LIVING @ SENSE, INC.
, Petitioner,
vs.
MALAYAN INSURANCE COMPANY, INC., Respondent.
RESOLUTION
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari assails, on pure question of law, the Orders dated
April 8, 20101 and August 25, 20102 of the Regional Trial Court (RTC) of Parafiaque City,
Branch 257 dismissing, without prejudice, the complaint for specific performance and
breach of contract filed by petitioner Living @ Sense, Inc. (petitioner) for failure to
implead Dou Mac, Inc. (DMI) as an indispensable party.
The Factual Antecedents
Records show that petitioner was the main contractor of the FOC Network Project of
Globe Telecom in Mindanao. In connection with the project, petitioner entered into a
Sub-Contract Agreement3 (Agreement) with DMI, under which the latter was tasked to
undertake an underground open-trench work. Petitioner required DMI to give a bond,
in the event that DMI fails to perform its obligations under the Agreement. Thus, DMI
secured surety4 and performance5 bonds, both in the amount of ₱ 5,171,488.00, from
respondent Malayan Insurance Company, Inc. (respondent) to answer: (1) for the
unliquidated portion of the downpayment, and (2) for the loss and damage that
petitioner may suffer, respectively, should DMI fail to perform its obligations under the
Agreement. Under the bonds, respondent bound itself jointly and severally liable with
DMI.6
During the course of excavation and restoration works, the Department of Public Works
and Highways (DPWH) issued a work-stoppage order against DMI after finding the
latter’s work unsatisfactory. Notwithstanding the said order, however, DMI still failed to
adopt corrective measures, prompting petitioner to terminate7 the Agreement and
seek8 indemnification from respondent in the total amount of ₱ 1,040,895.34.
However, respondent effectively denied9 petitioner’s claim on the ground that the
liability of its principal, DMI, should first be ascertained before its own liability as a surety
attaches. Hence, the instant complaint, premised on respondent’s liability under the
surety and performance bonds secured by DMI.
Seeking the dismissal10 of the complaint, respondent claimed that DMI is an
indispensable party that should be impleaded and whose liability should first be
determined before respondent can be held liable.
1
On the other hand, petitioner asserted11 that respondent is a surety who is directly and
primarily liable to indemnify petitioner, and that the bond is "callable on demand"12 in
the event DMI fails to perform its obligations under the Agreement.
The RTC’s Ruling
In its April 8, 2010 Order,13 the RTC dismissed the complaint without prejudice, for failure
to implead DMI as a party defendant. It ruled that before respondent could be held
liable on the surety and performance bonds, it must first be established that DMI, with
whom petitioner had originally contracted, had indeed violated the Agreement. DMI,
therefore, is an indispensable party that must be impleaded in the instant suit.
On August 25, 2010, the RTC denied14 petitioner’s motion for reconsideration for failure
to set the same for hearing as required under the rules.
The Issue Before The Court
The sole issue to be resolved by the Court is whether DMI is an indispensable party in this
case.
The Court's Ruling
Petitioner maintains that the rule on solidary obligations permits it, as creditor, to
proceed against any of the solidary debtors, citing Article 1216 of the Civil Code which
provides:
Article 1216. The creditor may proceed against any one of the solidary debtors or some
or all of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as
the debt has not been fully collected.
The petition is meritorious.
Records show that when DMI secured the surety and performance bonds from
respondent in compliance with petitioner’s requirement, respondent bound itself "jointly
and severally" with DMI for the damages and actual loss that petitioner may suffer
should DMI fail to perform its obligations under the Agreement, as follows:
That we, DOU MAC INC. as Principal, and MALAYAN INSURANCE CO., INC., x xx are held
firmly bound unto LIVING @ SENSE INC. in the sum of FIVE MILLION ONE HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED EIGHTY EIGHT AND 00/100 PESOS ONLY (PHP
***5,171,488.00), PHILIPPINE Currency, for the payment of which sum, well and truly to be
made, we bind ourselves, our heirs, executors, administrators, successors and assigns,
jointly and severally, firmly by these presents xxx15 (Emphasis Supplied)
The term "jointly and severally" expresses a solidary obligation16 granting petitioner, as
creditor, the right to proceed against its debtors, i.e., respondent or DMI.
The nature of the solidary obligation under the surety does not make one an
indispensable party.17 An indispensable party is a party-in-interest without whom no
final determination can be had of an action, and who shall be joined mandatorily either
as plaintiffs or defendants. The presence of indispensable parties is necessary to vest the
court with jurisdiction, thus, without their presence to a suit or proceeding, the judgment
of a court cannot attain real finality. The absence of an indispensable party renders all
subsequent actions of the court null and void for want of authority to act, not only as to
the absent parties but even as to those present.18
In this case, DMI is not an indispensable party because petitioner can claim indemnity
directly from respondent, having made itself jointly and severally liable with DMI for the
obligation under the bonds. Therefore, the failure to implead DMI is not a ground to
dismiss the case, even if the same was without prejudice.1âwphi1
Moreover, even on the assumption that DMI was, indeed, an indispensable party, the
RTC committed reversible error in dismissing the complaint. Failure to implead an
indispensable party is not a ground for the dismissal of an action, as the remedy in such
case is to implead the party claimed to be indispensable, considering that parties may
be added by order of the court, on motion of the party or on its own initiative at any
stage of the action.19
Accordingly, the Court finds that the RTC erred in holding that DMI Is an indispensable
party and, consequently, in dismissing the complaint filed by petitioner without
prejudice.
WHEREFORE, the assailed April 8, 2010 and August 25, 2010 Orders of the Regional Trial
Court (RTC) of Parañaque City, Branch 257 are hereby SET ASIDE. Petitioner's complaint
is ordered REINSTATED and the case remanded to the RTC for further proceedings.
SO ORDERED.
Hermana R. Cerezo, petitioner, vs. David Tuazon, respondent.
DECISION
2
CARPIO, J.:
The Case
This is a petition for review on certiorari[1] to annul the Resolution[2] dated 21 October
1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well as its Resolution dated 20
January 2000 denying the motion for reconsideration. The Court of Appeals denied the
petition for annulment of the Decision[3] dated 30 May 1995 rendered by the Regional
Trial Court of Angeles City, Branch 56 (trial court), in Civil Case No. 7415. The trial court
ordered petitioner Hermana R. Cerezo (Mrs. Cerezo) to pay respondent David Tuazon
(Tuazon) actual damages, loss of earnings, moral damages, and costs of suit.
Antecedent Facts
Around noontime of 26 June 1993, a Country Bus Lines passenger bus with plate number
NYA 241 collided with a tricycle bearing plate number TC RV 126 along Captain M. Palo
Street, Sta. Ines, Mabalacat, Pampanga. On 1 October 1993, tricycle driver Tuazon filed
a complaint for damages against Mrs. Cerezo, as owner of the bus line, her husband
Attorney Juan Cerezo (Atty. Cerezo), and bus driver Danilo A. Foronda (Foronda). The
complaint alleged that:
7. At the time of the incident, plaintiff [Tuazon] was in his proper lane when the second-
named defendant [Foronda], being then the driver and person in charge of the Country
Bus with plate number NYA 241, did then and there willfully, unlawfully, and feloniously
operate the said motor vehicle in a negligent, careless, and imprudent manner without
due regard to traffic rules and regulations, there being a Slow Down sign near the scene
of the incident, and without taking the necessary precaution to prevent loss of lives or
injuries, his negligence, carelessness and imprudence resulted to severe damage to the
tricycle and serious physical injuries to plaintiff thus making him unable to walk and
becoming disabled, with his thumb and middle finger on the left hand being cut[.][4]
On 1 October 1993, Tuazon filed a motion to litigate as a pauper. Subsequently, the trial
court issued summons against Atty. Cerezo and Mrs. Cerezo (the Cerezo spouses) at the
Makati address stated in the complaint. However, the summons was returned unserved
on 10 November 1993 as the Cerezo spouses no longer held office nor resided in Makati.
On 18 April 1994, the trial court issued alias summons against the Cerezo spouses at their
address in Barangay Sta. Maria, Camiling, Tarlac. The alias summons and a copy of the
complaint were finally served on 20 April 1994 at the office of Atty. Cerezo, who was
then working as Tarlac Provincial Prosecutor. Atty. Cerezo reacted angrily on learning of
the service of summons upon his person. Atty. Cerezo allegedly told Sheriff William
Canlas: Punyeta, ano ang gusto mong mangyari? Gusto mong hindi ka makalabas ng
buhay dito? Teritoryo ko ito. Wala ka sa teritoryo mo.[5]
The records show that the Cerezo spouses participated in the proceedings before the
trial court. The Cerezo spouses filed a comment with motion for bill of particulars dated
29 April 1994 and a reply to opposition to comment with motion dated 13 June 1994.[6]
On 1 August 1994, the trial court issued an order directing the Cerezo spouses to file a
comment to the opposition to the bill of particulars. Atty. Elpidio B. Valera (Atty. Valera)
of Valera and Valera Law Offices appeared on behalf of the Cerezo spouses. On 29
August 1994, Atty. Valera filed an urgent ex-parte motion praying for the resolution of
Tuazons motion to litigate as a pauper and for the issuance of new summons on the
Cerezo spouses to satisfy proper service in accordance with the Rules of Court.[7]
On 30 August 1994, the trial court issued an order resolving Tuazons motion to litigate as
a pauper and the Cerezo spouses urgent ex-parte motion. The order reads:
At the hearing on August 30, 1994, the plaintiff [Tuazon] testified that he is presently
jobless; that at the time of the filing of this case, his son who is working in Malaysia helps
him and sends him once in a while P300.00 a month, and that he does not have any
real property. Attached to the Motion to Litigate as Pauper are his Affidavit that he is
unemployed; a Certification by the Barangay Captain of his poblacion that his income
is not enough for his familys subsistence; and a Certification by the Office of the
Municipal Assessor that he has no landholding in the Municipality of Mabalacat,
Province of Pampanga.
The Court is satisfied from the unrebutted testimony of the plaintiff that he is entitled to
prosecute his complaint in this case as a pauper under existing rules.
On the other hand, the Court denies the prayer in the Appearance and Urgent Ex-Parte
Motion requiring new summons to be served to the defendants. The Court is of the
opinion that any infirmity in the service of the summons to the defendant before plaintiff
was allowed to prosecute his complaint in this case as a pauper has been cured by this
Order.
If within 15 days from receipt of this Order, the defendants do not question on appeal
this Order of this Court, the Court shall proceed to resolve the Motion for Bill of
Particulars.[8]
On 27 September 1994, the Cerezo spouses filed an urgent ex-parte motion for
reconsideration. The trial court denied the motion for reconsideration.
3
On 14 November 1994, the trial court issued an order directing the Cerezo spouses to
file their answer within fifteen days from receipt of the order. The Cerezo spouses did not
file an answer. On 27 January 1995, Tuazon filed a motion to declare the Cerezo spouses
in default. On 6 February 1995, the trial court issued an order declaring the Cerezo
spouses in default and authorizing Tuazon to present his evidence. [9]
On 30 May 1995, after considering Tuazons testimonial and documentary evidence, the
trial court ruled in Tuazons favor. The trial court made no pronouncement on Forondas
liability because there was no service of summons on him. The trial court did not hold
Atty. Cerezo liable as Tuazon failed to show that Mrs. Cerezos business benefited the
family, pursuant to Article 121(3) of the Family Code. The trial court held Mrs. Cerezo
solely liable for the damages sustained by Tuazon arising from the negligence of Mrs.
Cerezos employee, pursuant to Article 2180 of the Civil Code. The dispositive portion of
the trial courts decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendant Hermana Cerezo to
pay the plaintiff:
a) For Actual Damages
1) Expenses for operation and medical
Treatment - P69,485.35
2) Cost of repair of the tricycle - 39,921.00
b) For loss of earnings - 43,300.00
c) For moral damages - 20,000.00
d) And to pay the cost of the suit.
The docket fees and other expenses in the filing of this suit shall be lien on whatever
judgment may be rendered in favor of the plaintiff.
SO ORDERED.[10]
Mrs. Cerezo received a copy of the decision on 25 June 1995. On 10 July 1995, Mrs.
Cerezo filed before the trial court a petition for relief from judgment on the grounds of
fraud, mistake or excusable negligence. Testifying before the trial court, both Mrs.
Cerezo and Atty. Valera denied receipt of notices of hearings and of orders of the court.
Atty. Valera added that he received no notice before or during the 8 May 1995
elections, when he was a senatorial candidate for the KBL Party, and very busy, using
his office and residence as Party National Headquarters. Atty. Valera claimed that he
was able to read the decision of the trial court only after Mrs. Cerezo sent him a
copy.[11]
Tuazon did not testify but presented documentary evidence to prove the participation
of the Cerezo spouses in the case. Tuazon presented the following exhibits:
Exhibit 1 - Sheriffs return and summons;
Exhibit 1-A - Alias summons dated April 20, 1994;
Exhibit 2 - Comment with Motion;
Exhibit 3 - Minutes of the hearing held on August 1, 1994;
Exhibit 3-A - Signature of defendants counsel;
Exhibit 4 - Minutes of the hearing held on August 30, 1994;
Exhibit 4-A - Signature of the defendants counsel;
Exhibit 5 - Appearance and Urgent Ex-Parte Motion;
Exhibit 6 - Order dated November 14, 1994;
Exhibit 6-A - Postal certification dated January 13, 1995;
Exhibit 7 - Order dated February [illegible];
Exhibit 7-A - Courts return slip addressed to Atty. Elpidio
Valera;
Exhibit 7-B - Courts return slip addressed to Spouses Juan
and Hermana Cerezo;
Exhibit 8 - Decision dated May [30], 1995
Exhibit 8-A - Courts return slip addressed to defendant Hermana
4
Cerezo;
Exhibit 8-B - Courts return slip addressed to defendants counsel,
Atty. Elpidio Valera;
Exhibit 9 - Order dated September 21, 1995;
Exhibit 9-A - Second Page of Exhibit 9;
Exhibit 9-B - Third page of Exhibit 9;
Exhibit 9-C - Fourth page of Exhibit 9;
Exhibit 9-D - Courts return slip addressed to Atty. Elpidio Valera;
and
Exhibit 9-E - Courts return slip addressed to plaintiffs counsel,
Atty. Norman Dick de Guzman.[12]
On 4 March 1998, the trial court issued an order[13] denying the petition for relief from
judgment. The trial court stated that having received the decision on 25 June 1995, the
Cerezo spouses should have filed a notice of appeal instead of resorting to a petition
for relief from judgment. The trial court refused to grant relief from judgment because
the Cerezo spouses could have availed of the remedy of appeal. Moreover, the Cerezo
spouses not only failed to prove fraud, accident, mistake or excusable negligence by
conclusive evidence, they also failed to prove that they had a good and substantial
defense. The trial court noted that the Cerezo spouses failed to appeal because they
relied on an expected settlement of the case.
