIONS arising from libel may be waived since
they do not involve a question of jurisdiction. The laying of venue is procedural rather than
substantive, relating as it does to jurisdiction of the court over the person rather than the subject
matter. Venue relates to trial and not to jurisdiction. 20 It is a procedural, not a jurisdictional, matter.
It relates to the place of trial or geographical location in which an action or proceeding should be
brought and not to the jurisdiction of the court. 21 It is meant to provide convenience to the parties,
rather than restrict their access to the courts as it relates to the place of trial. 22 In contrast, in
criminal actions, it is fundamental that venue is jurisdictional it being an essential element of
jurisdiction.23

Petitioners’ argument that the lower court has no jurisdiction over the case because respondent
failed to allege the place where the libelous articles were printed and first published would have
been tenable if the case filed were a criminal case. The failure of the original complaint to contain
such information would be fatal because this fact involves the issue of venue which goes into the
territorial jurisdiction of the court. This is not to be because the case before us is a civil action
where venue is not jurisdictional.

The cases24 cited by petitioners are not applicable here. These cases involve amendments on
complaints that confer jurisdiction on courts over which they originally had none. This is not true
in the case at bar. As discussed above, the RTC acquired jurisdiction over the subject matter upon
the filing of the original complaint. It did not lose jurisdiction over the same when it dismissed it
on the ground of improper venue. The amendment merely laid down the proper venue of the
case.

WHEREFORE, the foregoing considered, the decision of the Court of Appeals dated 19 April 2000 is
AFFIRMED in toto. No costs.

SO ORDERED.
CIVPRO – VENUE – WHEN PARTIES HAVE VALIDLY AGREED IN WRITING BEFORE FILING OF THE
ACTION ON EXCLUSIVE VENUE THEREOF
G.R. No. 106920 December 10, 1993
PHILIPPINE BANKING CORPORATION, petitioner,
vs.
HON. SALVADOR S. TENSUAN, Judge of Regional Trial Court of Makati, National Capital Judicial
Region, Branch 146; CIRCLE FINANCIAL CORPORATION, AVELINO E. DEATO, JR., MIGUEL F.
VIOLAGO, BENJAMIN F. SANTIAGO, SOCORRO R. GOMEZ, NERISSA T. GLORIA, FILEMON C.
MARQUEZ, DOMINGO SANTIAGO AND HILARIO P. LOPEZ, respondents.
FELICIANO, J.:
In this Petition for Review on Certiorari, petitioner asks us to review and set aside the Order of
Judge Salvador A. Tensuan dated 3 August 1992, dismissing petitioner's complaint in Civil Case No.
91-2220 entitled "Philippine Banking Corporation vs. Circle Financial Corporation, et al."
Petitioner Philippine Banking Corporation (hereafter "Bank") is a commercial banking corporation
with principal office at Makati, Metro Manila. Petitioner Bank instituted a complaint for collection
of a sum of money, with a prayer for preliminary attachment, at the Regional Trial Court of Makati.
It appears from the allegations of the Bank's complaint that respondent Circle Financial Co.
(hereafter "Circle"), sometime in 1983 and 1984, through its representatives, obtained several
loans aggregating P1,000,000.00 from petitioner. Respondent Circle, for value received, delivered
to petitioner Bank four (4) promissory notes, each of which contained the stipulation that:
I/We hereby expressly submit to the jurisdiction of the courts of Valenzuela any legal action
which may arise out of this promissory note.
As security for the re-payment by respondent Circle of the sums loaned by petitioner Bank, eight
(8) individuals, who were impleaded as defendants in the complaint — namely, Avelino Deato,
Miguel Violago, Benjamin Santiago, Socorro Gomez, Nerissa Gloria, Filemon Marquez, Domingo
Santiago and Hilario Lopez — executed a Continuing Surety Agreement and undertook to
pay jointly and severally respondent Circle's obligations. Only five (5) out of eight (8) individual
obligors are respondents in present case, namely: Domingo Santiago, Hilario Lopez, Avelino Deato,
Benjamin P. Santiago and Socorro Gomez.
On their due dates, Circle failed to pay its obligations under the promissory notes. Thereupon,
petitioner Bank demanded payment from the eight (8) individual sureties conformably with their
promises contained in the Continuing Surety Agreement; the individual obligors, however, also
failed to pay.
Petitioner moved for issuance of a writ of preliminary attachment, alleging that respondent Circle
had become insolvent and had been placed under receivership by the Central Bank. The trial judge
granted the motion and issued a writ of preliminary attachment. The sheriff's return indicated,
however, that no properties belonging to the respondent Circle and the individual obligors could
be found. Per sheriff's return, summons was served upon Domingo Santiago, 1 Hilario P. Lopez, 2
Avelino Deato, 3 Benjamin P. Santiago, 4 and Socorro Gomez. 5 The sheriff failed to serve summons
on (a) Miguel Violago, who had died; (b) Nerissa T. Gloria 6 and Filemon Marquez, 7 whose
whereabouts were unknown; and (c) Circle, which had ceased to engage in business at the address
given by petitioner and could not be located.
A motion to dismiss was filed by the respondents (Circle and the five [5] individual sureties served
with summons) and averred that the venue of the action was improperly laid since an agreement
had fixed the venue of actions arising from the promissory notes in Valenzuela, Metro Manila,
only. Respondents called the trial court's attention to the stipulation contained in the promissory
note, quoted in limine.
Acting upon respondent's motion, respondent Judge Tensuan issued the challenged Order which
read as follows:
Acting on defendant's motion to dismiss on grounds of improper venue in relation with
actionable promissory notes which stipulate that the parties "expressly submit to the
jurisdiction of the Courts of Valenzuela, Metro Manila any legal action which may arise", and,
Finding said motion to be impressed with merit consistent with
Sec. 13, Rule 14 of the Rules of Court as well as in line with the doctrinal rule in Bautista vs.
Hon. Juan de Borja, et al. (18 SCRA 474) that the proper venue for an action is that stipulated in
a document "in case of any litigation herefrom or in connection herewith" upon a rationale that
had the parties intended to reserve the right to choose venue under Section 2 (b), Rule 4 of the
Rules of Court, such reservation should have been reflected in the document as against the
rationale in Polytrade Corporation vs. Blanco (30 SCRA 187) which should allow choice of venue
where an actionable document does not set forth qualifying or restrictive words in point, and
In order to more clearly define the parameters of the rule on proper venue vis-a-vis a clear
perception that a stipulation to "expressly submit to the jurisdiction of the Courts of Valenzuela,
Metro Manila" amount to unequivocal agreement to sue and be sued in Valenzuela, Metro
Manila.
WHEREFORE, premises considered and finding the motion to be meritorious, same is hereby
granted and the above-entitled case is accordingly dismissed. Without pronouncement as to
costs.
SO ORDERED.8
Petitioner moved for reconsideration of the above Order of the trial court, without success.
Hence, this Petition.
We consider that the Petition is meritorious.
It is settled in this jurisdiction that the parties, by written agreement, may change or transfer the
venue of an action from one province to another. 9 We have many times sustained the validity and
enforceability of contractual stipulations concerning venue, it is, of course, the tenor of their
agreement which is of critical relevance. The relevant task, in other words, is determining the
intent of the parties as manifested in the words employed by them and, where such words are less
than clear, in other recognized indicators of the will of the contracting parties.
Petitioner Bank contends that the stipulation contained in the promissory notes is merely an
agreement to add the courts of Valenzuela to the tribunals to which the parties may resort.
Petitioner thus insists that the venue stipulation set out in the notes did not restrict or limit the
permissible venue of actions arising out of those notes to the courts of Valenzuela, to the exclusion
of all the other courts recourse to any one of which is authorized or permitted under the Rules of
Court. Thus, venue was properly laid by petitioner Bank in the place where its principal offices are
located: i.e., Makati, Metropolitan Manila.
Private respondents, in opposition, aver that the words used in the stipulation here involved are
clear and unambiguous. A promise to submit to the jurisdiction of a specific court, without an
express reservation of the right to resort to one or more of the tribunals otherwise accessible
under the Rules of Court, is an agreement definitely fixing the permissible venue in only one place,
i.e., Valenzuela, to the exclusion of other competent courts.
A careful reading of the terms of the stipulation — "I/We hereby expressly submit to the
jurisdiction of the courts of Valenzuela any legal action which may arise out of this promissory
note" — shows that the stipulation does not require the laying of venue in Valenzuela exclusively
or mandatorily. The plain or ordinary import of the stipulation is the authorizing of, or permission
to bring, suit in Valenzuela; there is not the slightest indication of an intent to bar suit in other
competent courts.
Permissive stipulations like the one here considered have invariably received judicial approval and
we have declared that either of the parties is authorized to lay venue of an action in the court
named in the stipulation. The stipulation her does not purport to deprive either party of it right to
elect, or option to have resort to, another competent court as expressly permitted by Section 2(b)
of Rule 4 of the Rules of Court, should such party choose to initiate a suit. The stipulation here
merely operated to confer or confirm a right upon a party to elect recourse to the courts of
Valenzuela or, alternatively, to go before any of the tribunals envisaged by the rules on venue, i.e.,
the courts of Makati, Quezon City and Bulacan. 10
In principle, the stipulation on venue here involved must be distinguished from stipulations which
purport to require or compel the parties to lay venue of an action in a specified place, and in that
particular place only. The latter type of venue stipulation must clearly indicate, through qualifying
and restrictive words, that the parties deliberately intended to exclude causes or actions from the
operation of the ordinary permissive rules on venue, 11 and that they intended contractually to
designate a specific venue to the exclusion of any other court also competent and accessible to the
parties under the ordinary rules on the venue of actions. Stipulations of this exclusionary nature
may, under certain circumstances, be characterized as unreasonable or as contrary to public policy
12
and, accordingly, not judicially enforceable.
In practice, the task, as noted earlier, of this Court when confronted with issues of this kind is
always basically that of contract interpretation. In the case at bar, neither qualifying nor restrictive
words (e.g., "must," "only" or "exclusively") were employed which could yield an intent on the part
of the parties mandatorily to restrict the venue of actions arising out of the promissory notes to
the courts of Valenzuela only. Private respondents suggest that the use of words "any legal action"
expressed a supposed agreement to bar actions before any court other than a Valenzuela court.
We do not agree, for we see no necessary or customary connection between the words "any legal
action" and an intent strictly to limit permissible venue to the Valenzuela courts. Intent so to
establish an inflexible restriction of otherwise permissible venue to one single place is not lightly to
be presumed or inferred from stipulations which, like that here before us, include no qualifying or
exclusionary terms. Express reservation of the right to elect venue under the ordinary rules was,
accordingly, unnecessary in the case at bar.
Such is the thrust of the great bulk of the caselaw of this Court where this issue was directly raised
and discussed.
In Polytrade Corporation v. Blanco, 13 the stipulation on venue there involved read:
The parties agree to sue and be sued in the courts of Manila
The Court, in upholding that stipulation and ruling that venue had been properly laid in the then
Court of First Instance of Bulacan (the place of defendant's residence), speaking through Mr.
Justice Sanchez, said:
. . . An accurate reading, however, of the stipulation, "The parties agree to sue and be sued in
the Courts of Manila," does not preclude the filing of suits in the residence of plaintiff or
defendant. The plain meaning is that the parties merely consented to be sued in Manila.
Qualifying or restrictive words which would indicate that Manila and Manila alone is the venue
are totally absent therefrom. We cannot read into that clause that plaintiff and defendant
bound themselves to file suits with respect to the last two transactions in question only or
exclusively in Manila. For, that agreement did not change or transfer venue. It simply is
permissive. The parties solely agreed to add the courts of Manila as tribunals to which they may
resort. They did not waive their right to pursue remedy in the courts specifically mentioned in
Section 2 (b) of Rule 4. Renuntiatio non praesumitir. 14 (Emphasis supplied)
In Nicolas v. Reparations Commission, 15 the stipulation on venue provided that:
All legal actions arising out of this contract . . . may be brought in and submitted to the jurisdiction
of the proper courts in the City of Manila. 16
This Court read the above stipulation as merely permissive, relying upon and reinforcing Polytrade:
. . . the venue in personal actions is fixed for the convenience of the plaintiff and his witnesses
and to promote the ends of justice. We cannot conceive how the interests of justice may be
served by confining the situs of the action to Manila, considering that the residences or offices
of all the parties, including the situs of the acts sought to be restrained or required to be done,
are all within the territorial jurisdiction of Rizal.
While the parties have agreed to submit their dispute to the jurisdiction of the Manila courts,
there is nothing in the language used . . . which clearly shows that the intention of the parties
was to limit the venue of the action to the City of Manila only. Such agreements should be
construed reasonably and should not be applied in such a manner that it would work more to
the inconvenience of the parties without promoting the ends of justice. 17 (Emphasis supplied)
In Lamis Enterprises v. Lagamon, 18 the promissory note sued on had the following stipulation: are hereby REVERSED and SET ASIDE. The case is hereby REMANDED to the court of origin for
resolution on the merits, with all deliberate dispatch. No pronouncements as to costs.
In case of litigation, jurisdiction shall be vested in the courts of Davao City. 19
SO ORDERED.
The collection suit was instituted in the then Court of First Instance of Tagum, Davao. The Supreme
Court rejected the defense of improper venue and held:

. . . it is alleged that the proper venue for Civil Case No. 1395 should be Davao City where the
plaintiff resides and as stipulated in the promissory note dated February 26, 1979 and in the
chattel mortgage dated February 27, 1979. However, the respondent judge found that Maningo
has not only legal residence but also physical and actual residence in Busaon, Tagum, Davao and
we are not inclined to disturb this finding. Anent the claim that Davao City had been stipulated
as the venue, suffice it to say that a stipulation as to venue does not preclude the filing of suits
in the residence of plaintiff or defendant under Section 2(b), Rule 4, Rules of Court, in the
absence of qualifying or restrictive words in the agreement which would indicate that the place
named is the only venue agreed upon by the parties. The stipulation did not deprive Maningo of
his right to pursue remedy in the court specifically mentioned in Section 2(b) of Rule 4, Rules of
Courts, Renuntiatio non praesumitir. . . . 20 (Emphasis supplied)

In Western Minolco v. Court of Appeals, 21 the clause on venue read:

The parties stipulate that the venue of the actions referred to in Section 12.01 [Article XII of the
Agreement] shall be in the City of Manila.

The initial action was commenced in the Court of First Instance of Baguio and Benguet. This Court
took the occasion to reiterate once more the Polytrade doctrine:

. . . In any event, it is not entirely amiss to restate the doctrine that stipulations in a contract,
which specify a definite place for the institution of an action arising in connection therewith, do
not, as a rule, supersede the general rules on the matter set out in Rule 4 of the Rules of Court,
but should be construed merely as an agreement on an additional forum, not as limiting venue
to the specified place. 22 (Emphasis supplied)

It is not necessary top pretend that the decisions of the Supreme Court have been absolutely
consistent in this regard. There have been a few decisions — notably Bautista v. de Borja 23 and
Hoechst Philippines v. Torres 24 — which are not easy to reconcile with the line of cases beginning
with Polytrade discussed above. It is useful therefore to make clear that to the extent Bautista and
Hoechst Philippines are inconsistent with Polytrade (an en banc decision later in time than
Bautista) and subsequent cases reiterating Polytrade, Bautista and Hoechst Philippines have been
rendered obsolete by the Polytrade line of cases.

We note, finally, that no one of the private respondents has claimed to have been put to undue
hardship or inconvenience as a result of the institution of the action in Makati. Venue relates to
the trial and touches more upon the convenience of the parties rather than upon the substance or
merits of the case. 25

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED DUE COURSE and the
Orders dated 3 August 1992 and 28 August 1992 of public respondent Judge Salvador S. Tensuan
CIVPRO – VENUE – WAIVER OF IMPROPER VENUE
G.R. No. 74854 April 2, 1991
JESUS DACOYCOY, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, HON. ANTONIO V. BENEDICTO, Executive Judge,
Regional Trial Court, Branch LXXI, Antipolo, Rizal, and RUFINO DE GUZMAN, respondents.
FERNAN, C.J.:
May the trial court motu proprio dismiss a complaint on the ground of improper venue? This is the
issue confronting the Court in the case at bar.
On March 22, 1983, petitioner Jesus Dacoycoy, a resident of Balanti, Cainta, Rizal, filed before the
Regional Trial Court, Branch LXXI, Antipolo, Rizal, a complaint against private respondent Rufino de
Guzman praying for the annulment of two (2) deeds of sale involving a parcel of riceland situated
in Barrio Estanza, Lingayen, Pangasinan, the surrender of the produce thereof and damages for
private respondent's refusal to have said deeds of sale set aside upon petitioner's demand.
On May 25, 1983, before summons could be served on private respondent as defendant therein,
the RTC Executive Judge issued an order requiring counsel for petitioner to confer with respondent
trial judge on the matter of venue. After said conference, the trial court dismissed the complaint
on the ground of improper venue. It found, based on the allegations of the complaint, that
petitioner's action is a real action as it sought not only the annulment of the aforestated deeds of
sale but also the recovery of ownership of the subject parcel of riceland located in Estanza,
Lingayen, Pangasinan, which is outside the territorial jurisdiction of the trial court.
Petitioner appealed to the Intermediate Appellate Court, now Court of Appeals, which in its
decision of April 11, 1986,1 affirmed the order of dismissal of his complaint.
In this petition for review, petitioner faults the appellate court in affirming what he calls an equally
erroneous finding of the trial court that the venue was improperly laid when the defendant, now
private respondent, has not even answered the complaint nor waived the venue. 2
Petitioner claims that the right to question the venue of an action belongs solely to the defendant
and that the court or its magistrate does not possess the authority to confront the plaintiff and tell
him that the venue was improperly laid, as venue is waivable. In other words, petitioner asserts,
without the defendant objecting that the venue was improperly laid, the trial court is powerless to
dismiss the case motu proprio.
Private respondent, on the other hand, maintains that the dismissal of petitioner's complaint is
proper because the same can "readily be assessed as (a) real action." He asserts that "every court
of justice before whom a civil case is lodged is not even obliged to wait for the defendant to raise
that venue was improperly laid. The court can take judicial notice and motu proprio dismiss a suit
clearly denominated as real action and improperly filed before it. . . . the location of the subject
parcel of land is controlling pursuant to Sec. 2, par. (a), Rule 4 of the New Rules of Court . . . 3
We grant the petition.
The motu proprio dismissal of petitioner's complaint by respondent trial court on the ground of
improper venue is plain error, obviously attributable to its inability to distinguish between
jurisdiction and venue.
Questions or issues relating to venue of actions are basically governed by Rule 4 of the Revised
Rules of Court. It is said that the laying of venue is procedural rather than substantive. It relates to
the jurisdiction of the court over the person rather than the subject matter. Provisions relating to
venue establish a relation between the plaintiff and the defendant and not between the court and
the subject matter. Venue relates to trial not to jurisdiction, touches more of the convenience of
the parties rather than the substance of the case.4
Jurisdiction treats of the power of the court to decide a case on the merits; while venue deals on
the locality, the place where the suit may be had.5
In Luna vs. Carandang,6 involving an action instituted before the then Court of First Instance of
Batangas for rescission of a lease contract over a parcel of agricultural land located in Calapan,
Oriental Mindoro, which complaint said trial court dismissed for lack of jurisdiction over the leased
land, we emphasized:
(1) A Court of First Instance has jurisdiction over suits involving title to, or possession of, real
estate wherever situated in the Philippines, subject to the rules on venue of actions (Manila
Railroad Company vs. Attorney General, etc., et al., 20 Phil. 523; Central Azucarera de Tarlac vs.
De Leon, et al., 56 Phil. 169; Navarro vs. Aguila, et al., 66 Phil. 604; Lim Cay, et al. vs. Del Rosario,
etc., et al., 55 Phil. 692);
(2) Rule 4, Section 2, of the Rules of Court requiring that an action involving real property shall
be brought in the Court of First Instance of the province where the land lies is a rule on venue of
actions, which may be waived expressly or by implication.
In the instant case, even granting for a moment that the action of petitioner is a real action,
respondent trial court would still have jurisdiction over the case, it being a regional trial court
vested with the exclusive original jurisdiction over "all civil actions which involve the title to, or
possession of, real property, or any interest therein . . ." in accordance with Section 19 (2) of Batas
Pambansa Blg. 129. With respect to the parties, there is no dispute that it acquired jurisdiction
over the plaintiff Jesus Dacoycoy, now petitioner, the moment he filed his complaint for annulment
and damages. Respondent trial court could have acquired jurisdiction over the defendant, now
private respondent, either by his voluntary appearance in court and his submission to its authority,
or by the coercive power of legal process exercised over his person. 7
Although petitioner contends that on April 28, 1963, he requested the City Sheriff of Olongapo City
or his deputy to serve the summons on defendant Rufino de Guzman at his residence at 117 Irving
St., Tapinac, Olongapo City,8 it does not appear that said service had been properly effected or that
private respondent had appeared voluntarily in court 9 or filed his answer to the complaint. 10 At this
stage, respondent trial court should have required petitioner to exhaust the various alternative
modes of service of summons under Rule 14 of the Rules of Court, i.e., personal service under
Section 7, substituted service under Section 8, or service by publication under Section 16 when the
address of the defendant is unknown and cannot be ascertained by diligent inquiry.

Dismissing the complaint on the ground of improper venue is certainly not the appropriate course
of action at this stage of the proceeding, particularly as venue, in inferior courts as well as in the
courts of first instance (now RTC), may be waived expressly or impliedly. Where defendant fails to
challenge timely the venue in a motion to dismiss as provided by Section 4 of Rule 4 of the Rules of
Court, and allows the trial to be held and a decision to be rendered, he cannot on appeal or in a
special action be permitted to challenge belatedly the wrong venue, which is deemed waived. 11

Thus, unless and until the defendant objects to the venue in a motion to dismiss, the venue cannot
be truly said to have been improperly laid, as for all practical intents and purposes, the venue,
though technically wrong, may be acceptable to the parties for whose convenience the rules on
venue had been devised. The trial court cannot pre-empt the defendant's prerogative to object to
the improper laying of the venue by motu proprio dismissing the case.

Indeed, it was grossly erroneous for the trial court to have taken a procedural short-cut by
dismissing motu proprio the complaint on the ground of improper venue without first allowing the
procedure outlined in the Rules of Court to take its proper course. Although we are for the speedy
and expeditious resolution of cases, justice and fairness take primary importance. The ends of
justice require that respondent trial court faithfully adhere to the rules of procedure to afford not
only the defendant, but the plaintiff as well, the right to be heard on his cause.

WHEREFORE, in view of the foregoing, the decision of the Intermediate Appellate Court, now
Court of Appeals, dated April 11, 1986, is hereby nullified and set aside. The complaint filed by
petitioner before the Regional Trial Court of Antipolo, Branch LXXI is revived and reinstated.
Respondent court is enjoined to proceed therein in accordance with law.

