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G.R. No. 138822 January 23, 2001

EVANGELINE ALDAY, petitioner, vs.

FGU INSURANCE CORPORATION, respondent.

GONZAGA-REYES, J.:

On 5 May 1989, respondent FGU Insurance Corporation filed a complaint with the Regional Trial Court of Makati1 alleging that petitioner Evangeline K. Alday owed it P114,650.76, representing unliquidated cash advances, unremitted costs of premiums and other charges incurred by petitioner in the course of her work as an insurance agent for respondent.2 Respondent also prayed for exemplary damages, attorney's fees, and costs of suit.3 Petitioner filed her answer and by way of counterclaim, asserted her right for the payment of P104,893.45, representing direct commissions, profit commissions and contingent bonuses earned from 1 July 1986 to 7 December 1986, and for accumulated premium reserves amounting to P500,000.00. In addition, petitioner prayed for attorney's fees, litigation expenses, moral damages and exemplary damages for the allegedly unfounded action filed by respondent.4 On 23 August 1989, respondent filed a "Motion to Strike Out Answer With Compulsory Counterclaim And To Declare Defendant In Default" because petitioner's answer was allegedly filed out of time.5 However, the trial court denied the motion on 25 August 1989 and similarly rejected respondent's motion for reconsideration on 12 March 1990.6 A few weeks later, on 11 April 1990, respondent filed a motion to dismiss petitioner's counterclaim, contending that the trial court never acquired jurisdiction over the same because of the non-payment of docket fees by petitoner.7 In response, petitioner asked the trial court to declare her counterclaim as exempt from payment of docket fees since it is compulsory and that respondent be declared in default for having failed to answer such counterclaim.8

In its 18 September 1990 Order, the trial court9 granted respondent's motion to dismiss petitioner's counterclaim and consequently, denied petitioner's motion. The court found petitioner's counterclaim to be merely permissive in nature and held that petitioner's failure to pay docket fees prevented the court from acquiring jurisdiction over the same.10 The trial court similar denied petitioner's motion for reconsideration on 28 February 1991.1âwphi1.nêt

On 23 December 1998, the Court of Appeals11 sustained the trial court, finding that petitioner's own admissions, as contained in her answer, show that her counterclaim is merely permissive. The relevant portion of the appellate court's decision12 is quoted herewith -

Contrary to the protestations of appellant, mere reading of the allegations in the answer a quo will readily show that her counterclaim can in no way be compulsory. Take note of the following numbered paragraphs in her answer:

"(14) That, indeed, FGU's cause of action which is not supported by any document other than the self-serving 'Statement of Account' dated March 28, 1988 x x x

(15) That it should be noted that the cause of action of FGU is not the enforcement of the Special Agent's Contract but the alleged 'cash accountabilities which are not based on written agreement x x x.

x x x x

(19) x x x A careful analysis of FGU's three-page complaint will show that its cause of action is not for specific performance or enforcement of the Special Agent's Contract rather, it is for the payment of the alleged cash accountabilities incurred by defendant during the period form [sic] 1975 to 1986 which claim is executory and has not been ratified. It is the established rule that unenforceable contracts, like this purported money claim of FGU, cannot be sued upon or enforced unless ratified, thus it is as if they have no effect. x x x."

To support the heading "Compulsory Counterclaim" in her answer and give the impression that the counterclaim is compulsory appellant alleged that "FGU has unjustifiably failed to remit to defendant despite repeated demands in gross violation of their Special Agent's Contract x x x." The reference to said contract was included purposely to mislead. While on one hand appellant alleged that appellee's cause of action had nothing to do with the Special Agent's Contract, on the other hand, she claim that FGU violated said contract which gives rise of [sic] her cause of action. Clearly, appellant's cash accountabilities cannot be the offshoot of appellee's alleged violation of the aforesaid contract.

On 19 May 1999, the appellate court denied petitioner's motion for reconsideration,13 giving rise to the present petition.

Before going into the substantive issues, the Court shall first dispose of some procedural matters raised by the parties. Petitioner claims that respondent is estopped from questioning her non-payment of docket fees because it did not raise this particular issue when it filed its motion - the "Motion to Strike out Answer With Compulsory Counterclaim And To Declare Defendant In Default" - with the trial court; rather, it was only nine months after receiving petitioner's answer that respondent assailed the trial court's lack of jurisdiction over petitioner's counterclaims based on the latter's failure to pay docket fees.14 Petitioner's position is unmeritorious. Estoppel by laches arises from the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it.15 In the case at bar, respondent cannot be considered as estopped from assailing the trial court's jurisdiction over petitioner's counterclaim since this issue was raised by respondent with the trial court itself - the body where the action is pending - even before the presentation of any evidence by the parties and definitely, way before any judgment could be rendered by the trial court.

Meanwhile, respondent questions the jurisdiction of the Court of Appeals over the appeal filed by petitioner from the 18 September 1990 and 28 February 1991 orders of the trial court. It is significant to note that this objection to the appellate court's jurisdiction is raised for the first time before this Court; respondent never having raised this issue before the appellate court. Although the lack of jurisdiction of a court may be raised at any stage of the action, a party may be estopped from raising such questions if he has actively taken part in the very proceedings which he questions, belatedly objecting to the court's jurisdiction in the event that the judgment or order subsequently rendered is adverse to him.16 In this case, respondent actively took part in the proceedings before the Court of Appeals by filing its appellee's brief with the same.17 Its participation, when taken together with its failure to object to the appellate court's jurisdiction during the entire duration of the proceedings before such court, demonstrates a willingness to abide by the resolution of the case by such tribunal and accordingly, respondent is now most decidedly estopped from objecting to the Court of Appeals' assumption of jurisdiction over petitioner's appeal.18

The basic issue for resolution in this case is whether or not the counterclaim of petitioner is compulsory or permissive in nature. A compulsory counterclaim is one which, being cognizable by

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the regular courts of justice, arises out of or is connected with the transaction or occurrence constituting the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.19

In Valencia v. Court of Appeals,20 this Court capsulized the criteria or tests that may be used in determining whether a counterclaim is compulsory or permissive, summarized as follows:

1. Are the issues of fact and law raised by the claim and counterclaim largely the same?

2. Would res judicata bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule?

3. Will substantially the same evidence support or refute plaintiff's claim as well s defendant's counterclaim?

4. Is there any logical relation between the claim and the counterclaim?

Another test, applied in the more recent case of Quintanilla v. Court of Appeals,21 is the "compelling test of compulsoriness" which requires "a logical relationship between the claim and counterclaim, that is, where conducting separate trials of the respective claims of the parties would entail a substantial duplication of effort and time by the parties and the court."

As contained in her answer, petitioner's counterclaims are as follows:

(20) That defendant incorporates and repleads by reference all the foregoing allegations as may be material to her Counterclaim against FGU.

(21) That FGU is liable to pay the following just, valid and legitimate claims of defendant:

(a) the sum of at least P104,893.45 plus maximum interest thereon representing, among others, direct commissions, profit commissions and contingent bonuses legally due to defendant; and

(b) the minimum amount of P500,000.00 plus the maximum allowable interest representing defendant's accumulated premium reserve for 1985 and previous years,

which FGU has unjustifiably failed to remit to defendant despite repeated demands in gross violation of their Special Agent's Contract and in contravention of the principle of law that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."

(22) That as a result of the filing of this patently baseless, malicious and unjustified Complaint, and FGU's unlawful, illegal and vindictive termination of their Special Agent's Contract, defendant was unnecessarily dragged into this litigation and to defense [sic] her side and assert her rights and claims against FGU, she was compelled to hire the services of counsel with whom she agreed to pay the amount of P30,000.00 as and for attorney's fees and stands to incur litigation expenses in the amount estimated to at least P20,000.00 and for which FGU should be assessed and made liable to pay defendant.

(23) That considering further the malicious and unwarranted action of defendant in filing this grossly unfounded action, defendant has suffered and continues to suffer from serious anxiety, mental anguish, fright and humiliation. In addition to this, defendant's name, good reputation and business standing in the insurance business as well as in the community have been besmirched and for which FGU should be adjudged and made liable to pay moral damages to defendant in the amount of P300,000.00 as minimum.

(24) That in order to discourage the filing of groundless and malicious suits like FGU's Complaint, and by way of serving [as] an example for the public good, FGU should be penalized and assessed exemplary damages in the sum of P100,000.00 or such amount as the Honorable Court may deem warranted under the circumstances.22

Tested against the abovementioned standards, petitioner's counterclaim for commissions, bonuses, and accumulated premium reserves is merely permissive. The evidence required to prove petitioner's claims differs from that needed to establish respondent's demands for the recovery of cash accountabilities from petitioner, such as cash advances and costs of premiums. The recovery of respondent's claims is not contingent or dependent upon establishing petitioner's counterclaim, such that conducting separate trials will not result in the substantial duplication of the time and effort of the court and the parties. One would search the records in vain for a logical connection between the parties' claims. This conclusion is further reinforced by petitioner's own admissions since she declared in her answer that respondent's cause of action, unlike her own, was not based upon the Special Agent's Contract.23 However, petitioner's claims for damages, allegedly suffered as a result of the filing by respondent of its complaint, are compulsory.24

There is no need for need for petitioner to pay docket fees for her compulsory counterclaim.25 On the other hand, in order for the trial court to acquire jurisdiction over her permissive counterclaim, petitioner is bound to pay the prescribed docket fees.26 The rule on the payment of filing fees has been laid down by the Court in the case of Sun Insurance Office, Ltd. V. Hon. Maximiano Asuncion27-

1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the action. Where the filing of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee within a reasonable time but in no case beyond the applicable prescriptive or reglementary period.

2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be considered filed until and unless the filing fee prescribed therefor is paid. The court may allow payment of said fee within a reasonable time but also in no case beyond its applicable prescriptive or reglementary period.

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the pleading, or if specified the same has been left for determination by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee.

The above mentioned ruling in Sun Insurance has been reiterated in the recent case of Susan v. Court of Appeals.28 In Suson, the Court explained that although the payment of the prescribed docket fees is a jurisdictional requirement, its non-payment does not result in the automatic dismissal of the case provided the docket fees are paid within the applicable prescriptive or reglementary period. Coming now to the case at bar, it has not been alleged by respondent and there is nothing in the records to show that petitioner has attempted to evade the payment of the proper docket fees for her permissive counterclaim. As a matter of fact, after respondent filed its motion to dismiss petitioner's counterclaim based on her failure to pay docket fees, petitioner immediately filed a motion with the trial court, asking it to declare her counterclaim as compulsory in nature and therefore exempt from docket fees and, in addition, to declare that respondent was in default for its failure to answer her counterclaim.29 However, the trial court

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dismissed petitioner's counterclaim. Pursuant to this Court's ruling in Sun Insurance, the trial court should have instead given petitioner a reasonable time, but in no case beyond the applicable prescriptive or reglementary period, to pay the filing fees for her permissive counterclaim.

Petitioner asserts that the trial court should have declared respondent in default for having failed to answer her counterclaim.30 Insofar as the permissive counterclaim of petitioner is concerned, there is obviously no need to file an answer until petitioner has paid the prescribed docket fees for only then shall the court acquire jurisdiction over such claim.31 Meanwhile, the compulsory counterclaim of petitioner for damages based on the filing by respondent of an allegedly unfounded and malicious suit need not be answered since it is inseparable from the claims of respondent. If respondent were to answer the compulsory counterclaim of petitioner, it would merely result in the former pleading the same facts raised in its complaint.32

WHEREFORE, the assailed Decision of the Court of Appeals promulgated on 23 December 1998 and its 19 May 1999 Resolution are hereby MODIFIED. The compulsory counterclaim of petitioner for damages filed in Civil Case No. 89-3816 is ordered REINSTATED. Meanwhile, the Regional Trial Court of Makati (Branch 134) is ordered to require petitioner to pay the prescribed docket fees for her permissive counterclaim (direct commissions, profit commissions, contingent bonuses and accumulated premium reserves), after ascertaining that the applicable prescriptive period has not yet set in.33

SO ORDERED.1âwphi1.nêt

Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.

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G.R. No. 143581 January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner, vs.

HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING CORPORATION, respondents.

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil and commercial disputes. Arbitration along with mediation, conciliation, and negotiation, being inexpensive, speedy and less hostile methods have long been favored by this Court. The petition before us puts at issue an arbitration clause in a contract mutually agreed upon by the parties stipulating that they would submit themselves to arbitration in a foreign country. Regrettably, instead of hastening the resolution of their dispute, the parties wittingly or unwittingly prolonged the controversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.

On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 19972 amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship the machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bound itself to pay USD 306,000 upon the plant’s production of the 11-kg. LPG cylinder samples. Thus, the total contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth Properties, Inc. (Worth) for use of Worth’s 5,079-square meter property with a 4,032-square meter warehouse building to house the LPG manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1, 1998 with a 10% annual increment clause. Subsequently, the machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.

However, gleaned from the Certificate4 executed by the parties on January 22, 1998, after the installation of the plant, the initial operation could not be conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES would be deemed to have completely complied with the terms and conditions of the March 5, 1997 contract.

For the remaining balance of USD306,000 for the installation and initial operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.5

When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter6 to PGSMC threatening criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMC’s President faxed a letter dated May 7, 1998 to KOGIES’ President who was then staying at

a Makati City hotel. She complained that not only did KOGIES deliver a different brand of hydraulic press from that agreed upon but it had not delivered several equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the payments were stopped for reasons previously made known to KOGIES.7

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5, 1997 on the ground that KOGIES had altered the quantity and lowered the quality of the machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the machineries, equipment, and facilities installed in the Carmona plant. Five days later, PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind their contract nor dismantle and transfer the machineries and equipment on mere imagined violations by KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in Article 15, the arbitration clause of their contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter threatening that the machineries, equipment, and facilities installed in the plant would be dismantled and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No. 98-1178 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary restraining order (TRO) on July 4, 1998, which was subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were stopped were not funded but later on claimed that it stopped payment of the checks for the reason that "their value was not received" as the former allegedly breached their contract by "altering the quantity and lowering the quality of the machinery and equipment" installed in the plant and failed to make the plant operational although it earlier certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract without resorting to arbitration. KOGIES also asked that PGSMC be restrained from dismantling and transferring the machinery and equipment installed in the plant which the latter threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the TRO since Art. 15, the arbitration clause, was null and void for being against public policy as it ousts the local courts of jurisdiction over the instant controversy.

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim9 asserting that it had the full right to dismantle and transfer the machineries and equipment because it had paid for them in full as stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the checks for failing to completely install and make the plant operational; and that KOGIES was liable for damages amounting to PhP 4,500,000 for altering the quantity and lowering the quality of the machineries and equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it was not willing to further shoulder the cost of renting the premises of the plant considering that the LPG cylinder manufacturing plant never became operational.

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After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying the application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the machineries and equipment as shown in the contract such that KOGIES no longer had proprietary rights over them. And finally, the RTC held that Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or any other court jurisdiction over any dispute that may arise between the parties. KOGIES’ prayer for an injunctive writ was denied.10 The dispositive portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and so holds that no cogent reason exists for this Court to grant the writ of preliminary injunction to restrain and refrain defendant from dismantling the machineries and facilities at the lot and building of Worth Properties, Incorporated at Carmona, Cavite and transfer the same to another site: and therefore denies plaintiff’s application for a writ of preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim.11 KOGIES denied it had altered the quantity and lowered the quality of the machinery, equipment, and facilities it delivered to the plant. It claimed that it had performed all the undertakings under the contract and had already produced certified samples of LPG cylinders. It averred that whatever was unfinished was PGSMC’s fault since it failed to procure raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was without question valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss13 answering PGSMC’s memorandum of July 22, 1998 and seeking dismissal of PGSMC’s counterclaims, KOGIES, on August 4, 1998, filed its Motion for Reconsideration14 of the July 23, 1998 Order denying its application for an injunctive writ claiming that the contract was not merely for machinery and facilities worth USD 1,224,000 but was for the sale of an "LPG manufacturing plant" consisting of "supply of all the machinery and facilities" and "transfer of technology" for a total contract price of USD 1,530,000 such that the dismantling and transfer of the machinery and facilities would result in the dismantling and transfer of the very plant itself to the great prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover, KOGIES points out that the arbitration clause under Art. 15 of the Contract as amended was a valid arbitration stipulation under Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries (Phils.), Inc.15

In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine whether there was indeed alteration of the quantity and lowering of quality of the machineries and equipment, and whether these were properly installed. KOGIES opposed the motion positing that the queries and issues raised in the motion for inspection fell under the coverage of the arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMC’s motion for inspection; (2) denying KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES’ motion to dismiss PGSMC’s compulsory counterclaims as these counterclaims fell within the requisites of compulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of the September 21, 1998 RTC Order granting inspection of the plant and denying dismissal of PGSMC’s compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgent motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and

September 21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and transferring the machineries and equipment in the Carmona plant, and to direct the RTC to enforce the specific agreement on arbitration to resolve the dispute.

In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent motion for reconsideration and directed the Branch Sheriff to proceed with the inspection of the machineries and equipment in the plant on October 28, 1998.19

Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing the CA about the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the writs of prohibition, mandamus and preliminary injunction which was not acted upon by the CA. KOGIES asserted that the Branch Sheriff did not have the technical expertise to ascertain whether or not the machineries and equipment conformed to the specifications in the contract and were properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report21 finding that the enumerated machineries and equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declaredthe arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC did not gravely abuse its

discretion in issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA reasoned that KOGIES’ contention that the total contract price for USD 1,530,000 was for the

whole plant and had not been fully paid was contrary to the finding of the RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the machineries and equipment. According to

the CA, this determination by the RTC was a factual finding beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an arbitration clause which provided for a final determination of the legal rights of the parties to the

contract by arbitration was against public policy.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum shopping by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and

payment of docket fees was not required since the Answer with counterclaim was not an initiatory pleading. For the same reason, the CA said a certificate of non-forum shopping was also

not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did not wait for the resolution of its urgent motion for reconsideration of the September 21, 1998 RTC Order which was the plain, speedy, and adequate remedy available. According to the CA, the RTC must be given the opportunity to correct any alleged error it has committed, and that since the assailed orders were interlocutory, these cannot be the subject of a petition for certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.

The Issues

Petitioner posits that the appellate court committed the following errors:

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a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A PETITION FOR CERTIORARI" INTENDED ONLY FOR

CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL COURT’S FINDING ON

THE SAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO PUBLIC POLICY" AND FOR OUSTING THE

COURTS OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND CERTIFICATION OF NON-FORUM SHOPPING;

d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21,

1998 OR WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF;

e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING "INTERLOCUTORY IN NATURE;"

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT MERIT."23

The Court’s Ruling

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle the procedural issues.

The rules on the payment of docket fees for counterclaims and cross claims were amended effective August 16, 2004

KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket fees and filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect.

We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997

Revised Rules of Civil Procedure, the rule that was effective at the time the Answer with Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, "A compulsory

counterclaim or a cross-claim that a defending party has at the time he files his answer shall be contained therein."

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against KOGIES, it was not liable to pay filing fees for said counterclaims being compulsory in nature. We stress, however, that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No.

04-2-04-SC, docket fees are now required to be paid in compulsory counterclaim or cross-claims.

As to the failure to submit a certificate of forum shopping, PGSMC’s Answer is not an initiatory pleading which requires a certification against forum shopping under Sec. 524 of Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a quo did not

commit reversible error in denying KOGIES’ motion to dismiss PGSMC’s compulsory counterclaims.

Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the remedies to question the propriety of an interlocutory order of the trial court."26 The CA erred on its reliance on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case which

was not assailable in an action for certiorari since the denial of a motion to quash required the accused to plead and to continue with the trial, and whatever objections the accused had in his

motion to quash can then be used as part of his defense and subsequently can be raised as errors on his appeal if the judgment of the trial court is adverse to him. The general rule is that interlocutory orders cannot be challenged by an appeal.27 Thus, in Yamaoka v. Pescarich

Manufacturing Corporation, we held:

The proper remedy in such cases is an ordinary appeal from an adverse judgment on the merits, incorporating in said appeal the grounds for assailing the interlocutory orders. Allowing appeals

from interlocutory orders would result in the ‘sorry spectacle’ of a case being subject of a counterproductive ping-pong to and from the appellate court as often as a trial court is perceived

to have made an error in any of its interlocutory rulings. However, where the assailed interlocutory order was issued with grave abuse of discretion or patently erroneous and the

remedy of appeal would not afford adequate and expeditious relief, the Court allows certiorari as a mode of redress.28

Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatory motions. Thus, where the interlocutory order was issued without or in excess of

jurisdiction or with grave abuse of discretion, the remedy is certiorari.29

The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in the issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and

adequate remedy in the ordinary course of law amply provides the basis for allowing the resort to a petition for certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note that KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order which denied the

issuance of the injunctive writ had already been denied. Thus, KOGIES’ only remedy was to assail the RTC’s interlocutory order via a petition for certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC Order relating to the inspection of things, and the allowance of the compulsory counterclaims has

not yet been resolved, the circumstances in this case would allow an exception to the rule that before certiorari may be availed of, the petitioner must have filed a motion for reconsideration

and said motion should have been first resolved by the court a quo. The reason behind the rule is "to enable the lower court, in the first instance, to pass upon and correct its mistakes without the

intervention of the higher court."30

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The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and facilities when he is not competent and knowledgeable on said matters is evidently flawed and devoid of any legal support. Moreover, there is an urgent necessity to resolve the issue on the dismantling of the facilities and any further delay would prejudice the interests of KOGIES. Indeed, there is real and imminent threat of irreparable destruction or substantial damage to

KOGIES’ equipment and machineries. We find the resort to certiorari based on the gravely abusive orders of the trial court sans the ruling on the October 2, 1998 motion for reconsideration to be

proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It provides:

Article 15. Arbitration.—All disputes, controversies, or differences which may arise between the parties, out of or in relation to or in connection with this Contract or for the breach thereof, shall

finally be settled by arbitration in Seoul, Korea in accordance with the Commercial Arbitration Rules of the Korean Commercial Arbitration Board. The award rendered by the arbitration(s)

shall be final and binding upon both parties concerned. (Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.

Petitioner is correct.

Established in this jurisdiction is the rule that the law of the place where the contract is made governs. Lex loci contractus. The contract in this case was perfected here in the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the

validity of mutually agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, "Any stipulation that the arbitrators’ award or decision shall be final, is valid,

without prejudice to Articles 2038, 2039 and 2040." (Emphasis supplied.)