The Cerezo spouses subsequently filed before the Court of Appeals a petition for
certiorari under Section 1 of Rule 65. The petition was docketed as CA-G.R. SP No.
48132.[14] The petition questioned whether the trial court acquired jurisdiction over the
case considering there was no service of summons on Foronda, whom the Cerezo
spouses claimed was an indispensable party. In a resolution[15] dated 21 January 1999,
the Court of Appeals denied the petition for certiorari and affirmed the trial courts order
denying the petition for relief from judgment. The Court of Appeals declared that the
Cerezo spouses failure to file an answer was due to their own negligence, considering
that they continued to participate in the proceedings without filing an answer. There
was also nothing in the records to show that the Cerezo spouses actually offered a
reasonable settlement to Tuazon. The Court of Appeals also denied Cerezo spouses
motion for reconsideration for lack of merit.
The Cerezo spouses filed before this Court a petition for review on certiorari under Rule
45. Atty. Cerezo himself signed the petition, docketed as G.R. No. 137593. On 13 April
1999, this Court rendered a resolution denying the petition for review on certiorari for
failure to attach an affidavit of service of copies of the petition to the Court of Appeals
and to the adverse parties. Even if the petition complied with this requirement, the Court
would still have denied the petition as the Cerezo spouses failed to show that the Court
of Appeals committed a reversible error. The Courts resolution was entered in the Book
of Entries and Judgments when it became final and executory on 28 June 1999.[16]
Undaunted, the Cerezo spouses filed before the Court of Appeals on 6 July 1999 a
petition for annulment of judgment under Rule 47 with prayer for restraining order. Atty.
Valera and Atty. Dionisio S. Daga (Atty. Daga) represented Mrs. Cerezo in the petition,
docketed as CA-G.R. SP No. 53572.[17] The petition prayed for the annulment of the 30
May 1995 decision of the trial court and for the issuance of a writ of preliminary injunction
enjoining execution of the trial courts decision pending resolution of the petition.
The Court of Appeals denied the petition for annulment of judgment in a resolution
dated 21 October 1999. The resolution reads in part:
In this case, records show that the petitioner previously filed with the lower court a
Petition for Relief from Judgment on the ground that they were wrongfully declared in
default while waiting for an amicable settlement of the complaint for damages. The
court a quo correctly ruled that such petition is without merit. The defendant spouses
admit that during the initial hearing they appeared before the court and even
mentioned the need for an amicable settlement. Thus, the lower court acquired
jurisdiction over the defendant spouses.
Therefore, petitioner having availed of a petition for relief, the remedy of an annulment
of judgment is no longer available. The proper action for the petitioner is to appeal the
order of the lower court denying the petition for relief.
Wherefore, the instant petition could not be given due course and should accordingly
be dismissed.
SO ORDERED.[18]
On 20 January 2000, the Court of Appeals denied the Cerezo spouses motion for
reconsideration.[19] The Court of Appeals stated:
5
A distinction should be made between a courts jurisdiction over a person and its
jurisdiction over the subject matter of a case. The former is acquired by the proper
service of summons or by the parties voluntary appearance; while the latter is conferred
by law.
Resolving the matter of jurisdiction over the subject matter, Section 19(1) of B[atas]
P[ambansa] 129 provides that Regional Trial Courts shall exercise exclusive original
jurisdiction in all civil actions in which the subject of the litigation is incapable of
pecuniary estimation. Thus it was proper for the lower court to decide the instant case
for damages.
Unlike jurisdiction over the subject matter of a case which is absolute and conferred by
law; any defects [sic] in the acquisition of jurisdiction over a person (i.e., improper filing
of civil complaint or improper service of summons) may be waived by the voluntary
appearance of parties.
The lower court admits the fact that no summons was served on defendant Foronda.
Thus, jurisdiction over the person of defendant Foronda was not acquired, for which
reason he was not held liable in this case. However, it has been proven that jurisdiction
over the other defendants was validly acquired by the court a quo.
The defendant spouses admit to having appeared in the initial hearings and in the
hearing for plaintiffs motion to litigate as a pauper. They even mentioned conferences
where attempts were made to reach an amicable settlement with plaintiff. However,
the possibility of amicable settlement is not a good and substantial defense which will
warrant the granting of said petition.
xxx
Assuming arguendo that private respondent failed to reserve his right to institute a
separate action for damages in the criminal action, the petitioner cannot now raise
such issue and question the lower courts jurisdiction because petitioner and her
husband have waived such right by voluntarily appearing in the civil case for damages.
Therefore, the findings and the decision of the lower court may bind them.
Records show that the petitioner previously filed with the lower court a Petition for Relief
from Judgment on the ground that they were wrongfully declared in default while
waiting for an amicable settlement of the complaint for damages. The court a quo
correctly ruled that such petition is without merit, jurisdiction having been acquired by
the voluntary appearance of defendant spouses.
Once again, it bears stressing that having availed of a petition for relief, the remedy of
annulment of judgment is no longer available.
Based on the foregoing, the motion for reconsideration could not be given due course
and is hereby DENIED.
SO ORDERED.[20]
The Issues
On 7 February 2000, Mrs. Cerezo, this time with Atty. Daga alone representing her, filed
the present petition for review on certiorari before this Court. Mrs. Cerezo claims that:
1. In dismissing the Petition for Annulment of Judgment, the Court of Appeals assumes
that the issues raised in the petition for annulment is based on extrinsic fraud related to
the denied petition for relief notwithstanding that the grounds relied upon involves
questions of lack of jurisdiction.
2. In dismissing the Petition for Annulment, the Court of Appeals disregarded the
allegation that the lower court[s] findings of negligence against defendant-driver Danilo
Foronda [whom] the lower court did not summon is null and void for want of due process
and consequently, such findings of negligence which is [sic] null and void cannot
become the basis of the lower court to adjudge petitioner-employer liable for civil
damages.
3. In dismissing the Petition for Annulment, the Court of Appeals ignored the allegation
that defendant-driver Danilo A. Foronda whose negligence is the main issue is an
indispensable party whose presence is compulsory but [whom] the lower court did not
summon.
4. In dismissing the Petition for Annulment, the Court of Appeals ruled that assuming
arguendo that private respondent failed to reserve his right to institute a separate action
for damages in the criminal action, the petitioner cannot now raise such issue and
question the lower courts jurisdiction because petitioner [has] waived such right by
voluntarily appearing in the civil case for damages notwithstanding that lack of
jurisdiction cannot be waived.[21]
The Courts Ruling
The petition has no merit. As the issues are interrelated, we shall discuss them jointly.
Remedies Available
6
to a Party Declared in Default
An examination of the records of the entire proceedings shows that three lawyers filed
and signed pleadings on behalf of Mrs. Cerezo, namely, Atty. Daga, Atty. Valera, and
Atty. Cerezo. Despite their number, Mrs. Cerezos counsels failed to avail of the proper
remedies. It is either by sheer ignorance or by malicious manipulation of legal
technicalities that they have managed to delay the disposition of the present case, to
the detriment of pauper litigant Tuazon.
Mrs. Cerezo claims she did not receive any copy of the order declaring the Cerezo
spouses in default. Mrs. Cerezo asserts that she only came to know of the default order
on 25 June 1995, when she received a copy of the decision. On 10 July 1995, Mrs. Cerezo
filed before the trial court a petition for relief from judgment under Rule 38, alleging
fraud, mistake, or excusable negligence as grounds. On 4 March 1998, the trial court
denied Mrs. Cerezos petition for relief from judgment. The trial court stated that Mrs.
Cerezo could have availed of appeal as a remedy and that she failed to prove that
the judgment was entered through fraud, accident, mistake, or excusable negligence.
Mrs. Cerezo then filed before the Court of Appeals a petition for certiorari under Section
1 of Rule 65 assailing the denial of the petition for relief from judgment. On 21 January
1999, the Court of Appeals dismissed Mrs. Cerezos petition. On 24 February 1999, the
appellate court denied Mrs. Cerezos motion for reconsideration. On 11 March 1999, Mrs.
Cerezo filed before this Court a petition for review on certiorari under Rule 45,
questioning the denial of the petition for relief from judgment. We denied the petition
and our resolution became final and executory on 28 June 1999.
On 6 July 1999, a mere eight days after our resolution became final and executory, Mrs.
Cerezo filed before the Court of Appeals a petition for annulment of the judgment of
the trial court under Rule 47. Meanwhile, on 25 August 1999, the trial court issued over
the objection of Mrs. Cerezo an order of execution of the judgment in Civil Case No.
7415. On 21 October 1999, the Court of Appeals dismissed the petition for annulment of
judgment. On 20 January 2000, the Court of Appeals denied Mrs. Cerezos motion for
reconsideration. On 7 February 2000, Mrs. Cerezo filed the present petition for review on
certiorari under Rule 45 challenging the dismissal of her petition for annulment of
judgment.
Lina v. Court of Appeals[22] enumerates the remedies available to a party declared in
default:
a) The defendant in default may, at any time after discovery thereof and before
judgment, file a motion under oath to set aside the order of default on the ground that
his failure to answer was due to fraud, accident, mistake or excusable negligence, and
that he has a meritorious defense (Sec. 3, Rule 18 [now Sec. 3(b), Rule 9]);
b) If the judgment has already been rendered when the defendant discovered the
default, but before the same has become final and executory, he may file a motion for
new trial under Section 1 (a) of Rule 37;
c) If the defendant discovered the default after the judgment has become final and
executory, he may file a petition for relief under Section 2 [now Section 1] of Rule 38;
and
d) He may also appeal from the judgment rendered against him as contrary to the
evidence or to the law, even if no petition to set aside the order of default has been
presented by him (Sec. 2, Rule 41). (Emphasis added)
Moreover, a petition for certiorari to declare the nullity of a judgment by default is also
available if the trial court improperly declared a party in default, or even if the trial court
properly declared a party in default, if grave abuse of discretion attended such
declaration.[23]
Mrs. Cerezo admitted that she received a copy of the trial courts decision on 25 June
1995. Based on this admission, Mrs. Cerezo had at least three remedies at her disposal:
an appeal, a motion for new trial, or a petition for certiorari.
Mrs. Cerezo could have appealed under Rule 41[24] from the default judgment within
15 days from notice of the judgment. She could have availed of the power of the Court
of Appeals to try cases and conduct hearings, receive evidence, and perform all acts
necessary to resolve factual issues raised in cases falling within its appellate
jurisdiction.[25]
Mrs. Cerezo also had the option to file under Rule 37[26] a motion for new trial within the
period for taking an appeal. If the trial court grants a new trial, the original judgment is
vacated, and the action will stand for trial de novo. The recorded evidence taken in
the former trial, as far as the same is material and competent to establish the issues, shall
be used at the new trial without retaking the same.[27]
Mrs. Cerezo also had the alternative of filing under Rule 65[28] a petition for certiorari
assailing the order of default within 60 days from notice of the judgment. An order of
default is interlocutory, and an aggrieved party may file an appropriate special civil
action under Rule 65.[29] In a petition for certiorari, the appellate court may declare
void both the order of default and the judgment of default.
7
Clearly, Mrs. Cerezo had every opportunity to avail of these remedies within the
reglementary periods provided under the Rules of Court. However, Mrs. Cerezo opted
to file a petition for relief from judgment, which is available only in exceptional cases. A
petition for relief from judgment should be filed within the reglementary period of 60
days from knowledge of judgment and six months from entry of judgment, pursuant to
Rule 38 of the Rules of Civil Procedure.[30] Tuason v. Court of Appeals[31] explained the
nature of a petition for relief from judgment:
When a party has another remedy available to him, which may either be a motion for
new trial or appeal from an adverse decision of the trial court, and he was not
prevented by fraud, accident, mistake or excusable negligence from filing such motion
or taking such appeal, he cannot avail himself of this petition. Indeed, relief will not be
granted to a party who seeks avoidance from the effects of the judgment when the loss
of the remedy at law was due to his own negligence; otherwise the petition for relief
can be used to revive the right to appeal which has been lost thru inexcusable
negligence.
Evidently, there was no fraud, accident, mistake, or excusable negligence that
prevented Mrs. Cerezo from filing an appeal, a motion for new trial or a petition for
certiorari. It was error for her to avail of a petition for relief from judgment.
After our resolution denying Mrs. Cerezos petition for relief became final and executory,
Mrs. Cerezo, in her last ditch attempt to evade liability, filed before the Court of Appeals
a petition for annulment of the judgment of the trial court. Annulment is available only
on the grounds of extrinsic fraud and lack of jurisdiction. If based on extrinsic fraud, a
party must file the petition within four years from its discovery, and if based on lack of
jurisdiction, before laches or estoppel bars the petition. Extrinsic fraud is not a valid
ground if such fraud was used as a ground, or could have been used as a ground, in a
motion for new trial or petition for relief from judgment.[32]
Mrs. Cerezo insists that lack of jurisdiction, not extrinsic fraud, was her ground for filing
the petition for annulment of judgment. However, a party may avail of the remedy of
annulment of judgment under Rule 47 only if the ordinary remedies of new trial, appeal,
petition for relief from judgment, or other appropriate remedies are no longer available
through no fault of the party.[33] Mrs. Cerezo could have availed of a new trial or
appeal but through her own fault she erroneously availed of the remedy of a petition
for relief, which was denied with finality. Thus, Mrs. Cerezo may no longer avail of the
remedy of annulment.
In any event, the trial court clearly acquired jurisdiction over Mrs. Cerezos person. Mrs.
Cerezo actively participated in the proceedings before the trial court, submitting herself
to the jurisdiction of the trial court. The defense of lack of jurisdiction fails in light of her
active participation in the trial court proceedings. Estoppel or laches may also bar lack
of jurisdiction as a ground for nullity especially if raised for the first time on appeal by a
party who participated in the proceedings before the trial court, as what happened in
this case.[34]
For these reasons, the present petition should be dismissed for utter lack of merit. The
extraordinary action to annul a final judgment is restricted to the grounds specified in
the rules. The reason for the restriction is to prevent this extraordinary action from being
used by a losing party to make a complete farce of a duly promulgated decision that
has long become final and executory. There would be no end to litigation if parties who
have unsuccessfully availed of any of the appropriate remedies or lost them through
their fault could still bring an action for annulment of judgment.[35] Nevertheless, we
shall discuss the issues raised in the present petition to clear any doubt about the
correctness of the decision of the trial court.