SO ORDERED.
CIVPRO – ALLEGATIONS – IN GENERAL
G.R. No. L-23136 August 26, 1974
ISMAEL MATHAY, JOSEFINA MATHAY, DIOGRACIAS T. REYES and S. ADOR DIONISIO, plaintiffs-
appellants,
vs.
THE CONSOLIDATED BANK AND TRUST COMPANY, JOSE MARINO OLONDRIZ, WILFRIDO C.
TECSON, SIMON R. PATERNO, FERMIN Z. CARAM, JR., ANTONIO P. MADRIGAL, JOSE P.
MADRIGAL, CLAUDIO TEEHANKEE, and ALFONSO JUAN OLONDRIZ, defendants-appellees.
CIPRIANO AZADA, MARIA CRISTINA OLONDRIZ PERTIERRA jointly with her husband ARTURO
PERTIERRA, and MARIA DEL PUY OLONDRIZ DE STEVENS, movants-intervenors-appellants.
ZALDIVAR, J.:p
In this appeal, appellants-plaintiffs and movants-intervenors seek the reversal of the order dated
March 21, 1964 of the Court of First Instance of Manila dismissing the complaint together with all
other pending incidents in Civil Case No. 55810.
The complaint in this case, filed on December 24, 1963 as a class suit, under Section 12, Rule 3, of
the Rules of Court, contained six causes of action. Under the first cause of action, plaintiffs-
appellants alleged that they were, on or before March 28, 1962, stockholders in the Consolidated
Mines, Inc. (hereinafter referred to as CMI), a corporation duly organized and existing under
Philippine laws; that the stockholders of the CMI, including the plaintiffs-appellants, passed, at a
regular stockholders' meeting, a Resolution providing: (a) that the Consolidated Bank & Trust Co.
(hereinafter referred to as Bank) be organized with an authorized capital of P20,000,000.00; (b)
that the organization be undertaken by a Board of Organizers composed of the President and
Members of the Board of Directors of the CMI; (c) that all stockholders of the CMI, who were
legally qualified to become stockholders, would be entitled to subscribe to the capital stock of the
proposed Bank "at par value to the same extent and in the same amount as said stockholders'
respective share holdings in the CMI," as shown in its stock books on a date to be fixed by the
Board of Directors [which date was subsequently fixed as January 15, 1963], provided that the
right to subscribe should be exercised within thirty days from the date so fixed, and "that if such
right to subscription be not so exercised then the stockholders concerned shall be deemed to have
thereby waived and released ipso facto their right to such subscription in favor of the Interim
Board of Organizers of the Defendant Bank or their assignees;" and (d) that the Board of Directors
of the CMI be authorized to declare a "special dividend" in an amount it would fix, which the
subscribing stockholders might authorize to be paid directly to the treasurer of the proposed Bank
in payment of the subscriptions; that the President and members of the Board of Directors of the
CMI, who are the individuals-defendants-appellees in the instant case, constituted themselves as
the Interim Board of Organizers; that said Board sent out, on or about November 20, 1962, to the
CMI stockholders, including the plaintiffs-appellants, circular letters with "Pre-Incorporation
Agreement to Subscribe" forms that provided that the payment of the subscription should be
made in cash from time to time or by the application of the special dividend declared by the CMI,
and that the subscription must be made within the period from December 4, 1962 to January 15,
1963, "otherwise such subscription right shall be deemed to have been thereby ipso facto waived
and released in favor of the Board of Organizers of the Defendant Bank and their assignees"; that
the plaintiffs-appellants accomplished and filed their respective "Pre-Incorporation Agreement to
Subscribe" and paid in full their subscriptions; that plaintiffs-appellants and the other CMI
subscribing stockholders in whose behalf the action was brought also subscribed to a very
substantial amount of shares; that on June 25, 1963, the Board of Organizers caused the execution
of the Articles or Incorporation of the proposed Bank indicating an original subscription of 50,000
shares worth P5,000,000 subscribed and paid only by six of the individuals-defendants-appellees,
namely, Antonio P. Madrigal, Jose P. Madrigal Simon R. Paterno, Fermin Z. Caram, Jr., Claudio
Teehankee, and Wilfredo C. Tecson, thereby excluding the plaintiffs-appellants and the other CMI
subscribing stockholders who had already subscribed; that the execution of said Articles of
Incorporation was "in violation of law and in breach of trust and contractual agreement as a means
to gain control of Defendant Bank by Defendant Individuals and persons or entities chosen by
them and for their personal profit or gain in disregard of the rights of Plaintiffs and other CMI
Subscribing Stockholders;" that the paid-in capital stock was raised, as required by the Monetary
Board, to P8,000,000.00, and individuals-defendants-appellees caused to be issued from the
unissued shares 30,000 shares amounting to P3,000,000.00, all of which were again subscribed
and paid for entirely by individuals-defendants-appellees or entities chosen by them "to the
exclusion of Plaintiffs and other CMI subscribing stockholders" "in violation of law and breach of
trust and of the contractual agreement embodied in the contractual agreement of March 28,
1962"; that the Articles were filed with the Securities and Exchange Commission which issued the
Certificate of Incorporation on June 25, 1963; that as of the date of the Complaint, the plaintiffs-
appellants and other CMI subscribing stockholders had been denied, through the unlawful acts
and manipulation of the defendant Bank and Individuals-defendants-appellees, the right to
subscribe at par value, in proportion to their equities established under their respective "Pre-
Incorporation Agreements to Subscribe" to the capital stock, i.e., (a) to the original issue of 50,000
shares and/or (b) to the additional issue of 30,000 shares, and/or (c) in that portion of said original
or additional issue which was unsubscribed; that the individuals-defendants-appellees and the
persons chosen by them had unlawfully acquired stockholdings in the defendant-appellee Bank in
excess of what they were lawfully entitled and held such shares "in trust" for the plaintiffs-
appellants and the other CMI stockholders; that it would have been vain and futile to resort to
intra corporate remedies under the facts and circumstances alleged above. As relief on the first
cause of action, plaintiffs-appellants prayed that the subscriptions and share holdings acquired by
the individuals-defendants- appellees and the persons chosen by them, to the extent that
plaintiffs-appellants and the other CMI stockholders had been deprived of their right to subscribe,
be annulled and transferred to plaintiffs-appellants and other CMI subscribing stockholders.
Besides reproducing all the above allegations in the other causes of action, plaintiffs-appellants
further alleged under the second cause of action that on or about August 28, 1963, defendants-
appellees Antonio P. Madrigal, Jose P. Madrigal: Fermin Z. Caram, Jr., and Wilfredo C. Tecson
"falsely certified to the calling of a special stockholders' meeting allegedly pursuant to due notice
and call of Defendant Bank" although plaintiffs-appellants and other CMI stockholders were not
notified thereof, and amended the Articles of Incorporation increasing the number of Directors
from 6 to 7, and had the illegally created Position of Director filled up by defendant-appellee
Alfonso Juan Olondriz, who was not competent or qualified to hold such position. In the third
cause of action, plaintiffs-appellants claimed actual damages in an amount equivalent to the
difference between the par value of the shares they were entitled, but failed, to acquire and the
higher market value of the same shares. In the fourth cause of action, Plaintiffs-appellants claimed
moral damages; in the fifth, exemplary damages; and in the sixth, attorney's fees.
In his manifestation to the court on January 4, 1964, Francisco Sevilla, who was one of the original
plaintiffs, withdrew. On January 15, 1964 Cipriano Azada, Maria Cristina Olondriz Pertierra, Maria
del Puy Olondriz de Stevens (who later withdrew as intervenors-appellants) and Carmen Sievert de
Amoyo, filed a motion to intervene, and to join the plaintiffs-appellants on record, to which motion
defendants-appellees, except Fermin Z. Caram, Jr., filed, on January 17, 1964 their opposition.
On February 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a motion to dismiss
on the grounds that (a) plaintiffs-appellants had no legal standing or capacity to institute the
alleged class suit; (b) that the complaint did not state a sufficient and valid cause of action; and (c)
that plaintiffs-appellants' complaint against the increase of the number of directors did not
likewise state a cause of action. Plaintiffs-appellants filed their opposition thereto on February 21,
1964.
On March 4, 1964 appellants, plaintiffs and intervenors, filed a verified petition for a writ of
preliminary injunction to enjoin defendants-appellees from considering or ratifying by resolution,
at the meeting of the stockholders of defendant-appellee Bank to be held the following day, the
unlawful apportionment of the shares of the defendant-appellee Bank and the illegal amendment
to its Articles of Incorporation increasing the number of Directors, The Court, after hearing,
granted the writ, but subsequently set it aside upon the appellees' filing a counter bond.
Some subscribers to the capital stock of the Bank like Concepcion Zuluaga, et al., and Carlos Moran
Sison, et al., filed separate manifestations that they were opposing and disauthorizing the suit of
plaintiffs-appellants.
On March 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a supplemental ground
for their motion to dismiss, to wit, that the stockholders, except Fermin Z. Caram, Jr., who
abstained, had unanimously, at their regular annual meeting held on March 5, 1964, ratified and
confirmed all the actuations of the organizers-directors in the incorporation, organization and
establishment of the Bank.
In its order, dated March 21, 1964, the trial court granted the motion to dismiss, holding, among
other things, that the class suit could not be maintained because of the absence of a showing in
the complaint that the plaintiffs-appellants were sufficiently numerous and representative, and
that the complaint failed to state a cause of action. From said order, appellants, plaintiffs and
intervenors, interposed this appeal to this Court on questions of law and fact, contending that the
lower court erred as follows:
1. In holding that plaintiffs-appellants could not maintain the present class suit because of the
absence of a showing in the complaint that they were sufficiently numerous and representative;
II. In holding that the instant action could not be maintained as a class suit because plaintiffs-
appellants did not have a common legal interest in the subject matter of the suit;
III. In dismissing the present class suit on the ground that it did not meet the requirements of
Rule 3, section 12 of the Rules of Court;
IV. In holding that the complaint was fatally defective in that it failed to state with particularity
that plaintiffs-appellants had resorted to, and exhausted, intra-corporate remedies;
V. In resolving defendants-appellees' motion on the basis of facts not alleged in the complaint;
VI. In holding that plaintiffs-appellants' complaint stated no valid cause of action against
defendants-appellees;
VII. In not holding that a trust relationship existed between the Interim Board of Organizers of
defendant-appellee Bank and the CMI subscribing stockholders and in not holding that the
waiver was in favor of the Board of Trustees for the CMI subscribing stockholders;
VIII. In holding that the failure of plaintiffs-appellants to allege that they had paid or had offered
to pay for the shares allegedly pertaining to them constituted another ground for dismissal;
XI. In holding that the allegations under the second cause of action stated no valid cause of
action due to a fatal omission to allege that plaintiffs-appellants were stockholders of record at
the time of the holding of the special stockholders' meeting;
X. In holding that plaintiffs-appellants' complaint stated no cause of action against defendant-
appellee Bank; and
XI. In considering the resolution of ratification and confirmation and in holding that the
resolution rendered the issues in this case moot.
The assigned error revolve around two questions namely: (1) whether the instant action could be
maintained as a class suit, and (2) whether the complaint stated a cause of action. These issues
alone will be discussed.
1. Appellants contended in the first three assigned errors that the trial court erred in holding that
the present suit could not be maintained as a class suit, and in support thereof argued that the
propriety of a class suit should be determined by the common interest in the subject matter of the
controversy; that in the instant case there existed such common interest which consisted not only
in the recovery of the shares of which the appellants were unlawfully deprived, but also in
divesting the individuals-defendants-appellees and the person or entities chosen by them of
control of the appellee Bank. 1 ; that the complaint showed that besides the four plaintiff-
appellants of record, and the four movant-intervenors-appellants there were in the appellee Bank
many other stockholders who, tough similarly situated as the appellants, did not formally include
themselves as parties on record in view of the representative character of the suit; that the test, in
order to determine the legal standing of a party to institute a class suit, was not one, of number,
but whether or not the interest of said party was representative of the persons in whose behalf
the class suit was instituted; that granting arguendo, that the plaintiffs-appellants were not
sufficiently numerous and representative, the court should not have dismissed the action, for
insufficiency of number in a class suit was not a ground for a motion to dismiss, and the court
should have treated the suit as an action under Rule 3, section 6, of the Rules of Court which
permits a joinder of parties.
Defendants-appellees, on the contrary, stressed that the instant suit was instituted as a class suit
and the plaintiffs-appellants did not sue in their individual capacities for the protection of their
individual interests; that the plaintiffs appellants of record could not be considered numerous and
representative, as said plaintiffs-appellants were only four out of 1,500 stockholders, and owned
only 8 shares out of the 80,000 shares of stock of the appellee Bank; that even if to the four
plaintiffs-appellants were added the four movants-intervenors-appellants the situation would be
the same as two of the intervenors, to wit, Ma. Cristina Olondriz Pertierra and Ma. del Puy
Olondriz de Stevens, could not sue as they did not have their husbands' consent; that it was
necessary that in a class suit the complaint itself should allege facts showing that the plaintiffs
were sufficiently numerous and representative, and this did not obtain in the instant case, as the
complaint did not. even allege how many other CMI stockholders were "similarly situated"; that
the withdrawal of one plaintiff, Francisco Sevilla, the subsequent disclaimers of any interest in the
suit made in two separate pleadings by other CMI stockholders and the disauthorization of their
being represented by plaintiffs-appellants by the 986 (out of 1,663) stockholders who attended the
annual meeting of bank stockholders on March 5, 1964, completely negated plaintiffs-appellants'
pretension that they were sufficiently numerous and representative or that there were many other
stockholders similarly situated whom the plaintiffs-appellants allegedly represented; that plaintiffs-
appellants did not have that common or general interest required by the Rules of Court in the
subject matter of the suit.2
In their Reply Brief, appellants insisted that non-compliance with Section 12, Rule 3, not being one
enumerated in Rules 16 and 17, was not a ground for dismissal; that the requirements for a class
had been complied with; that the required common interest existed even if the interests were
several for there was a common question of law or fact and a common relief was sought; that the
common or general interest could be in the object of the action, in the result of the proceedings,
or in the question involved in the action, as long as there was a common right based on the same
essential facts; that plaintiffs-appellants adequately represented the aggrieved group of bank
stockholders, inasmuch as appellants' interests were not antagonistic to those of the latter, and
appellants were in the same position as the group in whose behalf the complaint was filed.
The governing statutory provision for the maintenance of a class suit is Section 12 of Rule 3 of the
Rules of Court, which reads as follows:
Sec. 12. Class suit — When the subject matter of the controversy is one of common or general
interest to many persons, and the parties are so numerous that it is impracticable to bring them
all before the court, one or more may sue or defend for the benefit of -ill. But in such case the
court shall make sure that the parties actually before it are sufficiently numerous and
representative so that all interests concerned are fully protected. Any party in interest shall have
a right to intervene in protection of his individual interest.
The necessary elements for the maintenance of a class suit are accordingly: (1) that the subject
matter of the controversy be one of common or general interest to many persons, and (2) that
such persons be so numerous as to make it impracticable to bring them all to the court. An action
does not become a class suit merely because it is designated as such in the pleadings. Whether the
suit is or is not a class quit depends upon the attending facts, and the complaint, or other pleading
initiating the class action should allege the existence of the necessary facts, to wit, the existence of
a subject matter of common interest, and the existence of a class and the number of persons in
the alleged class,3 in order that the court might be enabled to determine whether the members of
the class are so numerous as to make it impracticable to bring them all before the court, to
contrast the number appearing on the record with the number in the class and to determine
whether claimants on record adequately represent the class and the subject matter of general or
common interest.4
The complaint in the instant case explicitly declared that the plaintiffs- appellants instituted the
"present class suit under Section 12, Rule 3, of the Rules of Court in. behalf of CMI subscribing
stockholders"5 but did not state the number of said CMI subscribing stockholders so that the trial
court could not infer, much less make sure as explicitly required by the sufficiently numerous and
representative in order that all statutory provision, that the parties actually before it were interests
concerned might be fully protected, and that it was impracticable to bring such a large number of
parties before the court.
The statute also requires, as a prerequisite to a class suit, that the subject-matter of the
controversy be of common or general interest to numerous persons. Although it has been
remarked that the "innocent 'common or general interest' requirement is not very helpful in
determining whether or not the suit is proper", 6 the decided cases in our jurisdiction have more
incisively certified the matter when there is such common or general interest in the subject matter
of the controversy. By the phrase "subject matter of the action" is meant "the physical facts, the
things real or personal, the money, lands, chattels, and the like, in relation to which the suit is
prosecuted, and not the delict or wrong committed by the defendant." 7
This Court has ruled that a class suit did not lie in an action for recovery of real property where
separate portions of the same parcel were occupied and claimed individually by different parties to
the exclusion of each other, such that the different parties had determinable, though undivided
interests, in the property in question. 8 It his likewise held that a class suit would not lie against 319
defendants individually occupying different portions of a big parcel of land, where each defendant
had an interest only in the particular portion he was occupying, which portion was completely
different from the other portions individually occupied by other defendants, for the applicable
section 118 of the Code of Civil Procedure relates to a common and general interest in single
specific things and not to distinct ones. 9 In an action for the recovery of amounts that represented
surcharges allegedly collected by the city from some 30,000 customers of four movie houses, it
was held that a class suit did not lie, as no one plaintiff had any right to, or any share in the
amounts individually claimed by the others, as each of them was entitled, if at all, only to the
return of what he had personally paid. 10
The interest, subject matter of the class suits in the above cited cases, is analogous to the interest
claimed by appellants in the instant case. The interest that appellants, plaintiffs and intervenors,
and the CMI stockholders had in the subject matter of this suit — the portion of stocks offering of
the Bank left unsubscribed by CMI stockholders who failed to exercise their right to subscribe on or
before January 15, 1963 — was several, not common or general in the sense required by the
statute. Each one of the appellants and the CMI stockholders had determinable interest; each one
had a right, if any, only to his respective portion of the stocks. No one of them had any right to, or
any interest in, the stock to which another was entitled. Anent this point, the trial court correctly
remarked:
It appears to be the theory of the plaintiffs borne out by the prayer, that each subscribing CMI
stockholder is entitled to further subscribe to a certain Proportion depending upon his
stockholding in the CMI, of the P8 million capital stock of the defendant bank open to
subscription (out of the 20 million authorized capital stock) as well as the unsubscribed portion
of the P8 million stock offering which were left unsubscribed by those CMI stockholders who for
one reason or another had failed to exercise their subscription rights on or before January 15,
1963. Under the plaintiffs' theory therefore, each subscribing CMI stockholder was entitled to
subscribe to a definite number of shares both in the original offering of P8 million and in that
part thereof not subscribed on or before the deadline mentioned, so that one subscribing CMI
stockholder may be entitled to subscribe to one share, another to 3 shares and a third to 11
shares, and so on, depending upon the amount and extent of CMI stockholding. But except for
the fact that a question of law — the proper interpretation of the waiver provisions of the CMI
stockholders' resolution of March 28, 1962 — is common to all, each CMI subscribing stock
 holder has a legal interest in, and a claim to, only his respective proportion of shares in the
defendant bank, and none with regard to any of the shares to which another stockholder is
entitled. Thus plaintiff Ismael Mathay has no legal interest in, or claim to, any share claimed by
any or all of his co-plaintiffs from the defendant individuals. Hence, no CMI subscribing
stockholder or, for that matter, not any number of CMI stockholders can maintain a class suit in
behalf of others,... 11
Even if it be assumed, for the sake of argument, that the appellants and the CMI stockholders
suffered wrongs that had been committed by similar means and even pursuant to a single plan of
the Interim Board of Organizers of the Bank, the wrong suffered by each of them would constitute
a wrong separate from those suffered by the other stockholders, and those wrongs alone would
not create that common or general interest in the subject matter of the controversy as would
entitle any one of them to bring a class suit on behalf of the others. Anent this point it has been
said that:
Separate wrongs to separate persons, although committed by similar means and even pursuant
to a single plan, do not alone create a 'common' or 'general' interest in those who are wronged
so as to entitle them to maintain a representative action. 12
Appellants, however, insisted, citing American authorities, 13 that a class suit might be brought
even if the interests of plaintiffs-appellants might be several as long as there was a common
question of law or fact affecting them and a common relief was sought. We have no conflict with
the authorities cited; those were rulings under the Federal Rules of Civil Procedure, pursuant to
Rule 23 of which, there were three types of class suits, namely: the true, the hybrid, and the
spurious, and these three had only one feature in common, that is, in each the persons
constituting the class must be so numerous as to make it impracticable to bring them all before the
court. The authorities cited by plaintiffs-appellants refer to the spurious class action (Rule 23 (a) (3)
which involves a right sought to be enforced, which is several, and there is a common question of
law or fact affecting the several rights and a common relief is sought. 14 The spurious class action is
merely a permissive joinder device; between the members of the class there is no jural
relationship, and the right or liability of each is distinct, the class being formed solely by the
presence of a common question of law or fact. 15 This permissive joinder is provided in Section 6 of
Rule 3, of our Rules of Court. Such joinder is not and cannot be regarded as a class suit, which this
action purported and was intended to be as per averment of the complaint.
It may be granted that the claims of all the appellants involved the same question of law. But this
alone, as said above, did not constitute the common interest over the subject matter
indispensable in a class suit. The right to purchase or subscribe to the shares of the proposed Bank,
claimed by appellants herein, is analogous to the right of preemption that stockholders have when
their corporation increases its capital. The right to preemption, it has been said, is personal to each
stockholder, 16 and while a stockholder may maintain a suit to compel the issuance of his
proportionate share of stock, it has been ruled, nevertheless, that he may not maintain a
representative action on behalf of other stockholders who are similarly situated. 17 By analogy, the
right of each of the appellants to subscribe to the waived stocks was personal, and no one of them
could maintain on behalf of others similarly situated a representative suit.
Straining to make it appear that appellants and the CMI subscribing stockholders had a common or
general interest in the subject matter of the suit, appellants stressed in their brief that one of the
reliefs sought in the instant action was "to divest defendant individuality and the persons or
entities chosen by them of control of the defendant bank." 18 This relief allegedly sought by
appellants did not, however, appear either in the text or in the prayer of the complaint.
Appellants, furthermore, insisted that insufficiency of number in a class suit was not a ground for
dismissal of one action. This Court has, however, said that where it appeared that no sufficient
representative parties had been joined, the dismissal by the trial court of the action, despite the
contention by plaintiffs that it was a class suit, was correct. 19 Moreover, insofar as the instant case
is concerned, even if it be granted for the sake of argument, that the suit could not be dismissed
on that ground, it could have been dismissed, nevertheless, on the ground of lack of cause of
action which will be presently discussed. .
2. Appellants supported their assigned error that the court erred in holding that the complaint
stated no valid cause of action, by claiming that paragraph 15 together with the other allegations
of the complaint to the effect that defendants-appellees had unlawfully acquired stockholdings in
the capital stock of defendant-appellee Bank in excess of what they were lawfully entitled to, in
violation of law and in breach of trust and the contractual agreement, constituted a valid and
sufficient cause of action; 20 and that only the allegations in the complaint should have been
considered by the trial court in determining whether the complaint stated a cause of action or not.
Defendants-appellees, on the contrary, maintained that the allegations of the complaint should
not be the only ones to be considered in determining whether there is a cause of action; that even
if the ultimate facts alleged in the first cause of action of the complaint be the only ones
considered the complaint would still fail to state a valid cause of action on the following grounds:
first, there was no allegation regarding appellants' qualification to subscribe to the capital stock of
the appellee Bank, for under the CMI stockholders' resolution of March 28, 1962, only those
qualified under the law were entitled to subscribe, and under the regulations of the Monetary
Board, only natural-born Filipino citizens could be stockholders of a banking corporation organized
under the laws of the Philippines, and nowhere did the complaint alleged that plaintiffs-appellants
were natural born Filipino citizens. 21 Second, appellants' averment in paragraph 8 that they
"subscribed," and their averment in paragraph 15 that they were "denied the right to subscribe ...
to the capital stock of the defendant Bank", were inconsistent, and hence neutralized each other,
thereby leaving in shambles the first cause of action. Third, there was no allegation that appellants
had not yet received or had not been issued the corresponding certificates of stock covering the
shares they had subscribed and paid for. Fourth, the allegations failed to show the existence of the
supposed trust; and fifth, the complaint failed to allege that plaintiffs-appellants had paid or
offered to pay for the shares allegedly pertaining to them. 22
Let us premise the legal principles governing the motion to dismiss on the ground of lack of cause
of action.
Section 1, Rule 16 of the Rules of Court providing in part that: .
Within the time for pleading a motion to dismiss may be made on any of the following
grounds: ....
(g) That the complaint states no cause of action. ..1.
explicitly requires that the sufficiency of the complaint must be tested exclusively on the basis of
the complaint itself and no other should be considered when the ground for motion to dismiss is
that the complaint states no cause of action. Pursuant thereto this Court has ruled that:
As a rule the sufficiency of the complaint, when Challenged in a motion to dismiss, must be
determined exclusively on the basis of the facts alleged therein. 23
It has been likewise held that a motion to dismiss based on lack of cause of action hypothetically
admits the truth of the allegations of fact made in the complaint. 24 It is to be noted that only the
facts well pleaded in the complaint, and likewise, any inferences fairly deducible therefrom, are
deemed admitted by a motion to dismiss. Neither allegations of conclusions 25 nor allegations of
facts the falsity of which the court may take judicial notice are deemed admitted. 26 The question,
therefore, submitted to the Court in a motion to dismiss based on lack of cause of action is not
whether the facts alleged in the complaint are true, for these are hypothetically admitted, but
whether the facts alleged are sufficient to constitute a cause of action such that the court may
render a valid judgment upon the facts alleged therein.
A cause of action is an act or omission of one party in violation of the legal right of the other. Its
essential elements are, namely: (1) the existence of a legal right in the plaintiff, (2) a correlative
legal duty in the defendant, and (3) an act or omission of the defendant in violation of plaintiff's
right with consequential injury or damage to the plaintiff for which he may maintain an action for
the recovery of damages or other appropriate relief. 27 On the other hand, Section 3 of Rule 6 of
the Rules of Court provides that the complaint must state the ultimate facts constituting the
plaintiff's cause of action. Hence, where the complaint states ultimate facts that constitute the
three essential elements of a cause of action, the complaint states a cause of action; 28 otherwise,
the complaint must succumb to a motion to dismiss on that ground.
The legal principles having been premised, let us now analyze and discuss appellant's various
causes of action.
Appellants' first cause of action, pursuant to what has been premised above, should have
consisted of: (1) the right of appellants as well as of the other CMI stockholders to subscribe, in
proportion to their equities established under their respective "Pre-Incorporation Agreements to
Subscribe", to that portion of the capital stock which was unsubscribed because of failure of the
CMI stockholders to exercise their right to subscribe thereto; (2) the legal duty of the appellant to
have said portion of the capital stock to be subscribed by appellants and other CMI stockholders;
and (3) the violation or breach of said right of appellants and other CMI stockholders by the
appellees.
Did the complaint state the important and substantial facts directly forming the basis of the
primary right claimed by plaintiffs? Before proceeding to elucidate this question, it should be
noted that a bare allegation that one is entitled to something is an allegation of a conclusion. Such
allegations adds nothing to the pleading, it being necessary to plead specifically the facts upon
which such conclusion is founded. 29 The complaint alleged that appellants were stockholders of
the CMI; that as such stockholders, they were entitled; by virtue of the resolution of March 28,
1962, to subscribe to the capital stock of the proposed Consolidated Bank and Trust Co., at par
value to the same extent and in the same amount as said stockholders' respective share holdings
in the CMI as shown in the latter's stock book as of January 15, 1963, the right to subscribe to be
exercised until January 15, 1963, provided said stockholders of the CMI were qualified under the
law to become stockholders of the proposed Bank; 30 that appellants accomplished and filed their
respective "Pre-Incorporation Agreements to Subscribe" and fully paid the subscription. 31
These alleged specific facts did not even show that appellants were entitled to subscribe to the
capital stock of the proposed Bank, for said right depended on a condition precedent, which was,
that they were qualified under the law to become stockholders of the Bank, and there was no
direct averment in the complaint of the facts that qualified them to become stockholders of the
Bank. The allegation of the fact that they subscribed to the stock did not, by necessary implication,
show that they were possessed of the necessary qualifications to become stockholders of the
proposed Bank.
Assuming arguendo that appellants were qualified to become stockholders of the Bank, they could
subscribe, pursuant to the explicit terms of the resolution of March 28, 1962, "to the same extent
and in the same amount as said stockholders' respective stockholdings in the CMI" as of January
15, 1963. 32 This was the measure of the right they could claim to subscribe to waived stocks.
Appellants did not even aver that the stocks waived to the subscription of which they claimed the
right to subscribe, were comprised in "the extent and amount" of their respective share holdings in
the CMI. It is not surprising that they did not make such an averment for they did not even allege
the amount of shares of stock to which they claimed they were entitled to subscribe. The failure of
the complaint to plead specifically the above facts rendered it impossible for the court to conclude
by natural reasoning that the appellants and other CMI stockholders had a right to subscribe to the
waived shares of stock, and made any allegation to that effect a conclusion of the pleader, not an
ultimate fact, in accordance with the test suggested by the California Supreme Court, to wit:
If from the facts in evidence, the result can be reached by that process of natural reasoning
adopted in the investigation of truth, it becomes an ultimate fact, to be found as such. If, on the
other hand, resort must be had to the artificial processes of the law, in order to reach a final
determination, the result is a conclusion of law. 33
Let us now pass to the second and third elements that would have constituted the first cause of
action. Did the complaint allege as ultimate facts the legal duty of defendants-appellees to have a
portion of the capital stock subscribed to by appellants? Did the complaint allege as ultimate facts
that defendants appellees had violated appellants' right?
Even if it be assumed arguendo that defendants-appellees had the duty to have the waived stocks
subscribed to by the CMI stockholders, this duty was not owed to all the CMI stockholders, but
only to such CMI stockholders as were qualified to become stockholders of the proposed Bank.
Inasmuch as it has been shown that the complaint did not contain ultimate facts to show that
plaintiffs-appellants were qualified to become stockholders of the Bank, it follows that the
complaint did not show that defendants-appellees were under duty to have plaintiffs-appellants
subscribe to the stocks of the proposed Bank. It inevitably follows also that the complaint did not
contain ultimate facts to show that the right of the plaintiffs-appellants to subscribe to the shares
of the proposed Bank had been violated by defendants-appellees. How could a non-existent right
be violated?
Let us continue the discussion further. The complaint alleged that by virtue of the resolution of
March 28, 1962, the President and Members of the Board of Directors of the CMI would be
constituted as a Board of Organizers to undertake and carry out the organization of the Bank; 34
that the Board of Organizers was constituted and proceeded with the establishment of the Bank, 35
that the persons composing the Board of Organizers were the individuals-defendants-appellees; 36
that the Board of Organizers sent our circular letters with "Pre-Incorporation Agreement to Moreover, plaintiffs-appellants did not state in the complaint the amount of subscription the
Subscribe" forms 37 which specified, among others, "such subscription right shall be deemed ipso individual defendant-appellee were entitled to; hence there was no basis for the court to
facto waived and released in favor of the Board of Organizers of the defendant Bank and their determine what amount subscribed to by them was excessive.
assignees"; 38 that in the Articles of Incorporation prepared by the Board of Organizers, the
individuals-defendants-appellees alone appeared to have subscribe to the 50, shares; 39 and that From what has been said, it is clear that the ultimate facts stated under the first cause of action are
individuals-defendants-appellees again subscribe to all the additional 30,000 shares. 40 From these not sufficient to constitute a cause of action.
facts, appellants concluded that they were denied their right to subscribe in proportion to their
equities; 41 that the individuals-defendants-appellees unlawfully acquired stockholdings far in
The further allegations in the second cause of action that the calling of a special meeting was
excess of what they were lawfully entitled in violation of law and in breach of trust and of
"falsely certified", that the seventh position of Director was "illegally created" and that defendant
contractual agreement; 42 and that, because of matters already alleged, the individuals-defendants-
Alfonso Juan Olondriz was "not competent or qualified" to be a director are mere conclusions of
appellees "hold their shares in the defendant bank in trust for plaintiffs." 43
law, the same not being necessarily inferable from the ultimate facts stated in the first and second
causes of action. It has been held in this connection that:
The allegation in the complaint that the individuals-defendants-appellees held their shares "in
trust" for plaintiffs-appellants without averment of the facts from which the court could conclude
An averment that ... an act was 'unlawful' or 'wrongful' is a mere legal conclusion or opinion of
the existence of the alleged trust, was not deemed admitted by the motion to dismiss for that was
the pleader. The same is true of allegations that an instrument was 'illegally' certified or ... that
a conclusion of law. Express averments "that a party was the beneficial owner of certain
an act was arbitrarily done ..." 50
property; ... that property or money was received or held in trust, or for the use of another; that
particular funds were trust funds; that a particular transaction created an irrevocable trust; that a
person held Property as constructive trustee; that on the transfer of certain property a trust A pleader states a mere conclusion when he makes any of the following allegations: that a party
resulted" have been considered as mere conclusions of law. 44 The facts alleged in the complaint was incapacitated to enter into a contract or convey property ... 51
did not, by logical reasoning, necessarily lead to the conclusion that defendants-appellees were
trustees in favor of appellants of the shares of stock waived by the CMI stockholders who failed to The third, fourth, fifth and sixth causes of action depended on the first cause of action, which, as
exercise their right to subscribe. In this connection, it has been likewise said that: has been shown, did not state ultimate facts sufficient to constitute a cause of action. It stands to
reason, therefore, that said causes of action would also be fatally defective.
"The general rule is that an allegation of duty in terms unaccompanied by a statement of the facts
showing the existence of the duty, is a mere conclusion of law, unless there is a relation set forth It having been shown that the complaint failed to state ultimate facts to constitute a cause of
from which the law raises the duty." 45 action, it becomes unnecessary to discuss the other assignments of errors.

In like manner, the allegation that individuals-defendants-appellees held said shares in trust was WHEREFORE, the instant appeal is dismissed, and the order dated March 21, 1964 of the Court of
no more than an interpretation by appellants of the effect of the waiver clause of the Resolution First Instance of Manila dismissing the complaint in Civil Case No. 55810 is affirmed, with costs in
and as such it was again a mere conclusion of law. It has been said that: this instance against appellants. It is so ordered.

The following are also conclusions of law: ... an allegation characterizing an instrument or
purporting to interpret it and state its effects, ... 46

Allegations in petition in the nature of conclusions about the meaning of contract, inconsistent
with stated terms of the contract, cannot be considered. 47

The allegation that the defendants-appellee acquired stockholdings far in excess of what they were
lawfully entitled, in violation of law and in breach of trust and of contractual agreement, is also
mere conclusion of law.

Of course, the allegation that there was a violation of trust duty was plainly a conclusion of law, for
"a mere allegation that it was the duty of a party to do this or that, or that he was guilty of a
breach of duty, is a statement of a conclusion not of fact." 48