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral award, as applied to Art. 2044 pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but

these would not denigrate the finality of the arbitral award.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to be contrary to any law, or against morals, good customs, public order, or public policy. There has been no showing that the parties have not dealt with each other on equal footing. We

find no reason why the arbitration clause should not be respected and complied with by both parties. In Gonzales v. Climax Mining Ltd.,35 we held that submission to arbitration is a contract and that a clause in a contract providing that all matters in dispute between the parties shall be

referred to arbitration is a contract.36 Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that "[t]he provision to submit to arbitration any dispute arising therefrom and the

relationship of the parties is part of that contract and is itself a contract."37

Arbitration clause not contrary to public policy

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final

and binding, is not contrary to public policy. This Court has sanctioned the validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co.,

Inc.,38 this Court had occasion to rule that an arbitration clause to resolve differences and breaches of mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we

held that "[i]n this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the settlement of

disputes through arbitration. Republic Act No. 876 was adopted to supplement the New Civil Code’s provisions on arbitration."39 And in LM Power Engineering Corporation v. Capitol Industrial

Construction Groups, Inc., we declared that:

Being an inexpensive, speedy and amicable method of settling disputes, arbitration––along with mediation, conciliation and negotiation––is encouraged by the Supreme Court. Aside from

unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind. It is thus regarded as the "wave of the future" in international civil and

commercial disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally construe arbitration clauses. Provided such clause is susceptible

of an interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor of arbitration.40

Having said that the instant arbitration clause is not against public policy, we come to the question on what governs an arbitration clause specifying that in case of any dispute arising from the contract, an arbitral panel will be constituted in a foreign country and the arbitration rules of

the foreign country would govern and its award shall be final and binding.

RA 9285 incorporated the UNCITRAL Model lawto which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration

rules of our domestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial Arbitration41 of the United

Nations Commission on International Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the Philippines committed itself to be bound by the Model Law. We have even

incorporated the Model Law in Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model

Law are the pertinent provisions:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration.––International commercial arbitration shall be governed by the Model Law on International Commercial

Arbitration (the "Model Law") adopted by the United Nations Commission on International Trade Law on June 21, 1985 (United Nations Document A/40/17) and recommended for enactment by the General Assembly in Resolution No. 40/72 approved on December 11, 1985, copy of which is

hereto attached as Appendix "A".

SEC. 20. Interpretation of Model Law.––In interpreting the Model Law, regard shall be had to its international origin and to the need for uniformity in its interpretation and resort may be made to

the travaux preparatories and the report of the Secretary General of the United Nations Commission on International Trade Law dated March 25, 1985 entitled, "International

Commercial Arbitration: Analytical Commentary on Draft Trade identified by reference number A/CN. 9/264."

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While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural law which has a retroactive effect. Likewise, KOGIES filed its application for arbitration

before the KCAB on July 1, 1998 and it is still pending because no arbitral award has yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is the rule that procedural

laws are construed to be applicable to actions pending and undetermined at the time of their passage, and are deemed retroactive in that sense and to that extent. As a general rule, the

retroactive application of procedural laws does not violate any personal rights because no vested right has yet attached nor arisen from them.42

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are the following:

(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases, thus:

SEC. 24. Referral to Arbitration.––A court before which an action is brought in a matter which is the subject matter of an arbitration agreement shall, if at least one party so requests not later than the pre-trial conference, or upon the request of both parties thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed.

(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final and binding are not immediately enforceable or cannot be implemented immediately. Sec. 3543 of the UNCITRAL Model Law stipulates the requirement for the arbitral award to be recognized by a competent court for enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse recognition or enforcement on the grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:

SEC. 42. Application of the New York Convention.––The New York Convention shall govern the recognition and enforcement of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award was made in party to the New York Convention.

x x x x

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New York Convention.––The recognition and enforcement of foreign arbitral awards not covered by the New York Convention shall be done in accordance with procedural rules to be promulgated by the Supreme Court. The Court may, on grounds of comity and reciprocity, recognize and enforce a non-convention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign arbitral award when confirmed by a court of a foreign country, shall be recognized and enforced as a foreign arbitral award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in the same manner as final and executory decisions of courts of law of the Philippines

x x x x

SEC. 47. Venue and Jurisdiction.––Proceedings for recognition and enforcement of an arbitration agreement or for vacations, setting aside, correction or modification of an arbitral award, and any application with a court for arbitration assistance and supervision shall be deemed as special proceedings and shall be filed with the Regional Trial Court (i) where arbitration proceedings are conducted; (ii) where the asset to be attached or levied upon, or the act to be enjoined is located; (iii) where any of the parties to the dispute resides or has his place of business; or (iv) in the National Judicial Capital Region, at the option of the applicant.

SEC. 48. Notice of Proceeding to Parties.––In a special proceeding for recognition and enforcement of an arbitral award, the Court shall send notice to the parties at their address of record in the arbitration, or if any part cannot be served notice at such address, at such party’s last known address. The notice shall be sent al least fifteen (15) days before the date set for the initial hearing of the application.

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a foreign court but as a foreign arbitral award, and when confirmed, are enforced as final and executory decisions of our courts of law.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or awards given by some of our quasi-judicial bodies, like the National Labor Relations Commission and Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but not immediately executory in the sense that they may still be judicially reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards are similarly situated in that they need first to be confirmed by the RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:

SEC. 42. Application of the New York Convention.––The New York Convention shall govern the recognition and enforcement of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award was made is party to the New York Convention.

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If the application for rejection or suspension of enforcement of an award has been made, the Regional Trial Court may, if it considers it proper, vacate its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the party to provide appropriate security.

x x x x

SEC. 45. Rejection of a Foreign Arbitral Award.––A party to a foreign arbitration proceeding may oppose an application for recognition and enforcement of the arbitral award in accordance with the procedures and rules to be promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York Convention. Any other ground raised shall be disregarded by the Regional Trial Court.

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed upon by the parties, still the foreign arbitral award is subject to judicial review by the RTC which can set aside, reject, or vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral awards, while final and binding, do not oust courts of jurisdiction since these arbitral awards are not absolute and without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic or foreign, are subject to judicial review on specific grounds provided for.

(4) Grounds for judicial review different in domestic and foreign arbitral awards

The differences between a final arbitral award from an international or foreign arbitral tribunal and an award given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over our courts to review the awards.

For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for setting aside, rejecting or vacating the award by the RTC are provided under Art. 34(2) of the UNCITRAL Model Law.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA 87644 and shall be recognized as final and executory decisions of the RTC,45 they may only be assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA 876.46

(5) RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards.—A decision of the Regional Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral award may be appealed to the Court of Appeals in accordance with the rules and procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral award shall be required by the appellate court to post a counterbond executed in favor of the prevailing party equal to the amount of the award in accordance with the rules to be promulgated by the Supreme Court.

Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition for review under Rule 45 of the Rules of Court.

PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it bound itself through the subject contract. While it may have misgivings on the foreign

arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the law which requires that the arbitral award that may be rendered by KCAB

must be confirmed here by the RTC before it can be enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating that the arbitral award is final and binding, does not oust our courts of jurisdiction as

the international arbitral award, the award of which is not absolute and without exceptions, is still judicially reviewable under certain conditions provided for by the UNCITRAL Model Law on ICA as

applied and incorporated in RA 9285.

Finally, it must be noted that there is nothing in the subject Contract which provides that the parties may dispense with the arbitration clause.

Unilateral rescission improper and illegal

Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and not contrary to public policy; consequently, being bound to the contract of arbitration, a party may not unilaterally rescind or terminate the contract for whatever cause without first

resorting to arbitration.

What this Court held in University of the Philippines v. De Los Angeles47 and reiterated in succeeding cases,48 that the act of treating a contract as rescinded on account of infractions by the other contracting party is valid albeit provisional as it can be judicially assailed, is not applicable to the instant case on account of a valid stipulation on arbitration. Where an arbitration clause in a contract is availing, neither of the parties can unilaterally treat the contract as rescinded since whatever infractions or breaches by a party or differences arising from the contract must be

brought first and resolved by arbitration, and not through an extrajudicial rescission or judicial action.

The issues arising from the contract between PGSMC and KOGIES on whether the equipment and machineries delivered and installed were properly installed and operational in the plant in

Carmona, Cavite; the ownership of equipment and payment of the contract price; and whether there was substantial compliance by KOGIES in the production of the samples, given the alleged

fact that PGSMC could not supply the raw materials required to produce the sample LPG cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES

instituted an Application for Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide by its commitment to arbitrate.

Corollarily, the trial court gravely abused its discretion in granting PGSMC’s Motion for Inspection of Things on September 21, 1998, as the subject matter of the motion is under the primary

jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection made on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth as said Sheriff is not technically competent to ascertain the actual status of the equipment

and machineries as installed in the plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the grant of the inspection of the equipment and machineries have to be recalled and nullified.

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Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition for

Certiorari.

Petitioner’s position is untenable.

It is settled that questions of fact cannot be raised in an original action for certiorari.49 Whether or not there was full payment for the machineries and equipment and installation is indeed a factual

issue prohibited by Rule 65.

However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving the issue on the ownership of the plant when it is the arbitral body (KCAB) and not the

RTC which has jurisdiction and authority over the said issue. The RTC’s determination of such factual issue constitutes grave abuse of discretion and must be reversed and set aside.

RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC to dismantle and transfer the equipment and machineries, we find it to be in order considering the factual milieu of the instant case.

Firstly, while the issue of the proper installation of the equipment and machineries might well be under the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant interim measures to protect vested rights of the parties. Sec. 28 pertinently provides:

SEC. 28. Grant of interim Measure of Protection.—(a) It is not incompatible with an arbitration agreement for a party to request, before constitution of the tribunal, from a Court to grant such measure. After constitution of the arbitral tribunal and during arbitral proceedings, a request for an interim measure of protection, or modification thereof, may be made with the arbitral or to the extent that the arbitral tribunal has no power to act or is unable to act effectivity, the request may be made with the Court. The arbitral tribunal is deemed constituted when the sole arbitrator or the third arbitrator, who has been nominated, has accepted the nomination and written communication of said nomination and acceptance has been received by the party making the request.

(b) The following rules on interim or provisional relief shall be observed:

Any party may request that provisional relief be granted against the adverse party.

Such relief may be granted:

(i) to prevent irreparable loss or injury;

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision of security or any act or omission specified in the order.

(d) Interim or provisional relief is requested by written application transmitted by reasonable means to the Court or arbitral tribunal as the case may be and the party against whom the relief is sought, describing in appropriate detail the precise relief, the party against whom the relief is requested, the grounds for the relief, and the evidence supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or enforcing an interim measure ordered by an arbitral tribunal.

(g) A party who does not comply with the order shall be liable for all damages resulting from noncompliance, including all expenses, and reasonable attorney's fees, paid in obtaining the order’s judicial enforcement. (Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:

Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally

decided, the arbitral tribunal orders a party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interim measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation

to proceedings in courts. The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were explicit that even "the pendency of an arbitral proceeding does not foreclose resort to the courts for

provisional reliefs." We explicated this way:

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As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts for provisional reliefs. The Rules of the ICC, which governs the parties’ arbitral dispute, allows the application of a party to a judicial authority for interim or conservatory measures.

Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is

the subject of the dispute in arbitration. In addition, R.A. 9285, otherwise known as the "Alternative Dispute Resolution Act of 2004," allows the filing of provisional or interim measures with the regular courts whenever the arbitral tribunal has no power to act or to act effectively.50

It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of protection.

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has the right to protect and preserve the equipment and machineries in the best way it can.

Considering that the LPG plant was non-operational, PGSMC has the right to dismantle and transfer the equipment and machineries either for their protection and preservation or for the better way to make good use of them which is ineluctably within the management discretion of

PGSMC.

Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worth’s property is not to the best interest of PGSMC due to the prohibitive rent while the LPG

plant as set-up is not operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without considering the 10% annual rent increment in maintaining the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation or transfer of the equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and

machineries given the non-recognition by the lower courts of the arbitral clause, has accorded an interim measure of protection to PGSMC which would otherwise been irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on the contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted before

the KCAB, the award of which can be enforced in our jurisdiction through the RTC. Besides, by our decision, PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause of

its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipment and machineries, it does not have the right to convey or dispose of the same considering the pending arbitral proceedings to settle the differences of the parties. PGSMC therefore must preserve and maintain the subject equipment and machineries with the diligence of a good father of a family51 until final resolution of the arbitral proceedings and enforcement of the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117 are REVERSED and SET ASIDE;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and

differences arising from the subject Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had not done so, and ORDERED to preserve and maintain them until the finality of whatever arbitral award is given in the arbitration proceedings.

No pronouncement as to costs.

SO ORDERED.

Quisumbing,Chairperson Carpio, Carpio-Morales, Tinga, JJ., concur.

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G.R. No. 169576 October 17, 2008

LEONIDES MERCADO, represented by his heirs: Racquel D. Mercado, Jimmy D. Mercado, Henry D. Mercado, Louricar D. Mercado and Virgilio D. Mercado, petitioners, vs.

COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

CORONA, J.:

Leonides Mercado had been distributing respondent San Miguel Corporation’s (SMC’s) beer products in Quiapo, Manila since 1967. In 1991, SMC extended to him a P7.5 million credit line allowing him to withdraw goods on credit. To secure his purchases, Mercado assigned three China Banking Corporation (CBC) certificates of deposit amounting to P5 million1 to SMC and executed a continuing hold-out agreement stating:

Any demand made by [SMC] on [CBC], claiming default on my/our part shall be conclusive on [CBC] and shall serve as absolute authority for [CBC] to encash the [CBC certificates of deposit] in accordance with the third paragraph of this Hold-Out Agreement, whether or not I/we have in fact defaulted on any of my/our obligations with [SMC], it being understood that the issue of whether or not there was factual default must be threshed out solely between me/us and [SMC]

He also submitted three surety bonds from Eastern Assurance and Surety Corporation (EASCO) totaling P2.6 million.2

On February 10, 1992, SMC notified CBC that Mercado failed to pay for the items he withdrew on credit. Consequently, citing the continuing hold-out agreement, it asked CBC to release the proceeds of the assigned certificates of deposit. CBC approved SMB’s request and informed Mercado.

On March 2, 1992, Mercado filed an action to annul the continuing hold-out agreement and deed of assignment in the Regional Trial Court (RTC) of Manila, Branch 55.3 He claimed that the continuing hold-out agreement allowed forfeiture without the benefit of foreclosure. It was therefore void pursuant to Article 2088 of the Civil Code.4 Moreover, Mercado argued that he had already settled his recent purchases on credit but SMC erroneously applied the said payments to his old accounts not covered by the continuing hold-out agreement (i.e., purchases made prior to the extension of the credit line).

On March 18, 1992, SMC filed its answer with counterclaim against Mercado. It contended that

Mercado delivered only two CBC certificates of deposit amounting to P4.5 million5 and asserted that the execution of the continuing hold-out agreement and deed of assignment was a recognized business practice. Furthermore, because Mercado admitted his outstanding liabilities, SMC sought payment of the lees products he withdrew (or purchased on credit) worth P7,468,153.75.6

On April 23, 1992, SMC filed a third-party complaint against EASCO.7 It sought to collect the proceeds of the surety bonds submitted by Mercado.

On September 14, 1994, Mercado filed an urgent manifestation and motion seeking the dismissal of the complaint. He claimed that he was no longer interested in annulling the continuing hold-out agreement and deed of assignment. The RTC, however, denied the motion.8 Instead, it set the case for pre-trial. Thereafter, trial ensued.

During trial, Mercado acknowledged the accuracy of SMC’s computation of his outstanding liability as of August 15, 1991. Thus, the RTC dismissed the complaint and ordered Mercado and EASCO (to the extent of P2.6 million or the value of its bonds) to jointly and severally pay SMC the amount of P7,468,153.75.9

Aggrieved, Mercado and EASCO appealed to the Court of Appeals (CA)10 insisting that Mercado did not default in the payment of his obligations to SMC.

On December 14, 2004, the CA affirmed the RTC decision in toto.11 Mercado and EASCO both moved for reconsideration but their respective motions were denied.12

On October 28, 2005, EASCO filed a petition for review on certiorari in this Court13 but eventually agreed to settle its liability with SMC.14 The petition was terminated on September 19, 2007.15

Meanwhile, Mercado passed away and was substituted by his heirs, petitioners Racquel D. Mercado, Jimmy D. Mercado, Henry D. Mercado, Louricar D. Mercado and Virgilio D. Mercado.

Petitioners subsequently filed this petition asserting that the CA erred in affirming the RTC decision in toto. The said decision (insofar as it ordered Mercado to pay SMC P7,468,153.75) was void. SMC’s counterclaim was permissive in nature. Inasmuch as SMC did not pay docket fees, the RTC never acquired jurisdiction over the counterclaim.

We deny the petition.

A counterclaim (or a claim which a defending party may have against any party)16 may be compulsory17 or permissive. A counterclaim that (1) arises out of (or is necessarily connected with) the transaction or occurrence that is the subject matter of the opposing party’s claim; (2) falls within the jurisdiction of the court and (3) does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction, is compulsory.18 Otherwise, a counterclaim is merely permissive.

When Mercado sought to annul the continuing hold-out agreement and deed of assignment (which he executed as security for his credit purchases), he in effect sought to be freed from them. While he admitted having outstanding obligations, he nevertheless asserted that those were not covered by the assailed accessory contracts. For its part, aside from invoking the validity of the said agreements, SMC therefore sought to collect the payment for the value of goods Mercado purchased on credit. Thus, Mercado’s complaint and SMC’s counterclaim both touched the issues of whether the continuing hold-out agreement and deed of assignment were valid and whether Mercado had outstanding liabilities to SMC. The same evidence would essentially

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support or refute Mercado’s claim and SMC’s counterclaim.

Based on the foregoing, had these issues been tried separately, the efforts of the RTC and the parties would have had to be duplicated. Clearly, SMC’s counterclaim, being logically related to Mercado’s claim, was compulsory in nature.19 Consequently, the payment of docket fees was not necessary for the RTC to acquire jurisdiction over the subject matter.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

SO ORDERED.

G.R. No. 138031 May 27, 2004

ANTONIO NAVARRO and GRAHMMS, INC., petitioners, vs. METROPOLITAN BANK & TRUST COMPANY, THE HON. COURT OF APPEALS, and THE HON. ZEUS C. ABROGAR (Presiding Judge of the Regional Trial Court of Makati City, Branch 150), respondents.

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, assailing the Decision1 of the Court of Appeals, which affirmed the denial by the Regional Trial Court of Makati City, Branch 150, in Civil Case No. 94-2913, of the petitioners' appeal for non-payment of docket fees, as well as the appellate court's March 29, 1999 Resolution which denied the petitioners' motion for reconsideration.

The facts are undisputed:

On November 3, 1994, the private respondent Metropolitan Bank and Trust Company (respondent MBTC) filed with the RTC of Makati City a petition for the judicial foreclosure of the real estate mortgage executed by the petitioners in its favor.2 The case was docketed as Civil Case No. 94-2913 and was raffled to Branch 150 of the same court.

After due proceedings, the RTC rendered judgment on January 16, 1998,3 the dispositive portion of which reads:

WHEREFORE, the court hereby grants the right of the plaintiff bank to foreclose the properties belonging to defendant Antonio Navarro covered by TCT Nos. 155256, 155257, 155258 particularly described as follows: …

to be sold at public auction the proceeds of which to be applied in payment of the P3,500,000.00 loan, plus interest and penalty charges until fully paid. In case of deficiency on the proceeds of the aforesaid sale, execution on the defendant's property shall be implemented. Likewise, 10% of the total amount due shall be awarded as attorney's fees.4

The petitioners received a copy of the Decision on February 10, 1998 and on February 18, 1998 filed a Motion for Reconsideration of the decision.5 On March 25, 1998, the trial court issued an Order denying the said motion.6 The petitioners received their copy of the order on April 7, 1998.

On April 14, 1998, the last day of the reglementary period, the petitioners filed with the RTC a Notice of Appeal7 from its January 16, 1998 Decision and March 25, 1998 Order. However, the petitioners failed to pay the requisite docket and other lawful fees.

On April 21, 1998, the respondent MBTC filed a Motion to Deny Due Course to Notice of Appeal with Motion for Execution8 on the ground that the notice of appeal was not timely filed. Acting on the motion, the RTC, while ruling in favor of the timeliness of the petitioners' notice of appeal, nevertheless denied the appeal for not being accompanied by the required docket fees. Hence, in its Order dated May 27, 1998,9 the RTC granted the motion of the respondents for the issuance of a writ of execution for the enforcement of the decision. The RTC held that:

… From the sequence of dates and events, it is clear that defendants filed their Notice of Appeal within the reglementary period from the date of their receipt of the denial of their motion for reconsideration since they had still seven days left to file an appeal. However, since Section 4, Rule 41 of the New Rules of Civil Procedure, states that:

"Within the period for taking an appeal, the appellant shall pay to the clerk of court which rendered the judgment or final order appealed from, the full amount of the appellate court docket and other lawful fees. Proof of payment of said fees shall be transmitted to the appellate court together with the original record or the record on appeal."

It is also incumbent upon the appellants to pay the required appeal fee within the reglementary period. Up to the present, the court has not yet received any evidence of payment of the appellate docket fee to be attached to the record of this case, in accordance with the New Rules, to the prejudice of the other party.

Wherefore, from the foregoing, the notice of appeal is hereby DENIED for not being accompanied by the required docket fees, and let a writ of execution be issued for the enforcement of the decision.

On June 2, 1998, the RTC correspondingly issued the Writ of Execution10 prayed for by the respondent MBTC.

On June 11, 1998, the counsel for the petitioners informed the court by letter that on June 9, 1998, he sent his messenger to the court to pay the docket fees on the notice of appeal but was refused by the receiving clerk.11 In a Letter-Response dated June 19, 1998, the trial court instructed the counsel for the petitioners, to wit:

In response to your letter dated June 11, 1998, please be informed that as a matter of policy, courts do not receive payments of docket fees. This should be made to the Office of the Clerk of Court, with only the official receipts and/or proofs of payment filed in court to be attached to the record of the case to be forwarded to the Court of Appeals. Moreover, the court has already resolved all pending incidents before it, the last one in its Order dated May 27, 1998 so that, if the receiving clerk refused receipt of the docket fee on the nature (sic) of appeal, it is only in consonance with the above-mentioned order.12

On June 29, 1998, the petitioner filed with the CA a petition for certiorari assailing the May 27, 1998 Order of the RTC for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction.13 In their reply to the comment, the petitioners, for the first time, proffered to the appellate court an explanation for their admitted failure to pay the appellate docket fees within the prescribed reglementary period. The petitioners, thus, averred:

6. Petitioners' failure to pay the appellate docket fee is not without a valid explanation. At the

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time of the filing of Notice of Appeal, petitioners' counsel's lone secretary, without informing in advance the undersigned, decided to migrate to another country for "greener pasture," leaving the undersigned the responsibility to tend to all the cases in his office. The undersigned's operation was literally disabled and in shambles;

7. Thus, when the undersigned discovered this inadvertence, he immediately tried to remedy the situation and can only hope that this Honorable Court can understand the undersigned's predicament.14

On September 30, 1998, the CA promulgated its Decision dismissing the petitioner's appeal.15 The petitioner's motion for reconsideration16 and its supplement17 thereto was, likewise, denied by the appellate court in its Resolution dated March 29, 1999.18

Hence, the petition at bar.

