JOSEPH v BAUTISTA

REGALAD0, J.:
Petitioner prays in this appeal by certior

ari for the annulment and setting aside of the order, dated July
8, 1975, dismissing petitioner's complaint, as well as the order,
dated August 22, 1975, denying his motion for reconsideration
of said dismissal, both issued by respondent Judge Crispin V.
Bautista of the former Court of First Instance of Bulacan,
Branch III.
Petitioner herein is the plaintiff in Civil Case No. 50-V-73
entitled "Luis Joseph vs. Patrocinio Perez, Domingo Villa y de
Jesus, Rosario Vargas, Antonio Sioson, Lazaro Villanueva and
Jacinto Pagarigan", filed before the Court of First Instance of
Bulacan, Branch III, and presided over by respondent Judge
Crispin V. Bautista; while private respondents Patrocinio
Perez, Antonio Sioson, Jacinto Pagarigan and Lazaro
Villanueva are four of the defendants in said case. Defendant
Domingo Villa y de Jesus did not answer either the original or
the amended complaint, while defendant Rosario Vargas could
not be served with summons; and respondent Alberto Cardeno
is included herein as he was impleaded by defendant
Patrocinio Perez, one of respondents herein, in her crossclaim.
The generative facts of this case, as culled from the written
submission of the parties, are as follows:
Respondent Patrocinio Perez is the owner of a cargo truck
with Plate No. 25-2 YT Phil. '73 for conveying cargoes and
passengers for a consideration from Dagupan City to Manila.
On January 12, 1973, said cargo truck driven by defendant
Domingo Villa was on its way to Valenzuela, Bulacan from
Pangasinan. Petitioner, with a cargo of livestock, boarded the
cargo truck at Dagupan City after paying the sum of P 9.00 as
one way fare to Valenzuela, Bulacan. While said cargo truck
was negotiating the National Highway proceeding towards
Manila, defendant Domingo Villa tried to overtake a tricycle
likewise proceeding in the same direction. At about the same
time, a pick-up truck with Plate No. 45-95 B, supposedly
owned by respondents Antonio Sioson and Jacinto Pagarigan,
then driven by respondent Lazaro Villanueva, tried to overtake
the cargo truck which was then in the process of overtaking
the tricycle, thereby forcing the cargo truck to veer towards
the shoulder of the road and to ram a mango tree. As a result,
petitioner sustained a bone fracture in one of his legs. 1
The following proceedings thereafter took place: 2
Petitioner filed a complaint for damages against respondent
Patrocinio Perez, as owner of the cargo truck, based on a
breach of contract of carriage and against respondents Antonio
Sioson and Lazaro Villanueva, as owner and driver,
respectively, of the pick-up truck, based on quasi-delict.

Respondent Sioson filed his answer alleging that he is not and

never was an owner of the pick-up truck and neither would he
acquire ownership thereof in the future.
On September 24, 1973, petitioner, with prior leave of court,
filed his amended complaint impleading respondents Jacinto
Pagarigan and a certain Rosario Vargas as additional
alternative defendants. Petitioner apparently could not
ascertain who the real owner of said cargo truck was, whether
respondents Patrocinio Perez or Rosario Vargas, and who was
the real owner of said pick-up truck, whether respondents
Antonio Sioson or Jacinto Pagarigan.
Respondent Perez filed her amended answer with crossclaim
against her co-defendants for indemnity and subrogation in the
event she is ordered to pay petitioner's claim, and therein
impleaded cross-defendant Alberto Cardeno as additional
alternative defendant.
On September 27, 1974, respondents Lazaro Villanueva,
Alberto Cardeno, Antonio Sioson and Jacinto Pagarigan, thru
their insurer, Insurance Corporation of the Philippines, paid
petitioner's claim for injuries sustained in the amount of P
1,300.00. By reason thereof, petitioner executed a release of
claim releasing from liability the following parties, viz:
Insurance Corporation of the Philippines, Alberto Cardeno,
Lazaro Villanueva, Antonio Sioson and Jacinto Pagarigan.
On December 2, 1974, respondents Lazaro Villanueva, Alberto
Cardeno and their insurer, the Insurance Corporation of the
Philippines, paid respondent Patrocinio Perez' claim for
damages to her cargo truck in the amount of P 7,420.61.
Consequently, respondents Sioson, Pagarigan, Cardeno and
Villanueva filed a "Motion to Exonerate and Exclude Defs/
Cross defs. Alberto Cardeno, Lazaro Villanueva, Antonio
Sioson and Jacinto Pagarigan on the Instant Case", alleging
that respondents Cardeno and Villanueva already paid P
7,420.61 by way of damages to respondent Perez, and alleging
further that respondents Cardeno, Villanueva, Sioson and
Pagarigan paid P 1,300.00 to petitioner by way of amicable
settlement.
Thereafter, respondent Perez filed her "Opposition to Crossdefs.' motion dated Dec. 2, 1974 and Counter Motion" to
dismiss. The so-called counter motion to dismiss was
premised on the fact that the release of claim executed by
petitioner in favor of the other respondents inured to the
benefit of respondent Perez, considering that all the
respondents are solidarity liable to herein petitioner.
On July 8, 1975, respondent judge issued the questioned order
dismissing the case, and a motion for the reconsideration
thereof was denied. Hence, this appeal, petitioner contending
that respondent judge erred in declaring that the release of
claim executed by petitioner in favor of respondents Sioson,
Villanueva and Pagarigan inured to the benefit of respondent
Perez; ergo, it likewise erred in dismissing the case.
We find the present recourse devoid of merit.

The argument that there are two causes of action embodied in

petitioner's complaint, hence the judgment on the compromise
agreement under the cause of action based on quasi-delict is
not a bar to the cause of action for breach of contract of
carriage, is untenable.
A cause of action is understood to be the delict or wrongful act
or omission committed by the defendant in violation of the
primary rights of the plaintiff. 3 It is true that a single act or
omission can be violative of various rights at the same time, as
when the act constitutes juridically a violation of several
separate and distinct legal obligations. However where there is
only one delict or wrong, there is but a single cause of action
regardless of the number of rights that may have been violated
belonging to one person. 4
The singleness of a cause of action lies in the singleness of
the- delict or wrong violating the rights of one person.
Nevertheless, if only one injury resulted from several
wrongful acts, only one cause of action arises. 5 In the case at
bar, there is no question that the petitioner sustained a single
injury on his person. That vested in him a single cause of
action, albeit with the correlative rights of action against the
different respondents through the appropriate remedies
allowed by law.
The trial court was, therefore, correct in holding that there was
only one cause of action involved although the bases of
recovery invoked by petitioner against the defendants therein
were not necessarily Identical since the respondents were not
identically circumstanced. However, a recovery by the
petitioner under one remedy necessarily bars recovery under
the other. This, in essence, is the rationale for the proscription
in our law against double recovery for the same act or
omission which, obviously, stems from the fundamental rule
against unjust enrichment.
There is no question that the respondents herein are solidarily
liable to petitioner. On the evidence presented in the court
below, the trial court found them to be so liable. It is
undisputed that petitioner, in his amended complaint, prayed
that the trial court hold respondents jointly and severally
liable. Furthermore, the allegations in the amended complaint
clearly impleaded respondents as solidary debtors. We cannot
accept the vacuous contention of petitioner that said
allegations are intended to apply only in the event that
execution be issued in his favor. There is nothing in law or
jurisprudence which would countenance such a procedure.
The respondents having been found to be solidarity liable to
petitioner, the full payment made by some of the solidary
debtors and their subsequent release from any and all liability
to petitioner inevitably resulted in the extinguishment and
release from liability of the other solidary debtors, including
herein respondent Patrocinio Perez.
The claim that there was an agreement entered into between
the parties during the pre-trial conference that, after such
payment made by the other respondents, the case shall proceed
as against respondent Perez is both incredible and
unsubstantiated. There is nothing in the records to show, either

by way of a pre-trial order, minutes or a transcript of the notes

of the alleged pre-trial hearing, that there was indeed such as
agreement.
WHEREFORE, the challenged orders of the respondent judge
are hereby AFFIRMED.
SO ORDERED.
MONZON vs Sps. RELOVA vs ADDIO Properties
This is a Petition for Review on Certiorari assailing the
Decision1 of the Court of Appeals dated 27 September 2005
and its Resolution dated 7 March 2006 in CA-G.R. CV No.
83507 affirming the Decision of the Regional Trial Court
(RTC) of Tagaytay City, Branch 18.
The factual and procedural antecedents of this case are as
follows:
On 18 October 2000, the spouses James and Maria Rosa
Nieves Relova and the spouses Bienvenido and Eufracia
Perez, respondents before this Court, filed against Atty. Ana
Liza Luna, Clerk of Court of Branch 18 of the RTC of
Tagaytay City, and herein petitioner Teresita Monzon an
initiatory pleading captioned as a Petition for Injunction. The
case, which was filed before the same Branch 18 of the RTC
of Tagaytay City, was docketed as Civil Case No. TG-2069.
In their Petition for Injunction, respondents alleged that on 28
December 1998, Monzon executed a promissory note in favor
of the spouses Perez for the amount of P600,000.00, with
interest of five percent per month, payable on or before 28
December 1999. This was secured by a 300-square meter lot
in Barangay Kaybagal, Tagaytay City. Denominated as Lot
No. 2A, this lot is a portion of Psu-232001, covered by Tax
Declaration No. 98-008-1793. On 31 December 1998,
Monzon executed a Deed of Absolute Sale over the said parcel
of land in favor of the spouses Perez.
Respondents also claim in their Petition for Injunction that on
29 March 1999, Monzon executed another promissory note,
this time in favor of the spouses Relova for the amount of
P200,000.00 with interest of five percent per month payable
on or before 31 December 1999. This loan was secured by a
200 square meter lot, denominated as Lot No. 2B, another
portion of the aforementioned Psu-232001 covered by Tax
Declaration No. 98-008-1793. On 27 December 1999,
Monzon executed a Deed of Conditional Sale over said parcel
of land in favor of the spouses Relova.
On 23 October 1999, the Coastal Lending Corporation
extrajudicially foreclosed the entire 9,967-square meter
property covered by Psu-232001, including the portions
mortgaged and subsequently sold to respondents. According to
the Petition for Injunction, Monzon was indebted to the
Coastal Lending Corporation in the total amount of
P3,398,832.35. The winning bidder in the extrajudicial
foreclosure, Addio Properties Inc., paid the amount of
P5,001,127.00, thus leaving a P1,602,393.65 residue.

According to respondents, this residue amount, which is in the

custody of Atty. Luna as Branch Clerk of Court, should be
turned over to them pursuant to Section 4, Rule 68 of the
Revised Rules of Civil Procedure. Thus, respondents pray in
their Petition for Injunction for a judgment (1) finding
Monzon liable to the spouses Perez in the amount of
P1,215,000.00 and to the spouses Relova in the amount of
P385,000.00; (2) ordering Atty. Luna to deliver said amounts
to respondents; and (3) restraining Atty. Luna from delivering
any amount to Monzon pending such delivery in number (2).
Monzon, in her Answer, claimed that the Petition for
Injunction should be dismissed for failure to state a cause of
action.
Monzon likewise claimed that respondents could no longer
ask for the enforcement of the two promissory notes because
she had already performed her obligation to them by dacion en
pago as evidenced by the Deed of Conditional Sale and the
Deed of Absolute Sale. She claimed that petitioners could still
claim the portions sold to them if they would only file the
proper civil cases. As regards the fund in the custody of Atty.
Luna, respondents cannot acquire the same without a writ of
preliminary attachment or a writ of garnishment in accordance
with the provisions of Rule 57 and Section 9(c), Rule 39 of the
Revised Rules of Civil Procedure.
On 5 December 2001, the RTC, citing the absence of
petitioner and her counsel on said hearing date despite due
notice, granted an oral Motion by the respondents by issuing
an Order allowing the ex parte presentation of evidence by
respondents.2
On 1 April 2002, the RTC rendered a Decision in favor of
respondents. The pertinent portions of the Decision are as
follows:
That [petitioner] Teresita Monzon owes [herein respondents]
certain sums of money is indisputable. Even [Monzon] have
admitted to this in her Answer. [Respondents] therefore are
given every right to get back and collect whatever amount
they gave [Monzon] together with the stipulated rate of
interest.
Likewise, it has been established that [petitioner] Teresita
Monzon has the amount of P1,602,393.65 in the possession of
the Clerk of Court, Atty. Ana Liza M. Luna. This amount, as is
heretofore stated, represented the balance of the foreclosure
sale of [Monzons] properties.
By way of this petition, [respondents] would want to get said
amount so that the same can be applied as full payment of
[petitioners] obligation. That the amount should be divided
between the [respondents] in the amount they have agreed
between themselves; [respondent] spouses Relova to receive
the amount of P400.00.00, while the spouses Perez shall get
the rest.
WHEREFORE, judgment is hereby rendered ordering the x x
x Clerk of Court, Atty. Ana Liza M. Luna, to deliver unto

[herein respondents] the amount of P1,602,393.65 plus

whatever interest she may received if and when the said
amount has been deposited in any banking institution.3
The Decision also mentioned that the Order allowing the ex
parte presentation of evidence by respondents was due to the
continuous and incessant absences of petitioner and counsel.4
On 25 April 2002, Monzon filed a Notice of Appeal, which
was approved by the trial court. Monzon claims that the RTC
gravely erred in rendering its Decision immediately after
respondents presented their evidence ex parte without giving
her a chance to present her evidence, thereby violating her
right to due process of law.
On 14 June 2002, Addio Properties, Inc. filed before the trial
court a Motion for Intervention, which was granted by the
same court on 12 July 2002.
On 27 September 2005, the Court of Appeals rendered the
assailed Decision dismissing the appeal. According to the
Court of Appeals, Monzon showed tepid interest in having the
case resolved with dispatch. She, thus, cannot now complain
that she was denied due process when she was given ample
opportunity to defend and assert her interests in the case. The
Court of Appeals reminded Monzon that the essence of due
process is reasonable opportunity to be heard and submit
evidence in support of ones defense. What the law proscribes
is lack of opportunity to be heard. Monzons Motion for
Reconsideration was denied in a Resolution dated 7 March
2006.
On 27 March 2006, Monzon filed the instant Petition for
Review on Certiorari under Rule 45 of the Rules of Court.
Monzon claims anew that it was a violation of her right to due
process of law for the RTC to render its Decision immediately
after respondents presented their evidence ex parte without
giving her a chance to present her evidence. Monzon stresses
that she was never declared in default by the trial court. The
trial court should have, thus, set the case for hearing for the
reception of the evidence of the defense. She claims that she
never waived her right to present evidence.
Monzon argues that had she been given the opportunity to
present her evidence, she would have proven that (1)
respondents Exhibit A (mortgage of land to the spouses
Relova) had been novated by respondents Exhibit B (sale of
the mortgage land to the spouses Relova); (2) respondents
Exhibit C (mortgage of land to the spouses Perez) had been
novated by respondents Exhibit B (sale of the mortgage land
to the spouses Perez); and (3) having executed Exhibits "B"
and "D," Monzon no longer had any obligation towards
respondents.
The Order by the trial court which allowed respondents to
present their evidence ex parte states:
In view of the absence of [Monzon] as well as her counsel
despite due notice, as prayed for by counsel for by

[respondents herein], let the reception of [respondents]

evidence in this case be held ex-parte before a commissioner
who is the clerk of court of this Court, with orders upon her to
submit her report immediately upon completion thereof.5
It can be seen that despite the fact that Monzon was not
declared in default by the RTC, the RTC nevertheless applied
the effects of a default order upon petitioner under Section 3,
Rule 9 of the Rules of Court:
SEC. 3. Default; declaration of.Ifthe defending party fails to
answer within the time allowed therefor, the court shall, upon
motion of the claiming party with notice to the defending
party, and proof of such failure, declare the defending party in
default. Thereupon, the court shall proceed to render judgment
granting the claimant such relief as his pleading may warrant,
unless the court in its discretion requires the claimant to
submit evidence. Such reception of evidence may be delegated
to the clerk of court.
(a) Effect of order of default.Aparty in default shall be
entitled to notice of subsequent proceedings but not to take
part in the trial.
In his book on remedial law, former Justice Florenz D.
Regalado writes that failure to appear in hearings is not a
ground for the declaration of a defendant in default:
Failure to file a responsive pleading within the reglementary
period, and not failure to appear at the hearing, is the sole
ground for an order of default (Rosario, et al. vs. Alonzo, et
al., L-17320, June 29, 1963), except the failure to appear at a
pre-trial conference wherein the effects of a default on the part
of the defendant are followed, that is, the plaintiff shall be
allowed to present evidence ex parte and a judgment based
thereon may be rendered against the defendant (Section 5,
Rule 18).6 Also, a default judgment may be rendered, even if
the defendant had filed his answer, under the circumstance in
Sec. 3(c), Rule 29.7
Hence, according to Justice Regalado, the effects of default
are followed only in three instances: (1) when there is an
actual default for failure to file a responsive pleading; (2)
failure to appear in the pre-trial conference; and (3) refusal to
comply with modes of discovery under the circumstance in
Sec. 3(c), Rule 29.
In Philippine National Bank v. De Leon,8 we held:
We have in the past admonished trial judges against issuing
precipitate orders of default as these have the effect of denying
a litigant the chance to be heard, and increase the burden of
needless litigations in the appellate courts where time is
needed for more important or complicated cases. While there
are instances when a party may be properly defaulted, these
should be the exception rather than the rule, and should be
allowed only in clear cases of obstinate refusal or inordinate
neglect to comply with the orders of the court (Leyte vs. Cusi,
Jr., 152 SCRA 496; Tropical Homes, Inc. vs. Hon. Villaluz, et
al., G.R. No. L-40628, February 24, 1989).

It is even worse when the court issues an order not

denominated as an order of default, but provides for the
application of effects of default. Such amounts to the
circumvention of the rigid requirements of a default order, to
wit: (1) the court must have validly acquired jurisdiction over
the person of the defendant either by service of summons or
voluntary appearance; (2) the defendant failed to file his
answer within the time allowed therefor; and (3) there must be
a motion to declare the defendant in default with notice to the
latter.9 In the case at bar, petitioner had not failed to file her
answer. Neither was notice sent to petitioner that she would be
defaulted, or that the effects of default shall be imposed upon
her. "Mere non-appearance of defendants at an ordinary
hearing and to adduce evidence does not constitute default,
when they have already filed their answer to the complaint
within the reglementary period. It is error to default a
defendant after the answer had already been filed. It should be
borne in mind that the policy of the law is to have every
litigants case tried on the merits as much as possible; it is for
this reason that judgments by default are frowned upon."10
Does this mean that defendants can get away with failing to
attend hearings despite due notice? No, it will not. We agree
with petitioner that such failure to attend, when committed
during hearing dates for the presentation of the complainants
evidence, would amount to the waiver of such defendants
right to object to the evidence presented during such hearing,
and to cross-examine the witnesses presented therein.
However, it would not amount to a waiver of the defendants
right to present evidence during the trial dates scheduled for
the reception of evidence for the defense. It would be an
entirely different issue if the failure to attend of the defendant
was on a hearing date set for the presentation of the evidence
of the defense, but such did not occur in the case at bar.
In view of the foregoing, we are, therefore, inclined to remand
the case to the trial court for reception of evidence for the
defense. Before we do so, however, we need to point out that
the trial court had committed another error which we should
address to put the remand in its proper perspective. We refer to
Monzons argument as early as the Answer stage that
respondents Petition for Injunction had failed to state a cause
of action.
Section 4, Rule 68 of the Rules of Court, which is the basis of
respondents alleged cause of action entitling them to the
residue of the amount paid in the foreclosure sale, provides as
follows:
SEC. 4. Disposition of proceeds of sale.Theamount realized
from the foreclosure sale of the mortgaged property shall, after
deducting the costs of the sale, be paid to the person
foreclosing the mortgage, and when there shall be any balance
or residue, after paying off the mortgage debt due, the same
shall be paid to junior encumbrancers in the order of their
priority, to be ascertained by the court, or if there be no such
encumbrancers or there be a balance or residue after payment
to them, then to the mortgagor or his duly authorized agent, or
to the person entitled to it.