An averment ... that an act was 'unlawful' or 'wrongful' is a mere legal conclusion or opinion of
the pleader. 49
CIVPRO – ANSWER
G.R. No. 87434 August 5, 1992
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS, INC., petitioners,
vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and HON. COURT OF
APPEALS, respondents.
REGALADO, J.:
1
A maritime suit was commenced on May 12, 1978 by herein Petitioner Philippine American
General Insurance Co., Inc. (Philamgen) and Tagum Plastics, Inc. (TPI) against private respondents
Sweet Lines, Inc. (SLI) and Davao Veterans Arrastre and Port Services, Inc. (DVAPSI), along with
S.C.I. Line (The Shipping Corporation of India Limited) and F.E. Zuellig, Inc., as co-defendants in the
court a quo, seeking recovery of the cost of lost or damaged shipment plus exemplary damages,
attorney's fees and costs allegedly due to defendants' negligence, with the following factual
backdrop yielded by the findings of the court below and adopted by respondent court:
It would appear that in or about March 1977, the vessel SS "VISHVA YASH" belonging to or
operated by the foreign common carrier, took on board at Baton Rouge, LA, two (2)
consignments of cargoes for shipment to Manila and later for transhipment to Davao City,
consisting of 600 bags Low Density Polyethylene 631 and another 6,400 bags Low Density
Polyethylene 647, both consigned to the order of Far East Bank and Trust Company of Manila,
with arrival notice to Tagum Plastics, Inc., Madaum, Tagum, Davao City. Said cargoes were
covered, respectively, by Bills of Lading Nos. 6 and 7 issued by the foreign common carrier (Exhs.
E and F). The necessary packing or Weight List (Exhs. A and B), as well as the Commercial
Invoices (Exhs. C and D) accompanied the shipment. The cargoes were likewise insured by the
Tagum Plastics Inc. with plaintiff Philippine American General Insurance Co., Inc., (Exh. G).
In the course of time, the said vessel arrived at Manila and discharged its cargoes in the Port of
Manila for transhipment to Davao City. For this purpose, the foreign carrier awaited and made
use of the services of the vessel called M/V "Sweet Love" owned and operated by defendant
interisland carrier.
Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier. These were
commingled with similar cargoes belonging to Evergreen Plantation and also Standfilco.
On May 15, 1977, the shipment(s) were discharged from the interisland carrier into the custody
of the consignee. A later survey conducted on July 8, 1977, upon the instance of the plaintiff,
shows the following:
Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain 6,400 bags of Low
Density Polyethylene 647 originally inside 160 pallets, there were delivered to the consignee
5,413 bags in good order condition. The survey shows shortages, damages and losses to be as
follows:
Undelivered/Damaged bags as tallied during discharge from vessel-173 bags; undelivered and
damaged as noted and observed whilst stored at the pier-699 bags; and shortlanded-110 bags
(Exhs. P and P-1).
Of the 600 bags of Low Density Polyethylene 631, the survey conducted on the same day shows
an actual delivery to the consignee of only 507 bags in good order condition. Likewise noted
were the following losses, damages and shortages, to wit:
Undelivered/damaged bags and tally sheets during discharge from vessel-17 bags.
Undelivered and damaged as noted and observed whilst stored at the pier-66 bags;
Shortlanded-10 bags.
Therefore, of said shipment totalling 7,000 bags, originally contained in 175 pallets, only a total
of 5,820 bags were delivered to the consignee in good order condition, leaving a balance of
1,080 bags. Such loss from this particular shipment is what any or all defendants may be
answerable to (sic).
As already stated, some bags were either shortlanded or were missing, and some of the 1,080
bags were torn, the contents thereof partly spilled or were fully/partially emptied, but, worse,
the contents thereof contaminated with foreign matters and therefore could no longer serve
their intended purpose. The position taken by the consignee was that even those bags which
still had some contents were considered as total losses as the remaining contents were
contaminated with foreign matters and therefore did not (sic) longer serve the intended
purpose of the material. Each bag was valued, taking into account the customs duties and
other taxes paid as well as charges and the conversion value then of a dollar to the peso, at
P110.28 per bag (see Exhs. L and L-1 M and O). 2
Before trial, a compromise agreement was entered into between petitioners, as plaintiffs, and
defendants S.C.I. Line and F.E. Zuellig, upon the latter's payment of P532.65 in settlement of the
claim against them. Whereupon, the trial court in its order of August 12, 1981 3 granted plaintiffs'
motion to dismiss grounded on said amicable settlement and the case as to S.C.I. Line and F.E.
Zuellig was consequently "dismissed with prejudice and without pronouncement as to costs."
The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive
portion:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine General American
Insurance Company Inc. and against the remaining defendants, Sweet Lines Inc. and Davao
Veterans Arrastre Inc. as follows:
Defendant Sweet Lines, Inc. is ordered to pay said plaintiff the sum of P34,902.00, with legal
interest thereon from date of extrajudicial demand on April 28, 1978 (Exh. M) until fully paid;
Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port) Services Inc. are directed to
pay jointly and severally, the plaintiff the sum of P49,747.55, with legal interest thereon from
April 28, 1978 until fully paid;
 Each of said defendants are ordered to pay the plaintiffs the additional sum of P5,000 is
reimbursable attorney's fees and other litigation expenses;
Each of said defendants shall pay one-fourth (1/4) costs. 4
Due to the reversal on appeal by respondent court of the trial court's decision on the ground of
prescription, 5 in effect dismissing the complaint of herein petitioners, and the denial of their
motion for reconsideration, 6 petitioners filed the instant petition for review on certiorari, faulting
respondent appellate court with the following errors: (1) in upholding, without proof, the existence
of the so-called prescriptive period; (2) granting arguendo that the said prescriptive period does
exist, in not finding the same to be null and void; and (3) assuming arguendo that the said
prescriptive period is valid and legal, in failing to conclude that petitioners substantially complied
therewith. 7
Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering their
common interest in the shipment subject of the present controversy, to obviate any question as to
who the real party in interest is and to protect their respective rights as insurer and insured. In any
case, there is no impediment to the legal standing of Petitioner Philamgen, even if it alone were to
sue herein private respondents in its own capacity as insurer, it having been subrogated to all
rights of recovery for loss of or damage to the shipment insured under its Marine Risk Note No.
438734 dated March 31, 1977 8 in view of the full settlement of the claim thereunder as
evidenced by the subrogation receipt 9 issued in its favor by Far East Bank and Trust Co., Davao
Branch, for the account of petitioner TPI.
Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro
tanto, being of the highest equity, equips it with a cause of action against a third party in case of
contractual breach. 10 Further, the insurer's subrogatory right to sue for recovery under the bill of
lading in case of loss of or damage to the cargo is jurisprudentially upheld. 11 However, if an insurer,
in the exercise of its subrogatory right, may proceed against the erring carrier and for all intents
and purposes stands in the place and in substitution of the consignee, a fortiori such insurer is
presumed to know and is just as bound by the contractual terms under the bill of lading as the
insured.
On the first issue, petitioners contend that it was error for the Court of Appeals to reverse the
appealed decision on the supposed ground of prescription when SLI failed to adduce any evidence
in support thereof and that the bills of lading said to contain the shortened periods for filing a
claim and for instituting a court action against the carrier were never offered in evidence.
Considering that the existence and tenor of this stipulation on the aforesaid periods have allegedly
not been established, petitioners maintain that it is inconceivable how they can possibly comply
therewith. 12 In refutation, SLI avers that it is standard practice in its operations to issue bills of
lading for shipments entrusted to it for carriage and that it in fact issued bills of lading numbered
MD-25 and MD-26 therefor with proof of their existence manifest in the records of the case. 13 For
its part, DVAPSI insists on the propriety of the dismissal of the complaint as to it due to petitioners'
failure to prove its direct responsibility for the loss of and/or damage to the cargo. 14
On this point, in denying petitioner's motion for reconsideration, the Court of Appeals resolved
that although the bills of lading were not offered in evidence, the litigation obviously revolves on
such bills of lading which are practically the documents or contracts sued upon, hence, they are
inevitably involved and their provisions cannot be disregarded in the determination of the relative
rights of the parties thereto. 15
Respondent court correctly passed upon the matter of prescription, since that defense was so
considered and controverted by the parties. This issue may accordingly be taken cognizance of by
the court even if not inceptively raised as a defense so long as its existence is plainly apparent on
the face of relevant pleadings. 16 In the case at bar, prescription as an affirmative defense was
seasonably raised by SLI in its answer, 17 except that the bills of lading embodying the same were
not formally offered in evidence, thus reducing the bone of contention to whether or not
prescription can be maintained as such defense and, as in this case, consequently upheld on the
strength of mere references thereto.
As petitioners are suing upon SLI's contractual obligation under the contract of carriage as
contained in the bills of lading, such bills of lading can be categorized as actionable documents
which under the Rules must be properly pleaded either as causes of action or defenses, 18 and the
genuineness and due execution of which are deemed admitted unless specifically denied under
oath by the adverse party. 19 The rules on actionable documents cover and apply to both a cause of
action or defense based on said documents. 20
In the present case and under the aforestated assumption that the time limit involved is a
prescriptive period, respondent carrier duly raised prescription as an affirmative defense in its
answer setting forth paragraph 5 of the pertinent bills of lading which comprised the stipulation
thereon by parties, to wit:
5. Claims for shortage, damage, must be made at the time of delivery to consignee or agent, if
container shows exterior signs of damage or shortage. Claims for non-delivery, misdelivery, loss
or damage must be filed within 30 days from accrual. Suits arising from shortage, damage or
loss, non-delivery or misdelivery shall be instituted within 60 days from date of accrual of right
of action. Failure to file claims or institute judicial proceedings as herein provided constitutes
waiver of claim or right of action. In no case shall carrier be liable for any delay, non-delivery,
misdelivery, loss of damage to cargo while cargo is not in actual custody of carrier. 21
In their reply thereto, herein petitioners, by their own assertions that —
2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s Answer, plaintiffs state
that such agreements are what the Supreme Court considers as contracts of adhesion (see
Sweet Lines, Inc. vs. Hon. Bernardo Teves, et al., G.R. No. L-37750, May 19, 1978) and,
consequently, the provisions therein which are contrary to law and public policy cannot be
availed of by answering defendant as valid defenses. 22
thereby failed to controvert the existence of the bills of lading and the aforequoted provisions
therein, hence they impliedly admitted the same when they merely assailed the validity of subject
stipulations.
Petitioners' failure to specifically deny the existence, much less the genuineness and due
execution, of the instruments in question amounts to an admission. Judicial admissions, verbal or
written, made by the parties in the pleadings or in the course of the trial or other proceedings in
the same case are conclusive, no evidence being required to prove the same, and cannot be
contradicted unless shown to have been made through palpable mistake or that no such admission
was made. 23 Moreover, when the due execution and genuineness of an instrument are deemed
admitted because of the adverse party's failure to make a specific verified denial thereof, the
instrument need not be presented formally in evidence for it may be considered an admitted fact.
24
Even granting that petitioners' averment in their reply amounts to a denial, it has the procedural
earmarks of what in the law on pleadings is called a negative pregnant, that is, a denial pregnant
with the admission of the substantial facts in the pleading responded to which are not squarely
denied. It is in effect an admission of the averment it is directed to. 25 Thus, while petitioners
objected to the validity of such agreement for being contrary to public policy, the existence of the
bills of lading and said stipulations were nevertheless impliedly admitted by them.
We find merit in respondent court's comments that petitioners failed to touch on the matter of the
non-presentation of the bills of lading in their brief and earlier on in the appellate proceedings in
this case, hence it is too late in the day to now allow the litigation to be overturned on that score,
for to do so would mean an over-indulgence in technicalities. Hence, for the reasons already
advanced, the non-inclusion of the controverted bills of lading in the formal offer of evidence
cannot, under the facts of this particular case, be considered a fatal procedural lapse as would bar
respondent carrier from raising the defense of prescription. Petitioners' feigned ignorance of the
provisions of the bills of lading, particularly on the time limitations for filing a claim and for
commencing a suit in court, as their excuse for non-compliance therewith does not deserve
serious attention.
It is to be noted that the carriage of the cargo involved was effected pursuant to an "Application
for Delivery of Cargoes without Original Bill of Lading" issued on May 20, 1977 in Davao City 26 with
the notation therein that said application corresponds to and is subject to the terms of bills of
lading MD-25 and MD-26. It would be a safe assessment to interpret this to mean that, sight
unseen, petitioners acknowledged the existence of said bills of lading. By having the cargo shipped
on respondent carrier's vessel and later making a claim for loss on the basis of the bills of lading,
petitioners for all intents and purposes accepted said bills. Having done so they are bound by all
stipulations contained therein. 27 Verily, as petitioners are suing for recovery on the contract, and in
fact even went as far as assailing its validity by categorizing it as a contract of adhesion, then they
necessarily admit that there is such a contract, their knowledge of the existence of which with its
attendant stipulations they cannot now be allowed to deny.
On the issue of the validity of the controverted paragraph 5 of the bills of lading above quoted
which unequivocally prescribes a time frame of thirty (30) days for filing a claim with the carrier in
case of loss of or damage to the cargo and sixty (60) days from accrual of the right of action for
instituting an action in court, which periods must concur, petitioners posit that the alleged shorter
prescriptive period which is in the nature of a limitation on petitioners' right of recovery is
unreasonable and that SLI has the burden of proving otherwise, citing the earlier case of Southern
Lines, Inc. vs. Court of Appeals, et al. 28 They postulate this on the theory that the bills of lading
containing the same constitute contracts of adhesion and are, therefore, void for being contrary to
public policy, supposedly pursuant to the dictum in Sweet Lines, Inc. vs. Teves, et al. 29
Furthermore, they contend, since the liability of private respondents has been clearly established,
to bar petitioners' right of recovery on a mere technicality will pave the way for unjust enrichment.
30
Contrarily, SLI asserts and defends the reasonableness of the time limitation within which claims
should be filed with the carrier; the necessity for the same, as this condition for the carrier's
liability is uniformly adopted by nearly all shipping companies if they are to survive the
concomitant rigors and risks of the shipping industry; and the countervailing balance afforded by
such stipulation to the legal presumption of negligence under which the carrier labors in the event
of loss of or damage to the cargo. 31
It has long been held that Article 366 of the Code of Commerce applies not only to overland and
river transportation but also to maritime transportation. 32 Moreover, we agree that in this
jurisdiction, as viewed from another angle, it is more accurate to state that the filing of a claim
with the carrier within the time limitation therefor under Article 366 actually constitutes a
condition precedent to the accrual of a right of action against a carrier for damages caused to the
merchandise. The shipper or the consignee must allege and prove the fulfillment of the condition
and if he omits such allegations and proof, no right of action against the carrier can accrue in his
favor. As the requirements in Article 366, restated with a slight modification in the assailed
paragraph 5 of the bills of lading, are reasonable conditions precedent, they are not limitations of
action. 33 Being conditions precedent, their performance must precede a suit for enforcement 34
and the vesting of the right to file spit does not take place until the happening of these conditions.
35
Now, before an action can properly be commenced all the essential elements of the cause of
action must be in existence, that is, the cause of action must be complete. All valid conditions
precedent to the institution of the particular action, whether prescribed by statute, fixed by
agreement of the parties or implied by law must be performed or complied with before
commencing the action, unless the conduct of the adverse party has been such as to prevent or
waive performance or excuse non-performance of the condition. 36
It bears restating that a right of action is the right to presently enforce a cause of action, while a
cause of action consists of the operative facts which give rise to such right of action. The right of
action does not arise until the performance of all conditions precedent to the action and may be
taken away by the running of the statute of limitations, through estoppel, or by other
circumstances which do not affect the cause of action. 37 Performance or fulfillment of all
conditions precedent upon which a right of action depends must be sufficiently alleged, 38
considering that the burden of proof to show that a party has a right of action is upon the person
initiating the suit. 39
More particularly, where the contract of shipment contains a reasonable requirement of giving
notice of loss of or injury to the goods, the giving of such notice is a condition precedent to the
action for loss or injury or the right to enforce the carrier's liability. Such requirement is not an
empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the
carrier from just liability, but reasonably to inform it that the shipment has been damaged and that
it is charged with liability therefor, and to give it an opportunity to examine the nature and extent
of the injury. This protects the carrier by affording it an opportunity to make an investigation of a
claim while the matter is fresh and easily investigated so as to safeguard itself from false and
fraudulent claims. 40
Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss
of or damage to goods shipped in order to impose liability on the carrier operate to prevent the
enforcement of the contract when not complied with, that is, notice is a condition precedent and
the carrier is not liable if notice is not given in accordance with the stipulation, 41 as the failure to
comply with such a stipulation in a contract of carriage with respect to notice of loss or claim for
damage bars recovery for the loss or damage suffered. 42
On the other hand, the validity of a contractual limitation of time for filing the suit itself against a
carrier shorter than the statutory period therefor has generally been upheld as such stipulation
merely affects the shipper's remedy and does not affect the liability of the carrier. In the absence
of any statutory limitation and subject only to the requirement on the reasonableness of the
stipulated limitation period, the parties to a contract of carriage may fix by agreement a shorter
time for the bringing of suit on a claim for the loss of or damage to the shipment than that
provided by the statute of limitations. Such limitation is not contrary to public policy for it does not
in any way defeat the complete vestiture of the right to recover, but merely requires the assertion
of that right by action at an earlier period than would be necessary to defeat it through the
operation of the ordinary statute of limitations. 43
In the case at bar, there is neither any showing of compliance by petitioners with the requirement
for the filing of a notice of claim within the prescribed period nor any allegation to that effect. It
may then be said that while petitioners may possibly have a cause of action, for failure to comply
with the above condition precedent they lost whatever right of action they may have in their favor
or, token in another sense, that remedial right or right to relief had prescribed. 44
The shipment in question was discharged into the custody of the consignee on May 15, 1977, and
it was from this date that petitioners' cause of action accrued, with thirty (30) days therefrom
within which to file a claim with the carrier for any loss or damage which may have been suffered
by the cargo and thereby perfect their right of action. The findings of respondent court as
supported by petitioners' formal offer of evidence in the court below show that the claim was filed
with SLI only on April 28, 1978, way beyond the period provided in the bills of lading 45 and
violative of the contractual provision, the inevitable consequence of which is the loss of
petitioners' remedy or right to sue. Even the filing of the complaint on May 12, 1978 is of no
remedial or practical consequence, since the time limits for the filing thereof, whether viewed as a
condition precedent or as a prescriptive period, would in this case be productive of the same
result, that is, that petitioners had no right of action to begin with or, at any rate, their claim was
time-barred.
What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with DVAPSI
as early as June 14, 1977 46 and, as found by the trial court, a survey fixing the extent of loss of
and/or damage to the cargo was conducted on July 8, 1977 at the instance of petitioners. 47 If
petitioners had the opportunity and awareness to file such provisional claim and to cause a survey
to be conducted soon after the discharge of the cargo, then they could very easily have filed the
necessary formal, or even a provisional, claim with SLI itself 48 within the stipulated period therefor,
instead of doing so only on April 28, 1978 despite the vessel's arrival at the port of destination on
May 15, 1977. Their failure to timely act brings us to no inference other than the fact that
petitioners slept on their rights and they must now face the consequences of such inaction.
The ratiocination of the Court of Appeals on this aspect is worth reproducing:
xxx xxx xxx
It must be noted, at this juncture, that the aforestated time limitation in the presentation of
claim for loss or damage, is but a restatement of the rule prescribed under Art. 366 of the Code
of Commerce which reads as follows:
Art. 366. Within the twenty-four hours following the receipt of the merchandise, the claim
against the carrier for damage or average which may be found therein upon opening the
packages, may be made, provided that the indications of the damage or average which gives
rise to the claim cannot be ascertained from the outside part of the packages, in which case
the claims shall be admitted only at the time of the receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no
claim shall be admitted against the carrier with regard to the condition in which the goods
transported were delivered.
Gleanable therefrom is the fact that subject stipulation even lengthened the period for
presentation of claims thereunder. Such modification has been sanctioned by the Supreme
Court. In the case of Ong Yet (M)ua Hardware Co., Inc. vs. Mitsui Steamship Co., Ltd., et al., 59
O.G. No. 17, p. 2764, it ruled that Art. 366 of the Code of Commerce can be modified by a bill of
lading prescribing the period of 90 days after arrival of the ship, for filing of written claim with
the carrier or agent, instead of the 24-hour time limit after delivery provided in the aforecited
legal provision.
Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that the commencement of
the instant suit on May 12, 1978 was indeed fatally late. In view of the express provision that
"suits arising from
. . . damage or loss shall be instituted within 60 days from date of accrual of right of action," the
present action necessarily fails on ground of prescription.
In the absence of constitutional or statutory prohibition, it is usually held or recognized that it
is competent for the parties to a contract of shipment to agree on a limitation of time shorter
than the statutory period, within which action for breach of the contract shall be brought, and
such limitation will be enforced if reasonable . . . (13 C.J.S. 496-497)
A perusal of the pertinent provisions of law on the matter would disclose that there is no
constitutional or statutory prohibition infirming paragraph 5 of subject Bill of Lading. The
stipulated period of 60 days is reasonable enough for appellees to ascertain the facts and
thereafter to sue, if need be, and the 60-day period agreed upon by the parties which shortened
the statutory period within which to bring action for breach of contract is valid and binding. . . .
(Emphasis in the original text.) 49
As explained above, the shortened period for filing suit is not unreasonable and has in fact been
generally recognized to be a valid business practice in the shipping industry. Petitioners'
advertence to the Court's holding in the Southern Lines case, supra, is futile as what was involved
was a claim for refund of excess payment. We ruled therein that non-compliance with the
requirement of filing a notice of claim under Article 366 of the Code of Commerce does not affect
the consignee's right of action against the carrier because said requirement applies only to cases
for recovery of damages on account of loss of or damage to cargo, not to an action for refund of
overpayment, and on the further consideration that neither the Code of Commerce nor the bills of
lading therein provided any time limitation for suing for refund of money paid in excess, except
only that it be filed within a reasonable time.
The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in the
subject bill of lading as a contract of adhesion and, under the circumstances therein, void for being
contrary to public policy is evidently likewise unavailing in view of the discrete environmental facts
involved and the fact that the restriction therein was unreasonable. In any case, Ong Yiu vs. Court
of Appeals, et al., 50 instructs us that "contracts of adhesion wherein one party imposes a ready-
made form of contract on the other . . . are contracts not entirely prohibited. The one who adheres
to the contract is in reality free to reject it entirely; if he adheres he gives his consent." In the
present case, not even an allegation of ignorance of a party excuses non-compliance with the
contractual stipulations since the responsibility for ensuring full comprehension of the provisions
of a contract of carriage devolves not on the carrier but on the owner, shipper, or consignee as the
case may be.
While it is true that substantial compliance with provisions on filing of claim for loss of or damage
to cargo may sometimes suffice, the invocation of such an assumption must be viewed vis-a-vis the
object or purpose which such a provision seeks to attain and that is to afford the carrier a
reasonable opportunity to determine the merits and validity of the claim and to protect itself
against unfounded impositions. 51 Petitioners' would nevertheless adopt an adamant posture
hinged on the issuance by SLI of a "Report on Losses and Damages," dated May 15, 1977, 52 from
which petitioners theorize that this charges private respondents with actual knowledge of the loss
and damage involved in the present case as would obviate the need for or render superfluous the
filing of a claim within the stipulated period.
Withal, it has merely to be pointed out that the aforementioned report bears this notation at the
lower part thereof: "Damaged by Mla. labor upon unloading; B/L noted at port of origin," as an
explanation for the cause of loss of and/or damage to the cargo, together with an iterative note
stating that "(t)his Copy should be submitted together with your claim invoice or receipt within 30
days from date of issue otherwise your claim will not be honored."
Moreover, knowledge on the part of the carrier of the loss of or damage to the goods deducible
from the issuance of said report is not equivalent to nor does it approximate the legal purpose
served by the filing of the requisite claim, that is, to promptly apprise the carrier about a
consignee's intention to file a claim and thus cause the prompt investigation of the veracity and
merit thereof for its protection. It would be an unfair imposition to require the carrier, upon
discovery in the process of preparing the report on losses or damages of any and all such loss or
damage, to presume the existence of a claim against it when at that time the carrier is expectedly
concerned merely with accounting for each and every shipment and assessing its condition. Unless
and until a notice of claim is therewith timely filed, the carrier cannot be expected to presume that
for every loss or damage tallied, a corresponding claim therefor has been filed or is already in
existence as would alert it to the urgency for an immediate investigation of the soundness of the
claim. The report on losses and damages is not the claim referred to and required by the bills of
lading for it does not fix responsibility for the loss or damage, but merely states the condition of
the goods shipped. The claim contemplated herein, in whatever form, must be something more
than a notice that the goods have been lost or damaged; it must contain a claim for compensation
or indicate an intent to claim. 53
Thus, to put the legal effect of respondent carrier's report on losses or damages, the preparation
of which is standard procedure upon unloading of cargo at the port of destination, on the same
level as that of a notice of claim by imploring substantial compliance is definitely farfetched.
Besides, the cited notation on the carrier's report itself makes it clear that the filing of a notice of
claim in any case is imperative if carrier is to be held liable at all for the loss of or damage to cargo.
Turning now to respondent DVAPSI and considering that whatever right of action petitioners may
have against respondent carrier was lost due to their failure to seasonably file the requisite claim,
it would be awkward, to say the least, that by some convenient process of elimination DVAPSI
should proverbially be left holding the bag, and it would be pure speculation to assume that
DVAPSI is probably responsible for the loss of or damage to cargo. Unlike a common carrier, an
arrastre operator does not labor under a presumption of negligence in case of loss, destruction or
deterioration of goods discharged into its custody. In other words, to hold an arrastre operator
liable for loss of and/or damage to goods entrusted to it there must be preponderant evidence
that it did not exercise due diligence in the handling and care of the goods.
Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly wild
goose-chase, they cannot quite put their finger down on when, where, how and under whose
responsibility the loss or damage probably occurred, or as stated in paragraph 8 of their basic
complaint filed in the court below, whether "(u)pon discharge of the cargoes from the original
carrying vessel, the SS VISHVA YASH," and/or upon discharge of the cargoes from the interisland
vessel the MV "SWEET LOVE," in Davao City and later while in the custody of defendant arrastre
operator. 54
The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims
Manager of petitioner Philamgen, was definitely inconclusive and the responsibility for the loss or
damage could still not be ascertained therefrom:
Q In other words, Mr. Cabato, you only computed the loss on the basis of the figures submitted
to you and based on the documents like the survey certificate and the certificate of the arrastre?
A Yes, sir.
Q Therefore, Mr. Cabato, you have no idea how or where these losses were incurred?
A No, sir.
xxx xxx xxx
Q Mr. Witness, you said that you processed and investigated the claim involving the shipment in
question. Is it not a fact that in your processing and investigation you considered how the
shipment was transported? Where the losses could have occurred and what is the extent of the
respective responsibilities of the bailees and/or carriers involved?
xxx xxx xxx
A With respect to the shipment being transported, we have of course to get into it in order to
check whether the shipment coming in to this port is in accordance with the policy condition,
like in this particular case, the shipment was transported to Manila and transhipped through an
interisland vessel in accordance with the policy. With respect to the losses, we have a general
view where losses could have occurred. Of course we will have to consider the different bailees
wherein the shipment must have passed through, like the ocean vessel, the interisland vessel
and the arrastre, but definitely at that point and time we cannot determine the extent of each
liability. We are only interested at that point and time in the liability as regards the underwriter
in accordance with the policy that we issued.
xxx xxx xxx
Q Mr. Witness, from the documents, namely, the survey of Manila Adjusters and Surveyors
Company, the survey of Davao Arrastre contractor and the bills of lading issued by the
defendant Sweet Lines, will you be able to tell the respective liabilities of the bailees and/or
carriers concerned?
A No, sir. (Emphasis ours.) 55
Neither did nor could the trial court, much less the Court of Appeals, precisely establish the stage
in the course of the shipment when the goods were lost, destroyed or damaged. What can only be
inferred from the factual findings of the trial court is that by the time the cargo was discharged to
DVAPSI, loss or damage had already occurred and that the same could not have possibly occurred
while the same was in the custody of DVAPSI, as demonstrated by the observations of the trial
court quoted at the start of this opinion.
ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the dismissal of the
complaint in the court a quo as decreed by respondent Court of Appeals in its challenged
judgment is hereby AFFIRMED.
SO ORDERED.
CIVPRO – COUNTERCLAIMS
[G.R. Nos. 142286-87. April 15, 2005]
KOREA EXCHANGE BANK, petitioner, vs. HON. ROGELIO C. GONZALES, in his capacity as Presiding
Judge of Branch 50 of the Regional Trial Court of Pampanga, PHI-HAN DEVELOPMENT,
INC., LOURDES DE MESA MENDOZA, MENELEO MENDOZA, ANTUSA DE MESA MAGNO,
FRANCISCO MAGNO, TEODORO DE MESA, FIRMO DE MESA and MERCEDES DE MESA,
respondents.
DECISION
CALLEJO, SR., J.:
For review in these consolidated petitions is the Joint Decision [1] of the Court of Appeals (CA)
in CA-G.R. SP Nos. 46194 and 46436, as well as its Order [2] dated February 28, 2000 denying the
motion for reconsideration thereof.
The Antecedents
The Phi-Han Development, Inc. (PHDI) is a domestic corporation organized primarily for the
purpose of engaging in the real estate business. [3] Teodoro de Mesa and his siblings, namely,
Antusa de Mesa Magno and Lourdes de Mesa Mendoza, were among its original incorporators and
members of its board of directors. Jae Il Aum, a Korean national, was the president of the
corporation, while Lourdes Mendoza served as its corporate secretary and treasurer. [4]
On September 5, 1996, or barely a year after its operations began, the PHDI, together with
Teodoro de Mesa, Antusa Magno and Lourdes Mendoza, filed a complaint in the Regional Trial
Court (RTC) of Guagua, Pampanga, against Jae Il Aum and the Korea Exchange Bank (KEB), a foreign
banking corporation licensed to do business in the Philippines.
The plaintiffs alleged therein that through the machination of Jae Il Aum, KEB granted a loan
to the PHDI in the amount of US$500,000.00, with the condition that the said loan be deposited
with the KEB in the name of PHDI. Thereafter, the plaintiffs executed a real estate mortgage over
their properties located in Lubao, Pampanga. As security for the said loan, PHDI deposited the said
amount under its name with the KEB in two accounts, namely, Dollar Account No. 5311000486 and
Peso Account No. 5311000487. Per Resolution No. 12-10-95 of the PHDI Board of Directors, the
only authorized signatories to all applications for withdrawals from the said accounts were Jae Il
Aum and Lourdes Mendoza. Jae Il Aum withdrew US$160,000.00 from the said account on
February 15, 1996 by forging the signature of Lourdes Mendoza. He was again able to withdraw
from the separate accounts, leaving US$163,000.00 as the balance thereof. It was further alleged
that Jae Il Aum could not have withdrawn the said deposits without the connivance of the KEB.
Moreover, the defendants failure to heed demands for an accounting of the said withdrawals and
for the restitution of the said amounts constituted large scale estafa for which they are liable for
exemplary and moral damages.[5] The case was docketed as Civil Case No. G-3012 and raffled to
Branch 49 of the court.
On September 13, 1996, the KEB filed a Motion to Dismiss [6] the complaint on the ground, [7]
among others, that the case was within the exclusive jurisdiction of the Securities and Exchange
Commission (SEC). On December 5, 1996, the trial court issued an Order denying the motion. The
KEB filed a motion for reconsideration of the courts decision which was, however, denied.
The KEB filed a petition for certiorari and prohibition with the CA for the nullification of the
orders of the RTC. The case was docketed as CA-G.R. SP No. 43363. [8] On March 17, 1999, the CA
dismissed the petition. The KEB filed a motion for reconsideration, which was denied by the
appellate court on July 22, 1999. It then filed a petition for review on certiorari in this Court,
docketed as G.R. No. 139460.[9]
Meanwhile, on April 2, 1997, the KEB filed a Complaint [10] against Lourdes Mendoza,
Meneleo Mendoza, Antusa Magno, Francisco Magno, Teodoro de Mesa, Firmo de Mesa, Mercedes
de Mesa Magno and the PHDI (PHDI, et al.) before the RTC of Guagua, Pampanga, for sum of
money and reformation of real estate mortgage executed by PHDI in its favor. The case was
docketed as Civil Case No. G-3119 and was raffled to Branch 50 of the court.
The KEB alleged therein that on January 15, 1996, it extended a loan to the PHDI in the sum
of US$500,000.00, payable within one year, with interest at 3 months London Interbank Offering
Rate (LIBOR) + 2% per annum, evidenced by a promissory note executed by Jae Il Aum and Lourdes
Mendoza, president and treasurer, respectively, for and in behalf of the PHDI, with Antusa Magno
and Teodoro de Mesa acting as witnesses. Jae Il Aum and Lourdes Mendoza were authorized by
resolution of the Board of Directors of PHDI to sign documents and other papers and mortgage
corporate assets. To secure the payment of the said loan, Lourdes Mendoza and her siblings,
Antusa de Mesa Magno, Firmo de Mesa, Meneleo Mendoza and Mercedes de Mesa, executed a
real estate mortgage over 14 parcels of land they owned in common, under a Special Power of
Attorney executed by them in favor of Teodoro, Lourdes and Antusa. However, the real estate
mortgage failed to express the true intent and agreement of the parties therein because the
debtors appearing therein were Lourdes de Mesa Mendoza, Antusa de Mesa Magno, Mercedes de
Mesa and Firmo de Mesa, whereas the true agreement was to bind only PHDI as the debtor. It was
further alleged that PHDI, et al. had not paid the loan of US$500,000.00 and the increment thereof
despite demands therefor.
The KEB prayed that, after due proceedings, judgment be rendered in its favor, ordering the
reformation of the said real estate mortgage by designating the PHDI as the debtor; ordering PHDI,
et al., jointly and severally, to pay US$500,000.00, with interest thereon at the rate of the LIBOR for
a three-month loan plus 2%, compounded monthly; 10% of the total amount due as interest as
withholding tax on the interest; 20% of the total amount due as attorneys fees; and costs of suit.
The KEB, likewise, prayed that the properties mortgaged be foreclosed and sold in case of failure to
pay the said loan and its increment within 90 days from notice of the judgment. [11] The KEB
appended to its complaint a copy of the real estate mortgage and the secretarys certificate
containing the resolution of the Board of Directors.
The PHDI, et al. filed a motion to dismiss[12] the complaint on the ground of forum shopping,
asserting that the KEB should have filed its counterclaim for the reformation of the real estate
mortgage and the collection of US$500,000.00, including increment and damages in Civil Case No.
G-3012. They averred that since the KEB sought the collection of the US$500,000.00 loan which
was referred to in paragraphs 2 and 3 of their complaint in Civil Case No. G-3012, the essential
elements of litis pendentia were present; hence, the trial court should dismiss the complaint.
The KEB opposed[13] the motion, contending that the complaint in Civil Case No. G-3012
involved corporate fraud; hence, the RTC had no jurisdiction over the action in the said case, and
as such, could not interpose any counterclaims therein. The KEB, likewise, averred that litis
pendentia may be involved only when the RTC had jurisdiction over the action in Civil Case No. G-
3012. Moreover, the actions in Civil Case Nos. G-3012 and G-3119 were unrelated.
On July 23, 1997, the RTC issued an Order [14] denying the motion to dismiss, holding that the
essential requirements of litis pendentia were not present, and that the grounds invoked therein
were not indubitable.
 Thereafter, PHDI, et al. filed, in due course, their answer [15] with counterclaims in Civil Case
No. G-3119 where they denied being indebted to the KEB. By way of special and affirmative
defenses, they alleged that they were deceived by Jae Il Aum, in connivance with the KEB, into
agreeing to secure a loan of US$500,000.00 from the latter with their properties as security
therefor to be used for the development of their properties into a housing project; the
US$500,000.00 loan of the PHDI was deposited in Account No. 5311000487 and Account No.
5311000486 with the KEB. Jae Il Aum was able to withdraw the amount of US$160,000.00 from
the dollar account of PHDI based on an application for withdrawal bearing the forged signature of
Lourdes Mendoza. Believing that Jae Il Aum could not validly withdraw from the said account
without her presence, Lourdes de Mesa Mendoza signed applications for the withdrawals from the
said accounts, authorizing Jae Il Aum to make the said withdrawals. Jae Il Aum was then able to
withdraw the rest of the deposits of the PHDI. It was thus alleged that the acts of the plaintiff and
Jae Il Aum constituted large scale estafa, and that he had been charged with large scale estafa in
Criminal Case Nos. 4085 and 4092 in the RTC of Pampanga. The aforementioned unauthorized
withdrawals could not have been made possible without the indispensable cooperation of the
authorized and/or responsible officer/s of the KEB. [16] Moreover, the loan of the PHDI should be
extinguished under the principle of set-off or compensation. By way of counterclaims, PHDI, et al.,
repleaded by reference all the allegations in their special and affirmative defenses as part thereof,
and alleged that by reason of the foregoing acts of the KEB and Jae Il Aum, they suffered shame
and humiliation.
The PHDI, et al., prayed that the complaint be dismissed and, by way of counterclaim, that
the KEB be ordered to pay P500,000.00 as moral damages, P500,000.00 as exemplary damages to
deter like-minded foreigners from victimizing Filipinos, and P100,000.00 as attorneys fees, plus the
cost of suit.[17]
On September 12, 1997, the KEB filed two motions: (1) a motion in Civil Case No. G-3119 to
dismiss the counterclaims of the PHDI, et al. for their failure to attach in their answer with
counterclaims a certification of non-forum shopping as mandated by Supreme Court
Administrative Circular No. 04-94 (now Section 5, Rule 7 of the Rules of Court); [18] and (2) a motion
in Civil Case No. G-3012 to dismiss the complaint for forum shopping. [19]
In its motion to dismiss the counterclaims in Civil Case No. G-3119, the KEB alleged that the
causes of action of the PHDI, et al. as plaintiffs in Civil Case No. G-3012 for the collection of
US$160,000.00 and damages, and their claim in Civil Case No. G-3119 for the set-off of the said
amount against its claim of US$500,000.00 were identical; hence, their counterclaims should be
dismissed for forum shopping and, consequently, their complaint in Civil Case No. G-3012 should
likewise be dismissed.
The PHDI, et al. opposed the motion to dismiss their complaint in Civil Case No. G-3012
alleging that the KEB failed to include forum shopping as a ground in its motion to dismiss their
complaint; hence, is bound by the omnibus motion rule. They further alleged that their complaint
could not be dismissed on the ground of forum shopping based on their counterclaims in their
answer to the complaint, since they filed their answer and counterclaim after filing their complaint
in Civil Case No. G-3012.[20] Besides, the trial court had already denied their motion to dismiss the
complaint in Civil Case No. G-3119 on its finding that there was no litis pendentia.
The PHDI, et al. also opposed the motion to dismiss[21] their counterclaims in Civil Case No. G-
3119, on the ground that the causes of action in Civil Case No. G-3012 and their counterclaims in
Civil Case No. G-3119 were unrelated. They asserted that the subject matter, causes of action and
the issues in the two cases were different.
On October 14, 1997, the trial court issued an Order [22] in Civil Case No. G-3012 denying the
KEBs motion to dismiss the complaint, on its finding that the causes of action of the PHDI in Civil
Case No. G-3012 were different from those in their counterclaim in Civil Case No. G-3119. The trial
court also denied the motion (in Civil Case No. G-3119) to dismiss the counterclaims of the PHDI,
et al., on its finding that the reliefs prayed for by the latter did not include the collection of
US$160,000.00 from the KEB; hence, there was no forum shopping. The KEBs respective motions
for reconsideration of the orders of dismissal in Civil Case Nos. G-3119 and G-3012 were denied by
the trial courts, per the Orders dated October 24, 1997[23] and November 14, 1997.[24]
The KEB filed a petition for certiorari, prohibition and mandamus against the PHDI, et al., in
the CA, assailing the October 13 and 24, 1997 Orders of the trial court in Civil Case No. G-3119.
The case was docketed as CA-G.R. SP No. 46194.
The KEB also filed a petition for certiorari, prohibition and mandamus with the CA on January
6, 1998, assailing the RTCs Orders dated October 24 and November 14, 1997 in Civil Case No. G-
3012. The case was docketed as CA-G.R. SP No. 46436. The two petitions were consolidated.
Meanwhile, the KEB filed its answer to the counterclaims of the PHDI, et al., in Civil Case No.
G-3119 for moral and exemplary damages. [25] It alleged, inter alia, that only the consent of the
PHDI, through its signatories, was required for any withdrawal, and that all such withdrawals were
made with the knowledge and consent of Lourdes de Mesa Mendoza, with her genuine signatures;
[26]
that the trial court had no jurisdiction over the counterclaims for moral and exemplary damages
since the controversy involved corporate fraud which, under Subsection (a), Section 5 of
Presidential Decree No. 902-A, was within the exclusive jurisdiction of the SEC; and that the
counterclaims for moral and exemplary damages should be dismissed because of the pendency of
Civil Case No. G-3012 which involved the same parties, the same rights, the same reliefs, the same
issues, and the same causes of action, insofar as the complaint in Civil Case No. G-3012 and the
counterclaim in this case were concerned. Moreover, there was no certification against forum
shopping as required by Section 3, Rule 7 of the Rules of Court. They further insisted that all the
withdrawals were authorized and made on the basis of genuine signatures; that PHDI, being a
corporation and an artificial person, had no feelings, and, as such, moral damages could not be
recovered from it; that it had all along acted in good faith; and that if PHDI, et al., hired the
services of counsel, the attorneys fees should be for their own account, since they unjustifiably
refused to pay.[27]
On January 27, 2000, the CA rendered a Joint Decision [28] in CA-G.R. SP Nos. 46194 and
46436. The CA affirmed the assailed orders of the RTC in Civil Case No. G-3012, dismissing the
petition in CA-G.R. SP No. 46436 but partially giving due course to and granting the petition in CA-
G.R. SP No. 46194, by dismissing the counterclaims of the respondents for moral and exemplary
damages in Civil Case No. G-3119 on the ground of forum shopping. The CA declared that the
counterclaims of the PHDI, et al., for moral and exemplary damages in Civil Case No. G-3119, were
merely permissive; hence, they were mandated to append thereto a certification of non-forum
shopping.
The CA anchored its decision on the rulings of this Court in Santo Tomas University Hospital
v. Surla[29] and Valencia v. Court of Appeals.[30] However, the CA did not order the dismissal of the
complaint in Civil Case No. G-3012, on its finding that the RTC did not commit grave abuse of its
discretion in not ordering the dismissal of the same. Besides, the trial court had already dismissed
the counterclaims of the PHDI, et al., for moral and exemplary damages in Civil Case No. G-3119. [31]
Following the denial of its motion for reconsideration, the KEB, now the petitioner, filed with
this Court, a consolidated petition for review on certiorari against PHDI, et al., the respondents,
alleging that the CA erred (a) in not ordering the dismissal of the counterclaim of the latter in Civil
Case No. G-3119 for their failure to append a certificate of non-forum shopping, and (b) in not
dismissing the complaint in Civil Case No. G-3012 for forum shopping. [32]
As the issues in this case are interrelated, the Court shall delve into and resolve them
simultaneously.
The petitioner avers that the respondents are guilty of forum shopping because they sought
to recover US$160,000.00 by way of set-off in their counterclaims in Civil Case No. G-3119,
pending in Branch 50 of the RTC of Guagua, Pampanga, the same amount they sought to recover in
their complaint in Civil Case No. G-3012 pending in Branch 49 of the said court. The petitioner
asserts that the respondents also sought to recover P500,000.00 in moral damages, and
P500,000.00 as exemplary damages in Civil Case No. G-3012, which are the same amounts the
respondents sought to collect from the petitioner in their counterclaims in Civil Case No. G-3119.
The petitioner notes that although the respondents alleged set-off of the US$160,000.00 in their
special and affirmative defenses, they, however, repleaded and incorporated, by way of reference,
the said allegations in their counterclaims for moral and exemplary damages and attorneys fees;
hence, the claim of set-off or compensation of the respondents was a counterclaim. The
respondents were, thus, mandated to append a certificate of non-forum shopping to their
counterclaims as mandated by Section 5, Rule 7 of the Rules of Court, but failed to do so. The
petitioner avers that there is identity of causes of action, issues and reliefs prayed for in the
complaint of the respondents in Civil Case No. G-3012, and their counterclaims for set-off or
compensation of the US$160,000.00, moral damages of P500,000.00 and P500,000.00 as
exemplary damages in Civil Case No. G-3119. As such, the petitioner insists that the respondents
were guilty of forum shopping, for which reason their complaint in Civil Case No. G-3012 should be
dismissed.
The respondents, for their part, refute the contentions of the petitioner and maintain that
their claim for set-off or compensation [33] in Civil Case No. G-3119 is a counterclaim but is
compulsory in nature; hence, there was no need for them to append a certificate of non-forum
shopping. The respondents also allege that the petitioner itself is guilty of forum shopping because
instead of filing counterclaims against them in Civil Case No. G-3012, it filed a complaint for
reformation of the real estate mortgage and for the collection of US$500,000.00 and, in case of
refusal or failure of the respondents to pay the said amount of US$500,000.00 for the judicial
foreclosure of the real estate mortgage, docketed as Civil Case No. G-3119. The respondents assert
that, by praying for the dismissal of their complaint in Civil Case No. G-3012 and their
counterclaims in Civil Case No. G-3119, the petitioner could win in both instances without due
process of law.
The Courts Ruling
A counterclaim, as now used and understood, includes both set-off and recoupment and is
broader than both; it includes equitable demands and secures to the defendant full relief which is
a separate action at law and would have secured him on the same state of facts being substantially
a cross-action by the defendant against the plaintiff.[34]
A set-off (compensacion) is a money demand by the defendant against the plaintiff arising
upon contract and constituting a debt independent of and unconnected with the cause of actions
set forth in the complaint, and may be used to offset a plaintiffs claim but not to recover
affirmatively. As in the case with recoupment, set-off may be used to offset a plaintiffs claim but
not to recover affirmatively. This is similar to the English rule which was first authorized by an
English statute in 1729.
A recoupment (reconvencion) differs from a counterclaim (contrarreclamacion) in that, under
a counterclaim, the defendant may have an affirmative judgment where he is able to prove a
demand in excess of the plaintiffs demand, whereas in the case of recoupment, whatever the
damages proved by the defendant, they can go only to reduce or extinguish the claim against him.
Recoupment must arise out of the contract or transaction upon which the plaintiffs claim is
founded. Recoupment is of French origin and means the cutting back of the plaintiffs claim by the
defendant. It thus implies an admission of the plaintiffs claim.
In Lopez v. Gloria and Sheriff of Leyte,[35] the Court ruled that for set-off or recoupment to be
considered as a counterclaim, the following must concur: (1) the same be essentially a genuine
action of the defendant against the plaintiff; (2) the same should have as its object to neutralize,
wholly or partially, that which the plaintiff is trying to obtain; (3) the same does not have for its
object to destroy directly the action of the plaintiff; and (4) the same ought not to pray for a
positive remedy distinct from the payment of money.
The Court explained that under the first requisite, independent of any other consideration, a
genuine action is constituted by the defendant which could be employed separately against the
plaintiff. On the second requisite, the Court declared that the defendant admits the facts upon
which the action of the plaintiff is based. The second requisite is absent if the defendant bases his
claim on facts which directly destroy the action or cause of action of the plaintiff. In such a case,
the claim of the defendant would only be a special defense. [36] On the third requisite, set-off or
recoupment may be merely a defense and not a counterclaim if it only tends to oppose or to
destroy the action of the plaintiff.
After consideration of the material allegations of the answer of the respondents in Civil Case
No. G-3119, we believe that the respondents claim of set-off or compensation of the
US$160,000.00 against the claim of US$500,000.00 of the petitioner against the respondents is a
counterclaim. The respondents admit in their complaint in Civil Case No. G-3012 and in their
answer in Civil Case No. G-3119 that they secured a loan from the petitioner in the amount of
US$500,000.00, but maintain that they are not liable for the payment of the said loan because the
petitioner, in connivance with Jae Il Aum, had withdrawn not only US$160,000.00 but the entire
deposit of US$500,000.00 from the peso and dollar accounts of respondent PHDI without the
consent of the respondents. The latter did not seek to recover affirmatively from the petitioner.
However, we do not agree with the contention of the respondents that their counterclaims
are compulsory in nature. Section 7, Rule 5 of the Rules of Court reads:
Sec. 7. Compulsory counterclaim. A compulsory counterclaim is one which, being cognizable by
the regular courts of justice, arises out of or is connected with the transaction or occurrence
constituting the subject matter of the opposing partys claim and does not require for its
adjudication the presence of third parties of whom the court cannot acquire jurisdiction. Such a
counterclaim must be within the jurisdiction of the court both as to the amount and the nature
thereof, except that in an original action before the Regional Trial Court, the counterclaim may be
considered compulsory regardless of the amount.
As correctly held by the CA, the counterclaim of the respondents for moral and exemplary
damages against the petitioner is permissive. So is the respondents claim of a set-off or
compensation of the US$160,000.00 which they sought in Civil Case No. G-3012 against the
US$500,000.00 claimed by the petitioner against the respondents in Civil Case No. G-3119.
As the Court held in Yulienco v. Court of Appeals:[37]
A counterclaim is defined as any claim for money or other relief which a defending party may have
against an opposing party. A counterclaim is compulsory if (a) it arises out of, or is necessarily
connected with, the transaction or occurrence which is the subject matter of the opposing partys
claim; (b) it does not require for its adjudication the presence of third parties of whom the court
cannot acquire jurisdiction; and (c) the court has jurisdiction to entertain the claim. In other
words, a compulsory counterclaim cannot be made the subject of a separate action but should be
asserted in the same suit involving the same transaction or occurrence giving rise to it.
The criteria or tests by which the compulsory or permissive nature of specific counterclaims can
be determined are as follows:
(1) Are the issues of fact and law raised by the claim and counterclaim largely the
same?
(2) Would res judicata bar a subsequent suit on defendants claim absent the
compulsory counterclaim rule?
(3) Will substantially the same evidence support or refute plaintiffs claim as well as
defendants counterclaim?
(4) Is there any logical relation between the claim and the counterclaim? [38]
In the present case, the issues of fact and law raised by the petitioner in its complaint in Civil
Case No. G-3119, and in the counterclaims of the respondents for the set-off of not only the
US$160,000.00 but the entirety of the deposits of the respondent PHDI of US$500,000.00, and for
moral and exemplary damages, are not identical or even largely the same. In the complaint of the
petitioner in Civil Case No. G-3119, the issue is whether the loan of US$500,000.00 was secured by
respondent PHDI from the petitioner, and whether the respondents failed to pay the same and its
increment despite the petitioners demands. On the other hand, the issues in the respondents
counterclaims for set-off of the amount of US$160,000.00 are the following: whether the signature
of respondent Lourdes Mendoza appearing on the said withdrawal application was forged;
whether the petitioner connived with Jae Il Aum when the latter withdrew the said amount from
the accounts of respondent PHDI; whether the petitioner and Jae Il Aum are obliged to pay the
said amount to the respondent PHDI; and whether the obligations of the respondent to pay their
loan of US$500,000.00 is extrajudicial pro tanto. Any judgment of the court on the complaint of
the petitioner in Civil Case No. G-3119 would not bar any suit on the respondents counterclaim.
The evidence of the petitioner on its claim in its complaint, and that of the respondents on their
counterclaims are thus different. There is, likewise, no logical relation between the claim of the
petitioner and the counterclaim of the respondents. Hence, the counterclaim of the respondents is
an initiatory pleading, which requires the respondents to append thereto a certificate of non-
forum shopping. Their failure to do so results to the dismissal of their counterclaim without
prejudice.[39]
The general rule is that compliance with the certificate of forum shopping is separate from
and independent of the avoidance of the act of forum shopping itself. Forum shopping is a ground
for summary dismissal of both initiatory pleadings without prejudice to the taking of appropriate
action against the counsel or party concerned.[40]
Case law has it that there is forum shopping when, between an action pending before the
court and another one, there exist:
(a) identity of parties, or at least such parties as represent the same interests in both actions; (b)
identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c)
the identity of the two preceding particulars is such that any judgment rendered in the other
action will, regardless of which party is successful, amount to res judicata in the action under
consideration. [41]
Otherwise stated, there is forum shopping where a litigant sues the same party against
whom another action or actions for the alleged violation of the same right and the enforcement of
the same relief is/are still pending. The defense of litis pendentia in one case is a bar to the
other/others; and, a final judgment is one that would constitute res judicata and thus would cause
the dismissal of the rest. Absolute identity of parties is not required. It is enough that there is
substantial identity of parties.[42] It is enough that the party against whom the estoppel is set up is
actually a party to the former case. [43] There is identity of causes of action if the same evidence will
sustain the second action. The principle applies even if the relief sought in the two cases may be
different.[44] Forum shopping consists of filing multiple suits involving the same parties for the same
cause of action, either simultaneously or successively, for the purpose of obtaining a favorable
judgment.[45]
What is truly important to consider, the Court ruled in Golangco v. Court of Appeals,[46] is the
vexation caused the courts and parties-litigants who ask different courts and/or administrative
agencies to rule on the same or restated causes and/or grant the same or substantially the same
reliefs, in the process creating the possibility of conflicting decisions being rendered by the
different courts upon the same issues. In Yupangco Cotton Mills, Inc. v. Court of Appeals,[47] the
Court ruled that for forum shopping to exist, both actions must involve the same transactions, the
same circumstances; and the actions must also raise identical causes of actions, subject matter and
issues. Forum shopping is an act of malpractice that is prohibited and considered as trifling with
the court. It is an improper conduct which tends to degrade the administration of justice. But there
is no forum shopping where two different orders or questions, two different causes of action and
issues are raised, and two objectives are sought. [48]
In this case, in interposing their counterclaim for set-off of the US$160,000.00 against their
loan of US$500,000.00 in Civil Case No. G-3119, as well as the counterclaims for P500,000.00 as
moral damages, and P500,000.00 as exemplary damages, the respondents thereby engaged in
forum shopping. As gleaned from the material averments of their complaint in Civil Case No. G-
3012, the respondents, who are the plaintiffs therein, claimed that Jae Il Aum, who was the
president of respondent PHDI, withdrew US$160,000.00 from the deposit accounts of the said
respondent with the petitioner; that such withdrawal application bore the forged signature of
respondent Lourdes Mendoza; and that the authorized office/officers of the petitioner connived
with Jae Il Aum in consummating the withdrawal. The respondents prayed that the petitioner and
Jae Il Aum be ordered to pay, jointly and severally, the said amount, plus P500,000.00 as moral
damages and P500,000.00 as exemplary damages based on their claim that the petitioner, a
corporation incorporated in Korea, and Jae Il Aum, a Korean national, victimized the respondents,
who are Filipinos. The respondents merely restated and repleaded the same allegations in their
counterclaims in Civil Case No. G-3119, and prayed that the aforesaid amount of US$160,000.00 be
set-off against their loan of US$500,000.00 which was being claimed by the petitioner in the said
case, in addition to awards for P500,000.00 as moral damages, and P500,000.00 as exemplary
damages against the petitioner for allegedly victimizing Filipinos in their country. The threshold
issues common to and decisive of the complaint in Civil Case No. G-3012 and the counterclaim for
set-off in Civil Case No. G-3119 are whether the signature of respondent Lourdes Mendoza on the
application for withdrawal of US$160,000.00 was forged, and whether the petitioner connived
with Jae Il Aum in the alleged fraudulent withdrawal of the said amount. The evidence of the
respondents as plaintiffs in Civil Case No. G-3012 is the same evidence that they will have to
adduce as plaintiffs on their counterclaim for set-off in Civil Case No. G-3119. Any judgment of the
RTC of Guagua, Pampanga, Branch 49, in Civil Case No. G-3012 will, likewise, resolve the threshold
issue in the respondents counterclaim for set-off in Civil Case No. G-3119. That Jae Il Aum is not a
party in Civil Case No. G-3119 is not important; that the respondents did not pray in their
counterclaim that the petitioner pay to them the US$160,000.00 withdrawn by Jae Il Aum is,
likewise, not a bar to the application of the principle of litis pendentia.
 It must be stressed, however, that the dismissal of the complaint of the respondents against
the petitioner in Civil Case No. G-3012 is without prejudice to the continuation of the case against
Jae Il Aum.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The complaint of the
respondents against the petitioner in Civil Case No. G-3012 is DISMISSED without prejudice to the
continuation thereof against the defendant Jae Il Aum. No costs.