The petitioners assail the decision of the CA grounded on the following:

A. THE APPEAL OF PETITIONER WAS DULY AND SEASONABLY PERFECTED; HENCE, THE HON. CA ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN RENDERING THE ASSAILED DECISION (ANNEX "M") THAT SUSTAINED THE ORDER OF THE RTC DENYING, DISALLOWING AND DISMISSING THE APPEAL;

B. THE ORDER [OF THE RTC] DIRECTING THE EXECUTION OF ITS JUDGMENT [BEFORE THE EXPIRY OF THE 90-DAY PERIOD FROM RECEIPT THEREOF BY THE PETITIONERS] IS PREMATURE, BECAUSE (1) THE COURT HAD LOST JURISDICTION OVER THE CASE UPON THE FILING OF THE NOTICE OF APPEAL AND (2) RULE 68 PROVIDES FOR THE PROCEDURE HOW TO ENFORCE A JUDGMENT IN A PETITION FOR FORECLOSURE;

C. THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE RTC THAT DISMISSED THE THIRD-PARTY COMPLAINT OF PETITIONER NAVARRO AGAINST THE ERRANT AND FRAUDULENT BRANCH MANAGER DANILO MENESES OF RESPONDENT METROBANK;

D. THE JUDGMENT BINDING THE CONJUGAL PROPERTY OF SPOUSES CLARITA PARAGAS AND ANTONIO NAVARRO ON THE ALLEGED DEBT OF THE HUSBAND IS AGAINST THE LAW;19

The petition is denied due course.

The petitioners contend that the appellate court erred in sustaining the RTC's denial of their notice of appeal on the ground of their failure to pay the docket and other legal fees. The petitioners aver that the payment of the said fees is not a prerequisite for the perfection of an appeal. They contend that having seasonably filed their notice of appeal from the RTC's January 16, 1998 Decision and March 25, 1998 Order, the appeal therefrom was deemed perfected; thus, divesting the RTC of jurisdiction over the case. Hence, when the RTC issued its March 25, 1998 Order, it had no jurisdiction to do so. The petitioners cited the rulings of this Court in Santos v. Court of Appeals20 and in Manila Mandarin Employees Union v. NLRC21 to bolster its stance.

We are not convinced. Time and time again, this Court has consistently held that the "payment of docket fees within the prescribed period is mandatory for the perfection of an appeal. Without such payment, the appeal is not perfected. The appellate court does not acquire jurisdiction over the subject matter of the action and the decision sought to be appealed from becomes final and executory."22

It bears stressing that appeal is not a right, but a mere statutory privilege.23 Corollary to this

principle is that the appeal must be exercised strictly in accordance with the provisions set by law. Rule 41 of the Rules of Court provides that an appeal to the CA from a case decided by the RTC in the exercise of the latter's original jurisdiction shall be taken within fifteen (15) days from the notice of judgment or final order appealed from. Such appeal is perfected by filing a notice of appeal thereof with the court that rendered the judgment or final order and, by serving a copy of that notice upon the adverse party,24 and by paying within this same period the full amount of the appellate court docket and other lawful fees to the clerk of court.25

The payment of the docket fees within this period is a condition sine qua non to the perfection of the appeal. Contrary to the petitioners' predication, the payment of the appellate docket and other lawful fees is not a mere technicality of law or procedure. It is an essential requirement, without which the decision or final order appealed from would become final and executory as if no appeal was filed at all.

We have consistently ruled that litigation is not a game of technicalities and that every case must be prosecuted in accordance with the prescribed procedure so that issues may be properly presented and justly resolved.26 However, we have also ruled that rules of procedure must be faithfully followed except only when, for persuasive and weighting reasons, they may be relaxed to relieve a litigant of an injustice commensurate with his failure to comply with the prescribed procedure. Concomitant to a liberal interpretation of the rules of procedure should be an effort on the part of the party invoking liberality to adequately explain his failure to abide by the rules.27

Our ruling in this case is not antithetical to our ruling in La Salette College v. Victor Pilotin,28 viz:

Notwithstanding the mandatory nature of the requirement of payment of appellate docket fees, we also recognize that its strict application is qualified by the following: first, failure to pay those fees within the reglementary period allows only discretionary, not automatic, dismissal; second, such power should be used by the court in conjunction with its exercise of sound discretion in accordance with the tenets of justice and fair play, as well as with a great deal of circumspection in consideration of all attendant circumstances.

In Mactan Cebu International Airport Authority v. Mangubat, the payment of the docket fees was delayed by six (6) days, but the late payment was accepted, because the party showed willingness to abide by the Rules by immediately paying those fees. Yambao v. Court of Appeals, saw us again relaxing the Rules when we declared therein that "the appellate court may extend the time for the payment of the docket fees if appellant is able to show that there is a justifiable reason for … the failure to pay the correct amount of docket fees within the prescribed period, like fraud, accident, mistake, excusable negligence, or a similar supervening casualty, without fault on the part of the appellant."

In the present case, the petitioners failed to establish any sufficient and satisfactory reason to warrant a relaxation of the mandatory rule on the payment of appellate docket and other lawful fees. The explanation given by the petitioners' counsel for the non-payment was that his secretary, who migrated to another country, inadvertently failed to pay the docket and other fees when she filed the petitioners' notice of appeal with the court. The said counsel came to know of the inadvertence only when he received a copy of the RTC's May 27, 1998 Order which denied due course to the appeal for failure to pay the required docket fees. The explication deserves scant consideration. We have reviewed the records and find that the petitioners failed to show how and when their counsel's secretary left the country. Neither did the petitioners submit any explanation why their counsel failed to ascertain immediately after April 14, 1998 if the requisite appellate docket and other lawful fees had been paid by the said secretary before her departure.

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Thus, putting the blame on the counsel's secretary for her failure to perfect the petitioners' appeal to the CA is unjustified. As aptly declared by the appellate court:

The reason given for movants' failure to pay the docket fees, i.e., that their counsel's employee had left his office has been debunked by the Supreme Court as "a hackneyed and habitual subterfuge employed by litigants who fail to observe the procedural requirements prescribed by the Rules of Court. (Lanting vs. Guevarra, 27 SCRA 974) The Supreme Court has also often repeated that the negligence of clerks which adversely affect the case handled by lawyers, is binding upon the latter." (Negros Stevedoring Co., Inc. vs. Court of Appeals, 162 SCRA 371.)29

Indeed, this Court has admonished law offices to adopt a system of distributing and receiving pleadings and notices, so that the lawyers will be promptly informed of the status of their cases.30 Hence, the negligence of clerks which adversely affect the cases handled by lawyers is binding upon the latter. IN LIGHT OF ALL THE FOREGOING, the petition is hereby DENIED. The assailed decision of the Court of Appeals is AFFIRMED. Costs against the petitioners. SO ORDERED. Quisumbing, (Acting Chairman), Austria-Martinez, and Tinga, JJ., concur.Puno, (Chairman), J., on official leave.

G.R. No. 151242 June 15, 2005

PROTON PILIPINAS CORPORATION, AUTOMOTIVE PHILIPPINES, ASEA ONE CORPORATION and AUTOCORP, Petitioners, vs.

BANQUE NATIONALE DE PARIS,1 Respondent.

CARPIO MORALES, J.:

It appears that sometime in 1995, petitioner Proton Pilipinas Corporation (Proton) availed of the credit facilities of herein respondent, Banque Nationale de Paris (BNP). To guarantee the payment of its obligation, its co-petitioners Automotive Corporation Philippines (Automotive), Asea One Corporation (Asea) and Autocorp Group (Autocorp) executed a corporate guarantee2 to the extent of US$2,000,000.00. BNP and Proton subsequently entered into three trust receipt agreements dated June 4, 1996,3 January 14, 1997,4 and April 24, 1997.5

Under the terms of the trust receipt agreements, Proton would receive imported passenger motor vehicles and hold them in trust for BNP. Proton would be free to sell the vehicles subject to the condition that it would deliver the proceeds of the sale to BNP, to be applied to its obligations to it. In case the vehicles are not sold, Proton would return them to BNP, together with all the accompanying documents of title.

Allegedly, Proton failed to deliver the proceeds of the sale and return the unsold motor vehicles.

Pursuant to the corporate guarantee, BNP demanded from Automotive, Asea and Autocorp the payment of the amount of US$1,544,984.406 representing Proton's total outstanding obligations. These guarantors refused to pay, however. Hence, BNP filed on September 7, 1998 before the Makati Regional Trial Court (RTC) a complaint against petitioners praying that they be ordered to pay (1) US$1,544,984.40 plus accrued interest and other related charges thereon subsequent to August 15, 1998 until fully paid and (2) an amount equivalent to 5% of all sums due from petitioners as attorney's fees.

The Makati RTC Clerk of Court assessed the docket fees which BNP paid at P352,116.307 which was computed as follows:8

First Cause of Action $ 844,674.07

Second Cause of Action 171,120.53

Third Cause of Action 529,189.80

$1,544,984.40

5% as Attorney's Fees $ 77,249.22

TOTAL ………….. $1,622,233.62

Conversion rate to peso x 43_

TOTAL ………….. P69,756,000.00

(roundoff)

Computation based on Rule 141:

COURT JDF

P 69,756,000.00 P 69.606.000.00

- 150,000.00 x .003

69,606,000.00 208,818.00

x .002 + 450.00

139,212.00 P 209,268.00

+ 150.00

P 139,362.00

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LEGAL : P139,362.00

+ 209,268.00

P348,630.00 x 1% = P3,486.30

P 139,362.00

+ 209,268.00

3,486.00

P 352,116.30 - Total fees paid by the plaintiff

To the complaint, the defendants-herein petitioners filed on October 12, 1998 a Motion to Dismiss9 on the ground that BNP failed to pay the correct docket fees to thus prevent the trial court from acquiring jurisdiction over the case.10 As additional ground, petitioners raised prematurity of the complaint, BNP not having priorly sent any demand letter.11

By Order12 of August 3, 1999, Branch 148 of the Makati RTC denied petitioners' Motion to Dismiss, viz:

Resolving the first ground relied upon by the defendant, this court believes and so hold that the docket fees were properly paid. It is the Office of the Clerk of Court of this station that computes the correct docket fees, and it is their duty to assess the docket fees correctly, which they did.1avvphi1.zw+

Even granting arguendo that the docket fees were not properly paid, the court cannot just dismiss the case. The Court has not yet ordered (and it will not in this case) to pay the correct docket fees, thus the Motion to dismiss is premature, aside from being without any legal basis.

As held in the case of National Steel Corporation vs. CA, G.R. No. 123215, February 2, 1999, the Supreme Court said:

x x x

Although the payment of the proper docket fees is a jurisdictional requirement, the trial court may allow the plaintiff in an action to pay the same within a reasonable time within the expiration of applicable prescription or reglementary period. If the plaintiff fails to comply with this requirement, the defendant should timely raise the issue of jurisdiction or else he would be considered in estoppel. In the latter case, the balance between appropriate docket fees and the amount actually paid by the plaintiff will be considered a lien or (sic) any award he may obtain in his favor.

As to the second ground relied upon by the defendants, in that a review of all annexes to the complaint of the plaintiff reveals that there is not a single formal demand letter for defendants to

fulfill the terms and conditions of the three (3) trust agreements.

In this regard, the court cannot sustain the submission of defendant. As correctly pointed out by the plaintiff, failure to make a formal demand for the debtor to pay the plaintiff is not among the legal grounds for the dismissal of the case. Anyway, in the appreciation of the court, this is simply evidentiary.

x x x

WHEREFORE, for lack of merit, the Motion to Dismiss interposed by the defendants is hereby DENIED.13 (Underscoring supplied)

Petitioners filed a motion for reconsideration14 of the denial of their Motion to Dismiss, but it was denied by the trial court by Order15 of October 3, 2000.

Petitioners thereupon brought the case on certiorari and mandamus16 to the Court of Appeals which, by Decision17 of July 25, 2001, denied it in this wise:

… Section 7(a) of Rule 141 of the Rules of Court excludes interest accruing from the principal amount being claimed in the pleading in the computation of the prescribed filing fees. The complaint was submitted for the computation of the filing fee to the Office of the Clerk of Court of the Regional Trial Court of Makati City which made an assessment that respondent paid accordingly. What the Office of the Clerk of Court did and the ruling of the respondent Judge find support in the decisions of the Supreme Court in Ng Soon vs. Alday and Tacay vs. RTC of Tagum, Davao del Norte. In the latter case, the Supreme Court explicitly ruled that "where the action is purely for recovery of money or damages, the docket fees are assessed on the basis of the aggregate amount claimed, exclusive only of interests and costs."

Assuming arguendo that the correct filing fees was not made, the rule is that the court may allow a reasonable time for the payment of the prescribed fees, or the balance thereof, and upon such payment, the defect is cured and the court may properly take cognizance of the action unless in the meantime prescription has set in and consequently barred the right of action. Here respondent Judge did not make any finding, and rightly so, that the filing fee paid by private respondent was insufficient.

On the issue of the correct dollar-peso rate of exchange, the Office of the Clerk of Court of the RTC of Makati pegged it at P 43.21 to US$1. In the absence of any office guide of the rate of exchange which said court functionary was duty bound to follow, the rate he applied is presumptively correct.

Respondent Judge correctly ruled that the matter of demand letter is evidentiary and does not form part of the required allegations in a complaint. Section 1, Rule 8 of the 1997 Rules of Civil Procedure pertinently provides:

"Every pleading shall contain in a methodical and logical form, a plain, concise and direct statement of the ultimate facts on which the party pleading relies for his claim or defense, as the case may be, omitted the statement of mere evidentiary facts."

Judging from the allegations of the complaint particularly paragraphs 6, 12, 18, and 23 where allegations of imputed demands were made upon the defendants to fulfill their respective obligations, annexing the demand letters for the purpose of putting up a sufficient cause of action is not required.

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In fine, respondent Judge committed no grave abuse of discretion amounting to lack or excess of jurisdiction to warrant certiorari and mandamus.18 (Underscoring supplied)

Their Motion for Reconsideration19 having been denied by the Court of Appeals,20 petitioners filed the present petition for review on certiorari21 and pray for the following reliefs:

WHEREFORE, in view of all the foregoing, it is most respectfully prayed of this Honorable Court to grant the instant petition by REVERSING and SETTING ASIDE the questioned Decision of July 25, 2001 and the Resolution of December 18, 2001 for being contrary to law, to Administrative Circular No. 11-94 and Circular No. 7 and instead direct the court a quo to require Private Respondent Banque to pay the correct docket fee pursuant to the correct exchange rate of the dollar to the peso on September 7, 1998 and to quantify its claims for interests on the principal obligations in the first, second and third causes of actions in its Complaint in Civil Case No. 98-2180.22 (Underscoring supplied)

Citing Administrative Circular No. 11-94,23 petitioners argue that BNP failed to pay the correct docket fees as the said circular provides that in the assessment thereof, interest claimed should be included. There being an underpayment of the docket fees, petitioners conclude, the trial court did not acquire jurisdiction over the case.

Additionally, petitioners point out that the clerk of court, in converting BNP's claims from US dollars to Philippine pesos, applied the wrong exchange rate of US $1 = P43.00, the exchange rate on September 7, 1998 when the complaint was filed having been pegged at US $1 = P43.21. Thus, by petitioners' computation, BNP's claim as of August 15, 1998 was actually P70,096,714.72,24 not P69,756,045.66.

Furthermore, petitioners submit that pursuant to Supreme Court Circular No. 7, 25 the complaint should have been dismissed for failure to specify the amount of interest in the prayer.

Circular No. 7 reads:

TO: JUDGES AND CLERKS OF COURT OF THE COURT OF TAX APPEALS, REGIONAL TRIAL COURTS, METROPOLITAN TRIAL COURTS IN CITIES, MUNICIPAL TRIAL COURTS, MUNICIPAL CIRCUIT TRIAL COURTS, SHARI'A DISTRICT COURTS;AND THE INTEGRATED BAR OF THE PHILIPPINES

SUBJECT: ALL COMPLAINTS MUST SPECIFY AMOUNT OF DAMAGES SOUGHT NOT ONLY IN THE BODY OF THE PLEADING, BUT ALSO IN THE PRAYER IN ORDER TO BE ACCEPTED AND ADMITTED FOR FILING. THE AMOUNT OF DAMAGES SO SPECIFIED IN THE COMPLAINT SHALL BE THE BASIS FOR ASSESSING THE AMOUNT OF THE FILING FEES.

In Manchester Development Corporation vs. Court of Appeals, No. L-75919, May 7, 1987, 149 SCRA 562, this Court condemned the practice of counsel who in filing the original complaint omitted from the prayer any specification of the amount of damages although the amount of over P78 million is alleged in the body of the complaint. This Court observed that "(T)his is clearly intended for no other purpose than to evade the payment of the correct filing fees if not to mislead the docket clerk, in the assessment of the filing fee. This fraudulent practice was compounded when, even as this Court had taken cognizance of the anomaly and ordered an investigation, petitioner through another counsel filed an amended complaint, deleting all mention of the amount of damages being asked for in the body of the complaint. xxx"

For the guidance of all concerned, the WARNING given by the court in the afore-cited case is reproduced hereunder:

"The Court serves warning that it will take drastic action upon a repetition of this unethical practice.

To put a stop to this irregularity, henceforth all complaints, petitions, answers and other similar pleadings should specify the amount of damages being prayed for not only in the body of the pleading but also in the prayer, and said damages shall be considered in the assessment of the filing fees in any case. Any pleading that fails to comply with this requirement shall not be accepted nor admitted, or shall otherwise be expunged from the record.

The Court acquires jurisdiction over any case only upon the payment of the prescribed docket fee. An amendment of the complaint or similar pleading will not thereby vest jurisdiction in the Court, much less the payment of the docket fee based on the amount sought in the amended pleading. The ruling in the Magaspi case (115 SCRA 193) in so far as it is inconsistent with this pronouncement is overturned and reversed."

Strict compliance with this Circular is hereby enjoined.

Let this be circularized to all the courts hereinabove named and to the President and Board of Governors of the Integrated Bar of the Philippines, which is hereby directed to disseminate this Circular to all its members.

March 24, 1988.

(Sgd). CLAUDIO TEEHANKEE

Chief Justice

(Emphasis and underscoring supplied)

On the other hand, respondent maintains that it had paid the filing fee which was assessed by the clerk of court, and that there was no violation of Supreme Court Circular No. 7 because the amount of damages was clearly specified in the prayer, to wit:

2. On the FIRST CAUSE OF ACTION -

(c) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS EIGHT HUNDRED FORTY FOUR THOUSAND SIX HUNDRED SEVENTY FOUR AND SEVEN CENTS (US$ 844,674.07), plus accrued interests and other related charges thereon subsequent to August 15, 1998, until fully paid; and (ii) an amount equivalent to 5% of all sums due from said Defendant, as and for attorney's fees;

3. On the SECOND CAUSE OF ACTION -

(d) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS ONE HUNDRED TWENTY AND FIFTY THREE CENTS (US$171,120.53), plus accrued interests and other related charges thereon subsequent to August 15, 1998 until fully paid; and (ii) an amount equivalent to 5% of all sums due from said Defendant, as and for attorney's fees;

4. On the THIRD CAUSE OF ACTION -

(e) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS FIVE HUNDRED TWENTY NINE THOUSAND ONE HUNDRED EIGHTY NINE AND EIGHTY CENTS (US$529,189.80), plus accrued interests and other related charges thereon subsequent to August 15, 1998 until fully paid; and (ii) an amount equivalent to 5% or all sums due from said Defendant, as and for attorney's fees;

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5. On ALL THE CAUSES OF ACTION -

Defendants AUTOMOTIVE CORPORATION PHILIPPINES, ASEA ONE CORPORATION and AUTOCORP GROUP to be ordered to pay Plaintiff BNP the aggregate sum of (i) US DOLLARS ONE MILLION FIVE HUNDRED FORTY FOUR THOUSAND NINE HUNDRED EIGHTY FOUR AND FORTY CENTS (US$1,544,984.40) (First through Third Causes of Action), plus accrued interest and other related charges thereon subsequent to August 15, 1998 until fully paid; and (ii) an amount equivalent to 5% of all sums due from said Defendants, as and for attorney's fees.26

Moreover, respondent posits that the amount of US$1,544,984.40 represents not only the principal but also interest and other related charges which had accrued as of August 15, 1998. Respondent goes even further by suggesting that in light of Tacay v. Regional Trial Court of Tagum, Davao del Norte27 where the Supreme Court held,

Where the action is purely for the recovery of money or damages, the docket fees are assessed on the basis of the aggregate amount claimed, exclusive only of interests and costs.28 (Emphasis and underscoring supplied),

it made an overpayment.

When Tacay was decided in 1989, the pertinent rule applicable was Section 5 (a) of Rule 141 which provided for the following:

SEC. 5. Clerks of Regional Trial Courts. - (a) For filing an action or proceeding, or a permissive counter-claim or cross-claim not arising out of the same transaction subject of the complaint, a third-party complaint and a complaint in intervention and for all services in the same, if the sum claimed, exclusive of interest, of the value of the property in litigation, or the value of the estate, is:

1. Less than P 5,000.00 ….………………………………

2. P 5,000.00 or more but less than P 10,000.00 …………

3. P 10,000.00 or more but less than P 20,000.00 ………..

4. P 20,000.00 or more but less than P 40,000.00 ………..

5. P 40,000.00 or more but less than P 60,000.00 ………..

6. P 60,000.00 or more but less than P 80,000.00 ……….

7. P 80,000.00 or more but less than P 150,000.00 ………

8. And for each P 1,000.00 in excess of P 150,000.00 .....

9. When the value of the case cannot be estimated ………

10.

When the case does not concern property

(naturalization, adoption, legal separation, etc.) ..……...

11.

In forcible entry and illegal detainer cases

appealed from inferior courts ………………………………….

If the case concerns real estate, the assessed value thereof shall be considered in computing the fees.

In case the value of the property or estate or the sum claim is less or more in accordance with the appraisal of the court, the difference of fees shall be refunded or paid as the case may be.