However, Rule 68 governs the judicial foreclosure of

mortgages. Extra-judicial foreclosure of mortgages, which was
what transpired in the case at bar, is governed by Act No.
3135,11 as amended by Act No. 4118,12 Section 6 of Republic
Act No. 7353, Section 18 of Republic Act No. 7906, and
Section 47 of Republic Act No. 8791. A.M. No. 99-10-05-0,
issued on 14 December 1999, provides for the procedure to be
observed in the conduct of an extrajudicial foreclosure sale.
Thus, we clarified the different types of sales in Supena v.
Dela Rosa, 13 to wit:
Any judge, worthy of the robe he dons, or any lawyer, for that
matter, worth his salt, ought to know that different laws apply
to different kinds of sales under our jurisdiction. We have
three different types of sales, namely: an ordinary execution
sale, a judicial foreclosure sale, and an extrajudicial
foreclosure sale. An ordinary execution sale is governed by the
pertinent provisions of Rule 39 of the Rules of Court on
Execution, Satisfaction and Effect of Judgments. Rule 68 of
the Rules, captioned Foreclosure of Mortgage, governs
judicial foreclosure sales. On the other hand, Act No. 3135, as
amended by Act No. 4118, otherwise known as "An Act to
Regulate the Sale of Property under Special Powers Inserted in
or Annexed to Real Estate Mortgages," applies in cases of
extrajudicial foreclosure sales of real estate mortgages.
Unlike Rule 68, which governs judicial foreclosure sales,
neither Act No. 3135 as amended, nor A.M. No. 99-10-05-0
grants to junior encumbrancers the right to receive the balance
of the purchase price. The only right given to second
mortgagees in said issuances is the right to redeem the
foreclosed property pursuant to Section 6 of Act No. 3135, as
amended by Act No. 4118, which provides:
Sec. 6. Redemption. In all cases in which an extrajudicial sale
is made under the special power hereinbefore referred to, the
debtor, his successors in interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien
on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any
time within the term of one year from and after the date of the
sale; and such redemption shall be governed by the provisions
of sections four hundred and sixty-four to four hundred and
sixty- six,14 inclusive, of the Code of Civil Procedure, in so far
as these are not inconsistent with this Act.
Even if, for the sake of argument, Rule 68 is to be applied to
extrajudicial foreclosure of mortgages, such right can only be
given to second mortgagees who are made parties to the
(judicial) foreclosure. While a second mortgagee is a proper
and in a sense even a necessary party to a proceeding to
foreclose a first mortgage on real property, he is not an
indispensable party, because a valid decree may be made, as
between the mortgagor and the first mortgagee, without regard
to the second mortgage; but the consequence of a failure to
make the second mortgagee a party to the proceeding is that
the lien of the second mortgagee on the equity of redemption
is not affected by the decree of foreclosure. 15
A cause of action is the act or omission by which a party
violates the right of another.16 A cause of action exists if the

following elements are present: (1) a right in favor of the

plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the named
defendant to respect or not to violate such right; and (3) an act
or omission on the part of such defendant violative of the right
of plaintiff or constituting a breach of the obligation of
defendant to the plaintiff for which the latter may maintain an
action for recovery of damages. 17 In view of the foregoing
discussions, we find that respondents do not have a cause of
action against Atty. Ana Liza Luna for the delivery of the
subject amounts on the basis of Section 4, Rule 68 of the
Rules of Court, for the reason that the foregoing Rule does not
apply to extrajudicial foreclosure of mortgages.
In Katon v. Palanca, Jr.,18 we held that where prescription, lack
of jurisdiction or failure to state a cause of action clearly
appears from the complaint filed with the trial court, the action
may be dismissed motu proprio, even if the case has been
elevated for review on different grounds. However, while the
case should indeed be dismissed insofar as Atty. Luna is
concerned, the same is not necessarily true with respect to
Monzon. Other than respondents prayer that the amount due
to respondents be delivered by Atty. Luna to them, they also
pray for a judgment declaring Monzon liable for such
amounts. Said prayer, as argued by Monzon herself, may
constitute a cause of action for collection of sum of money
against Monzon.
The rule is now settled that a mortgage creditor may elect to
waive his security and bring, instead, an ordinary action to
recover the indebtedness with the right to execute a judgment
thereon on all the properties of the debtor including the subject
matter of the mortgage, subject to the qualification that if he
fails in the remedy elected by him, he cannot pursue further
the remedy he has waived.19
However, due to the fact that construing respondents Petition
for Injunction to be one for a collection of sum of money
would entail a waiver by the respondents of the mortgage
executed over the subject properties, we should proceed with
caution before making such construction. We, therefore,
resolve that upon the remand of this case to the trial court,
respondents should be ordered to manifest whether the
Petition for Injunction should be treated as a complaint for the
collection of a sum of money.
If respondents answer in the affirmative, then the case shall
proceed with the presentation of the evidence for the defense.
If Monzon would be successful in proving her defense of
dacion en pago, there would, in effect, be a double sale of the
mortgaged properties: the same properties were sold to both
respondents and to herein intervenor Addio Properties, Inc. If,
pursuant to the rules on double sales, respondents are entitled
to the properties, their remedy is to file the proper action to
recover possession. If, pursuant to said rules, Addio
Properties, Inc. is entitled to the properties, respondents
remedy is to file an action for damages against Monzon.
If respondents answer in the negative, the case shall be
dismissed, without prejudice to the exercise of respondents
rights as mortgage creditors. If respondents mortgage contract

was executed before the execution of the mortgage contract

with Addio Properties, Inc., respondents would be the first
mortgagors. Pursuant to Article 212620 of the Civil Code, they
would be entitled to foreclose the property as against any
subsequent possessor thereof. If respondents mortgage
contract was executed after the execution of the mortgage
contract with Addio Properties, Inc., respondents would be the
second mortgagors. As such, they are entitled to a right of
redemption pursuant to Section 6 of Act No. 3135, as amended
by Act No. 4118.
WHEREFORE, the Decision of the Court of Appeals dated 27
September 2005 and its Resolution dated 7 March 2006 are
REVERSED and SET ASIDE. The Petition for Injunction in
Civil Case No. TG-2069 is hereby ordered DISMISSED
insofar as Atty. Ana Liza Luna is concerned. The Petition for
Injunction in Civil Case No. TG-2069, insofar as petitioner
Teresita Monzon is concerned, is ordered REMANDED to the
Regional Trial Court of Tagaytay City for further proceedings.
Upon such remand, the Regional Trial Court of Tagaytay City
shall issue an Order to respondents, the spouses James and
Maria Rosa Nieves Relova and the spouses Bienvenido and
Eufracia Perez, to manifest whether the Petition for Injunction
should be treated as a complaint for the collection of a sum of
money.
If respondents answer in the affirmative, the Regional Trial
Court shall set the case for hearing for the presentation of the
evidence for the defense. If respondents answer in the
negative, the case shall be dismissed, without prejudice to the
exercise of respondents rights as mortgage creditors. No
costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 165433

February 6, 2007

PHILIPPINE NATIONAL CONSTRUCTION

CORPORATION, Petitioner,
vs.
THE HONORABLE COURT OF APPEALS and
MCS CONSTRUCTION and DEVELOPMENT
CORPORATION, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari
under Rule 45 of the Rules of Civil Procedure,
assailing the Decision1 of the Court of Appeals in

CA-G.R. SP No. 76198, dated 19 July 2004, which

dismissed Philippine National Construction
Corporations (PNCCs) Petition for Review of the
Decision2 of the Construction Industry Arbitration
Commission (CIAC) Arbitral Tribunal awarding
herein respondent MCS Construction and
Development Corporation (MCS) the amount of
P6,352,791.33, with interest at the rate of 6% per
annum from 6 June 1999 up to the date of award
and an interest rate of 12% per annum as of the date
the decision becomes final and executory until fully
paid.
A contract for the construction of the Philippine
Merchant Marine Academys (PMMAs)
Replication Project located in San Marcelino,
Zambales, was entered into between the PNCC and
PMMA. Included in the scope of works for the
Replication Project was the construction of a
gymnasium building. The construction of said
gymnasium was subcontracted by PNCC to MCS
under a Subcontract Agreement dated 28 September
1998 for a consideration in the amount of
P19,483,572.65.
In a Certificate of Acceptance dated 6 April 2000,
PNCC certified that MCS had satisfactorily
completed the construction of the gymnasium
building based on the plans, drawings, and
specifications thereof on March 1999. However,
despite several demands made by MCS, PNCC
failed to pay the balance of the contract price left
after deducting the partial payments made by the
latter.
Hence, on 6 September 2002, MCS filed with the
CIAC Arbitral Tribunal a Request for Adjudication
praying for the award of various sums of money,
including interest and damages, against PNCC in
the total amount of P24,988,597.44. MCS
maintained that notwithstanding the fact that the
construction of the gymnasium had been
satisfactorily completed as early as 1999, PNCC
still failed to fully satisfy its obligation to pay the
price of the construction project under the
Subcontract Agreement despite several written
demands.
For its defense, PNCC alleged that the request for
arbitration was premature, as MCS had no cause of
action against PNCC since the latter is still in the
process of paying its obligation to MCS.

Furthermore, PNCC claimed that although its

payments were made in installments, said payments
were made regularly, contrary to the claim of MCS
that said installment payments were irregular and
took a very long period of time.1awphi1.net
In a preliminary conference held on 4 December
2002, the parties defined the issues to be resolved in
the proceedings before the CIAC Arbitral Tribunal
as follows:
1. Was the filing of this case before CIAC
premature for lack of cause of action?
1.1 In the event this case is proven to
have been prematurely filed, is
Respondent entitled to its claim to be
compensated for the alleged bad
reputation suffered? If so, how
much?
1.2 If the filing of the case is not
premature, is Claimant entitled to its
claim for the balance of the contract
price, damages and interest? If so,
how much?

PNCC submitted in evidence a summary of the

accounts payable to MCS and the payments made
thereunder as of October 10, 2002 (Exhibit 14).
Unfortunately for PNCC, the same document also
listed down the payments it had received from
PMMA on the "gymnasium building" project the
very same building for which MCS has been
engaged to construct on behalf of PNCC.
Exhibit 14 clearly showed that PNCC had received
a total of P31,249,223.30 from PMMA on the
"gymnasium building", with a further balance of
P6,972,043.44 still due from PMMA.
Parenthetically, PNCC did not submit in evidence in
these proceedings any copy of its contract or
contracts with PMMA. Other than Exhibit 14,
PNCC did not submit any evidence to show that the
payments made to it by PMMA had reference to
other accounts between PMMA and PNCC, or that
said payments were inadequate to warrant PNCCs
payment in full of the amounts due MCS.

On 10 March 2003, the CIAC Arbitral Tribunal

rendered a Decision in favor of MCS, the decretal
portion of which reads:

On the contrary, having already received a total of

P31,249,233.30 from PMMA on the "gymnasium
building" project, PNCC saw fit to consider the
same sufficient to justify payment to MCS of only
P9,965,465.98 (as adjusted by this arbitral tribunal).
Since there still appeared a receivable of
P6,972,043.44 from PMMA, PNCC chose to
relegate such receivable to the payment of the
balance due MCS, in the amount of P6,352,791.33.
In other words, PNCC opted to reap and enjoy its
margins from the PMMA contract before satisfying
its obligations to its sub-contractor MCS. This, the
arbitral tribunal finds to have been done in bad faith
on the part of PNCC.

PNCC contends that Article IV of the Subcontract

Agreement (Exhibit A) shows that MCS cause of
action is premature because the corresponding
payments from PMMA had not been received. The
pertinent portion of Article IV reads as follows:

Noteworthy also is the fact that PNCC did not raise

this defense in its answer nor among the special and
affirmative defenses included in said answer. PNCC
merely invoked its "financial difficulties" in trying
to justify its belated payments due MCS.

Manner of Payment

The arbitral tribunal therefore holds that MCS

cause was not prematurely filed, and that its claim
for payment of the balance of the contract
consideration made in these proceedings was
proper.

2. Who between the parties is entitled to

attorneys fees?
3. Who between the parties shall shoulder
the cost of arbitration?3

4.1. The price referred to in Article 111 above shall

be paid by PNCC to Subcontractor in the following
manner and subject to receipt by PNCC of
corresponding payment/s from PMMA:
xxxx

Aside from the said unpaid balance, to what other

amount or amounts is MCS entitled arising from
PNCCs breach in bad faith?

xxxx
xxx MCS is entitled to interest, attorneys fees and
reimbursement of the costs of arbitration which
(aside from its claims on the deterioration of the
value of the Phil. Peso) were all that MCS prayed
for.
xxxx
It is the ruling of this arbitral tribunal that, there
having been unwarranted and baseless delay in the
payment required of the respondent PNCC, the
claimant is entitled to interest at the legal rate of 6%
p.a. on the amount of P6,352,791.33 adjudicated in
its favor, computed from the date of first
extrajudicial demand, which was on June 6, 1999
(Exhibit C). However, when the award herein
becomes executory, the amount thereof will then
partake of the nature of a forebearance of credit and
will thereupon be entitled therefrom to the interest
rate of 12% p.a. until fully paid (Eastern Shipping
Lines, Inc. vs. Court of Appeals, 234 SCRA 78, 9597 [1994]); reiterated in Bangko Sentral ng
Pilipinas vs. Santamaria, G.R. No. 139885, Jan. 13,
2003, page 13).
In respect of the costs of arbitration, Sec. 5, Article
XV of the Rules of Procedure Governing
Construction Arbitration states:
Decision as to Cost of Arbitration. In the case of
non-monetary claims or where the parties agreed
that the sharing of fees shall be determined by the
Arbitrator(s), the award shall, in addition to dealing
with the merits of the case, fix the cost of
arbitration, and/or decide which of the parties shall
bear the cost(s) or in what proportion the cost(s)
shall be borne by each.
Rule 142 of the Revised Rules of Court of the
Philippines governing the imposition of costs
likewise provides the following:
Section 1. Costs Ordinarily follow the result of suit.
Unless otherwise provided in these rules, costs shall
be allowed to the prevailing party as a matter of
course, but the court shall have power for special
reasons, to adjudge that either party shall pay the
cost of an action, or that the same shall be divided,
as may be equitable.

Since the institution of this arbitration case was

necessitated by respondent PNCCs refusal to pay
claimant MCS the amounts due the latter, this
tribunal holds that respondent PNCC should
exclusively bear the costs of arbitration. PNCC had
refused to satisfy MCS valid and demandable
claims; consequently, MCS had been compelled to
institute the present proceedings to protect its
interests. Furthermore, PNCC was in gross and
evident bad faith in delaying the payment of MCS
claim. It is, therefore, only just and equitable that
respondent PNCC be ordered to pay the costs of
arbitration and to refund to MCS all the amounts the
latter had advanced in instituting and pursuing these
arbitration proceedings.
The same aforementioned circumstances warranting
the award of arbitration costs in favor of the
claimant likewise constitute justification for an
award of attorneys fees by way of damages, also in
favor of claimant (Art. 2208 [5] and [11].
Considering the years of travail which claimant
went through in waiting and following-up the
payment of the contract consideration to which
claimant was lawfully entitled, eventually
culminating in these arbitration proceedings, the
arbitral tribunal finds that an amount equivalent to
ten per cent (10%) of the principal claim plus the
interests accruing thereon up to the date of payment
is just; equitable and reasonable in the premises.
WHREFORE, arbitral award is hereby rendered in
favor of claimant MCS Construction and
Development Corp. and against respondent
Philippine National Construction Corporation,
ordering the latter to pay the former the following
amounts:
(a) The principal claim of P6,352,791.33,
with interest thereon at 6% per annum
computed from June 6, 1999 provided
however that said rate shall be increased to
12% per annum effective as of the date that
the decision herein becomes final and
executory, until the aforesaid principal
amount is paid in full;
(b) Attorneys fees equivalent to ten per cent
(10%) of such principal claim and the
interests accruing thereon until all of such
principal claim and interests are paid in full;
and,

(c) To reimburse the claimant the costs of

arbitration paid and/or advanced thereby.
Respondents counterclaim is dismissed for lack of
basis.4
Asserting that the CIAC Arbitral Tribunal
committed error in ruling that the claim of MCS is
not premature, PNCC filed a Petition for Review
before the Court of Appeals, which was dismissed
by the appellate court in a Decision dated 19 July
2004. According to the Court of Appeals:
Petitioner PNCC avers that the claims of respondent
MCS are not yet ripe for court and/or legal action
because petitioner PNCC has yet to violate the
rights of respondent MCS, since, before the filing of
the complaint, petitioner was already in the process
of paying its obligations to respondent MCS. In
fact, petitioner PNCC argues that its last installment
payment was made in July 2002 while respondent
MCS last written demand was in April 2002.
We disagree.
As alleged in the complaint of respondent MCS, in
pursuance to the agreement, the latter made billings
for various amounts on different dates. However,
aside from making its payments irregularly,
petitioner also took a long time to make the
payments, so much so, that even after the lapse of
more [than] three years from the time the
gymnasium project was satisfactorily completed in
1999, petitioner has not been able to fully settle its
obligation without lawful ground.
It has been held that a cause of action is defined as
an act or omission of one party in violation of the
legal rights of the other which causes the latter
injury (Rebollido v. Court of Appeals, 170 SCRA
800 [1989]).
In determining whether or not a cause of action
exists the following elements must be present: (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 defendant to respect or
not violate such right; and (3) an 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 (Relucio v. Lopez, 373 SCRA 578 [2002]).
In the instant case, respondent MCS has a right to
be paid for its services in constructing the
gymnasium and petitioner PNCC recognized this
right under the Subcontractors Agreement.
Notwithstanding several written demands made by
the respondent MCS and considering the lapse of a
considerable period of time since the project was
completed, petitioner PNCC has not complied with
its duty to pay respondent for its services. Petitioner
maintains that it was suffering from "financial
difficulties" but no evidence was shown to
substantiate the same.
Well-settled is that rule that the cause of action does
not accrue until the party obligated refuses,
expressly or impliedly, to comply with his duty
(Summit Guaranty and Insurance Company, Inc. v.
De Guzman, 151 SCRA 389 [1987]).
Note should be taken on the arbitral tribunals
finding of the existence of a cause of action by
respondent MCS. Thus:
"Unfortunately for PNCC, the same document also
listed down the payments it had received from
PMMA on the "gymnasium building" project the
very same building for which MCS has been
engaged to construct on behalf of PNCC.
xxx
Exhibit 14 clearly showed that PNCC had received
a total of P31,249,223.30 from PMMA on the
"gymnasium building", with a further balance of
P6,972,043.44 still due from PMMA. xxx Other
than Exhibit 14, PNCC did not submit any evidence
to show that the payments made to it by PMMA had
reference to other accounts between PMMA and
PNCC, or that said payments were inadequate to
warrant PNCCs payment in full of the amounts due
MCS." (Rollo, p. 124)
Also, it has been held that where a contract is to be
performed periodically, as by installments, each
failure to pay an installment constitutes a cause of
action and can be subject of a separate suit as the
installment falls due, or can be included in the
pending or supplemental pleading (Larena v.
Villanueva, 53 Phil. 923 [1928]).