SO ORDERED.
CIVPRO – COUNTERCLAIMS &REMEDIES matter of the opposing party's claim; it does not require the presence of third parties of whom the
court cannot acquire the presence of third parties of whom the court cannot acquire jurisdiction;
G.R. No. 105751 June 30, 1993 and, the trial court has jurisdiction to entertain the claim. 1 The counterclaim of private
respondents is denominated "compulsory" and consists of claims for alleged overpayments and
damages. They assert that they are no longer indebted to petitioner and are in fact entitled to
BA FINANCE CORPORATION, petitioner,
reimbursement for overpayments. They ask for damages for expenses incurred and
vs.
inconveniences suffered by them as a result of the filing of the present action. 2
RUFINO CO, HIGHLINE MERCANTILE, INC., LUCITA VELOSO YAP, CLOVERLEAF SUPERMARKET,
INC., SAN ANDRES COMMERCIAL and COURT OF APPEALS, respondents.
Clearly, the same evidence needed to sustain the counterclaim of private respondents would also
refute the cause of action in petitioner's complaint. For, if private respondents could successfully
BELLOSILLO, J.:
show that they actually made overpayments on the credit accommodations extended by
petitioner, then the complaint must fail. The counterclaim is therefore compulsory.
Does the dismissal of the complaint for nonappearance of plaintiff at the pre-trial, upon motion of
defendants, carry with it the dismissal of their compulsory counterclaim?
The rule is that a compulsory counterclaim cannot "remain pending for independent adjudication
by the court."3 This is because a compulsory counterclaim is auxiliary to the proceeding in the
Petitioner BA Finance Corporation brought this action as plaintiff in the court below to recover a original suit and merely derives its jurisdictional support therefrom. 4
sum of money arising from a credit accommodation in the form of a discounting line which it
granted to defendant Rufino Co, and from certain suretyship agreements executed in its favor by
Thus, it necessarily follows that if the trial court no longer possesses jurisdiction to entertain the
his co-defendants Highline Mercantile, Inc., Lucita Veloso Yap, Cloverleaf Supermarket, Inc., and
main action of the case, an when it dismisses the same, then the compulsory counterclaim being
San Andres Commercial.
ancillary to the principal controversy, must likewise be similarly dismissed since no jurisdiction
remains for the grant of any relief under the counterclaim. 5 Indeed, as Justice Vicente Abad Santos
After defendants' Amended Answer to Complaint with Compulsory Counterclaim was admitted, succinctly puts it —
the case was set for Pre-Trial Conference. For various reasons, however, the conference was
repeatedly reset. On 19 December 1989, counsel for plaintiff, petitioner herein, failed to attend the
. . . . The petitioner does not object to the dismissal of the civil case but nonetheless wants her
Pre-Trial Conference. Consequently, defendants moved for dismissal of the case without prejudice.
counterclaim therein to subsist. Impossible. A person cannot eat his cake and have it at the
The motion was granted thus —
same time. If the civil case is dismissed, so also in the counterclaim filed therein. 6

The plaintiff's representative and counsel having failed to appear for today's setting, Atty. Luis
More recently, this Court ruled that the dismissal of the complaint on defendant's own motion
Vera Cruz, Jr., for the defendants moved that the above-entitled case be dismissed, without
operated likewise to dismiss the counterclaim questioning the complaint. 7
prejudice. Finding merit in said motion, the same is hereby granted.

The Rules of Court provides a remedy to recover on defendant's counterclaim if plaintiff moves to
On 22 January 1990, private respondents moved to set the reception of their evidence in support
dismiss the case. Under Sec. 2, Rule 17, defendant may raise objection to the dismissal of the
of their counterclaim. Petitioner opposed the motion.
complaint; in such case, the trial curt may not dismiss the main action.

On 2 April 1990, the trial court denied the motion of private respondents, prompting them to
In the instant petition, private respondents themselves moved for the dismissal of the complaint,
elevate the order of denial to the Court of Appeals which, on 18 December 1991, reversed the
They could have simply asked the trial court to declare petitioners to be "non-suited" on their
questioned order and directed the trial court to set the reception of their evidence on their
complaint, and "as in default" on their compulsory counterclaim, for their failure to appear at the
counterclaim. Its motion for reconsideration having on 2 June 1992 been denied, petitioner
pre-trial despite due notice. But private respondents did not. Neither did they reserve their right to
instituted the instant petition.
maintain their counterclaim. Consequently, the dismissal of the complaint carried with it the
dismissal of the compulsory counterclaim.
Petitioner contends that the dismissal of the complaint carries with it the dismissal of the
counterclaim. Private respondents, on the other hand, claim that their compulsory counterclaim
It may also be stressed that private respondents moved to set for hearing the reception of
should not have been included in the dismissal.
evidence to support their counterclaim more than a month after the case was dismissed, i.e., they
filed their motion after the lapse of thirty-three (33) days. By then, the order of dismissal had
There is merit in the petition. already become final. Thereafter, it was error for the appellate court to set it aside, there being no
ground to warrant it. Only error of judgment, not error of jurisdiction, was involved.
The counterclaim of private respondents is not merely permissive but compulsory in nature: it
arises out of, or is necessarily connected with, the transaction or occurrence that is the subject
However, we are not unaware of the seeming unfairness, if not harshness, of the application of the
Rule herein enunciated — that dismissal of the complaint for failure to prosecute automatically
carries with it dismissal of the compulsory counterclaim — to a defendant who may be compelled
to hire counsel to protect him in a frivolous complaint. Equity and justice dictate that he be
accorded adequate relief under the circumstances.

Henceforth, for the guidance of Bench and Bar, if any of the grounds to dismiss under Sec. 3, Rule
17, of the Rules of Court arises, 8 the proper recourse for a defendant who desires to pursue his
compulsory counterclaim in the same proceeding is not to move for the dismissal of the complaint;
instead, he should only move to have plaintiff declared non-suited on the complaint so that the
latter can no longer present his evidence thereon, and simultaneously move that he be declared
as in default on the compulsory counterclaim, and reserve the right to present evidence ex parte
on his counterclaim. This will enable defendant who was unjustly haled to court to prove his
compulsory counterclaim, which is intertwined with the complaint, because the trial court retains
jurisdiction over the complaint and of the whole case. The non-dismissal of the complaint, the
non-suit notwithstanding, provides the basis for the compulsory counterclaim to remain active and
subsisting.

But the procedure above stated, unfortunately, was not adopted by private respondents herein in
the court below, hence, we reverse the Court of Appeals and sustain the trial court.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals of 18
December 1991 in CA- G.R. No. CV-28420 is REVERSED and SET ASIDE.

The Order of the Regional Trial Court of Manila, Branch 40, of 19 December 1989 dismissing Civil
Case No. 84-26040 is REINSTATED and REITERATED.

SO ORDERED.
CIVPRO – CERTIFICATION AGAINST FORUM SHOPPING
G.R. No. 128464 June 20, 2006
REV. LUIS AO-AS, REV. JOSE LAKING, EUSQUICIO GALANG, REV. ISABELO MONONGGIT, REV.
EDWINO MERCADO, REV. DANIEL PONDEVIDA, REV. TEODORICO TARAN and DR. BENJAMIN
GALAPIA, Petitioners,
vs.
HON. COURT OF APPEALS, THOMAS P. BATONG, JUANITO BASALONG, AUGUSTO CATANGI, PAUL
GARCIA, QUIDO RIVERA, VICTORIO Y. SAQUILAYAN and DANILO ZAMORA, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Certiorari under Rule 45 of the Rules of Court to seek the reversal of the Court
of Appeals’ Decision1 dated 10 October 1996 in favor of respondents [hereinafter referred to as the
Batong group] and Resolution2 dated 3 March 1997 denying the Motion for Reconsideration of the
herein petitioners [hereinafter referred to as the Ao-As group].
The Court of Appeals found the facts to be as follows:
The Lutheran Church in the Philippines (hereinafter referred to as the LCP) is a religious
organization duly registered with the Securities and Exchange Commission on May 8, 1967. Its
members are comprised of the Lutheran clergymen and the local Lutheran congregations in the
Philippines which, at the time of its incorporation, was divided into three districts, namely: the
North Luzon District (hereinafter referred to as the NLD); the South Luzon District (hereinafter
referred to as the SLD); [and] the Mindanao district (hereinafter referred to as the MDD).
The governing body of the LCP is its national board of directors (hereinafter referred to as the LCP
Board) which was originally composed of seven (7) members serving a term of two years. Six
members of the LCP Board are elected separately in district conferences held in each district, with
two members representing each district – the elected district president becomes the clergy
representative to the LCP Board and the other is a lay representative to the LCP Board. The seventh
member of the Board is the National President of the LCP who is elected at large in a national
convention held in October of every even-numbered year.
During the 1976 LCP national convention, a resolution was passed dividing the North Luzon district
(NLD) into two districts: the NLD Highland District (NLHD) and the NLD Lowland District (NLLD) --
thereby increasing the number of directors from seven (7) to nine (9). Again in the 1984 LCP
national convention, a resolution was passed creating another district, namely, the Visayan Islands
District (VID) thereby increasing further the number of directors to eleven (11). Both resolutions
were passed pursuant to Section 2 of Article 7 of the LCP By-Laws which provides that: "LCP in
convention may form additional districts as it sees fit".
Since the addition of two or more districts, an eleven (11) member board of directors representing
the five (5) districts managed the LCP without any challenge from the membership until several
years later when certain controversies arose involving the resolutions of the Board terminating the
services of the LCP business manager and corporate treasurer since 1979, Mr. Eclesio Hipe.
The termination of Mr. Hipe sparked a series of intracorporate complaints lodged before the
Securities and Exchange Commission (SEC). For the first time, the legality of the eleven (11)
member Board was put in issue as being in excess of the number of directors provided in the
Articles of Incorporation since no amendments were made thereto to reflect the increase.
Aside from the present case, SEC-SICD Case no. 3556 entitled "Excelsio Hipe, et. al. vs. Thomas
Batong, et. al." and SEC-SICD Case No. 3524, "Domingo Shambu, et. al. vs. Thomas Batong, et. al."
respectively, sought to declare null and void Board Resolution Nos. LCP-BD-6-89 and LCP-BD-7-89;
and SEC-SICD Case No. 3550 entitled "The Lutheran Church in the Philippines vs. Exclesio Hipe"
which sought to recover the corporate records still in the possession of Mr. Hipe.
[The members of the Batong group] are the duly elected board of directors of the LCP at the time
of the filing of SEC-SICD Case No. 3857. On the other hand, [the Ao-As group] have served in
various capacities as directors or officers of the LCP.
On August 17, 1990, [the Ao-As group] filed SEC-SICD Case No. 3857 for accounting and damages
with prayer for preliminary injunction and appointment of a management committee asserting the
following causes of action:
"First, the alleged non-liquidation and/or non-accounting of a part of the proceeds of the La
Trinidad land transaction in the amount of P64,000.00 by petitioner Thomas Batong;
Second, the alleged non-liquidation and/or unaccounting of cash advances in the aggregate
amount of P323,750.00 by petitioner Thomas Batong;
Third, the alleged dissipation and/or unaccounting of the LCP general fund in the amount of 4.8
million;
Fourth, the non-registration of the Leyte land purchased with LCP funds by petitioner Victorio
Saquilayan;
Fifth, severance of church-partnership relationship with Lutheran Church-Missouri Synod
(LCMS); and
Sixth, the transfer of LCP corporate books from the Sta. Mesa office to the Caloocan office."
During the hearings on the application for creation of a management committee, [the Batong
group] filed an Urgent Motion to Suspend the Proceedings of the Case in view of an amicable
settlement agreed upon by the parties entitled "A FORMULA FOR CONCORD". However,
notwithstanding the FORMULA FOR CONCORD, the SEC-SICD denied [the Batong group’s] motion
to suspend proceedings.
On January 23, 1992, petitioners filed a Motion to Dismiss alleging again the FORMULA OF
CONCORD. Again, the SEC-SICD denied [the Batong group’s] motion.
Subsequently, on September 3, 1992, the SEC-SICD Hearing Officer after the presentation of the
parties respective evidence, issued an Order creating a management committee. Said Order reads,
in part:
" x x x All board resolutions and/or management actions or decisions passed and approved by
them are deemed null and void ab initio for they were passed, and approved by an illegally
constituted Board of Directors. . . And worse, several resolutions or Board’s actions are not only
(deemed) null and void but have caused irreparable damage to the corporation such as the
termination of all LCP staff and employee (LCP-BD-29-90); dissolution of LCP Business Office (LCP-
BD-37-90); termination of the partner-church relationship between the LCP and the Lutheran
Church Missouri Synod which is the major benefactor and source of funds of LCP (LCP-BD-28-90);
forcible taking of almost all official records and equipment of LCP by respondent Thomas B. Batong
and transferring the (same) from the LCP business office; acquisition of some lands using the
corporate funds were in the name of some person other than the LCP; and various cash advances
of corporate funds by the respondents are not liquidated up to the present.
WHEREFORE, premises considered, A MANAGEMENT COMMITTEE is hereby created to undertake
the management of the Lutheran Church in the Philippines until such time that new members of
the LCP Board of Directors shall have been elected and qualified in the election to be called and
conducted by the Management Committee in accordance with the LCP’s Articles of Incorporation
and By-Laws preferably in October 1992."
On September 14, 1992, [the Batong group] filed their Motion for Reconsideration which was
subsequently denied in an Order dated September 23, 1992.
On September 23, 1992, [the Batong group] filed with the SEC En Banc a Petition for Certiorari with
prayer for a temporary restraining order alleging that the SEC-SIDC acted with grave abuse of
discretion in creating the management committee.
Shortly thereafter, on September 29, 1992, the following were appointed to the management
committee: Atty. Puno as Chairman; and private respondents Jose Laking, Eduardo Ladlad, Romeo
Celiz as members. However, Atty. Puno later resigned and was replaced by Atty. Oscar Almazan
who was appointed as Chairman. After the death of Romeo Celiz, he was replaced by private
respondent Luis Ao-As.
On October 6, 1992, [the Ao-As group] filed a motion for issuance of a writ of preliminary
injunction seeking to enjoin [the Batong group] not only from continuing to act as LCP board of
directors but also from calling a national convention to elect new set of officers and members of
the Board as provided in the LCP Constitution and By-Laws.
On October 16, 1992, the SEC-SIDC ordered the issuance of a writ of preliminary injunction
prohibiting [the Batong group] from "acting as a board of directors or officers of Lutheran Church
in the Philippines, Inc. (LCP) and from holding any convention or general or special membership
meeting as well as election of the members of the LCP board of directors, until further orders".
The [the Batong group] allege that the SEC-SIDC management committee used the Order dated
October 16, 1992 to carry out ultra vires acts, more specifically: (i) to take control of and closing
down church buildings; (ii) to evict LCP clergymen from their church parsonages; (iii) to ordain and
appoint new clergymen to replace incumbent members of the church hierarchy. In at least one
case which has reached this Court, CA-G.R. No. 34504, it was found that:
"On August 13, 1993, [members of the Ao-As group] Oscar Almazan, James Cerdenola, Edgar
Balunsat and Edwino Mercado, together with armed security guards, acting in behalf of LCP,
forcibly took possession of the houses occupied by [the Batong group]. In view of the latter’s
refusal to leave the premises, they permanently padlocked the main gate of the compound
confining [the Batong group] and their families therein and prevented the ingress and egress
thereto. Later the [Batong group] left their houses due to the alleged intimidation and threats
employed by the [Ao-As group]. Thereafter, the latter entered the dwelling and took possession of
the same."
However, even before the creation of the management committee, the LCP national convention
had already been called in a Board meeting held on September 26, 1991 at the Lutheran Hospice,
Quezon City. Hence, by the time the writ of preliminary injunction was issued, all notices had
already been received by all local congregations and convention delegates had likewise already
been chosen to attend the national convention.
Thus, the 17th LCP National Convention was held on October 26 to 30, 1992 as earlier scheduled at
the Immanuel Lutheran Church and School, Tugatong, Malabon, Metro-Manila. The list of official
delegates to the Convention is shown in pages 32 to 33 of the Convention Records.
During the 17th LCP National Convention, the delegates representing the majority of the members
which comprised the three districts (North Luzon, South Luzon and Mindanao) issued a
"Manifesto" to initiate by themselves the election for a new set of church leaders because the
incumbent directors were enjoined to act as a board. In the election, the following were elected as
LCP officers, namely:
President -- Rev. Victorino Saquilayan
Vice-President -- Rev. Juanito Basalong
Secretary -- Rev. Charlito Mercado
Treasurer -- Rev. Benjamin Lasegan
Similarly, prior to the issuance of the writ of preliminary injunction and the appointment of the
management committee, the SLD (South Luzon District) of LCP already held its district conference
on august 26 to 28, 1992 which elected, among other of its officers, the SLD Lay Representative
pursuant to the LCP Constitution and By Laws. The following were elected:
SLD President and
Clergy Representative : Rev. Elmer Banes
SLD Lay Representative: Roman Moscoso
The district conference for NLD was likewise held before the issuance of the writ of preliminary
injunction on October 7 to 9, 1992. In said convention, the local congregations and clergymen
executed a manifesto expressing their own opposition to the appointment of a management
committee.
[The Batong group] then filed with the SEC En Banc a Supplemental Petition dated November 13,
1992 alleging the supervening events in the case which took place after the filing of the original
petition on September 23, 1992.
Subsequent to the 17th LCP national convention of October 1992, a special convention was called
by the SEC Management Committee on January 25 to 29, 1993 at Cagayan de Oro City to elect a
different set of officers for LCP. [The Batong group] allege that the required notices were not sent
to several local congregations and even fewer LCP members were permitted by [the Ao-As group]
to attend the special convention as evidenced by the list of official delegates contained in the
minutes of the special convention.
On July 21, 1993, [the Batong Group] filed a Second Supplement to its petition for certiorari in the
SEC En Banc alleging the supervening events and seeking the review of an Order of the Hearing
Officer dated June 9, 1993 which enlisted the aid of the Secretary of the Department of Interior
and Local Government and the PNP Director General to enforce the writ of preliminary injunction.
Pending the resolution of the above-mentioned petitions, the management committee took
control of several church properties, replaced clergymen from their parsonages and froze all bank
accounts in the name of LCP.
[The Batong group] then filed a Petition for Mandamus and Damages with Prayer for Preliminary
Mandatory Injunction on August 19, 1993 seeking to unfreeze the bank accounts and recover the
seized buildings.
All of the aforementioned petitioners (sic) were denied by the SEC En Banc. A motion for
reconsideration was filed but the same was likewise denied. 3
The Batong group then filed a Petition for Review with the Court of Appeals seeking to annul the
Decision of the Securities and Exchange Commission En Banc. In said Petition, the Batong group
alleged that the Ao-As group persisted in carrying out ultra vires and illegal acts, to wit:
(a) Private respondent Luis L. Ao-As, purportedly on the strength of a board action held
at Baguio on February 22-24, 1994 and of the assailed Order dated October 16, 1992,
closed the premises of the Gloria Dei School after school year 1993-1994 in an attempt
to take-over the management and operations of the said school. The closure of the
Gloria Dei School is the subject of SEC Case No. 05-93-4463.
(b) On February 1, 1994, Rev. Eduardo Ladlad, acting as President of the LCP, executed a
Contract to Sell with Solid Gold Realty Corporation whereby he agreed to sell a portion
of LCP’s property in Cavite with an area of 7,218 square meters at a price of P1,000 per
square meter or a total of P7,218,000 with a down payment of P1,000,000.
(c) Upon application of the [Ao-As group], the SEC-SIDC issued an Order dated June 1,
1994 ex parte and on June 14, 1994 at around 7 p.m., a certain Rev. Laking, using the
Order of the SEC-SIDC dated June 1, 1994 and October 16, 1992 writ of preliminary
injunction, entered the premises of the Abatan Hospital located in Baguias, Benguet
Province, took over the management and control of the Abatan Hospital and forced the
pastor previously assigned therein – Pastor Laapniten – to leave his post simply because
Pastor Lapniten is identified with the Saquilayan Group. 4
On 30 June 1994, the Batong group filed with the Court of Appeals a motion for the issuance of a
Temporary Restraining Order and/or Preliminary Injunction. On 12 July 1994, the Court of Appeals
issued a Temporary Restraining Order to enjoin the Ao-As group "from implementing the contract
to sell between the Lutheran church in the Philippines (LCP) and Solid Gold Realty Corporation and
from selling, transferring, assigning and/or disposing of any other property of the LCP; to enjoin
the Ao-As group and/or those officers elected in their convention from enforcing or implementing
the Order dated October 16, 1992 and the writ of preliminary injunction issued in SEC Case 3857."
On 22 September 1994, the Batong group filed a Motion/ Manifestation to cite Eduardo Ladlad,
Harry Roa, James Cerdenola and Luis Ao-As in contempt of court, alleging that the latter, on 15
September 1994, entered the Olongapo Lutheran Church with six armed men and there and then
padlocked the main gate of the church. Consequently, Rev. Elmer Bañes, the assigned overseer at
said church, was barred from entering the premises on 17 September 1994.
On 10 October 1996, the Court of Appeals ruled in favor of the Batong group, disposing the
petition as follows:
WHEREFORE, the petition is hereby granted. The Decision dated August 25, 1993 of the SEC En
Banc is hereby RECONSIDERED and SET-ASIDE and the Orders of the SEC-SIDC dated September 3,
1992 and October 16, 1992 are hereby ANNULLED and SET ASIDE. The SEC is hereby directed to
conduct a new election of the directors of the LCP consistent with the provisions of the
Corporation Code.5
Hence, this petition, where the Ao-As group brings forth the following issues to be resolved by this
Court:
I.
Whether or not the Court of Appeals gravely erred in utterly ignoring and disregarding all the
evidence adduced by [the Ao-As group], and in making findings of facts contradicted by the
evidence on record and not supported by any evidence whatsoever.
II.
Whether or not the Court of Appeals reversibly erred in ruling that SEC-SICD Case No. 3857 is a
case of forum shopping.
III.
Whether or not the Court of Appeals committed reversible error in declaring as invalid the manner
of elections of the Board of Directors of the Lutheran Church in the Philippines as provided for in
its By-Laws.
IV.
Whether or not the Court of Appeals committed reversible error in ruling that the SEC-SICD had no
jurisdiction to call for a special election of the Board of Directors of the Lutheran Church in the
Philippines.6
In addition to the prayer to reverse the 10 October 1996 Decision and 3 March 1997 Resolution of
the Court of Appeals, and the revival of Resolution of the SEC En Banc in SEC-EB Case No. 330 and
the Order of the SEC-SIDC in Case No. 3857, the Ao-As group prays for the following:
1. x x x x
2. Declaring the Board of Directors elected at the National Convention called by the
Management Committee on January 25-27, 1993 in Cagayan de Oro as the legitimate
members of the Board of LCP;
3. Declaring all acts and resolutions passed by the Batong group invalid and of no legal
effect; and
4. Ordering the Batong group to return all the properties seized from the LCP and to
refrain from the representing the LCP.7
The Ao-As group did not commit willful and deliberate forum shopping in the filing of SEC-SIDC
Case No. 3857.
Since a ruling upholding the Court of Appeals on the issue of forum shopping would render all the
other issues in this petition moot, we resolve to pass upon the same at the onset.
The Ao-As group claims that the Court of Appeals reversibly erred in ruling that SEC-SICD Case No.
3857 is a case of forum shopping. The Court of Appeals had ruled:
Finally, SEC-SICD Case No. 3857 is a clear case of forum shopping. The acts of [the Batong group],
as embodied in several board resolutions, have already been raised and passed upon in other
cases pending at the time the [Ao-As group] instituted the present controversy.
The board resolutions denominated as LCP-BD-29-90 and LCP-BD-37-90 – authorizing the
dissolution of the LCP business office and termination of the employees connected therewith –
was the subject of NLRC CASE NOS. 03-01935-90 and 04-01979-90 pending before the National
Labor Relations Commission.
The board resolution denominated as LCP-BD-28-90 authorizing the transfer of the LCP corporate
records from the Sta. Mesa Office to the Caloocan Office – was the subject of Civil Case No.
133394-CV and 131879-CV pending before the Metropolitan Trial Court of Manila, Branches 20
and 21 and subsequently dismissed in view of the FORMULA OF CONCORD entered into between
the parties.
On the other hand, the legality of the composition of the eleven-member LCP Board was already
the subject matter of SICD Case No. 3524 which was appealed to the SEC En Banc and docketed as
SEC Case No. 352.
SEC Case No. 3857 is not the first case where the [Ao-As group], or those with similar interests,
have asked for the appointment of a management committee. In SEC Case 3556 entitled "Exclesio
Hipe and Lutheran Church of the Philippines v. Thomas Batong, et al.", in a motion dated June 18,
1991, private respondent Exclesio Hipe prayed for the appointment of a management committee
for LCP. In an Order dated August 15, 1991, the SEC-SICD ruled that the Motion for the
Appointment of a Management Committee and Accounting filed by the petitioners cannot be
given due course considering that the same is one of the incidents in SEC Case No. 3857 entitled
Rev. Luis Ao-As, et al. vs. Thomas Batong now pending in the sala of Hon. Elpidio Salgado".
Petitioners knew that similar petitions have been previously commenced because Atty. Oscar
Almazan who is also a co-counsel in the case was the counsel of record in SEC Case No. 3556 and
the other cases.
Clearly, the act of the [Ao-as group] in filing multiple petitions involving the same issues
constitutes forum shopping and should be sanctioned with dismissal. x x x 8
SEC-SICD Case No. 3857 is a petition for accounting with prayer for the appointment of a
management committee and the issuance of a writ of injunction. The Ao-As group claims that the
issue involved in the case is whether the Ao-As group is entitled to an accounting and to the
creation of a management committee due to the Batong group’s alleged dissipation and waste of
the assets of the LCP, and the subject matter is the act of dissipation and waste committed by the
Batong group. On the other hand:
1. NLRC Cases No. 03-01935-90 and 04-01979-90 pending before the National Labor Relations
Commission, is a case for illegal termination, which allegedly "obviously involves a different
cause of action";
2. The cases pending before Branches 20 and 21 of the Municipal Trial Court of Manila, docketed
as Civil Cases No. 133394-CV and 131879-CV, respectively, are actions for forcible entry and
unlawful detainer; and
3. SEC-SICD Case No. 3556 puts in issue the validity of LCP Board resolutions LCP-BD-6-89 and
LCP-BD-7-89, where what are involved are the incidents resulting from the issuance of the
resolutions – the unjust termination of Mr. Exclesio Hipe as LCP Business Manager and treasurer
and the illegal appointment of one Hildelberto Espejo in his place. SEC-SIDC Case No. 3524 puts
in issue the legality of the composition of the eleven-member LCP Board. These are allegedly
different issues from that of SEC-SIDC Case No. 3857 where the acts of respondents are claimed
to the basis of a prayer for accounting and appointment of a management committee.
As elucidated above, the causes of action under SEC-SIDC Case No. 3857 are the following:
First, the alleged non-liquidation and/or non-accounting of a part of the proceeds of the La
Trinidad land transaction in the amount of P64,000.00 by petitioner Thomas Batong;
Second, the alleged non-liquidation and/or unaccounting of cash advances in the aggregate
amount of P323,750.00 by petitioner Thomas Batong;
Third, the alleged dissipation and/or unaccounting of the LCP general fund in the amount of 4.8
million;
Fourth, the non-registration of the Leyte land purchased with LCP funds by petitioner Victorio
Saquilayan;
 Fifth, severance of church-partnership relationship with Lutheran Church-Missouri Synod
(LCMS); and
Sixth, the transfer of LCP corporate books from the Sta. Mesa office to the Caloocan office.
The elements of forum shopping are: (a) identity of parties, or at least such parties as represent
the same interests in both actions; (b) identity of rights asserted and the relief prayed for, the relief
being founded on the same facts; and (c) the identity of the two preceding particulars, such that
any judgment rendered in the other action will, regardless of which party is successful, amount to
res judicata in the action under consideration.9
Otherwise stated, there is forum shopping where a litigant sues the same party against whom
another action or actions for the alleged violation of the same right and the enforcement of the
same relief is/are still pending. The defense of litis pendentia in one case is a bar to the
other/others; and, a final judgment is one that would constitute res judicata and thus would cause
the dismissal of the rest. Absolute identity of the parties is not required. It is enough that there is
substantial identity of the parties. It is enough that the party against whom the estoppel is set up is
actually a party to the former case. There is identity of causes of action if the same evidence will
sustain the second action. The principle applies even if the relief sought in the two cases may be
different. Forum shopping consists of filing multiple suits involving the same parties for the same
cause of action, either simultaneously or successively, for the purpose of obtaining a favorable
judgment.10
As the present jurisprudence now stands, forum shopping can be committed in three ways: (1)
filing multiple cases based on the same cause of action and with the same prayer, the previous
case not having been resolved yet (litis pendentia); (2) filing multiple cases based on the same
cause of action and the same prayer, the previous case having been finally resolved (res judicata);
and (3) filing multiple cases based on the same cause of action but with different prayers (splitting
of causes of action, where the ground for dismissal is also either litis pendentia or res judicata 11 ). If
the forum shopping is not considered willful and deliberate, the subsequent cases shall be
dismissed without prejudice on one of the two grounds mentioned above. However, if the forum
shopping is willful and deliberate, both (or all, if there are more than two) actions shall be
dismissed with prejudice.12lavvphi1.net
The six grounds originally relied upon by the Ao-As group in SEC-SICD Case No. 3857 are entirely
different from the causes of action in NLRC Cases No. 03-01935-90 and 04-01979-90, Civil Cases
No. 133394-CV and 131879-CV, and SEC-SICD Cases No. 3556 and 3524. It is true that the causes of
action in the latter cases were included as additional grounds in SEC-SICD Case No. 3857 for the
appointment of the management committee and for accounting "of all funds, properties and
assets of LCP which may have come into their possession during their incumbency as officers
and/or directors of LCP."13 However, the creation of a management committee and the prayer for
accounting could not have been asked for in the labor (NLRC Cases No. 03-01935-90 and 04-
01979-90) and forcible entry (Civil Cases No. 133394-CV and 131879-CV) cases.
As regards the other SEC Cases, though, the Ao-As group could have indeed prayed for the creation
of the management committee and the accounting of the funds of the LCP. In fact, as stated by the
Court of Appeals, the petitioner in SEC-SICD Case No. 3556 had prayed for the appointment of a
management committee in a motion dated 18 June 1991. This motion, however, was subsequent
to the filing of SEC-SICD Case No. 3857 on 17 August 1990, for which reason the SEC-SICD ruled
that such motion cannot be given due course considering that it was one of the incidents of SEC-
SIDC Case No. 3857. In effect, the SEC-SIDC had denied the subsequent motion on the ground of
litis pendentia. But should SEC-SICD Case No. 3857, which contains the earlier prayer to create a
management committee, be likewise dismissed? Following the rules set forth in the preceding
paragraphs, it would depend on whether the different SEC cases constitute willful and deliberate
forum shopping on the part of Ao-As group.
We hold that this is not a case of willful and deliberate forum shopping and, hence, the SEC-SICD
Case No. 3857, which contains the earlier prayer to create a management committee, should not
be dismissed. The reason for this is the strict evidentiary requirement needed to grant a prayer to
create a management committee. The power of the SEC 14 to create a management committee is
found in Section 6(d) of Presidential Decree No. 902-A, as amended, which provides:
Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following
powers:
d) To create and appoint a management committee, board or body upon petition or motu propio
to undertake the management of corporations, partnerships or other associations not supervised
or regulated by other government agencies in appropriate cases when there is imminent danger of
dissipation, loss, wastage or destruction of assets or other properties or paralization of business
operations of such corporations or entities which may be prejudicial to the interest of the minority
stockholders, parties-litigants or the general public.
Evidently, it should be difficult to deduce the "imminent danger of dissipation, loss, wastage or
destruction of assets or other properties" from an allegation of a single act of previous
misappropriation or dissipation on the part of the Batong group. It is often only when the previous
misappropriations and dissipations have become extensive and out of control that it can be
candidly said that there is an imminent danger of further dissipation. The Ao-As group cannot be
faulted therefore for not praying for the creation of a management committee in the first couple of
cases it filed with the SEC, and neither can they be faulted for using the causes of action in
previously filed cases to prove their allegation of imminent dissipation. We cannot rule out the
possibility that the danger of imminent dissipation of the corporate assets became apparent only
in the acts of the respondents subsequent to the filing of the first two SEC cases.
The creation of a management committee is not warranted by the facts of the case.
The Ao-As group claims that the Court of Appeals "unceremoniously disregarded all the
undisputed testimonial and documentary evidence presented before the SEC," 15 and strongly
pointed to their evidence which "clearly show the dissipation, wastage and loss of LCP funds and
assets."16 These pieces of evidence supposedly proved the following:
1. The alleged anomaly concerning the sale of the land and the purchase of another land, both
located in La Trinidad. The La Trinidad Land Transaction, the proceeds whereof were allegedly
unliquidated, was testified to by petitioner Ao-As and Mr. Excelsio Hipe before the SEC-SICD in a
hearing conducted on 11 September 1990.
2. Unliquidated cash advances and unaccounted funds. Petitioners presented evidence to prove
the failure of respondent Batong to liquidate cash advances and account for P4,000,000 of LCP
funds.
 3. Purchase of Leyte Land in the name of respondent Saquilayan with LCP funds. Respondent LCP
Vice-President Victorio Y. Saquilayan allegedly purchased a parcel of land in Albuera, Leyte in his
name, using LCP funds. Respondent Saquilayan subsequently donated to the LCP, and explained
that the purchase in his name was upon advice of LCP’s lawyers to comply with the rulings in
Republic of the Philippines v. Hon. Arsenio M. Gonong 17 and Republic of the Philippines v. Iglesia
Ni Cristo.18
4. Severance of partner-church relationship between the LCP and the LCMS. Respondents issued
LCP Board Resolution No. LCP-BD-28-90 severing all relations with the Lutheran Church-Missouri
Synod (LCMS), allegedly in violation of LCP Board Resolution No. LCP-BD-33-70 which stated that
"all actions taken by LCP in convention can only be amended, modified and changed by LCP in
convention."
5. Taking of LCP Books of Account. Respondent Batong, accompanied by members of the LCP
Board and about 15 armed security guards allegedly barged into the premises of the LCP in Old
Sta. Mesa, Manila, and removed all of the official records and documents of the LCP (including
the books of account, official receipts, check and journal vouchers, official papers and titles to
property) and had the same relocated to his residence in Caloocan City and to the offices of
Immanuel Lutheran Church in Malabon.
The Court of Appeals had ruled:
Nothing in [Ao-As group’s] evidence presented in support for their application for a management
committee showed an impending or imminent danger of dissipation of funds. In the assailed SEC-
SICD Order dated September 3, 1992, the appointment of a management committee was justified
because of "acquisition of some lands using the corporate funds . . . in the name of some person
other than the LCP, and various cash advances of corporate funds by the respondents not
liquidated up to the present".
The SEC-SICD Order refers to the La Trinidad and Leyte land transactions and the alleged non-
liquidation or unaccountability of cash advances and other funds – which constitutes the four
causes of action alleged in the petition.
[The Ao-As group] admit[s] that the La Trinidad Land transactions [were] consummated in 1984
while the Leyte transaction was made in 1989. Both occurred prior to the Commencement (sic) of
the present petition in 1990. Similarly, the alleged unliquidated cash advances referred to
accumulated funds long withdrawn in the past by Dr. Thomas Batong "(in varying amounts) for
personal, travel and other miscellaneous purposes, all in the aggregate amount of not less than P
323,750.00". And the alleged unaccounted funds referred to the "trial balance of LCP as of
September 15, 1989".
Notably, the remaining two causes of action in the aforementioned petition do not involve
dissipation of funds, namely: (i) the severance of partner-church relationship between LCP and
Lutheran Church-Missouri Synod; and (ii) the transfer of corporate books from the Sta. Mesa Office
to Caloocan City.
All of the grounds relied upon by [the Ao-As group] pertain to past delinquencies for which there
are other available remedies such as accounting and reconveyance. The [Ao-As group] did not
allege, much less prove, any present or imminent loss or destruction of LCP properties and assets.
At best, it expresses merely a general apprehension for possible mismanagement by respondent
on the basis of the aforementioned past transactions.
It must be stressed that the appointment of a management committee inevitably results in the
drastic summary removal of all directors and officers of LCP. Clearly, the appointment of a
management committee is not justified due to the failure of only two (2) of the LCP Board
members to liquidate past cash advances and other transactions involving corporate property and
funds.
Where the corporation is solvent, a receiver will not be appointed because of past misconduct and
a subsequent mere apprehension of a future misdoing, where the present situation and the
prospects for the future are not such as to warrant a receivership. x x x"
Significantly, the SEC En Banc even pointed out that: "the question of whether or not the [Batong
group] have to account for all funds, properties and assets of LCP which may come into their
possession as directors and/or officers of LCP is still to be resolved by the hearing officer after trial
on the merits."
Under prevailing law, the SEC-SICD should have refused the appointment of a management
committee.
"It is the general rule that a receiver (or a management committee) will not be appointed unless it
appears that the appointment is necessary either to prevent fraud, or to save the property from
fraud or threatened destruction, or at least in case of solvent corporation x x x. The burden of
proof is a heavy one which requires a clear showing that an emergency exists.
"x x x Similarly, a receiver (or a management committee) should not be appointed in an action by a
minority stockholder against corporate officers for an accounting where the corporation is solvent
and going concern and a receiver is not necessary to preserve the corporate property pending the
accounting".
Furthermore, a management committee should not be created when there was an adequate
remedy available to private respondents for the liquidation of unaccounted funds. 19
The Court of Appeals went on to rule that the members of the Ao-As group "have not positively
shown that the said funds are unaccounted for," 20 and analyzed the evidence presented by the Ao-
As group to illustrate that the unaccounted funds were only P1,572.43, "which may be attributable
to adjustment errors but certainly not a case of misappropriation or misuse." 21
The Ao-As group maintains that the unaccounted funds amount to around P4.8 million, and claim
that if the Court of Appeals "had only given the [the Ao-As group] a chance to prove their
allegations (concerning acts committed by respondents subsequent to the creation of the
management committee), then it would have confirmed the earlier determination made by the
SEC-SICD regarding the necessity for the creation of the management committee." 22 It further
asseverates:
20. The acts constituting [the Ao-As group’s] six causes of action in the petition filed with the SEC-
SICD (the La Trinidad land transaction, the unliquidated cash advances, the unaccounted funds
amounting to P4.8 million, the Leyte land transaction, the severance of the sister-church
relationship and forcible removal of the LCP books of account) could not be characterized merely
as "past delinquencies". The six causes of action and the subsequent acts of the [Batong group],
after the filing of the petition with the SEC-SICD, clearly show a continuing and deliberate scheme
of the dissipation and wastage of LCP properties and assets, which if unrestricted would cause
further destruction of LCP assets and paralyzation of its operations, as it had already done. The
creation of the Management Committee was, therefore, perfectly legal and justified. And the
ruling of respondent Court of Appeals that these acts do not justify its appointment is, [the Ao-As
group] humbly submit, reversible error.
21. In addition, the CA Decision also declared that "in any event, the past anomalies were only
done by some of the Batong group." This is erroneous. Under the By-Laws of the LCP, the Board of
Directors is in charge of the disbursement of funds. Sections 1 and 2 of Article 6 of the LCP By-Laws
state:
"Section 1. The President of the LCP shall be given the following executive powers and supervisory
duties:
xxx xxx xxx
b. The President together with two other members of the LCP Board of Directors, may
authorize the release of surplus funds in emergencies or in cases of sudden need.
xxx xxx xxx
Section 2. The Board of Directors of the LCP
xxx xxx xxx
c. The Board of Directors shall prepare the annual budget of the LCP.
d. The Board of Directors shall be responsible for the annual auditing of all the LCP
Properties and may initiate special auditing at any time."
22. From the foregoing, it is clear that respondent Batong did not act alone, but in concert with the
other members of the LCP Board. The creation of the management committee was therefore
justified.
23. The CA Decision also noted that since there were other remedies available to the petitioners to
correct these anomalies, the creation of the management committee was unjustified. [The Ao-As
group] again humbly submit again (sic) that respondent Court of Appeals erred when it made this
statement. The LCP management committee was created precisely because of the extreme
urgency that [mere] caused by the continued dissipation, loss and wastage of LCP funds and assets
by the Batong group. If [the Ao-As group] were to avail of these so-called available remedies then
by the time a decision is to be rendered in these "available remedies" the assets and funds of the
LCP would have indubitably been lost forever since the dissipation, loss and wastage were then,
and still is, an on going process. Consequently, it is clearly unreasonable for respondent Court of
Appeals to declare that the [Ao-As group] should have first availed of these so-called remedies. 23
Even without delving into the analysis of the prosecution evidence concerning the six causes of
action and the alleged acts subsequent to these six causes of action, it is already appropriate for us
to rule that the facts as they appear to us now do not warrant the creation of a management
committee.
Refusal to allow stockholders (or members of a non-stock corporation) to examine books of the
company is not a ground for appointing a receiver (or creating a management committee) since
there are other adequate remedies, such as a writ of mandamus. 24 Misconduct of corporate
directors or other officers is not a ground for the appointment of a receiver where there are one or
more adequate legal action against the officers, where they are solvent, or other remedies. 25
The appointment of a receiver for a going corporation is a last resort remedy, and should not be
employed when another remedy is available. Relief by receivership is an extraordinary remedy and
is never exercised if there is an adequate remedy at law or if the harm can be prevented by an
injunction or a restraining order. Bad judgment by directors, or even unauthorized use and
misapplication of the company’s funds, will not justify the appointment of a receiver for the
corporation if appropriate relief can otherwise be had.26
The fact that the President of the LCP needs the concurrence of only two other directors to
authorize the release of surplus funds plainly contradicts the conclusion of conspiracy among the
presently 11-man board. Neither does the fact that the Board of Directors of the LCP prepares the
annual budget and the annual auditing of properties of the LCP justify the conclusion that the
alleged acts of respondent Batong was done in concert with the other directors. There should have
been evidence that such dissipation took place with the knowledge and express or implied consent
of most or the entire board. Good faith is always presumed. 27 As it is the obligation of one who
alleges bad faith to prove it, so should he prove that such bad faith was shared by all persons to
whom he attributes the same. The last resort remedy of replacing the entire board, therefore, with
a management committee, is uncalled for.
The Court of Appeals erred in declaring as invalid the manner of elections of the Board of Directors
of the LCP as provided in its By-Laws.
The Ao-As group stresses that the Court of Appeals committed reversible error in declaring as
invalid the manner of elections of the Board of Directors of the Lutheran Church in the Philippines
as provided in its By-Laws. The Court of Appeals ruled:
The Court notes that the LCP By-Laws provide for a special procedure for the election of its
directors. This was the procedure followed by both the [Batong group] and the [Ao-As group].
"Section 2. Composition of the Board of Directors of LCP.
a. The Board of Directors shall be composed of the President of LCP and the President
and lay representative of each District.
b. Newly elected members of the LCP Board of Directors shall assume their positions
immediately after LCP conventions or the October LCP Board of Directors’ meeting in the
year in which they are elected."
However, Section 24 of the Corporation Code provides that "[a]t all elections of directors or
trustees, there must be present, either in person or by representative to act by written proxy, x x x
if there be no capital stock, a majority of the members entitled to vote."
It is clear from Section 24 that in the election of the trustees of a non-stock corporation, it is
necessary that at least "a majority of the members entitled to vote" must be present at the
meeting held for the purpose. It follows that trustees cannot be elected by zones or regions, each
zone or region electing independently and separately a member of the board of trustees of the
corporation, such method being violative of Section 24. (SEC Opinions, Jan. 30, 1969, April 1,
1981). The election of the directors by district or regions as provided in the LCP By-Laws where a
majority of the members are not present is inconsistent with the Corporation [Code] and must be
struck down as invalid. Consequently, the directors elected by district cannot be considered as
bona fide directors. Even the election of LCP officers in the SEC-SICD sponsored national
convention of the LCP must be considered as invalid. 28
as recognized under the aforesaid Section 89. Section 24, which requires the presence of a
majority of the members entitled to vote in the election of the board of directors, applies only
when the directors are elected by the members at large, such as is always the case in stock
corporations by virtue of Section 6.
WHEREFORE, the Decision of the Court of Appeals annulling and setting aside the order to create a
management committee is thereby AFFIRMED, with the MODIFICATION that every subsequent
election of the directors of Lutheran Church in the Philippines shall henceforth be in accordance
with the By-Laws and Articles of Incorporation of the same. Costs against petitioners.
SO ORDERED.