When the complaint in this case was filed in 1998, however, as correctly pointed out by petitioners, Rule 141 had been amended by Administrative Circular No. 11-9429 which provides:

BY RESOLUTION OF THE COURT, DATED JUNE 28, 1994, PURSUANT TO SECTION 5 (5) OF ARTICLE VIII OF THE CONSTITUTION, RULE 141, SECTION 7 (a) AND (d), and SECTION 8 (a) and (b) OF THE RULES OF COURT ARE HEREBY AMENDED TO READ AS FOLLOWS:

RULE 141

LEGAL FEES

x x x

Sec. 7. Clerks of Regional Trial Courts

(a) For filing an action or a permissive counterclaim or money claim against an estate not based on judgment, or for filing with leave of court a third-party, fourth-party, etc. complaint, or a complaint in intervention, and for all clerical services in the same, if the total sum claimed, inclusive of interest, damages of whatever kind, attorney's fees, litigation expenses, and costs, or the stated value of the property in litigation, is:

1.

Not more than P 100,000.00 ……………………………

2.

P 100,000.00, or more but not more than P 150,000.00 … 600.00

3.

For each P 1,000.00 in excess of P 150,000.00 …………. 5.00

x x x

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Sec. 8. Clerks of Metropolitan and Municipal Trial Courts

(a) For each civil action or proceeding, where the value of the subject matter involved, or the amount of the demand, inclusive of interest, damages or whatever kind, attorney's fees, litigation expenses, and costs, is:

1.

Not more than P 20,000.00 …………………………… ...

2.

More than P 20,000.00 but not more than P 100,000.00 ….

3.

More than P 100,000.00 but not more than P 200,000.00 …

(Emphasis and underscoring supplied)

The clerk of court should thus have assessed the filing fee by taking into consideration "the total sum claimed, inclusive of interest, damages of whatever kind, attorney's fees, litigation expenses, and costs, or the stated value of the property in litigation." Respondent's and the Court of Appeals' reliance then on Tacay was not in order.

Neither was, for the same reason, the Court of Appeals' reliance on the 1989 case of Ng Soon v. Alday,30 where this Court held:

…The failure to state the rate of interest demanded was not fatal not only because it is the Courts which ultimately fix the same, but also because Rule 141, Section 5(a) of the Rules of Court, itemizing the filing fees, speaks of "the sum claimed, exclusive of interest." This clearly implies that the specification of the interest rate is not that indispensable.

Factually, therefore, not everything was left to "guesswork" as respondent Judge has opined. The sums claimed were ascertainable, sufficient enough to allow a computation pursuant to Rule 141, section 5(a).

Furthermore, contrary to the position taken by respondent Judge, the amounts claimed need not be initially stated with mathematical precision. The same Rule 141, section 5(a) (3rd paragraph), allows an appraisal "more or less . "31 Thus:

"In case the value of the property or estate or the sum claimed is less or more in accordance with the appraisal of the court, the difference of fee shall be refunded or paid as the case may be."

In other words, a final determination is still to be made by the Court, and the fees ultimately found to be payable will either be additionally paid by the party concerned or refunded to him, as the case may be. The above provision clearly allows an initial payment of the filing fees corresponding to the estimated amount of the claim subject to adjustment as to what later may be proved.

". . . there is merit in petitioner's claim that the third paragraph of Rule 141, Section 5(a) clearly contemplates a situation where an amount is alleged or claimed in the complaint but is less or more than what is later proved. If what is proved is less than what was claimed, then a refund will

be made; if more, additional fees will be exacted. Otherwise stated, what is subject to adjustment is the difference in the fee and not the whole amount" (Pilipinas Shell Petroleum Corp., et als., vs. Court of Appeals, et als., G.R. No. 76119, April 10, 1989).32 (Emphasis and underscoring supplied)

Respecting the Court of Appeals' conclusion that the clerk of court did not err when he applied the exchange rate of US $1 = P43.00 "[i]n the absence of any office guide of the rate of exchange which said court functionary was duty bound to follow,[hence,] the rate he applied is presumptively correct," the same does not lie. The presumption of regularity of the clerk of court's application of the exchange rate is not conclusive.33 It is disputable.34 As such, the presumption may be overturned by the requisite rebutting evidence.35 In the case at bar, petitioners have adequately proven with documentary evidence36 that the exchange rate when the complaint was filed on September 7, 1998 was US $1 = P43.21.

In fine, the docket fees paid by respondent were insufficient.

With respect to petitioner's argument that the trial court did not acquire jurisdiction over the case in light of the insufficient docket fees, the same does not lie.

True, in Manchester Development Corporation v. Court of Appeals,37 this Court held that the court acquires jurisdiction over any case only upon the payment of the prescribed docket fees,38 hence, it concluded that the trial court did not acquire jurisdiction over the case.

It bears emphasis, however, that the ruling in Manchester was clarified in Sun Insurance Office, Ltd. (SIOL) v. Asuncion39 when this Court held that in the former there was clearly an effort to defraud the government in avoiding to pay the correct docket fees, whereas in the latter the plaintiff demonstrated his willingness to abide by paying the additional fees as required.

The principle in Manchester could very well be applied in the present case. The pattern and the intent to defraud the government of the docket fee due it is obvious not only in the filing of the original complaint but also in the filing of the second amended complaint.

However, in Manchester, petitioner did not pay any additional docket fee until the case was decided by this Court on May 7, 1987. Thus, in Manchester, due to the fraud committed on the government, this Court held that the court a quo did not acquire jurisdiction over the case and that the amended complaint could not have been admitted inasmuch as the original complaint was null and void.

In the present case, a more liberal interpretation of the rules is called for considering that, unlike Manchester, private respondent demonstrated his willingness to abide by the rules by paying the additional docket fees as required. The promulgation of the decision in Manchester must have had that sobering influence on private respondent who thus paid the additional docket fee as ordered by the respondent court. It triggered his change of stance by manifesting his willingness to pay such additional docket fee as may be ordered.

Nevertheless, petitioners contend that the docket fee that was paid is still insufficient considering the total amount of the claim. This is a matter which the clerk of court of the lower court and/or his duly authorized docket clerk or clerk in charge should determine and, thereafter, if any amount is found due, he must require the private respondent to pay the same.

Thus, the Court rules as follows:

1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or

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nature of the action. Where the filing of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee within a reasonable time but in no case beyond the applicable prescriptive or reglementary period.

2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be considered filed until and unless the filing fee prescribed therefor is paid. The court may also allow payment of said fee within a reasonable time but also in no case beyond its applicable prescriptive or reglementary period.

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the pleading, or if specified the same has been left for determination by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee.40 (Emphasis and underscoring supplied)

The ruling in Sun Insurance Office was echoed in the 2005 case of Heirs of Bertuldo Hinog v. Hon. Achilles Melicor:41

Plainly, while the payment of the prescribed docket fee is a jurisdictional requirement, even its non-payment at the time of filing does not automatically cause the dismissal of the case, as long as the fee is paid within the applicable prescriptive or reglementary period, more so when the party involved demonstrates a willingness to abide by the rules prescribing such payment. Thus, when insufficient filing fees were initially paid by the plaintiffs and there was no intention to defraud the government, the Manchester rule does not apply . (Emphasis and underscoring supplied; citations omitted)

In the case at bar, respondent merely relied on the assessment made by the clerk of court which turned out to be incorrect. Under the circumstances, the clerk of court has the responsibility of reassessing what respondent must pay within the prescriptive period, failing which the complaint merits dismissal.

Parenthetically, in the complaint, respondent prayed for "accrued interest… subsequent to August 15, 1998 until fully paid." The complaint having been filed on September 7, 1998, respondent's claim includes the interest from August 16, 1998 until such date of filing.

Respondent did not, however, pay the filing fee corresponding to its claim for interest from August 16, 1998 until the filing of the complaint on September 7, 1998. As priorly discussed, this is required under Rule 141, as amended by Administrative Circular No. 11-94, which was the rule applicable at the time. Thus, as the complaint currently stands, respondent cannot claim the interest from August 16, 1998 until September 7, 1998, unless respondent is allowed by motion to amend its complaint within a reasonable time and specify the precise amount of interest petitioners owe from August 16, 1998 to September 7, 199842 and pay the corresponding docket fee therefor.

With respect to the interest accruing after the filing of the complaint, the same can only be determined after a final judgment has been handed down. Respondent cannot thus be made to pay the corresponding docket fee therefor. Pursuant, however, to Section 2, Rule 141, as amended by Administrative Circular No. 11-94, respondent should be made to pay additional fees which shall constitute a lien in the event the trial court adjudges that it is entitled to interest accruing after the filing of the complaint.

Sec. 2. Fees as lien. - Where the court in its final judgment awards a claim not alleged, or a relief different or more than that claimed in the pleading, the party concerned shall pay the additional fees which shall constitute a lien on the judgment in satisfaction of said lien. The clerk of court shall assess and collect the corresponding fees.

In Ayala Corporation v. Madayag,43 in interpreting the third rule laid down in Sun Insurance regarding awards of claims not specified in the pleading, this Court held that the same refers only to damages arising after the filing of the complaint or similar pleading as to which the additional filing fee therefor shall constitute a lien on the judgment.

… The amount of any claim for damages, therefore, arising on or before the filing of the complaint or any pleading should be specified. While it is true that the determination of certain damages as exemplary or corrective damages is left to the sound discretion of the court, it is the duty of the parties claiming such damages to specify the amount sought on the basis of which the court may make a proper determination, and for the proper assessment of the appropriate docket fees. The exception contemplated as to claims not specified or to claims although specified are left for determination of the court is limited only to any damages that may arise after the filing of the complaint or similar pleading for then it will not be possible for the claimant to specify nor speculate as to the amount thereof.44 (Emphasis and underscoring supplied; citation omitted)1avvphi1.zw+

WHEREFORE, the petition is GRANTED in part. The July 25, 2001 Decision and the December 18, 2001 Resolution of the Court Appeals are hereby MODIFIED. The Clerk of Court of the Regional Trial Court of Makati City is ordered to reassess and determine the docket fees that should be paid by respondent, BNP, in accordance with the Decision of this Court, and direct respondent to pay the same within fifteen (15) days, provided the applicable prescriptive or reglementary period has not yet expired. Thereafter, the trial court is ordered to proceed with the case with utmost dispatch.

SO ORDERED.

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G.R. No. 187104 August 3, 2010

SAINT LOUIS UNIVERSITY, INC., Petitioner, vs. EVANGELINE C. COBARRUBIAS, Respondent.

BRION, J.:

We resolve the present petition for review on certiorari1 filed by petitioner Saint Louis University, Inc. (SLU), to challenge the decision2 and the resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 101708.4

The Factual Background

The facts of the case, gathered from the records, are briefly summarized below.

Respondent Evangeline C. Cobarrubias is an associate professor of the petitioner’s College of Human Sciences. She is an active member of the Union of Faculty and Employees of Saint Louis University (UFESLU).

The 2001-20065 and 2006-20116 Collective Bargaining Agreements (CBAs) between SLU and UFESLU contain the following common provision on forced leave:

Section 7.7. For teaching employees in college who fail the yearly evaluation, the following provisions shall apply:

(a) Teaching employees who are retained for three (3) cumulative years in five (5) years shall be on forced leave for one (1) regular semester during which period all benefits due them shall be suspended.7

SLU placed Cobarrubias on forced leave for the first semester of School Year (SY) 2007-2008 when she failed the evaluation for SY 2002-2003, SY 2005-2006, and SY 2006-2007, with the rating of 85, 77, and 72.9 points, respectively, below the required rating of 87 points.

To reverse the imposed forced leave, Cobarrubias sought recourse from the CBA’s grievance machinery. Despite the conferences held, the parties still failed to settle their dispute, prompting Cobarrubias to file a case for illegal forced leave or illegal suspension with the National Conciliation and Mediation Board of the Department of Labor and Employment, Cordillera Administrative Region, Baguio City. When circulation and mediation again failed, the parties submitted the issues between them for voluntary arbitration before Voluntary Arbitrator (VA) Daniel T. Fariñas.

Cobarrubias argued that the CA already resolved the forced leave issue in a prior case between the parties, CA-G.R. SP No. 90596,8 ruling that the forced leave for teachers who fail their evaluation for three (3) times within a five-year period should be coterminous with the CBA in force during the same five-year period.9

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SLU, for its part, countered that the CA decision in CA-G.R. SP No. 90596 cannot be considered in deciding the present case since it is presently on appeal with this Court (G.R. No. 176717)10 and, thus, is not yet final. It argued that the forced leave provision applies irrespective of which CBA is applicable, provided the employee fails her evaluation three (3) times in five (5) years.11

The Voluntary Arbitrator Decision

On October 26, 2007, VA Daniel T. Fariñas dismissed the case.12 He found that the CA decision in CA-G.R. SP No. 90596 is not yet final because of the pending appeal with this Court. He noted that the CBA clearly authorized SLU to place its teaching employees on forced leave when they fail in the evaluation for three (3) years within a five-year period, without a distinction on whether the three years fall within one or two CBA periods. Cobarrubias received the VA’s decision on November 20, 2007.13

On December 5, 2007, Cobarrubias filed with the CA a petition for review under Rule 43 of the Rules of Court, but failed to pay the required filing fees and to attach to the petition copies of the material portions of the record.14

Thus, on January 14, 2008, the CA dismissed the petition outright for Cobarrubias’ procedural lapses.15 Cobarrubias received the CA resolution, dismissing her petition, on January 31, 2008.16

On February 15, 2008, Cobarrubias filed her motion for reconsideration, arguing that the ground cited is technical. She, nonetheless, attached to her motion copies of the material portions of the record and the postal money orders for P4,230.00. She maintained that the ends of justice and fair play are better served if the case is decided on its merits.17

On July 30, 2008, the CA reinstated the petition. It found that Cobarrubias substantially complied with the rules by paying the appeal fee in full and attaching the proper documents in her motion for reconsideration.18

SLU insisted that the VA decision had already attained finality for Cobarrubias’ failure to pay the docket fees on time.

The CA Decision

The CA brushed aside SLU’s insistence on the finality of the VA decision and annulled it, declaring that the "three (3) cumulative years in five (5) years" phrase in Section 7.7(a) of the 2006-2011 CBA means within the five-year effectivity of the CBA. Thus, the CA ordered SLU to pay all the benefits due Cobarrubias for the first semester of SY 2007-2008, when she was placed on forced leave.19

When the CA denied20 the motion for reconsideration that followed,21 SLU filed the present petition for review on certiorari.22

The Petition

SLU argues that the CA should not have reinstated the appeal since Cobarrubias failed to pay the docket fees within the prescribed period, and rendered the VA decision final and executory. Even if Cobarrubias’ procedural lapse is disregarded, SLU submits that Section 7.7(a) of the 2006-2011 CBA should apply irrespective of the five-year effectivity of each CBA.23

The Case for Cobarrubias

Cobarrubias insists that the CA settled the appeal fee issue, in its July 30, 2008 resolution, when it

found that she had substantially complied with the rules by subsequently paying the docket fees in full. She submits that the CA’s interpretation of Section 7.7(a) of the 2006-2011 CBA is more in accord with law and jurisprudence.24

The Issues

The core issues boil down to whether the CA erred in reinstating Cobarrubias’ petition despite her failure to pay the appeal fee within the reglementary period, and in reversing the VA decision. To state the obvious, the appeal fee is a threshold issue that renders all other issues unnecessary if SLU’s position on this issue is correct.

The Court’s Ruling

We find the petition meritorious.

Payment of Appellate Court Docket Fees

Appeal is not a natural right but a mere statutory privilege, thus, appeal must be made strictly in accordance with the provision set by law.25 Rule 43 of the Rules of Court provides that appeals from the judgment of the VA shall be taken to the CA, by filing a petition for review within fifteen (15) days from the receipt of the notice of judgment.26 Furthermore, upon the filing of the petition, the petitioner shall pay to the CA clerk of court the docketing and other lawful fees;27 non-compliance with the procedural requirements shall be a sufficient ground for the petition’s dismissal.28 Thus, payment in full of docket fees within the prescribed period is not only mandatory, but also jurisdictional.29 It is an essential requirement, without which, the decision appealed from would become final and executory as if no appeal has been filed.30

As early as the 1932 case of Lazaro v. Endencia and Andres,31 we stressed that the payment of the full amount of the docket fee is an indispensable step for the perfection of an appeal. In Lee v. Republic,32 we decided that even though half of the appellate court docket fee was deposited, no appeal was deemed perfected where the other half was tendered after the period within which payment should have been made. In Aranas v. Endona,33 we reiterated that the appeal is not perfected if only a part of the docket fee is deposited within the reglementary period and the remainder is tendered after the expiration of the period.

The rulings in these cases have been consistently reiterated in subsequent cases: Guevarra v. Court of Appeals,34 Pedrosa v. Spouses Hill,35 Gegare v. Court of Appeals,36 Lazaro v. Court of Appeals,37 Sps. Manalili v. Sps. de Leon,38 La Salette College v. Pilotin,39 Saint Louis University v. Spouses Cordero,40 M.A. Santander Construction, Inc. v. Villanueva,41 Far Corporation v. Magdaluyo,42 Meatmasters Int’l. Corp. v. Lelis Integrated Dev’t. Corp.,43 Tamayo v. Tamayo, Jr.,44 Enriquez v. Enriquez,45 KLT Fruits, Inc. v. WSR Fruits, Inc.,46 Tan v. Link,47 Ilusorio v. Ilusorio-Yap,48 and most recently in Tabigue v. International Copra Export Corporation (INTERCO),49 and continues to be the controlling doctrine.

In the present case, Cobarrubias filed her petition for review on December 5, 2007, fifteen (15) days from receipt of the VA decision on November 20, 2007, but paid her docket fees in full only after seventy-two (72) days, when she filed her motion for reconsideration on February 15, 2008 and attached the postal money orders for P4,230.00. Undeniably, the docket fees were paid late, and without payment of the full docket fees, Cobarrubias’ appeal was not perfected within the reglementary period.

Exceptions to the Rule on Payment of Appellate Court Docket Fees not applicable

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Procedural rules do not exist for the convenience of the litigants; the rules were established primarily to provide order to and enhance the efficiency of our judicial system.50 While procedural rules are liberally construed, the provisions on reglementary periods are strictly applied, indispensable as they are to the prevention of needless delays, and are necessary to the orderly and speedy discharge of judicial business.51

Viewed in this light, procedural rules are not to be belittled or dismissed simply because their non-observance may have prejudiced a party's substantive rights; like all rules, they are required to be followed. However, there are recognized exceptions to their strict observance, such as: (1) most persuasive and weighty reasons; (2) to relieve a litigant from an injustice not commensurate with his failure to comply with the prescribed procedure; (3) good faith of the defaulting party by immediately paying within a reasonable time from the time of the default; (4) the existence of special or compelling circumstances; (5) the merits of the case; (6) a cause not entirely attributable to the fault or negligence of the party favored by the suspension of the rules; (7) a lack of any showing that the review sought is merely frivolous and dilatory; (8) the other party will not be unjustly prejudiced thereby; (9) fraud, accident, mistake or excusable negligence without the appellant's fault; (10) peculiar, legal and equitable circumstances attendant to each case; (11) in the name of substantial justice and fair play; (12) importance of the issues involved; and (13) exercise of sound discretion by the judge, guided by all the attendant circumstances.52 Thus, there should be an effort, on the part of the party invoking liberality, to advance a reasonable or meritorious explanation for his/her failure to comply with the rules.1avvphi1

In Cobarrubias' case, no such explanation has been advanced. Other than insisting that the ends of justice and fair play are better served if the case is decided on its merits, Cobarrubias offered no excuse for her failure to pay the docket fees in full when she filed her petition for review. To us, Cobarrubias’ omission is fatal to her cause.

We, thus, find that the CA erred in reinstating Cobarrubias’ petition for review despite the nonpayment of the requisite docket fees within the reglementary period. The VA decision had lapsed to finality when the docket fees were paid; hence, the CA had no jurisdiction to entertain the appeal except to order its dismissal.

WHEREFORE, the present petition is GRANTED. The assailed decision and resolution of the Court of Appeals in CA-G.R. SP No. 101708 are hereby DECLARED VOID and are consequently SET ASIDE. The decision of the voluntary arbitrator, that the voided Court of Appeals decision and resolution nullified, stands. No pronouncement as to costs.

SO ORDERED.

G.R. No. 138497 January 16, 2002

IMELDA RELUCIO, petitioner, vs. ANGELINA MEJIA LOPEZ, respondent.

PARDO, J.:

The Case

The case is a petition for review on certiorari1 seeking to set aside the decision2 of the Court of Appeals that denied a petition for certiorari assailing the trial court's order denying petitioner's motion to dismiss the case against her inclusion as party defendant therein.

The Facts

The facts, as found by the Court of Appeals, are as follows:

"On September 15, 1993, herein private respondent Angelina Mejia Lopez (plaintiff below) filed a petition for "APPOINTMENT AS SOLE ADMINISTRATIX OF CONJUGAL PARTNERSHIP OF PROPERTIES, FORFEITURE, ETC.," against defendant Alberto Lopez and petition Imelda Relucio, docketed as Spec. Proc. M-3630, in the Regional Trial Court of Makati, Branch 141. In the petition, private-respondent alleged that sometime in 1968, defendant Lopez, who is legally married to the private respondent, abandoned the latter and their four legitimate children; that he arrogated unto himself full and exclusive control and administration of the conjugal properties, spending and using the same for his sole gain and benefit to the total exclusion of the private respondent and their four children; that defendant Lopez, after abandoning his family, maintained an illicit relationship and cohabited with herein petitioner since 1976.

"It was further alleged that defendant Lopez and petitioner Relucio, during their period of cohabitation since 1976, have amassed a fortune consisting mainly of stockholdings in Lopez-owned or controlled corporations, residential, agricultural, commercial lots, houses, apartments and buildings, cars and other motor vehicles, bank accounts and jewelry. These properties, which are in the names of defendant Lopez and petitioner Relucio singly or jointly or their dummies and proxies, have been acquired principally if not solely through the actual contribution of money, property and industry of defendant Lopez with minimal, if not nil, actual contribution from petitioner Relucio.

"In order to avoid defendant Lopez obligations as a father and husband, he excluded the private respondent and their four children from sharing or benefiting from the conjugal properties and the income or fruits there from. As such, defendant Lopez either did not place them in his name or otherwise removed, transferred, stashed away or concealed them from the private-respondent. He placed substantial portions of these conjugal properties in the name of petitioner Relucio.1âwphi1.nêt

"It was also averred that in the past twenty five years since defendant Lopez abandoned the

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private-respondent, he has sold, disposed of, alienated, transferred, assigned, canceled, removed or stashed away properties, assets and income belonging to the conjugal partnership with the private-respondent and either spent the proceeds thereof for his sole benefit and that of petitioner Relucio and their two illegitimate children or permanently and fraudulently placed them beyond the reach of the private-respondent and their four children.

"On December 8, 1993, a Motion to Dismiss the Petition was filed by herein petitioner on the ground that private respondent has no cause of action against her.

"An Order dated February 10, 1994 was issued by herein respondent Judge denying petitioner Relucio's Motion to Dismiss on the ground that she is impleaded as a necessary or indispensable party because some of the subject properties are registered in her name and defendant Lopez, or solely in her name.