Mrs. Cerezos Liability and the
Trial Courts Acquisition of Jurisdiction
Mrs. Cerezo contends that the basis of the present petition for annulment is lack of
jurisdiction. Mrs. Cerezo asserts that the trial court could not validly render judgment
since it failed to acquire jurisdiction over Foronda. Mrs. Cerezo points out that there was
no service of summons on Foronda. Moreover, Tuazon failed to reserve his right to
institute a separate civil action for damages in the criminal action. Such contention
betrays a faulty foundation. Mrs. Cerezos contention proceeds from the point of view of
criminal law and not of civil law, while the basis of the present action of Tuazon is quasi-
delict under the Civil Code, not delict under the Revised Penal Code.
The same negligent act may produce civil liability arising from a delict under Article 103
of the Revised Penal Code, or may give rise to an action for a quasi-delict under Article
2180 of the Civil Code. An aggrieved party may choose between the two remedies. An
action based on a quasi-delict may proceed independently from the criminal
action.[36] There is, however, a distinction between civil liability arising from a delict and
civil liability arising from a quasi-delict. The choice of remedy, whether to sue for a delict
or a quasi-delict, affects the procedural and jurisdictional issues of the action.[37]
Tuazon chose to file an action for damages based on a quasi-delict. In his complaint,
Tuazon alleged that Mrs. Cerezo, without exercising due care and diligence in the
supervision and management of her employees and buses, hired Foronda as her driver.
Tuazon became disabled because of Forondas recklessness, gross negligence and
8
imprudence, aggravated by Mrs. Cerezos lack of due care and diligence in the
selection and supervision of her employees, particularly Foronda.[38]
The trial court thus found Mrs. Cerezo liable under Article 2180 of the Civil Code. Article
2180 states in part:
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.
Contrary to Mrs. Cerezos assertion, Foronda is not an indispensable party to the case.
An indispensable party is one whose interest is affected by the courts action in the
litigation, and without whom no final resolution of the case is possible.[39] However, Mrs.
Cerezos liability as an employer in an action for a quasi-delict is not only solidary, it is
also primary and direct. Foronda is not an indispensable party to the final resolution of
Tuazons action for damages against Mrs. Cerezo.
The responsibility of two or more persons who are liable for a quasi-delict is solidary.[40]
Where there is a solidary obligation on the part of debtors, as in this case, each debtor
is liable for the entire obligation. Hence, each debtor is liable to pay for the entire
obligation in full. There is no merger or renunciation of rights, but only mutual
representation.[41] Where the obligation of the parties is solidary, either of the parties is
indispensable, and the other is not even a necessary party because complete relief is
available from either.[42] Therefore, jurisdiction over Foronda is not even necessary as
Tuazon may collect damages from Mrs. Cerezo alone.
Moreover, an employers liability based on a quasi-delict is primary and direct, while the
employers liability based on a delict is merely subsidiary.[43] The words primary and
direct, as contrasted with subsidiary, refer to the remedy provided by law for enforcing
the obligation rather than to the character and limits of the obligation.[44] Although
liability under Article 2180 originates from the negligent act of the employee, the
aggrieved party may sue the employer directly. When an employee causes damage,
the law presumes that the employer has himself committed an act of negligence in not
preventing or avoiding the damage. This is the fault that the law condemns. While the
employer is civilly liable in a subsidiary capacity for the employees criminal negligence,
the employer is also civilly liable directly and separately for his own civil negligence in
failing to exercise due diligence in selecting and supervising his employee. The idea that
the employers liability is solely subsidiary is wrong.[45]
The action can be brought directly against the person responsible (for another), without
including the author of the act. The action against the principal is accessory in the sense
that it implies the existence of a prejudicial act committed by the employee, but it is not
subsidiary in the sense that it can not be instituted till after the judgment against the
author of the act or at least, that it is subsidiary to the principal action; the action for
responsibility (of the employer) is in itself a principal action.[46]
Thus, there is no need in this case for the trial court to acquire jurisdiction over Foronda.
The trial courts acquisition of jurisdiction over Mrs. Cerezo is sufficient to dispose of the
present case on the merits.
In contrast, an action based on a delict seeks to enforce the subsidiary liability of the
employer for the criminal negligence of the employee as provided in Article 103 of the
Revised Penal Code. To hold the employer liable in a subsidiary capacity under a delict,
the aggrieved party must initiate a criminal action where the employees delict and
corresponding primary liability are established.[47] If the present action proceeds from
a delict, then the trial courts jurisdiction over Foronda is necessary. However, the present
action is clearly for the quasi-delict of Mrs. Cerezo and not for the delict of Foronda.
The Cerezo spouses contention that summons be served anew on them is untenable in
light of their participation in the trial court proceedings. To uphold the Cerezo spouses
contention would make a fetish of a technicality.[48] Moreover, any irregularity in the
service of summons that might have vitiated the trial courts jurisdiction over the persons
of the Cerezo spouses was deemed waived when the Cerezo spouses filed a petition
for relief from judgment.[49]
We hold that the trial court had jurisdiction and was competent to decide the case in
favor of Tuazon and against Mrs. Cerezo even in the absence of Foronda. Contrary to
Mrs. Cerezos contention, Foronda is not an indispensable party to the present case. It is
not even necessary for Tuazon to reserve the filing of a separate civil action because
he opted to file a civil action for damages against Mrs. Cerezo who is primarily and
directly liable for her own civil negligence. The words of Justice Jorge Bocobo in Barredo
v. Garcia still hold true today as much as it did in 1942:
x x x [T]o hold that there is only one way to make defendants liability effective, and that
is, to sue the driver and exhaust his (the latters) property first, would be tantamount to
compelling the plaintiff to follow a devious and cumbersome method of obtaining relief.
True, there is such a remedy under our laws, but there is also a more expeditious way,
which is based on the primary and direct responsibility of the defendant under article
[2180] of the Civil Code. Our view of the law is more likely to facilitate remedy for civil
wrongs, because the procedure indicated by the defendant is wasteful and productive
of delay, it being a matter of common knowledge that professional drivers of taxis and
other similar public conveyances do not have sufficient means with which to pay
damages. Why, then, should the plaintiff be required in all cases to go through this
9
roundabout, unnecessary, and probably useless procedure? In construing the laws,
courts have endeavored to shorten and facilitate the pathways of right and justice.[50]
Interest at the rate of 6% per annum is due on the amount of damages adjudged by
the trial court.[51] The 6% per annum interest shall commence from 30 May 1995, the
date of the decision of the trial court. Upon finality of this decision, interest at 12% per
annum, in lieu of 6% per annum, is due on the amount of damages adjudged by the
trial court until full payment.
WHEREFORE, we DENY the instant petition for review. The Resolution dated 21 October
1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well as its Resolution dated 20
January 2000 denying the motion for reconsideration, is AFFIRMED with the
MODIFICATION that the amount due shall earn legal interest at 6% per annum
computed from 30 May 1995, the date of the trial courts decision. Upon finality of this
decision, the amount due shall earn interest at 12% per annum, in lieu of 6% per annum,
until full payment.
SO ORDERED.
G.R. No. 168979 December 2, 2013
REBECCA PACAÑA-CONTRERAS and ROSALIE PACAÑA, Petitioners,
vs.
ROVILA WATER SUPPLY, INC., EARL U KOKSENG, LILIA TORRES, DALLA P. ROMANILLOS and
MARISSA GABUYA, Respondents.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari1 under Rule 4 of the Rules of Court
seeking the reversal of the decision2 dated January 27, 2005 and the resolution3 dated
June 6, 2005 of the Courts of Appeals (CA) in CA-G.R. SP No. 71551. The CA set aside
the orders dated February 28, 20024 and April 1, 20025 of the Regional Trial Court (RTC),
Branch 8, Cebu City, which denied the motion to dismiss for reconsideration
respectively, of respondents Rovila Water Supply, Inc. (Rovilla, Inc.), Earl U. Kokseng,
Lialia Torres, Dalla P. Romanillos and Marissa Gabuya.
THE FACTUAL ANTECEDENTS
Petitioners Rebecca Pacaña-Contreras and Rosalie Pacaña, children of Lourdes Teves
Pacaña and Luciano Pacaña, filed the present case against Rovila Inc., Earl, Lilia, Dalla
and Marisa for accounting and damages.6
The petitioners claimed that their family has long been known in the community to be
engaged in the water supply business; they operated the "Rovila Water Supply" from
their family residence and were engaged in the distribution of water to customers in
Cebu City. The petitioners alleged that Lilia was a former trusted employee in the family
business who hid business records and burned and ransacked the family files. Lilia also
allegedly posted security guards and barred the members of the Pacaña family from
operating their business. She then claimed ownership over the family business through a
corporation named "Rovila Water Supply, Inc." (Rovila Inc.) Upon inquiry with the
Securities and Exchange Commission (SEC), the petitioners claimed that Rovila Inc. was
surreptitiously formed with the respondents as the majority stockholders. The
respondents did so by conspiring with one another and forming the respondent
corporation to takeover and illegally usurp the family business’ registered name.7
In forming the respondent corporation, the respondents allegedly used the name of
Lourdes as one of the incorporators and made it appear in the SEC documents that the
family business was operated in a place other than the Pacaña residence. Thereafter,
the respondents used the Pacaña family’s receipts and the deliveries and sales were
made to appear as those of the respondent Rovila Inc. Using this scheme, the
respondents fraudulently appropriated the collections and payments.8
The petitioners filed the complaint in their own names although Rosalie was authorized
by Lourdes through a sworn declaration and special power of attorney (SPA). The
respondents filed a first motion to dismiss on the ground that the RTC had no jurisdiction
over an intra-corporate controversy.9
The RTC denied the motion. On September 26, 2000, Lourdes died10 and the petitioners
amended their complaint, with leave of court, on October 2, 2000 to reflect this
development.11
They still attached to their amended complaint the sworn declaration with SPA, but the
caption of the amended complaint remained the same.12
On October 10, 2000, Luciano also died.13
The respondents filed their Answer on November 16, 2000.14
The petitioners’ sister, Lagrimas Pacaña-Gonzales, filed a motion for leave to intervene
and her answer-in-intervention was granted by the trial court. At the subsequent pre-
10
trial, the respondents manifested to the RTC that a substitution of the parties was
necessary in light of the deaths of Lourdes and Luciano. They further stated that they
would seek the dismissal of the complaint because the petitioners are not the real
parties in interest to prosecute the case. The pre-trial pushed through as scheduled and
the RTC directed the respondents to put into writing their earlier manifestation. The RTC
issued a pre-trial order where one of the issues submitted was whether the complaint
should be dismissed for failure to comply with Section 2, Rule 3 of the Rules of Court
which requires that every action must be prosecuted in the name of the real party in
interest.15
On January 23, 2002,16 the respondents again filed a motion to dismiss on the grounds,
among others, that the petitioners are not the real parties in interest to institute and
prosecute the case and that they have no valid cause of action against the
respondents.
THE RTC RULING
The RTC denied the respondents’ motion to dismiss. It ruled that, save for the grounds for
dismissal which may be raised at any stage of the proceedings, a motion to dismiss
based on the grounds invoked by the respondents may only be filed within the time for,
but before, the filing of their answer to the amended complaint. Thus, even granting
that the defenses invoked by the respondents are meritorious, their motion was filed out
of time as it was filed only after the conclusion of the pre-trial conference. Furthermore,
the rule on substitution of parties only applies when the parties to the case die, which is
not what happened in the present case.17
The RTC likewise denied the respondents’ motion for reconsideration.18
The respondents filed a petition for certiorari under Rule 65 of the Rules of Court with the
CA, invoking grave abuse of discretion in the denial of their motion to dismiss. They
argued that the deceased spouses Luciano and Lourdes, not the petitioners, were the
real parties in interest. Thus, the petitioners violated Section 16, Rule 3 of the Rules of
Court on the substitution of parties.19
Furthermore, they seasonably moved for the dismissal of the case20 and the RTC never
acquired jurisdiction over the persons of the petitioners as heirs of Lourdes and
Luciano.21
THE CA RULING
The CA granted the petition and ruled that the RTC committed grave abuse of
discretion as the petitioners filed the complaint and the amended complaint as
attorneys-in-fact of their parents. As such, they are not the real parties in interest and
cannot bring an action in their own names; thus, the complaint should be dismissed22
pursuant to the Court’s ruling in Casimiro v. Roque and Gonzales.23
Neither are the petitioners suing as heirs of their deceased parents.1awp++i1 Pursuant
to jurisprudence,24 the petitioners should first be declared as heirs before they can be
considered as the real parties in interest. This cannot be done in the present ordinary
civil case but in a special proceeding for that purpose. The CA agreed with the
respondents that they alleged the following issues as affirmative defenses in their
answer: 1) the petitioners are not the real parties in interest; and 2) that they had no
legal right to institute the action in behalf of their parents.25
That the motion to dismiss was filed after the period to file an answer has lapsed is of no
moment. The RTC judge entertained it and passed upon its merit. He was correct in
doing so because in the pre-trial order, one of the submitted issues was whether the
case must be dismissed for failure to comply with the requirements of the Rules of Court.