As argued by the Ao-As group, however, the validity of the LCP By-Laws providing for a special
procedure in the election of the LCP Board of Directors was never put in issue, either by the Ao-As
group or the Batong group. The Court of Appeals, therefore, should have refrained from passing
upon such issue, motu propio. According to Rule 51, Section 8 of the Rules of Court, which pertains
to matters which may be decided on appeal:

Sec. 8. Questions that may be decided. – No error which does not affect the jurisdiction over the
subject matter or the validity of the judgment appealed from or the proceedings therein will be
considered unless stated in the assignment of errors, or closely related to or dependent on an
assigned error and properly argued in the brief, save as the court may pass upon plain errors and
clerical errors.

The ruling of the SEC En Banc setting aside the SEC-SICD determination that LCP Board of Directors
was illegally constituted has therefore become final and executory, subject to the determination by
the SEC-SICD of the seven members that should comprise the Board, as likewise provided in said
Decision.29

Even the Batong group agrees with the Ao-As group on the validity of the by-laws provision
concerning the election of the directors by districts:

[The Batong group] respectfully submit[s] that the matter of how the directors or other leaders of
a church shall be chosen is a matter of ecclesiastical law or custom which is outside the jurisdiction
of civil courts. Hence, even assuming arguendo, that the mode of election of the LCP is not strictly
in accordance with the Corporation Code, it was improper for the Securities and Exchange
Commission to apply the provisions of the said Code to the LCP. 30

In any case, the stipulation in the By-Laws is not contrary to the Corporation Code. Section 89 of
the Corporation Code pertaining to non-stock corporations provides that "(t)he right of the
members of any class or classes (of a non-stock corporation) to vote may be limited, broadened or
denied to the extent specified in the articles of incorporation or the by-laws." 31 This is an exception
to Section 6 of the same code where it is provided that "no share may be deprived of voting rights
except those classified and issued as ‘preferred’ or ‘redeemable’ shares, unless otherwise provided
in this Code."32 The stipulation in the By-Laws providing for the election of the Board of Directors
by districts is a form of limitation on the voting rights of the members of a non-stock corporation
CIVPRO – CERTIFICATION AGAINST FORUM SHOPPING - CORPORATION
G.R. No. 143088 January 24, 2006
PHILIPPINE AIRLINES, INC., MANOLO AQUINO, JORGE MA. CUI, JR. and PATRICIA CHIONG,
Petitioners,
vs.
FLIGHT ATTENDANTS AND STEWARDS ASSOCIATION OF THE PHILIPPINES (FASAP) and
LEONARDO BHAGWANI, Respondents.
DECISION
AZCUNA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court presents a recurring
question regarding the Court’s requirement of a certification of non-forum shopping.
Petitioners Philippine Airlines, Inc. (PAL) and Manolo Aquino, Jorge Ma. Cui, Jr. and Patricia Chiong,
in their capacity as Executive Vice-President Administration and Services, Manager International
Cabin Crew and Assistant Vice-President Cabin Services, respectively, are before the Court seeking
the reversal of the resolution of the Court of Appeals in C.A. G.R. No. SP-56850, dated January 31,
2000, dismissing their appeal and the resolution of May 11, 2000, denying the motion for
reconsideration.
The facts on the conflict between PAL and respondents Flight Attendants and Stewards Association
of the Philippines (FASAP) and Leonardo Bhagwani are not necessary for the Court’s resolution of
the petition. It is enough to state that on May 14, 1997 FASAP and Leonardo Bhagwani filed a
complaint for unfair labor practice, illegal suspension and illegal dismissal against petitioners
before the Labor Arbiter of the National Labor Relations Commission (NLRC). The Labor Arbiter
rendered a decision holding that PAL committed unfair labor practice and illegal dismissal of
Bhagwani and, consequently, ordered the payment of damages. The NLRC later modified the
decision by setting aside the finding that PAL was guilty of unfair labor practice, but affirming the
rest of the decision.
What is relevant to the case is the subsequent appeal to the Court of Appeals. When petitioners
filed a petition for certiorari against the decision with the Court of Appeals, it was accompanied by
a Certification of Non-Forum Shopping executed by Cesar R. Lamberte and Susan Del Carmen,
Vice-President Human Resources and Assistant Vice-President Cabin Services of PAL, respectively,
who are not parties to the case. The certification, however, was without proof that the two affiants
had authority to sign in behalf of petitioners. As a result, the Court of Appeals dismissed the case
for failure to show the authority of affiants to sign for PAL and for failure of the other petitioners to
join in the execution of the certification. A motion for reconsideration was filed with a Secretary’s
Certificate attached evidencing that affiants Cesar R. Lamberte and Susan Del Carmen have been
authorized by Board Resolution No. 00-02-03 to initiate and/or cause to be filed on behalf of PAL
petitions and pleadings in all labor-related cases. As to the other petitioners, it was argued that
they are mere nominal parties so that their failure to execute the certification does not justify
dismissal of the petition. Despite this submission, the Court of Appeals denied the motion for
reconsideration. Hence, the case is now before this Court.
The petition is without merit.
The necessity for a certification of non-forum shopping in filing petitions for certiorari is found in
Rule 65, Section 1, in relation to Rule 46, Section 3 of the Rules of Court. These provisions require
it to be executed by the corresponding petitioner or petitioners. As no distinction is made as to
which party must execute the certificate, this requirement is made to apply to both natural and
juridical entities.1 When the petitioner is a corporation, the certification should be executed by a
natural person. Furthermore, not just any person can be called upon to execute the certification,
although such a person may have personal knowledge of the facts to be attested to. 2
This Court has explained that a corporation has no power except those conferred on it by the
Corporation Code and those that are implied or incidental to its existence. The exercise of these
powers is done through the board of directors and/or duly authorized officers and agents. Given
these corporate features, the power of a corporation to sue in any court is generally lodged with
the board of directors. The board, in turn, can delegate the physical acts needed to sue, which may
be performed only by natural persons, to its attorneys-in-fact by a board resolution, if not already
authorized under the corporate by-laws. 3
Thus, only individuals vested with authority by a valid board resolution may sign the certificate of
non-forum shopping in behalf of a corporation. In addition, the Court has required that proof of
said authority must be attached. Failure to provide a certificate of non-forum shopping is sufficient
ground to dismiss the petition. Likewise, the petition is subject to dismissal if a certification was
submitted unaccompanied by proof of the signatory’s authority. 4
The petition filed with the Court of Appeals had a certification of non-forum shopping executed by
Cesar R. Lamberte and Susan Del Carmen. The certification, however, was without proof of
authority to sign. When a motion for reconsideration was filed, a Secretary’s Certificate was
submitted as proof that the board of directors of PAL had authorized the two to execute the
certificate. Nonetheless, the Court finds that this belated submission is an insufficient compliance
with the certification requirement.
This Court has allowed the reinstatement of petitions that were dismissed due to lack of proof of
authority to sign the certification upon its subsequent submission, saying that this amounted to
substantial compliance. The rationale was that the signatories, at the time of execution of the
certification, were in fact authorized to sign, although proof of their authority was lacking. 5
This is not what happened in this case. A perusal of the Secretary’s Certificate submitted reveals
that the authority to cause the filing of the petition was granted on February 15, 2000. 6 The
petition, on the other hand, was filed on January 24, 2000 and was dismissed by the Court of
Appeals on January 31, 2000. This means that at the time the certification was signed, Cesar R.
Lamberte and Susan Del Carmen were not duly authorized by the Board of Directors of PAL and,
consequently, their signing and attestations were not in representation of PAL. This effectively
translates to a petition that was filed without a certification at all as none was issued by PAL, the
principal party to the case.
The required certification of non-forum shopping must be valid at the time of filing of the petition.
An invalid certificate cannot be remedied by the subsequent submission of a Secretary’s Certificate
that vests authority only after the petition had been filed.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
CIVPRO – AMENDMENTS
G.R. No. 98177 June 8, 1993
BARFEL DEVELOPMENT CORPORATION AND SPOUSES VICTOR AND AIDA BARRIOS, petitioner,
vs.
COURT OF APPEALS, REGINAS INDUSTRIES AND DEVELOPMENT CORPORATION AND TEODORICO
E. ZARAGOZA, respondents.
PADILLA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking a reversal of the decision *
of the Court of Appeals, dated 31 January 1991, and its resolution of 2 April 1991, denying the
petition for certiorari and prohibition, thereby upholding the order of the Regional Trial Court of
Makati, Branch 134 ** dated 30 April 1990 (Civil Case No. 17875) admitting party-plaintiffs'
amended complaint impleading as additional party-defendant (PISO Bank, a second mortgagee)
after the former had concluded presenting their evidence and while the original defendants
(herein petitioners) were in the process of presenting their witnesses.
In the Makati, RTC, the following relevant facts were established:
Private respondents filed a complaint for specific performance and damages against the
petitioners, the material allegations of which are as follows:
3. On June 19, 1987, the defendants, as sellers, and plaintiff corporation, as buyer, and
represented by its President, plaintiff Zaragoza, concluded an Agreement to But/Sell two (2)
parcels of land with two (2) houses erected thereon located at 209 Bulusan St., Ayala-Alabang,
Muntinlupa, Metro Manila, covered by Transfer Certificates of Title (TCT) No. T-132671 and
132651, both of the Register of Deeds for Makati, Metro Manila. Said Agreement bears the
expressed stipulation, among others, that "The seller will apply the payment of the cash portion
of the purchase price to the removal of any and all liens on the properties. . . .;
4. Plaintiff paid the amount of P100,000 as down payment upon signing of the aforesaid
Agreement;
5. During the time the Agreement was under negotiation and even at the conclusion thereof,
the defendants repeatedly warranted that except for a mortgage in favor of the Bank of the
Philippine Islands (BPI) and the Deed of Restrictions annotated at the back of the titles
mentioned above, the subject properties are "free from any liens and encumbrances";
6. Sometime on June 24, 1987, plaintiffs found out that defendants made a blatant
misrepresentation it was discovered that the subject properties have a second mortgage with
the PISO/Central Bank in the amount of P2,571,400.00;
7. Informed of this discovery defendant Victor S. Barrios advised plaintiff that the second
mortgage obligation is or has been reduced to only P54,000.00 and gave assurance that he will
submit the necessary documents to support the same so that a legal valid and acceptable
arrangement could be worked out with the Central Bank for the release of said second
mortgage;
8. . . . under date of June 29, 2987, the Philippine Savings Bank (PSB), gave a notice that it has
approved plaintiff corporation's application for the loan with which to pay subject properties
under the Agreement to Buy/Sell (Annex A), subject to certain terms and conditions, principal of
which is a security of real estate mortgage upon the subject properties in favor of PSB. . . .;
9. In this connection, the PSB also sent separate letters of undertaking/commitment to the
defendants and the BPI detailing a workable arrangement to consummate the transaction
whereby new titles to the subject properties would first be transferred to the plaintiff
corporation and the mortgage in favor of PSB are to be annotated thereon. Once done, the PSB,
by virtue of authority already given by the plaintiff corporation, would directly pay BPI from the
proceeds of the loan granted to plaintiff corporation the mortgage obligation due to it in the
amount of P857,539.36, and also pay the defendants the balance of the purchase price in the
amount of P3,642,460.64 net of what has been paid to BPI. . . .;
10. The defendants expressed their conformity to the aforementioned arrangement as shown in
their letter to the BPI dated July 8, 1987, . . .;
11. In view of the assurances of defendants, plaintiffs, in a letter dated July 9, 1987 sent to
defendants to further ensure the consummation of the transaction, manifested its willingness to
pay the sum of P2,000,000.00 ahead of the PSB loan proceeds upon release of the second
mortgage by the Central Bank which was to be worked out by the defendants. Defendants
conformed to the arrangement by affirming their signatures to the said letter were (sic) they
also agreed to the release of the certificates of title to PSB, free and clear of any liens, upon
payment of P2,000,000.00, . . .
12. Notwithstanding the contractual obligations, terms and conditions agreed upon by, between
and among the parties and those involved in the transaction, plaintiffs consequently received
information that defendants have been negotiating with other parties for the sale of the
properties in question, although defendants denied such fact;
13. Be that as it may, the undisputed fact is that defendants, in gross and evident bad faith and
in malicious breach of contract, deliberately failed and/or refused and to date continued to fail
and refused to comply with their contractual of securing the release of the second mortgage on
the subject properties thereby effectively preventing the consummation of the sale to the
damage and prejudice of the plaintiffs;
14. The malice, fraud and the gross and evident bad faith on the part of the defendants is
further demonstrated by the fact that subsequently, BPI advised that it was disauthorized by
defendants to consummate the transaction despite ]previous arrangements to the contrary as
per BPI's letter to plaintiff's bank dated July 31, 1987 1 . . .;
Petitioners (as defendants) filed an answer with the following affirmative allegations:
5. Before Reginas signed Annex A, it was aware of all liens and encumbrances on the Property,
including the mortgage in favor of PISO Bank ("PISO Mortgage").
6. . . .
c. The parties agreed that if full payment could not be affected, of if the PISO Mortgage is not
released, within 30 days from July 9, 1987, they will each have the option to terminate the
agreement.
xxx xxx xxx
8. In the documentation, Barfel and Reginas did not make reference to the PISO Mortgage
because: (1) Barfel and Reginas believed that since Barfel's balance to PISO was only about
 P54,000, release of the PISO Mortgage could be obtained within 30 days; and (ii) Reginas
wanted to be able to present to PSB a "clean document" to expedite the approval of its loan.
9. Regarding the release of the PISO Mortgage, plaintiffs undertook to make direct and active
representations with the proper officers of the Central Bank (because PISO is in the custody of a
Central Bank officer as receiver/liquidator) and agreed that the responsibility of the defendants
was solely to provide the documentation to support the position that Barfel's remaining balance
under the PISO Mortgage was only about P54,000.
10. In accordance with that commitment, defendants gave and/or made available to Reginas all
documents they had in their possession necessary to show that the balance of the PISO
Mortgage was only P54,000. With these documents, plaintiffs made direct representations with
the proper officers of the Central Bank.
11. The failure to obtain a release of the PISO Mortgage within the 30-day period was accepted
by the parties as a possibility and therefore could not be imputed on the defendants.
12. Release of the BPI Mortgage could not be worked out because PSB, as a condition for the
disbursement of the loan, wanted the title to the Property to be transferred first to Reginas and
the mortagage to secure Reginas' loan to be annotated on the title. The mechanics for payment
was unacceptable to BPI.
13. The refusal of BPI to agree to PSB's terms of payment was based solely on its own evaluation
of the acceptability of the mechanics for payment suggested by PSB. And the failure to obtain a
release on the BPI Mortgage is solely on account of PSB's, therefore plaintiffs', insistence on an
unacceptable mechanics for payment.2
Pre-trial was concluded by the trial court. Plaintiffs therein (herein private respondents)
presented evidence and rested their case.
During defendants' (herein petitioners') presentation of evidence, private respondents filed on 13
March 1990, a motion for a leave to file an amended complaint and motion to admit the same.
The amendment consisted of impleading PISO bank as additional party defendant and compel it to
accept payment of the existing second mortgage from private respondent Reginas, since allegedly
no complete relief can be had unless the second mortgage in favor of said PISO bank is released.
Despite petitioners' opposition, an order was issued by the trial court on 30 April 1990 admitting
the amended complaint. After denial of their motion for reconsideration on 1 June 1990,
petitioners proceeded to the Court of Appeals on a petition for certiorari and prohibition (CA-G.R.
Sp. No. 23153) raising the issue of whether an amendment to the complaint pleading a cause of
action against a new or additional party can be allowed after the private respondents (as plaintiffs)
had rested their case and petitioners (as defendants) had commenced the presentation of their
evidence.
Sustaining private respondents' contentions, the Court of Appeals' decision held in effect, as
follows:
The change in language from the former to the present rule (Section 3, Rule 10 of the Revised
Rules of Court), does not stop the court from allowing substantial amendments, after the trial
has begun, there being nothing in the rule as changed, which limits the court's authority to
allow substantial amendments to the pleading just because trial has already begun.
The amendment of the complaint was made without intent to delay the action. The essence of
the liberal interpretation accorded by the courts on the filing of an amended complaint is the
avoidance of multiplicity of suits. And also, private respondents' cause of action has not been
substantially altered.
PISO Bank is a proper party under Section 8 of Rule 3 of the Revised Rules of Court. For the
defendants Barfel Development Corporation and the spouses Barrios to be able to comply with
its obligation under the Agreement to Buy/Sell dated 19 June 1987 and the letter-agreement
dated 9 July 1987 and the related Deed of Sale, there had to be a determination of the amount
really due Piso Bank and corresponding order for said bank to accept the payment of plaintiff
corporation to extinguish the obligation secured by the mortgage, before the consummation of
said transaction can be effected.3
With the denial by the appellate court of petitioners' motion for reconsideration, 4 the same legal
issue earlier brought before the Court of Appeals is now before us for resolution, with the
following supportive arguments:5
In resolving the issue in favor of allowance of the amended complaint, the Court of Appeals
has decided it in a way not in accord with Rule 10, Section 3, which we quote for the
convenience of the Court:
Section 3. Amendments by leave of court. — After the case is set for hearing, substantial
amendments may be made only upon leave of court. But such leave may be refused if it
appears to the court that the motion was made with intent to delay the action or that the
cause of action or defense is substantially altered . . . . (emphasis is supplied)
The amendment was made with the intent to delay the action and substantially alters private
respondents' cause of action and petitioners' defense.
xxx xxx xxx
The following circumstances, according to petitioners, show intent to delay;
A. The pretext given is that PISO has to joined as a co-defendant so that it can be compelled to
accept the payment of whatever would be determined as the correct balance of the PISO
mortgage. The amendment will bring into the case the controversy or dispute between PISO and
the petitioners as to how much is still due under the mortgage.
B. But why is the dispute brought out only now? It was not as if the private respondents learned
of the dispute only at the time they sought the amendment. As earlier pointed out when they
filed the Complaint, they already knew about it.
We rule for the petitioners, and reverse the appellate court's decision.
Petitioners' assertion — which is not refuted by private respondents — is that the subject matter
of the original complaint sought to be amended was well known to private respondents from the
start. The reason for the amendment impleading PISO is to compel the latter to accept herein
respondents' payment and release the second mortgage thereby enabling petitioners to deliver to
respondents the titles free from all liens and encumbrances. But PISO bank is not a party to the
three (3) contracts which are the subject of the action for specific performance and damages
between the private respondents and petitioners. The bank which is not a party to the transaction
is not an indispensable party. 6 Neither is there an acceptable explanation from private respondents
why PISO Bank was not impleaded in the original complaint filed before the RTC of Makati. PISO is
a second mortgagee, whatever the outcome of the litigation between the petitioners and the
private respondents would be. Its second mortgage lien attaches to the property. The action for
specific performance by private respondents against petitioners is not the proper venue for
releasing al liens and encumbrances on the subject property. Perhaps, herein private respondents
have confused the possible liability of petitioner Barrios for allegedly withholding information on
the said second mortgage as another cause of action against him arising from the executed
contracts. But title to the disputed properties can still be delivered by petitioners to herein
respondents, by way of specific performance with damages, encumbered of course by the second
mortgage in favor of PISO but the release of such encumbrance can be obtained independently of
this case. To include it as another cause of action in the case at bar against an additional
defendant, would indeed change the theory of the case, let alone delay the proceedings on the
original case of action founded on specific performance with damages.
To compel PISO to accept payment cannot be allowed in an action for specific performance with
damages between other parties. These are two (2) different causes. A second mortgagee like PISO
has several options. It may neither:
1. foreclose the second mortgage for non-payment.
2. pay off the first mortgagee (BPI in this instance) and be subrogated to its rights thereby
becoming the sole lien holder.
3. collect on the loan without foreclosing on the mortgage.
Under the facts alleged in the amended complaint, there is no statement that the mortgage debt
in favor of PISO is due and demandable; neither is PISO foreclosing on the mortgage. And in an
unexpected act of liberality, PISO can even write off the debt (of course an improbability). In any
event private respondents (as plaintiffs below) cannot compel PISO to accept payment as it is not
even a party to the mortgage contract (with PISO); the latter cannot be impleaded as a party
defendant, and the former only has an inchoate right to the property. Besides, if the principal
mortgagee, BPI, is not even impleaded why should the second mortgagee PISO be so impleaded,
when it is a stranger to the transaction between petitioners and private respondents? Even the
mortgage document purportedly sued upon is not attached to the amended complaint.
In Marimperio Compania Naviera, S.A. v. CA, G.R. 40234, December 14, 19877, the Court held:
According to Article 1311 of the Civil Code a contract takes effect between the parties who
made it, and also their assigns and heirs, except in cases where the rights and obligations arising
from the contract are not transmissible by their nature, or by stipulation or by provision of law.
Since a contract may be violated only by the parties, thereto as against each other, in an action
upon that contract, the real parties in interest, either as plaintiff or as defendant, must be
parties to said contract. Therefore, a party who has not taken part in it cannot sue or be sued for
performance or for cancellation thereof, unless he shows that he has a real interest affected
thereby.
A "real interest" has been defined as "a present substantial interest, as distinguished from a mere
expectancy or a future, contingent, subordinate or consequential interest." (Moreno, Federico B.
Philippine Law Dictionary, Third Edition)
Complete relief by private respondents against petitioners may be had even if PISO/Central Bank
were not impleaded as party defendant in the original case. PISO is not an indispensable or
necessary party without whom no final determination can be had of the action for specific
performance with damages. (Sec. 7, Rule 3, Rules of Court). Private respondents maintain that
PISO is a proper party under sec. 8, Rule 3 of the Revised Rules of Court. The provision invoked
reads:
Section 8. Joinder of proper parties. — When persons who are not indispensable but who ought
to be parties if complete reliefs is to be accorded as between those already parties, have not
been made parties and are subject to the jurisdiction of the court as to both service of process
and venue, the court shall order them summoned to appear in the action. But the court may, in
its discretion, proceed in the action without making such persons parties, and the judgment
rendered therein shall be without prejudice to the rights of such persons.
From the above, it is clear that joinder of admittedly proper properties is permissive, that
judgment will be decreed even if all the parties are not present if the court will be able to proceed
to a decree and do justice to the parties already before it, without injury to those who are absent
but equally interested in the litigation and who cannot conveniently be made parties to the suit. 8
Wherever a case will be completely decided as between the party litigants, an interest existing in
some other persons whom the process of the court cannot reach will not prevent a decree upon
merits.9 In short, as far as the complaint for specific performance and damages is concerned,
complete relief maybe accorded between private respondents and petitioners (as original parties)
without the presence of the second mortgagee (PISO bank). If complete relief to herein private
respondents is the ultimate aim of the RTC ruling, why did it not include BPI as (proper) party
defendant, since after all, there is an allegation in the original complaint that BPI refused to go
along with the transaction because of petitioner's representations.
Moreover, the amendment sought by private respondents, which is to include a new party
defendant at a late stage in the proceeding is not a formal but a substantial one. Private
respondents will have to present additional evidence on the PISO second mortgage. The effect
would be to start trial anew with the parties recasting their theories of the case. The correct
amount of the second mortgage owed by petitioners to PISO bank (apparently a controverted
point), would have to be litigated and this could be time consuming.
As a general policy, liberality in allowing amendments is greatest in the early stages of a law suit,
decreases as it progresses and changes at times to a strictness amounting to a prohibition. 10 This is
further restricted by the condition that the amendment should not prejudice the adverse party or
place him at a disadvantage. 11
WHEREFORE, the petition for review is GRANTED. The decision appealed from is REVERSED and
SET ASIDE. Let this case be remanded to the court of origin for continuation of the presentation of
evidence by herein petitioners (as defendants) in Civil Case No. 17875.
CIVPRO – AMENDMENTS - KINDS the complaint be dismissed and that Christian be ordered to pay ₱1 million as moral damages;
₱500,000 as exemplary damages; and ₱100,000 as attorney’s fees. 4
G.R. No. 161135. April 8, 2005
In due course and after hearing, the trial court rendered a decision 5 on 5 May 2000 declaring the
SWAGMAN HOTELS AND TRAVEL, INC., Petitioners, first two promissory notes dated 7 August 1996 and 14 March 1997 as already due and
vs. demandable and that the interest on the loans had been reduced by the parties from 15% to 6%
HON. COURT OF APPEALS, and NEAL B. CHRISTIAN, Respondents. per annum. It then ordered the petitioner corporation to pay Christian the amount of $100,000
representing the principal obligation covered by the promissory notes dated 7 August 1996 and 14
March 1997, "plus interest of 6% per month thereon until fully paid, with all interest payments
DECISION
already paid by the defendant to the plaintiff to be deducted therefrom."

DAVIDE, JR., C.J.:

The trial court ratiocinated in this wise:

May a complaint that lacks a cause of action at the time it was filed be cured by the accrual of a
(1) There was no novation of defendant’s obligation to the plaintiff. Under Article 1292 of the Civil
cause of action during the pendency of the case? This is the basic issue raised in this petition for
Code, there is an implied novation only if the old and the new obligation be on every point
the Court’s consideration.
incompatible with one another.

Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L.
The test of incompatibility between the two obligations or contracts, according to an imminent
Infante and Rodney David Hegerty, its president and vice-president, respectively, obtained from
author, is whether they can stand together, each one having an independent existence. If they
private respondent Neal B. Christian loans evidenced by three promissory notes dated 7 August
cannot, they are incompatible, and the subsequent obligation novates the first (Tolentino, Civil
1996, 14 March 1997, and 14 July 1997. Each of the promissory notes is in the amount of
Code of the Philippines, Vol. IV, 1991 ed., p. 384). Otherwise, the old obligation will continue to
US$50,000 payable after three years from its date with an interest of 15% per annum payable
subsist subject to the modifications agreed upon by the parties. Thus, it has been written that
every three months.1 In a letter dated 16 December 1998, Christian informed the petitioner
accidental modifications in an existing obligation do not extinguish it by novation. Mere
corporation that he was terminating the loans and demanded from the latter payment in the total
modifications of the debt agreed upon between the parties do not constitute novation. When the
amount of US$150,000 plus unpaid interests in the total amount of US$13,500. 2
changes refer to secondary agreement and not to the object or principal conditions of the
contract, there is no novation; such changes will produce modifications of incidental facts, but will
On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City, not extinguish the original obligation. Thus, the acceptance of partial payments or a partial
Branch 59, a complaint for a sum of money and damages against the petitioner corporation, remission does not involve novation (id., p. 387). Neither does the reduction of the amount of an
Hegerty, and Atty. Infante. The complaint alleged as follows: On 7 August 1996, 14 March 1997, obligation amount to a novation because it only means a partial remission or condonation of the
and 14 July 1997, the petitioner, as well as its president and vice-president obtained loans from same debt.
him in the total amount of US$150,000 payable after three years, with an interest of 15% per
annum payable quarterly or every three months. For a while, they paid an interest of 15% per
In the instant case, the Court is of the view that the parties merely intended to change the rate of
annum every three months in accordance with the three promissory notes. However, starting
interest from 15% per annum to 6% per annum when the defendant started paying $750 per
January 1998 until December 1998, they paid him only an interest of 6% per annum, instead of
month which payments were all accepted by the plaintiff from January 1998 onward. The payment
15% per annum, in violation of the terms of the three promissory notes. Thus, Christian prayed
of the principal obligation, however, remains unaffected which means that the defendant should
that the trial court order them to pay him jointly and solidarily the amount of US$150,000
still pay the plaintiff $50,000 on August 9, 1999, March 14, 2000 and July 14, 2000.
representing the total amount of the loans; US$13,500 representing unpaid interests from January
1998 until December 1998; ₱100,000 for moral damages; ₱50,000 for attorney’s fees; and the cost
of the suit.3 (2) When the instant case was filed on February 2, 1999, none of the promissory notes was due
and demandable. As of this date however, the first and the second promissory notes have already
matured. Hence, payment is already due.
The petitioner corporation, together with its president and vice-president, filed an Answer raising
as defenses lack of cause of action and novation of the principal obligations. According to them,
Christian had no cause of action because the three promissory notes were not yet due and Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a complaint which states no cause
demandable. In December 1997, since the petitioner corporation was experiencing huge losses of action may be cured by evidence presented without objection. Thus, even if the plaintiff had no
due to the Asian financial crisis, Christian agreed (a) to waive the interest of 15% per annum, and cause of action at the time he filed the instant complaint, as defendants’ obligation are not yet due
(b) accept payments of the principal loans in installment basis, the amount and period of which and demandable then, he may nevertheless recover on the first two promissory notes in view of
would depend on the state of business of the petitioner corporation. Thus, the petitioner paid the introduction of evidence showing that the obligations covered by the two promissory notes are
Christian capital repayment in the amount of US$750 per month from January 1998 until the time now due and demandable.
the complaint was filed in February 1999. The petitioner and its co-defendants then prayed that
(3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante can not be held personally
liable for the obligations contracted by the defendant corporation it being clear that they merely
acted in representation of the defendant corporation in their capacity as General Manager and
President, respectively, when they signed the promissory notes as evidenced by Board Resolution
No. 1(94) passed by the Board of Directors of the defendant corporation (Exhibit "4"). 6
In its decision7 of 5 September 2003, the Court of Appeals denied petitioner’s appeal and affirmed
in toto the decision of the trial court, holding as follows:
In the case at bench, there is no incompatibility because the changes referred to by appellant
Swagman consist only in the manner of payment. . . .
Appellant Swagman’s interpretation that the three (3) promissory notes have been novated by
reason of appellee Christian’s acceptance of the monthly payments of US$750.00 as capital
repayments continuously even after the filing of the instant case is a little bit strained considering
the stiff requirements of the law on novation that the intention to novate must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. Under
the circumstances, the more reasonable interpretation of the act of the appellee Christian in
receiving the monthly payments of US$750.00 is that appellee Christian merely allowed appellant
Swagman to pay whatever amount the latter is capable of. This interpretation is supported by the
letter of demand dated December 16, 1998 wherein appellee Christian demanded from appellant
Swagman to return the principal loan in the amount of US$150,000 plus unpaid interest in the
amount of US$13,500.00
...
Appellant Swagman, likewise, contends that, at the time of the filing of the complaint, appellee
Christian ha[d] no cause of action because none of the promissory notes was due and
demandable.
Again, We are not persuaded.
...
In the case at bench, while it is true that appellant Swagman raised in its Answer the issue of
prematurity in the filing of the complaint, appellant Swagman nonetheless failed to object to
appellee Christian’s presentation of evidence to the effect that the promissory notes have become
due and demandable.
The afore-quoted rule allows a complaint which states no cause of action to be cured either by
evidence presented without objection or, in the event of an objection sustained by the court, by an
amendment of the complaint with leave of court (Herrera, Remedial Law, Vol. VII, 1997 ed., p.
108).8
Its motion for reconsideration having been denied by the Court of Appeals in its Resolution of 4
December 2003,9 the petitioner came to this Court raising the following issues:
I. WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO DEFENDANTS HAS BECOME FINAL
AND EXECUTORY, MAY THE RESPONDENT COURT OF APPEALS STILL STUBBORNLY CONSIDER THEM
AS APPELLANTS WHEN THEY DID NOT APPEAL?
ii. Where there is no cause of action, is the decision of the lower court valid?
III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY AFFIRM A DECISION OF THE LOWER COURT
WHICH IS INVALID DUE TO LACK OF CAUSE OF ACTION?
IV. Where there is a valid novation, may the original terms of contract which has been novated still
prevail?10
The petitioner harps on the absence of a cause of action at the time the private respondent’s
complaint was filed with the trial court. In connection with this, the petitioner raises the issue of
novation by arguing that its obligations under the three promissory notes were novated by the
renegotiation that happened in December 1997 wherein the private respondent agreed to waive
the interest in each of the three promissory notes and to accept US$750 per month as installment
payment for the principal loans in the total amount of US$150,000. Lastly, the petitioner questions
the act of the Court of Appeals in considering Hegerty and Infante as appellants when they no
longer appealed because the trial court had already absolved them of the liability of the petitioner
corporation.
On the other hand, the private respondent asserts that this petition is "a mere ploy to continue
delaying the payment of a just obligation." Anent the fact that Hegerty and Atty. Infante were
considered by the Court of Appeals as appellants, the private respondent finds it immaterial
because they are not affected by the assailed decision anyway.
Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil Procedure, is the act or
omission by which a party violates the right of another. Its essential elements are as follows:
1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;
2. An obligation on the part of the named defendant to respect or not to violate such right; and
3. Act or omission on the part of such defendant in violation of the right of the plaintiff or
constituting a breach of the obligation of the defendant to the plaintiff for which the latter may
maintain an action for recovery of damages or other appropriate relief. 11
It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the
plaintiff the right to maintain an action in court for recovery of damages or other appropriate
relief.
It is undisputed that the three promissory notes were for the amount of P50,000 each and
uniformly provided for (1) a term of three years; (2) an interest of 15 % per annum, payable
quarterly; and (3) the repayment of the principal loans after three years from their respective
dates. However, both the Court of Appeals and the trial court found that a renegotiation of the
three promissory notes indeed happened in December 1997 between the private respondent and
the petitioner resulting in the reduction – not waiver – of the interest from 15% to 6% per annum,
which from then on was payable monthly, instead of quarterly. The term of the principal loans
remained unchanged in that they were still due three years from the respective dates of the
promissory notes. Thus, at the time the complaint was filed with the trial court on 2 February
1999, none of the three promissory notes was due yet; although, two of the promissory notes with
the due dates of 7 August 1999 and 14 March 2000 matured during the pendency of the case with
the trial court. Both courts also found that the petitioner had been religiously paying the private
respondent US$750 per month from January 1998 and even during the pendency of the case
before the trial court and that the private respondent had accepted all these monthly payments.
With these findings of facts, it has become glaringly obvious that when the complaint for a sum of
money and damages was filed with the trial court on 2 February 1999, no cause of action has as
yet existed because the petitioner had not committed any act in violation of the terms of the three
promissory notes as modified by the renegotiation in December 1997. Without a cause of action,
the private respondent had no right to maintain an action in court, and the trial court should have
therefore dismissed his complaint.
Despite its finding that the petitioner corporation did not violate the modified terms of the three
promissory notes and that the payment of the principal loans were not yet due when the
complaint was filed, the trial court did not dismiss the complaint, citing Section 5, Rule 10 of the
1997 Rules of Civil Procedure, which reads:
Section 5. Amendment to conform to or authorize presentation of evidence. — When issues not
raised by the pleadings are tried with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after judgment; but failure to amend
does not affect the result of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court may allow the pleadings to
be amended and shall do so with liberality if the presentation of the merits of the action and the
ends of substantial justice will be subserved thereby. The court may grant a continuance to enable
the amendment to be made.
According to the trial court, and sustained by the Court of Appeals, this Section allows a complaint
that does not state a cause of action to be cured by evidence presented without objection during
the trial. Thus, it ruled that even if the private respondent had no cause of action when he filed the
complaint for a sum of money and damages because none of the three promissory notes was due
yet, he could nevertheless recover on the first two promissory notes dated 7 August 1996 and 14
March 1997, which became due during the pendency of the case in view of the introduction of
evidence of their maturity during the trial.
Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is erroneous.
Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil Procedure in order
that the actual merits of a case may be determined in the most expeditious and inexpensive
manner without regard to technicalities, and that all other matters included in the case may be
determined in a single proceeding, thereby avoiding multiplicity of suits. 12 Section 5 thereof applies
to situations wherein evidence not within the issues raised in the pleadings is presented by the
parties during the trial, and to conform to such evidence the pleadings are subsequently amended
on motion of a party. Thus, a complaint which fails to state a cause of action may be cured by
evidence presented during the trial.
However, the curing effect under Section 5 is applicable only if a cause of action in fact exists at
the time the complaint is filed, but the complaint is defective for failure to allege the essential facts.
For example, if a complaint failed to allege the fulfillment of a condition precedent upon which the
cause of action depends, evidence showing that such condition had already been fulfilled when
the complaint was filed may be presented during the trial, and the complaint may accordingly be
amended thereafter.13 Thus, in Roces v. Jalandoni,14 this Court upheld the trial court in taking
cognizance of an otherwise defective complaint which was later cured by the testimony of the
plaintiff during the trial. In that case, there was in fact a cause of action and the only problem was
the insufficiency of the allegations in the complaint. This ruling was reiterated in Pascua v. Court of
Appeals.15
It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or
remedied by an amended or supplemental pleading alleging the existence or accrual of a cause of
action while the case is pending. 16 Such an action is prematurely brought and is, therefore, a
groundless suit, which should be dismissed by the court upon proper motion seasonably filed by
the defendant. The underlying reason for this rule is that a person should not be summoned
before the public tribunals to answer for complaints which are immature. As this Court eloquently
said in Surigao Mine Exploration Co., Inc. v. Harris:17
It is a rule of law to which there is, perhaps, no exception, either at law or in equity, that to recover
at all there must be some cause of action at the commencement of the suit. As observed by
counsel for appellees, there are reasons of public policy why there should be no needless haste in
bringing up litigation, and why people who are in no default and against whom there is yet no
cause of action should not be summoned before the public tribunals to answer complaints which
are groundless. We say groundless because if the action is immature, it should not be entertained,
and an action prematurely brought is a groundless suit.
It is true that an amended complaint and the answer thereto take the place of the originals which
are thereby regarded as abandoned (Reynes vs. Compañía General de Tabacos [1912], 21 Phil. 416;
Ruyman and Farris vs. Director of Lands [1916], 34 Phil., 428) and that "the complaint and answer
having been superseded by the amended complaint and answer thereto, and the answer to the
original complaint not having been presented in evidence as an exhibit, the trial court was not
authorized to take it into account." (Bastida vs. Menzi & Co. [1933], 58 Phil., 188.) But in none of
these cases or in any other case have we held that if a right of action did not exist when the
original complaint was filed, one could be created by filing an amended complaint. In some
jurisdictions in the United States what was termed an "imperfect cause of action" could be
perfected by suitable amendment (Brown vs. Galena Mining & Smelting Co., 32 Kan., 528; Hooper
vs. City of Atlanta, 26 Ga. App., 221) and this is virtually permitted in Banzon and Rosauro vs.
Sellner ([1933], 58 Phil., 453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683); and
recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however, which is no cause of action
whatsoever cannot by amendment or supplemental pleading be converted into a cause of action:
Nihil de re accrescit ei qui nihil in re quando jus accresceret habet.
We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and subsisting
cause of action at the time his action is commenced, the defect cannot be cured or remedied by
the acquisition or accrual of one while the action is pending, and a supplemental complaint or
an amendment setting up such after-accrued cause of action is not permissible. (Emphasis ours).
Hence, contrary to the holding of the trial court and the Court of Appeals, the defect of lack of
cause of action at the commencement of this suit cannot be cured by the accrual of a cause of
action during the pendency of this case arising from the alleged maturity of two of the promissory
notes on 7 August 1999 and 14 March 2000.
Anent the issue of novation, this Court observes that the petitioner corporation argues the
existence of novation based on its own version of what transpired during the renegotiation of the
three promissory notes in December 1997. By using its own version of facts, the petitioner is, in a
way, questioning the findings of facts of the trial court and the Court of Appeals.
As a rule, the findings of fact of the trial court and the Court of Appeals are final and conclusive
and cannot be reviewed on appeal to the Supreme Court18 as long as they are borne out by the
record or are based on substantial evidence. 19 The Supreme Court is not a trier of facts, its
jurisdiction being limited to reviewing only errors of law that may have been committed by the
lower courts. Among the exceptions is when the finding of fact of the trial court or the Court of
Appeals is not supported by the evidence on record or is based on a misapprehension of facts.
Such exception obtains in the present case.20
This Court finds to be contrary to the evidence on record the finding of both the trial court and the
Court of Appeals that the renegotiation in December 1997 resulted in the reduction of the interest
from 15% to 6% per annum and that the monthly payments of US$750 made by the petitioner
were for the reduced interests.
It is worthy to note that the cash voucher dated January 1998 21 states that the payment of US$750
represents "INVESTMENT PAYMENT." All the succeeding cash vouchers describe the payments
from February 1998 to September 1999 as "CAPITAL REPAYMENT." 22 All these cash vouchers served
as receipts evidencing private respondent’s acknowledgment of the payments made by the
petitioner: two of which were signed by the private respondent himself and all the others were
signed by his representatives. The private respondent even identified and confirmed the existence
of these receipts during the hearing. 23 Significantly, cognizant of these receipts, the private
respondent applied these payments to the three consolidated principal loans in the summary of
payments he submitted to the court.24
case, the private respondent had no cause of action to file the complaint. It is only upon
petitioner’s default in the payment of the monthly amortizations that a cause of action would arise
and give the private respondent a right to maintain an action against the petitioner.
Lastly, the petitioner contends that the Court of Appeals obstinately included its President Infante
and Vice-President Hegerty as appellants even if they did not appeal the trial court’s decision since
they were found to be not personally liable for the obligation of the petitioner. Indeed, the Court
of Appeals erred in referring to them as defendants-appellants; nevertheless, that error is no cause
for alarm because its ruling was clear that the petitioner corporation was the one solely liable for
its obligation. In fact, the Court of Appeals affirmed in toto the decision of the trial court, which
means that it also upheld the latter’s ruling that Hegerty and Infante were not personally liable for
the pecuniary obligations of the petitioner to the private respondent.
In sum, based on our disquisition on the lack of cause of action when the complaint for sum of
money and damages was filed by the private respondent, the petition in the case at bar is
impressed with merit.
WHEREFORE, the petition is hereby GRANTED. The Decision of 5 September 2003 of the Court of
Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of 5 May 2000 of the Regional Trial
Court of Baguio, Branch 59, granting in part private respondent’s complaint for sum of money and
damages, and its Resolution of 4 December 2003, which denied petitioner’s motion for
reconsideration are hereby REVERSED and SET ASIDE. The complaint docketed as Civil Case No.
4282-R is hereby DISMISSED for lack of cause of action.
No costs.
SO ORDERED.

Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall
not be deemed to have been made until the interest has been covered. In this case, the private
respondent would not have signed the receipts describing the payments made by the petitioner as
"capital repayment" if the obligation to pay the interest was still subsisting. The receipts, as well as
private respondent’s summary of payments, lend credence to petitioner’s claim that the payments
were for the principal loans and that the interests on the three consolidated loans were waived by
the private respondent during the undisputed renegotiation of the loans on account of the
business reverses suffered by the petitioner at the time.

There was therefore a novation of the terms of the three promissory notes in that the interest was
waived and the principal was payable in monthly installments of US$750. Alterations of the terms
and conditions of the obligation would generally result only in modificatory novation unless such
terms and conditions are considered to be the essence of the obligation itself. 25 The resulting
novation in this case was, therefore, of the modificatory type, not the extinctive type, since the
obligation to pay a sum of money remains in force.

Thus, since the petitioner did not renege on its obligation to pay the monthly installments
conformably with their new agreement and even continued paying during the pendency of the
CIVPRO – SUPPLEMENTAL PLEADINGS DISTINGUISHED FROM AMENDED PLEADINGS
G.R. No. 86956 October 1, 1990
SHOEMART, INC., petitioner,
vs
THE HONORABLE COURT OF APPEALS and ANSON EMPORIUM CORPORATION, respondents.
BIDIN, J.:
This is a petition for review on certiorari of the decision ** of the Court of Appeals promulgated on
November 2, 1988 in CA-GR SP No. 13346, reinstating with modification the decision *** of the
Regional Trial Court of Makati, Branch 61, in Civil Case No. 14163 entitled Shoemart, Inc. v. Anson
Emporium Corporation.
The facts, as found by respondent court, are as follows:
On August 1, 1971, Anson Emporium Corporation (Anson) leased from Shoemart, Inc.
(Shoemart) a portion of the building known as the Makati Arcade consisting of 374 square
meters of store area at its ground floor and 678 square meters at its second floor, for a period of
two (2) years starting said date at a monthly rental of P18,842.00. It was stipulated in the lease
that —
after termination of the lease for any reason whatsoever, if the Owner shall permit the tenant
to remain in possession of the leased premises, it is expressly understood and agreed that the
lease shall be on a month to month basis in the absence of a written agreement to the
contrary.
Anson remained in possession after the two year period but on an increased rental of
P34,622.00. Four years later, or on August 1, 1977, Shoemart terminated the month to month
lease and gave notice to Anson to vacate not later than August 31, 1977. Notwithstanding the
notice and demand, Anson continued to stay on, thus the complaint for ejectment filed with the
then Municipal Court of Makati, Civil Case No. 16896.
In its answer, Anson raised the defenses that (1) the lease did not express the true intention and
real agreement of the parties, the true one being that its stay was guaranteed by Shoemart for a
maximum period of twenty-four (24) years and (2) assuming that the lease had expired, it still
cannot be ejected until a longer term is fixed in accordance with Article 1673 in relation to
Article 1687 of the Civil Code.
After proceedings (sic) were on their way, Shoemart asked for and was granted leave to file
supplemental complaint which alleged that the rental of all the tenants of the premises had
been increased effective January 1, 1979 to P45,142.00 which Anson refused to pay. The
supplemental complaint became an issue in a petition for certiorari in the Court of First Instance
of Rizal which upheld the admission, then in the Intermediate Appellate Court which sustained
the Court of First Instance and finally in the Supreme Court where the matter was laid to rest
with the High Court giving the final imprimatur to the admission.
In its answer to the supplemental complaint, Anson raised the defenses that Shoemart's claim
for increased rentals has been barred by estoppel, novation, statute of frauds/limitations
condonation, release and/or laches and in any event, the increase was inequitable,
unconscionable and arbitrary.
The trial court ruled for Anson and dismissed the complaint in a decision dated January 2, 1987.
The decision was appealed to the Regional Trial Court of Makati as Civil Case No. 16530, where
respondent Judge entered a judgment of reversal (dated October 2, 1987) with this dispositive
tenor —
"WHEREFORE, premises above considered, the decision of the Metropolitan Trial Court of
January 2, 1987 dismissing the case is hereby REVERSED AND SET ASIDE in this appeal and a
new judgment in its stead is hereby rendered for plaintiff/appellant SHOEMART as against
defendant/appellee ANSON, which is hereby ORDERED, as follows:
"1. To vacate the premises situated at the 1st and 2nd Floors (Store No. 12, 13, 14 and 15)
MAKATI ARCADE, Makati, Metro Manila together with all persons claiming rights under it and to
turn over its possession to plaintiff/appellant SHOEMART;
"2. To pay SHOEMART damages in the form of reasonable compensation for the use and
occupation of the subject premises during the period of unlawful detainer in the amount of
P34,622.00 a month from September 1, 1977 up to and including December 31, 1978; and then
the amount of P45,142.00 a month from January 1, 1979 until defendant/ appellee ANSON
finally vacates the subject premises and turn over its possession to plaintiff/appellant
SHOEMART; the amount of damages shall bear interest at the rate of one (1%) a month starting
October 1, 1977 until fully paid.
"3. To reimburse to SHOEMART the amount of P313,493.25 representing cost of electricity as of
March 1986 and such amount representing electricity consumed by ANSON computed monthly
as based on electrical billings from April 1986 and every month thereafter up to the time ANSON
finally vacates the subject premises;
"4. To pay the amount of P5,000.00 for and as attorney's fees; and
"5. To pay the costs of the proceedings." (Rollo, pp. 35-37)
Petitioner filed a motion for reconsideration on the ground that the amount of damages awarded
in the form of reasonable compensation for the use and occupation of the subject premises is less
than what is really due. Private respondent likewise filed its motion for reconsideration seeking the
affirmance of the court a quo's appealed decision.
On November 10, 1987, the Regional Trial Court issued an Order denying private respondent's
motion for reconsideration but petitioner's motion was granted and the decision dated October 2,
1987 was amended to read as follows:
xxx xxx xxx
 the award of damages in No. 2 of the dispositive portion of the Decision of October 2, 1987 is
hereby adjusted accordingly to include the computation of increases from 1980 to 1985 and
should read as follows:
"2. To pay SHOEMART damages in the form of reasonable compensation for the use and
occupation of the subject premises during the period of unlawful detainer, minus payments
made by ANSON, as follows:
"For the period from September 1, 1977 to December 1978 covering 16 months at the rate of
P34,622.00 per month;
"For the period from January, 1979 to September, 1980 covering 11 months at the rate of
P45,142.00 per month;
"For the period from October, 1980 to February 15, 1983 covering 18 months and 15 days at
the rate of P59,402 per month;
"For the period from February 16, 1983 to February 28, 1985 covering 24 months and 15 days
at the rate of P74,340.00 per month;
"For the period from March, 1985 to present — November, 1987 covering 33 months at the
rate of P99,120 per month
and the sum of P99,120 a month starting December, 1987 until defendant fully vacates the
premises.
It is understood that the above amount shall bear interest at the rate of one (1%) percent a
month starting October 1, 1977 until fully paid. (Rollo, pp. 134-135)
On appeal, respondent court issued the assailed judgment dated November 2, 1988, which while
affirming the ejectment of private respondent from the premises, reduced the amount of damages
awarded as reasonable compensation for the use and occupation of the premises. The decretal
portion of the said decision reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision dated October 2, 1987 is reinstated
except for the portion (1) awarding SHOEMART interests of one (1%) percent a month starting
October 1, 1987 and (2) awarding SHOEMART for reimbursement for cost of electricity,
REVERSING and SETTING ASIDE in the process the order dated November 10, 1987 insofar as it
increased the award for reasonable compensation for the use and occupation of the premises,
insofar as it awarded interest and insofar as items therein that are inconsistent with this
decision. (Rollo, p. 46)
Both parties filed their respective motions for reconsideration. Private respondent sought the
correction of the clerical error regarding date of the effectivity of the one (1%) percent interest
from October 1, 1987, to October 1, 1977. Said motion was granted by respondent court.
Petitioner's motion for reconsideration seeking the reinstatement of the Regional Trial Court's
decision dated November 10, 1987 was denied. Hence, this instant petition.
Petitioner assigns the following errors:
1. THE HONORABLE COURT OF APPEALS ERRED AS A MATTER OF LAW IN LIMITING ANSON TO
PAY ONLY THE SUM OF P45,142.00 MONTHLY STARTING JANUARY 1, 1979 UNTIL IT VACATES THE
PREMISES DESPITE THE FACT THAT THERE WERE FOUR (4) RENTAL INCREASES EFFECTED ON THE
SUBJECT PREMISES DURING THE UNLAWFUL DETAINER PERIOD AND DURING PENDENCY OF THE
INSTANT CASE WHICH INCREASES WERE PROVEN DURING THE TRIAL.
2. THE HONORABLE COURT OF APPEALS ERRED IN AS A MATTER OF LAW IN ELIMINATING THE
ONE (1%) PERCENT INTEREST ON THE UNPAID DAMAGES EFFECTIVE OCTOBER 1, 1977.
3. THE HONORABLE COURT OF APPEALS ERRED AS A MATTER OF LAW IN ELIMINATING THE
AWARD FOR REIMBURSEMENT FOR COST OF ELECTRICITY CONSUMED BY ANSON ON THE
SUBJECT PREMISES. (Rollo, pp. 14-15).
In support of its first assignment of error, petitioner contends that there were four rental increases
effected during the period of unlawful detainer and during the pendency of the case, which
increases were duly proven during the trial. However, according to respondent court, petitioner
failed to present evidence on other approved and accepted rental increases and since the
supplemental complaint limited itself only to P45,142.00, the award of damages cannot go beyond
the said amount.
We note, however, that respondent court conceded the existence of other evidence showing that
other tenants of petitioner occupying the Makati Arcade paid rentals over and above the last
figure or rental increase subject of the supplemental complaint. Nevertheless, it held that the
imposition of higher damages cannot be made because of the limit set by petitioner's
supplemental complaint and the absence of evidence regarding the rental increases approved by
its board of directors and their acceptance by private respondent (Rollo, p. 48).
Contrary to the conclusion of respondent court, petitioner's recovery is not limited by the amount
of P45,142.00 prayed for in the supplemental complaint as increased rental effective January 1,
1979. This is not a case of a complaint subsequently amended, the effect of which is to render the
original complaint abandoned or inexistent and let the amendment take form as the sole
substitute upon which the case stands for trial. On the other hand, a supplemental complaint or
pleading supplies deficiencies in aid of an original pleading, not to entirely substitute the latter. A
perusal of the original complaint shows that it prayed, among others, that the defendant (private
respondent) be ordered to pay plaintiff (petitioner) the monthly rental of P34,622.00 "and all other
rentals and charges that may be due until such time that defendant . . . shall have vacated the
premises" (Rollo, p. 52). Petitioner, therefore, did not foreclose its right to demand increased
rentals that may be recovered expressed in terms of the fair rental value or the reasonable
compensation for the use and occupation of the real property (Felisilda v. Villanueva, 139 SCRA
431 [1985]; citing Sparrevohn v. Fisher, 2 Phil. 676; Castuares v. Bayona, 106 Phil. 340). This is so
because, unlike in an amended complaint, the original complaint exists side by side with the
supplemental complaint. In the case at bar, the supplemental pleading merely served to aver
supervening facts which were then not ripe for judicial relief when the original pleading was filed.
As aforesaid, supplemental pleadings are meant to supply deficiencies in aid of the original
pleading, and not to dispense with the latter (Pasay City Government v. CFI of Manila, Br. X, 132
SCRA 156 [1984]; British Traders' Insurance Co., Ltd. v. Commissioner of Internal Revenue, 13 SCRA
719 (1965]).
Furthermore, failure of petitioner in the case at bar to amend its complaint or file additional
supplemental pleadings to allege subsequent rental increases is of no moment. Records indicate
that during the trial, petitioner presented evidence, without objection of private respondent,
showing that during the pendency of this case, there were four (4) rental increases effected on the
subject premises as follows:
1. The sum of P45,142.00 a month from January 1979 to September 1980 (Exh. "F-1");
2. The sum of P59,402.00 a month from October 1980 to February 15, 1983 (Exh. "F-2");
3. The sum of P74,340.00 a month from February 16, 1983 to February 28,1985 (Exh. "F-3"); and
4. The sum of P99,040.00 a month from March, 1985 to the present (Exh. "F-4"); Actually, up to
January 31, 1989 when private respondent vacated vacated the leased premises.
As regards the imposition of one (1%) percent interest on unpaid rentals, respondent court
committed no error in eliminating the same not only because it was not prayed for in the
complaint but also because Art. 1956 (Civil Code) so provides — "(n)o interest shall be due unless
it has been expressly stipulated in writing". While the one (1%) percent interest on delayed
payment of rentals may have been provided in the original written contract of lease, it must be
noted that said contract has already been terminated as of August 1, 1973. By the time petitioner
filed its complaint for ejectment in 1977, there was no longer any written contract to speak of,
much less a written stipulation on payment of interest.
Finally, petitioner Shoemart assails the decision of the Court of Appeals excluding the award of
cost of electricity consumed in the premises on the ground that the claim for reimbursement may
be filed in another action before the proper forum. In Felisilda vs. Villanueva (139 SCRA 431
[1985]), we have repeatedly held that the only damage that can be recovered in an ejectment suit
is the fair rental value or the reasonable compensation for the use and occupation of the real
property. Other damages must be claimed in an ordinary action.

In view of the failure of private respondent to object to the presentation of evidence showing that
there were four (4) rental increases on the subject premises although three (3) of said increases
are not alleged in the pleadings, judgment may be rendered validly as regards the said increases or
issues which shall be considered as if they have been raised in the pleadings (I Moran, p. 377, 1979
ed.). Thus, section 5, Rule 10 provides:
WHEREFORE, the decision of the Court of Appeals dated November 2, 1988 is REVERSED and SET
ASIDE. The decision of the Regional Trial Court dated November 10, 1987 is Reinstated with the
modification that the award of 1% interest starting October 1, 1977 and the reimbursement of cost
of electrical consumption is excluded without prejudice to the institution of the proper collection
case to enforce recovery and/or reimbursement of such cost for electrical consumption.

When issues not raised by the pleadings are tried by express or implied consent of the parties, SO ORDERED.
they shall be treated in all respects, as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the evidence
and to raise these issues may be made upon motion of any party at any time, even after
judgment; but failure to so amend does not affect the result of the trial of these issues. . . .

Private respondent contends, however, that since petitioner failed to present any resolution of its
board of directors authorizing the imposition of higher rentals over the premises and their
acceptance by private respondent, the award of damages was properly limited by respondent
court to P45,142.00 monthly rental.

The argument is untenable. An examination of respondent's answer to the complaint made no