"Subsequently thereafter, petitioner Relucio filed a Motion for Reconsideration to the Order of the respondent Judge dated February 10, 1994 but the same was likewise denied in the Order dated May 31, 1994."3

On June 21, 1994, petitioner filed with the Court of Appeals a petition for certiorari assailing the trial court's denial of her motion to dismiss.4

On May 31, 1996, the Court of Appeals promulgated a decision denying the petition.5 On June 26, 1996, petitioner filed a motion for reconsideration.6 However, on April 6, 1996, the Court of Appeals denied petitioner's motion for reconsideration.7

Hence, this appeal.8

The Issues

1. Whether respondent's petition for appointment as sole administratrix of the conjugal property, accounting, etc. against her husband Alberto J. Lopez established a cause of action against petitioner.

2. Whether petitioner's inclusion as party defendant is essential in the proceedings for a complete adjudication of the controversy.9

The Court's Ruling

We grant the petition. We resolve the issues in seriatim.

First issue: whether a cause of action exists against petitioner in the proceedings below. "A cause of action is an act or omission of one party the defendant in violation of the legal right of the other."10 The elements of a cause of action are:

(1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created;

(2) an obligation on the part of the named defendant to respect or not to violate such right; and

(3) an act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages.11

A cause of action is sufficient if a valid judgment may be rendered thereon if the alleged facts

were admitted or proved.12

In order to sustain a motion to dismiss for lack of cause of action, the complaint must show that the claim for relief does not exist, rather than that a claim has been merely defectively stated or is ambiguous, indefinite or uncertain.13

Hence, to determine the sufficiency of the cause of action alleged in Special Proceedings M-3630, we assays its allegations.

In Part Two on the "Nature of [the] Complaint," respondent Angelina Mejia Lopez summarized the causes of action alleged in the complaint below.

The complaint is by an aggrieved wife against her husband.

Nowhere in the allegations does it appear that relief is sought against petitioner. Respondent's causes of action were all against her husband.

The first cause of action is for judicial appointment of respondent as administratrix of the conjugal partnership or absolute community property arising from her marriage to Alberto J. Lopez. Petitioner is a complete stranger to this cause of action. Article 128 of the Family Code refers only to spouses, to wit:

"If a spouse without just cause abandons the other or fails to comply with his or her obligations to the family, the aggrieved spouse may petition the court for receivership, for judicial separation of property, or for authority to be the sole administrator of the conjugal partnership property xxx"

The administration of the property of the marriage is entirely between them, to the exclusion of all other persons. Respondent alleges that Alberto J. Lopez is her husband. Therefore, her first cause of action is against Alberto J. Lopez. There is no right-duty relation between petitioner and respondent that can possibly support a cause of action. In fact, none of the three elements of a cause of action exists.

The second cause of action is for an accounting "by respondent husband."14 The accounting of conjugal partnership arises from or is an incident of marriage.

Petitioner has nothing to do with the marriage between respondent Alberto J. Lopez. Hence, no cause of action can exist against petitioner on this ground.

Respondent's alternative cause of action is for forfeiture of Alberto J. Lopez' share in the co-owned property "acquired during his illicit relationship and cohabitation with [petitioner]" 15 and for the "dissolution of the conjugal partnership of gains between him [Alberto J. Lopez] and the [respondent]."

The third cause of action is essentially for forfeiture of Alberto J. Lopez' share in property co-owned by him and petitioner. It does not involve the issue of validity of the co-ownership between Alberto J. Lopez and petitioner. The issue is whether there is basis in law to forfeit Alberto J. Lopez' share, if any there be, in property co-owned by him with petitioner.

Respondent's asserted right to forfeit extends to Alberto J. Lopez' share alone. Failure of Alberto J. Lopez to surrender such share, assuming the trial court finds in respondent's favor, results in a breach of an obligation to respondent and gives rise to a cause of action.16 Such cause of action, however, pertains to Alberto J. Lopez, not petitioner.

The respondent also sought support. Support cannot be compelled from a stranger.

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The action in Special Proceedings M-3630 is, to use respondent Angelina M. Lopez' own words, one by "an aggrieved wife against her husband."17 References to petitioner in the common and specific allegations of fact in the complaint are merely incidental, to set forth facts and circumstances that prove the causes of action alleged against Alberto J. Lopez.

Finally, as to the moral damages, respondent's claim for moral damages is against Alberto J. Lopez, not petitioner.

To sustain a cause of action for moral damages, the complaint must have the character of an action for interference with marital or family relations under the Civil Code.

A real party in interest is one who stands "to be benefited or injured by the judgment of the suit."18 In this case, petitioner would not be affected by any judgment in Special Proceedings M-3630.

If petitioner is not a real party in interest, she cannot be an indispensable party. An indispensable party is one without whom there can be no final determination of an action. 19 Petitioner's participation in Special Proceedings M-36-30 is not indispensable. Certainly, the trial court can issue a judgment ordering Alberto J. Lopez to make an accounting of his conjugal partnership with respondent, and give support to respondent and their children, and dissolve Alberto J. Lopez' conjugal partnership with respondent, and forfeit Alberto J. Lopez' share in property co-owned by him and petitioner. Such judgment would be perfectly valid and enforceable against Alberto J. Lopez.

Nor can petitioner be a necessary party in Special Proceedings M-3630. A necessary party as one who is not indispensable but who ought to be joined as party if complete relief is to be accorded those already parties, or for a complete determination or settlement of the claim subject of the action.20 In the context of her petition in the lower court, respondent would be accorded complete relief if Alberto J. Lopez were ordered to account for his alleged conjugal partnership property with respondent, give support to respondent and her children, turn over his share in the co-ownership with petitioner and dissolve his conjugal partnership or absolute community property with respondent.

The Judgment

WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the Court of Appeals.21

The Court DISMISSES Special Proceedings M-3630 of the Regional Trial Court, Makati, Branch 141 as against petitioner.1âwphi1.nêt

No costs.

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan, and Ynares-Santiago, JJ., concur.

G.R. No. 141463 August 6, 2002

VICTOR ORQUIOLA and HONORATA ORQUIOLA, petitioners, vs.

HON. COURT OF APPEALS, HON. VIVENCIO S. BACLIG, Presiding Judge, Regional Trial Court, Branch 77, Quezon City, THE SHERIFF OF QUEZON CITY and HIS/HER DEPUTIES and PURA KALAW LEDESMA, substituted by TANDANG SORA DEVELOPMENT CORPORATION, respondents.

QUISUMBING, J.:

This petition for review seeks the reversal of the decision1 of the Court of Appeals dated January 28, 1999 in CA-G.R. SP No. 47422, which dismissed the petition to prohibit Judge Vivencio Baclig of the Regional Trial Court of Quezon City, Branch 77, from issuing a writ of demolition against petitioners, and the sheriff and deputy sheriff of the same court from implementing an alias writ of execution. Also assailed is the resolution2 of the Court of Appeals dated December 29, 1999 which denied petitioners’ motion for reconsideration.

The facts are as follows:

Pura Kalaw Ledesma was the registered owner of Lot 689, covered by TCT Nos. 111267 and 111266, in Tandang Sora, Quezon City. This parcel of land was adjacent to certain portions of Lot 707 of the Piedad Estates, namely, Lot 707-A and 707-B, registered in the name of Herminigilda Pedro under TCT Nos. 16951 and 16952, respectively. On October 29, 1964, Herminigilda sold Lot 707-A and 707-B to Mariano Lising who then registered both lots and Lot 707-C in the name of M.B. Lising Realty and subdivided them into smaller lots.1âwphi1.nêt

Certain portions of the subdivided lots were sold to third persons including herein petitioners, spouses Victor and Honorata Orquiola, who purchased a portion of Lot 707-A-2, Lot 5, Block 1 of the subdivision plan (LRC), Psd-42965. The parcel is now #33 Doña Regina St., Regina Village, Tandang Sora, Quezon City. The other portions were registered in the name of the heirs of Pedro, heirs of Lising, and other third persons.

Sometime in 1969, Pura Kalaw Ledesma filed a complaint, docketed as Civil Case No. Q-12918, with the Regional Trial Court of Quezon City against Herminigilda Pedro and Mariano Lising for allegedly encroaching upon Lot 689. During the pendency of the action, Tandang Sora Development Corporation replaced Pura Kalaw Ledesma as plaintiff by virtue of an assignment of Lot 689 made by Ledesma in favor of said corporation. Trial continued for three decades.

On August 21, 1991, the trial court finally adjudged defendants Pedro and Lising jointly and severally liable for encroaching on plaintiff’s land and ordered them:

(a) to solidarily pay the plaintiff Tandang Sora Dev. Corp. actual damages in the amount of P20,000 with interest from date of filing of the complaint;

(b) to remove all construction, including barbed wires and fences, illegally constructed by defendants on plaintiff’s property at defendants’ expense;

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(c) to replace the removed concrete monuments removed by defendants, at their own expense;

(d) to pay attorney’s fees in the amount of FIVE THOUSAND PESOS (P5,000.00) with interest computed from the date of filing of the complaint;

(e) to relocate the boundaries to conform with the Commissioners’ Report, particularly, Annexes "A" and "B" thereof, at the expense of the defendants.3

As a result, in February 1998, the Deputy Sheriff of Quezon City directed petitioners, through an alias writ of execution, to remove the house they constructed on the land they were occupying.

On April 2, 1998, petitioners received a Special Order dated March 30, 1998, from the trial court stating as follows:

Before the Court for resolution is the "Ex-Parte Motion For The Issuance of A Writ of Demolition," filed by plaintiff, through counsel, praying for the issuance of an Order directing the Deputy Sheriff to cause the removal and/or demolition of the structures on the plaintiff’s property constructed by defendants and/or the present occupants. The defendants-heirs of Herminigilda Pedro filed their comment on the said Motion.

Considering that the decision rendered in the instant case had become final and executory, the Court, in its Order of November 14, 1997, directed the issuance of an alias writ of execution for the enforcement of the said decision. However, despite the service of the said writ to all the defendants and the present occupants of the subject property, they failed to comply therewith, as per the Partial Sheriff’s Return, dated February 9, 1998, issued by the Deputy Sheriff of this branch of the Court. Thus, there is now a need to demolish the structures in order to implement the said decision.

WHEREFORE, the defendants are hereby directed to remove, at their expense, all constructions, including barbed wires and fences, which defendants constructed on plaintiff’s property, within fifteen (15) days from notice of this Order; otherwise, this Court will issue a writ of demolition against them.

SO ORDERED.4

To prohibit Judge Vivencio Baclig of the Regional Trial Court of Quezon City from issuing a writ of demolition and the Quezon City sheriff from implementing the alias writ of execution, petitioners filed with the Court of Appeals a petition for prohibition with prayer for a restraining order and preliminary injunction on April 17, 1998.5 Petitioners alleged that they bought the subject parcel of land in good faith and for value, hence, they were parties in interest. Since they were not impleaded in Civil Case No. Q-12918, the writ of demolition issued in connection therewith cannot be enforced against them because to do so would amount to deprivation of property without due process of law.

The Court of Appeals dismissed the petition on January 28, 1999. It held that as buyers and successors-in-interest of Mariano Lising, petitioners were considered privies who derived their rights from Lising by virtue of the sale and could be reached by the execution order in Civil Case No. Q-12918. Thus, for lack of merit, the petition was ordered dismissed.6

Petitioners’ motion for reconsideration was denied. Hence, this petition, where petitioners aver that:

I.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DECISION IN CIVIL CASE NO. Q-12918 CAN ALSO BE ENFORCED AGAINST THE PETITIONERS EVEN IF THEY WERE NOT IMPLEADED AS PARTIES THERETO.

II.

THE HONORABLE COURT OF APPEALS ERRED IN NOT UPHOLDING PETITIONERS’ TITLE DESPITE THEIR BEING BUILDER IN GOOD FAITH AND INNOCENT PURCHASER AND FOR VALUE.

III.

PETITIONERS ARE ENTITLED TO INJUNCTIVE RELIEF CONSIDERING THAT THEY STAND TO SUFFER GRAVE AND IRREPARABLE INJURY IF ALIAS WRIT OF EXECUTION AND THE SPECIAL ORDER ISSUED BY THE COURT A QUO IN CIVIL CASE NO. Q-12918 FOR THE DEMOLITION OF ALL THE STRUCTURES ON THE DISPUTED PROPERTY WERE ENFORCED AGAINST THE PETITIONERS WHO WERE NOT EVEN GIVEN THEIR DAY IN COURT.7

For our resolution are the following issues: (1) whether the alias writ of execution may be enforced against petitioners; and (2) whether petitioners were innocent purchasers for value and builders in good faith.

On the first issue, petitioners claim that the alias writ of execution cannot be enforced against them. They argue that the appellate court erred when it relied heavily on our ruling in Vda. de Medina vs. Cruz8 in holding that petitioners are successors-in-interest of Mariano Lising, and as such, they can be reached by the order of execution in Civil Case No. Q-12918 even though they were not impleaded as parties thereto. Petitioners submit that Medina is not applicable in this case because the circumstances therein are different from the circumstances in the present case.

In Medina, the property in dispute was registered under Land Registration Act No. 496 in 1916 and Original Certificate of Title No. 868 was issued in the name of Philippine Realty Corporation (PRC). In 1949, Benedicta Mangahas and Francisco Ramos occupied and built houses on the lot without the PRC’s consent. In 1959, PRC sold the lot to Remedios Magbanua. Mangahas and Ramos opposed and instituted Civil Case No. C-120 to annul the sale and to compel PRC to execute a contract of sale in their favor. The trial court dismissed the complaint and ordered Mangahas and Ramos to vacate the lot and surrender possession thereof to Magbanua. The judgment became final and executory. When Magbanua had paid for the land in full, PRC executed a deed of absolute sale in her favor and a new title was consequently issued in her name. Magbanua then sought the execution of the judgment in Civil Case No. C-120. This was opposed by petitioner Medina who alleged that she owned the houses and lot subject of the dispute. She said that she bought the houses from spouses Ricardo and Eufrocinia de Guzman, while she purchased the lot from the heirs of the late Don Mariano San Pedro y Esteban. The latter held the land by virtue of a Titulo de Composicion Con El Estado Num. 4136, dated April 29, 1894. In opposing the execution, Medina argued that the trial court did not acquire jurisdiction over her, claiming that she was not a party in Civil Case No. C-120, thus, she could not be considered as "a person claiming under" Ramos and Mangahas.

When Medina reached this Court, we held that the decision in Civil Case No. C-120, which had long become final and executory, could be enforced against petitioner even though she was not a party thereto. We found that the houses on the subject lot were formerly owned by Mangahas and Ramos who sold them to spouses de Guzman, who in turn sold them to Medina. Under the circumstances, petitioner was privy to the two judgment debtors Mangahas and Ramos, and thus Medina could be reached by the order of execution and writ of demolition issued against the two.

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As to the lot under dispute, we sustained Magbanua’s ownership over it, she being the holder of a Torrens title. We declared that a Torrens title is generally conclusive evidence of ownership of the land referred to therein, and a strong presumption exists that a Torrens title was regularly issued and valid. A Torrens title is incontrovertible against any informacion possessoria, or other title existing prior to the issuance thereof not annotated on the Torrens title. Moreover, persons dealing with property covered by a Torrens certificate of title are not required to go beyond what appears on its face.

Medina markedly differs from the present case on major points. First, the petitioner in Medina acquired the right over the houses and lot subject of the dispute after the original action was commenced and became final and executory. In the present case, petitioners acquired the lot before the commencement of Civil Case No. Q-12918. Second, the right over the disputed land of the predecessors-in-interest of the petitioner in Medina was based on a title of doubtful authenticity, allegedly a Titulo de Composicion Con El Estado issued by the Spanish Government in favor of one Don Mariano San Pedro y Esteban, while the right over the land of the predecessors-in-interest of herein petitioners is based on a fully recognized Torrens title. Third, petitioners in this case acquired the registered title in their own names, while the petitioner in Medina merely relied on the title of her predecessor-in-interest and tax declarations to prove her alleged ownership of the land.

We must stress that where a case like the present one involves a sale of a parcel of land under the Torrens system, the applicable rule is that a person dealing with the registered property need not go beyond the certificate of title; he can rely solely on the title and he is charged with notice only of such burdens and claims as are annotated on the title.9 It is our view here that the petitioners, spouses Victor and Honorata Orquiola, are fully entitled to the legal protection of their lot by the Torrens system, unlike the petitioner in the Medina case who merely relied on a mere Titulo de Composicion.

Coming now to the second issue, were petitioners purchasers in good faith and for value? A buyer in good faith is one who buys the property of another without notice that some other person has a right to or interest in such property. He is a buyer for value if he pays a full and fair price at the time of the purchase or before he has notice of the claim or interest of some other person in the property.10 The determination of whether one is a buyer in good faith is a factual issue which generally is outside the province of this Court to determine in a petition for review. An exception is when the Court of Appeals failed to take into account certain relevant facts which, if properly considered, would justify a different conclusion.11 The instant case is covered by this exception to the general rule. As found by the Court of Appeals and not refuted by private respondent, petitioners purchased the subject land in 1964 from Mariano Lising.12 Civil Case No. Q-12918 was commenced sometime in 1969. The Court of Appeals overlooked the fact that the purchase of the land took place prior to the institution of Civil Case No. Q-12918. In other words, the sale to petitioners was made before Pura Kalaw Ledesma claimed the lot. Petitioners could reasonably rely on Mariano Lising’s Certificate of Title which at the time of purchase was still free from any third party claim. Hence, considering the circumstances of this case, we conclude that petitioners acquired the land subject of this dispute in good faith and for value.

The final question now is: could we consider petitioners builders in good faith? We note that this is the first time that petitioners have raised this issue. As a general rule, this could not be done. Fair play, justice, and due process dictate that parties should not raise for the first time on appeal issues that they could have raised but never did during trial and even during proceedings before the Court of Appeals.13 Nevertheless, we deem it proper that this issue be resolved now, to avoid circuitous litigation and further delay in the disposition of this case. On this score, we find that

petitioners are indeed builders in good faith.

A builder in good faith is one who builds with the belief that the land he is building on is his, and is ignorant of any defect or flaw in his title.14 As earlier discussed, petitioner spouses acquired the land in question without knowledge of any defect in the title of Mariano Lising. Shortly afterwards, they built their conjugal home on said land. It was only in 1998, when the sheriff of Quezon City tried to execute the judgment in Civil Case No. Q-12918, that they had notice of private respondent’s adverse claim. The institution of Civil Case No. Q-12918 cannot serve as notice of such adverse claim to petitioners since they were not impleaded therein as parties.

As builders in good faith and innocent purchasers for value, petitioners have rights over the subject property and hence they are proper parties in interest in any case thereon. 15

Consequently, private respondents should have impleaded them in Civil Case No. Q-12918. Since they failed to do so, petitioners cannot be reached by the decision in said case. No man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by any judgment rendered by the court. In the same manner, a writ of execution can be issued only against a party and not against one who did not have his day in court. Only real parties in interest in an action are bound by the judgment therein and by writs of execution and demolition issued pursuant thereto.16 In our view, the spouses Victor and Honorata Orquiola have valid and meritorious cause to resist the demolition of their house on their own titled lot, which is tantamount to a deprivation of property without due process of law.1âwphi1.nêt

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated January 28, 1999, and its resolution dated December 29, 1999, in CA-G.R. SP No. 47422, are REVERSED and SET ASIDE. Respondents are hereby enjoined from enforcing the decision in Civil Case No. Q-12918 through a writ of execution and order of demolition issued against petitioners. Costs against private respondent.

SO ORDERED.

Bellosillo, Mendoza, and Corona, JJ., concur.

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G.R. No. 135796 October 3, 2002

CHINA BANKING CORPORATION, petitioner, vs. MERCEDES M. OLIVER, respondent.

QUISUMBING, J.:

This petition for review1 seeks the reversal of the decision dated June 1, 1998, of the Court of Appeals in CA-G.R. SP No. 43836, dismissing China Banking Corporation’s petition for certiorari to annul the two orders of the Regional Trial Court of Muntinlupa City, Branch 276, which earlier denied petitioner’s motion to dismiss and then declared the bank in default in Civil Case No. 96-219. The appellate court also denied petitioner’s motion for reconsideration in a resolution dated September 30, 1998.

The facts of this case are culled from the records.

In August 1995, Pangan Lim, Jr. and a certain Mercedes M. Oliver opened a joint account in China Banking Corporation (hereinafter Chinabank) at EDSA Balintawak Branch. Lim introduced Oliver to the bank’s branch manager as his partner in the rice and palay trading business. Thereafter, Lim and Oliver applied for a P17 million loan, offering as collateral a 7,782 square meter lot located in Tunasan, Muntinlupa and covered by TCT No. S-50195 in the name of Oliver. The bank approved the application. On November 17, 1995, Lim and Oliver executed in favor of Chinabank a promissory note for P16,650,000, as well as a Real Estate Mortgage on the property. The mortgage was duly registered and annotated on the original title under the custody of the Registry of Deeds of Makati and on the owner’s duplicate copy in the bank’s possession. The mortgage document showed Mercedes Oliver’s address to be No. 95 Malakas Street, Diliman, Quezon City. For brevity, she is hereafter referred to as "Oliver One."

On November 18, 1996, respondent claiming that she is Mercedes M. Oliver with postal office address at No. 40 J.P. Rizal St., San Pedro, Laguna, filed an action for annulment of mortgage and cancellation of title with damages against Chinabank, Register of Deeds Atty. Mila G. Flores, and Deputy Register of Deeds Atty. Ferdinand P. Ignacio. Respondent, whom we shall call as "Oliver Two," claimed that she was the registered and lawful owner of the land subject of the real estate mortgage; that the owner’s duplicate copy of the title had always been in her possession; and that she did not apply for a loan or surrender her title to Chinabank.2 She prayed that: (1) the owner’s duplicate copy surrendered to Chinabank as well as the original title with the Registry of Deeds be cancelled; (2) the mortgage be declared null and void; and (3) the Registry of Deeds be ordered to issue a new and clean title in her name.3

On January 31, 1997, Chinabank moved to dismiss the case for lack of cause of action and non-joinder of an indispensable party, the mortgagor.

On March 13, 1997, Judge Norma C. Perello issued an order denying the motion to dismiss, stating that:

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A reading of the COMPLAINT which of course is hypothetically admitted, will show that a valid judgment can be rendered against defendant. Plaintiff having sufficiently averred that defendants negligently failed to ascertain the genuineness or not (sic) of the title of the land mortgaged to it upon the claim of ownership by the mortgagors. Furthermore, the matters alleged in the MOTION TO DISMISS are all evidentiary which Defendants may substantiate at the appointed hours.4

On April 7, 1997, Chinabank filed with the Court of Appeals a petition for certiorari with prayer for the issuance of a writ of preliminary injunction and/or restraining order to enjoin enforcement of the March 13, 1997 order and further action on the case. The Court of Appeals directed respondent Oliver Two to file her comment and deferred action on the prayer for the issuance of the preliminary injunction pending submission of the comment.