xxxx
The arbitral tribunal ruled that petitioner PNCC was
guilty of gross and evident bad faith in delaying
payment of respondents claims, and as such, it was
only just and equitable that petitioner PNCC should
bear the costs of arbitration.
In the instant case, the arbitral tribunal found that
because petitioner PNCC had unjustifiably refused
to satisfy MCS valid and demandable claims,
notwithstanding the presence of sufficient funds at
its disposal, respondent MCS was compelled to
institute the present action in order to protect its
interests. xxx
xxxx
Contrary to petitioners argument that the body of
the decision of the arbitral tribunal failed to state
legal and factual bases for the award of attorneys
fees, the decision stated the following basis to
justify the award of attorneys fees:
"The same aforementioned circumstances
warranting the award of arbitration costs in favor of
the claimant likewise constitute justification for an
award of attorneys fees by way of damages, also in
favor of claimant (Art. 2208 [5] and [11], Civil
Code)." (Rollo, p. 126)
In administrative or quasi-judicial bodies like the
CIAC, a fact may be established if supported by
substantial evidence or that amount of relevant
evidence which a reasonable mind might accept as
adequate to justify a conclusion (MegaWorld
Globus Asia, Inc. v. DSM Construction and
Development Corporation, et al., G.R. No. 153310,
March 2, 2004).

motion for reconsideration assailing the October 1,

2003 Resolution of this Court is likewise DENIED.5
Aggrieved by the aforequoted Decision, PNCC filed
the instant petition raising as issues the alleged
prematurity of respondents action and the
impropriety of the award of attorneys fees and
arbitration fees.
While petitioner does not dispute the fact that MCS
has remaining receivables from PNCC under the
Subcontract Agreement, PNCC insists that such
obligation of petitioner to pay respondent the
remaining balance of the contract price is not yet
ripe for court or legal action as no cause of action
exists, since PNCC has not yet violated the rights of
respondent. PNCC maintains that before the filing
of the complaint for arbitration, petitioner was in
the process of paying its obligations with claimant,
thus the complaint for arbitration filed by MCS was
premature.
In its Memorandum, petitioner rationalizes its
position that the Request for Adjudication made by
MCS before the CIAC Arbitral Tribunal is
premature in view of the fact that PNCCs last
installment payment to MCS was in July 2002, after
the latters last demand for payment in April 2002.
Petitioner further highlights its efforts to fulfill its
obligations to MCS by stressing the fact that it had
paid MCS a substantial amount under the
Subcontract Agreement, inasmuch as out of the
contract price of P19,483,572.65, only the balance
of P6,352,791.33 remains unpaid. PNCC argues that
it has never refused, expressly nor impliedly, to
comply with its responsibility under the Subcontract
Agreement, thus, MCS lacks a cause of action as
against petitioner.
Petitioners contention is without merit.

xxxx
We are convinced that the CIAC Arbitral Tribunal
considered the evidence at hand and the records
clearly show that its decision is amply supported by
substantial evidence; thus, we find no reason to
disturb the same.
WHEREFORE, premises considered, the petition is
DISMISSED. The Decision dated March 10, 2003
of the CIAC Arbitral Tribunal is AFFIRMED. The

It is unmistakable that PNCCs obligation to MCS

has not been discharged by the amount it has
already paid, no matter how substantial it may be.
Nevertheless, PNCC seems to insist that said
obligation may not be a subject of a court action as
MCS is yet to attain a cause of action since PNCC
still continues to pay part of its obligation under the
Subcontract Agreement. We cannot agree in
petitioners position as this will imply that PNCCs
obligation to pay may not at all become a proper
subject of any court action as long as PNCC

continues to tender irregular installment payments,

regardless of the amount, even to the prejudice of
MCS.
A careful perusal of the Subcontract Agreement
entered into by the parties will reveal the clear
manner of payment by which PNCCs obligation to
pay MCS for the construction of the PMMA
gymnasium is to be made. According to Article IV
of said Subcontract Agreement:
Manner of Payment
4.2. The price referred to in Article 111 above shall
be paid by PNCC to Subcontractor in the following
manner and subject to receipt by PNCC of
corresponding payment/s from PMMA:
xxxx
b. thru semi-monthly progress billings computed
based on accomplishment as approved/accepted by
PNCC/Owner and the agreed unit prices;6
From the facts of the case, it is undisputed that the
gymnasium building project subject of the
Subcontract Agreement had been satisfactorily
completed by MCS as early as March 1999 and
correspondingly acknowledged by PNCC in a
Certificate of Acceptance dated 6 April 2000. It is
also admitted by both parties that in accordance
with the provisions of the Subcontract Agreement,
MCS had sent PNCC, on several dates, billings for
various amounts which petitioner paid on
installment basis. However, despite the lapse of
more than three years from the completion of the
construction project, PNCC still failed to settle its
obligation in full, leaving an unpaid balance of
P6,352,791.33 as of the time of filing of the instant
case.
PNCC justifies its failure to completely settle its
obligation to MCS by citing its "financial
difficulties." However, apart from failing to present
any competent evidence to substantiate its claim of
financial difficulties, it has been found by the CIAC
Arbitral Tribunal that PNCC has already received a
total of P31,249,233.30 from PMMA on the
"gymnasium building" project. Nonetheless, PNCC
only saw it fit to pay MCS P9,965,465.98.
Evidently, PNCC lacks any reasonable defense for
its continued neglect of its obligations to MCS.

This conduct demonstrated by PNCC in refusing to

expeditiously settle its obligation to MCS, despite
the latters satisfactory completion of its duties
under the Subcontract Agreement, is clearly
violative of the Subcontract Agreement. Under the
pertinent portion of the said contract cited above,
PNCC shall pay MCS thru semi-monthly progress
billings upon PNCCs receipt of corresponding
payments from PMMA. As found by the CIAC
Arbitral Tribunal, based on the evidence presented
by PNCC itself, petitioner has already received
from PMMA a total of P31,249,233.30 for the
construction of the gymnasium building. This
amount is evidently sufficient to pay the whole
subcontract price in the amount of only
P19,483,572.65, and still leave PNCC the amount
of P11,765,660.65 as margin/profit from the
contract.
Petitioners contention that its failure to fully pay
MCS is because it still has a receivable of
P6,972,043.44 from PMMA is untenable.
Notwithstanding this fact that PNCC still has a
receivable in an amount sufficient to fulfill its
remaining obligation to MCS, it is not adequate a
reason to justify the irregular installment payments
PNCC has been making to MCS in light of the
CIAC Arbitral Tribunals finding that PNCC had
already received more than a substantial amount
from PMMA to satisfy the whole of its obligation to
MCS. As deduced by the CIAC Arbitral Tribunal,
this act of PNCC in opting to reap and enjoy its
margins from the PMMA contract before satisfying
its obligations to its Subcontractor MCS is an
illustration of bad faith on the part of PNCC.
Having said all these, it is now apparent that MCS
has a cause of action as against PNCC for the full
satisfaction of the remaining balance of the contract
price. As stated in the case of Navoa v. Court of
Appeals:7
A cause of action is the fact or combination of facts
which affords a party a right to judicial interference
in his behalf. The requisites for a cause of action
are: (a) a right in favor of the plaintiff by whatever
means and under whatever law it arises or is
created, (b) an obligation on the part of the
defendant to respect and not to violate such right;
and, (c) an act or omission on the part of the
defendant constituting a violation of the plaintiffs
right or breach of the obligation of the defendant to

the plaintiff. Briefly stated, it is the reason why the

litigation has come about, it is the act or omission of
defendant resulting in the violation of someones
rights.8
In continuing to delay the full satisfaction of its
obligation under the Subcontract Agreement despite
satisfactory completion by MCS of the gymnasium
project almost three years earlier and adequate
payment by PMMA, PNCC has clearly breached the
provisions of the Subcontract Agreement, entitling
MCS resort to the courts for protection of its
interest.
On the issue of the propriety of the award of
attorneys fees and arbitration costs, petitioner
maintains that the Decision of the CIAC Arbitral
Tribunal failed to state the legal and factual basis
for the same. We do not agree. As correctly stated
by the Court of Appeals, the CIAC Arbitral Tribunal
Decision amply explained the bases for the awards
of attorneys fees and arbitration cost. As pointed
out by the appellate court, on the basis of its
findings that PNCC exercised gross and evident bad
faith in delaying its payment of MCS claims and
the law applicable in such cases, the CIAC Arbitral
Tribunal adjudged PNCC liable for attorneys fees
and cost of arbitration. Furthermore, we agree with
the Court of Appeals when it said that that there is
no justifiable reason to disturb the findings of the
CIAC Arbitral Tribunal as said quasi-judicial body
has considered the evidence at hand and the records
clearly show that its decision is amply supported by
substantial evidence.
Petitioners argument that the CIAC Arbitral
Tribunal should not have passed upon the issue of
attorneys fees as said issue is non-arbitrable under
Section 2 of Article IV of the Rules Governing
Construction Arbitration is rejected. Under the
Section 2, Article IV of the Rules of Procedure
Governing Construction Arbitration:
Section 2. Non-Arbitrable Issues Pursuant to
Section 4 of Executive Order No. 1008, claims for
moral damages, exemplary damages,
opportunity/business losses in addition to liquidated
damages, and attorneys fees are not arbitrable
except when the parties acquiesce or mutually agree
to submit the same for arbitration and to abide by
the decision of the arbitrator thereon. [Emphasis
ours]

While it is true that under the aforementioned

provision of law, attorneys fees is not an arbitrable
issue, yet, the same also provides that it may be the
subject of arbitration if the parties agree to submit
the same for arbitration. In the case it bar, it must be
underscored that under the Terms of Reference
agreed to by the parties during the arbitration
proceedings, PNCC agreed that one of the issues to
be determined in the proceedings is who between
the parties is entitled to attorneys fees. Clearly,
petitioner has acquiesced to the submission of the
issue of attorneys fees to arbitration. What's more,
in petitioners very own Answer submitted before
the CIAC Arbitral Tribunal, petitioner asked for
attorneys fees as part of its own compulsory
counterclaim. This act of petitioner clearly negates
its further assertion that it never agreed to submit
the issue of attorneys fees for arbitration.
WHEREFORE, premises considered, the instant
petition is hereby DENIED. The Decision of the
Court of Appeals in CA G.R. SP No. 76198 dated
19 July 2004 is hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
epublic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 133576

July 13, 2000

VIEWMASTER CONSTRUCTION
CORPORATION, petitioner,
vs.
ALLEN C. ROXAS, STATE INVESTMENT
TRUST, INC., NORTHEAST LAND
DEVELOPMENT, INC., and STATE
PROPERTIES CORPORATION, respondents.
DECISION
BUENA, J.:
This is a petition for review of the decision of the
Court of Appeals in CA-GR SP No. 44000 entitled
"Allen C. Roxas, State Investment Trust, Inc.,
Northeast Land Development, Inc., and State
Properties Corporation, petitioners, versus Hon.

Jesus Bersamira and Viewmaster Construction

Corporation, respondents."
The facts of the case are as follows:

In consideration of the guaranty of Viewmaster,

FMIC delivered to Allen Roxas the aggregate
principal amount of thirty-six million five hundred
thousand pesos (P36,500,000.00).

On September 8, 1995 Viewmaster Construction

Corporation (Viewmaster, for brevity) filed with the
Regional Trial Court at Pasig City, Branch 166,
Civil Case No. 65277, a complaint for specific
performance, enforcement of implied trust and
damages against State Investment Trust, Inc.,
Northeast Land Development, Inc., State Properties
Corporation and Allen C. Roxas.

On July 2, 1992, Viewmaster executed a Continuing

Guaranty with FMIC to secure the payment of the
said loans.

It was alleged that Allen Roxas, one of the

stockholders of State Investment Trust, Inc. applied
for a loan with First Metro Investments, Inc.
(FMIC, in short) in order to obtain funds to be used
by him or his agents/privies to bid for the control
and ownership of State Investment Trust, Inc. (State
Investment, for brevity) which will be held among
the members of the Chiong/Roxas family, as he had
no funds of his own at the time to satisfy the
required bid deposit and/or down payment.

Despite demand, Allen Roxas failed and refused to

sell 50% of his shareholdings in State Investment
and to enter into a joint venture project with
Viewmaster for the purpose of developing the two
aforementioned real properties, resulting in the
institution by Viewmaster of Civil Case No. 652771
with the RTC at Pasig City.

FMIC agreed to grant Allen Roxas the loan he

requested without any collateral, i.e., a clean loan,
provided that he procures a
guarantor/surety/solidary co-debtor to secure the
payment for the said loan.
Viewmaster agreed to act as guarantor for the loan
conditioned upon the following:
a) Allen Roxas shall sell and Viewmaster
shall purchase fifty percent (50%) of the
total eventual acquisitions of Roxas of the
shares of stock in State Investment and that
the purchase price to be paid by Viewmaster
for the said shares shall be equivalent to the
successful bid price per share plus an
additional ten percent (10%) per share.
b) Viewmaster shall undertake to develop
the parcels of land in Balintawak, Quezon
City and Las Pias consisting of twenty
thousand (20,000) square meters and seven
hundred eighty-six thousand one hundred
sixty-seven (786,167) square meters,
respectively, for the property owners.

As a result of the loans granted by FMIC in

consideration of, and upon the guaranty of
Viewmaster, Allen Roxas eventually gained control
and ownership of State Investment.

On October 25, 1995, the defendants namely, State

Investment Trust, Inc., Northeast Land
Development, Inc., State Properties Corporation and
Allen C. Roxas filed a motion to dismiss2 the
complaint on the following grounds:
a) the claim on which the action is founded
is unenforceable under the provisions of the
Statute of Frauds; and
b) the complaint states no cause of action.
Thereafter, or on November 24, 1995, an
Opposition3 (to Defendants "Motion to Dismiss"
dated 25 October 1995) was filed by Viewmaster.
The trial court conducted a hearing of Viewmasters
application for the issuance of a temporary
restraining order/writ of preliminary injunction.
On May 15, 1996, an order4 was issued dismissing
the complaint and denying Viewmasters
application for a temporary restraining order/writ of
preliminary injunction.
A motion for reconsideration dated May 29, 19965
was filed by Viewmaster to which an opposition
was filed.

In its order dated July 10, 1996,6 the trial court

reconsidered and set aside the order of May 15,
1996 and accordingly, reinstated the complaint and
granted Viewmasters application for a writ of
preliminary injunction on a One Million
(P1,000,000.00) Pesos injunction bond.

THE HONORABLE COURT OF APPEALS

ERRED IN HOLDING THAT THE COMPLAINT
IN CIVIL CASE NO. 65277 DOES NOT STATE A
CAUSE OF ACTION.

Respondents herein filed a motion for

reconsideration to which Viewmaster filed its
opposition. However, the motion was denied for
lack of sufficient merit in the order dated January
30, 1997.7

THE HONORABLE COURT OF APPEALS

ERRED IN RULING THAT THE AGREEMENT
SOUGHT TO BE ENFORCED BY PETITIONER
IS SUPPOSEDLY UNENFORCEABLE.

C
On March 5, 1997, the respondents filed a motion
for inhibition8 of the presiding judge but the same
was denied for lack of sufficient merit in the order
of April 11, 1997.9
Thereafter, CA-GR SP No. 44000,10 a petition for
certiorari and prohibition with application for a
temporary restraining order and/or writ of
preliminary injunction was filed with the Court of
Appeals.
On November 28, 1997, a decision was rendered by
the Court of Appeals, the dispositive portion of
which reads as follows:
"WHEREFORE, the petition is hereby GIVEN
DUE COURSE and is GRANTED. The challenged
orders dated July 10, 1996 and January 30, 1997
denying petitioners motion to dismiss the
complaint in Civil Case No. 65277; and order dated
April 11, 1997 denying their motion for inhibition
are all SET ASIDE. The complaint is ordered
dismissed. Costs against private respondent
Viewmaster.
"SO ORDERED."11
A motion for reconsideration was filed by
Viewmaster but it was denied in the resolution dated
April 21, 1998.12
Hence, this petition.
The grounds adduced for the allowance of the
petition are:
A

THE HONORABLE COURT OF APPEALS

ERRED IN HOLDING THAT THE PRESIDING
JUDGE OF THE COURT A QUO SHOULD HAVE
INHIBITED HIMSELF FROM HEARING CIVIL
CASE NO. 65277.
The petition is without merit.
The test of determining the sufficiency of the
statements in a complaint as setting forth a cause of
action is enunciated in the case of Fil-Estate Golf
and Development, Inc. vs. Court of Appeals,13 to
wit:
"In determining whether or not a complaint states a
cause of action, only the allegations in the
complaint must be considered. Thus, in the recent
case of Navoa v. Court of Appeals (251 SCRA 545),
we held as follows:
`A cause of action is the fact or combination of facts
which affords a party a right to judicial interference
in his behalf. The requisites for a cause of action
are: (a) a right in favor of the plaintiff by whatever
means and under whatever law it arises or is
created, (b) an obligation on the part of the
defendant to respect and not to violate such right;
and (c) an act or omission on the part of the
defendant constituting a violation of the plaintiffs
right or breach of the obligation of the defendant to
the plaintiff. Briefly stated, it is the reason why the
litigation has come about; it is the act or omission of
the defendant resulting in the violation of
someones right.
`In determining the existence of a cause of action,
only the statements in the complaint may properly
be considered. Lack of cause of action must appear

on the face of the complaint and its existence may

be determined only by the allegations of the
complaint, consideration of other facts being
proscribed and any attempt to prove extraneous
circumstances not being allowed.
`If a defendant moves to dismiss the complaint on
the ground of lack of cause of action, such as what
petitioners did in the case at bar, he is regarded as
having hypothetically admitted all the averments
thereof. The test of sufficiency of the facts found
in a complaint as constituting a cause of action is
whether or not admitting the facts alleged the
court can render a valid judgment upon the
same in accordance with the prayer thereof. The
hypothetical admission extends to the relevant and
material facts well pleaded in the complaint and
inferences fairly deducible therefrom. Hence, if the
allegations in the complaint furnish sufficient basis
by which the complaint can be maintained, the same
should not be dismissed regardless of the defense
that may be assessed by the defendants."
(Emphasis Ours)
Based on the above, one question need be
answered: Was there a cause of action?
We reply in the negative.
Let us consider the following facts: Petitioner
Viewmaster agreed to act as the guarantor of Allen
Roxas for the loan that the latter needs from FMIC
if herein respondent Allen Roxas shall sell fifty
percent (50%) of his shareholdings in State
Investment and shall undertake a joint venture
project with Plaintiff Viewmaster to co-develop the
two real estate properties in Quezon City and Las
Pias, and if Roxas shall sell and petitioner
Viewmaster shall purchase fifty percent (50%) of
the latters total eventual acquisitions of shares of
stock in State Investment. These were not put into
writing.
The court a quo did not err in finding that the
Statute of Frauds covers the foregoing agreements.
Article 1403 of the New Civil Code provides:
"Art. 1403. The following contracts are
unenforceable, unless they are ratified:
xxx