reference to the alleged board resolution which is now being insisted upon to escape the payment
of the increased rentals. Having failed to raise the board resolution as a defense before the trial
court, private respondent is deemed likewise to have waived the same (Sec. 2, Rule 9). But this is
not all. As found by the Regional Trial Court, private respondent did not controvert the evidence
submitted by petitioner in determining the fair rental value of the premises including those
imposed on all other tenants of petitioner occupying the Makati Arcade (Rollo, p. 133). It is only
when the rental demanded is clearly exorbitant would the courts interfere as a matter of equity. If,
indeed, the rental increases were unconscionable, respondent should have at least presented
evidence to substantiate its claim. This is because the burden of proof to show that the rental
demanded is unconscionable or exorbitant rests upon private respondent as the lessee (Vda. de
Roxas v. CA, 63 SCRA 302 [1975]). Private respondent failed to discharge its burden when it
omitted to present any evidence at all on what it considers is the fair rental value other than what
were submitted by petitioner. As a matter of fact, all the other tenants of petitioner in the Makati
Arcade did not question the reasonableness of the rental increases and paid the same.
CIVPRO – BILL OF PARTICULARS
G.R. No. 106527. April 6, 1993.
CESAR E.A. VIRATA, petitioner,
vs.
THE HONORABLE SANDIGANBAYAN and THE PEOPLE OF THE PHILIPPINES, respondents.
SYLLABUS
1. REMEDIAL LAW; BILL OF PARTICULARS; PURPOSE. — As this Court enunciated in Tan vs.
Sandiganbayan: "It is the office or function, as well as the object or purpose, of a bill of particulars
to amplify or limit a pleading, specify more minutely and particularly a claim or defense set up and
pleaded in general terms, give information, not contained in the pleading, to the opposite party
and the court as to the precise nature, character, scope, and extent of the cause of action or
defense relied on by the pleader, and apprise the opposite party of the case which he has to meet,
to the end that the proof at the trial may be limited to the matters specified, and in order that
surprise at, and needless preparation for, the trial may be avoided, and that the opposite party
may be aided in framing his answering pleading and preparing for trial. It has also been stated that
it is the function or purpose of a bill of particulars to define, clarify, particularize, and limit or
circumscribe the issues in the case, to expedite the trial, and assist the court. A general function or
purpose of a bill of particulars is to prevent injustice or do justice in the case when that cannot be
accomplished without the aid of such a bill. It is not the office of a bill of particulars to supply
material allegations necessary to the validity of a pleading, or to change a cause of action or
defense stated in the pleading, or to state a cause of action or defense other than the one stated.
Also it is not the office or function, or a proper object, of a bill of particulars to set forth the
pleader's theory of his cause of action or a rule of evidence on which he intends to rely, or to
furnish evidential information whether such information consists of evidence which the pleader
proposes to introduce or of facts which constitute a defense or offset for the other party or which
will enable the opposite party to establish an affirmative defense not yet pleaded." The phrase "to
enable him properly to prepare his responsive pleading . . ." in Section 1 of Rule 12 implies not just
the opportunity to properly prepare a responsive pleading but also, and more importantly, to
prepare an intelligent answer. Thus, in Tan vs. Sandiganbayan, this Court also said: The complaint
for which a bill for a more definite statement is sought, need only inform the defendant of the
essential (or ultimate) facts to enable him, the defendant to prepare an intelligent answer . . . ."
The proper preparation of an intelligent answer requires information as to the precise nature,
character, scope and extent of the cause of action in order that the pleader may be able to
squarely meet the issues raised, thereby circumscribing them within determined confines and,
preventing surprises during the trial, and in order that he may set forth his defenses which may
not be so readily availed of if the allegations controverted are vague, indefinite, uncertain or are
mere general conclusions. The latter task assumes added significance because defenses not
pleaded (save those excepted in Section 2, Rule 9 of the Revised Rules of Court and, whenever
appropriate, the defense of prescription) 27 in a motion to dismiss or in the answer are deemed
waived.
2. ID.; PROPRIETY OF THE MOTION FOR A BILL OF PARTICULARS UNDER SEC. 1, RULE 12 OF THE
REVISED RULES OF COURT IS BEYOND DISPUTE IN CASE AT BAR; REASON. — We have carefully,
scrutinized the paragraphs of the expanded Second Amended Complaint subject of the petitioner's
motion for a bill of particulars and find the same to be couched in general terms and wanting in
definiteness or particularity. It is precisely for this reason that We indirectly suggested in the said
decision that the petitioner's remedy is to file a motion for a bill of particulars and not a motion to
dismiss. Thus, the basis of the distinction made by the respondent Sandiganbayan between the
allegations in support of the first three (3) "actionable wrongs" and those in support of the fourth
is as imperceptible as it is insignificant in the light of its admission that the ruling in Tantuico
possesses "a semblance of relevance to the factual setting of the instant incident." As We see it,
there exists not only a semblance but a striking similarity in the crafting of the allegations between
the causes of action against Tantuico and those against the petitioner. And, as already stated, such
allegations are general and suffer from a lack of definiteness and particularity. As a matter of fact,
paragraphs 2, 7, 9 and 17 — four of the five paragraphs of the complaint in Civil Case No. 0035
which was resolved in Tantuico — are likewise involved in the instant case. Tantuico's applicability
to the instant case is thus ineluctable and the propriety of the motion for a bill of particulars under
Section 1, Rule 12 of the Revised Rules of Court is beyond dispute. We also find the
Sandiganbayan's conclusion that "the matters which defendant-movant seeks are evidentiary in
nature and, being within his intimate or personal knowledge, may be denied of admitted by him or
if deemed necessary, be the subject of other forms of discovery," to be without basis as to the first
aspect and gratuitous as to the second. The above disquisition's indubitably reveal that the matters
sought to be averred with particularity are not evidentiary in nature. Since the issues have not as
yet been joined and no evidence has so far been adduced by the parties the Sandiganbayan was in
no position to conclude that the matters which the. petitioner seeks are "within his intimate or
personal knowledge."
DECISION
DAVIDE, JR., J p:
This petition is a sequel to Virata vs. Sandiganbayan 1 and Mapa vs. Sandiganbayan 2 which were
jointly decided by this Court on 15 October 1991. 3
Petitioner is among the forty-four (44) co-defendants of Benjamin (Kokoy) Romualdez in a
complaint filed by the Republic of the Philippines with the respondent Sandiganbayan on 31 July
1987. 4 The complaint was amended thrice, the last amendment thereto is denominated as the
Second Amended Complaint, as expanded per the Court-Approved Manifestation/Motion dated 8
December 1987. 5
Petitioner moved to dismiss the said case, insofar as he is concerned, on various grounds including
the failure of the expanded Second Amended Complaint to state a cause of action. The motion was
denied and so was his bid to have such denial reconsidered. He then came to this Court via a
special civil action for certiorari imputing upon the respondent Sandiganbayan the commission of
grave abuse 'of discretion in, inter alia, finding that the complaint sufficiently states a cause of
action against him. In Our aforementioned Decision of 15 October 1991, We overruled the said
contention and upheld the ruling of the Sandiganbayan. However, We stated: 6
"No doubt is left in Our minds that the questioned expanded Second Amended Complaint is
crafted to conform to a well-planned outline that forthwith focuses one's attention to the asserted
right of the State, expressly recognized and affirmed by the 1987 Constitution (Section 15, Art XI),
and its corresponding duty, (Bataan Shipyard & Engineering Co., Inc. vs. PCGG, 150 SCRA 181, 207)
to recover ill-gotten wealth from the defendants named therein; the alleged schemes and devises
used and the manipulations made by them to amass such ill-gotten wealth, which are averred first
generally and then specifically; and the extent of the reliefs demanded and prayed for. However, as
shown above, the maze of unnecessary literary embellishments may indeed raise some doubts on
the sufficiency of the statement of material operative facts to flesh out the causes of action. Be
that as it may, We are, nevertheless, convinced that the questioned pleading has sufficiently
shown viable causes of action.
xxx xxx xxx
If petitioners perceive some ambiguity or vagueness therein, the remedy is not a motion to
dismiss. An action should not be dismissed upon a mere ambiguity, indefiniteness or uncertainty,
for these are not grounds for a motion to dismiss, but rather for a bill of particulars . . . (Amaro vs.
Sumanguit, 5 SCRA 707) . . ."
Petitioner was thus compelled to go back to the Sandiganbayan. However, insisting that he "could
not prepare an intelligent and adequate pleading in view of the general and sweeping allegations
against him in the Second Amended Complaint as expanded," 7 while at the same time remaining
"steadfast in his position maintaining his posture of innocence," 8 petitioner filed on 30 January
1992 a Motion For a Bill of Particulars. 9 He alleges therein that on the basis of the general and
sweeping allegations in the Second Amended Complaint, to wit:
"a. 'The wrongs committed by Defendants, acting singly or collectively and in unlawful concert with
one another, include the misappropriation and theft of public funds, plunder of the nation's
wealth, extortion, blackmail, bribery, embezzlement and other acts of corruption, betrayal of
public trust end brazen abuse of power, as more fully described below, all at the expense and to
the grave and irreparable damage of Plaintiff and the Filipino people.' (par. 2, at p. 3).
b. 'The following Defendants acted as dummies, nominees or agents, by allowing themselves to be
(sic) incorporators, directors, board members and/or stockholders of corporations beneficially held
and/or controlled by Defendants Benjamin (Kokoy) Romualdez, Ferdinand E. Marcos and Imelda R.
Marcos
xxx xxx xxx'
CESAR E. A. VIRATA
xxx xxx xxx
(par 7, at pp. 5-7).
c. 'From the early years of his presidency, Defendant Ferdinand E. Marcos took undue advantage of
his powers as President. All throughout the period from September 21, 1972 to February 26, 1986,
he gravely abused his powers under martial law and ruled as Dictator under the 1973 Marcos
promulgated Constitution Defendant Ferdinand E. Marcos, together with other Defendants, acting
singly or collectively, and/or in unlawful concert with one another, in flagrant breach of public trust
and of their fiduciary obligation as public officers, with gross and scandalous abuse of right and
power and in brazen violation of the Constitution and laws of the Philippines, embarked upon a
systematic plan to accumulate ill-gotten wealth:' (par 9 (a) in the section of the Complaint styled
'General Averments of Defendants' Illegal Acts.' at pp. 12-13).
d. 'Defendants, acting singly or collectively, and/or in unlawful concert with one another, for the
purpose of preventing disclosure and avoiding discovery of their unmitigated plunder of the
National Treasury and of their other illegal acts, and employing the services of prominent lawyers,
accountants, financial experts, businessmen and other persons, deposited, kept and invested
funds, securities and other assets estimated at billions of US dollars in various banks, financial
institutions, trust or investment companies and with persons here and abroad.' (par. 12, in the
same section 'General Averments of Defendants' Illegal Acts' at p. 18)." 10
which were attempted to be "fully describe[d]" in that "section of the complaint, styled 'Specific
Averments of the Defendant's Illegal Acts," 11 as follows:
"a. 'Defendants Benjamin (Kokoy) Romualdez and Juliette Gomez Romualdez, acting by themselves
and/or unlawful (sic) concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and
taking undue advantage of their relationship, influence and connection with the latter Defendant
spouses, engaged in devices, schemes and strategies to unjustly enrich themselves at the expense
of Plaintiff and the Filipino people, among others: (par. 14, at p. 19).
xxx xxx xxx
(i) Gave MERALCO undue advantage . . . (ii) with the active collaboration of Defendant Cesar E. A.
Virata be (sic) reducing the electric franchise tax from 5% to 2% of gross receipts and the tariff duty
on fuel oil imports by public utilities from 20% to 10%, resulting in substantial savings for
MERALCO but without any significant benefit to the consumers of electric power and loss of
million (sic) of pesos in much needed revenues to the government;' (par 14(b), at pp 22 and 23)
(ii) 'Secured, in a veiled attempt to justify MERALCO's anomalous acquisition of the electric
cooperatives, with the active collaboration of Defendants Cesar E. A. Virata, . . . and the rest of the
Defendants, the approval by Defendant Ferdinand E. Marcos and his cabinet of the so-called
'Three-Year Program for the Extension of MERALCO's Services of Areas within the 60 kilometer
Radius of Manila,' which required government capital investment amounting to millions of pesos;
(par. 14(g), at p. 25)
(iii) 'Manipulated with the support, assistance and collaboration Philguarantee officials led by
Chairman Cesar E. A. Virata and the senior managers of EMMC,/PNI Holdings, Inc. led by Jose S.
Sandejas, J. Jose M. Mantecon and Kurt S. Bachmann, Jr., among others, the formation of Erectors
Holdings, Inc., without infusing additional capital solely for the purpose of making it assume the
obligation of Erectors, Inc. with Philguarantee in the amount of P527,387.440.71 with insufficient
securities/collaterals just to enable Erectors, Inc. to appear viable and to borrow more capitals
(sic), so much so that its obligation with Philguarantee has reached a total of more than P Billion as
of June 30, 1987. (par. 14(m) p. 29)
(iv) 'The following Defendants acted as dummies, nominees and/or agents by allowing themselves
(i) to be used as instruments in accumulating ill-gotten wealth through government concessions,
orders and/or policies prejudicial to Plaintiff, or (ii) to be incorporators, directors or members of
corporations beneficially held and/or controlled by Defendants Ferdinand E. Marcos, Imelda R.
Marcos, Benjamin (Kokoy) Romualdez and Juliette Gomez Romualdez in order to conceal and
prevent recovery of assets illegally obtained: . . . Cesar E.A. Virata . . .' (par. 17, at pp. 36-37).
b. 'The acts of Defendants, singly or collectively, and/or in unlawful concert with one another,
constitute gross abuse of official and fiduciary obligations, acquisition of unexplained wealth,
brazen abuse of right and power, unjust enrichment, violation of the Constitution and laws of the
Republic the (sic) Philippines, to the grave and irreparable damage of Plaintiff and the, Filipino
people' (par. 18, at p. 40)." 12
the plaintiff, Republic of the Philippines, asserts four (4) alleged "actionable wrongs" against the
herein petitioner, to wit:
"a. His alleged 'active collaboration' in the reduction of the electric franchise tax from 5% to 2% of
gross receipts and the tariff duty of fuel oil imports by all public utilities from 20% to 10%, which —
as this Honorable Court will take judicial notice of — was effected through the enactment, of
Presidential Decree 551.
b. His alleged 'active collaboration' in securing the approval by defendant Marcos and his Cabinet
of the 'Three-Year Program for the Extension of MERALCO's Services to Areas Within the 60-
Kilometer Radius of Manila' which — as this Honorable Court will likewise take judicial notice of —
the present government continuously sanctions to date.
c. His alleged 'support, assistance and collaboration' in the formation of Erectors Holdings, Inc.
d. His alleged acting as 'dummy, nominee, and/or agent by allowing' himself '(i) to be used as
instrument(s) (sic) in accumulating ill-gotten wealth through government concessions, orders
and/or policies prejudicial to Plaintiff' or (ii) to be an incorporator, director, or member of
corporations beneficially held and/or controlled by defendants Ferdinand Marcos, Imelda Marcos,
Benjamin Romualdez and Juliette Romualdez' in order 'to conceal and prevent recovery of assets
illegally obtained.'" 13
Petitioner claims, however, that insofar as he is concerned, the "foregoing allegations . . . and the
purported illegal acts imputed to them as well as the alleged causes of actions are vague and
ambiguous. They are not averred with sufficient definiteness or particularity as would enable
defendant Virata to properly prepare his answer or responsive pleading." 14 He therefore prays
that "in accordance with Rule 12 of the Rules of Court, plaintiff be directed to submit a more
definite statement or a bill of particulars on the matters mentioned above which are not averred
with sufficient definiteness or particularity." 15
In its Comment, the plaintiff Republic of the Philippines opposed the motion. Replying to the
opposition, petitioner cited Tantuico vs. Republic 16 which this Court decided on 2 December
1991.
In its Resolution promulgated on 4 August 1992, 17 the respondent Sandiganbayan (Second
Division) partially granted the Motion for a Bill of Particulars. The dispositive portion thereof
provides:
"WHEREFORE, premises considered, the instant 'Motion For Bill of Particulars', dated January 30,
1992, is hereby partially granted. Accordingly, plaintiff is hereby ordered to submit to the Court
and furnish defendant-movant with a bill of particulars of the facts prayed for by the latter,
pertaining to paragraph 17 (sic) and 18 of the Expanded Complaint, within fifteen (15) days from
receipt hereof. Failure of plaintiff to do so would mean automatic deletion and/or exclusion of
defendant-movant's name from the said paragraphs of the complaint, without prejudice to the
standing valid effect of the other specific allegations against him." 18
In granting the motion with respect to paragraphs 17 and 18 of the expanded Second Amended
Complaint — which it erroneously referred to as the Expanded Complaint — the Sandiganbayan
stated:
"In deference to the pronouncement made by the Highest Tribunal in Tantuico. We rule and so
hold that the foregoing allegations need further amplifications and specifications insofar as
defendant-movant is concerned in order for him to be able to properly meet the issue therein . . ."
19
However, in denying amplification as to the rest of the allegations, the Sandiganbayan declared
that:
"Albeit We are fully cognizant of the import and effect of the Supreme Court ruling in Tantuico, Jr.
vs. Republic, et al., supra, however, We are not prepared to rule that the said case applies squarely
to the case at bar to warrant an absolute ruling in defendant-movant's favor. The thrust of the
ruling in said case, although possessing a semblance of relevance to the factual setting of the
instant incident, does not absolutely support defendant-movant's stance. As implicitly admitted by
defendant-movant, there are certain specific charges against him in the Expanded Complaint which
are conspicuously absent in Tantuico, to wit: (i) his alleged 'active collaboration' in the reduction of
the electric franchise tax from 5% to 2% of gross receipts and the tariff duty on fuel oil imports by
all public utilities from 20% to 10%, which was effected through the enactment of Presidential
Decree 551; (ii) his 'alleged collaboration' in securing the approval by defendant Marcos and his
Cabinet of the 'Three-Year Program for the Extension of Meralco's Services to Areas Within the 60-
Kilometer Radius of Manila'; and (iii) his alleged 'support, assistance and collaboration' in the
formation of Erectors Holdings, Inc. (EHI).
We are of the considered opinion that the foregoing charges in the Expanded Complaint are clear,
definite and specific enough to allow defendant-movant to prepare an intelligent responsive
pleading or to prepare for trial. Considering the tenor of the Supreme Court ruling in Tantuico, the
nature and composition of the foregoing factual allegations are, to Us, more than enough to meet
the standards set forth therein in determining the sufficiency or relevancy of a bill of particulars.
Alleging the specific nature, character, time and extent of the phrase 'active collaboration' would
be a mere surplus age and would not serve any useful purpose, except to further delay the
proceedings in the case. Corollarily, any question as to the validity or legality of the transactions
involved in the charges against defendant-movant is irrelevant and immaterial in the resolution of
the instant incident, inasmuch as the same is a matter of defense which shall have its proper place
during the trial on the merits, and on the determination of the liability of defendant-movant after
the trial proper. Furthermore, the matters which defendant-movant seeks are evidentiary in nature
and, being within his intimate or personal knowledge, may be denied or admitted by him or if
deemed necessary be the subject of other forms of discovery." 20
In short, of the four (4) actionable wrongs enumerated in the Motion for a Bill of Particulars, the
Sandiganbayan favorably acted only with respect to the fourth. 21
Not satisfied with the partial grant of the motion, petitioner filed the instant petition under Rule
65 of the Revised Rules of Court contending that the Sandiganbayan acted with grave abuse of its
discretion amounting to lack or excess of jurisdiction in not totally granting his Motion for a Bill of
Particulars.
After thorough deliberations on the issues raised, this Court finds the petition to be impressed
with merit. We therefore rule for the petitioner.
The Sandiganbayan's favorable application of Tantuico vs. Republic of the Philippines 22 with
respect to the fourth "actionable wrong," or more particularly to paragraphs 17 and 13 of the
expanded Second Amended Complaint in Civil Case No. 0035, and its refusal to apply the same to
the first three (3) "actionable wrongs" simply because it is "not prepared to rule that the said case
(Tantuico) applies squarely to the case at bar to warrant an absolute ruling in defendant-movant's
favor," is quite contrived; the ratiocination: offered in support of the rejection defeats the very
purpose of a bill of particulars.
It is to be observed that Tantuico vs. Republic of the Philippines also originated from Civil Case No.
0035. Tantuico, herein petitioner's co-defendant in the said civil case, filed a motion for a bill of
particulars to seek the amplification of the averments in paragraphs 2, 7, 9(a), 15 and 17 of the
Second Amended Complaint. The Sandiganbayan denied the motion on the ground that the
particulars sought are evidentiary in nature. 23 This Court eventually overruled the Sandiganbayan
and forthwith directed the respondents therein to prepare and file a Bill of Particulars embodying
the facts prayed for by Tantuico; this was based on Our finding that the questioned allegations in
the complaint pertaining to Tantuico "are deficient because the averments therein are mere
conclusions of law or presumptions, unsupported by factual premises." 24
As in the earlier case of Virata vs. Sandiganbayan, We have carefully, scrutinized the paragraphs of
the expanded Second Amended Complaint subject of the petitioner's motion for a bill of
particulars and find the same to be couched in general terms and wanting in definiteness or
particularity. It is precisely for this reason that We indirectly suggested in the said decision that the
petitioner's remedy is to file a motion for a bill of particulars and not a motion to dismiss. Thus, the
basis of the distinction made by the respondent Sandiganbayan between the allegations in support
of the first three (3) "actionable wrongs" and those in support of the fourth is as imperceptible as
it is insignificant in the light of its admission that the ruling in Tantuico possesses "a semblance of
relevance to the factual setting of the instant incident." As We see it, there exists not only a
semblance but a striking similarity in the crafting of the allegations between the causes of action
against Tantuico and those against the petitioner. And, as already stated, such allegations are
general and suffer from a lack of definiteness and particularity. As a matter of fact, paragraphs 2, 7,
9 and 17 — four of the five paragraphs of the complaint in Civil Case No. 0035 which was resolved
in Tantuico — are likewise involved in the instant case. Tantuico's applicability to the instant case is
thus ineluctable and the propriety of the motion for a bill of particulars under Section 1, Rule 12 of
the Revised Rules of Court is beyond dispute Said section reads:
"SEC. 1. Motion for bill of particulars. — Before responding to a pleading or, if no responsive
pleading is permitted by these rules, within ten (10) days after service of the pleading upon him, a
party may move for a more definite statement or for a bill of particulars of any matter which is not
averred with sufficient definiteness or particularity to enable him properly to prepare his
responsive pleading or to prepare for trial. Such motion shall point out the defects complained of
and the details, desired."
As this Court enunciated in Tan vs. Sandiganbayan: 25
"It is the office or function, as well as the object or purpose, of a bill of particulars to amplify or
limit a pleading, specify more minutely and particularly a claim or defense set up and pleaded in
general terms, give information, not contained in the pleading, to the opposite party and the court
as to the precise nature, character, scope, and extent of the cause of action or defense relied on by
the pleader, and apprise the opposite party of the case which he has to meet, to the end that the
proof at the trial may be limited to the matters specified, and in order that surprise at, and
needless preparation for, the trial may be avoided, and that the opposite party may be aided in
framing his answering pleading and preparing for trial. It has also been stated that it is the function
or purpose of a bill of particulars to define, clarify, particularize, and limit or circumscribe the
issues in the case, to expedite the trial, and assist the court. A general function or purpose of a bill
of particulars is to prevent injustice or do justice in the case when that cannot be accomplished
without the aid of such a bill.
It is not the office of a bill of particulars to supply material allegations necessary to the validity of a
pleading, or to change a cause of action or defense stated in the pleading, or to state a cause of
action or defense other than the one stated. Also it is not the office or function, or a proper object,
of a bill of particulars to set forth the pleader's theory of his cause of action or a rule of evidence
on which he intends to rely, or to furnish evidential information whether such information consists
of evidence which the pleader proposes to introduce or of facts which constitute a defense or
offset for the other party or which will enable the opposite party to establish an affirmative
defense not yet pleaded."
The phrase "to enable him properly to prepare his responsive pleading . . ." in Section 1 of Rule 12
implies not just the opportunity to properly prepare a responsive pleading but also, and more
importantly, to prepare an intelligent answer. Thus, in Tan vs. Sandiganbayan, this Court also said:
"The complaint for which a bill for a more definite statement is sought, need only inform the
defendant of the essential (or ultimate) facts to enable him, the defendant to prepare an
intelligent answer . . ." 26 (Emphasis supplied).
The proper preparation of an intelligent answer requires information as to the precise nature,
character, scope and extent of the cause of action in order that the pleader may be able to
squarely meet the issues raised, thereby circumscribing them within determined confines and,
preventing surprises during the trial, and in order that he may set forth his defenses which may
not be so readily availed of if the allegations controverted are vague, indefinite, uncertain or are
mere general conclusions. The latter task assumes added significance because defenses not
pleaded (save those excepted in Section 2, Rule 9 of the Revised Rules of Court and, whenever
appropriate, the defense of prescription) 27 in a motion to dismiss or in the answer are deemed
waived. It was, therefore, grave error for the Sandiganbayan to state that "[a]lleging the specific
nature, character, time and extent of the phrase 'active collaboration' would be a mere surplus age
and would not serve any useful purpose" 28 for precisely, without any amplification or
particularization thereof, the petitioner would be hard put in meeting the charges squarely and in
pleading appropriate defenses. Nor can We accept the public respondent's postulation that "any
question as to the validity or legality of the transactions involved in the charges against defendant-
movant is irrelevant and immaterial in the resolution of the instant incident, inasmuch as the same
is a matter of defense which shall have its proper place during the trial on the merits, and on the
determination of the liability of defendant-movant after the trial proper." 29 This is absurd, for
how may the petitioner set up a defense at the time of trial if in his own answer he was not able to
plead such a defense precisely because of the vagueness or indefiniteness of the allegations in the
complaint? Unless he pleads the defense in his answer, he may be deprived of the right to present
the same during the trial because of his waiver thereof; of course, he may still do so if the adverse
party fails to object thereto or if he is permitted to amend his answer pursuant to Section 3, Rule
10 of the Revised Rules of Court, but that is another thing.
We also find the Sandiganbayan's conclusion that "the matters which defendant-movant seeks are
evidentiary in nature and, being within his intimate or personal knowledge, may be denied of
admitted by him or if deemed necessary, be the subject of other forms of discovery," 30 to be
without basis as to the first aspect and gratuitous as to the second. The above disquisition's
indubitably reveal that the matters sought to be averred with particularity are not evidentiary in
nature. Since the issues have not as yet been joined and no evidence has so far been adduced by
the parties the Sandiganbayan was in no position to conclude that the matters which the.
petitioner seeks are "within his intimate or personal knowledge."
WHEREFORE, the instant petition is GRANTED. The Resolution of respondent Sandiganbayan of 4
August 1992, to the extent that it denied the motion for a bill of particulars with respect to the so-
called first three (3) "actionable wrongs," is SET ASIDE but affirmed as to the rest. Accordingly, in
addition to the specific bill of particulars therein granted, respondent Republic of the Philippines,
as plaintiff in Civil Case No. 0035 before the Sandiganbayan, is hereby ordered to submit to the
defendant (herein petitioner) in the said case, within thirty (30) days from receipt of a copy of this
Decision, a bill of particulars containing the facts prayed for by the latter insofar as the first three
(3) "actionable wrongs" are concerned.

No pronouncement as to costs.

SO ORDERED.
CIVPRO – BILL OF PARTICULARS – WHAT IS BEYOND ITS SCOPE c) Temperate Damages in such amount as may be determined by the Honorable Court in the
exercise of its sound discretion;
G.R. No. 84195 December 11, 1989
d) Nominal Damages in such amount as may be determined by the Honorable Court in the
exercise of its sound discretion;
LUCIO C. TAN, CARMEN KHAO TAN, FLORENCIO T. SANTOS, NATIVIDAD P. SANTOS, DOMINGO
CHUA, TAN HUI NEE, MARIANO TAN ENG LIAN, ESTATE OF BENITO TAN KEE HION, (Represented e) Exemplary Damages in the amount of ONE BILLION (P l,000,000,000.00) PESOS;
by TARCIANA C. TAN), FLORENCIO N. SANTOS, JR., HARRY C. TAN, TAN ENG CHAN, CHUNG POE
KEE, MARIANO KHAO, MANUEL KHOO, MIGUEL KHOO, JAIME KHOO, ELIZABETH KHOO, CELSO C. f) Attorney's Fees in such amount to be proven during the trial;
RANOLA, WILLIAM T. WONG, ERNESTO B. LIM, BENJAMIN T. ALBACITA AND WILLY CO,
petitioners, g) Litigation expenses in such amount as may be proven during the trial;
vs.
h) Treble judicial costs.
SANDIGANBAYAN (Second Division), and the REPUBLIC OF THE PHILIPPINES, (Represented by the
Presidential Commission on Good Government), respondents.
Plaintiff further prays for such further relief as may appear to the Honorable Court to be just and
equitable under the premises. 1
SARMIENTO, J.:

Subsequently, the PCGG filed a "Complaint Expanded per Court-Approved Plaintiff's

We give DUE COURSE to this petition filed by the petitioners . We also consider the comment filed
Manifestation/Motion dated December 8,1987." That notwithstanding, the twenty-two petitioners
by the Solicitor General as the Government's answer.
(the Marcoses never joined them, neither did Don Ferry nor Federico Moreno) moved, as indicated
above, for a bill of particulars.
The petitioners, twenty-two in number, assail the action of the Sandiganbayan, denying their
"Motion for a More Definite Statement or a Bill of Particulars" directed against the Complaint filed
The pertinent portions of the Complaint for which a bill of particulars is sought, and insofar as
by the Presidential Commission on Good Government (PCGG).
material to this petition, are hereinbelow reproduced as follows:

The Complaint, dated July 17, 1987, was filed in July, 1987, by the PCGG against the twenty-two
VI
petitioners, together with the late Ferdinand Marcos, Mrs. Imelda Marcos, Don Ferry, and Federico
Moreno. The same prayed for judgment as follows:
CAUSES OF ACTION
WHEREFORE, it is respectfully prayed that this Honorable Court render judgment adjudging and
ordering Defendants as follows: 16. First Cause of Action: ABUSE OF RIGHT AND POWER. - (a) Defendants, in perpetrating the
unlawful acts described above, committed abuse of right and power which caused untold
29. AS TO THE FIRST, SECOND AND THIRD CAUSES OF ACTION -To return and reconvey to Plaintiff misery, sufferings and damages to Plaintiff. Defendants violated, among others, Articles 19, 20,
all funds and other property impressed with constructive trust in favor of Plaintiff and the and 21 of the Civil Code of the Philippines ;
Filipino people, as well as funds and other property acquired by Defendants by abuse of right
and power and through unjust enrichment; or alternatively to jointly and severally pay Plaintiff (b) As a result of the foregoing acts, Defendants acquired title to and beneficial interest in funds
the value thereof with interest thereon from the date of unlawful acquisition until full payment. and other property and concealed such title, funds and interest through the use of relatives,
business associates, nominees, agents, or dummies. Defendants are, therefore, jointly and
30. AS TO THE FOURTH CAUSE OF ACTION- To show to the satisfaction of this Honorable Court
severally liable to Plaintiff to return and reconvey all such funds and other property unlawfully
that they have lawfully acquired all such funds, assets and property which are in excess of their
acquired by them or alternatively, to pay Plaintiff, jointly and severally by way of indemnity, the
legal net income, and for this Honorable Court to decree that the Defendants are under
damage caused to Plaintiff equivalent to the amount of such funds or the value of other
obligation to account to Plaintiff with respect to all legal or beneficial interests in funds,
property not returned or restored to Plaintiff, plus interest thereon from the date of unlawful
properties and assets of whatever kind and wherever located in excess of the lawful earnings or
acquisition until full payment thereof.
lawful income from legitimately acquired property.