On June 30, 1997, respondent Oliver Two moved to declare petitioner Chinabank in default. She pointed out that since petitioner received the order denying the motion to dismiss on March 21, 1997, it had only until April 7, 1997 to file its answer to the complaint. However, until the filing of the motion for default, no answer had been filed yet. The trial court granted the motion and declared petitioner in default in its order dated July 17, 1997, thus:

Acting on the Motion To Declare Defendant Bank in Default, and finding the same to be legally tenable is granted.

Accordingly, the Defendant Bank is declared in default as summons was served on It as early as December 16, 1996, but until date they have not filed an Answer nor any responsive pleading and instead, It filed a Motion to Dismiss, which was denied by this Court on March 13, 1997.

The filing of a CERTIORARI to question the Orders by this Court did not toll the period for Defendants to answer the complaint.

Therefore, the reglementary period for the filing of responsive pleading has long expired.

Let the case be submitted for Decision based on the complaint.

It is SO ORDERED.5

Consequently, petitioner Chinabank filed a supplemental petition on August 11, 1997, seeking annulment of the July 17, 1997 order. It argued that the special civil action for certiorari filed in the Court of Appeals interrupted the proceedings before the trial court, thereby staying the period for filing the answer.

On June 1, 1998, the Court of Appeals promulgated the assailed decision, finding no grave abuse of discretion committed by the trial judge in ruling that the Rules of Court provided the manner of impleading parties to a case and in suggesting that petitioner file an appropriate action to bring the mortgagor within the court’s jurisdiction. The appellate court said that Rule 6, Section 11 of the Rules of Court allows petitioner to file a third-party complaint against the mortgagor. As to the judgment by default, the Court of Appeals said that an order denying the motion to dismiss is interlocutory and may not be questioned through a special civil action for certiorari. The defendant must proceed with the case and raise the issues in his motion to dismiss when he appeals to a higher court. In this case, petitioner Chinabank should have filed its answer when it received the March 13, 1997 order denying the motion to dismiss. The special civil action for certiorari with the Court of Appeals did not interrupt the period to file an answer, there being no temporary restraining order or writ of preliminary injunction issued.

The Court of Appeals denied petitioner’s motion for reconsideration. Hence, this petition

anchored on the following grounds:

I

SEC. 11, RULE 3, OF THE 1997 RULES OF CIVIL PROCEDURE DOES NOT APPLY WHERE THE PARTY WHO WAS NOT IMPLEADED IS AN INDISPENSABLE PARTY; INSTEAD, SECTION 7, RULE 3 THEREOF, APPLIES.

II

THE MORTGAGOR MERCEDES M. OLIVER IS AN INDISPENSABLE PARTY UNDER SECTION 7, RULE 3, OF THE 1997 RULES OF CIVIL PROCEDURE, AND MUST THEREFORE INDISPENSABLY BE JOINED AS A PARTY-DEFENDANT.

III

RESPONDENT’S CAUSE OF ACTION IS ANCHORED ON HER CLAIM AS THE REGISTERED AND LAWFUL OWNER OF THE PROPERTY IN QUESTION AND THAT HER OWNER’S DUPLICATE COPY OF THE TITLE (ANNEX "A") IS THE TRUE AND GENUINE TITLE. THUS, THE ACTION BEFORE THE HONORABLE COURT-A-QUO IS A LAND DISPUTE BETWEEN TWO (2) PERSONS CLAIMING OWNERSHIP.

IV

THE ANNULMENT OF THE MORTGAGE AND THE CANCELLATION OF ANNEXES "B" AND "C" AS PRAYED FOR IN THE COMPLAINT IN CIVIL CASE NO. 96-219 ARE INEXTRICABLY INTERTWINED WITH THE ISSUE OF OWNERSHIP. HENCE, THE LATTER MUST FIRST BE RESOLVED TO DETERMINE THE FORMER.

V

THE OWNER’S DUPLICATE COPY OF THE TITLE OF MORTGAGOR MERCEDES M. OLIVER OWNER’S DUPLICATE COPY CANNOT, IN HER ABSENCE, BE DECLARED NULL AND VOID. CONSEQUENTLY, INASMUCH AS THE MORTGAGE IN FAVOR OF PETITIONER IS DEPENDENT UPON THE OWNER’S DUPLICATE COPY OF THE MORTGAGOR, THE COMPLAINT IN CIVIL CASE NO. 96-219 CAN NOT RESOLVE THE CONTROVERSY WITH FINALITY.

VI

THE CASE OF CHURCH OF CHRIST VS. VALLESPIN, G.R. NO. 53726, AUGUST 15, 1988, DOES NOT APPLY INASMUCH AS THE USE OF TERM "INDISPENSABLE PARTY" IN SAID CASE WAS LOOSELY USED AND IN TRUTH WAS INTENDED TO MEAN "PARTIES-IN-INTEREST" AS CONTEMPLATED BY SECTION 2, RULE 3 OF THE RULES OF COURT.

VII

THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT SANCTIONED THE TRIAL COURT’S ERROR IN DECLARING DEFENDANT CBC IN DEFAULT FOR FAILURE TO FILE AN ANSWER, NOTWITHSTANDING THE SETTLED DOCTRINE THAT WHERE AN INDISPENSABLE PARTY IS NOT IN COURT, THE TRIAL COURT SHOULD NOT PROCEED BUT INSTEAD SHOULD DISMISS THE CASE.

VIII

THE DISMISSAL/WITHDRAWAL OF THE COMPLAINT AGAINST DEFENDANTS REGISTER AND

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DEPUTY REGISTER OF DEEDS NECESSARILY GIVE RISE TO, AND BOLSTERS, THE CONCLUSION THAT THE OWNER’S DUPLICATE COPY OF TCT NO. S-50195 OF MORTGAGOR MERCEDES M. OLIVER IS THE GENUINE AND AUTHENTIC COPY.6

For a clearer discussion of the issues in this controversy, we may state them as follows:

1. Is the mortgagor who goes by the name of Mercedes M. Oliver, herein called Oliver One, an indispensable party in Civil Case No. 96219?

2. Should Section 7 Rule 3 of the 1997 Rules of Civil Procedure7 apply in this case?

3. Did the Court of Appeals err when it sustained the trial court’s declaration that petitioner was in default?

4. Were the withdrawal and consequent dismissal of the complaint against the Registry of Deeds’ officials indicative of the authenticity of mortgagor Oliver One’s copy of TCT No. S-50195?

Petitioner Chinabank alleges that there are two owner’s duplicate copies of TCT No. S-50195 involved in this case and two persons claiming to be the real "MERCEDES MARAVILLA OLIVER." One is the mortgagor, Oliver One. The other is the respondent, Oliver Two. Respondent’s complaint before the trial court was one for cancellation of the transfer certificate of title in petitioner’s possession (Annex B). According to petitioner, the issue below is the genuineness of the titles, which is intertwined with the issue of ownership. This being the case, said the petitioner, the mortgagor Oliver One must necessarily be impleaded for she is the registered owner under Annex "B." Petitioner argues that mortgagor Oliver One is in a better position to defend her title. She stands to suffer if it is declared fake. Further, petitioner claims that the validity and enforceability of the mortgage entirely depends on the validity and authenticity of Annex "B." The mortgage cannot be declared a nullity without the trial court declaring Annex "B" a nullity. Hence, mortgagor Oliver One’s participation in the suit is indispensable, according to petitioner. In brief, what petitioner Chinabank is saying is that it was indispensable for respondent Oliver Two to implead mortgagor Oliver One in the case before the trial court. Failing to do that, the complaint of herein respondent Oliver Two should have been dismissed.

Petitioner’s contention is far from tenable. An indispensable party is a party in interest, without whom no final determination can be had of an action.8 It is true that mortgagor Oliver One is a party in interest, for she will be affected by the outcome of the case. She stands to be benefited in case the mortgage is declared valid, or injured in case her title is declared fake.9 However, mortgagor Oliver One’s absence from the case does not hamper the trial court in resolving the dispute between respondent Oliver Two and petitioner. A perusal of Oliver Two’s allegations in the complaint below shows that it was for annulment of mortgage due to petitioner’s negligence in not determining the actual ownership of the property, resulting in the mortgage’s annotation on TCT No. S-50195 in the Registry of Deeds’ custody. To support said allegations, respondent Oliver Two had to prove (1) that she is the real Mercedes M. Oliver referred to in the TCT, and (2) that she is not the same person using that name who entered into a deed of mortgage with the petitioner. This, respondent Oliver Two can do in her complaint without necessarily impleading the mortgagor Oliver One. Hence, Oliver One is not an indispensable party in the case filed by Oliver Two.

In Noceda vs. Court of Appeals, et al., 313 SCRA 504 (1999), we held that a party is not indispensable to the suit if his interest in the controversy or subject matter is distinct and divisible from the interest of the other parties and will not necessarily be prejudiced by a judgment which does complete justice to the parties in court. In this case, Chinabank has interest in the loan

which, however, is distinct and divisible from the mortgagor’s interest, which involves the land used as collateral for the loan.

Further, a declaration of the mortgage’s nullity in this case will not necessarily prejudice mortgagor Oliver One. The bank still needs to initiate proceedings to go after the mortgagor, who in turn can raise other defenses pertinent to the two of them. A party is also not indispensable if his presence would merely permit complete relief between him and those already parties to the action, or will simply avoid multiple litigation, as in the case of Chinabank and mortgagor Oliver One.10 The latter’s participation in this case will simply enable petitioner Chinabank to make its claim against her in this case, and hence, avoid the institution of another action. Thus, it was the bank who should have filed a third-party complaint or other action versus the mortgagor Oliver One.

As to the second issue, since mortgagor Oliver One is not an indispensable party, Section 7, Rule 3 of the 1997 Rules of Civil Procedure, which requires compulsory joinder of indispensable parties in a case, does not apply. Instead, it is Section 11, Rule 3, that applies.11 Non-joinder of parties is not a ground for dismissal of an action. Parties may be added by order of the court, either on its own initiative or on motion of the parties.12 Hence, the Court of Appeals committed no error when it found no abuse of discretion on the part of the trial court for denying Chinabank’s motion to dismiss and, instead, suggested that petitioner file an appropriate action against mortgagor Oliver One. A person who is not a party to an action may be impleaded by the defendant either on the basis of liability to himself or on the ground of direct liability to the plaintiff.13

Now, the third issue, did the Court of Appeals err when it sustained the trial court’s ruling that petitioner Chinabank was in default? As found by the Court of Appeals, petitioner did not file its answer, although it received the March 13, 1997 order denying the motion to dismiss. Instead, petitioner filed a petition for certiorari under Rule 65 of the Rules of Court. Said petition, however, does not interrupt the course of the principal case unless a temporary restraining order or writ of preliminary injunction is issued.14 No such order or writ was issued in this case. Hence, Chinabank as defendant below was properly declared in default by the trial court, after the 15-day period to file its answer or other responsive pleading lapsed.

Lastly, were the withdrawal and consequent dismissal of the complaint against officials of the Registry of Deeds conclusive of the authenticity of mortgagor Oliver One’s copy of TCT No. S-50195? This is a question of fact, which is not a proper subject for review in this petition. Here, we are limited only to questions of law,15 as a general rule. Petitioner failed to show that this case falls under any of the exceptions to this rule. We need not tarry on this issue now.

WHEREFORE, the petition is DENIED for lack of merit. The assailed decision dated June 1, 1998 and the resolution dated September 30, 1998 of the Court of Appeals in CA-G.R. SP No. 43836 are AFFIRMED. Costs against petitioner.

SO ORDERED.

Bellosillo, (Chairman), Austria-Martinez, and Callejo, Sr., JJ., concur.Mendoza, J., on official leave.

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G.R. No. 162788. July 28, 2005

Spouses JULITA DE LA CRUZ and FELIPE DE LA CRUZ, Petitioners, vs. PEDRO JOAQUIN, Respondents.

PANGANIBAN, J.:

The Rules require the legal representatives of a dead litigant to be substituted as parties to a litigation. This requirement is necessitated by due process. Thus, when the rights of the legal representatives of a decedent are actually recognized and protected, noncompliance or belated formal compliance with the Rules cannot affect the validity of the promulgated decision. After all, due process had thereby been satisfied.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the August 26, 2003 Decision2 and the March 9, 2004 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 34702. The challenged Decision disposed as follows:

"WHEREFORE, the foregoing considered, the appeal is DISMISSED and the assailed decision accordingly AFFIRMED in toto. No costs."4

On the other hand, the trial court’s affirmed Decision disposed as follows:

"WHEREFORE, judgment is hereby rendered:

"a) declaring the Deed of Absolute Sale (Exh. ‘D’) and ‘Kasunduan’ (Exhibit B), to be a sale with right of repurchase;

"b) ordering the plaintiff to pay the defendants the sum of P9,000.00 by way of repurchasing the land in question;

"c) ordering the defendants to execute a deed of reconveyance of said land in favor of the plaintiff after the latter has paid them the amount of P9,000.00 to repurchase the land in question;

"d) ordering the defendants to yield possession of the subject land to the plaintiff after the latter has paid them the amount of P9,000.00 to repurchase the property from them; and

"e) ordering the defendants to pay the plaintiff the amount of P10,000.00 as actual and compensatory damages; the amount of P5,000[.00] as exemplary damages; the amount of P5,000.00 as expenses of litigation and the amount of P5,000.00 by way of attorney’s fees."5

The Facts

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The case originated from a Complaint for the recovery of possession and ownership, the cancellation of title, and damages, filed by Pedro Joaquin against petitioners in the Regional Trial Court of Baloc, Sto. Domingo, Nueva Ecija.6 Respondent alleged that he had obtained a loan from them in the amount of P9,000 on June 29, 1974, payable after five (5) years; that is, on June 29, 1979. To secure the payment of the obligation, he supposedly executed a Deed of Sale in favor of petitioners. The Deed was for a parcel of land in Pinagpanaan, Talavera, Nueva Ecija, covered by TCT No. T-111802. The parties also executed another document entitled "Kasunduan." 7

Respondent claimed that the Kasunduan showed the Deed of Sale to be actually an equitable mortgage.8 Spouses De la Cruz contended that this document was merely an accommodation to allow the repurchase of the property until June 29, 1979, a right that he failed to exercise.9

On April 23, 1990, the RTC issued a Decision in his favor. The trial court declared that the parties had entered into a sale with a right of repurchase.10 It further held that respondent had made a valid tender of payment on two separate occasions to exercise his right of repurchase.11

Accordingly, petitioners were required to reconvey the property upon his payment.12

Ruling of the Court of Appeals

Sustaining the trial court, the CA noted that petitioners had given respondent the right to repurchase the property within five (5) years from the date of the sale or until June 29, 1979. Accordingly, the parties executed the Kasunduan to express the terms and conditions of their actual agreement.13 The appellate court also found no reason to overturn the finding that respondent had validly exercised his right to repurchase the land.14

In the March 9, 2004 Resolution, the CA denied reconsideration and ordered a substitution by legal representatives, in view of respondent’s death on December 24, 1988.15

Hence, this Petition.16

The Issues

Petitioners assign the following errors for our consideration:

"I. Public Respondent Twelfth Division of the Honorable Court of Appeals seriously erred in dismissing the appeal and affirming in toto the Decision of the trial court in Civil Case No. SD-838;

"II. Public Respondent Twelfth Division of the Honorable Court of Appeals likewise erred in denying [petitioners’] Motion for Reconsideration given the facts and the law therein presented."17

Succinctly, the issues are whether the trial court lost jurisdiction over the case upon the death of Pedro Joaquin, and whether respondent was guilty of forum shopping.18

The Court’s Ruling

The Petition has no merit.

First Issue:

Jurisdiction

Petitioners assert that the RTC’s Decision was invalid for lack of jurisdiction.19 They claim that respondent died during the pendency of the case. There being no substitution by the heirs, the

trial court allegedly lacked jurisdiction over the litigation.20

Rule on Substitution

When a party to a pending action dies and the claim is not extinguished,21 the Rules of Court require a substitution of the deceased. The procedure is specifically governed by Section 16 of Rule 3, which reads thus:

"Section 16. Death of a 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 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.

"If no legal representative is named by the counsel for the deceased party, or if the one so named shall fail to appear within the specified period, the court may order the opposing party, within a specified time, to procure the appointment of an executor or administrator for the estate of the deceased, and the latter shall immediately appear for and on behalf of the deceased. The court charges in procuring such appointment, if defrayed by the opposing party, may be recovered as costs."

The rule on the substitution of parties was crafted to protect every party’s right to due process.22 The estate of the deceased party will continue to be properly represented in the suit through the duly appointed legal representative.23 Moreover, no adjudication can be made against the successor of the deceased if the fundamental right to a day in court is denied.24

The Court has nullified not only trial proceedings conducted without the appearance of the legal representatives of the deceased, but also the resulting judgments.25 In those instances, the courts acquired no jurisdiction over the persons of the legal representatives or the heirs upon whom no judgment was binding.26

This general rule notwithstanding, a formal substitution by heirs is not necessary when they themselves voluntarily appear, participate in the case, and present evidence in defense of the deceased.27 These actions negate any claim that the right to due process was violated.

The Court is not unaware of Chittick v. Court of Appeals,28 in which the failure of the heirs to substitute for the original plaintiff upon her death led to the nullification of the trial court’s Decision. The latter had sought to recover support in arrears and her share in the conjugal partnership. The children who allegedly substituted for her refused to continue the case against their father and vehemently objected to their inclusion as parties.29 Moreover, because he died during the pendency of the case, they were bound to substitute for the defendant also. The substitution effectively merged the persons of the plaintiff and the defendant and thus extinguished the obligation being sued upon.30

Clearly, the present case is not similar, much less identical, to the factual milieu of Chittick.

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Strictly speaking, the rule on the substitution by heirs is not a matter of jurisdiction, but a requirement of due process. Thus, when due process is not violated, as when the right of the representative or heir is recognized and protected, noncompliance or belated formal compliance with the Rules cannot affect the validity of a promulgated decision.31 Mere failure to substitute for a deceased plaintiff is not a sufficient ground to nullify a trial court’s decision. The alleging party must prove that there was an undeniable violation of due process.

Substitution in

the Instant Case

The records of the present case contain a "Motion for Substitution of Party Plaintiff" dated February 15, 2002, filed before the CA. The prayer states as follows:

"WHEREFORE, it is respectfully prayed that the Heirs of the deceased plaintiff-appellee as represented by his daughter Lourdes dela Cruz be substituted as party-plaintiff for the said Pedro Joaquin.

"It is further prayed that henceforth the undersigned counsel32 for the heirs of Pedro Joaquin be furnished with copies of notices, orders, resolutions and other pleadings at its address below."

Evidently, the heirs of Pedro Joaquin voluntary appeared and participated in the case. We stress that the appellate court had ordered33 his legal representatives to appear and substitute for him. The substitution even on appeal had been ordered correctly. In all proceedings, the legal representatives must appear to protect the interests of the deceased.34 After the rendition of judgment, further proceedings may be held, such as a motion for reconsideration or a new trial, an appeal, or an execution.35

Considering the foregoing circumstances, the Motion for Substitution may be deemed to have been granted; and the heirs, to have substituted for the deceased, Pedro Joaquin. There being no violation of due process, the issue of substitution cannot be upheld as a ground to nullify the trial court’s Decision.

Second Issue:

Forum Shopping

Petitioners also claim that respondents were guilty of forum shopping, a fact that should have compelled the trial court to dismiss the Complaint.36 They claim that prior to the commencement of the present suit on July 7, 1981, respondent had filed a civil case against petitioners on June 25, 1979. Docketed as Civil Case No. SD-742 for the recovery of possession and for damages, it was allegedly dismissed by the Court of First Instance of Nueva Ecija for lack of interest to prosecute.

Forum Shopping Defined

Forum shopping is the institution of two or more actions or proceedings involving the same parties for the same cause of action, either simultaneously or successively, on the supposition that one or the other court would make a favorable disposition.37 Forum shopping may be resorted to by a party against whom an adverse judgment or order has been issued in one forum, in an attempt to seek a favorable opinion in another, other than by an appeal or a special civil action for certiorari.38

Forum shopping trifles with the courts, abuses their processes, degrades the administration of

justice, and congests court dockets.39 Willful and deliberate violation of the rule against it is a ground for the summary dismissal of the case; it may also constitute direct contempt of court.40

The test for determining the existence of forum shopping is whether the elements of litis pendentia are present, or whether a final judgment in one case amounts to res judicata in another.41 We note, however, petitioners’ claim that the subject matter of the present case has already been litigated and decided. Therefore, the applicable doctrine is res judicata.42

Applicability of Res Judicata

Under res judicata, a final judgment or decree on the merits by a court of competent jurisdiction is conclusive of the rights of the parties or their privies, in all later suits and on all points and matters determined in the previous suit.43 The term literally means a "matter adjudged, judicially acted upon, or settled by judgment."44 The principle bars a subsequent suit involving the same parties, subject matter, and cause of action. Public policy requires that controversies must be settled with finality at a given point in time.

The elements of res judicata are as follows: (1) the former judgment or order must be final; (2) it must have been rendered on the merits of the controversy; (3) the court that rendered it must have had jurisdiction over the subject matter and the parties; and (4) there must have been -- between the first and the second actions -- an identity of parties, subject matter and cause of action.45

Failure to Support Allegation

The onus of proving allegations rests upon the party raising them.46 As to the matter of forum shopping and res judicata, petitioners have failed to provide this Court with relevant and clear specifications that would show the presence of an identity of parties, subject matter, and cause of action between the present and the earlier suits. They have also failed to show whether the other case was decided on the merits. Instead, they have made only bare assertions involving its existence without reference to its facts. In other words, they have alleged conclusions of law without stating any factual or legal basis. Mere mention of other civil cases without showing the identity of rights asserted and reliefs sought is not enough basis to claim that respondent is guilty of forum shopping, or that res judicata exists.47

WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against petitioners.

SO ORDERED.

Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia, JJ., concur.

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G.R. No. 153788 November 27, 2009

ROGER V. NAVARRO, Petitioner, vs.

HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch 37, Cagayan de Oro City, and KAREN T. GO, doing business under the name KARGO ENTERPRISES, Respondents.

BRION, J.:

This is a petition for review on certiorari1 that seeks to set aside the Court of Appeals (CA) Decision2 dated October 16, 2001 and Resolution3 dated May 29, 2002 in CA-G.R. SP. No. 64701. These CA rulings affirmed the July 26, 20004 and March 7, 20015 orders of the Regional Trial Court (RTC), Misamis Oriental, Cagayan de Oro City, denying petitioner Roger V. Navarro’s (Navarro) motion to dismiss.