"(2) Those that do not comply with the

Statute of Frauds as set forth in this number.
In the following cases an agreement
hereafter made shall be unenforceable by
action, unless the same, or some note or
memorandum thereof, be in writing, and
subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement
cannot be received without the writing, or a
secondary evidence of its contents:
"(a) An agreement that by its terms is not to
be performed within a year from the making
thereof;
xxx
"(d) An agreement for the sale of goods,
chattels or things in action, at a price not less
than five hundred pesos, unless the buyer
accept and receive part of such goods and
chattels, or the evidences, or some of them,
of such things in action, or pay at the time
some part of the purchase money; but when
a sale is made by auction and entry is made
by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of
property sold, terms of sale, price, names of
the purchasers and person on whose account
the sale is made, it is a sufficient
memorandum;"
The verbal agreement entered into between
petitioner Viewmaster and respondent Allen Roxas
was an agreement that by its terms is not to be
performed within a year from the making thereof.
To be taken out of the operation of the Statute of
Frauds, the agreement must be fully performed on
one side within one year from the making thereof.
"Contracts which by their terms are not to be
performed within one year may be taken out of the
Statute of Frauds through performance by one party
thereto. In order, however, that a partial
performance of the contract may take the case out
of the operation of the statute, it must appear clear
that the full performance has been made by one
party within one year, as otherwise the statute
would apply."14

In the case at bar, since neither of the parties has

fully performed their obligations within the oneyear period, i.e., Allen Roxas has not sold fifty
percent (50%) of his shareholdings in State
Investment to Viewmaster and Viewmaster has not
paid the purchase price for the aforesaid shares of
stock, nor began the co-development of the two
subject real properties, then it behooves this Court
to declare that the case falls within the coverage of
the Statute of Frauds.
It will not take a mathematical genius to figure out
that the sale of fifty percent (50%) of Allen Roxass
shareholdings in State Investment would amount to
more than five hundred pesos (P500.00). Thus, to
be enforceable, the contract must be in writing.
It is contended that an implied trust exists between
petitioner and Allen Roxas. The implied trust was
allegedly created by operation of law in accordance
with Article 1448 of the New Civil Code.
Quoted below is the provision referred to:
"Art. 1448. There is an implied trust when property
is sold, and the legal estate is granted to one party
but the price is paid by another for the purpose
of having the beneficial interest of the property.
The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the
title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale,
no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child."
(Emphasis Ours)
From the above, it is quite clear that in order for the
provisions of Article 1448 to apply in the case at bar
"the price is paid by another for the purpose of
having the beneficial interest of the property."
It bears stressing that respondent Allen Roxas
obtained a loan from First Metro Investments, Inc.
not from petitioner Viewmaster. It was FMIC that
provided the funds with which Allen Roxas
acquired the controlling interest in State Investment
Trust, Inc. FMIC lent the money to Roxas because
the latter needed the money and not to obtain any
beneficial interest in the shares of stock in State
Investment. Viewmaster merely facilitated the loan
by acting as guarantor of the loan and nothing more.

We quote with approval the finding of the court a

quo:
"In the case at bench, the money which Allen Roxas
used to bid for the purchase of the shares of stock in
State Investment does not belong to Viewmaster. In
fact, the complaint clearly states that the funds were
borrowed by Allen Roxas from FMIC (which were
already fully paid). Thus, we cannot conclude that
Allen Roxas holds in trust for Viewmaster 50% of
his controlling interest in State Investment and the
two parcels of land owned by State Investments
subsidiaries.
"As correctly pointed out by petitioners, an implied
trust cannot arise if the funds used by the alleged
trustee in acquiring the alleged trust property
originated from a loan. The following citations
contained in the petition are well-taken:
`Another exception is that in which an actual
contrary intention is proved. Thus, where a transfer
of property is made to one person and the purchase
price is advanced by another as a loan to the
transferee, a resulting trust does not arise. xxx (IV
Tolentino, Civil Code of the Philippines [1991], p.
679)
`The general rule is that the use of borrowed money
in making a purchase does not raise a resulting trust
in favor of the lender, even where the money is
loaned to enable the borrower to purchase the
property in question and the borrower promises, but
fails, to execute a mortgage on the property after it
is purchased, to secure the loan. Nor does the use of
money given to one for the purchase of the property
raises a resulting trust in the property in favor of the
donor (76 AmJur 2d. pp. 440-441).
"If an implied trust cannot exist in favor of a lender,
We cannot see our way clear how a mere guarantor,
like Viewmaster, can claim a resulting implied trust
when it issued to Allen Roxas a Continuing
Guaranty.
"But Viewmaster insists that its having acted as
guarantor of Allen Roxas is the equitable
consideration of the transaction which is the
foundation of the resulting trust, citing American
Jurisprudence. For had Viewmaster not issued the
Continuing Guaranty, FMIC would not have
extended any loan to Allen Roxas. In fact,

Viewmaster placed itself at risk in securing the loan

and in `inducing FMIC to grant the said loan to
Allen Roxas.
"We cannot go along with Viewmasters theory. The
`consideration referred to in its citation of
American Jurisprudence, as well as the `price
specified in Article 1448 of the Civil Code, pertain
to the funds, goods or services, in consideration of
which the trust property is conveyed to the trustee.
In the present case, the `consideration or `price
refers to the money which came from a loan granted
to Allen Roxas by FMIC, not to the Continuing
Guaranty executed by Viewmaster. The Continuing
Guaranty, therefore, is not the consideration which
Allen Roxas used in acquiring said shares of stock.
Consequently, no implied trust could have arisen in
favor of Viewmaster over the shares of stock in
State Investment or over the two subject lots.
"In the light of Our finding that the allegations in
the complaint fail to show the existence of an
implied trust, a `valid judgment cannot be rendered
thereon in accordance with the prayer in the
complaint. Obviously, Viewmasters demand for
specific performance on the part of Allen Roxas or
his compliance with his obligation as a supposed
trustee has no legal basis."15

consideration. The questioned Orders, by

themselves, do not sufficiently prove bias and
prejudice to disqualify respondent Judge under
Section 1, second paragraph of Rule 137 of the
Rules of Court. For such bias and prejudice, to be a
ground for disqualification, must be shown to have
stemmed from an extrajudicial source, and result in
an opinion on the merits on some basis other than
what the judge learned from his participation in the
case. Opinions formed in the course of judicial
proceedings, as long as they are based on the
evidence presented and conduct observed by the
judge, even if found later on as erroneous, do not
prove personal bias or prejudice on the part of the
judge. Extrinsic evidence is required to establish
bias, bad faith, malice or corrupt purpose, in
addition to palpable error which may be inferred
from the decision or order itself. This, the petitioner
herein did not sufficiently adduce to warrant
respondent Judges inhibition or disqualification."
WHEREFORE, IN VIEW OF THE FOREGOING,
the petition is hereby DISMISSED and the decision
of the Court of Appeals in CA GR SP No. 44000 is
AFFIRMED. Costs against the petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

We have carefully scrutinized the allegations in the

complaint and we arrived at one conclusion: the
complaint does not state a cause of action. The facts
as given are not sufficient enough for the court to
arrive at an equitable judgment.
Anent the third issue, we hold that it is no longer
necessary to discuss the same for being moot and
academic.1wphi1
However, we deem it best to allude to the case of
Aleria, Jr. vs. Velez16 cited in the case of Seveses vs.
Court of Appeals,17 as these cases have discussed
the issue when a judge must inhibit himself from a
case.
"As to the prayer for inhibition, petitioner claims
that the issuance of the questioned Orders shows
that respondent Judge has already lost his
impartiality or cold neutrality to administer justice,
and that petitioner does not stand a chinamans
chance of ever getting justice before respondent
Judge. Such sweeping conclusions here do not merit

THIRD DIVISION

G.R. No. 116825 March 26, 1998

SAN LORENZO VILLAGE ASSOCIATION, INC. petitioner,
vs.
COURT OF APPEALS; Hon. Judge ROBERTO C. DIOKNO, Presiding
Judge, RTC, Makati, Branch 62 and ALMEDA DEVELOPMENT &
EQUIPMENT CORPORATION, respondents.

ROMERO, J.:
1

of the Court
of Appeals denying the petition for certiorari filed by the
San Lorenzo Village Association, Inc. which sought the
reversal of the orders dated March 31 and October 15,
1992, of the Regional Trial Court of Makati, Branch 62. 2
The lower court had denied the motion to dismiss the
petition for cancellation of the restrictions annotated in
This petition for review on certiorari assails the decision

Transfer Certificate of Title No. 47348 of the Registry of

Deeds of Makati, Metro Manila.

other public facilities as may be

necessary and desirable.

Petitioner San Lorenzo Village Association, Inc. (SLVAI)

and San Lorenzo Company, Inc. were the respondents
in the aforesaid petition filed on December 13, 1991
before the lower court by private respondent Almeda
Development and Equipment Corporation (ADEC). For
clarity, the pertinent portions of that petition in Civil Case
No. 91-3450 are hereby quoted as follows:

All buildings on the lot must be

of strong materials. Building
shall not be higher than 5
meters above the ground
directly beneath the point in
question. All building plans must
be approved by the Association
before construction begins. All
buildings including garage,
servant's quarter (porte
cocheres) must be constructed .
. . not less than 3 meters from
boundary bordering a wall, not
including pedestrian paths, and
not less than 2 meters from the
other boundaries of this lot.
Sewage disposal must be by
means of septic tank or into a
sewage system.

3. The petitioner is the owner of that parcel of

land with building and other improvements
situated at Pasay Road, San Lorenzo Village,
Makati, Metro Manila, embraced in Transfer
Certificate of Title No. 47348 of the Registry of
Deeds of Makati, Metro Manila, more particularly
described as follows:
xxx xxx xxx
The petitioner's ownership thereto is evidenced
by the Deed of Sale executed by Ponciano L.
Almeda, married to Eufemia Perez-Almeda, and
the petitioner on September 15, 1991, entered
as Doc. No. 218; Page No. 45; Book No. VIII;
Series of 1991, evidenced by its copy hereto
attached as Annex "A".
4. As the owner of the said parcel of land
together with the building and other
improvements thereon, the petitioner has the
right to enjoy and dispose of said property
without limitation except those established by
law (Art. 428, Civil Code).
xxx xxx xxx
5. In Transfer Certificate of Title No. 47448 (sic),
there appears Entry No. 59599, reading in part
as follows:
The owner of this lot or his
successor in interest is required
to be and is automatically a
member of the San Lorenzo
Village Association. The lot may
not be subdivided. The lot shall
only be used for residential
purposes. Only one single
storey or one (duplex) house
may be constructed on a single
lot, although separate servant's
quarter or garage may be built.
The property is subject to an
easement of two meters within
the lot and adjacent to the rear
and sides thereof not fronting a
street for the purpose of
drainage, sewage, water and

Walls on the perimeter of this

property shall not exceed 2
meters in height, except that no
restriction as to height applies to
walls made of live vegetation.
Evidenced by TCT No. 47348 and Entry NO.
59599 (Memorandum of Encumbrances) thereof
marked as Annexes "B" and "B-1", respectively.
6. The condition prevailing along Pasay Road
(San Lorenzo Village) on July 10, 1958, the date
when the restrictions were imposed by the San
Lorenzo Company, Inc. to lot and house owners
in San Lorenzo Village and on July 11, 1958,
when the Deed of Restrictions was annotated on
TCT No. 60143/T-577 (the certificate of title from
where TCT No. 47448 originated), is no longer
the same compared today. At that time, houses
located along Pasay Road (San Lorenzo Village)
were used purely for residential purposes.
Today, what are found along Pasay Road (San
Lorenzo Village) are commercial/industrial
buildings such as the matter of security and
garage (sic) collections are taken care of by their
buyers. Accordingly, the San Lorenzo Village
Association, Inc. is no longer relevant in so far
as the building and lot owners along Pasay
Road (San Lorenzo Village) are concerned.
7. The aforementioned annotation in TCT No.
47348 in (sic) an unlawful limitation to the rights
of the petitioner protected by the Constitution
and prescribed in Art. 428 of the Civil Code.
7.1 The petitioner does not intend to be a
member of the San Lorenzo Village Association,
Inc.

7.2 The petitioner has its own security guards

and garbage trucks.
7.3 The petitioner can effectively protect its
ownership and possession without the
assistance and intervention of the San Lorenzo
Village Association, Inc.
7.4 The petitioner intends to construct a taller
building on the lot.
8 While in Sec. 30, Presidential Decree No. 957,
it is provided that
Sec. 30. Organization of Homeowners
Association. The owner of developer of a
subdivision project or condominium project shall
initiate the organization of a homeowners
association among the buyers and residents of
the projects for the purpose of prompting and
protecting their mutual interest and assist in their
community development.
there is no law compelling lot and house buyers
to be a member of the San Lorenzo Company,
Inc. and restricting the petitioner to construct a
taller building on its lot.
9. As stated above, there is compelling reason
for the cancellation of the restrictions imposed at
the back of TCT No. 47348.
10. If there is no vested right in existing law
which can be repealed or judicial interpretation
which can be changed, there is no reason why a
Deed of Restrictions annotated in a certificate of
title cannot be canceled.
11. To cancel the aforementioned annotation in
TCT No. 47348 and to enforce its right, the
petitioner was compelled to engage the services
of a lawyer for a fee and to institute this action
incurring and will incur litigation expenses. 3
ADEC prayed for the issuance of a temporary restraining
order directing the San Lorenzo Company, Inc. and its
agents "to cease and desist from making the petitioner a
member of the San Lorenzo Village Association, Inc. and
prohibiting the petitioner from constructing a taller
building on its lot and the San Lorenzo Village
Association, Inc. from collecting membership fee and
monthly dues and other assessments." It likewise prayed
that the Register of Deeds of Makati be ordered to
cancel Entry No. 59599 in TCT No. 47348 and that
respondents pay actual damages of P30,000.00,
attorney's fees of P30,000.00 plus P500 allowance per
attendance in court hearings and the costs of suit.
Therein private respondent SLVAI filed a motion to
dismiss the petition on the grounds of lack of cause of

action and lack of ADEC's personality to sue. It alleged

that ADEC was not a registered owner of the parcel of
land covered by TCT No. 47348; that the sale of the
property by Ponciano L. Almeda to ADEC could not bind
third parties; that ADEC had no reason to pray for the
cancellation of Entry No. 59599 not being the owner of
the land nor a member of SLVAI but simply a stranger
that had no demandable right against the SLVAI. 4
ADEC opposed the motion to dismiss contending that it
had a cause of action against SLVAI because as the
(new) owner of the lot involved, it cannot be compelled
to become a member of the SLVAI for to do so would
unduly limit its use of the property. Citing Philippine
Suburban Development Corporation v. Auditor General, 5
it asserted that it had the capacity and personality to sue
because actual notice of the sale was equivalent to
registration. 6
On March 31, 1992, the lower court issued an Order
denying the motion to dismiss, holding as follows:
This Court agrees with the plaintiff that it has the
capacity and legal personality to file this case.
Plaintiff has shown its interest in the subject
property, basing its claims on a Deed of Sale
dated September 11, 1990. As successor in
interest of the original registered owner, plaintiff
step (sic) into the shoes of the latter,
consequently it can sue and be sued.
SLVAI filed a motion for the reconsideration of that Order
7
alleging that third persons were not bound by the deed
of sale of the property entered into between ADEC and
Ponciano Almeda, as said deed of sale was not
registered. As such, ADEC had no cause of action
against it. Furthermore, Almeda, not having paid the
association dues and garbage fees, he was sued before
the Regional Trial Court of Pasig, Branch 151, where the
same deed of sale was presented to prevent the
scheduled auction sale through a third-party claim. In
quashing the third-party claim, then Judge Eutropio
Migrio ruled that the title to the property being still in the
name of defendant Almeda, whatever transaction he had
entered into would not be binding upon the plaintiff.
In its opposition to the motion for reconsideration, ADEC
contended that said motion was pro forma as it merely
reiterated the arguments in the motion to dismiss. Citing
Article 709 of the Civil Code which states that "(t)he titles
of ownership, or other rights over immovable property,
which are not duly inscribed or annotated in the Registry
of Property shall not prejudice third persons," ADEC
averred that within the context of that law, the SLVAI was
not a "third person" because it "merely caused the
annotation on the title of a property of certain restraints
or impositions on the exercise of ownership by the
registered owner." It added that SLVAI had no interest in
the property in question "except to compel the owner
thereof to be automatically a member of the San
Lorenzo Village Association and to pay the

consequential dues or fees and other expenses

therefor." As such, SLVAI and San Lorenzo Village
Company, Inc., were included in the case "only as
parties who had caused the annotation or inscription of
the entry in question which limits or restricts the exercise
of ownership over the aforesaid land, and who may be
affected thereby, directly or indirectly, by its cancellation,
in the same manner that the Register of Deeds of Makati
has also been impleaded as the public official who is
charged with the duty of registering or canceling the
subject annotation or inscription." 8
In its reply to the opposition, SLVAI countered that the
motion for reconsideration was not pro forma as the
lower court failed to consider the provisions of Article
709 of the Civil Code and Section 50 of the Land
Registration Act. It alleged that the term "third persons"
in Article 709 was broad enough to cover "everybody"
who did not participate in the disputed act, contract or
deed. It asserted that, while it had a lien over unpaid
association dues and garbage fees, ADEC was not the
real party in interest in the suit for cancellation of
restrictions on the title that was still in the name of
Almeda and therefore the case should have been
dismissed outright for lack of cause of action. Moreover,
while ADEC claimed to be the owner of the property, it
had not explained why it had not registered the deed of
sale and secured a separate title to the property. 9
On October 15, 1992, the lower court issued the Order
denying the motion for reconsideration as follows:
Article 709 of the New Civil Code . . . as the
basis of this Motion for Reconsideration finds no
application in this case. As correctly pointed out
by petitioner the "third persons" mentioned in
Article 709, are those persons who may have
adverse interests in the property itself either in
the concept of an owner, or a vendee or a
mortgagee, or otherwise, but definitely not that
of one who has merely caused the annotation on
the title of the property of certain restraints or
impositions on the exercise of ownership by the
registered owner. Moreover, when respondent
San Lorenzo Village Association, Inc. convey
(sic) the property to Ponciano Almeda, the
original owner, the latter has all the rights as an
owner, including the right to sell, which he did in
favor of the petitioner.
As successor in interest, petitioner can validly
exercise the right to sue which the original
owner could lawfully do for the protection of the
right as an attribute of ownership. 10
SLVAI questioned the lower court's Orders before the
Court of Appeals through a petition for certiorari with
prayer for the issuance of a temporary restraining order.
It presented before said appellate court the issue of
whether or not the petition filed below by ADEC stated a