31. AS TO THE FIRST, SECOND, THIRD, FOURTH, AND FIFTH CAUSES OF ACTION TO solidarily pay
Plaintiff:
a) Actual Damages in such amount as are proven during the trial;
b) Moral Damages in the amount of FIFTY BILLION (P 50,000,000,000.00) PESOS;
17. Second Cause of Action: UNJUST ENRICHMENT Defendants illegally accumulated funds and
other property in violation of the laws of the Philippines and in breach of their official functions
and fiduciary obligations. Defendants, therefore, have unjustly enriched themselves to the grave
and irreparable damage and prejudice of Plaintiff. Defendants have an obligation at law,
independently of breach of trust and abuse of right and power and, as an alternative, are jointly
and severally liable to return to Plaintiff such funds and other property with which Defendants,
in gross evident bad faith, have unjustly enriched themselves or, in default thereof, restore to
Plaintiff the amount of such funds and the value of the other property including those which
may have been wasted, and/or lost with interest thereon from the date of unlawful acquisition
until full payment thereof.
18. Third cause of Action: BREACH OF PUBLIC TRUST A public office is a public trust. By
committing all the acts described above. Defendants, repeatedly breached public trust and the
law, making them liable jointly and severally to Plaintiff. The funds and other property acquired
by Defendants following, or as a result of, their breach of public trust, are deemed to have been
acquired for the benefit of Plaintiff and are, therefore, impressed with constructive trust in favor
of Plaintiff and the Filipino people. Consequently, Defendants are solidarity liable to restore or
reconvey to Plaintiff all such funds and property thus impressed with constructive trust for the
benefit of Plaintiff and the Filipino people.
19. Fourth Cause of action: ACCOUNTING the Commission, acting pursuant to the provisions of
applicable law, respectfully maintain that Defendants, acting singly or collectively, in unlawful
concert with one another, acquired funds, assets and property during the incumbency of
Defendant public officers, or while acting in unlawful concert with public officers, manifestly out
of proportion to their salaries, to their other lawful income and income from legitimately
acquired property. Consequently, they are required to show to the satisfaction of this Honorable
Court that they have lawfully acquired all such funds, assets and property which are in excess of
their legal net income, and for this Honorable Court to decree that the Defendants are under
obligation to account to Plaintiff with respect to all legal or beneficial interests in funds,
properties and assets of whatever kind and wherever located in excess of the lawful earnings of
lawful income from legitimately acquired property.
20. Fifth Cause of Action: LIABILITY FOR DAMAGES (a) By reason of the unlawful acts set forth
above, Plaintiff and the Filipino people have suffered actual damages in an amount representing
the pecuniary loss sustained by the latter as a result of Defendants' unlawful acts, plus expenses
which Plaintiff has been compelled to incur and shall continue to incur in its effort to recover
Defendants' ill-gotten wealth all over the world, Defendants are, therefore, jointly and severally
liable to Plaintiff for actual damages and to reimburse expenses for recovery of Defendants' ill-
gotten wealth all over the world in such amounts as are proven during the trial.
(b) As a result of Defendants' unlawful, malicious, immoral and wanton acts described above,
Plaintiff and the Filipino people had, for more than twenty long years, painfully endured and
suffered and continue to endure and suffer anguish, fright, sleepless nights, serious anxiety,
wounded feelings and moral shock, as well as besmirched reputation and social humiliation
before the international community, for which Defendants are jointly and severally liable to
Plaintiff and the Filipino people for moral damages;
(c) In addition, Plaintiff and the Filipino people are entitled to temperate damages for their
sufferings which, by their very nature, are incapable of pecuniary estimation but which this
Honorable Court may determine in the exercise of its sound discretion;
(d) Defendants, by reason of the above described unlawful acts, have violated and invaded the
inalienable right of Plaintiff and the Filipino people to a fair and decent way of life befitting a
Nation with rich natural and human resources. This basic and fundamental right of Plaintiff and
the Filipino people should be recognized and vindicated by awarding nominal damages in an
amount to be determined by the Honorable Court in the exercise of its sound discretion.
(e) By way of example and correction for the public good and in order to ensure that
Defendants' unlawful, malicious, immoral and wanton acts are not repeated, said Defendants
are solidarily liable to Plaintiff for exemplary damages . 2
On April 14, 1988, the respondent Court promulgated a Resolution denying the petitioners'
motion. On July 13, 1988, it issued a second one denying reconsideration.
The petitioners submit, in a nutshell, that the PCGG's averments are made up of bare
generalizations, presumptuous conclusions of fact and law, and plain speculations, for which a
motion for a more definite statement or for a bill of particulars allegedly lies.
The Sandiganbayan's dispositions are as follows:
From the foregoing it can readily be seen that We have set out fully and in detail the particulars
and specifications being sought by defendants- movants in order to show in a much broader
perspective the factual basis relied upon to justify the relief sought in their motion. A careful
and meticulous examination thereof, as well as the pertinent portions of the Expanded
Complaint (Pp. 673-692, Ibid.) readily shows that Paragraphs 1 to 9, inclusive, fall under the
headings "Nature Of The Action," "The Parties" and "Averments Common To All Causes of
Action" hence, they do not constitute an inherent or integral part of the causes of action,
similarly as in Paragraphs 10 to 13 inclusive, which fall under the heading "IV. General
Averments Of Defendants' Illegal Acts". Hence, as aptly pointed out by plaintiff, they serve
merely to present the factual backdrop or scenario leading to Paragraphs 14 to 15, inclusive
which set out iii detail the "Specific Averments Of Defendants' Illegal Acts" and to which latter
paragraphs the motion may, therefore, be properly addressed.
Correlating the specific averments in Paragraphs 14 to 15, inclusive, to the five (5) Causes of
Action described in Paragraphs 16 to 20, inclusive, We are of the considered opinion that
Paragraphs 14 to 15, inclusive, of the Expanded Complaint had already supplied or provided the
specifications and particulars theretofore lacking in the original Complaint. Therein, defendants-
movants herein, particularly defendants Lucio C. Tan, Willy Co, Florencio T. Santos, Mariano Tan
Eng Lian, Domingo Chua and Mariano Khoo, together with their co-defendants-movants, are
alleged to have actively collaborated and willingly participated in multi-varied and inter-related
business/corporate/individual acts and practices involving the General Bank and Trust Company
(now Allied Banking Corporation), the Central Bank of the Philippines, the Asia Brewery, Inc.,
Fortune Tobacco Co., Shareholdings, Inc., Foremost Farms, Inc., Himmel Industries, Inc.,
Grandspan Development Corporation, Silangan, Inc., Maranaw Hotel and Resorts, Corp., Sipalay
Trading Corporation, The Development Corporation of the Philippines, Northern Redrying Co.,
Inc. and the Virginia Tobacco Administration. The nature, scope and consequences of such acts
and practices, insofar as they involve or affect the operations of the above-named firms, entities
or corporations, again insofar as they constitute alleged violations of plaintiffs rights and
interests, are outlined in vivid detail, complete with names, dates, facts and figures in Paragraph
14 (a) (1-3), (b), (c), (d), (e) (1-5), (f), (g) and (h). The specific roles and participation of
defendants-movants are likewise averred in the particular sub-paragraphs which relate to the
firms, entities and corporations affected. In short, each and every defendant-movant can clearly
see where, how and why he or she is being held liable or responsible for the particular act or
acts attributed to them, singly or collectively. 3
We sustain the respondent, the Sandiganbayan.
Under section 1, of Rule 12, of the Rules of Court, supra, thus:
SECTION 1. Motion for bill of particulars before responding to a pleading or, if no responsive
pleading is permitted by these rules, within ten (10) days after service of the pleading upon him,
a party may move for a more definite statement or for a bill of particulars of any matter which is
not averred with sufficient definiteness or particularity to enable him properly to prepare his
responsive pleading or to prepare for trial. Such motion shall point out the defects complained
of and the details desired.
A bill of particulars becomes part of the pleadings once accepted, thus:
(a) Bill a part of pleading. A bill of particulars becomes a part of the pleading which it
supplements. It shall be governed by the rules of pleading and the original shall be filed with the
clerk of the court. 4
A seasonable motion therefor interrupts the period within which to answer:
(b) Stay of period to file responsive pleading- After service of the bill of particulars or of a more
definite pleading, or after notice of denial of his motion, the moving party shall have the same
time to serve his responsive pleading, if any is permitted by these rules, as that to which he was
entitled at the time of serving his motion, but not less than five (5) days in any event. 5
If the motion is filed beyond that period, it should rightly be denied . 6 Where it is, however, filed
on time, whether or not the movant succeeds in his motion, he, the movant, has, as above-
indicated, "the same time to serve his responsive pleading . . . as that to which he was entitled ...
but not less than five (5) days in any event. 7
Pending the resolution of these questions, the issues of the case can not be said to have been
joined, and a party's failure to attend subsequent hearings does not amount to failure to
prosecute.8
A motion for a bill of particulars, not a motion to dismiss, is the proper remedy against a deficient
pleading.9 In one case, 10 it was held that in that event, a motion to dismiss for failure to state a
cause of action should be treated as a motion for a bill of particulars. 11
In a recent case, 12 it was held that a motion for a bill of particulars may be granted where the
complaint fails to state in what capacity the plaintiffs sue.
The proper office of a bill of particulars is "to inform the opposite party and the court of the
precise nature and character of the cause of action . . . the pleader has attempted to set forth, and
thereby to guide his adversary in his preparations for trial and reasonably protect him against
surprise at the trial." 13 It complements the rule on pleadings in general, that is, that the complaint
should consist of a "concise statement of the ultimate facts ." 14 Its admission, finally, is subject to
the sound discretion of the judge, unless discretion has been exercised with palpable abuse. 15
It has also been held that:
xxx xxx xxx
It is the office or function, as well as the object or purpose, of a bill of particulars to amplify or
limit a pleading, specify more minutely and particularly a claim or defense set up and pleaded in
general terms, give information, not contained in the pleading, to the opposite party and the
court as to the precise nature, character, scope, and extent of the cause of action or defense
relied on by the pleader, and apprise the opposite party of the case which he has to meet, to the
end that the proof at the trial may be limited to the matters specified, and in order that surprise
at, and needless preparation for, the trial may be avoided, and that the opposite party may be
aided in framing his answering pleading and preparing for trial. It has also been stated that it is
the function or purpose of a bill of particulars to define, clarify, particularize, and limit or
circumscribe the issues in the case, to expedite the trial, and assist the court. A general function
or purpose of a bill of particulars is to prevent injustice or do justice in the case when that
cannot be accomplished without the aid of such a bill.
It is not the office of a bill of particulars to supply material allegations necessary to the validity
of a pleading, or to change a cause of action or defense stated in the pleading, or to state a
cause of action or defense other than the one stated. Also it is not the office or function, or a
proper object, of a bill of particulars to set forth the pleader's theory of his cause of action or a
rule of evidence on which he intends to rely, or to furnish evidential information whether such
information consists of evidence which the pleader proposes to introduce or of facts which
constitute a defense or offset for the other party or which will enable the opposite party to
establish an affirmative defense not yet pleaded. 16
The complaint for which a bill for a more definite statement is sought, need only inform the
defendant of the essential (or ultimate) facts to enable him, the defendant, to prepare an
intelligent answer. 17 As we indicated, its primary objective is to apprise the adverse party of what
the plaintiff wants to preclude the latter from springing a surprise attack later. Any more
"particulars", in that event, would be evidentiary in character, which must be adduced at the trial
proper.
It is noteworthy that in Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on
Good Government,18 we upheld the sequestration of the Bataan Shipyard & Engineering Co., Inc.,
upon a prima facie showing that the PCGG had a good case against the shipping firm, or otherwise,
that:
xxx xxx xxx
1) that "(i) ill-gotten properties (were) amassed by the leaders and supporters of the previous
regime;"
a) more particularly, that "(i) ill-gotten wealth (was) accumulated by former President Ferdinand
E. Marcos, his immediate family, relatives, subordinates and close associates, ... located in the
Philippines or abroad, ... (and) business enterprises and entities (came to be) owned or
controlled by them, during ... (the Marcos) administration, directly or through nominees, by
taking undue advantage of their public office and/or using their powers, authority, influence,
connections or relationship;
b) otherwise stated, that "there are assets and properties purportedly pertaining to former
President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close
relatives, subordinates, business associates, dummies, agents or nominees which had been or
 were acquired by them directly or indirectly, through or as a result of the improper or illegal use
of funds or properties owned by the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of
their office, authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the Republic of
the Philippines;"
c) that "said assets and properties are in the form of bank accounts, deposits, trust accounts,
shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and
other kinds of real and personal properties in the Philippines and in various countries of the
world;" and
2) that certain "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos." 19
It must be stressed, however, that the above conclusions are but prima facie demonstrations,
which must be proved at the trial.
We are satisfied in this case that the PCGG has made out a sufficient complaint against the
petitioners. It was filed pursuant to Executive Order No. 1 as amended, and is to be tried on the
theory that the petitioners are guilty of accumulating ill-gotten wealth. But as we put it in the
COCOFED case, supra, and as we stated above, the sufficiency of the complaint is one thing and
the merits thereof are another. The latter is not the question before us.
We also sustain the Sandiganbayan because the PCGG's complaint (as amended); from our vantage
point, does set out allegations, however confusingly put in print, which, interrelated to one
another, are enough to support a formal civil charge. If the petitioners are not aware of the PCGG's
asseverations, the remedy, so we hold, is to deny the same in their answer for lack of "knowledge
or information sufficient to form a belief as to the truth of 20 the said averments. They can not,
however, demand for any more particulars without actually making the PCGG expose its evidence
unnecessarily before the trial stage.
A reading, indeed, of paragraphs four through six, and paragraph fourteen, of the PCGG's
Complaint illustrates enough semblance of logic, as to what the Republic wants from the
petitioners. We quote:
xxx xxx xxx
4. Defendant LUCIO C. TAN was a business partner of Defendant Ferdinand E. Marcos.
Defendants Ferdinand E. Marcos and Lucio C. Tan had agreed that the former would own 60% of
Shareholdings, Inc., which in turn, beneficially held and/or controlled substantial shares of
Fortune Tobacco, Asia Beer Brewery, Allied Banking Corporation and Foremost Farms. Apart
from said 60% beneficial interest of Defendant Ferdinand E. Marcos, Defendant Lucio Tan yearly
paid the former sums of money from 1980 to 1986, in exchange for privileges and concessions
which said Defendant Ferdinand E. Marcos gave Defendant Lucio C. Tan, as more particularly
described in paragraph 13 of this Complaint. The latter, Defendant Lucio C. Tan, is a resident of
Quezon City and may be served with summons and other court processes at 30 Biak-na-Bato St.,
Sta. Mesa Heights, Quezon City.
5. Defendants FERDINAND E. MARCOS and IMELDA R. MARCOS are spouses. They may be
served with summons and other court processes either (i) at their last known address at Don
Mariano Marcos St., Cor. P. Guevarra Street, San Juan, Metro Manila; (ii) at 6577 Kalanianaole
Highway, Honolulu, Hawaii, United States of America, at which two Hawaii addresses they now
temporarily reside, even as they remain residents and citizens of the Philippines.
6. The following Defendants acted as dummies, nominees, or agents, by allowing themselves to
be incorporators, directors, board members and/or stockholders of corporations held and/or
controlled by Defendants Lucio C. Tan, Ferdinand E. Marcos and Imelda R. Marcos. Said
Defendants enumerated below may be served with summons and other court processes at the
respective addresses appearing opposite their names:
xxx xxx xxx
14. Defendant Lucio C. Tan, by himself and/or in unlawful concert with Defendants Ferdinand E.
Marcos and Imelda R. Marcos, and taking undue advantage of his relationship and influence
with Defendant Spouses, among others:
(a) without sufficient collateral and for a nominal consideration, with the active collaboration,
knowledge and willing participation of Defendant Willy Co, arbitrarily and fraudulently acquired
control of the General Bank and Trust Company which eventually became Allied Banking
Corporation, through then Central Bank Governor Gregorio Licaros, as shown by, but not limited
to, the following circumstances:
(1) In 1976, the General Bank and Trust Company (GBTC, for short) got into financial difficulties.
The Central Bank then extended an emergency loan of P350 million to GBTC. In extending this
loan, the CB however took control of GBTC when the latter executed an Irrevocable Proxy of 2/3
of GBTC's outstanding shares in favor of the CB and when 7 of the 11 member Board of Directors
were CB nominees. Subsequently, on March 25, 1977, the Monetary Board of CB issued a
Resolution declaring GBTC insolvent, forbidding it to do business and placing it under
receivership.
(2) In the meantime, a public bidding for the sale of GBTC assets and liabilities was scheduled at
7:00 P.M. on March 28, 1977. Among the conditions of the bidding were: (a) submission by the
bidder of Letter of Credit issued by a bank acceptable to CB to guaranty payment or as collateral
of the CB emergency loan; and (b) a 2-year period to repay the said CB emergency loan. On
March 29, 1977, CB thru a Monetary Board Resolution, approved the bid of the group of Lucio
Tan and Willy Co. This bid, among other things, offered to pay only P 500,000.00 for GBTC assets
estimated at P 688,201,301.45; Capital Accounts of P 103,984,477.55; Cash of P 25,698,473.00;
and the takeover of the GBTC Head Office and branch offices. The required Letter of Credit was
not also attached to the bid.
(3) As already stated, GBTC eventually became the Allied Banking Corporation in April, 1977. The
defendants Lucio Tan, Willy S. Co and Florencio T. Santos are not only incorporators and
directors but they are also the major shareholders of this new bank.
(b) delivered to Defendant Spouses Ferdinand and Imelda Marcos, sometime in July, 1979 or
thereafter, substantial beneficial interests in shares of stock worth about P 50 million pesos in
the Asia Brewery, Inc. through dummies, nominees or agents, with the active collaboration,
knowledge and willing participation of Defendants Florencio T. Santos as then President,
Mariano Tan Eng Lian as then Treasurer, and Domingo Chua and Mariano Khoo as then
Directors, of the Asia Brewery, Inc. in consideration of substantial concessions which their varied
business ventures were unduly privileged to enjoy, such as but not limited to, the grant of dollar
allocation amounting to about U.S. $ 6,934,500.00.
(c) gave improper payments such as gifts, bribes, commissions, and/or guaranteed "dividends"
to said Defendant spouses in various sums, such as P 10 M in 1980, P 10 M in 1981, P 20 M in
1982, P 40 M in 1983, P 40 M in 1984, P 50 M in 1985, P 50 M in 1986, in consideration of
Defendant Spouses continued support of Defendant Lucio Tan's diversified business ventures
and/or Defendant Spouses ownership or interest in said diversified business ventures, such as
Allied Banking Corporation, Asia Brewery, Inc., Fortune Tobacco Co., Shareholdings, Inc., among
others. Even earlier, Tan gave the amounts of P 11 million in 1975, about P 2 million in 1977, and
P 44 million in 1979, among other amounts.
(d) sometime in May, 1979, applied for and was granted by the Central Bank "free dollar
allocation" in millions of US Dollars for the use and benefit of Asia Brewery Inc., such as for the
importation of the whole machinery set up for the proposed brewery and glass manufacturing
plants. Defendants were major stockholders and/or in which they held substantial beneficial
interest;
(e) established Shareholdings, Inc., a holding company, which in turn beneficially held and/or
controlled substantial shares of stocks in Fortune Tobacco Corporation, Asia Brewery, Inc.,
Foremost Farms, Inc., Himmel Industries, Inc., Grandspan Development Corporation, Silangan,
Inc., and Allied Banking Corporation, with the active collaboration, knowledge and willing
participation of Defendants Carmen Khao Tan, Florencio T. Santos, Natividad N. Santos, Domingo
Chua, Tan Hui Nee, Mariano Tan Eng Lian, Estate of Benito Tan Kee Hiong (represented by
Tarciana C. Tan), Florencio N. Santos, Jr., Harry C. Tan, Tan Eng Chan, Chung Poe Kee, Mariano
Khoo, Manuel Khoo, Miguel Khoo, Jaime Khoo and Elizabeth Khoo, who are or acted as dummy-
shareholders of the Shareholdings, Inc., as well as directors in the case of Harry Tan and Manuel
Khoo, in order to prevent disclosure and recovery of illegally obtained assets. Moreover, for the
same purpose, in December, 1980, said Defendants transferred to Shareholdings, Inc. their
purported shares of stocks in Foremost Farms, Inc., Fortune Tobacco Corporation, Asia Brewery,
Inc., Himmel Industries, Inc., Grandspan Development Corp., and Silangan Holdings, Inc.
(f) caused losses in millions of pesos to the Development Bank of the Philippines (DBP), a
government lending institution, by unlawfully selling DBP's controlling interest in Century Park
Sheraton Hotel (Manila), owned by Maranaw Hotel and Resorts Corp., a grossly undercapitalized
company beneficially held and controlled by Lucio C. Tan, said transaction having been
facilitated with the active collaboration, knowledge and willing participation of defendants Harry
Tan and Don Ferry while the latter was then serving as Vice-Chairman of DBP, as shown by, but
not limited to, the following facts and circumstances:
(i) Sometime in 1984, Lucio C. Tan wrote defendant Ferdinand E. Marcos informing him among
other things that 'new business prospect to buy out from DBP Holding" includes the Century
Park Sheraton Hotel (Sheraton, for short). Apparently receiving favorable reaction from Marcos,
Lucio Tan organized and established on October 5, 1984 the Sipalay Trading Corporation (Sipalay,
for short), with a capitalization of P5 million. Defendant Harry C. Tan became Chairman and
President of the corporation.
(2) Sipalay in a letter dated January 29, 1985 wrote defendant Don Ferry, as then Vice-Chairman
of the DBP, offering to buy for U.S. $8.7 million 79% of the voting shares of the Maranaw Hotel
and Resorts Corp. (MHRC, for short), owned by DBP. On January 30, 1985, the DBP Board
approved "in principle" the above proposal to buy.
(3) On February 26, 1985, Sipalay requested DBP to waive its requirement "to provide a
comptroller pending full payment of the purchase price". Defendant Ferry agreed to this waiver.
(4) On March 1, 1985, DBP represented by defendant Ferry and Sipalay represented by
defendant Harry C. Tan, executed an Agreement to buy and sell-DBP to sell 78.3% of its
controlling interest in MHRC to Sipalay for a consideration of U.S. $ 8.5 million with 20% of the
purchase price as downpayment. At the same time, DBP and Sipalay also executed an escrow
agreement which stipulated that the interest earned by the escrow account would be for the
benefit of Sipalay (rather than DBP). Defendants Ferry and Harry Tan again signed for their
respective agency and corporation.
(5) On April 22, 1985, the corresponding Deed of Sale was executed by the parties, defendant
Ferry again signing for DBP, and defendant Harry C. Tan for Sipalay. A Pledge Agreement was
likewise signed on the same date, the subject shares being pledged by Sipalay to DBP, and the
pledge to remain in full force until the full payment of the purchase price or until Sipalay may
have substituted as collateral a stand-by letter of credit to secure the unpaid balance. Sipalay
however did not turn over the subject shares to DBP.
(g) printed in or about 1981, without legal authority, BIR strips (sic) stamps worth about P7
billion pesos and affixed them on packs of cigarettes produced by Fortune Tobacco Corporation,
in violation of Section 180 of the Internal Revenue Code of 1977, thereby defrauding the Plaintiff
and the Filipino people of billions of pesos in tax receipts.
(h) established in May, 1985 the Northern Redrying Co., Inc. (NRCI) a Virginia Tobacco Company,
which on several instances in 1986 made importations and purchases of about 9,607,482.9 net
kilos, in excess of the ceiling set by law, with the active collaboration of Defendant Celso C.
Ranola, William T. Wong, Ernesto B. Lim, Benjamin T. Albacita who are all Directors of NRCI, and
at the time of the establishment of NRCI, were employees of defendant Lucio Tan. Defendant
Federico Moreno, as Chairman of the Virginia Tobacco Administration, supervised, approved and
/or permitted such importations and purchases,
15. The acts of Defendants, singly or collectively, and in unlawful concert with one another,
constitute gross abuse of official position and authority, flagrant breach of public trust and
fiduciary obligations, brazen abuse of right and power, unjust enrichment, violation of the
Constitution and laws of the Republic of the Philippines, to the grave and irreparable damage of
Plaintiff and the Filipino people.21
In essence, these are what the PCGG says:
1. The petitioner Lucio Tan was Mr. Marcos' business partner;
2. Through undue influence, coercion, and abuse of light they acquired shareholdings from various
firms, and built a business empire therefrom;
3. The remaining petitioners acted as their "dummies, nominees, or agents"; SO ORDERED.

4. Together with the Marcoses, they maneuvered their way into these firms and acquired control
thereof;

5. The same were accomplished through unacceptable machinations such as insider trading and
similar acts, in violation of existing laws;

6. They also unjustly enriched the petitioners at the expense of the Republic of the Philippines and
the Filipino people.

The foregoing, so we find, are actionable wrongs that are proper for a complaint. We can not
accept the petitioners' pleadings that:

xxx xxx xxx

8. As will be noted from the above, the ultimate facts upon which each cause of action is based
are not alleged directly and particularly. Instead, they are described as "the unlawful acts
described above", "the foregoing acts", "all of the acts described above", "the unlawful acts set
forth above", and "defendants' unlawful, malicious, immoral and wanton acts described above".

9. What the complaint does is to compel petitioners to determine which allegations in the first
fifteen paragraphs pertain to each cause of action. Petitioners are made to guess and speculate
which allegations in the first fifteen paragraphs pertain to the "first cause of action the "second
cause of action the "third cause of action the "fourth cause of action" and the Fifth cause of
action

10. It is petitioners' submission that due process requires that before a defendant is required to
answer a complaint, a common understanding must exist among the plaintiff, the defendant,
and the court as to the ultimate facts comprising each cause of action. What respondent court
has done, in denying petitioners' "Motion for a More Definite Statement or a Bill of Particulars'
(of the statement of the Causes of Action), is to allow a situation whereby the plaintiff may have
one understanding of the ultimate facts comprising each cause of action, the defendants,
possibly another understanding, and the court another view. Not only would it be grossly unfair
to compel a defendant to answer and to go to trial in such a situation but would likely invite
protracted, and perhaps, endless controversy on what the issues really are. 22

We agree that the PCGG's Complaint/Expanded Complaint is garbled in many respects, but this is
no excuse for sloth on the part of the petitioners. The Sandiganbayan, furthermore, has taken
pains on the behest of the petitioners to interconnect, paragraph by paragraph, the allegations of
the Complaint/ Expanded Complaint in question. They, the petitioners, can not any more be heard
to insist that they are still left at a loss and in the dark. The Complaint/Expanded Complaint is
complete enough to perish fears of the PCGG pulling a surprise subsequently.

We therefore order the remand of the case against the twenty-two petitioners and heard without
any further delay.

WHEREFORE, the petition is DISMISSED. Costs against the petitioners.

CIVPRO – INTERVENTION – ACILLARY TO PENDING ACTION
G.R. No. 90580 April 8, 1991
RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW, petitioners,
vs.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of Branch 43, (Regional
Trial Court of Manila), FREEMAN MANAGEMENT AND DEVELOPMENT CORPORATION,
EQUITABLE BANKING CORPORATION, FREEMAN INCORPORATED, SAW CHIAO LIAN, THE
REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY SHERIFF ROSALIO G. SIGUA, respondents.
CRUZ, J.:
A collection suit with preliminary attachment was filed by Equitable Banking Corporation against
Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The petitioners moved to
intervene, alleging that (1) the loan transactions between Saw Chiao Lian and Equitable Banking
Corp. were not approved by the stockholders representing at least 2/3 of corporate capital; (2) Saw
Chiao Lian had no authority to contract such loans; and (3) there was collusion between the
officials of Freeman, Inc. and Equitable Banking Corp. in securing the loans. The motion to
intervene was denied, and the petitioners appealed to the Court of Appeals.
Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement which they
submitted to and was approved by the lower court. But because it was not complied with,
Equitable secured a writ of execution, and two lots owned by Freeman, Inc. were levied upon and
sold at public auction to Freeman Management and Development Corp.
The Court of Appeals1 sustained the denial of the petitioners' motion for intervention, holding that
"the compromise agreement between Freeman, Inc., through its President, and Equitable Banking
Corp. will not necessarily prejudice petitioners whose rights to corporate assets are at most
inchoate, prior to the dissolution of Freeman, Inc. . . . And intervention under Sec. 2, Rule 12 of the
Revised Rules of Court is proper only when one's right is actual, material, direct and immediate
and not simply contingent or expectant."
It also ruled against the petitioners' argument that because they had already filed a notice of
appeal, the trial judge had lost jurisdiction over the case and could no longer issue the writ of
execution.
The petitioners are now before this Court, contending that:
1. The Honorable Court of Appeals erred in holding that the petitioners cannot intervene in Civil
Case No. 88-44404 because their rights as stockholders of Freeman are merely inchoate and not
actual, material, direct and immediate prior to the dissolution of the corporation;
2. The Honorable Court of Appeals erred in holding that the appeal of the petitioners in said Civil
Case No. 88-44404 was confined only to the order denying their motion to intervene and did not
divest the trial court of its jurisdiction over the whole case.
The petitioners base their right to intervene for the protection of their interests as stockholders on
Everett v. Asia Banking Corp.2 where it was held:
The well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs done to
the corporation, but that the action must be brought by the Board of Directors, . . . has its
exceptions. (If the corporation [were] under the complete control of the principal
defendants, . . . it is obvious that a demand upon the Board of Directors to institute action and
prosecute the same effectively would have been useless, and the law does not require litigants
to perform useless acts.
Equitable demurs, contending that the collection suit against Freeman, Inc, and Saw Chiao Lian is
essentially in personam and, as an action against defendants in their personal capacities, will not
prejudice the petitioners as stockholders of the corporation. The Everett case is not applicable
because it involved an action filed by the minority stockholders where the board of directors
refused to bring an action in behalf of the corporation. In the case at bar, it was Freeman, Inc. that
was being sued by the creditor bank.
Equitable also argues that the subject matter of the intervention falls properly within the original
and exclusive jurisdiction of the Securities and Exchange Commission under P.D. No. 902-A. In fact,
at the time the motion for intervention was filed, there was pending between Freeman, Inc. and
the petitioners SEC Case No. 03577 entitled "Dissolution, Accounting, Cancellation of Certificate of
Registration with Restraining Order or Preliminary Injunction and Appointment of Receiver." It also
avers in its Comment that the intervention of the petitioners could have only caused delay and
prejudice to the principal parties.
On the second assignment of error, Equitable maintains that the petitioners' appeal could only
apply to the denial of their motion for intervention and not to the main case because their
personality as party litigants had not been recognized by the trial court.
After examining the issues and arguments of the parties, the Court finds that the respondent court
committed no reversible error in sustaining the denial by the trial court of the petitioners' motion
for intervention.
In the case of Magsaysay-Labrador v. Court of Appeals,3 we ruled as follows:
Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the
respondent court's holding that petitioners herein have no legal interest in the subject matter in
litigation so as to entitle them to intervene in the proceedings below. In the case of Batama
Farmers' Cooperative Marketing Association, Inc. v. Rosal, we held: "As clearly stated in Section 2
of Rule 12 of the Rules of Court, to be permitted to intervene in a pending action, the party
must have a legal interest in the matter in litigation, or in the success of either of the parties or
an interest against both, or he must be so situated as to be adversely affected by a distribution
or other disposition of the property in the custody of the court or an officer thereof."
To allow intervention, [a] it must be shown that the movant has legal interest in the matter in
litigation, or otherwise qualified; and [b] consideration must be given as to whether the
adjudication of the rights of the original parties may be delayed or prejudiced, or whether the
 intervenor's rights may be protected in a separate proceeding or not. Both requirements must
concur as the first is not more important than the second.
The interest which entitles a person to intervene in a suit between other parties must be in the
matter in litigation and of such direct and immediate character that the intervenor will either
gain or lose by the direct legal operation and effect of the judgment. Otherwise, if persons not
parties of the action could be allowed to intervene, proceedings will become unnecessarily
complicated, expensive and interminable. And this is not the policy of the law.
The words "an interest in the subject" mean a direct interest in the cause of action as pleaded,
and which would put the intervenor in a legal position to litigate a fact alleged in the complaint,
without the establishment of which plaintiff could not recover.
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after payment of the corporate
debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the
property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.
As we held in the case of Barangay Matictic v. Elbinias:7
An intervention has been regarded, as merely "collateral or accessory or ancillary to the
principal action and not an independent proceedings; and interlocutory proceeding dependent
on and subsidiary to, the case between the original parties." (Fransisco, Rules of Court, Vol. 1, p.
721). With the final dismissal of the original action, the complaint in intervention can no longer
be acted upon. In the case of Clareza v. Resales, 2 SCRA 455, 457-458, it was stated that:
That right of the intervenor should merely be in aid of the right of the original party, like the
plaintiffs in this case. As this right of the plaintiffs had ceased to exist, there is nothing to aid
or fight for. So the right of intervention has ceased to exist.
Consequently, it will be illogical and of no useful purpose to grant or even consider further
herein petitioner's prayer for the issuance of a writ of mandamus to compel the lower court to
allow and admit the petitioner's complaint in intervention. The dismissal of the expropriation
case has no less the inherent effect of also dismissing the motion for intervention which is but
the unavoidable consequence.
The Court observes that even with the denial of the petitioners' motion to intervene, nothing is
really lost to them.1âwphi1 The denial did not necessarily prejudice them as their rights are being
litigated in the case now before the Securities and Exchange Commission and may be fully asserted
and protected in that separate proceeding.
WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so ordered.

On the second assignment of error, the respondent court correctly noted that the notice of appeal
was filed by the petitioners on October 24, 1988, upon the denial of their motion to intervene, and
the writ of execution was issued by the lower court on January 30, 1989. The petitioners' appeal
could not have concerned the "whole" case (referring to the decision) because the petitioners "did
not appeal the decision as indeed they cannot because they are not parties to the case despite
their being stockholders of respondent Freeman, Inc." They could only appeal the denial of their
motion for intervention as they were never recognized by the trial court as party litigants in the
main case.

Intervention is "an act or proceeding by which a third person is permitted to become a party to an
action or proceeding between other persons, and which results merely in the addition of a new
party or parties to an original action, for the purpose of hearing and determining at the same time
all conflicting claims which may be made to the subject matter in litigation. 4

It is not an independent proceeding, but an ancillary and supplemental one which, in the nature of
things, unless otherwise provided for by the statute or Rules of Court, must be in subordination to
the main proceeding.5 It may be laid down as a general rule that an intervenor is limited to the
field of litigation open to the original parties.6

In the case at bar, there is no more principal action to be resolved as a writ of execution had
already been issued by the lower court and the claim of Equitable had already been satisfied. The
decision of the lower court had already become final and in fact had already been enforced. There
is therefore no more principal proceeding in which the petitioners may intervene.
CIVPRO – INTERVENTION - EXCEPTION
G.R. No. 89909 September 21, 1990
METROPOLITAN BANK AND TRUST COMPANY, petitioner,
vs.
THE PRESIDING JUDGE, REGIONAL TRIAL COURT, Manila Branch 39, RAYCOR AIRCONTROL
SYSTEM, INC. and COURT OF APPEALS,* respondent.
REGALADO, J.:
Before the Court for review on certiorari is the decision of respondent Court of Appeals in CA-G.R.
SP No. 17341, dated July 19, 1989, 1 dismissing petitioner's original action for certiorari and
mandamus which seeks to set aside the order of the trial court dated June 2, 1988, allowing the
intervention suit therein to proceed, and its order of January 11, 1989, admitting the amended
complaint in intervention.
The proceedings in the court below from which this appeal arose, as found by respondent Court of
Appeals, are as follows:
Petitioner Metropolitan Bank and Trust Co. (Metropolitan) in whose favor a deed of chattel
mortgage was executed by Good Earth Emporium, Inc. (GEE) over certain air conditioning units
installed in the GEE building, filed a complaint for replevin against Uniwide Sales, Inc. (Uniwide,
for brevity) and the BPI Investment Corporation and several other banks collectively called BPI-
Consortium, for the recovery of the possession of the air-conditioning units or in the event they
may not be recovered, for the defendants which acquired the GEE building in an auction sale,
(to) be required, jointly and severally, to pay the plaintiff the unpaid obligations on the units.
Per paragraph 3.11.3 of its complaint, plaintiff Metrobank alleged that the air-conditioning units
were installed on a loan of P4,900,000.00 it extended to Good Earth Emporium & Supermarket,
Inc. in its building located at Rizal Avenue, Sta. Cruz, Manila, after the land and building had
been foreclosed and purchased on June 3, 1983 at public auction by the defendants, except
Uniwide, and in order to secure repayment of the loan, a deed of chattel mortgage was
constituted over the personal properties listed in the deed which included the airconditioning
units.
It also alleged in par. 3.11.2 of the complaint, that '(T)he loan proceeds were used by GEE to
finance the acquisition of airconditioning equipment from Reycor (sic) Air Control System, Inc.
(amounting to P4,250,000.00 and installation costs of P650,000.00) under an Agreement of Sale
dated 29 June 1984' (Annex A, Petition, Id., pp. 23-24).
The defendants filed their Answer, Uniwide on July 25, 1986 (Annex B, Petition, Id., pp. 32-48)
and the defendants (presumably the rest of the defendants), on July 14, 1986 (Annex C, Petition,
Id., pp. 3949).
On July 17, 1986, Raycor Air Control Systems, Inc. filed a motion for leave to intervene alleging'
it has a direct and immediate interest on the subject matter of the litigation such that it will
either gain or lose by the direct legal operation and effect of the judgment' and attached the
'Intervention Complaint'(Annex D, Petition, Id., pp. 49-52). There was no opposition to the
motion and the intervention complaint was admitted by the lower court per its order dated
August 8, 1986. Metrobank on November 19, 1986, filed its Answer To The Intervention
Complaint (Annex E, Petition, Id., pp. 53-59).
On August 3, 1987, the lower court set the case for trial on the merits on September 15, 1987
but before the date of the trial, on September 7, 1987, plaintiff Metrobank and the defendants
Uniwide and BPI Consortium, filed a motion for postponement of the scheduled hearing on
September 15, 1987 and asked for thirty (30) days from September 15 within which to submit a
compromise agreement. On March 15, 1988, plaintiff Metrobank and defendants BPI
Consortium filed a joint motion to dismiss the complaint and on March 18, 1988, the lower
court issued the order dismissing the complaint with prejudice (Annex D to Comment of Raycor
Air Control System, Inc., Rollo, p. 108).
On April 19, 1988, private respondent filed a motion for reconsideration of the order dismissing
the complaint with prejudice, claiming it was not furnished with copy of the joint motion for
dismissal and that it received the order of dismissal only on April 4, 1988. On June 2, 1988, the
respondent court issued the order granting the motion for reconsideration filed by the
intervenor (Annex I, Petition, Id., p. 67) which order is now subject of present petition for
certiorari.
On August 2, 1988, private respondent filed a motion to admit amended complaint (Annex F,
Intervenor's Comment, Id., p. 110) and attached the Amended Intervention Complaint (Annex J,
Petition, Id., pp. 68-73) to the motion. To this motion, plaintiff Metrobank filed an opposition
(Annex K, Petition, Id., pp. 71-76) and after the intervenor had filed their Reply (Annex L,
Petition, Id., pp. 77-81) and the plaintiff a Rejoinder (Annex M, Petition, Id., pp. 82-87), on
January 11, 1989, the respondent court issued the order admitting the amended complaint in
intervention (Annex N, Petition, Id., p. 88). This is the other order which is subject of the petition
for certiorari.
On February 9, 1989, plaintiff Metrobank filed a motion for extension for 15 days or until
February 24, 1988 within which to file its answer to the amended complaint in intervention and
the intervenor on February 17, 1989 filed an opposition to Metrobank's motion and at the same
time moved that Metrobank be declared in default on the amended complaint in intervention.
The respondent court granted Metrobank's motion and on February 18, 1989, Metrobank filed
its Answer to the Amended Complaint in Intervention with Counterclaim. 2
On April 14, 1989, petitioner filed a petition for certiorari and mandamus with respondent Court of
Appeals contending that the lower court committed a grave abuse of discretion amounting to lack
of jurisdiction in allowing, per its order of June 2, 1988, the intervention suit to survive despite the
dismissal of the main action and also in admitting, per its order of January 11, 1989, the amended
complaint in intervention. 3
As earlier stated, the Court of Appeals found no merit in the petition and dismissed the same on
July 19, 1989. Petitioner is now before us raising the same issues and arguments. We agree with
the Court of Appeals that the lower court was innocent of any grave abuse of discretion in issuing
the orders complained of.
The contention of petitioner that the order of the lower court, dated June 2, 1988, has the effect
of allowing the intervention suit to prosper despite the dismissal of the main action obviously
cannot be upheld.
There is here no final dismissal of the main case. The aforementioned order of the lower court has
the effect not only of allowing the intervention suit to proceed but also of vacating its previous
order of dismissal. The reinstatement of the case in order to try and determine the claims and
rights of the intervenor is proper. The joint motion of therein plaintiff and the original defendants
to dismiss the case, without notice to and consent of the intervenor, has the effect of putting to
rest only the respective claims of the said original parties inter se but the same cannot in any way
affect the claim of private respondent which was allowed by the court to intervene without
opposition from the original parties. A resume of pertinent rulings on the matter would be in
order.
Intervention is defined as "a proceeding in a suit or action by which a third person is permitted by
the court to make himself a party, either joining plaintiff in claiming what is sought by the
complaint, or uniting with defendant in resisting the claims of plaintiff, or demanding something
adversely to both of them; the act or proceeding by which a third person becomes a party in a suit
pending between others; the admission, by leave of court, of a person not an original party to
pending legal proceedings, by which such person becomes a party thereto for the protection of
some right of interest alleged by him to be affected by such proceedings." 4
Any person who has or claims an interest in the matter in litigation, in the success of either of the
parties to an action, or against both, may intervene in such action, and when he has become a
party thereto it is error for the court to dismiss the action, including the intervention suit on the
basis of an agreement between the original parties to the action. Any settlement made by the
plaintiff and the defendant is necessarily ineffective unless the intervenor is a party to it. 5
By the very definition of "intervention," the intervenor is a party to the action as the original
parties and to make his right effectual he must necessarily have the same power as the original
parties, subject to the authority of the court reasonably to control the proceedings in the case. 6
Having been permitted to become a party in order to better protect his interests, an intervenor is
entitled to have the issues raised between him and the original parties tried and determined. 7 He
had submitted himself and his cause of action to the jurisdiction of the court and was entitled to
relief as though he were himself a party in the action. 8
After the intervenor has appeared in the action, the plaintiff has no absolute right to put the
intervenor out of court by the dismissal of the action. The parties to the original suit have no
power to waive or otherwise annul the substantial rights of the intervenor. When an intervening
petition has been filed, a plaintiff may not dismiss the action in any respect to the prejudice of the
intervenor.9
It has even been held that the simple fact that the trial court properly dismissed plaintiff s action
does not require dismissal of the action of the intervenor. 10 An intervenor has the right to claim
the benefit of the original suit and to prosecute it to judgment. The right cannot be defeated by
dismissal of the suit by the plaintiff after the filing of the petition and notice thereof to the other
parties. A person who has an interest in the subject matter of the action has the right, on his own
motion, to intervene and become a party to the suit, and even after the complaint has been
dismissed, may proceed to have any actual controversy established by the pleadings determined in
such action. The trial court's dismissal of plaintiffs action does not require dismissal of the action
of the intervenor. 11
The intervenor in a pending case is entitled to be heard like any other party. 12 A claim in
intervention that seeks affirmative relief prevents a plaintiff from taking a voluntary dismissal of
the main action. 13 Where a complaint in intervention was filed before plaintiff's action had been
expressly dismissed, the intervenor's complaint was not subject to dismissal on the ground that no
action was pending, since dismissal of plaintiffs action did not affect the rights of the intervenor or
affect the dismissal of intervenor's complaint. 14 An intervenor's petition showing it to be entitled
to affirmative relief will be preserved and heard regardless of the disposition of the principal
action. 15
16
As we ruled in Camacho vs. Hon. Court of Appeals, et al., the rationale whereof is clearly
applicable to the present controversy-
There is no question that intervention is only collateral or ancillary to the main action. Hence, it
was previously ruled that the final dismissal of the principal action results in the dismissal of said
ancillary action. The main action having ceased to exist, there is no pending proceeding
whereon the intervention may be based. In the case at bar, however, there was no such final or
complete dismissal but rather an approval of a compromise agreement which was embodied in
what was specifically designated as a 'Partial Decision' affecting only the interests of herein
petitioner and the defendant in said case but not those of her co-plaintiff municipality and the
intervenor. The clear intent of the court below in making the partial decision is to make a
reservation to determine the rights of the intervenor and, presumably, the plaintiff municipality.
There may be nothing much left to be done with respect to the main case but as far as the
proceedings in the trial court are concerned, the controversy therein has not been fully settled
and the disposition of the case is definitely incomplete.
Moreover, to require private respondent to refile another case for the settlement of its claim will
result in unnecessary delay and expenses and will entail multiplicity of suits and, therefore, defeat
the very purpose of intervention which is to hear and determine at the same time all conflicting
claims which may be made on the subject matter in litigation, and to expedite litigation and settle
in one action and by a single judgment the whole controversy among the persons involved. 17
On the propriety of the order dated January 11, 1988, admitting private respondent's amended
complaint in intervention, we sustain respondent Court of Appeals in upholding the same.
Incidentally, it will be recalled that petitioner was granted the opportunity to file, as it did file, its
answer to the amended complaint in intervention and it even interposed a counterclaim in the
process.
Now, the granting of leave to file an amended pleading is a matter particularly addressed to the
sound discretion of the trial court and that discretion is broad, subject only to the limitations that
the amendments should not substantially change the cause of action or alter the theory of the
case or that it was made to delay the action. 18 Once exercised, that discretion will not be disturbed
on appeal, except in case of abuse thereof. 19
In the case at bar, a reading of the amended complaint in intervention shows that it merely
supplements an incomplete allegation of the cause of action stated in the original complaint so as
to submit the real matter in dispute. Contrary to petitioner's contention, it does not substantially
change intervenor's cause of action or alter the theory of the case, hence its allowance is in order.

As aptly stated by the Court of Appeals:

In both the Intervention Complaint and the Amended Complaint in Intervention, the private
respondent seeks the payment to it of the amount of P150,000.00 which should have been paid
to it from out of the P650,000.00 which the petitioner as plaintiff in CC 86-3618 had referred to
in pars. 3.11.2 and 3.11.3 of its complaint as cost of installation of the airconditioning units
under the agreement of sale (between plaintiff Metrobank and GEE Inc). dated June 29, 1984
and so basically, the Amended Complaint In Intervention did not really detract or depart from
that basic claim. 20

In determining whether a different cause of action is introduced by amendments to the complaint,

what is to be ascertained is whether the defendant shall be required to answer for a liability or
legal obligation wholly different from that which was stated in the original complaint. An
amendment will not be considered as stating a new cause of action if the facts alleged in the
amended complaint show substantially the same wrong with respect to the same transaction, or if
what are alleged refer to the same matter but are more fully and differently stated, or where
averments which were implied are made in expressed terms, and the subject of the controversy or
the liability sought to be enforced remains the same. 21

The courts should be liberal in allowing amendments to pleadings to avoid multiplicity of suits and
in order that the real controversies between the parties are presented, their rights determined and
the case decided on the merits without unnecessary delay. 22 This liberality is greatest in the early
stages of a lawsuit, 23 especially in this case where the amendment to the complaint in intervention
was made before trial of the case thereby giving petitioner all the time allowed by law to answer
and to prepare for trial.

On the issue regarding the propriety of the intervention, suffice it to state that petitioner's failure
to interpose a timely objection when the motion for leave to intervene was filed by private
respondent bars the former from belatedly questioning the validity of the same on appeal. In any
event, the trial court duly considered the circumstances and granted the motion, which order was
not seasonably questioned by petitioner thus evincing its approval of the court's action.

WHEREFORE, finding no reversible error, the petition is DENIED and the judgment of respondent
Court of Appeals is hereby AFFIRMED.

SO ORDERED.