Furthermore, in Dabuco v. Court of Appeals,26 the Court held that the ground of lack
of cause of action may be raised in a motion to dismiss at anytime.27
The CA further ruled that, in denying the motion to dismiss, the RTC judge acted contrary
to established rules and jurisprudence which may be questioned via a petition for
certiorari. The phrase "grave abuse of discretion" which was traditionally confined to
"capricious and whimsical exercise of judgment" has been expanded to include any
action done "contrary to the Constitution, the law or jurisprudence[.]"28
THE PARTIES’ ARGUMENTS
The petitioners filed the present petition and argued that, first, in annulling the
interlocutory orders, the CA unjustly allowed the motion to dismiss which did not conform
to the rules.29
Specifically, the motion was not filed within the time for, but before the filing of, the
answer to the amended complaint, nor were the grounds raised in the answer. Citing
Section 1, Rule 9 of the Rules of Court, the respondents are deemed to have waived
these grounds, as correctly held by the RTC.30
Second, even if there is non-joinder and misjoinder of parties or that the suit is not
brought in the name of the real party in interest, the remedy is not outright dismissal of
the complaint, but its amendment to include the real parties in interest.31
11
Third, the petitioners sued in their own right because they have actual and substantial
interest in the subject matter of the action as heirs or co-owners, pursuant to Section 2,
Rule 3 of the Rules of Court.32
Their declaration as heirs in a special proceeding is not necessary, pursuant to the
Court’s ruling in Marabilles, et al. v. Quito.33
Finally, the sworn declaration is evidentiary in nature which remains to be appreciated
after the trial is completed.34
The respondents reiterated in their comment that the petitioners are not the real parties
in interest.35
They likewise argued that they moved for the dismissal of the case during the pre-trial
conference due to the petitioners’ procedural lapse in refusing to comply with a
condition precedent, which is, to substitute the heirs as plaintiffs. Besides, an
administrator of the estates of Luciano and Lourdes has already been appointed.36
The respondents also argued that the grounds invoked in their motion to dismiss were
timely raised, pursuant to Section 2, paragraphs g and i, Rule 18 of the Rules of Court.
Specifically, the nature and purposes of the pre-trial include, among others, the dismissal
of the action, should a valid ground therefor be found to exist; and such other matters
as may aid in the prompt disposition of the action. Finally, the special civil action of
certiorari was the proper remedy in assailing the order of the RTC.37
THE COURT’S RULING
We find the petition meritorious.
Petition for certiorari under Rule 65 is a proper remedy for a denial of a motion to dismiss
attended by grave abuse of discretion
In Barrazona v. RTC, Branch 61, Baguio City,38 the Court held that while an order
denying a motion to dismiss is interlocutory and non-appealable, certiorari and
prohibition are proper remedies to address an order of denial made without or in excess
of jurisdiction. The writ of certiorari is granted to keep an inferior court within the bounds
of its jurisdiction or to prevent it from committing grave abuse of discretion amounting
to lack or excess of jurisdiction.
The history and development of the ground "fails to state a cause of action" in the 1940,
1964 and the present 1997 Rules of Court Preliminarily, a suit that is not brought in the
name of the real party in interest is dismissible on the ground that the complaint "fails to
state a cause of action."39
Pursuant to jurisprudence,40 this is also the ground invoked when the respondents
alleged that the petitioners are not the real parties in interest because: 1) the petitioners
should not have filed the case in their own names, being merely attorneys-in-fact of their
mother; and 2) the petitioners should first be declared as heirs. A review of the 1940,
1964 and the present 1997 Rules of Court shows that the fundamentals of the ground for
dismissal based on "failure to state a cause of action" have drastically changed over
time. A historical background of this particular ground is in order to preclude any
confusion or misapplication of jurisprudence decided prior to the effectivity of the
present Rules of Court. The 1940 Rules of Court provides under Section 10, Rule 9 that:
Section 10. Waiver of defenses- Defenses and objections not pleaded either in a motion
to dismiss or in the answer are deemed waived; except the defense of failure to state a
cause of action, which may be alleged in a later pleading, if one is permitted, or by
motion for judgment on the pleadings, or at the trial on the merits; but in the last
instance, the motion shall be disposed of as provided in section 5 of Rule 17 in the light
of any evidence which may have been received. Whenever it appears that the court
has no jurisdiction over the subject-matter, it shall dismiss the action. [underscoring
supplied]
This provision was essentially reproduced in Section 2, Rule 9 of the 1964 Rules of Court,
and we quote:
Section 2. Defenses and objections not pleaded deemed waived. — Defenses and
objections not pleaded either in a motion to dismiss or in the answer are deemed
waived; except the failure to state a cause of action which may be alleged in a later
pleading, if one is permitted, or by motion for judgment on the pleadings, or at the trial
on the merits; but in the last instance, the motion shall be disposed of as provided in
section 5 of Rule 10 in the light of any evidence which may have been received.
Whenever it appears that the court has no jurisdiction over the subject-matter, it shall
dismiss the action. [underscoring supplied]
Under the present Rules of Court, this provision was reflected in Section 1, Rule 9, and
we quote:
Section 1. Defenses and objections not pleaded. — Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived. However,
when it appears from the pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action pending between the
12
same parties for the same cause, or that the action is barred by a prior judgment or by
statute of limitations, the court shall dismiss the claim. [underscoring supplied]
Notably, in the present rules, there was a deletion of the ground of "failure to state a
cause of action" from the list of those which may be waived if not invoked either in a
motion to dismiss or in the answer. Another novelty introduced by the present Rules,
which was totally absent in its two precedents, is the addition of the period of time within
which a motion to dismiss should be filed as provided under Section 1, Rule 16 and we
quote:
Section 1. Grounds. — Within the time for but before filing the answer to the complaint
or pleading asserting a claim, a motion to dismiss may be made on any of the following
grounds: xxx [underscoring supplied]
All these considerations point to the legal reality that the new Rules effectively restricted
the dismissal of complaints in general, especially when what is being invoked is the
ground of "failure to state a cause of action." Thus, jurisprudence governed by the 1940
and 1964 Rules of Court to the effect that the ground for dismissal based on failure to
state a cause of action may be raised anytime during the proceedings, is already
inapplicable to cases already governed by the present Rules of Court which took effect
on July 1, 1997. As the rule now stands, the failure to invoke this ground in a motion to
dismiss or in the answer would result in its waiver. According to Oscar M. Herrera,41 the
reason for the deletion is that failure to state a cause of action may be cured under
Section 5, Rule 10 and we quote:
Section 5. Amendment to conform to or authorize presentation of evidence. — When
issues not raised by the pleadings are tried with the express or implied consent of the
parties they shall be treated in all respects as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to conform to
the evidence and to raise these issues may be made upon motion of any party at any
time, even after judgment; but failure to amend does not effect the result of the trial of
these issues. If evidence is objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the pleadings to be amended and
shall do so with liberality if the presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may grant a continuance to
enable the amendment to be made.
With this clarification, we now proceed to the substantial issues of the petition.1âwphi1
The motion to dismiss in the present case based on failure to state a cause of action was
not timely filed and was thus waived
Applying Rule 16 of the Rules of Court which provides for the grounds for the dismissal of
a civil case, the respondents’ grounds for dismissal fall under Section 1(g) and (j), Rule
16 of the Rules of Court, particularly, failure to state a cause of action and failure to
comply with a condition precedent (substitution of parties), respectively. The first
paragraph of Section 1,42
Rule 16 of the Rules of Court provides for the period within which to file a motion to
dismiss under the grounds enumerated. Specifically, the motion should be filed within
the time for, but before the filing of, the answer to the complaint or pleading asserting
a claim. Equally important to this provision is Section 1,43
Rule 9 of the Rules of Court which states that defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived, except for the
following grounds: 1) the court has no jurisdiction over the subject matter; 2) litis
pendencia; 3) res judicata; and 4) prescription. Therefore, the grounds not falling under
these four exceptions may be considered as waived in the event that they are not timely
invoked. As the respondents’ motion to dismiss was based on the grounds which should
be timely invoked, material to the resolution of this case is the period within which they
were raised. Both the RTC and the CA found that the motion to dismiss was only filed
after the filing of the answer and after the pre-trial had been concluded. Because there
was no motion to dismiss before the filing of the answer, the respondents should then
have at least raised these grounds as affirmative defenses in their answer. The RTC’s
assailed orders did not touch on this particular issue but the CA ruled that the
respondents did, while the petitioners insist that the respondents did not. In the present
petition, the petitioners reiterate that there was a blatant non-observance of the rules
when the respondents did not amend their answer to invoke the grounds for dismissal
which were raised only during the pre-trial and, subsequently, in the subject motion to
dismiss.44
The divergent findings of the CA and the petitioners’ arguments are essentially factual
issues. Time and again, we have held that the jurisdiction of the Court in a petition for
review on certiorari under Rule 45, such as the present case, is limited only to questions
of law, save for certain exceptions. One of these is attendant herein, which is, when the
findings are conclusions without citation of specific evidence on which they are
based.45
In the petition filed with the CA, the respondents made a passing allegation that, as
affirmative defenses in their answer, they raised the issue that the petitioners are not the
real parties in interest.46
On the other hand, the petitioners consistently argued otherwise in their opposition47 to
the motion to dismiss, and in their comment48 and in their memorandum49 on the
13
respondents’ petition before the CA. Our examination of the records shows that the CA
had no basis in its finding that the respondents alleged the grounds as affirmative
defenses in their answer. The respondents merely stated in their petition for certiorari that
they alleged the subject grounds in their answer. However, nowhere in the petition did
they support this allegation; they did not even attach a copy of their answer to the
petition. It is basic that the respondents had the duty to prove by substantial evidence
their positive assertions. Considering that the petition for certiorari is an original and not
an appellate action, the CA had no records of the RTC’s proceedings upon which the
CA could refer to in order to validate the respondents’ claim. Clearly, other than the
respondents’ bare allegations, the CA had no basis to rule, without proof, that the
respondents alleged the grounds for dismissal as affirmative defenses in the answer. The
respondents, as the parties with the burden of proving that they timely raised their
grounds for dismissal, could have at least attached a copy of their answer to the
petition. This simple task they failed to do. That the respondents did not allege in their
answer the subject grounds is made more apparent through their argument, both in
their motion to dismiss50 and in their comment,51 that it was only during the pre-trial
stage that they verbally manifested and invited the attention of the lower court on their
grounds for dismissal. In order to justify such late invocation, they heavily relied on
Section 2(g) and (i), Rule 1852 of the Rules of Court that the nature and purpose of the
pre-trial include, among others, the propriety of dismissing the action should there be a
valid ground therefor and matters which may aid in the prompt disposition of the action.
The respondents are not correct. The rules are clear and require no interpretation.
Pursuant to Section 1, Rule 9 of the Rules of Court, a motion to dismiss based on the
grounds invoked by the respondents may be waived if not raised in a motion to dismiss
or alleged in their answer. On the other hand, "the pre-trial is primarily intended to make
certain that all issues necessary to the disposition of a case are properly raised. The
purpose is to obviate the element of surprise, hence, the parties are expected to
disclose at the pre-trial conference all issues of law and fact which they intend to raise
at the trial, except such as may involve privileged or impeaching matter."53
The issues submitted during the pre-trial are thus the issues that would govern the trial
proper. The dismissal of the case based on the grounds invoked by the respondents are
specifically covered by Rule 16 and Rule 9 of the Rules of Court which set a period when
they should be raised; otherwise, they are deemed waived.
The Dabuco ruling is inapplicable in the present case; the ground for dismissal "failure to
state a cause of action" distinguished from "lack of cause of action"
To justify the belated filing of the motion to dismiss, the CA reasoned out that the ground
for dismissal of "lack of cause of action" may be raised at any time during the
proceedings, pursuant to Dabuco v. Court of Appeals.54
This is an erroneous interpretation and application of Dabuco as will be explained
below.
First, in Dabuco, the grounds for dismissal were raised as affirmative defenses in the
answer which is in stark contrast to the present case.
Second, in Dabuco, the Court distinguished between the dismissal of the complaint for
"failure to state a cause of action" and "lack of cause of action." The Court emphasized
that in a dismissal of action for lack of cause of action, "questions of fact are involved,
[therefore,] courts hesitate to declare a plaintiff as lacking in cause of action. Such
declaration is postponed until the insufficiency of cause is apparent from a
preponderance of evidence.
Usually, this is done only after the parties have been given the opportunity to present all
relevant evidence on such questions of fact."55
In fact, in Dabuco, the Court held that even the preliminary hearing on the propriety of
lifting the restraining order was declared insufficient for purposes of dismissing the
complaint for lack of cause of action. This is so because the issues of fact had not yet
been adequately ventilated at that preliminary stage. For these reasons, the Court
declared in Dabuco that the dismissal by the trial court of the complaint was premature.
In the case of Macaslang v. Zamora,56 the Court noted that the incorrect appreciation
by both the RTC and the CA of the distinction between the dismissal of an action, based
on "failure to state a cause of action" and "lack of cause of action," prevented it from
properly deciding the case, and we quote:
Failure to state a cause of action and lack of cause of action are really different from
each other. On the one hand, failure to state a cause of action refers to the insufficiency
of the pleading, and is a ground for dismissal under Rule 16 of the Rules of Court. On the
other hand, lack of cause [of] action refers to a situation where the evidence does not
prove the cause of action alleged in the pleading. Justice Regalado, a recognized
commentator on remedial law, has explained the distinction: xxx What is contemplated,
therefore, is a failure to state a cause of action which is provided in Sec. 1(g) of Rule 16.
This is a matter of insufficiency of the pleading. Sec. 5 of Rule 10, which was also included
as the last mode for raising the issue to the court, refers to the situation where the
evidence does not prove a cause of action. This is, therefore, a matter of insufficiency
of evidence. Failure to state a cause of action is different from failure to prove a cause
of action. The remedy in the first is to move for dismissal of the pleading, while the
remedy in the second is to demur to the evidence, hence reference to Sec. 5 of Rule
10 has been eliminated in this section. The procedure would consequently be to require
the pleading to state a cause of action, by timely objection to its deficiency; or, at the
trial, to file a demurrer to evidence, if such motion is warranted. [italics supplied]
14
Based on this discussion, the Court cannot uphold the dismissal of the present case
based on the grounds invoked by the respondents which they have waived for failure
to invoke them within the period prescribed by the Rules. The Court cannot also dismiss
the case based on "lack of cause of action" as this would require at least a
preponderance of evidence which is yet to be appreciated by the trial court. Therefore,
the RTC did not commit grave abuse of discretion in issuing the assailed orders denying
the respondents’ motion to dismiss and motion for reconsideration. The Court shall not
resolve the merits of the respondents’ grounds for dismissal which are considered as
waived.
Other heirs of the spouses Pacaña to be impleaded in the case.