cause of action or that ADEC was the real party in

interest. 11
On June 22, 1994, the Court of Appeals promulgated a
Decision denying the petition for certiorari. The Court of
Appeals noted that the petition sought to "discredit the
material allegation of ADEC that it is the owner of the
property covered by the subject transfer certificate of
title. It asserts that such allegation is merely a conclusion
or inference of ADEC and does not grant to the latter the
personality to sue the petitioner nor does such become
the source of the right to institute proceedings in the
court below." It held that:
We resolve to deny the petition, reiterating the
ruling made by the Supreme Court in Galeon
versus Galeon, 49 SCRA 516, 520:
It is well settled that in a motion
to dismiss a complaint based on
lack of cause of action, "the
question submitted to the court
for determination is the
sufficiency of the allegations of
fact made in the complaint to
constitute a cause of action, and
not whether these allegations of
fact are true, for said motion
must hypothetically admit the
truth of the facts alleged in the
complaint; . . ." The test of the
sufficiency of the facts is
whether or not, accepting the
veracity of the facts alleged, the
court could render a valid
judgment upon the same in
accordance with the prayer of
the complaint.
As such, the allegation of ADEC that it is the
owner of the property on the strength of the
deed of sale should be deemed hypothetically
admitted, giving it capacity to file the
proceedings below. The trial court was correct in
saying that "[p]laintiff has shown its interest in
the subject property, . . . As successor in interest
of the registered owner, plaintiff step (sic) into
the shoes of the latter, consequently, it can sue
and be sued." (Order, March 31, 1992; Rollo,
page 36).
The arguments advanced by petitioner as to
whether or not ADEC validly acquired title to the
property is one which is a matter more by way of
defense and which may be properly threshed
out during the trial. What the Supreme Court
likewise espoused in the Galeon case, page 520
is apropos on this issue:
The uniform ruling of this Court
is that the trial court "may not

inquire into the truth of the

allegations, and find them to be
false before a hearing is had on
the merits of the cause". If the
court finds the allegations to be
sufficient but doubts their
veracity, it is incumbent upon
said court to deny the motion to
dismiss and require the
defendant to answer. The
veracity of the assertions could
be asserted at the trial on the
merits. 12
SLVAI filed a motion for the reconsideration of that
Decision but it was denied on August 26, 1994. Hence, it
is now before this Court on a petition for review on
certiorari raising the following issues:
1. THE COURT OF APPEALS ERRED IN
FINDING THAT THE ALLEGATION IN THE
COMPLAINT OF PRIVATE RESPONDENT
THAT IT IS THE "OWNER" OF THE SUBJECT
PROPERTY ON THE BASIS OF A DEED OF
ABSOLUTE SALE "IS DEEMED
HYPOTHETICALLY ADMITTED GIVING IT
CAPACITY TO FILE THE PROCEEDINGS
BELOW", CITING GALEON VS. GALEON, 49
SCRA 516, BECAUSE HYPOTHETICAL
ADMISSION OF FACT DOES NOT EXTEND TO
INFERENCES OR CONCLUSIONS DRAWN
FROM SUCH FACT EVEN ALLEGED IN THE
COMPLAINT AS HELD IN DE DIOS V.
BRISTOL, L-25530, JANUARY 12, 1974.
2. ASSUMING ARGUENDO THAT PRIVATE
RESPONDENT IS THE "OWNER" OF THE
SUBJECT PROPERTY, THE SAME IS STILL
INSUFFICIENT TO MAKE OUT A CAUSE OF
ACTION BECAUSE THE DEED OF
RESTRICTIONS SOUGHT TO BE CANCELLED
BY PRIVATE RESPONDENT REQUIRES THAT
THE CANCELLATION THEREOF BE INITIATED
BY "MEMBERS" WHO ARE THE REGISTERED
OWNERS OF THE LOTS IN THE VILLAGE
AND BY THEIR TWO THIRDS VOTE.
3. THE COURT OF APPEALS ERRED IN NOT
FINDING THAT PRIVATE RESPONDENT IS
NOT THE REAL PARTY-IN-INTEREST.
These contentions boil down to the sole issue of whether
or not the petition below alleges a cause of action
against petitioner that the lower court may be deemed to
have correctly denied the motion to dismiss the same
petition.
The Rules of Court requires that the complaint must
make a concise statement of the ultimate facts or the
essential facts constituting the plaintiff's cause of action.
A fact is essential if it cannot be stricken out without

leaving the statement of the cause of action insufficient.

13
A complaint states a cause of action where it contains
the three (3) essential elements of a cause of action,
namely: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right.
If these elements are absent, the complaint becomes
vulnerable to a motion to dismiss on the ground of failure
to state a cause of action. If the allegations are vague,
indefinite, or in the form of conclusions, the defendant's
recourse is not a motion to dismiss but a bill of
particulars. 14
A motion to dismiss on the ground of failure to state a
cause of action in the complaint hypothetically admits
the truth of the facts alleged therein. However, the
hypothetical admission is limited to the "relevant and
material facts well pleaded in the complaint and
inferences fairly deductible therefrom. The admission
does not extend to conclusions or interpretations of law;
nor does it cover allegations of fact the falsity of which is
subject to judicial notice." 15 As this Court held in De
Dios v. Bristol Laboratories (Phils.), Inc.:
. . . For the purpose, the motion to dismiss must
hypothetically admit the truth of the facts alleged
in the complaint. The admission, however, is
limited only to all material and relevant facts
which are well pleaded in the complaint. Thus, it
has been ruled that a demurrer admits only such
matters of fact as are sufficiently pleaded; that
the demurrer does not admit the truth of mere
epithets charging fraud; nor allegations of legal
conclusions; nor an erroneous statement of law.
The admission of the truth of material and
relevant facts well pleaded does not extend to
render a demurrer an admission of inferences or
conclusions drawn therefrom, even if alleged in
the pleading; nor mere inferences or conclusions
from facts not stated; nor conclusions of law; nor
matters of evidence; nor surplusage and
irrelevant matter. . . . 16
However, it should be pointed out at the outset that it is
not "lack or absence of cause of action" that is a ground
for dismissal of the complaint, but rather, that "the
complaint states no cause of action". 17
De Dios did indeed hold that a movant to dismiss on the
ground of failure of the complaint to state a cause of
action is burdened with the implied admission of the truth
of "all material and relevant facts which are well pleaded
in the complaint," but not of "mere epithets charging
fraud," or legal conclusions, or mere inferences, or
matters of evidence. Said case gave examples of
allegations not within the hypothetical-admission rule, to
wit: "malicious and unjustified" institution of an action;
acting maliciously and for the purpose of political
persecution and vengeance, with intent of circumventing
a constitutional provision; usurping the office of Senator
of the Philippines; that the master had breached the

contract, or discharged an employee in a wrongful,

illegal, unlawful, unjust manner, etc.

available as cause for dismissal of the action at this early

stage.

The above ruling, however, does not apply to the case at

bar. In the instant case, the complaint asserts that
plaintiff purchased the property in question from the
person admittedly holding title thereto. It then infers that
by this mode, it became the successor-in-interest of the
vendor, if not indeed the owner of the property. Hence,
the restrictions in the title should be nullified not only
because it is contrary to law but also because the
conditions under which they were imposed had ceased
to exist.

Finally, even assuming that the allegation of the facts

constituting ADEC's cause of action is not as clear and
categorical as would otherwise be desired, any
uncertainty thereby arising should be so resolved as to
enable a full inquiry into the merits of the action. Such a
course would preclude that multiplicity of suits which the
law abhors, and conduce to the definitive determination
and termination of the dispute. On the other hand, the
abortion of the action on account of the alleged fatal
flaws of the complaint would obviously be indecisive; it
would not end the controversy, since the institution of
another action upon a revised complaint would not be
foreclosed.

In fact, the averments in the complaint like the title of

ADEC's vendor, the execution of the sale by said vendor
to ADEC, the latter's status as the vendor's successor-ininterest, and the altered physical environment along
Pasay Road, are allegations well within the hypotheticaladmission principle. These averments satisfy the three
(3) elements of a cause of action. In other words, the
complaint did state a cause of action.
In view of such, SLVAI cannot successfully invoke the
ground that the complaint "fails to state a cause of
action" in its motion to dismiss.
Putting it differently, what SLVAI essentially puts at issue
is whether substantively, ADEC, as plaintiff in the case
below, possesses a tenable right of action. As discussed,
said issue is not a ground for a motion to dismiss. As a
matter of law, neither are the efficacy of the sale to pass
title to the property, and consequently, ADEC's
acquisition of the status of successor-in-interest, specific
mandatory modes to challenge the restrictions in
question, or the change in the physical environment
along Pasay Road, grounds for a motion to dismiss
under Rule 16 of the Rules of Court. Instead, the
aforementioned issues may be properly raised in the
Answer.
Regarding the third issue of whether ADEC is a real
party in interest, said issue is likewise not a proper
ground for a motion to dismiss. Certainly, as successorin-interest of the original vendor, who is the
unquestioned title holder, ADEC has the prerogative to
assert all the latter's rights, including the impugnation of
the restrictions on the title. The tenability of the grounds
for that impugnation, while proper under the pleadings,
should be threshed out at the trial on the merits.
The only other issue raised is that even assuming ADEC
became owner of the property, it cannot seek
cancellation because, under SLVAI's rules, the
cancellation process can only be initiated by "members"
of the SLVAI who are the registered owners of the lots in
the village and by their two-thirds vote. However, those
rules were not dealt with in the complaint at all. They
may thus be raised only by way of defense in the
Answer, but not as ground for a motion to dismiss

WHEREFORE, the petition should be DISMISSED and

the challenged decision of the Court of Appeals should
be AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 172175

October 9, 2006

SPS. EXPEDITO ZEPEDA AND ALICE D.

ZEPEDA, petitioners,
vs.
CHINA BANKING CORPORATION,
respondent.

DECISION

YNARES-SANTIAGO, J.:
This petition for review under Rule 45 of the Rules
of Court assails the January 24, 2006 Decision1 of
the Court of Appeals in CA-G.R. SP No. 89148
granting respondent China Banking Corporations
(Chinabank) petition to annul the Orders dated April
1, 20042 and October 22, 20043 of the Regional
Trial Court of San Jose, Camarines Sur, Branch 30,4
in Civil Case No. T-947. Also assailed is the March

31, 2006 Resolution5 denying petitioners motion

for reconsideration.
The facts are as follows.
On February 18, 2003, spouses Expedito and Alice
Zepeda filed a complaint for nullification of
foreclosure proceedings and loan documents with
damages6 against respondent Chinabank before the
Regional Trial Court of San Jose, Camarines Sur,
which was docketed as Civil Case No. T-947 and
raffled to Branch 30. They alleged that on June 28,
1995, they obtained a loan in the amount of
P5,800,000.00 from respondent secured by a Real
Estate Mortgage over a parcel of land covered by
Transfer Certificate of Title (TCT) No. T-23136.
Petitioners subsequently encountered difficulties in
paying their loan obligations hence they requested
for restructuring which was allegedly granted by
Chinabank. Hence, they were surprised when
respondent bank extrajudicially foreclosed the
subject property on October 9, 2001 where it
emerged as the highest bidder. Respondent bank
was issued a Provisional Certificate of Sale and
upon petitioners failure to redeem the property,
ownership was consolidated in its favor.
According to petitioners, the foreclosure
proceedings should be annulled for failure to
comply with the posting and publication
requirements. They also claimed that they signed
the Real Estate Mortgage and Promissory Note in
blank and were not given a copy and the interest
rates thereon were unilaterally fixed by the
respondent.
Respondent banks motion to dismiss was denied,
hence it filed an answer with special affirmative
defenses and counterclaim. It also filed a set of
written interrogatories with 20 questions.
In an Order dated April 1, 2004, the trial court
denied Chinabanks affirmative defenses for lack of
merit as well as its motion to expunge the complaint
for being premature. The trial court reiterated its
denial of Chinabanks affirmative defenses in its
Order dated October 22, 2004 and directed the
Clerk of Court to set the pre-trial conference for the
marking of the parties documentary evidence.

Aggrieved, respondent bank filed a petition for

certiorari under Rule 65 which was granted by the
Court of Appeals. It held that the trial court gravely
abused its discretion in issuing the two assailed
Orders. It ruled that compelling reasons warrant the
dismissal of petitioners complaint because they
acted in bad faith when they ignored the hearings
set by the trial court to determine the veracity of
Chinabanks affirmative defenses; they failed to
answer Chinabanks written interrogatories; and the
complaint states no cause of action.
On March 31, 2006, petitioners motion for
reconsideration was denied hence, the instant
petition raising the following issues:
I. THE HONORABLE COURT OF
APPEALS COMMITTED REVERSIBLE
ERROR WHEN IT ISSUED THE
ASSAILED DECISION DECLARING
THAT THE PETITIONER[S]
COMPLAINT DATED 12 FEBRUARY
2003 HAS NO CAUSE OF ACTION.
II. CAUSE OF ACTION HAS BEEN
SUFFICIENTLY ESTABLISHED IN THE
COMPLAINT AND THE GROUND
RELIED UPON BY THE PRIVATE
RESPONDENT BANK ARE MERE
EVIDENTIARY MATTERS.7
The issues for resolution are: a) whether the
complaint states a cause of action and b) whether
the complaint should be dismissed for failure of
petitioners to answer respondents written
interrogatories as provided for in Section 3(c), Rule
29 of the Rules of Court.
The petition is meritorious.
Anent the first issue, the Court of Appeals ruled that
the complaint failed to state a cause of action
because petitioners admitted that they failed to
redeem the property and that ownership of the same
was consolidated in the name of Chinabank.
A cause of action is a formal statement of the
operative facts that give rise to a remedial right. The
question of whether the complaint states a cause of
action is determined by its averments regarding the
acts committed by the defendant. Thus it "must
contain a concise statement of the ultimate or

essential facts constituting the plaintiffs cause of

action." Failure to make a sufficient allegation of a
cause of action in the complaint "warrants its
dismissal."8
As defined in Section 2, Rule 2 of the Rules of
Court, a cause of action 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.
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.9 In
determining whether an initiatory pleading states a
cause of action, "the test is as follows: admitting the
truth of the facts alleged, can the court render a
valid judgment in accordance with the prayer?" To
be taken into account are only the material
allegations in the complaint; extraneous facts and
circumstances or other matters aliunde are not
considered. The court may consider in addition to
the complaint the appended annexes or documents,
other pleadings of the plaintiff, or admissions in the
records.10
In the instant case, petitioners specifically alleged
that respondent bank acted in bad faith when it
extrajudicially foreclosed the mortgaged property
notwithstanding the approval of the restructuring of
their loan obligation. They claimed that with such
approval, respondent bank made them believe that
foreclosure would be held in abeyance. They also
alleged that the proceeding was conducted without
complying with the posting and publication
requirements.

Assuming these allegations to be true, petitioners

can validly seek the nullification of the foreclosure
since the alleged restructuring of their debt would
effectively modify the terms of the original loan
obligations and accordingly supersede the original
mortgage thus making the subsequent foreclosure
void. Similarly, the allegation of lack of notice if
subsequently proven renders the foreclosure a
nullity in line with prevailing jurisprudence.11
We find the allegations in the complaint sufficient
to establish a cause of action for nullifying the
foreclosure of the mortgaged property. The fact that
petitioners admitted that they failed to redeem the
property and that the title was consolidated in
respondent banks name did not preclude them from
seeking to nullify the extrajudicial foreclosure.
Precisely, petitioners seek to nullify the proceedings
based on circumstances obtaining prior to and
during the foreclosure which render it void.
Anent the second issue, we do not agree with the
Court of Appeals ruling that the complaint should
be dismissed for failure of petitioners to answer
respondent banks written interrogatories.
It should be noted that respondent bank filed a
motion to expunge the complaint based on Section
3(c) of Rule 29 which states:
SEC. 3. Other consequences. If any party
or an officer or managing agent of a party
refuses to obey an order made under section
112 of this Rule requiring him to answer
designated questions, or an order under Rule
27 to produce any document or other thing
for inspection, copying, or photographing or
to permit it to be done, or to permit entry
upon land or other property, or an order
made under Rule 28 requiring him to submit
to a physical or mental examination, the
court may make such orders in regard to the
refusal as are just, and among others the
following:
xxxx
(c) An order striking out pleadings or parts
thereof, or staying further proceedings until
the order is obeyed, or dismissing the action
or proceeding or any part thereof, or

rendering a judgment by default against the

disobedient party; and
x x x x.13
As we have explained in Arellano v. Court of First
Instance of Sorsogon,14 the consequences
enumerated in Section 3(c) of Rule 29 would only
apply where the party upon whom the written
interrogatories is served, refuses to answer a
particular question in the set of written
interrogatories and despite an order compelling him
to answer the particular question, still refuses to
obey the order.
In the instant case, petitioners refused to answer the
whole set of written interrogatories, not just a
particular question. Clearly then, respondent bank
should have filed a motion based on Section 5 and
not Section 3(c) of Rule 29. Section 5 of Rule 29
reads:
SEC. 5. Failure of party to attend or serve
answers. If a party or an officer or
managing agent of a party willfully fails to
appear before the officer who is to take his
deposition, after being served with a proper
notice, or fails to serve answers to
interrogatories submitted under Rule 25
after proper service of such interrogatories,
the court on motion and notice, may strike
out all or any part of any pleading of that
party, or dismiss the action or proceeding or
any part thereof, or enter a judgment by
default against that party, and in its
discretion, order him to pay reasonable
expenses incurred by the other, including
attorneys fees.
Due to respondent banks filing of an erroneous
motion, the trial court cannot be faulted for ruling
that the motion to expunge was premature for lack
of a prior application to compel compliance based
on Section 3.
This Court has long encouraged the availment of the
various modes or instruments of discovery as
embodied in Rules 24 to 29 of the Rules of Court.15
In the case of Hyatt Industrial Manufacturing
Corporation v. Ley Construction and Development
Corporation,16 we declared:

Indeed, the importance of discovery

procedures is well recognized by the Court.
It approved A.M. No. 03-1-09-SC on July
13, 2004 which provided for the guidelines
to be observed by trial court judges and
clerks of court in the conduct of pre-trial and
use of deposition-discovery measures.
Under A.M. No. 03-1-09-SC, trial courts are
directed to issue orders requiring parties to
avail of interrogatories to parties under Rule
45 and request for admission of adverse
party under Rule 26 or at their discretion
make use of depositions under Rule 23 or
other measures under Rule 27 and 28 within
5 days from the filing of the answer. The
parties are likewise required to submit, at
least 3 days before the pre-trial, pre-trial
briefs, containing among others a
manifestation of the parties of their having
availed or their intention to avail themselves
of discovery procedures or referral to
commissioners.
The imposition of sanctions under Section 5 is
within the sound discretion of the trial court. Thus,
in Insular Life Assurance Co., Ltd. v. Court of
Appeals,17 we held:
The matter of how, and when, the above
sanctions should be applied is one that
primarily rests on the sound discretion of the
court where the case pends, having always
in mind the paramount and overriding
interest of justice. For while the modes of
discovery are intended to attain the
resolution of litigations with great
expediency, they are not contemplated,
however, to be ultimate causes of injustice.
It behooves trial courts to examine well the
circumstances of each case and to make
their considered determination thereafter. x x
x
WHEREFORE, the petition is GRANTED. The
January 24, 2006 Decision and the March 31, 2006
Resolution of the Court of Appeals in CA-G.R. SP
No. 89148, which granted respondent China
Banking Corporations petition to annul the April 1,
2004 and October 22, 2004 Orders of the Regional
Trial Court of San Jose, Camarines Sur, Branch 30
denying respondent banks affirmative defenses
without a hearing as well as its motion to expunge

the complaint because of petitioners failure to

answer the written interrogatories are REVERSED
and SET ASIDE. The instant case is REMANDED
to the Regional Trial Court of San Jose, Camarines
Sur, Branch 30, for further proceedings.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 126212

March 2, 2000

SEA-LAND SERVICE, INC., petitioner,

vs.
COURT OF APPEALS, A.P.
MOLLER/MAERSK LINE and MAERSKTABACALERA SHIPPING AGENCY
(FILIPINAS), INC., respondents.
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to annul
and set aside the decision of the Court of Appeals
dated September 29, 1995 in CA-G.R. SP No.
35777,1 dismissing the petition for certiorari filed
by petitioner to annul the two (2) orders issued by
the Regional Trial Court of Quezon City, Branch
216, in Civil Case No. Q-92-12593.
The facts are as follows:
On April 29, 1991, petitioner Sea-Land Services,
Inc. and private respondent A.P. Moller/Maersk
Line (hereinafter referred to as "AMML"), both
carriers of cargo in containerships as well as
common carriers, entered into a contract entitled,
"Co-operation in the Pacific"2 (hereinafter referred
to as the "Agreement"), a vessel sharing agreement
whereby they mutually agreed to purchase, share
and exchange needed space for cargo in their
respective containerships. Under the Agreement,
they could be, depending on the occasion, either a
principal carrier (with a negotiable bill of lading or
other contract of carriage with respect to cargo) or a
containership operator (owner, operator or charterer
of containership on which the cargo is carried).