BACKGROUND FACTS

On September 12, 1998, respondent Karen T. Go filed two complaints, docketed as Civil Case Nos. 98-599 (first complaint)6 and 98-598 (second complaint),7 before the RTC for replevin and/or sum of money with damages against Navarro. In these complaints, Karen Go prayed that the RTC issue writs of replevin for the seizure of two (2) motor vehicles in Navarro’s possession.

The first complaint stated:

1. That plaintiff KAREN T. GO is a Filipino, of legal age, married to GLENN O. GO, a resident of Cagayan de Oro City and doing business under the trade name KARGO ENTERPRISES, an entity duly registered and existing under and by virtue of the laws of the Republic of the Philippines, which has its business address at Bulua, Cagayan de Oro City; that defendant ROGER NAVARRO is a Filipino, of legal age, a resident of 62 Dolores Street, Nazareth, Cagayan de Oro City, where he may be served with summons and other processes of the Honorable Court; that defendant "JOHN DOE" whose real name and address are at present unknown to plaintiff is hereby joined as party defendant as he may be the person in whose possession and custody the personal property subject matter of this suit may be found if the same is not in the possession of defendant ROGER NAVARRO;

2. That KARGO ENTERPRISES is in the business of, among others, buying and selling motor vehicles, including hauling trucks and other heavy equipment;

3. That for the cause of action against defendant ROGER NAVARRO, it is hereby stated that on August 8, 1997, the said defendant leased [from] plaintiff a certain motor vehicle which is more particularly described as follows –

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Make/Type FUSO WITH MOUNTED CRANE

Serial No. FK416K-51680

Motor No. 6D15-338735

Plate No. GHK-378

as evidenced by a LEASE AGREEMENT WITH OPTION TO PURCHASE entered into by and between KARGO ENTERPRISES, then represented by its Manager, the aforementioned GLENN O. GO, and defendant ROGER NAVARRO xxx; that in accordance with the provisions of the above LEASE AGREEMENT WITH OPTION TO PURCHASE, defendant ROGER NAVARRO delivered unto plaintiff six (6) post-dated checks each in the amount of SIXTY-SIX THOUSAND THREE HUNDRED THIRTY-THREE & 33/100 PESOS (P66,333.33) which were supposedly in payment of the agreed rentals; that when the fifth and sixth checks, i.e. PHILIPPINE BANK OF COMMUNICATIONS – CAGAYAN DE ORO BRANCH CHECKS NOS. 017112 and 017113, respectively dated January 8, 1998 and February 8, 1998, were presented for payment and/or credit, the same were dishonored and/or returned by the drawee bank for the common reason that the current deposit account against which the said checks were issued did not have sufficient funds to cover the amounts thereof; that the total amount of the two (2) checks, i.e. the sum of ONE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (P132,666.66) therefore represents the principal liability of defendant ROGER NAVARRO unto plaintiff on the basis of the provisions of the above LEASE AGREEMENT WITH RIGHT TO PURCHASE; that demands, written and oral, were made of defendant ROGER NAVARRO to pay the amount of ONE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (P132,666.66), or to return the subject motor vehicle as also provided for in the LEASE AGREEMENT WITH RIGHT TO PURCHASE, but said demands were, and still are, in vain to the great damage and injury of herein plaintiff; xxx

4. That the aforedescribed motor vehicle has not been the subject of any tax assessment and/or fine pursuant to law, or seized under an execution or an attachment as against herein plaintiff;

xxx

8. That plaintiff hereby respectfully applies for an order of the Honorable Court for the immediate delivery of the above-described motor vehicle from defendants unto plaintiff pending the final determination of this case on the merits and, for that purpose, there is attached hereto an affidavit duly executed and bond double the value of the personal property subject matter hereof to answer for damages and costs which defendants may suffer in the event that the order for replevin prayed for may be found out to having not been properly issued.

The second complaint contained essentially the same allegations as the first complaint, except that the Lease Agreement with Option to Purchase involved is dated October 1, 1997 and the motor vehicle leased is described as follows:

Make/Type FUSO WITH MOUNTED CRANE

Serial No. FK416K-510528

Motor No. 6D14-423403

The second complaint also alleged that Navarro delivered three post-dated checks, each for the amount of P100,000.00, to Karen Go in payment of the agreed rentals; however, the third check was dishonored when presented for payment.8

On October 12, 19989 and October 14, 1998,10 the RTC issued writs of replevin for both cases; as a result, the Sheriff seized the two vehicles and delivered them to the possession of Karen Go.

In his Answers, Navarro alleged as a special affirmative defense that the two complaints stated no cause of action, since Karen Go was not a party to the Lease Agreements with Option to Purchase (collectively, the lease agreements) – the actionable documents on which the complaints were based.

On Navarro’s motion, both cases were duly consolidated on December 13, 1999.

In its May 8, 2000 order, the RTC dismissed the case on the ground that the complaints did not state a cause of action.

In response to the motion for reconsideration Karen Go filed dated May 26, 2000, 11 the RTC issued another order dated July 26, 2000 setting aside the order of dismissal. Acting on the presumption that Glenn Go’s leasing business is a conjugal property, the RTC held that Karen Go had sufficient interest in his leasing business to file the action against Navarro. However, the RTC held that Karen Go should have included her husband, Glenn Go, in the complaint based on Section 4, Rule 3 of the Rules of Court (Rules).12 Thus, the lower court ordered Karen Go to file a motion for the inclusion of Glenn Go as co-plaintiff.1avvphi1

When the RTC denied Navarro’s motion for reconsideration on March 7, 2001, Navarro filed a petition for certiorari with the CA, essentially contending that the RTC committed grave abuse of discretion when it reconsidered the dismissal of the case and directed Karen Go to amend her complaints by including her husband Glenn Go as co-plaintiff. According to Navarro, a complaint which failed to state a cause of action could not be converted into one with a cause of action by mere amendment or supplemental pleading.

On October 16, 2001, the CA denied Navarro’s petition and affirmed the RTC’s order.13 The CA also denied Navarro’s motion for reconsideration in its resolution of May 29, 2002, 14 leading to the filing of the present petition.

THE PETITION

Navarro alleges that even if the lease agreements were in the name of Kargo Enterprises, since it did not have the requisite juridical personality to sue, the actual parties to the agreement are himself and Glenn Go. Since it was Karen Go who filed the complaints and not Glenn Go, she was not a real party-in-interest and the complaints failed to state a cause of action.

Navarro posits that the RTC erred when it ordered the amendment of the complaint to include Glenn Go as a co-plaintiff, instead of dismissing the complaint outright because a complaint which does not state a cause of action cannot be converted into one with a cause of action by a mere amendment or a supplemental pleading. In effect, the lower court created a cause of action for Karen Go when there was none at the time she filed the complaints.

Even worse, according to Navarro, the inclusion of Glenn Go as co-plaintiff drastically changed the theory of the complaints, to his great prejudice. Navarro claims that the lower court gravely abused its discretion when it assumed that the leased vehicles are part of the conjugal property of Glenn and Karen Go. Since Karen Go is the registered owner of Kargo Enterprises, the vehicles subject of the complaint are her paraphernal properties and the RTC gravely erred when it ordered the inclusion of Glenn Go as a co-plaintiff.

Navarro likewise faults the lower court for setting the trial of the case in the same order that

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required Karen Go to amend her complaints, claiming that by issuing this order, the trial court violated Rule 10 of the Rules.

Even assuming the complaints stated a cause of action against him, Navarro maintains that the complaints were premature because no prior demand was made on him to comply with the provisions of the lease agreements before the complaints for replevin were filed.

Lastly, Navarro posits that since the two writs of replevin were issued based on flawed complaints, the vehicles were illegally seized from his possession and should be returned to him immediately.

Karen Go, on the other hand, claims that it is misleading for Navarro to state that she has no real interest in the subject of the complaint, even if the lease agreements were signed only by her husband, Glenn Go; she is the owner of Kargo Enterprises and Glenn Go signed the lease agreements merely as the manager of Kargo Enterprises. Moreover, Karen Go maintains that Navarro’s insistence that Kargo Enterprises is Karen Go’s paraphernal property is without basis. Based on the law and jurisprudence on the matter, all property acquired during the marriage is presumed to be conjugal property. Finally, Karen Go insists that her complaints sufficiently established a cause of action against Navarro. Thus, when the RTC ordered her to include her husband as co-plaintiff, this was merely to comply with the rule that spouses should sue jointly, and was not meant to cure the complaints’ lack of cause of action.

THE COURT’S RULING

We find the petition devoid of merit.

Karen Go is the real party-in-interest

The 1997 Rules of Civil Procedure requires that every action must be prosecuted or defended in the name of the real party-in-interest, i.e., the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.15

Interestingly, although Navarro admits that Karen Go is the registered owner of the business name Kargo Enterprises, he still insists that Karen Go is not a real party-in-interest in the case. According to Navarro, while the lease contracts were in Kargo Enterprises’ name, this was merely a trade name without a juridical personality, so the actual parties to the lease agreements were Navarro and Glenn Go, to the exclusion of Karen Go.

As a corollary, Navarro contends that the RTC acted with grave abuse of discretion when it ordered the inclusion of Glenn Go as co-plaintiff, since this in effect created a cause of action for the complaints when in truth, there was none.

We do not find Navarro’s arguments persuasive.

The central factor in appreciating the issues presented in this case is the business name Kargo Enterprises. The name appears in the title of the Complaint where the plaintiff was identified as "KAREN T. GO doing business under the name KARGO ENTERPRISES," and this identification was repeated in the first paragraph of the Complaint. Paragraph 2 defined the business KARGO ENTERPRISES undertakes. Paragraph 3 continued with the allegation that the defendant "leased from plaintiff a certain motor vehicle" that was thereafter described. Significantly, the Complaint specifies and attaches as its integral part the Lease Agreement that underlies the transaction between the plaintiff and the defendant. Again, the name KARGO ENTERPRISES entered the picture as this Lease Agreement provides:

This agreement, made and entered into by and between:

GLENN O. GO, of legal age, married, with post office address at xxx, herein referred to as the LESSOR-SELLER; representing KARGO ENTERPRISES as its Manager,

xxx

thus, expressly pointing to KARGO ENTERPRISES as the principal that Glenn O. Go represented. In other words, by the express terms of this Lease Agreement, Glenn Go did sign the agreement only as the manager of Kargo Enterprises and the latter is clearly the real party to the lease agreements.

As Navarro correctly points out, Kargo Enterprises is a sole proprietorship, which is neither a natural person, nor a juridical person, as defined by Article 44 of the Civil Code:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member.

Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo Enterprises cannot be a party to a civil action. This legal reality leads to the question: who then is the proper party to file an action based on a contract in the name of Kargo Enterprises?

We faced a similar question in Juasing Hardware v. Mendoza,17 where we said:

Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in court. The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual, and requires the proprietor or owner thereof to secure licenses and permits, register the business name, and pay taxes to the national government. It does not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an action in court.

Thus, the complaint in the court below should have been filed in the name of the owner of Juasing Hardware. The allegation in the body of the complaint would show that the suit is brought by such person as proprietor or owner of the business conducted under the name and style Juasing Hardware. The descriptive words "doing business as Juasing Hardware" may be added to the title of the case, as is customarily done.18 [Emphasis supplied.]

This conclusion should be read in relation with Section 2, Rule 3 of the Rules, which states:

SEC. 2. Parties in interest. – A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest.

As the registered owner of Kargo Enterprises, Karen Go is the party who will directly benefit from or be injured by a judgment in this case. Thus, contrary to Navarro’s contention, Karen Go is the

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real party-in-interest, and it is legally incorrect to say that her Complaint does not state a cause of action because her name did not appear in the Lease Agreement that her husband signed in behalf of Kargo Enterprises. Whether Glenn Go can legally sign the Lease Agreement in his capacity as a manager of Kargo Enterprises, a sole proprietorship, is a question we do not decide, as this is a matter for the trial court to consider in a trial on the merits.

Glenn Go’s Role in the Case

We find it significant that the business name Kargo Enterprises is in the name of Karen T. Go,19 who described herself in the Complaints to be "a Filipino, of legal age, married to GLENN O. GO, a resident of Cagayan de Oro City, and doing business under the trade name KARGO ENTERPRISES."20 That Glenn Go and Karen Go are married to each other is a fact never brought in issue in the case. Thus, the business name KARGO ENTERPRISES is registered in the name of a married woman, a fact material to the side issue of whether Kargo Enterprises and its properties are paraphernal or conjugal properties. To restate the parties’ positions, Navarro alleges that Kargo Enterprises is Karen Go’s paraphernal property, emphasizing the fact that the business is registered solely in Karen Go’s name. On the other hand, Karen Go contends that while the business is registered in her name, it is in fact part of their conjugal property.

The registration of the trade name in the name of one person – a woman – does not necessarily lead to the conclusion that the trade name as a property is hers alone, particularly when the woman is married. By law, all property acquired during the marriage, whether the acquisition appears to have been made, contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is proved.21 Our examination of the records of the case does not show any proof that Kargo Enterprises and the properties or contracts in its name are conjugal. If at all, only the bare allegation of Navarro to this effect exists in the records of the case. As we emphasized in Castro v. Miat:22

Petitioners also overlook Article 160 of the New Civil Code. It provides that "all property of the marriage is presumed to be conjugal partnership, unless it be prove[n] that it pertains exclusively to the husband or to the wife." This article does not require proof that the property was acquired with funds of the partnership. The presumption applies even when the manner in which the property was acquired does not appear.23 [Emphasis supplied.]

Thus, for purposes solely of this case and of resolving the issue of whether Kargo Enterprises as a sole proprietorship is conjugal or paraphernal property, we hold that it is conjugal property.

Article 124 of the Family Code, on the administration of the conjugal property, provides:

Art. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision.

xxx

This provision, by its terms, allows either Karen or Glenn Go to speak and act with authority in managing their conjugal property, i.e., Kargo Enterprises. No need exists, therefore, for one to obtain the consent of the other before performing an act of administration or any act that does not dispose of or encumber their conjugal property.

Under Article 108 of the Family Code, the conjugal partnership is governed by the rules on the contract of partnership in all that is not in conflict with what is expressly determined in this

Chapter or by the spouses in their marriage settlements. In other words, the property relations of the husband and wife shall be governed primarily by Chapter 4 on Conjugal Partnership of Gains of the Family Code and, suppletorily, by the spouses’ marriage settlement and by the rules on partnership under the Civil Code. In the absence of any evidence of a marriage settlement between the spouses Go, we look at the Civil Code provision on partnership for guidance.

A rule on partnership applicable to the spouses’ circumstances is Article 1811 of the Civil Code, which states:

Art. 1811. A partner is a co-owner with the other partners of specific partnership property.

The incidents of this co-ownership are such that:

(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; xxx

Under this provision, Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the properties registered under this name; hence, both have an equal right to seek possession of these properties. Applying Article 484 of the Civil Code, which states that "in default of contracts, or special provisions, co-ownership shall be governed by the provisions of this Title," we find further support in Article 487 of the Civil Code that allows any of the co-owners to bring an action in ejectment with respect to the co-owned property.

While ejectment is normally associated with actions involving real property, we find that this rule can be applied to the circumstances of the present case, following our ruling in Carandang v. Heirs of De Guzman.24 In this case, one spouse filed an action for the recovery of credit, a personal property considered conjugal property, without including the other spouse in the action. In resolving the issue of whether the other spouse was required to be included as a co-plaintiff in the action for the recovery of the credit, we said:

Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the spouses Carandang, seems to be either an indispensable or a necessary party. If she is an indispensable party, dismissal would be proper. If she is merely a necessary party, dismissal is not warranted, whether or not there was an order for her inclusion in the complaint pursuant to Section 9, Rule 3.

Article 108 of the Family Code provides:

Art. 108. The conjugal partnership shall be governed by the rules on the contract of partnership in all that is not in conflict with what is expressly determined in this Chapter or by the spouses in their marriage settlements.

This provision is practically the same as the Civil Code provision it superseded:

Art. 147. The conjugal partnership shall be governed by the rules on the contract of partnership in all that is not in conflict with what is expressly determined in this Chapter.

In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-owner with the other partners of specific partnership property." Taken with the presumption of the conjugal nature of the funds used to finance the four checks used to pay for petitioners’ stock subscriptions, and with the presumption that the credits themselves are part of conjugal funds, Article 1811 makes Quirino and Milagros de Guzman co-owners of the alleged credit.

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Being co-owners of the alleged credit, Quirino and Milagros de Guzman may separately bring an action for the recovery thereof. In the fairly recent cases of Baloloy v. Hular and Adlawan v. Adlawan, we held that, in a co-ownership, co-owners may bring actions for the recovery of co-owned property without the necessity of joining all the other co-owners as co-plaintiffs because the suit is presumed to have been filed for the benefit of his co-owners. In the latter case and in that of De Guia v. Court of Appeals, we also held that Article 487 of the Civil Code, which provides that any of the co-owners may bring an action for ejectment, covers all kinds of action for the recovery of possession.

In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to Article 487 of the Civil Code and relevant jurisprudence, any one of them may bring an action, any kind of action, for the recovery of co-owned properties. Therefore, only one of the co-owners, namely the co-owner who filed the suit for the recovery of the co-owned property, is an indispensable party thereto. The other co-owners are not indispensable parties. They are not even necessary parties, for a complete relief can be accorded in the suit even without their participation, since the suit is presumed to have been filed for the benefit of all co-owners.25 [Emphasis supplied.]

Under this ruling, either of the spouses Go may bring an action against Navarro to recover possession of the Kargo Enterprises-leased vehicles which they co-own. This conclusion is consistent with Article 124 of the Family Code, supporting as it does the position that either spouse may act on behalf of the conjugal partnership, so long as they do not dispose of or encumber the property in question without the other spouse’s consent.

On this basis, we hold that since Glenn Go is not strictly an indispensable party in the action to recover possession of the leased vehicles, he only needs to be impleaded as a pro-forma party to the suit, based on Section 4, Rule 4 of the Rules, which states:

Section 4. Spouses as parties. – Husband and wife shall sue or be sued jointly, except as provided by law.

Non-joinder of indispensable parties not ground to dismiss action

Even assuming that Glenn Go is an indispensable party to the action, we have held in a number of cases26 that the misjoinder or non-joinder of indispensable parties in a complaint is not a ground for dismissal of action. As we stated in Macababbad v. Masirag:27

Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder of parties is a ground for the dismissal of an action, thus:

Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action and on such terms as are just. Any claim against a misjoined party may be severed and proceeded with separately.

In Domingo v. Scheer, this Court held that the proper remedy when a party is left out is to implead the indispensable party at any stage of the action. The court, either motu proprio or upon the motion of a party, may order the inclusion of the indispensable party or give the plaintiff opportunity to amend his complaint in order to include indispensable parties. If the plaintiff to whom the order to include the indispensable party is directed refuses to comply with the order of the court, the complaint may be dismissed upon motion of the defendant or upon the court's own motion. Only upon unjustified failure or refusal to obey the order to include or to amend is the

action dismissed.

In these lights, the RTC Order of July 26, 2000 requiring plaintiff Karen Go to join her husband as a party plaintiff is fully in order.

Demand not required prior

to filing of replevin action

In arguing that prior demand is required before an action for a writ of replevin is filed, Navarro apparently likens a replevin action to an unlawful detainer.

For a writ of replevin to issue, all that the applicant must do is to file an affidavit and bond, pursuant to Section 2, Rule 60 of the Rules, which states:

Sec. 2. Affidavit and bond.

The applicant must show by his own affidavit or that of some other person who personally knows the facts:

(a) That the applicant is the owner of the property claimed, particularly describing it, or is entitled to the possession thereof;

(b) That the property is wrongfully detained by the adverse party, alleging the cause of detention thereof according to the best of his knowledge, information, and belief;

(c) That the property has not been distrained or taken for a tax assessment or a fine pursuant to law, or seized under a writ of execution or preliminary attachment, or otherwise placed under custodia legis, or if so seized, that it is exempt from such seizure or custody; and

(d) The actual market value of the property.

The applicant must also give a bond, executed to the adverse party in double the value of the property as stated in the affidavit aforementioned, for the return of the property to the adverse party if such return be adjudged, and for the payment to the adverse party of such sum as he may recover from the applicant in the action.

We see nothing in these provisions which requires the applicant to make a prior demand on the possessor of the property before he can file an action for a writ of replevin. Thus, prior demand is not a condition precedent to an action for a writ of replevin.

More importantly, Navarro is no longer in the position to claim that a prior demand is necessary, as he has already admitted in his Answers that he had received the letters that Karen Go sent him, demanding that he either pay his unpaid obligations or return the leased motor vehicles. Navarro’s position that a demand is necessary and has not been made is therefore totally unmeritorious.

WHEREFORE, premises considered, we DENY the petition for review for lack of merit. Costs against petitioner Roger V. Navarro.

SO ORDERED.

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39

G.R. No. 166920 February 19, 2007

PACIFIC CONSULTANTS INTERNATIONAL ASIA, INC. and JENS PETER HENRICHSEN, Petitioners,

vs. KLAUS K. SCHONFELD, Respondent.

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court of the Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 76563. The CA decision reversed the Resolution of the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 029319-01, which, in turn, affirmed the Decision of the Labor Arbiter in NLRC NCR Case No. 30-12-04787-00 dismissing the complaint of respondent Klaus K. Schonfeld.

The antecedent facts are as follows:

Respondent is a Canadian citizen and was a resident of New Westminster, British Columbia, Canada. He had been a consultant in the field of environmental engineering and water supply and sanitation. Pacicon Philippines, Inc. (PPI) is a corporation duly established and incorporated in accordance with the laws of the Philippines. The primary purpose of PPI was to engage in the business of providing specialty and technical services both in and out of the Philippines.2 It is a subsidiary of Pacific Consultants International of Japan (PCIJ). The president of PPI, Jens Peter Henrichsen, who was also the director of PCIJ, was based in Tokyo, Japan. Henrichsen commuted from Japan to Manila and vice versa, as well as in other countries where PCIJ had business.

In 1997, PCIJ decided to engage in consultancy services for water and sanitation in the Philippines. In October 1997, respondent was employed by PCIJ, through Henrichsen, as Sector Manager of PPI in its Water and Sanitation Department. However, PCIJ assigned him as PPI sector manager in the Philippines. His salary was to be paid partly by PPI and PCIJ.

On January 7, 1998, Henrichsen transmitted a letter of employment to respondent in Canada, requesting him to accept the same and affix his conformity thereto. Respondent made some revisions in the letter of employment and signed the contract.3 He then sent a copy to Henrichsen. The letter of employment reads:

Mr. Klaus K. Schonfeld

II-365 Ginger Drive

New Westminster, B.C.

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40

Canada V3L 5L5

Tokyo 7

January 1998

Dear Mr. Schonfeld,

Letter of Employment

This Letter of Employment with the attached General Conditions of Employment constitutes the agreement under which you will be engaged by our Company on the terms and conditions defined hereunder. In case of any discrepancies or contradictions between this Letter of Employment and the General Conditions of Employment, this Letter of Employment will prevail.