It should be emphasized that insofar as the petitioners are concerned, the respondents
have waived the dismissal of the complaint based on the ground of failure to state a
cause of action because the petitioners are not the real parties in interest. At this
juncture, a distinction between a real party in interest and an indispensable party is in
order. In Carandang v. Heirs of de Guzman, et al.,57 the Court clarified these two
concepts and held that "[a] real party in interest is the party who stands to be benefited
or injured by the judgment of the suit, or the party entitled to the avails of the suit. On
the other hand, an indispensable party is a party in interest without whom no final
determination can be had of an action, in contrast to a necessary party, which is one
who is not indispensable but who ought to be joined as a party if complete relief is to
be accorded as to those already parties, or for a complete determination or settlement
of the claim subject of the action. xxx If a suit is not brought in the name of or against
the real party in interest, a motion to dismiss may be filed on the ground that the
complaint states no cause of action. However, the dismissal on this ground entails an
examination of whether the parties presently pleaded are interested in the outcome of
the litigation, and not whether all persons interested in such outcome are actually
pleaded. The latter query is relevant in discussions concerning indispensable and
necessary parties, but not in discussions concerning real parties in interest. Both
indispensable and necessary parties are considered as real parties in interest, since both
classes of parties stand to be benefited or injured by the judgment of the suit."
At the inception of the present case, both the spouses Pacaña were not impleaded as
parties-plaintiffs. The Court notes, however, that they are indispensable parties to the
case as the alleged owners of Rovila Water Supply. Without their inclusion as parties,
there can be no final determination of the present case. They possess such an interest
in the controversy that a final decree would necessarily affect their rights, so that the
courts cannot proceed without their presence. Their interest in the subject matter of the
suit and in the relief sought is inextricably intertwined with that of the other parties.58
Jurisprudence on the procedural consequence of the inclusion or non-inclusion of an
indispensable party is divided in our jurisdiction. Due to the non-inclusion of
indispensable parties, the Court dismissed the case in Lucman v. Malawi, et al.59 and
Go v. Distinction Properties Development Construction, Inc.,60 while in Casals, et al. v.
Tayud Golf and Country Club et al.,61 the Court annulled the judgment which was
rendered without the inclusion of the indispensable parties. In Arcelona et al. v. Court of
Appeals62 and Bulawan v. Aquende,63 and Metropolitan Bank & Trust Company v.
Alejo et al.64 the Court ruled that the burden to implead or order the impleading of an
indispensable party rests on the plaintiff and on the trial court, respectively. Thus, the
non-inclusion of the indispensable parties, despite notice of this infirmity, resulted in the
annulment of these cases. In Plasabas, et al. v. Court of Appeals, et al.,65 the Court held
that the trial court and the CA committed reversible error when they summarily dismissed
the case, after both parties had rested their cases following a protracted trial, on the
sole ground of failure to implead indispensable parties. Non-joinder of indispensable
parties is not a ground for the dismissal of an action. The remedy is to implead the non-
party claimed to be indispensable. However, in the cases of Quilatan, et al. v. Heirs of
Quilatan, et al.66 and Lagunilla, et al. v. Monis, et al.,67 the Court remanded the case
to the RTC for the impleading of indispensable parties. On the other hand, in Lotte Phil.
Co., Inc. v. Dela Cruz,68 PepsiCo, Inc. v. Emerald Pizza, 69 and Valdez Tallorin, v. Heirs of
Tarona, et al.,70 the Court directly ordered that the indispensable parties be impleaded.
Mindful of the differing views of the Court as regards the legal effects of the non-
inclusion of indispensable parties, the Court clarified in Republic of the Philippines v.
Sandiganbayan, et al.,71 that the failure to implead indispensable parties is a curable
error and the foreign origin of our present rules on indispensable parties permitted this
corrective measure. This cited case held:
Even in those cases where it might reasonably be argued that the failure of the
Government to implead the sequestered corporations as defendants is indeed a
procedural aberration xxx, slight reflection would nevertheless lead to the conclusion
that the defect is not fatal, but one correctible under applicable adjective rules – e.g.,
Section 10, Rule 5 of the Rules of Court [specifying the remedy of amendment during
trial to authorize or to conform to the evidence]; Section 1, Rule 20 [governing
amendments before trial], in relation to the rule respecting omission of so-called
necessary or indispensable parties, set out in Section 11, Rule 3 of the Rules of Court. It is
relevant in this context to advert to the old familiar doctrines that the omission to
implead such parties "is a mere technical defect which can be cured at any stage of
the proceedings even after judgment"; and that, particularly in the case of
indispensable parties, since their presence and participation is essential to the very life
of the action, for without them no judgment may be rendered, amendments of the
complaint in order to implead them should be freely allowed, even on appeal, in fact
even after rendition of judgment by this Court, where it appears that the complaint
otherwise indicates their identity and character as such indispensable parties." Although
15
there are decided cases wherein the non-joinder of indispensable parties in fact led to
the dismissal of the suit or the annulment of judgment, such cases do not jibe with the
matter at hand. The better view is that non-joinder is not a ground to dismiss the suit or
annul the judgment. The rule on joinder of indispensable parties is founded on equity.
And the spirit of the law is reflected in Section 11, Rule 3 of the 1997 Rules of Civil
Procedure. It prohibits the dismissal of a suit on the ground of non-joinder or misjoinder
of parties and allows the amendment of the complaint at any stage of the proceedings,
through motion or on order of the court on its own initiative. Likewise, jurisprudence on
the Federal Rules of Procedure, from which our Section 7, Rule 3 on indispensable parties
was copied, allows the joinder of indispensable parties even after judgment has been
entered if such is needed to afford the moving party full relief. Mere delay in filing the
joinder motion does not necessarily result in the waiver of the right as long as the delay
is excusable.
In Galicia, et al. v. Vda. De Mindo, et al.,72 the Court ruled that in line with its policy of
promoting a just and inexpensive disposition of a case, it allowed the intervention of the
indispensable parties instead of dismissing the complaint. Furthermore, in Commissioner
Domingo v. Scheer,73 the Court cited Salvador, et al. v. Court of Appeals, et al.74 and
held that the Court has full powers, apart from that power and authority which are
inherent, to amend the processes, pleadings, proceedings and decisions by substituting
as party-plaintiff the real party in interest. The Court has the power to avoid delay in the
disposition of this case, and to order its amendment in order to implead an
indispensable party. With these discussions as premises, the Court is of the view that the
proper remedy in the present case is to implead the indispensable parties especially
when their non-inclusion is merely a technical defect. To do so would serve proper
administration of justice and prevent further delay and multiplicity of suits. Pursuant to
Section 9, Rule 3 of the Rules of Court, parties may be added by order of the court on
motion of the party or on its own initiative at any stage of the action. If the plaintiff
refuses to implead an indispensable party despite the order of the court, then the court
may dismiss the complaint for the plaintiff’s failure to comply with a lawful court order.75
The operative act that would lead to the dismissal of the case would be the refusal to
comply with the directive of the court for the joinder of an indispensable party to the
case.76
Obviously, in the present case, the deceased Pacañas can no longer be included in
the complaint as indispensable parties because of their death during the pendency of
the case. Upon their death, however, their ownership and rights over their properties
were transmitted to their heirs, including herein petitioners, pursuant to Article 77477 in
relation with Article 77778 of the Civil Code.
In Orbeta, et al. v. Sendiong,79 the Court acknowledged that the heirs, whose
hereditary rights are to be affected by the case, are deemed indispensable parties who
should have been impleaded by the trial court. Therefore, to obviate further delay in
the proceedings of the present case and given the Court’s authority to order the
inclusion of an indispensable party at any stage of the proceedings, the heirs of the
spouses Pacaña, except the petirioners who are already parties to the case are
Lagrimas Pacaña-Gonzalez who intervened in the case, are hereby ordered impleaded
as parties-plaintiffs.
WHEREFORE, the petition is GRANTED. The decision dated January 27, 2005 and the
resolution date June 6, 2005 of the Court of Appeals in CA-G.R. SP No. 71551 are
REVERSED and SET ASIDE. The heirs of the spouses Luciano and Lourdes Pacaña, except
herein petitioner and Lagrimas Pacaña-Gonzalez, are ORDERED IMPLEADED as parties
plaintiffs and the RTC is directed tp proceed with the trial of the case with DISPATCH.
SO ORDERED.
RULE 3. SEC. 12
G.R. No. 174353 September 10, 2014
NESTOR CHING and ANDREW WELLINGTON, Petitioners,
vs.
SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN HU, HU TSUNG
CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG TZU and REYNALD R. SUAREZ,
Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the
review of the Decision1 dated October 27, 2005 of the Court of Appeals in CA-G.R. CV
No. 81441, which affirmed the Order2 dated July 8, 2003 of the Regional Trial Court (RTC),
Branch 72 of Olongapo City in Civil Case No. 03-001 dismissing the Complaint filed by
herein petitioners.
On February 26, 2003, petitioners Nestor Ching and Andrew Wellington filed a
Complaint3 with the RTC of Olongapo City on behalf of the members of Subic Bay Golf
and Country Club, Inc. (SBGCCI) against the said country club and its Board of Directors
and officers under the provisions of Presidential Decree No. 902-A in relation to Section
16
5.2 of the Securities Regulation Code. The Subic Bay Golfers and Shareholders
Incorporated (SBGSI), a corporation composed of shareholders of the defendant
corporation, was also named as plaintiff. The officers impleaded as defendants were
the following: (1) itsPresident, Hu Ho Hsiu Lien alias Susan Hu; (2) its treasurer, Hu Tsung
Chieh alias Jack Hu; (3) corporate secretary Reynald Suarez; and (4) directors Hu Tsung
Hui and Hu Tsung Tzu. The case was docketed as Civil Case No. 03-001. The complaint
alleged that the defendant corporation sold shares to plaintiffs at US$22,000.00 per
share, presenting to them the Articles of Incorporation which contained the following
provision:
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no
dividends shall be declared in their favor. Shareholders shall be entitled only to a pro-
rata share of the assets of the Club at the time of its dissolution or liquidation.4
However, on June 27, 1996, an amendment to the Articles of Incorporation was
approved by the Securities and Exchange Commission (SEC), wherein the above
provision was changed as follows:
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no
dividends shall be declared in their favor. In accordance with the Lease and
Development Agreement by and between Subic Bay Metropolitan Authority and The
Universal International Group of Taiwan, where the golf courseand clubhouse
component thereof was assigned to the Club, the shareholders shall not have
proprietary rights or interests over the properties of the Club.5 x x x. (Emphasis supplied.)
Petitioners claimed in the Complaint that defendant corporation did not disclose to
them the above amendment which allegedly makes the shares non-proprietary, as it
takes away the rightof the shareholders to participate in the pro-rata distribution of the
assets of the corporation after its dissolution. According to petitioners, this is in fraud of
the stockholders who only discovered the amendment when they filed a case for
injunction to restrain the corporation from suspending their rights to use all the facilities
of the club. Furthermore, petitioners alleged that the Board of Directors and officers of
the corporation did not call any stockholders’ meeting from the time of the
incorporation, in violation of Section 50 of the Corporation Code and the By-Laws of the
corporation. Neither did the defendant directors and officers furnish the stockholders
with the financial statements of the corporation nor the financial report of the operation
of the corporation in violation of Section 75 of the Corporation Code. Petitioners also
claim that on August 15, 1997, SBGCCI presented to the SEC an amendment to the By-
Laws of the corporation suspending the voting rights of the shareholders except for the
five founders’ shares. Said amendment was allegedly passed without any stockholders’
meeting or notices to the stockholders in violation of Section 48 of the Corporation
Code.

The Complaint furthermore enumerated several instances of fraud in the management
of the corporation allegedly committed by the Board of Directors and officers of the
corporation, particularly:
a. The Board of Directors and the officers of the corporation did not indicate in its
financial report for the year 1999 the amount of ₱235,584,000.00 collected from the
subscription of 409 shareholders who paid U.S.$22,000.00 for one (1) share of stock at the
then prevailing rate of ₱26.18 to a dollar. The stockholders were not informed how these
funds were spent or its whereabouts.
b. The Corporation has been collecting green fees from the patrons of the golf course
at an average sum of ₱1,600.00 per eighteen (18) holes but the income is not reported
in their yearly report. The yearly report for the year 1999 contains the report of the
Independent Public Accountant who stated that the company was incorporated on
April 1, 1996 but has not yet started its regular business operation. The golf course has
been in operation since 1997 and as such has collected green fees from non-members
and foreigners who played golf in the club. There is no financial report as to the income
derived from these sources.
c. There is reliable information that the Defendant Corporation has not paid its rentals
to the Subic Bay Metropolitan Authority which up to the present is estimated to be not
less than one (1) million U.S. Dollars. Furthermore, the electric billings of the corporation
[have] not been paid which amounts also to several millions of pesos.
d. That the Supreme Court sustained the pre-termination of its contract with the SBMA
and presently the club is operating without any valid contract with SBMA. The
defendant was ordered by the Supreme Court to yield the possession, the operation
and the management of the golf course to SBMA. Up to now the defendants [have]
defied this Order.
e. That the value of the shares of stock of the corporation has drastically declined from
its issued value of U.S.$22,000.00 to only Two Hundred Thousand Pesos, (₱200,000.00)
Philippine Currency. The shareholders [have] lost in terms ofinvestment the sum
estimated to be more than two hundred thousand pesos.This loss is due to the fact that
the Club is mismanaged and the golf course is poorly maintained. Other amenities of
the Club has (sic) not yet been constructed and are not existing despite the lapse of
morethan five (5) years from the time the stocks were offered for sale to the public. The
cause of the decrease in value of the sharesof stocks is the fraudulent mismanagement
of the club.6
17
Alleging that the stockholders suffered damages as a result of the fraudulent
mismanagement of the corporation, petitioners prayed in their Complaint for the
following:
WHEREFORE, it is most respectfully prayed that upon the filing of this case a temporary
restraining order be issued enjoining the defendants from acting as Officers and Board
of Directors of the Corporation. After hearing[,] a writ of preliminary injunction be issued
enjoining defendants to act as Board of Directors and Officers of the Corporation. In the
meantime a Receiver be appointed by the Court to act as such until a duly constituted
Board of Directors and Officers of the Corporation be elected and qualified.