During the lifetime of the said Agreement, or on 18

May 1991, Florex International, Inc. (hereinafter
referred to as "Florex") delivered to private
respondent AMML cargo of various foodstuffs, with
Oakland, California as port of discharge and San
Francisco as place of delivery. The corresponding
Bill of Lading No. MAEU MNL110263 was issued
to Florex by respondent AMML. Pursuant to the
Agreement, respondent AMML loaded the subject
cargo on MS Sealand Pacer, a vessel owned by
petitioner. Under this arrangement, therefore,
respondent AMML was the principal carrier while
petitioner was the containership operator.
The consignee refused to pay for the cargo, alleging
that delivery thereof was delayed. Thus, on June 26,
1992, Florex filed a complaint against respondent
Maersk-Tabacalera Shipping Agency (Filipinas),
Inc. for reimbursement of the value of the cargo and
other charges.3 According to Florex, the cargo was
received by the consignee only on June 28, 1991,
since it was discharged in Long Beach, California,
instead of in Oakland, California on June 5, 1991 as
stipulated.
Respondent AMML filed its Answer4 alleging that
even on the assumption that Florex was entitled to
reimbursement, it was petitioner who should be
liable. Accordingly, respondent AMML filed a Third
Party Complaint5 against petitioner on November
10, 1992, averring that whatever damages sustained
by Florex were caused by petitioner, which actually
received and transported Florex's cargo on its
vessels and unloaded them.
On January 1, 1993, petitioner filed a Motion to
Dismiss the Third Party Complaint6 on the ground
of failure to state a cause of action and lack of
jurisdiction, the amount of damages not having been
specified therein. Petitioner also prayed either for
dismissal or suspension of the Third Party
Complaint on the ground that there exists an
arbitration agreement between it and respondent
AMML. On September 27, 1993, the lower court
issued an Order denying petitioner's Motion to
Dismiss. Petitioner's Motion for Reconsideration
was likewise denied by the lower court in its August
22, 1994 Order.
Undaunted, petitioner filed a petition for certiorari7
with the Court of Appeals on November 23, 1994.

Meanwhile, petitioner also filed its Answer to the

Third Party Complaint in the trial court.
On September 29, 1995, respondent Court of
Appeals rendered the assailed Decision dismissing
the petition for certiorari. With the denial of its
Motion for Reconsideration, petitioner filed the
instant petition for review, raising the following
issues
I.
THE COURT OF APPEALS
DISREGARDED AN AGREEMENT TO
ARBITRATE IN VIOLATION OF
STATUTE AND SUPREME COURT
DECISIONS HOLDING THAT
ARBITRATION IS A CONDITION
PRECEDENT TO SUIT WHERE SUCH
AN AGREEMENT TO ARBITRATE
EXISTS.
II.
THE COURT OF APPEALS HAS RULED
IN A MANNER NOT IN ACCORD WITH
JURISPRUDENCE WHEN IT REFUSED
TO HAVE THE THIRD-PARTY
COMPLAINT DISMISSED FOR FAILURE
TO STATE A CAUSE OF ACTION AND
FOR RULING THAT THE FAILURE TO
STATE A CAUSE OF ACTION MAY BE
REMEDIED BY REFERENCE TO ITS
ATTACHMENTS.8
Resolving first the issue of failure to state a cause of
action, respondent Court of Appeals did not err in
reading the Complaint of Florex and respondent
AMML's Answer together with the Third Party
Complaint to determine whether a cause of action is
properly alleged. In Fil-Estate Golf and
Development, Inc. vs. Court of Appeals,9 this Court
ruled that in the determination of whether or not the
complaint states a cause of action, the annexes
attached to the complaint may be considered, they
being parts of the complaint.
Coming now to the main issue of arbitration, the
pertinent clauses of the "Co-operation in the
Pacific" contract entered into by the parties provide:

16.2 For the purposes of this agreement the

Containership Operator shall be deemed to
have issued to the Principal Carrier for
good consideration and for both loaded and
empty containers its non-negotiable memo
bills of lading in the form attached hereto as
Appendix 6, consigned only to the Principal
Carrier or its agents, provisions of which
shall govern the liability between the
Principal Carrier and the Containership
Operator and that for the purpose of
determining the liability in accordance with
either Lines' memo bill of lading, the
number of packages or customary freight
units shown on the bill of lading issued by
the Principal Carrier to its shippers shall be
controlling.
16.3 The Principal Carrier shall use all
reasonable endeavours to defend all in
personam and in rem suits for loss of or
damage to cargo carried pursuant to bills of
lading issued by it, or to settle such suits for
as low a figure as reasonably possible. The
Principal Carrier shall have the right to
seek damages and/or an indemnity from the
Containership Operator by arbitration
pursuant to Clause 32 hereof.
Notwithstanding the provisions of the Lines'
memo bills of lading or any statutory rules
incorporated therein or applicable thereto,
the Principal Carrier shall be entitled to
commence such arbitration at any time until
one year after its liability has been finally
determined by agreement, arbitration award
or judgment, such award or judgment not
being the subject of appeal, provided that
the Containership Operator has been given
notice of the said claim in writing by the
Principal Carrier within three months of the
Principal Carrier receiving notice in writing
of the claim. Further the Principal Carrier
shall have the right to grant extensions of
time for the commencement of suit to any
third party interested in the cargo without
prior reference to the Containership
Operator provided that notice of any
extension so granted is given to the
Containership Operator within 30 days of
any such extension being granted.
xxx

xxx

xxx

32. ARBITRATION
32.1 If at any time a dispute or claim arises
out of or in connection with the Agreement
the Lines shall endeavour to settle such
amicably, failing which it shall be referred to
arbitration by a single arbitrator in London,
such arbitrator to be appointed by agreement
between the Lines within 14 days after
service by one Line upon the other of a
notice specifying the nature of the dispute or
claim and requiring reference of such
dispute or claim to arbitration pursuant to
this Article.
32.2 Failing agreement upon an arbitrator
within such period of 14 days, the dispute
shall be settled by three Arbitrators, each
party appointing one Arbitrator, the third
being appointed by the President of the
London Maritime Arbitrators Association.
32.3 If either of the appointed Arbitrators
refuses or is incapable of acting, the party
who appointed him shall appoint a new
Arbitrator in his place.
32.4 If one of the parties fails to appoint an
Arbitrator either originally or by way of
substitution for two weeks after the other
party having appointed his Arbitrator has
sent the party making default notice by mail,
fax or telex to make the appointment, the
party appointing the third Arbitrator shall,
after application from the party having
appointed his Arbitrator, also appoint an
Arbitrator in behalf of the party making
default.
32.5 Any such arbitration shall be in
accordance with the Arbitration Act 1950 as
amended by the Arbitration Act 1979 or any
other subsequent legislation and the
arbitrator's award shall be final and binding
upon Lines. To the extent permitted by the
Arbitration Act 1979 the Lines hereto
exclude pursuant to S 3(1) of that Act the
jurisdiction of the English High Court of
Justice to entertain any appeal or application
under Section 1 and 2 of the Arbitration Act
1979. 10

From the foregoing, the following matters are clear:

First, disputes between the Principal Carrier and the
Containership Operator arising from contracts of
carriage shall be governed by the provisions of the
bills of lading issued to the Principal Carrier by the
Containership Operator. Second, the Principal
Carrier shall use its best efforts to defend or settle
all suits against it for loss of or damage to cargo
pursuant to bills of lading issued by it. Third, the
Principal Carrier shall have the right to seek
damages and/or indemnity from the Containership
Operator by arbitration, pursuant to Clause 32 of the
agreement. Fourth, the Principal Carrier shall have
the right to commence such arbitration any time
until one year after its liability has been finally
determined by agreement, arbitration award or
judgment, provided that the Containership Operator
was given notice in writing by the Principal Carrier
within three months of the Principal Carrier
receiving notice in writing of said claim.
Prescinding from the foregoing matters, we find that
both the trial court and the Court of Appeals erred in
denying petitioner's prayer for arbitration.
To begin with, allowing respondent AMML's Third
Party Claim against petitioner to proceed would be
in violation of Clause 16.2 of the Agreement. As
summarized, the clause provides that whatever
dispute there may be between the Principal Carrier
and the Containership Operator arising from
contracts of carriage shall be governed by the
provisions of the bills of lading deemed issued to
the Principal Carrier by the Containership Operator.
On the other hand, to sustain the Third Party
Complaint would be to allow private respondent to
hold petitioner liable under the provisions of the bill
of lading issued by the Principal Carrier to Florex,
under which the latter is suing in its Complaint, not
under the bill of lading petitioner, as containership
operator, issued to respondent AMML, as Principal
Carrier, contrary to what is contemplated in Clause
16.2.
The Court of Appeals ruled that the terms of the
Agreement "explicitly required that the principal
carrier's claim against the containership operator
first be finally determined by, among others, a court
judgment, before the right to arbitration accrues."
However, the Court of Appeals failed to consider
that, precisely, arbitration is the mode by which the
liability of the Containership Operator may be

finally determined. This is clear from the mandate

of Clause 16.3 that "(T)he Principal Carrier shall
have the right to seek damages and/or an indemnity
from the Containership Operator by arbitration"
and that it "shall be entitled to commence such
arbitration at any time until one year after its
liability has been finally determined by agreement,
arbitration award or judgment".
For respondent Court of Appeals to say that the
terms of the contract do not require arbitration as a
condition precedent to judicial action is erroneous.
In the light of the Agreement clauses aforequoted, it
is clear that arbitration is the mode provided by
which respondent AMML as Principal Carrier can
seek damages and/or indemnity from petitioner, as
Containership Operator. Stated differently,
respondent AMML is barred from taking judicial
action against petitioner by the clear terms of their
Agreement.
As the Principal Carrier with which Florex directly
dealt with, respondent AMML can and should be
held accountable by Florex in the event that it has a
valid claim against the former. Pursuant to Clause
16.3 of the Agreement, respondent AMML, when
faced with such a suit "shall use all reasonable
endeavours to defend" itself or "settle such suits for
as low a figure as reasonably possible". In turn,
respondent AMML can seek damages and/or
indemnity from petitioner as Containership
Operator for whatever final judgment may be
adjudged against it under the Complaint of Florex.
The crucial point is that collection of said damages
and/or indemnity from petitioner should be by
arbitration.

between the parties would therefore be a step

backward. 12
WHEREFORE, premises considered, the instant
Petition for Review on Certiorari is GRANTED.
The decision of the Court of Appeals in CA-G.R.
SP No. 35777 is REVERSED and SET ASIDE. The
Regional Trial Court of Quezon City, Branch 77, is
ordered to DISMISS Respondent AMML's Third
Party Complaint in Civil Case No. Q-92-12593. No
pronouncement as to costs.
SO ORDERED.1wp
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 139884

February 15, 2001

SPOUSES OCTAVIO and EPIFANIA LORBES,

petitioners,
vs.
COURT OF APPEALS, RICARDO DELOS
REYES and JOSEFINA CRUZ, respondents.
GONZAGA-REYES, J.:
This petition for review on certiorari arose from an
action for reformation of instrument and damages
originally filed with the Regional Trial Court of
Antipolo, Rizal, Branch 74, the decision on which
was reviewed and reversed by the Third Division of
the Court of Appeals.

All told, when the text of a contract is explicit and

leaves no doubt as to its intention, the court may not
read into it any other intention that would contradict
its plain import. 11 Arbitration being the mode of
settlement between the parties expressly provided
for by their Agreement, the Third Party Complaint
should have been dismissed.

Petitioners were the registered owners of a 225square meter parcel of land located in Antipolo,
Rizal covered by Transfer Certificate of Title No.
165009. Sometime in August 1991, petitioners
mortgaged this property to Florencio and Nestor
Carlos in the amount of P150,000.00.

This Court has previously held that arbitration is

one of the alternative methods of dispute resolution
that is now rightfully vaunted as "the wave of the
future" in international relations, and is recognized
worldwide. To brush aside a contractual agreement
calling for arbitration in case of disagreement

About a year later, the mortgage obligation had

increased to P500,000.00 and fearing foreclosure of
the property, petitioners asked their son-in-law,
herein private respondent Ricardo delos Reyes, for
help in redeeming their property. Private respondent
delos Reyes agreed to redeem the property but
because he allegedly had no money then for the
purpose he solicited the assistance of private

respondent Josefina Cruz, a family friend of the

delos Reyeses and an employee of the Land Bank of
the Philippines.1wphi1.nt
It was agreed that petitioners will sign a deed of sale
conveying the mortgaged property in favor of
private respondent Cruz and thereafter, Cruz will
apply for a housing loan with Land Bank, using the
subject property as collateral. It was further agreed
that out of the proceeds of the loan, P500,000.00
will be paid to the Carloses as mortgagees, and an
such balance will be applied by petitioners for
capital gains tax, expenses for the cancellation of
the mortgage to the Carloses, transfer of title to
Josefina Cruz, and registration of a mortgage in
favor of Land Bank.1 Moreover, the monthly
amortization on the housing loan which was
supposed to be deducted from the salary of private
respondent Cruz will be reimbursed by private
respondent delos Reyes.
On September 29, 1992, the Land Bank issued a
letter of guarantee in favor of the Carloses,
informing them that Cruzs loan had been approved.
On October 22, 1992, Transfer Certificate of Title
No. 165009 was cancelled and Transfer Certificate
of Title No. 229891 in the name of Josefina Cruz
was issued in lieu thereof.2 On November 25, 1992,
the mortgage was discharged.
Sometime in 1993, petitioners notified private
respondent delos Reyes that they were ready to
redeem the property but the offer was refused.
Aggrieved, petitioners filed on July 22, 1994 a
complaint for reformation of instrument and
damages with the RTC of Antipolo, Rizal, docketed
as Civil Case No. 94-3296.
In the complaint, petitioners claimed that the deed
was merely a formality to meet the requirements of
the bank for the housing loan, and that the real
intention of the parties in securing the loan was to
apply the proceeds thereof for the payment of the
mortgage obligation.3 They alleged that the deed of
sale did not reflect the true intention of the parties,
and that the transaction was not an absolute sale but
an equitable mortgage, considering that the price of
the sale was inadequate considering the market
value of the subject property and because they
continued paying the real estate taxes thereto even
after the execution of the said deed of sale.
Petitioners averred that they did not see any reason

why private respondents would retract from their

original agreement other than that they (petitioners)
and the members of their family resigned en masse
from the Mahal Namin Organization, of which
private respondent delos Reyes was the president
and chairman of the board of directors, and private
respondent Cruz was the treasurer. In the same
complaint, they demanded moral damages,
exemplary damages, and attorneys fees.
On July 29, 1996, the trial court issued a temporary
restraining order enjoining private respondents from
ejecting petitioners from the premises of the
disputed property; this was soon replaced by a writ
of preliminary injunction.
Summons and a copy of the complaint were served
upon private respondents on August 1, 1994. Private
respondents filed their answer beyond the
reglamentary period, or only on September 1, 1994.
Thus, on September 5, 1994, petitioners filed a
motion to declare private respondents in default,
which the trial court granted in an order dated
September 16, 1994. On September 30 of the same
year, petitioners presented their evidence ex parte
before the trial court. The principal witness
presented was petitioner Octavio Lorbes, whose
testimony was corroborated by his son, Atty.
Salvador Lorbes.
On October 12, 1994, private respondents filed a
motion to lift order of default and to strike out
evidence presented ex parte, which the court denied
in an order dated October 26, 1994.
On June 20, 1995, the trial court rendered judgment
in favor of petitioners, upon finding that: (1) the
Deed of Absolute Sale dated October 21, 1992 did
not reflect the true intention of the parties, and (2)
the transaction entered into between petitioners and
Cruz was not an absolute sale but an equitable
mortgage, considering that the price stated in the
Deed of Absolute Sale was insufficient compared to
the value of the property, petitioners are still in
possession of the property, and petitioners had
continued to pay the real estate taxes thereon after
the execution of the said deed of sale. As explained
by the trial court in its decision:
The foregoing uncontroverted facts clearly
show that the transaction entered into
between the plaintiffs and the defendants is

not an absolute sale but merely an equitable

mortgage as the sale was executed in order
to secure a loan from a certain bank to save
the property from the danger of foreclosure
and to use it as collateral thereof for bank
loan purposes and that the same does not
reflect the real intention of the parties in
executing the said Deed of Sale. The court
notes that at the time the transaction and the
Deed of Absolute Sale was executed by the
plaintiffs sometime in 1992, the prevailing
market value of the lot alone was
P400,000.00 per square meter such that the
lot alone consisting of 255 square meters,
excluding the house and improvements
thereon would already cost more than a
million pesos already hence, the
consideration of P600,000.00 in the said
Deed of Sale is considerably insufficient
compared to the value of the property.
Further, the plaintiffs are still in possession
of the subject property and had been paying
the realty taxes thereon even after the
execution of the sale and the transfer of the
title from the plaintiffs to defendant
Josephine Cruz which clearly evinces the
true badge of the transaction which occurred
between the plaintiffs and defendants as that
of an equitable mortgage and not an absolute
sale and that the plaintiffs were only
compelled to enter into the said transaction
of sale with the defendants as the former
were in extreme need of money in order to
redeem their only conjugal property and to
save it from being foreclosed for nonpayment of the mortgage obligation and that
it was never the intention of the plaintiffs to
sell the property to the defendants, as it was
their agreement that plaintiffs can redeem
the property or any member of the family
thereof, when they become financially
stable.4
The dispositive portion of the trial courts decision
thus provides:
WHEREFORE, in view of the foregoing,
judgment is hereby rendered in favor of the
plaintiffs and against the defendants,
ordering the latter jointly and severally, as
follows:

1. To reconvey the subject property

to the plaintiffs upon payment of the
price stipulated in the contract of
sale;
2. To pay plaintiffs the sum of
P50,000.00 as moral damages;
3. To pay plaintiffs the sum of
P50,000.00 as and by way of
attorneys fees plus P1,000.00 per
court appearance;
4. To pay the costs of suit.
SO ORDERED.5
The Court of Appeals reversed the above decision,
finding that private respondents were denied due
process by the refusal of the trial court to lift the
order of default against them, and that the
transaction between petitioners and Cruz was one of
absolute sale, not of equitable mortgage. It also held
the RTC decision to be constitutionally infirm for its
failure to clearly and distinctly state the facts and
the law on which it is based.
The Court of Appeals held that the reformation of
the Deeds of Absolute Sale in the instant case is
improper because there is no showing that such
instrument failed to express the true intention of the
parties by reason of mistake, fraud, inequitable
conduct, or accident in the execution thereof.6 To
the Court of Appeals, the transaction was
unmistakably a contract of sale, as evidenced by the
numerous supporting documents thereto, such as the
Contract to Sell dated June 1992, Affidavit of
Waiver/Assignment dated August 14, 1992, Receipt
of Partial Advance Payment dated September 9,
1992, and Transfer Certificate of Title No. 229891
issued in the name of private respondent Cruz.
Going over the indicators giving rise to a
presumption of equitable mortgage cited in the
decision of the RTC, the Court of Appeals held: (1)
inadequacy of price is material only in a sale with
right to repurchase, which is not the case with
herein petitioners and Cruz; moreover, the estimate
of the market value of the property came only from
the bare testimony of petitioner Octavio Lorbes, (2)
petitioners remaining in possession of the property
resulted only from their refusal to vacate the same
despite the lawful demands of private respondent

Cruz, and (3) there was no documentary evidence

that petitioners continued paying the taxes on the
disputed property after the execution of the Deed of
Absolute Sale.
In its decision, the Court of Appeals also pointed
out that under the usual arrangement of pacto de
retro the vendor of the property is a debtor of the
vendee, and the property is used as security for his
obligation. In the instant case, the mortgage
creditors (the Carloses) are third persons to the
Deed of Absolute Sale.
This petition raises three issues before the Court: (1)
whether respondent court erred in ruling that the
Deed of Absolute Sale dated October 21, 1992 was
an equitable mortgage, (2) whether respondent court
erred in ruling that by declaring private respondents
in default they were denied due process of law, and
(3) whether respondent court erred in ruling that the
trial courts decision violates the constitutional
requirement that it should clearly and distinctly
state the facts and the law on which it is based.7
We shall first deal with the second and third issues,
these being preliminary matters.
Well-settled is the rule that courts should be liberal
in setting aside orders of default for judgments of
default are frowned upon, unless in cases where it
clearly appears that the reopening of the case is
intended for delay.8 The issuance of orders of
default should be the exception rather than the rule,
to be allowed only in clear cases of obstinate refusal
by the defendant to comply with the orders of the
trial court.9
Under the factual milieu of this case, the RTC was
indeed remiss in denying private respondents
motion to lift the order of default and to strike out
the evidence presented by petitioners ex parte,
especially considering that an answer was filed,
though out of time. We thus sustain the holding of
the Court of Appeals that the default order of the
RTC was immoderate and in violation of private
respondents due process rights. However, we do
not think that the violation was of a degree as to
justify a remand of the proceedings to the trial
court, first, because such relief was not prayed for
by private respondents, and second, because the
affirmative defenses and evidence that private
respondents would have presented before the RTC

were capably ventilated before respondent court,

and were taken into account by the latter in
reviewing the correctness of the evaluation of
petitioners evidence by the RTC and ultimately, in
reversing the decision of the RTC. This is evident
from the discussions in the decision of the Court of
Appeals, which cited with approval a number of
private respondents arguments and evidence,
including the documents annexed to their opposition
to the issuance of a writ of preliminary injunction
filed with the RTC.10 To emphasize, the reversal of
respondent court was not simply on due process
grounds but on the merits, going into the issue of
whether the transaction was one of equitable
mortgage or of sale, and so we find that we can
properly take cognizance of the substantive issue in
this case, while of course bearing in mind the
inordinate manner by which the RTC issued its
default order.
As regards the third issue, we reverse for being
unfounded the holding of the Court of Appeals since
the RTC decision, some parts of which we even
reproduced in our earlier discussions, clearly
complied with the constitutional requirement to
state clearly and distinctly the facts and the law on
which it was based.
Thus, the one issue essential to the resolution of this
case is the nature of the transaction between
petitioners and private respondent Cruz concerning
the subject parcel of land. Did the parties intend for
the contested Deed of Absolute Sale to be a bona
fide and absolute conveyance of the property, or
merely an equitable mortgage?
On the outset, it must be emphasized that there is no
conclusive test to determine whether a deed
absolute on its face is really a simple loan
accommodation secured by a mortgage.11 "The
decisive factor in evaluating such agreement is the
intention of the parties, as shown not necessarily by
the terminology used in the contract but by all the
surrounding circumstances, such as the relative
situation of the parties at that time, the attitude, acts,
conduct, declarations of the parties, the negotiations
between them leading to the deed, and generally, all
pertinent facts having a tendency to fix and
determine the real nature of their design and
understanding. As such, documentary and parol
evidence may be submitted and admitted to prove
the intention of the parties."12

The conditions which give way to a presumption of

equitable mortgage, as set out in Article 1602 of the
Civil Code, apply with equal force to a contract
purporting to be one of absolute sale.13 Moreover,
the presence of even one of the circumstances laid
out in Article 1602, and not a concurrence of the
circumstances therein enumerated, suffices to
construe a contract of sale to be one of equitable
mortgage.14 This is simply in consonance with the
rule that the law favors the least transmission of
property rights.15
Thus, under Article 1602 of the Civil Code, a
contract shall be presumed to be an equitable
mortgage when --- (a) the price of a sale with right
to repurchase is unusually inadequate; (b) the
vendor remains in possession as lessee or otherwise;
(c) upon or after the expiration of the right of
repurchase another instrument extending the period
of redemption or granting a new period is executed;
(d) the purchaser retains for himself a part of the
purchase price; (e) the vendor binds himself to pay
the taxes on the thing sold; and, (f) in any other case
where it may be fairly inferred that the real
intention of the parties is that the transaction shall
secure the payment of a debt or the performance of
any other obligation.
Applying the foregoing considerations to the instant
case, the Court finds that the true intention between
the parties for executing the Deed of Absolute Sale
was not to convey ownership of the property in
question but merely to secure the housing loan of
Cruz, in which petitioners had a direct interest since
the proceeds thereof were to be immediately applied
to their outstanding mortgage obligation to the
Carloses.
It is not disputed that before the execution of the
Deed of Absolute Sale petitioners mortgage
obligation to the Carloses as nearing maturity and
they were in dire need of money to meet the same.
Hence, they asked for the help of their son-in-law
delos Reyes who in turn requested Cruz to take out
a housing loan with Land Bank. Since collateral is a
standard requirement of banks in giving out loans, it
was made to appear that the subject property was
sold to Cruz so she can declare the same as
collateral for the housing loan. This was simply in
line with the basic requirement in our laws that the
mortgagor be the absolute owner of the property
sought to be mortgaged.16 Consistent with their

agreement, as soon as the housing loan was

approved, the full amount of the proceeds were
immediately turned over to petitioners, who
promptly paid P500,000.00 therefrom to the
Carloses in full satisfaction of their mortgage
obligation. The balance was spent by petitioners in
transferring title to the property to Cruz and
registering the new mortgage with Land Bank.
Understandably, the Deed of Absolute Sale and its
supporting documents do not reflect the true
arrangement between the parties as to how the loan
proceeds are to be actually applied because it was
not the intention of the parties for these documents
to do so. The sole purpose for preparing these
documents was to satisfy Land Bank that the
requirement of collateral relative to Cruzs
application for a housing loan was met.
Were we to accept, as respondent court had, that the
loan that Cruz took out with Land Bank was indeed
a housing loan, then it is rather curious that Cruz
kept none of the loan proceeds but allowed for the
bulk thereof to be immediately applied to the
payment of petitioners outstanding mortgage
obligation. It also strains credulity that petitioners,
who were exhausting all means to save their sole
conjugal real property from being foreclosed by the
Carloses, would concurrently part with the same in
favor of Cruz.
Such urgent prospect of foreclosure helps to explain
why petitioners would subscribe to an agreement
like the Deed of Absolute Sale in the herein case,
which on its face represents their unconditional
relinquishment of ownership over their property.
Passing upon previous similar situations the Court
has declared that "while it was true that plaintiffs
were aware of the contents of the contracts, the
preponderance of the evidence showed however that
they signed knowing that said contracts did not
express their real intention, and if they did so
notwithstanding this, it was due to the urgent
necessity of obtaining funds. "Necessitous men are
not, truly speaking, free men; but to answer a
present emergency, will submit to any terms that the
crafty may impose upon them."17
The facts further bear out that petitioners remained
in possession of the disputed property after the
execution of the Deed of Absolute Sale and the
transfer of registered title to Cruz in October 1992.

Cruz made no demand on petitioners to vacate the

subject premises until March 19, 1994;18
interestingly, this was two days after petitioners
signified their intention to redeem the property by
paying the full amount of P600,000.00.19 On this
basis, the finding of respondent court that
petitioners remained in possession of the property
only because they refused to vacate on Cruzs
demand is not accurate because the records reflect
that no such demand was made until more than a
year since the purported sale of the property.
Copies of realty tax receipts attached to the record
also show that petitioners continued paying for the
taxes on the property for the period 1992 to 1994,20
or after the property was supposed to have been
sold to Cruz.
From the above, the Court is satisfied that enough
of the circumstances set out in Article 1602 of the
Civil Code are attendant in the instant case, as to
show that the true arrangement between petitioners
and private respondent Cruz was an equitable
mortgage.
That a transfer certificate of title was issued in favor
of private respondent Cruz also does not import
conclusive evidence of ownership or that the
agreement between the parties was one of sale. As
was stated in Oronce vs. Court of Appeals,21 citing
Macapinlac vs. Gutierrez Repide22:
xxx it must be borne in mind that the
equitable doctrine xxx to the effect that any
conveyance intended as security for a debt
will be held in effect to be a mortgage,
whether so actually expressed in the
instrument or not, operates regardless of the
form of the agreement chosen by the
contracting parties as the repository of their
will. Equity looks through the form and
considers the substance; and no kind of
engagement can be adopted which will
enable the parties to escape from the
equitable doctrine to which reference is
made. In other words, a conveyance of land,
accompanied by registration in the name of
the transferee and the issuance of a new
certificate, is no more secured from the
operation of the equitable doctrine than the
most informal conveyance that could be
devised.

Before we fully set aside this issue, it will be

recalled that the instant petition originated as a
complaint for reformation filed before the RTC of
Antipolo, Rizal. The Court of Appeals found
petitioners action for reformation unmeritorious
because there was no showing that the failure of the
deed of sale to express the parties true intention
was because of mistake, fraud, inequitable conduct,
or accident.23 Indeed, under the facts of the present
case, reformation may not be proper for failure to
fully meet the requisites in Article 1359 of the Civil
Code, and because as the evidence eventually bore
out the contested Deed of Absolute Sale was not
intended to reflect the true agreement between the
parties but was merely to comply with the collateral
requirements of Land Bank. However, the fact that
the complaint filed by petitioners before the trial
court was categorized to be one for reformation of
instrument should not preclude the Court from
passing upon the issue of whether the transaction
was in fact an equitable mortgage as the same has
been squarely raised in the complaint and had been
the subject of arguments and evidence of the
parties. Thus we have held that it is not the caption
of the pleading but the allegations therein that
determine the nature of the action, and the Court
shall grant relief warranted by the allegations and
the proof even if no such relief is prayed for.24
Finally, on the award of damages. Considering the
due process flaws that attended the default
judgment of the RTC, and applying the rule adopted
by this Court that in instances where no actual
damages are adjudicated the awards for moral and
exemplary damages may be reduced,25 we reduce
the award for moral damages in the instant case
from P50,000.00 to P30,000.00. At the same time,
we sustain the award of attorneys fees in the
amount of P50,000.00, it being clear that petitioners
were compelled to incur expenses and undergo the
rigors of litigation to recover their
property.1wphi1.nt
WHEREFORE, the decision of the Court of
Appeals is REVERSED and SET ASIDE. The
decision of the Regional Trial Court of Antipolo,
Rizal is REINSTATED, with the
MODIFICATION that the award of moral
damages is reduced to P30,000.00, and in all other
respects AFFIRMED. Costs against private
respondents.

SO ORDERED.
Melo, Vitug, Panganiban, and Sandoval-Gutierrez,
JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 123555 January 22, 1999

PROGRESSIVE DEVELOPMENT
CORPORATION, INC., petitioner,
vs.
COURT OF APPEALS and WESTIN
SEAFOOD MARKET, INC. respondents.

BELLOSILLO, J.:
May the lessee which instituted before the
Metropolitan Trial Court an action for forcible
entry with damages against its lessor file a
separate suit with the Regional Trial Court
against the same lessor for moral and
exemplary damages plus actual and
compensatory damages based on the same
forcible entry?
On grounds of litis pendencia and forumshopping petitioner invokes established
jurisprudence that a party cannot by varying
the form of action or adopting a different
method of presenting his case evade the
principle that the same cause of action shall
not be litigated twice between the same parties
or their privies. 1 Petitioner therefore prays for
reversal of the decision of the Court of Appeals dated 27
May 1995, as well as its Resolution dated 17 January
1996 denying reconsideration, which upheld the denial
by the Regional Trial Court of petitioner's motion to
dismiss private respondent's damage suit.
The antecedents: On 27 May 1991 petitioner leased to
private, respondent Westin Seafood Market, Inc., a
parcel of land with a commercial building thereon located
at Aranet Center, Cubao, Quezon City, for a period of
nine (9) years and three (3) months, i.e., from 2 January

1989 to 30 April 1998, with a monhtly rental of

approximately P600,000.00. The contract contained,
among others, the following pertinent terms and
conditions:
EFFECT OF VIOLATIONS
25. LESSEE hereby agrees that all the
provisions contained in this Contract
shall be deemed as conditions, as-well
as covenants, and that this Contract
shall be automatically terminated and
cancelled without resorting to court
action should LESSEE violate any or all
said conditions, including the payment
of Rent, CUSA and other charges
indicated in the FLP when due within the
time herein stipulated and in any such
cases, LESSEE hereby irrevocably
appoints LESSOR, its authorized
agents, employees and/or
representatives as his duly authorized
attorney-in-fact, even after the
termination, expiration or cancellation of
this Contract, with full power and
authority to open, enter, repossess,
secure, enclose, fence and otherwise
take full and complete physical
possession and control of the leased
premises and its contents without
resorting to court action and/or to
summarily disconnect electrical and/or
water services thereof, and that
LESSEE hereby irrevocably empowers
LESSOR, his authorized agents,
employees and/or representatives to
take inventory and possession of
whatever equipment, furniture, articles,
merchandise, appliances, etc., found
therein belonging to LESSEE,
consignors and/or to any other persons
and to place the same in LESSOR's
warehouse or any other place at
LESSOR's discretion for safekeeping;
charging LESSEE the corresponding
storage fees therefor; that in case
LESSEE fails to claim-said equipment,
furniture, articles, merchandise,
appliances, etc. from storage and
simultaneously liquidate any liability with
LESSOR within seven (7) days from
date of said transfer to LESSOR's
warehouse, LESSOR is likewise hereby
expressly authorized and empowered by
LESSEE to dispose of said
property/properties in a public sale
through a Notary Public of LESSOR's
choice and to apply the proceeds
thereof to whatever liability and/or
indebtedness LESSEE may have to
LESSOR plus reasonable expenses for
the same, including storage fees, and

the balance, if any, shall be turned over

to LESSEE; that LESSEE hereby
expressly agrees that any or all acts
performed by LESSOR, his authorized
agents, employees and/or
representatives under the provisions of
this Section may not be the subject of
any petition for a Writ of Preliminary
Injunction or Mandatory Injunction in
court, and that LESSOR and/or his
authorized agents, employees, and/or
representatives shall be free from any
civil and/or criminal liability or
responsibility whatsoever therefor.
TERMINATION OF LEASE
26. Upon-the automatic termination of
this lease contract, as the case may be,
LESSEE shall immediately vacate and
redeliver physical possession of the
leased premises, including the keys
appertaining thereto, to LESSOR in
good, clean and sanitary condition,
reasonable wear and tear excepted,
devoid of all occupants,. equipment,
furnitures articles, merchandise, etc.,
belonging to LESSEE or to any other
person except those belonging to
LESSOR; that should LESSEE fail to
comply with this provision, LESSOR is
hereby given the same rights and power
to proceed against LESSEE as
expressly granted in the immediately;
preceding section.
Private respondent failed to pay rentals despite several
demands by petitioner. As of 19 October 1992 the
arrearages amounted to P8,608,284.66. Admittedly, nonpayment of rentals constituted breach of their contract;
thus, pursuant to the express authority granted petitioner
under the above-quoted Secs. 25 and 26 of the lease
agreement, petitioner on 31 October 1992 repossessed
the leased premises, inventoried the movable properties
found within and owned by private respondent and
scheduled public auction for the sale of the movables on
19 August 1993 with notice to private respondent.
On 26 November 1992 private respondent filed with the
Metropolitan Trial Court of Quezon City a complaint
against petitioner for forcible entry with damages and a
prayer for a temporary restraining order and/or writ of
preliminary injunction. 2 The case was raffled to Branch
40 presided over by Judge Guillermo L. Loja Jr. who
issued a temporary restraining order enjoining petitioner
from selling private respondent's properties at a public
auction.
On 9 December 1992 Judge Loja inhibited himself from
trying the case and directed its transfer to Branch 34
presided over by Judge Joselito SD Generoso. Soon

after, petitioner filed an urgent motion for the inhibition of

Judge Generoso and the immediate reraffle of the case
arguing that the summary transfer of the case to Judge
Generoso was irregular as it was not done by raffle.
The motion was granted and the case went to Branch 36
presided over by Judge Francisco D. Villanueva.
Thereafter, on 22 December 1992, at the continuation of
the hearing on the issuance of a writ preliminary
mandatory injunction, the parties agreed, among others,
on the following: (a) private respondent would deposit
with the Philippine Commercial and Industrial Bank in
the name of the Metropolitan Trial Court, Branch 36, the
amount of P8,000,000.00 to guarantee the payment of
its back rentals; (b) petitioner would defer the sale of the
personal properties of the Westin Seafood Market, Inc.,
until a final settlement of the case had been arrived, at;
(c) petitioner shall allow private respondent to retrieve all
the perishable goods from inside the leased premises
like frozen meat, vegetables and fish, all properly
receipted for; (d) petitioner shall allow three (3)
maintenance personnel of private respondent to enter
the premises at reasonable working hours to maintain
the restaurant equipment; and (e) the parties shall
negotiate for the restoration of the premises to private
respondent, and if no settlement be arrived at on or
before January 8, 1993, the hearing on the merits of the
case shall proceed and the disposition of the amount
deposited representing the rental arrearages shall be left
to the. discretion of the court.
This agreement was incorporated in the order of the
court dated 22 December 1992 3 which in effect
terminated for all intents and purposes the incident on
the issuance of a preliminary writ of injunction.
Private respondent did not comply with its undertaking to
deposit with the designated bank the amount
representing its back rentals. Instead, with the forcible
entry case still pending with the MeTC, private
respondent instituted on 9 June 1993 another action for
damages against petitioner with the Regional Trial Court
of Quezon City. The case was raffled to Branch 101
presided over by Judge Pedro T. Santiago. 4
Petitioner filed a motion, to dismiss the damage suit on
the ground of litis pendencia and forum shopping. On 2
July 1993, instead of ruling on the motion, Judge
Santiago issued an order archiving the case pending the
outcome of the forcible entry case being heard at the
MeTC for the reason that "the damages is (sic)
principally anchored on whether or not the defendants
(petitioner herein) have committed forcible entry." 5 On 2
August 1993 petitioner moved for reconsideration of the
order and reiterated its motion to dismiss the suit for
damages.
Before petitioner's motion to dismiss could be resolved,
private respondent filed with the RTC on 18 August 1993
an amended complaint for damages. On 14 September
1993 it also filed an Urgent Ex-Parte Motion for the

Issuance of a Temporary Restraining Order and Motion

for the Grant of a Preliminary Prohibitory and
Preliminary Mandatory Injunction. On the very same day,
Judge Santiago issued an order (a) denying petitioner's
motion to dismiss, (b) admitting private respondent's
amended complaint, and (c) granting private
respondent's application for a temporary restraining
order against petitioner.
Thus, petitioner filed with the Court of Appeals a special
civil action for certiorari and prohibition on the ground
that Judge Santjago acted in excess of his jurisdiction
and/or committed grave abuse of discretion amounting
to lack of jurisdiction in admitting, the amended
complaint of private respondent and issuing a restraining
order against petitioner; in allowing private respondent to
engage in forum shopping; and, taking cognizance of the
action; for damages despite lack of jurisdiction. 6
But the Court of Appeals dismissed the petition due to
the failure of petitioner to file a motion for
reconsideration of Judge Santiago's order of 14
September 1993 which, it explained, was a prerequisite
to the institution of a petition for certiorari and prohibition.
It also found that the elements of litis pendencia were
lacking to justify the dismissal of the action for damages
with the RTC because despite the pendency of the
forcible entry case with the MeTC the only damages
recoverable thereat were those caused by the loss of the
use and occupation of the property and not the kind of
damages being claimed before the RTC which had no
direct relation to loss of material possession. It clarified
that since the damages prayed for in the amended
complaint with the RTC were those caused by the
alleged high-handed manner with which petitioner
reacquired possession of the leased premises and the
sale of private respondent's movables found therein, the
RTC and not the MeTC had jurisdiction over the action
of damages. 7
Petitioner, aggrieved by the decision of the appellate
court, filed the instant petition for review on certiorari
under Rule 45 of the Rules of Court alleging that it erred
in (a) finding that petitioner failed to avail of its plain,
speedy and adequate remedy of a prior motion for
reconsideration with the RTC; (b) ruling that, the trial
judge did not act with grave abuse of discretion in taking
cognizance of the action for damages and injunction
despite the pendency of the forcible entry case with the
MeTC; and, (c) ruling that private respondent did not
commit forum shopping since the causes of action
before the RTC and MeTC were not identical with each
other.
There is merit in the petition. While generally a motion
for reconsideration must first be filed before resorting to
certiorari in order to give the lower court an opportunity
to correct the errors imputed to it 8 this rule admits of
exceptions and is not intended to be applied without
considering the circumstances of the case. 9 The filing of
the motion for reconsideration before availing of the

remedy of certiorari is not sine qua non when the issue

raised is one purely of law, 10 or where the error is patent
or the disputed order is void, 11 or the questions raised
on certiorari are the same as those already squarely
presented to and passed upon by the lower court
In its motion for dismissal of the action for damages with
the RTC petitioner raised the ground that another action
for forcible entry was pending at the MeTC between the
same parties involving the same matter and cause of
action. Outrightly rejected by the RTC, the same issue
was elevated by petitioner on certiorari before the Court
of Appeals. Clearly, under the prevailing circumstance,
any motion for reconsideration of the trial court would
have been a pointless exercise. 12
We now turn to the issue of whether an action for
damages filed with the Regional Trial Court by the
lessee against the lessor should be dismissed on the
ground of pendency of another action for forcible entry
and damages earlier filed by the same lessee against
the same lessor before the Metropolitan Trial Court.
Sec. 1 of Rule 70 of the Rules of Court provides that any
person deprived of the possession of any land or
building by force, indimidation, threat, strategy or stealth,
or against whom thepossession of any land or building is
unlawfully withheld, may bring an action in the proper
Municipal Trial Court against the person or persons
unlawfully withholding or depriving of possession,
together with damages and costs. The mandate under
this rule is categorical: that all cases for forcible entry or
unlawful detainer shall be filed before the Municipal Trial
Court which shall include not only the plea for restoration
of possession but also all claims for damages and costs
arising therefrom. Otherwise expressed, no claim for
damages arising out of forcible entry or unlawful detainer
may be filed separately and independently of the claim
for restoration of possession.
This is consistent with the principle laid down in Sec. 1,
par. (e), of Rule 16 of the Rules of Court which states
that the pendency of another action between the same
parties for the same cause is a ground for dismissal of
an action. Res adjudicata requires that there must be
between the action sought to be dismissed and the other
action the following elements: (a) identity of parties or at
least such as representing the same interest in both
actions; (b) identity of rights asserted and relief prayed
for, the relief being founded on the same facts; and, (c)
the identity in the two (2) preceding particulars should be
such that any judgment which may be rendered on the
other action will, regardless of which party is successful,
amount to res adjudicata in the action under
consideration. 13
It is likewise basic under Sec. 3 of Rule 2 of the Revised
Rules of Court, as amended, that a party may not
institute more than one suit for a single cause of action.
Under Sec. 4 of the same Rule, if two or more suits are
instituted on the basis of the same cause of action, the

filing of one or a judgment upon the merits in any one is

available as a ground for the dismissal of the other or
others. "Cause of action" is defined by Sec. 2 of Rule 2
as the act of omission by which a party violates a right of
another. 14 These premises obtaining, there is no
question at all that private respondent's cause of action
in the forcible entry case and in the suit for damages is
the alleged illegal retaking of possession of the leased
premises by the lessor, petitioner herein, from which all
legal reliefs arise. Simply stated, the restoration of
possession and demand for actual damages in the case
before the MeTC and the demand for damages with the
RTC both arise from the same cause of action, i.e., the
forcible entry by petitioner into the least premises.
A comparative study of the two (2) complaints filed by
private respondent against petitioner before the two (2)
trial courts shows that not only are the elements of res
adjudicata present, at least insofar as the claim for
actual and compensatory damages is concerned, but
also that the claim for damages moral and exemplary
in addition to actual and compensatory constitutes
splitting a single cause of action. Since this runs counter
to the rule against multiplicity of suits, the dismissal of
the second action becomes imperative.
The complaint for forcible entry contains the following
pertinent allegations
2.01 On 02 January 1989, plaintiff
entered, into a contract of lease with
defendant PDC over a property
designated as Ground Floor, Seafood
Market (hereinafter "Subject Premises")
situated at the corner of EDSA, corner
MacArthur Street, Araneta Center,
Cubao, Quezon City, for a period of ten
(10) years from 02 January 1989 to 30
April 1998.

maintain possession thereof through the

use of force, threat, strategy and
intimidation by the use of superior
number of men and arms amounts to
the taking of the law into their own
hands.
3.04 Thus, defendants' act of unlawfully
evicting out plaintiff from the Subject
Premises it is leasing from defendant
PDC and depriving it of possession
thereof through the use of force, threat,
strategy and intimidation should be
condemned and declared illegal for
being contrary; to public order and
policy.
3.05 Consequently, defendants should
be enjoined from continuing with their
illegal acts and be ordered to vacate the
Subject Premises and restore
possession thereof, together with its
contents, to plaintiff.
xxx xxx xxx
4.07 Considering that defendants' act of
forcibly grabbing possession of the
Subject Premises from plaintiff is illegal
and null and void, defendant should be
adjudged liable to plaintiff for all the
aforedescribed damages which plaintiff
incurred as a result thereof.
The amended complaint for damages filed by private
respondent alleges basically the same factual
circumstances and issues as bases for the relief prayed
for, to wit:

xxx xxx xxx

4. On May 28, 1991, plaintiff and

defendant PDC entered into a Contract
of Lease for a period of ten years or
from January 2, 1989 up to April 30,
1998 over a property designated as
Ground Floor, Seafood Market
(hereinafter referred to as Subject
Premises) situated at the corner of
EDSA corner McArthur Street, Araneta
Center, Cubao, Quezon City. A copy of
the lease contract is attached hereto as
Annex "A".

3.02 Plaintiff, being the lessee of the

Subject Premises, is entitled to the
peaceful occupation and enjoyment of
the Subject Premises to the exclusion of
all others, including defendants herein.

5. Immediately thereafter, plaintiff took

over actual physical possession of
Subject Premises, and established
thereon the now famous "Seafood
Market Restaurant."

2.02 Immediately after having acquired

actual physical possession of the
Subject Premises, plaintiff established
and now operates thereon the now
famous Seafood Market Restaurant.
Since then, plaintiff had been in actual,
continuous, and peaceful physical
possession of the Subject Premises until
31 October 1992.

3.03 Defendants' resort to strong arms

tactics to forcibly wrest possession of
the Subject Premises from plaintiff and

xxx xxx xxx

7 On October 31, 1992 at around 8:30

p.m., defendant PDC, without the
benefit of any writ of possession or any
lawful court order and with the aid of
approximately forty (40) armed security
guards and policemen under the
supervision of defendant Tejam, forcibly
entered the subject premises through
force, intimidation, threats and stealth
and relying on brute force and in a
thunderboltish manner and against
plaintiff's will, unceremoniously drew
away all of plaintiff's men out of the
subject premises, thereby depriving
herein plaintiff of its actual, physical and
natural possession of the subject
premises. The illegal, high-handed
manner and gestapo like take-over by
defendants of subject premises is more
particularly described as follows: . . .
8. To date, defendants continue to
illegally possess and hold the Subject
Premises, including all the multi-million
improvements, fixtures and equipment
therein owned by plaintiff, all to the
damage and prejudice of plaintiff. The
actuations of defendants constitute an
unlawful appropriation, seizure and
taking of property against the will and
consent of plaintiff. Worse, defendants
are threatening to sell at public auction
and without the consent of plaintiff and
without lawful authority, the multi-million
fixtures and equipment of plaintiff and at
prices way below the market value
thereof. Plaintiff hereby attaches as
Annex "B" the letter from defendants
dated August 6, 1993 addressed to
plaintiff, informing the latter that the
former intends to sell at an auction on
August 19, 1993 at 2:00 p.m. properties
of the plaintiff presently in defendants'
possession.
xxx xxx xxx
12. Defendants' unlawful takeover of the
premises constitutes a violation of its
obligation under Art. 1654 of the New
Civil Code requiring the lessor to
maintain the lessee in peaceful and
adequate enjoyment of the lease for the
entire duration of the contract. Hence,
plaintiff has filed the present suit for the
recovery of damages under Art. 1659 of
the New Civil Code. . . .
Restated in its bare essentials, the forcible entry case
has one cause of action, namely, the alleged unlawful
entry by petitioner into the leased premises out of which

three (3) reliefs (denominated by private respondent as

is causes of action) arose: (a) the restoration by the
lessor (petitioner herein) of the possession of the leased
premises to the lessee; (b) the claim for actual damages
due to the losses suffered by private respondent such as
the deterioration of perishable foodstuff stored inside the
premises and the deprivation of the use of the premises
causing loss of expected profits; and, (c) the claim for
attoney's fees and cost of suit.
On the other hand, the complaint for damages prays for
a monetary award consisting of (a) moral damages of
P500,000.00 and exemplary damages of another
P500,000.00; (b) actual damages of P20,000,000.00 and
compensatory damages of P1,000,000.00 representing
unrealized profits; and, (c) P200,000.00 for attorney's
fees and costs, all based on the alleged forcible takeover
of the leased premises by petitioner. Since actual and
compensatory damages were already prayed for in the
forcible entry case before the MeTC, it is obvious that
this cannot be relitigated in the damage suit before the
RTC by reason of res adjudicata.
The other claims for moral and exemplary damages
cannot also succeed considering that these sprung from
the main incident being heard before the MeTC.
Jurisprudence is unequivocal that when a single delict or
wrong is committed like the unlawful taking or
detention of the property of the another there is but
one single cause of action regardless of the number of
rights that may have been violated, and all such rights
should be alleged in a single complaint as constituting
one single cause of action. 15 In a forcible entry case, the
real issue is the physical possession of the real property.
The question of damages is merely secondary or
incidental, so much so that the amount thereof does not
affect the jurisdiction of the court. In other words, the
unlawful act of a deforciant in taking possession of a
piece of land by means of force and intimidation against
the rights of the party actually in possession thereof is a
delict or wrong, or a cause of action that gives rise to two
(2) remedies, namely, the recovery of possession and
recovery of damages arising from the loss of
possession, but only to one action. For obvious reasons,
both remedies cannot be the subject of two (2) separate
and independent actions, one for recovery of
posssession only, and the other, for the recovery of
damages. That would inevitably lead to what is termed in
law as splitting up a cause of action. 16 In David v. de la
Cruz 17 we observed
Herein tenants have but one cause of
action against their landlord, their illegal
ejectment or removal from their
landholdings, which cause of action
however entitles them to two (2) claims
or remedies for reinstatement of
damages. As both claims arise from the
same cause of action, they should be
alleged in a single complaint.

A claim cannot be divided in such a way that a part of

the amount of damages may be recovered in one case
and the rest, in another. 18 In Bacharach v. Icarangal 19
we explained that the rule was aimed at preventing
repeated litigations betweent the same parties in regard
to the same subject of the controversy and to protect the
defendant from unnecessary vexation. Nemo debet bis
vexari pro una et eadem causa.
What then is the effect of the dismissal of the other
action? Since the rule is that all such rights should be
alleged in a single complaint, it goes without saying that
those not therein included cannot be the subject of
subsequent complaints for they are barred forever. 20 If a
suit is brought for a part of a claim, a judgment obtained
in that action precludes the plaintiff from bringing a
second action for the residue of the claim,
notwithstanding that the second form of action is not
identical with the first or different grounds for relief are
set for the second suit. This principle not only embraces
what was actually determined, but also extends to every
matter which the parties might have litigated in the case.
21
This is why the legal basis upon which private
respondent anchored its second claim for damages, i.e.,
Art. 1659 in relation to Art. 1654 of the Civil Code, 22 not
otherwise raised and cited by private respondent in the
forcible entry case, cannot be used as justification for the
second suit for damages. We note, not without some
degree of displeasure, that by filing a second suit for
damages, private respondent was not only able to press
a claim for moral and exemplary damages which by its
failure to allege the same in its suit before the MeTC
foreclosed its right to sue on it, but it was also able to
obtain from the RTC, by way of another temporary
restraining order, a second reprieve from an impending
public auction sale of its movables which could not
anymore secure from the MeTC before which the matter
of the issuance of a preliminary writ of injunction was
already closed.
The foregoing discussions provide sufficient basis to
petitioner's charge that private respondent and its
counsel in the trial courts committed forum shopping. In
Crisostomo v. Securities and Exchange Commission 23
we ruled
There is forum-shopping whenever, as a
result of an adverse opinion in one
forum, party seeks a favorable opinion
(other than by appeal or certiorari) in
another. The principle applies . . . with
respect to suits filed in the courts . . . in
connection with litigations commenced
in the court . . . in anticipation of an
unfavorable . . . ruling and a favorable
case where the court in which the
second suit was brought, has no
jurisdiction.
This Court likewise elucidated in New Pangasinan
Review, Inc. v. National Labor Relations Commission

24

that there is forum-shopping when the actions involve

the same transactions, the same essential facts and
circumstances. The reason behind the proscription of
forum shopping is obvious. This unnecessarily burdens
our courts with heavy caseloads, unduly taxes the
manpower and financial resources of the judiciary and
trifles with and mocks our judicial processes, thereby
adversely affecting the efficient administration of justice.
This condemnable conduct has prompted the Court to
issue circulars 25 ordering among others that a violation
thereof shall be cause for the dismissal of the case or
cases without prejudice to the taking of appropriate
action against the counsel or party concerned.
The records ineluctably show that the complaint lodged,
by private respondent with the Regional Trial Court of
Quezon City contained no certification of non-forum
shopping. When petitioner filed a motion to dismiss the
case raising among others the ground of forum shopping
it pointed out the absence of the required certification.
The amended complaint, as well as the second and third
amended complaints, attempted to rectify the error by
invariably stating that there was no other action pending
between the parties involving the same causes of action
although there was actually a forcible entry case pending
before the MTC of Quezon City. By its admission of a
pending forcible entry case, it is obvious that private
respondent was indulging in forum shopping. While
private respondent conveniently failed to inform the RTC
that it had likewise sought damages in the MTC on the
basis of the same forcible entry, the fact remains that it
precisely did so, which stratagem was being duplicated
in the second case. This is a compelling reason to
dismiss the second case.
WHEREFORE, the Petition is GRANTED. The
questioned Decision of the Court of Appeals dated 27
September 1995 and the Order of the Regional Trial
Court of Quezon City dated 24 September 1993 are
REVERSED and SET ASIDE. The Regional Trial Court
of Quezon City is directed to dismiss Civil Case No. Q93-16409, "Westin Seafood Market, Inc. v. Progressive
Development Corporation, et al.," and the Metropolitan
Trial Court of Quezon City to proceed with the proper
disposition of Civil Case No. 6589, "Westin Seafood
Market, Inc. v. Progressive Development Corporation, et
al.," with dispacth considering the summary nature of the
case. Treble costs against private
respondent.1wphi1.nt
SO ORDERED.