That defendants be ordered to pay the stockholders damages in the sum of Two
Hundred Thousand Pesos each representing the decrease in value of their shares of
stocks plus the sum of ₱100,000.00 as legal expense and attorney’s fees, as well as
appearance fee of ₱4,000.00 per hearing.7
In their Answer, respondents specifically denied the allegations of the Complaint and
essentially averred that:
(a) The subscriptions of the 409 shareholders were paid to Universal International Group
Development Corporation (UIGDC), the majority shareholder of SBGCCI, from whom
plaintiffs and other shareholders bought their shares;8
(b) Contrary to the allegations in the Complaint, said subscriptions were reflected
inSBGCCI’s balance sheets for the fiscal years 1998 and 1999;9
(c) Plaintiffs were never presented the original Articles of Incorporation of SBGCCI since
their shares were purchased after the amendment of the Articles of Incorporation and
such amendment was publicly known to all members prior and subsequent to the said
amendment;10
(d) Shareholders’ meetingshad been held and the corporate acts complained of were
approved at shareholders’ meetings;11
(e) Financial statements of SBGCCI had always been presented to shareholders
justifiably requesting copies;12
(f) Green fees collected were reported in SBGCCI’s audited financial statements;13
(g) Any unpaid rentals are the obligation of UIGDC with SBMA and SBGCCI continued
to operate under a valid contract with the SBMA;14 and
(h) SBGCCI’s Board of Directors was not guilty of any mismanagement and in fact the
value of members’ shares have increased.15
Respondents further claimed by way ofdefense that petitioners failed (a) to show that
it was authorized by SBGSI to file the Complaint on the said corporation’s behalf; (b) to
comply with the requisites for filing a derivative suit and an action for receivership; and
(c) to justify their prayer for injunctive relief since the Complaint may be considered a
nuisance or harassment suit under Section 1(b), Rule1 of the Interim Rules of Procedure
for Intra-Corporate Controversies.16 Thus, they prayed for the dismissal of the Complaint.
On July 8, 2003, the RTC issued an Order dismissing the Complaint. The RTC held that the
action is a derivative suit, explaining thus:
The Court finds that this case is intended not only for the benefit of the two petitioners.
This is apparentfrom the caption of the case which reads Nestor Ching, Andrew
Wellington and the Subic Bay Golfers and Shareholders, Inc., for and in behalf of all its
members as petitioners. This is also shown in the allegations of the petition[.] x x x.
On the bases of these allegations of the petition, the Court finds that the case is a
derivative suit. Being a derivative suit in accordance with Rule 8 of the Interim Rules, the
stockholders and members may bring an action in the name of the corporation or
association provided that he (the minority stockholder) exerted all reasonable efforts
and allege[d] the same with particularity in the complaint to exhaust of (sic) all remedies
available under the articles of incorporation, by-laws or rules governing the corporation
or partnership to obtain the reliefs he desires. An examination of the petition does not
show any allegation that the petitioners applied for redress to the Board of Directors of
respondent corporation there being no demand, oralor written on the respondents to
address their complaints. Neither did the petitioners appl[y] for redress to the
stockholders of the respondent corporation and ma[k]e an effort to obtain action by
the stockholders as a whole. Petitioners should have asked the Board of Directors of the
respondent corporation and/or its stockholders to hold a meeting for the taking up of
the petitioners’ rights in this petition.17
The RTC held that petitioners failed to exhaust their remedies within the respondent
corporation itself. The RTC further observed that petitioners Ching and Wellington were
not authorized by their co-petitioner Subic Bay Golfers and Shareholders Inc. to filethe
Complaint, and therefore had no personality to file the same on behalf ofthe said
shareholders’ corporation. According to the RTC, the shareholdings of petitioners
comprised of two shares out of the 409 alleged outstanding shares or 0.24% is an
indication that the action is a nuisance or harassment suit which may be dismissed either
motu proprio or upon motion in accordance with Section 1(b) of the Interim Rules of
Procedure for Intra-Corporate Controversies.18
18
Petitioners Ching and Wellington elevated the case to the Court of Appeals, where it
was docketed as CA-G.R. CV No. 81441. On October 27, 2005, the Court of Appeals
rendered the assailed Decision affirming that of the RTC.
Hence, petitioners resort to the present Petition for Review, wherein they argue that the
Complaint they filed with the RTC was not a derivative suit. They claim that they filed the
suit in their own right as stockholders against the officers and Board of Directors of the
corporation under Section 5(a) of Presidential DecreeNo. 902-A, which provides:
Sec. 5. In addition tothe regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:
(a) Devices or schemes employed by or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which may
be detrimental to the interest of the public and/or of the stockholders, partners,
members of associations or organizations registered with the Commission.
According to petitioners, the above provision (which should be read in relation to
Section 5.2 of the Securities Regulation Code which transfers jurisdiction over such cases
to the RTC) allows any stockholder to file a complaint against the Board of Directors for
employing devices or schemes amounting to fraud and misrepresentation which is
detrimental to the interest of the public and/or the stockholders.
In the alternative, petitioners allege that if this Court rules that the Complaint is a
derivative suit, it should nevertheless reverse the RTC’s dismissal thereof on the ground
of failure to exhaust remedies within the corporation. Petitioners cite Republic Bank v.
Cuaderno19 wherein the Court allowed the derivative suit even without the exhaustion
of said remedies as it was futile to do so since the Board ofDirectors were all members
of the same family. Petitioners also point out that in Cuadernothis Court held that the
fact that therein petitioners had only one share of stock does not justify the denial of the
relief prayed for.
To refute the lower courts’ ruling that there had been non-exhaustion of intra-corporate
remedies on petitioners’ part, they claim that they filed in Court a case for Injunction
docketed as Civil Case No. 103-0-01, to restrain the corporation from suspending their
rights to use all the facilities of the club, on the ground that the club cannot collect
membership fees until they have completed the amenities as advertised when the
shares of stock were sold to them. They allegedly asked the Club to produce the minutes
of the meeting of the Board of Directors allowing the amendments of the Articles of
Incorporation and By-Laws. Petitioners likewise assail the dismissal of the Complaint for
being a harassment ornuisance suit before the presentation of evidence. They claim
that the evidence they were supposed to present will show that the members of the
Board of Directors are not qualified managers of a golf course.
We find the petition unmeritorious.
At the outset, it should be noted thatthe Complaint in question appears to have been
filed only by the two petitioners, namely Nestor Ching and Andrew Wellington, who
each own one stock in the respondent corporation SBGCCI. While the caption of the
Complaint also names the "Subic Bay Golfers and Shareholders Inc. for and in behalf of
all its members," petitioners did not attach any authorization from said alleged
corporation or its members to file the Complaint. Thus, the Complaint is deemed filed
only by petitioners and not by SBGSI.
On the issue of whether the Complaint is indeed a derivative suit, we are mindful of the
doctrine that the nature of an action, as well as which court or body has jurisdiction over
it, isdetermined based on the allegations contained in the complaint of the plaintiff,
irrespective of whether or not the plaintiff is entitled to recover upon all or some of the
claims asserted therein.20
We have also held that the body rather than the title of the complaint determines the
nature of an action.21
In Cua, Jr. v. Tan,22 the Court previously elaborated on the distinctions among a
derivative suit, anindividual suit, and a representative or class suit:
A derivative suit must be differentiated from individual and representative or class suits,
thus:
"Suits by stockholders or members of a corporation based on wrongful or fraudulent acts
of directors or other persons may be classified intoindividual suits, class suits, and
derivative suits. Where a stockholder or member is denied the right of inspection, his suit
would be individual because the wrong is done to him personally and not to the other
stockholders or the corporation. Where the wrong is done to a group of stockholders, as
where preferred stockholders’ rights are violated, a class or representative suitwill be
proper for the protection of all stockholders belonging to the same group. But where
the acts complained of constitute a wrong to the corporation itself, the cause of action
belongs to the corporation and not to the individual stockholder or member. Although
in most every case of wrong to the corporation, each stockholder is necessarily affected
because the value of his interest therein would be impaired, this fact of itself is not
sufficient to give him an individual cause of action since the corporation is a person
19
distinct and separate from him, and can and should itself sue the wrongdoer. Otherwise,
not only would the theory of separate entity be violated, but there would be multiplicity
of suits as well as a violation of the priority rights of creditors. Furthermore,there is the
difficulty of determining the amount of damages that should be paid to each individual
stockholder.
However, in cases of mismanagement where the wrongful acts are committed by the
directors or trustees themselves, a stockholder or member may find that he has no
redress because the former are vested by law with the right to decide whether or notthe
corporation should sue, and they will never be willing to sue themselves. The corporation
would thus be helpless to seek remedy. Because of the frequent occurrence of such a
situation, the common law gradually recognized the right of a stockholder to sue on
behalf of a corporation in what eventually became known as a "derivative suit." It has
been proven to be an effective remedy of the minority against the abuses of
management. Thus, an individual stockholder is permitted to institute a derivative suit
on behalf of the corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever officials of the corporation refuse to sue orare the ones to
be sued or hold the control of the corporation. In such actions, the suing stockholder is
regarded as the nominal party, with the corporation as the party in interest."
xxxx
Indeed, the Court notes American jurisprudence to the effect that a derivative suit, on
one hand, and individual and class suits, on the other, are mutually exclusive, viz.:
"As the Supreme Court has explained: "A shareholder’s derivative suit seeks to recover
for the benefit of the corporation and its whole body of shareholders when injury is
caused to the corporation that may not otherwise be redressed because of failureof
the corporation to act. Thus, ‘the action is derivative, i.e., in the corporate right, if the
gravamen of the complaint is injury to the corporation, or to the whole body of its stock
and property without any severance or distribution among individual holders, or it seeks
to recover assets for the corporation or to prevent the dissipation of its assets.’ x x x. In
contrast, "a directaction [is one] filed by the shareholder individually (or on behalf of a
classof shareholders to which he or she belongs) for injury to his or her interestas a
shareholder. x x x. [T]he two actions are mutually exclusive: i.e., the right of action and
recovery belongs to either the shareholders (direct action) *651 or the
corporation(derivative action)." x x x.
Thus, in Nelson v. Anderson(1999), x x x, the **289 minority shareholder alleged that the
other shareholder of the corporation negligently managed the business, resulting in its
total failure. x x x. The appellate court concluded that the plaintiff could not maintain
the suit as a direct action: "Because the gravamen of the complaint is injury to the whole
body of its stockholders, it was for the corporation to institute and maintain a remedial
action. x x x. A derivative action would have been appropriate if its responsible officials
had refused or failed to act." x x x. The court wenton to note that the damages shown
at trial were the loss of corporate profits. x x x. Since "[s]hareholders own neither the
property nor the earnings of the corporation," any damages that the plaintiff alleged
that resulted from such loss of corporate profits "were incidental to the injury to the
corporation." (Citations omitted.)
The reliefs sought in the Complaint, namely that of enjoining defendants from acting as
officers and Board of Directors of the corporation, the appointment of a receiver, and
the prayer for damages in the amount of the decrease in the value of the sharesof
stock, clearly show that the Complaint was filed to curb the alleged mismanagement
of SBGCCI. The causes of action pleaded by petitioners do not accrue to a single
shareholder or a class of shareholders but to the corporation itself.
However, as minority stockholders, petitioners do not have any statutory right to override
the business judgments of SBGCCI’s officers and Board of Directors on the ground of the
latter’s alleged lackof qualification to manage a golf course. Contraryto the arguments
of petitioners, Presidential Decree No. 902-A, which is entitled REORGANIZATION OF THE
SECURITIES AND EXCHANGE COMMISSION WITH ADDITIONAL POWERS AND PLACING THE
SAID AGENCY UNDER THE ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE
PRESIDENT, does not grant minority stockholders a cause of action against waste and
diversion by the Board of Directors, but merely identifies the jurisdiction of the SEC over
actionsalready authorized by law or jurisprudence. It is settled that a stockholder’s right
to institute a derivative suit is not based on any express provisionof the Corporation
Code, or even the Securities Regulation Code, but is impliedly recognized when the said
laws make corporate directors or officers liable for damages suffered by the corporation
and its stockholders for violation of their fiduciary duties.23
At this point, we should take note that while there were allegations in the Complaint of
fraud in their subscription agreements, such as the misrepresentation of the Articles of
Incorporation, petitioners do not pray for the rescission of their subscription or seekto
avail of their appraisal rights. Instead, they ask that defendants be enjoined from
managing the corporation and to pay damages for their mismanagement. Petitioners’
only possible cause of action as minority stockholders against the actions of the Board
of Directors is the common law right to file a derivative suit. The legal standing of minority
stockholders to bring derivative suits is not a statutory right, there being no provision in
the Corporation Code or related statutes authorizing the same, but is instead a product
of jurisprudence based on equity. However, a derivative suit cannot prosper without first
complying with the legal requisites for its institution.24
20
Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate
Controversies imposes the following requirements for derivative suits:
(1) He was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
The RTC dismissed the Complaint for failure to comply with the second and fourth
requisites above.
Upon a careful examination of the Complaint, this Court finds that the same should not
have been dismissed on the ground that it is a nuisance or harassment suit. Although
the shareholdings of petitioners are indeed only two out of the 409 alleged outstanding
shares or 0.24%, the Court has held that it is enough that a member or a minority of
stockholders file a derivative suit for and in behalf of a corporation.25
With regard, however, to the second requisite, we find that petitioners failed to state
with particularity in the Complaint that they had exerted all reasonable efforts to
exhaust all remedies available under the articles of incorporation, by-laws, and laws or
rules governing the corporation to obtain the relief they desire. The Complaint
contained no allegation whatsoever of any effort to avail of intra-corporate remedies.
Indeed, even if petitioners thought it was futile to exhaust intra-corporate remedies, they
should have stated the same in the Complaint and specified the reasons for such
opinion. Failure to do so allows the RTC to dismiss the Complaint, even motu proprio, in
accordance with the Interim Rules. The requirement of this allegation in the Complaint
is not a useless formality which may be disregarded at will.1âwphi1 We ruled in Yu v.
Yukayguan26:
The wordings of Section 1, Rule8 of the Interim Rules of Procedure Governing Intra-
Corporate Controversies are simple and do not leave room for statutory construction.
The second paragraph thereof requires that the stockholder filing a derivative suit should
have exerted all reasonable efforts to exhaust all remedies availableunder the articles
of incorporation, by-laws, laws or rules governing the corporation or partnership to
obtain the relief he desires; and to allege such fact with particularityin the complaint.
The obvious intent behind the rule is to make the derivative suit the final recourse of the
stockholder, after all other remedies to obtain the relief sought had failed.
WHEREFORE, the Petition for Review is hereby DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 81441 which affirmed the Order of the Regional Trial Court
(RTC) of Olongapo City dismissing the Complaint filed thereon by herein petitioners is
AFFIRMED.
SO ORDERED.
G.R. No. 148606 June 30, 2008
CHARLES LIMBAUAN, petitioner,
vs.
FAUSTINO ACOSTA, respondent.
DECISION
LEONARDO-DE CASTRO, J.:
In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
petitioner seeks to set aside and annul the Decision1 dated June 26, 2001 rendered by
the Court of Appeals (CA), Thirteenth Division, in CA-G.R. SP No. 49144.
The CA decision affirmed an earlier decision2 of the Regional Trial Court (RTC) of
Caloocan City, Branch 125, dated March 12, 1998 which also affirmed the decision3
dated December 29, 1997 of the Metropolitan Trial Court (MTC), Caloocan City, Branch
52, ordering herein petitioner to surrender possession of the property in question and pay
the unpaid monthly rentals thereon.
The pertinent facts, as found by the CA, are quoted hereunder:
Sometime in 1938, the Government acquired the Tala Estate consisting of 808 hectares,
located in Kalookan, primarily for a leprosarium. However, the State utilized only one-
fifth of the property for the purpose. More, under Republic Act 4085, it was no longer
mandatory for the segregation of hansenites. Consequently, the State needed a lesser
portion of the property for the leprosarium. In the meantime, the State found it necessary
to establish new residential areas within a 20-kilometer radius from the center of the
Metropolitan Manila and/or utilizing inexpensive land in order to serve low-income
families whose housing needs can only be met by the Government. On April 26, 1971,
President Ferdinand E. Marcos issued Proclamation No. 843 allocating the property to
21
the Department of Health, the National Housing Corporation, the PHHC and
Department of Social Welfare and Development xxx.
It was also decreed that, more precise identities of the parcels of land allocated to the
government will be made only after a final survey shall have been completed. A joint
PHHC-Bureau of Lands team was tasked to undertake the necessary segregation survey
and inquiries on private rights within the Estate. In the Interim, it was decreed that no
transfer of title shall be made until the enactment of a law allowing the use of the site
for purposes other than that of a leprosarium.
In the meantime, Faustino Acosta took possession of a vacant portion of the Tala Estate
and constructed his house thereon, bearing address No. 786, Barrio San Roque,
Barangay 187, Tala, Caloocan City. In August, 1982, Faustino Acosta, who was then a
Barangay Councilman, executed a deed styled "Registration of Property", attested by
the Barangay Captain, over another vacant portion of the Estate, west of the Barangay
Hall, with an area of 150 square meters, bearing the following boundaries:
NORTH: WAITING SHED……SOUTH: JUAN DAMIAN WEST: NITA CRUZ, RESTAURANT…..EAST:
BRGY. HALL…187 (at page 7, Records)
Faustino Acosta then took possession of the property, constructed a fence around the
perimeter of the property and planted vegetables thereon. However, in 1984, Paulino
Calanday took possession of the said property without the consent of Faustino,
constructed an edifice thereon and used the same as a beerhouse. When Faustino
remonstrated, Paulino filed two (2) criminal complaints against Faustino with the
Metropolitan Trial Court, entitled and docketed "People versus Faustino Acosta, Criminal
Case Nos. 143550-51", for "Malicious Michief" and "Unjust Vexation". However, on
September 27, 1985, the Court issued an Order dismissing the cases for failure of Paulino
to comply with PD 1508.
Paulino, in the meantime, conveyed the beerhouse to Juanita Roces. The latter and
Faustino entered into an oral contract of lease over the parcel of land for a monthly
rental of P60.00. About a year thereafter, Juanita suddenly stopped paying to Faustino
her rentals for the property. It turned out that Juanita conveyed the beerhouse to her
nephew, Charles Limbauan, who forthwith assumed the lease from his aunt and who,
thenceforth, paid the monthly rentals for the property in the amount of P60.00 to
Faustino. However, in November, 1987, Charles stopped paying rentals to Faustino
claiming that, since the property was government property, Faustino had no right to
lease the same and collect the rentals therefore. However, Faustino did not file any
complaint nor unlawful detainer against Charles.
Sometime in February, 1995, Congress approved Republic Act 7999 under which the
State converted a portion of the Estate, with a total area of 120 hectares, for use as a
housing site for residents and employees of the Department of Health, with the National
Housing Authority as the leading implementing agency:
(a) Seventy (70) hectares of the one hundred thirty (130) hectares reserved for the
leprosarium and settlement site of the hansenites and their families under Proclamation
No. 843 are hereby declared alienable and disposable for use as a housing site for the
bona fide residents, hansenites and their immediate families and for qualified
employees of the Department of Health: Provided, That if the said beneficiary is an
employee of the Deparment of Health, the said employee must have been assigned in
the Tala Leprosarium and must have been a resident thereat for at least five (5) years:
Provided, further, That the residential lot awarded to the beneficiaries under this Act
shall not be transferred, conveyed or assigned to any other person for a period of
twenty-five (25) years, except to legal heirs by way of succession; and
(b) The fifty (50) hectares reserved for the plants, installations and pilot housing project
of the National Housing Corporation, as provided in the same proclamation, are hereby
declared as alienable and disposable: Provided, That twenty-nine (29) hectares of the
said fifty (50) hectares shall be converted into a housing site exclusively for the bona fide
and qualified residents of the area. (idem, supra)
After the passage by Congress of Republic Act 7999, Faustino filed a complaint against
Charles with the Lupon for ejectment for failure of Charles to pay his rentals from
October, 1987. On April 15, 1995, the Lupon issued a "Certification to File Action" (at
page 9, Records). Republic Act 7999 became law on April 22, 1995, without the
signature of the President.
On January 2, 1996, Faustino, through Law Interns in the office of Legal Aid of the
University of the Philippines, sent a letter to Charles demanding that the latter vacate
the property within five (5) days from notice for his failure to pay the monthly rentals in
the amount of P60.00 a month since October, 1987. Charles Limbauan ignored the letter
and refused to vacate the property.
Faustino, forthwith, filed, on February 7, 1996, a complaint for "Unlawful Detainer" against
Charles with the Metropolitan Trial Court, entitled and docketed "Faustino Acosta versus
Charles Limbauan, Civil Case No. 22521", praying that, after due proceedings, judgment
be rendered in his favor as follows:
PRAYER
22
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be rendered
in favor of plaintiff and against the defendant as follows:
1. To order the immediate restoration of the premises to plaintiff in accordance with Rule
70, Sec. 3 of the Rules of Court;
2. Ordering the defendants to pay to plaintiff the sum of P60.00 a month plus interest
from November 1987 until they vacate the premises;
2.(sic) Ordering defendant to pay plaintiff the sum of P10,000.00 by way of moral
damages;
3. Such other remedies as may be just and equitable under the premises. (at page 4,
Records)
Upon suggestion of the Court, Faustino Acosta, through the Law Interns, sent another
letter of demand to Charles Limbauan, dated March 7, 1996, demanding that the latter
vacate the property this time within fifteen (15) days from notice, otherwise, Faustino will
institute the appropriate action for his eviction from the property. Charles Limbauan
received the letter, on March 13, 1996, but refused to vacate the property. Faustino
forthwith filed a "Motion to Approve Attached Amended Complaint" with the Court
which was granted by the Court.
In his Answer to the Complaint, Charles alleged, inter alia that Faustino had no cause of
action against him because the property on which the beerhouse was constructed is
owned by the government since the government is the owner of the property, Faustino
had no right of possession over the property and collect rentals therefore. Besides, it was
unfair for Faustino, who was already in possession of the lot at No. 786 B. San Roque,
Barangay 187 to still claim possession over the subject property. The Defendant
interposed the defense that the Court had no jurisdiction over the action of the Plaintiff
as it was one of accion publiciana and not one for unlawful detainer.
On December 29, 1997, the Court promulgated a Decision in favor of the Plaintiff and
against the Defendant, the decretal portion of which reads as follows:
DISPOSITION BY THE COURT:
Premises considered, decision is rendered for the plaintiff, Faustino Acosta, and against
the defendant, Charles Limbauan, directing the latter and all those claiming under him
to vacate the premises specifically described as the parcel of commercial land located
at the west portion of the barangay hall, barangay 187, Zone 16, B. Sto. Nino, Tala,
Caloocan City, to surrender peaceful possession of the same to the former, and to pay
him the following amounts:
a. P60.00 monthly from November, 1987, as reasonable compensation for the use and
occupancy of the parcel of land subject matter of this case with legal interests from
today up to the actual surrender of the same.
b. P130.00 by way of reimbursement for costs of suit as shown by the receipts on record.
Given in Chambers. (at page 79, Records)
The Court found and declared that the Plaintiff adduced evidence that the Defendant
was the lessee of the Plaintiff over the property and, hence, the latter was estopped
from assailing Plaintiff’s title over the property.
The Defendant interposed an appeal from said Decision to the Regional Trial Court
which, on August 28, 1998, rendered a Decision affirming the Decision of the Court a
quo.
The Petitioner forthwith filed a "Petition for Review" with this Court (Court of Appeals),
under Rule 42 of the 1997 Rules of Civil Procedure, and posed, for our resolution, the
following issues: (a) whether or not the remedy of the Respondent in the Metropolitan
Trial Court for unlawful detainer was proper; (b) the subject property was government
property and, hence, cannot be the lawful subject of a lease contract between the
Petitioner and Respondent and, hence, the latter had no right to have the Petitioner
evicted from the property and to collect rentals from him. It was inappropriate for the
trial court, and the Regional Trial Court, to apply and rely on Section 2(b), Rule 131 of
the Rules of Evidence.
On June 26, 2001, the CA dismissed the aforementioned Petition for Review and
affirmed the decision of the RTC.
Hence, this petition for review which seeks the reversal of the said CA decision on the
basis of the issues quoted hereunder:
a) DID THE HONORABLE COURT OF APPEALS IN RENDERING THE ASSAILED DECISION
COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OF JURISDICTION?
b) WHETHER OR NOT THE CASE IS RENDERED MOOT AND ACADEMIC ON ACCOUNT OF
THE DEATH OF THE RESPONDENT.4
In relation to the aforequoted issues, the petitioner adduces the following arguments:
23
(1) The right application of laws under Rule 70 and Rule 10 in relation with the law on
jurisdiction over the case was ignored.
(2) The amendment under Section 2, Rule 10, Rules of Court is a futile remedy when the
Court has no jurisdiction over the case.
(3) The alleged existence of lessor-lessee relationship between the parties had not been
sufficiently established.
(4) The fact of death of respondent rendered the case moot and academic.5
The first and second arguments advanced by petitioner are interrelated. Thus, they shall
be discussed jointly. Petitioner argues that there must be a prior demand to vacate the
leased premises and pay the rent and a 15-day period from the time of demand must
have lapsed before a complaint for unlawful detainer may be commenced pursuant
to Section 2, Rule 70. According to petitioner, respondent’s demand letter gave the
petitioner a five-day period only instead of fifteen (15) days within which to comply with
the demand to vacate. A jurisdictional requisite, not having been complied with, the
MTC did not acquire jurisdiction over the case.
Section 2, Rule 70 of the Revised Rules of Court provides as follows:
Sec. 2. Lessor to proceed against lessee only after demand. –Unless otherwise stipulated,
such action by the lessor shall be commenced only after demand to pay or comply
with the conditions of the lease and to vacate is made upon the lessee, or by serving
written notice of such demand upon the person found on the premises, or by posting
such notice on the premises if no person be found thereon, and the lessee fails to
comply therewith after fifteen (15) days in the case of land or five (5) days in the case
of buildings.
As contemplated in the aforecited rule, the demand to pay rent and vacate is
necessary if the action for unlawful detainer is anchored on the non-payment of rentals,
as in the instant case. The same rule explicitly provides that the unlawful detainer suit
must be commenced only if the lessee fails to comply after the lapse or expiration of
fifteen (15) days in case of lands and five (5) days in case of buildings, from the time the
demand is made upon the lessee. The demand required and contemplated in Section
2 of Rule 70 is a jurisdictional requirement for the purpose of bringing an unlawful
detainer suit for failure to pay rent. It partakes of an extrajudicial remedy that must be
pursued before resorting to judicial action such that full compliance with the demand
would render unnecessary a court action.6
Hence, it is settled that for the purpose of bringing an ejectment suit, two requisites must
concur, namely: (1) there must be failure to pay rent or to comply with the conditions of
the lease and (2) there must be demand both to pay or to comply and vacate within
the periods specified in Section 2, particularly, 15 days in the case of land and 5 days in
the case of buildings. The first requisite refers to the existence of the cause of action for
unlawful detainer while the second refers to the jurisdictional requirement of demand in
order that said cause of action may be pursued.7
As the subject matter of the instant case is a parcel of land, the expiration of the
aforesaid fifteen-day period is a prerequisite to the filing of an action for unlawful
detainer. As to whether respondent observed this fifteen-day period, an affirmative
answer can be gleaned from the evidence on record. Respondent’s first demand letter
dated January 2, 1996 gave petitioner five (5) days from receipt within which to pay the
unpaid rentals and vacate the premises. Petitioner received the demand letter on
January 10, 1996 while respondent brought the action for unlawful detainer on February
7, 1996, which was clearly more than 15 days from the time petitioner received the
demand letter on January 10, 1996 and well within the one-year period set forth by
Section 1, Rule 70.8 Thus, the fact that respondent’s demand letter granted petitioner
five (5) days to pay and to vacate the subject property is of no moment because what
is important and required under Section 2 of Rule 70 is for the lessor to allow a period of
fifteen (15) days to lapse before commencing an action for unlawful detainer. Evidently,
respondent actually complied with this requirement. For this reason, we find no error in
the MTC assuming jurisdiction over respondent’s complaint and in not dismissing the
same.
Moreover, upon the advice of the MTC, respondent sent another demand letter dated
March 7, 1996 to petitioner, this time giving the latter fifteen (15) days within which to
vacate the subject property and when petitioner still refused, respondent was
compelled to file a Motion to Approve Attached Amended Complaint. The said motion
was rightly granted by the MTC in accordance with Section 2, Rule 10 of the Revised
Rules of Court, to wit:
Sec. 2. Amendments as a matter of right. — A party may amend his pleading once as
a matter of course at any time before a responsive pleading is served or, in the case of
a reply, at any time within ten (10) days after it is served.
Under this provision, a party has the absolute right to amend his pleading whether a
new cause of action or change in theory is introduced, at any time before the filing of
any responsive pleading.9 Undoubtedly, when respondent filed his Amended
Complaint on May 16, 1996,10 no responsive pleading had yet been filed by petitioner,
thus, the MTC validly admitted the said amended complaint.
24
It is well-settled that amendment of pleadings is favored and should be liberally allowed
in the furtherance of justice in order to determine every case as far as possible on its
merits without regard to technicalities. This principle is generally recognized in order that
the real controversies between the parties are presented, their rights determined and
the case decided on the merits without unnecessary delay to prevent circuity of action
and needless expense.11
Petitioner also contends that the MTC’s purpose for admitting the amended complaint
was to eliminate the jurisdictional defect of the original complaint. Petitioner cites the
cases of Rosario v. Carandang12 and Gaspar v. Dorado13 which declared that the
amendment of the complaint could not be allowed when its purpose is to confer
jurisdiction upon the court, since the court must first acquire jurisdiction over the case in
order to act validly therein. Petitioner’s contention is devoid of merit. As earlier discussed,
respondent’s original complaint was free from any jurisdictional flaw and the MTC had
jurisdiction over the case to begin with. Thus, the cited cases are not applicable in the
instant case. Hence, the MTC was correct in allowing the amendment.
Furthermore, it is a well-settled rule that what determines the nature of an action as well
as which court has jurisdiction over it are the allegations of the complaint and the
character of the relief sought.14 A complaint for unlawful detainer is deemed sufficient
if it alleges that the withholding of the possession or the refusal to vacate is unlawful,
without necessarily employing the terminology of the law.15 Here, respondent alleged
that he acquired possessory rights over the subject property by virtue of a government
grant. He leased the property to petitioner for a monthly rental of P60.00. When
petitioner failed to pay the rentals, respondent eventually sent two demand letters
asking petitioner to pay and vacate the premises. Petitioner refused, thereby depriving
respondent of possession of the subject property. Clearly, the complaint alleges the
basic elements of an unlawful detainer case, which are sufficient for the purpose of
vesting jurisdiction over it in the MTC.
Likewise, petitioner’s allegation in his petition that he received respondent’s second
demand letter on May 8, 1996 was belied by the records of this case, the truth being
that, the said demand letter dated March 7, 1996 was received by petitioner on March
13, 1996.16 The letter granted petitioner fifteen (15) days within which to pay and vacate
the subject property. Respondent’s Amended Complaint was filed on May 16, 1996
which was obviously two (2) months from the time petitioner had notice of the demand,
and again more than 15 days as required by Section 2, Rule 70.
In sum, respondent clearly satisfied the jurisdictional requirement of prior demand to
vacate within the period set by the rules. The MTC validly acquired jurisdiction over both
the original complaint and the amended complaint.
Petitioner next argues that no lessor-lessee relationship existed between him and
respondent. This argument clearly deals with a question of fact. In petitions for review
on certiorari under Rule 45 of the Rules of Court, only questions of law may be put in
issue. Questions of fact cannot be entertained.17 The issue of whether or not a lessor-
lessee relationship existed between the herein parties is a question of fact which we
cannot pass upon as it would entail a re-evaluation of the evidence and a review of
the factual findings thereon of the courts a quo. As a rule, factual findings of the trial
court, especially those affirmed by the CA, are conclusive on this Court when supported
by the evidence on record.18 We find no cogent reason to disturb the findings of the
MTC and the RTC, which the Court of Appeals had affirmed.
Lastly, petitioner capitalizes on the failure of respondent’s counsel to inform the court of
the death of his client, Faustino Acosta, who passed away on October 22, 200019 while
the case was pending appeal with the CA. He avers that such failure rendered the case
moot and academic as no proper substitution of a party was effected in compliance
with Rule 3, Section 16 of the Rules of Court.
Section 16, Rule 3 of the Revised Rules of Court provides that:
Sec. 16. Death of party; duty of counsel. – Whenever a party to a pending action dies,
and the claim is not thereby extinguished, it shall be the duty of his counsel to inform the
court within thirty (30) days after such death of the fact thereof, and to give the name
and address of his legal representative or representatives. Failure of counsel to comply
with this duty shall be a ground for disciplinary action.
The heirs of the deceased may be allowed to be substituted for the deceased, without
first requiring the appointment of an executor or administrator and the court may
appoint a guardian ad litem for the minor heirs.
The court shall forthwith order said legal representative or representatives to appear and
be substituted within a period of thirty (30) days from notice. xxx.
It is well settled that the failure of counsel to comply with his duty under Section 16 to
inform the court of the death of his client and no substitution of such party is effected,
will not invalidate the proceedings and the judgment thereon if the action survives the
death of such party. Moreover, the decision rendered shall bind his successor-in-
interest.20 The instant action for unlawful detainer, like any action for recovery of real
property, is a real action and as such survives the death of Faustino Acosta. His heirs
have taken his place and now represent his interests in the instant petition.21 Hence,
the present case cannot be rendered moot despite the death of respondent.
25
WHEREFORE, the petition for review is hereby DENIED. The assailed decision of the Court
of Appeals in CA-G.R. SP No. 49144 is hereby AFFIRMED.
SO ORDERED.
G.R. No. 121510 November 23, 1995
FABIANA C. VDA. DE SALAZAR, petitioner,
vs.
COURT OF APPEALS, PRIMITIVO NEPOMUCENO and EMERENCIANA NEPOMUCENO,
respondents.
HERMOSISIMA, JR., J.:
Where the defendant in an ejectment case dies before the rendition by the trial court
of its decision therein, does the trial court's failure to effectuate a substitution of heirs
before its rendition of judgment render such judgment jurisdictionally infirm?
On July 23, 1970, both private respondents Primitive Nepomuceno and Emerenciana
Nepomuceno filed separate complaints1 with the then Court of Agrarian Relations of
Malolos, Bulacan, for ejectment on the ground of personal cultivation and conversion
of land for useful non-agricultural purposes against petitioner's deceased husband,
Benjamin Salazar. After protracted proceedings in the agrarian court and then the
Regional Trial Court2 spanning from 1970 to 1993, the trial court rendered its joint
decision3 in favor of private respondents. An appeal4 therefrom was interposed in the
name of petitioner's deceased husband on the ground that private respondents herein
failed to satisfy the requirements pertaining to personal cultivation and conversion of
the landholdings into non-agricultural uses. The Court of Appeals rejected such
contention upon finding that the record was replete with evidence justifying private
respondents' assertion of their right of cultivation and conversion of their landholdings.5
Almost a year after the termination of that appeal, the same trial court decision subject
thereof was once again assailed before the Court of Appeals through a petition6 for
annulment of judgment. Herein petitioner assailed the same trial court decision as
having been rendered by a court that did not have jurisdiction over her and the other
heirs of her deceased husband because notwithstanding the fact that her husband had
already died on October 3, 1991, the trial court still proceeded to render its decision on
August 23, 1993 without effecting the substitution of heirs in accordance with Section
17, Rule 3, of the Rules of Court thereby depriving her of her day in court.
Petitioner, not having asserted the matter of fraud or collusion in her petition for
annulment of judgment, the Court of Appeals decided the same on the basis of the
sole issue of non-jurisdiction resulting from the alleged deprivation of petitioner's right to
due process and ruled in favor of the validity of the challenged decision.7 Petitioner
filed a motion for reconsideration of the decision of the appellate court reiterating the
trial court's lack of jurisdiction over the heirs of petitioner's deceased husband as a
consequence of the failure of the trial court to effectuate a valid substitution of heirs.
Said motion was denied in a resolution promulgated on August 14, 1995. Hence this
petition.
The petition is bereft of merit.
The need for substitution of heirs is based on the right to due process accruing to every
party in any proceeding.8 The rationale underlying this requirement in case a party dies
during the pendency of proceedings of a nature not extinguished by such death, is that
. . . the exercise of judicial power to hear and determine a cause implicitly presupposes
in the trial court, amongst other essentials, jurisdiction over the persons of the parties.
That jurisdiction was inevitably impaired upon the death of the protestee pending the
proceedings below such that unless and until a legal representative is for him duly
named and within the jurisdiction of the trial court, no adjudication in the cause could
have been accorded any validity or binding effect upon any party, in representation of
the deceased, without trenching upon the fundamental right to a day in court which is
the very essence of the constitutionally enshrined guarantee of due process.9
We are not unaware of several cases10 where we have ruled that a party having died
in an action that survives, the trial held by the court without appearance of the
deceased's legal representative or substitution of heirs and the judgment rendered after
such trial, are null and void because the court acquired no jurisdiction over the persons
of the legal representatives or of the heirs upon whom the trial and the judgment would
be binding. This general rule notwithstanding, in denying petitioner's motion for
reconsideration, the Court of Appeals correctly ruled that formal substitution of heirs is
not necessary when the heirs themselves voluntarily appeared, participated in the case
and presented evidence in defense of deceased defendant. Attending the case at
bench, after all, are these particular circumstances which negate petitioner's belated
and seemingly ostensible claim of violation of her rights to due process. We should not
lose sight of the principle underlying the general rule that formal substitution of heirs must
be effectuated for them to be bound by a subsequent judgment. Such had been the
general rule established not because the rule on substitution of heirs and that on
appointment of a legal representative are jurisdictional requirements per se but
because non-compliance therewith results in the undeniable violation of the right to
due process of those who, though not duly notified of the proceedings, are substantially
26
affected by the decision rendered therein. Viewing the rule on substitution of heirs in this
light, the Court of Appeals, in the resolution denying petitioner's motion for
reconsideration, thus expounded:
Although the jurisprudential rule is that failure to make the substitution is a jurisdictional
defect, it should be noted that the purpose of this procedural rule is to comply with due
process requirements. The original party having died, he could not continue to defend
himself in court despite the fact that the action survived him. For the case to continue,
the real party in interest must be substituted for the deceased. The real party in interest
is the one who would be affected by the judgment. It could be the administrator or
executor or the heirs. In the instant case, the heirs are the proper substitutes. Substitution
gives them the opportunity to continue the defense for the deceased. Substitution is
important because such opportunity to defend is a requirement to comply with due
process. Such substitution consists of making the proper changes in the caption of the
case which may be called the formal aspect of it. Such substitution also includes the
process of letting the substitutes know that they shall be bound by any judgment in the
case and that they should therefore actively participate in the defense of the
deceased. This part may be called the substantive aspect. This is the heart of the
procedural rule because this substantive aspect is the one that truly embodies and gives
effect to the purpose of the rule. It is this court's view that compliance with the
substantive aspect of the rule despite failure to comply with the formal aspect may be
considered substantial compliance. Such is the situation in the case at bench because
the only inference that could be deduced from the following facts was that there was
active participation of the heirs in the defense of the deceased after his death:
1. The original lawyer did not stop representing the deceased. It would be absurd
to think that the lawyer would continue to represent somebody if nobody is paying him
his fees. The lawyer continued to represent him in the litigation before the trial court
which lasted for about two more years. A dead party cannot pay him any fee. With or
without payment of fees, the fact remains that the said counsel was allowed by the
petitioner who was well aware of the instant litigation to continue appearing as counsel
until August 23, 1993 when the challenged decision was rendered;
2. After the death of the defendant, his wife, who is the petitioner in the instant
case, even testified in the court and declared that her husband is already deceased.
She knew therefore that there was a litigation against her husband and that somehow
her interest and those of her children were involved;
3. This petition for annulment of judgment was filed only after the appeal was
decided against the defendant on April 3, 1995, more than one and a half year (sic)
after the decision was rendered (even if we were to give credence to petitioner's
manifestation that she was not aware that an appeal had been made);

4. The Supreme Court has already established that there is such a thing as
jurisdiction by estoppel. This principle was established even in cases where jurisdiction
over the subject matter was being questioned. In the instant case, only jurisdiction over
the person of the heirs is in issue. Jurisdiction over the person may be acquired by the
court more easily than jurisdiction over the subject matter. Jurisdiction over the person
may be acquired by the simple appearance of the person in court as did herein
petitioner appear;
5. The case cited by the herein petitioner (Ferreria et al. vs. Manuela Ibarra vda.
de Gonzales, et al.) cannot be availed of to support the said petitioner's contention
relative to non-acquisition of jurisdiction by the court. In that case, Manolita Gonzales
was not served notice and, more importantly, she never appeared in court, unlike herein
petitioner who appeared and even testified regarding the death of her husband.11
Consequently, we rule that, as in the case at bench, the defendant in an ejectment
case having died before the rendition by the trial court of its decision therein, its failure
to effectuate a formal substitution of heirs before its rendition of judgment, does not
invalidate such judgment where the heirs themselves appeared before the trial court,
participated in the proceedings therein, and presented evidence in defense of
deceased defendant, it undeniably being evident that the heirs themselves sought their
day in court and exercised their right to due process.
Respondent Court of Appeals also correctly ruled that ejectment, being an action
involving recovery of real property, is a real action which as such, is not extinguished by
the defendant's death.
proceed as it did with the case. There is no showing that the appellate court's
proceedings in the case were tainted with irregularities.
It appears that petitioners are heirs of Adela Salindon. In fact, it was because of this
relationship that the petitioners were able to transfer the title of Adela Salindon over the
subject lot to their names. . . . Considering all this, the appellate decision is binding and
enforceable against the petitioners as successors-in-interest by title subsequent to the
commencement of the action (Section 49 [b] Rule 39, Rules of Court). Furthermore, . . .
judgment in an ejectment case may be enforced not only against defendants therein
but also against the members of their family, their relatives, or privies who derive their
right of possession from the defendants (Ariem v. De los Angeles, 49 SCRA 343). Under
the circumstances of this case, the same rule should apply to the successors-in-interest
. . . .15
While it is true that a decision in an action for ejectment is enforceable not only against
the defendant himself but also against members of his family, his relatives, and his privies
who derived their right of possession from the defendant and his successors-in-interest,16
it had been established that petitioner had, by her own acts, submitted to the
jurisdiction of the trial court. She is now estopped to deny that she had been heard in
defense of her deceased husband in the proceedings therein. As such, this petition
evidently has no leg to stand on.
WHEREFORE, the instant petition is dismissed for lack of merit. Costs against petitioner.
SO ORDERED.

. . . The question as to whether an action survives or not depends on the nature of the
action and the damage sued for. In the causes of action which survive, the wrong
complained affects primarily and principally property and property rights, the injuries to
the person being merely incidental, while in the causes of action which do not survive,
the injury complained of is to the person, the property and rights of property affected
being incidental.12

There is no dispute that an ejectment case survives the death of a party, which death
did not extinguish the deceased's civil personality.13 More significantly, a judgment in
an ejectment case is conclusive between the parties and their successors in interest by
title subsequent to the commencement of the action.14 Thus, we have held that:

. . . In such a case and considering that the supervening death of appellant did not
extinguish her civil personality, the appellate court was well within its jurisdiction to

27