You will, from the date of commencement, be ["seconded"] to our subsidiary Pacicon Philippines, Inc. in Manila, hereinafter referred as Pacicon. Pacicon will provide you with a separate contract, which will define that part of the present terms and conditions for which Pacicon is responsible. In case of any discrepancies or contradictions between the present Letter of Employment and the contract with Pacicon Philippines, Inc. or in the case that Pacicon should not live up to its obligations, this Letter of Employment will prevail.

1. Project Country: The Philippines with possible short-term assignments in other countries.

2. Duty Station: Manila, the Philippines.

3. Family Status: Married.

4. Position: Sector Manager, Water and Sanitation.

5. Commencement: 1st October 1997.

6. Remuneration: US$7,000.00 per month. The amount will be paid partly as a local salary (US$2,100.00 per month) by Pacicon and partly as an offshore salary (US$4,900.00) by PCI to bank accounts to be nominated by you.

A performance related component corresponding to 17.6% of the total annual remuneration, subject to satisfactory performance against agreed tasks and targets, paid offshore.

7. Accommodation: The company will provide partly furnished accommodation to a rent including association fees, taxes and VAT not exceeding the Pesos equivalent of US$2,900.00 per month.

8. Transportation: Included for in the remuneration.

9. Leave Travels: You are entitled to two leave travels per year.

10. Shipment of Personal

Effects: The maximum allowance is US$4,000.00.

11. Mobilization

Travel: Mobilization travel will be from New Westminster, B.C., Canada.

This letter is send (sic) to you in duplicate; we kindly request you to sign and return one copy to

us.

Yours sincerely,

Pacific Consultants International

Jens Peter Henrichsen

Above terms and conditions accepted

Date: 2 March 1998

(Sgd.)

Klaus Schonfeld

as annotated and initialed4

Section 21 of the General Conditions of Employment appended to the letter of employment reads:

21 Arbitration

Any question of interpretation, understanding or fulfillment of the conditions of employment, as well as any question arising between the Employee and the Company which is in consequence of or connected with his employment with the Company and which can not be settled amicably, is to be finally settled, binding to both parties through written submissions, by the Court of Arbitration in London.5

Respondent arrived in the Philippines and assumed his position as PPI Sector Manager. He was accorded the status of a resident alien.

As required by Rule XIV (Employment of Aliens) of the Omnibus Rules Implementing the Labor Code, PPI applied for an Alien Employment Permit (Permit) for respondent before the Department of Labor and Employment (DOLE). It appended respondent’s contract of employment to the application.1awphi1.net

On February 26, 1999, the DOLE granted the application and issued the Permit to respondent. It reads:

Republic of the Philippines

Department of Labor & Employment

National Capital Region

ALIEN EMPLOYMENT PERMIT

ISSUED TO: SCHONFELD, KLAUS KURT

DATE OF BIRTH: January 11, 1942 NATIONALITY: Canadian

POSITION: VP – WATER & SANITATION

EMPLOYER: PACICON PHILIPPINES, INC.

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41

ADDRESS: 27/F Rufino Pacific Towers Bldg., Ayala Ave., Makati City

P E R M I T

ISSUED ON: February 26, 1999 SIGNATURE OF BEARER:

VALID UNTIL: January 7, 2000 (Sgd.)

APPROVED: BIENVENIDO S. LAGUESMA

By: MAXIMO B. ANITO

REGIONAL DIRECTOR

(Emphasis supplied)6

Respondent received his compensation from PPI for the following periods: February to June 1998, November to December 1998, and January to August 1999. He was also reimbursed by PPI for the expenses he incurred in connection with his work as sector manager. He reported for work in Manila except for occasional assignments abroad, and received instructions from Henrichsen.7

On May 5, 1999, respondent received a letter from Henrichsen informing him that his employment had been terminated effective August 4, 1999 for the reason that PCIJ and PPI had not been successful in the water and sanitation sector in the Philippines.8 However, on July 24, 1999, Henrichsen, by electronic mail,9 requested respondent to stay put in his job after August 5, 1999, until such time that he would be able to report on certain projects and discuss all the opportunities he had developed.10 Respondent continued his work with PPI until the end of business hours on October 1, 1999.

Respondent filed with PPI several money claims, including unpaid salary, leave pay, air fare from Manila to Canada, and cost of shipment of goods to Canada. PPI partially settled some of his claims (US$5,635.99), but refused to pay the rest.

On December 5, 2000, respondent filed a Complaint11 for Illegal Dismissal against petitioners PPI and Henrichsen with the Labor Arbiter. It was docketed as NLRC-NCR Case No. 30-12-04787-00.

In his Complaint, respondent alleged that he was illegally dismissed; PPI had not notified the DOLE of its decision to close one of its departments, which resulted in his dismissal; and they failed to notify him that his employment was terminated after August 4, 1999. Respondent also claimed for separation pay and other unpaid benefits. He alleged that the company acted in bad faith and disregarded his rights. He prayed for the following reliefs:

1. Judgment be rendered in his favor ordering the respondents to reinstate complainant to his former position without loss of seniority and other privileges and benefits, and to pay his full backwages from the time compensation was with held (sic) from him up to the time of his actual reinstatement. In the alternative, if reinstatement is no longer feasible, respondents must pay the complainant full backwages, and separation pay equivalent to one month pay for every year of service, or in the amount of US$16,400.00 as separation pay;

2. Judgment be rendered ordering the respondents to pay the outstanding monetary obligation to complainant in the amount of US$10,131.76 representing the balance of unpaid salaries, leave pay, cost of his air travel and shipment of goods from Manila to Canada; and

3. Judgment be rendered ordering the respondent company to pay the complainant damages in

the amount of no less than US $10,000.00 and to pay 10% of the total monetary award as attorney’s fees, and costs.

Other reliefs just and equitable under the premises are, likewise, prayed for.12 1awphi1.net

Petitioners filed a Motion to Dismiss the complaint on the following grounds: (1) the Labor Arbiter had no jurisdiction over the subject matter; and (2) venue was improperly laid. It averred that respondent was a Canadian citizen, a transient expatriate who had left the Philippines. He was employed and dismissed by PCIJ, a foreign corporation with principal office in Tokyo, Japan. Since respondent’s cause of action was based on his letter of employment executed in Tokyo, Japan dated January 7, 1998, under the principle of lex loci contractus, the complaint should have been filed in Tokyo, Japan. Petitioners claimed that respondent did not offer any justification for filing his complaint against PPI before the NLRC in the Philippines. Moreover, under Section 12 of the General Conditions of Employment appended to the letter of employment dated January 7, 1998, complainant and PCIJ had agreed that any employment-related dispute should be brought before the London Court of Arbitration. Since even the Supreme Court had already ruled that such an agreement on venue is valid, Philippine courts have no jurisdiction.13

Respondent opposed the Motion, contending that he was employed by PPI to work in the Philippines under contract separate from his January 7, 1998 contract of employment with PCIJ. He insisted that his employer was PPI, a Philippine-registered corporation; it is inconsequential that PPI is a wholly-owned subsidiary of PCIJ because the two corporations have separate and distinct personalities; and he received orders and instructions from Henrichsen who was the president of PPI. He further insisted that the principles of forum non conveniens and lex loci contractus do not apply, and that although he is a Canadian citizen, Philippine Labor Laws apply in this case.

Respondent adduced in evidence the following contract of employment dated January 9, 1998 which he had entered into with Henrichsen:

Mr. Klaus K. Schonfeld

II-365 Ginger Drive

New Westminster, B.C.

Canada V3L 5L5

Manila 9 January, 1998

Dear Mr. Schonfeld,

Letter of Employment

This Letter of Employment with the attached General Conditions of Employment constitutes the agreement, under which you will be engaged by Pacicon Philippines, Inc. on the terms and conditions defined hereunder.

1. Project Country: The Philippines with possible assignments in other countries.

2. Duty Station: Manila, the Philippines.

3. Family Status: Married.

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42

4. Position: Sector Manager – Water and Sanitation Sector.

5. Commencement: 1 January, 1998.

6. Remuneration: US$3,100.00 per month payable to a bank account to be nominated by you.

7. Accommodation: The company will provide partly furnished accommodation to a rent including association fees, taxes and VAT not exceeding the Pesos equivalent of US$2300.00 per month.

8. Transportation: Included for in the remuneration.

9. Shipment of Personal The maximum allowance is US$2500.00 in Effects: connection with initial shipment of personal effects from Canada.

10. Mobilization Travel: Mobilization travel will be from New Westminster, B.C., Canada.

This letter is send (sic) to you in duplicate; we kindly request you to sign and return one copy to us.

Yours sincerely,

Pacicon Philippines, Inc.

Jens Peter Henrichsen

President14

According to respondent, the material allegations of the complaint, not petitioners’ defenses, determine which quasi-judicial body has jurisdiction. Section 21 of the Arbitration Clause in the General Conditions of Employment does not provide for an exclusive venue where the complaint against PPI for violation of the Philippine Labor Laws may be filed. Respondent pointed out that PPI had adopted two inconsistent positions: it was first alleged that he should have filed his complaint in Tokyo, Japan; and it later insisted that the complaint should have been filed in the London Court of Arbitration.15

In their reply, petitioners claimed that respondent’s employer was PCIJ, which had exercised supervision and control over him, and not PPI. Respondent was dismissed by PPI via a letter of Henrichsen under the letterhead of PCIJ in Japan.16 The letter of employment dated January 9, 1998 which respondent relies upon did not bear his (respondent’s) signature nor that of Henrichsen.

On August 2, 2001, the Labor Arbiter rendered a decision granting petitioners’ Motion to Dismiss. The dispositive portion reads:

WHEREFORE, finding merit in respondents’ Motion to Dismiss, the same is hereby granted. The instant complaint filed by the complainant is dismissed for lack of merit.

SO ORDERED.17

The Labor Arbiter found, among others, that the January 7, 1998 contract of employment between respondent and PCIJ was controlling; the Philippines was only the "duty station" where Schonfeld was required to work under the General Conditions of Employment. PCIJ remained respondent’s employer despite his having been sent to the Philippines. Since the parties had agreed that any differences regarding employer-employee relationship should be submitted to

the jurisdiction of the court of arbitration in London, this agreement is controlling.

On appeal, the NLRC agreed with the disquisitions of the Labor Arbiter and affirmed the latter’s decision in toto.18

Respondent then filed a petition for certiorari under Rule 65 with the CA where he raised the following arguments:

I

WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT AFFIRMED THE LABOR ARBITER’S DECISION CONSIDERING THAT:

A. PETITIONER’S TRUE EMPLOYER IS NOT PACIFIC CONSULTANTS INTERNATIONAL OF JAPAN BUT RESPONDENT COMPANY, AND THEREFORE, THE LABOR ARBITER HAS JURISDICTION OVER THE INSTANT CASE; AND

B. THE PROPER VENUE FOR THE PRESENT COMPLAINT IS THE ARBITRATION BRANCH OF THE NLRC AND NOT THE COURT OF ARBITRATION IN LONDON.

II

WITH ALL DUE RESPECT, THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT AFFIRMED THE DISMISSAL OF THE COMPLAINT CONSIDERING THAT PETITIONER’S TERMINATION FROM EMPLOYMENT IS ILLEGAL:

A. THE CLOSURE OF RESPONDENT COMPANY’S WATER AND SANITATION SECTOR WAS NOT BONA FIDE.

B. ASSUMING ARGUENDO THAT THE CLOSURE OF RESPONDENT COMPANY’S WATER AND SANITATION SECTOR WAS JUSTIFIABLE, PETITIONER’S DISMISSAL WAS INEFFECTUAL AS THE DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE) AND PETITIONER WAS NOT NOTIFIED THIRTY (30) DAYS BEFORE THE ALLEGED CLOSURE.19

Respondent averred that the absence or existence of a written contract of employment is not decisive of whether he is an employee of PPI. He maintained that PPI, through its president Henrichsen, directed his work/duties as Sector Manager of PPI; proof of this was his letter-proposal to the Development Bank of the Philippines for PPI to provide consultancy services for the Construction Supervision of the Water Supply and Sanitation component of the World Bank-Assisted LGU Urban Water and Sanitation Project.20 He emphasized that as gleaned from Alien Employment Permit (AEP) No. M-029908-5017 issued to him by DOLE on February 26, 1999, he is an employee of PPI. It was PPI president Henrichsen who terminated his employment; PPI also paid his salary and reimbursed his expenses related to transactions abroad. That PPI is a wholly-owned subsidiary of PCIJ is of no moment because the two corporations have separate and distinct personalities.

The CA found the petition meritorious. Applying the four-fold test21 of determining an employer-employee relationship, the CA declared that respondent was an employee of PPI. On the issue of venue, the appellate court declared that, even under the January 7, 1998 contract of employment, the parties were not precluded from bringing a case related thereto in other venues. While there was, indeed, an agreement that issues between the parties were to be

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43

resolved in the London Court of Arbitration, the venue is not exclusive, since there is no stipulation that the complaint cannot be filed in any other forum other than in the Philippines.

On November 25, 2004, the CA rendered its decision granting the petition, the decretal portion of which reads:

WHEREFORE, the petition is GRANTED in that the assailed Resolutions of the NLRC are hereby REVERSED and SET ASIDE. Let this case be REMANDED to the Labor Arbiter a quo for disposition of the case on the merits.

SO ORDERED.22

A motion for the reconsideration of the above decision was filed by PPI and Henrichsen, which the appellate court denied for lack of merit.23

In the present recourse, PPI and Henrichsen, as petitioners, raise the following issues:

I

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT AN EMPLOYMENT RELATIONSHIP EXISTED BETWEEN PETITIONERS AND RESPONDENT DESPITE THE UNDISPUTED FACT THAT RESPONDENT, A FOREIGN NATIONAL, WAS HIRED ABROAD BY A FOREIGN CORPORATION, EXECUTED HIS EMPLOYMENT CONTRACT ABROAD, AND WAS MERELY "SECONDED" TO PETITIONERS SINCE HIS WORK ASSIGNMENT WAS IN MANILA.

II

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE LABOR ARBITER A QUO HAS JURISDICTION OVER RESPONDENT’S CLAIM DESPITE THE UNDISPUTED FACT THAT RESPONDENT, A FOREIGN NATIONAL, WAS HIRED ABROAD BY A FOREIGN CORPORATION, EXECUTED HIS EMPLOYMENT CONTRACT ABROAD, AND HAD AGREED THAT ANY DISPUTE BETWEEN THEM "SHALL BE FINALLY SETTLED BY THE COURT OF ARBITRATION IN LONDON."24

Petitioners fault the CA for reversing the findings of the Labor Arbiter and the NLRC. Petitioners aver that the findings of the Labor Arbiter, as affirmed by the NLRC, are conclusive on the CA. They maintain that it is not within the province of the appellate court in a petition for certiorari to review the facts and evidence on record since there was no conflict in the factual findings and conclusions of the lower tribunals. Petitioners assert that such findings and conclusions, having been made by agencies with expertise on the subject matter, should be deemed binding and conclusive. They contend that it was the PCIJ which employed respondent as an employee; it merely seconded him to petitioner PPI in the Philippines, and assigned him to work in Manila as Sector Manager. Petitioner PPI, being a wholly-owned subsidiary of PCIJ, was never the employer of respondent.

Petitioners assert that the January 9, 1998 letter of employment which respondent presented to prove his employment with petitioner PPI is of doubtful authenticity since it was unsigned by the purported parties. They insist that PCIJ paid respondent’s salaries and only coursed the same through petitioner PPI. PPI, being its subsidiary, had supervision and control over respondent’s work, and had the responsibilities of monitoring the "daily administration" of respondent. Respondent cannot rely on the pay slips, expenses claim forms, and reimbursement memoranda to prove that he was an employee of petitioner PPI because these documents are of doubtful authenticity.

Petitioners further contend that, although Henrichsen was both a director of PCIJ and president of PPI, it was he who signed the termination letter of respondent upon instructions of PCIJ. This is buttressed by the fact that PCIJ’s letterhead was used to inform him that his employment was terminated. Petitioners further assert that all work instructions came from PCIJ and that petitioner PPI only served as a "conduit." Respondent’s Alien Employment Permit stating that petitioner PPI was his employer is but a necessary consequence of his being "seconded" thereto. It is not sufficient proof that petitioner PPI is respondent’s employer. The entry was only made to comply with the DOLE requirements.

There being no evidence that petitioner PPI is the employer of respondent, the Labor Arbiter has no jurisdiction over respondent’s complaint.

Petitioners aver that since respondent is a Canadian citizen, the CA erred in ignoring their claim that the principlesof forum non conveniens and lex loci contractus are applicable. They also point out that the principal office, officers and staff of PCIJ are stationed in Tokyo, Japan; and the contract of employment of respondent was executed in Tokyo, Japan.

Moreover, under Section 21 of the General Conditions for Employment incorporated in respondent’s January 7, 1998 letter of employment, the dispute between respondent and PCIJ should be settled by the court of arbitration of London. Petitioners claim that the words used therein are sufficient to show the exclusive and restrictive nature of the stipulation on venue.

Petitioners insist that the U.S. Labor-Management Act applies only to U.S. workers and employers, while the Labor Code of the Philippines applies only to Filipino employers and Philippine-based employers and their employees, not to PCIJ. In fine, the jurisdictions of the NLRC and Labor Arbiter do not extend to foreign workers who executed employment agreements with foreign employers abroad, although "seconded" to the Philippines.25

In his Comment,26 respondent maintains that petitioners raised factual issues in their petition which are proscribed under Section 1, Rule 45 of the Rules of Court. The finding of the CA that he had been an employee of petitioner PPI and not of PCIJ is buttressed by his documentary evidence which both the Labor Arbiter and the NLRC ignored; they erroneously opted to dismiss his complaint on the basis of the letter of employment and Section 21 of the General Conditions of Employment. In contrast, the CA took into account the evidence on record and applied case law correctly.

The petition is denied for lack of merit.

It must be stressed that in resolving a petition for certiorari, the CA is not proscribed from reviewing the evidence on record. Under Section 9 of Batas Pambansa Blg. 129, as amended by R.A. No. 7902, the CA is empowered to pass upon the evidence, if and when necessary, to resolve factual issues.27 If it appears that the Labor Arbiter and the NLRC misappreciated the evidence to such an extent as to compel a contrary conclusion if such evidence had been properly appreciated, the factual findings of such tribunals cannot be given great respect and finality.28

Inexplicably, the Labor Arbiter and the NLRC ignored the documentary evidence which respondent appended to his pleadings showing that he was an employee of petitioner PPI; they merely focused on the January 7, 1998 letter of employment and Section 21 of the General Conditions of Employment.

Petitioner PPI applied for the issuance of an AEP to respondent before the DOLE. In said application, PPI averred that respondent is its employee. To show that this was the case, PPI

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appended a copy of respondent’s employment contract. The DOLE then granted the application of PPI and issued the permit.

It bears stressing that under the Omnibus Rules Implementing the Labor Code, one of the requirements for the issuance of an employment permit is the employment contract. Section 5, Rule XIV (Employment of Aliens) of the Omnibus Rules provides:

SECTION 1. Coverage. – This rule shall apply to all aliens employed or seeking employment in the Philippines and the present or prospective employers.

SECTION 2. Submission of list. – All employers employing foreign nationals, whether resident or non-resident, shall submit a list of nationals to the Bureau indicating their names, citizenship, foreign and local address, nature of employment and status of stay in the Philippines.

SECTION 3. Registration of resident aliens. – All employed resident aliens shall register with the Bureau under such guidelines as may be issued by it.

SECTION 4. Employment permit required for entry. – No alien seeking employment, whether as a resident or non-resident, may enter the Philippines without first securing an employment permit from the Ministry. If an alien enters the country under a non-working visa and wishes to be employed thereafter, he may only be allowed to be employed upon presentation of a duly approved employment permit.

SECTION 5. Requirements for employment permit applicants. – The application for an employment permit shall be accompanied by the following:

(a) Curriculum vitae duly signed by the applicant indicating his educational background, his work experience and other data showing that he possesses technical skills in his trade or profession.

(b) Contract of employment between the employer and the principal which shall embody the following, among others:

1. That the non-resident alien worker shall comply with all applicable laws and rules and regulations of the Philippines;

2. That the non-resident alien worker and the employer shall bind themselves to train at least two (2) Filipino understudies for a period to be determined by the Minister; and

3. That he shall not engage in any gainful employment other than that for which he was issued a permit.

(c) A designation by the employer of at least two (2) understudies for every alien worker. Such understudies must be the most ranking regular employees in the section or department for which the expatriates are being hired to insure the actual transfer of technology.

Under Section 6 of the Rule, the DOLE may issue an alien employment permit based only on the following:

(a) Compliance by the applicant and his employer with the requirements of Section 2 hereof;

(b) Report of the Bureau Director as to the availability or non-availability of any person in the Philippines who is competent and willing to do the job for which the services of the applicant are desired;

(c) His assessment as to whether or not the employment of the applicant will redound to the national interest;

(d) Admissibility of the alien as certified by the Commission on Immigration and Deportation;

(e) The recommendation of the Board of Investments or other appropriate government agencies if the applicant will be employed in preferred areas of investments or in accordance with the imperative of economic development.

Thus, as claimed by respondent, he had an employment contract with petitioner PPI; otherwise, petitioner PPI would not have filed an application for a Permit with the DOLE. Petitioners are thus estopped from alleging that the PCIJ, not petitioner PPI, had been the employer of respondent all along.

We agree with the conclusion of the CA that there was an employer-employee relationship between petitioner PPI and respondent using the four-fold test. Jurisprudence is firmly settled that whenever the existence of an employment relationship is in dispute, four elements constitute the reliable yardstick: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to control the employee’s conduct. It is the so-called "control test" which constitutes the most important index of the existence of the employer-employee relationship–that is, whether the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is to be accomplished. Stated otherwise, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control not only the end to be achieved but also the means to be used in reaching such end.29 We quote with approval the following ruling of the CA:

[T]here is, indeed, substantial evidence on record which would erase any doubt that the respondent company is the true employer of petitioner. In the case at bar, the power to control and supervise petitioner’s work performance devolved upon the respondent company. Likewise, the power to terminate the employment relationship was exercised by the President of the respondent company. It is not the letterhead used by the company in the termination letter which controls, but the person who exercised the power to terminate the employee. It is also inconsequential if the second letter of employment executed in the Philippines was not signed by the petitioner. An employer-employee relationship may indeed exist even in the absence of a written contract, so long as the four elements mentioned in the Mafinco case are all present.30

The settled rule on stipulations regarding venue, as held by this Court in the vintage case of Philippine Banking Corporation v. Tensuan,31 is that while they are considered valid and enforceable, venue stipulations in a contract do not, as a rule, supersede the general rule set forth in Rule 4 of the Revised Rules of Court in the absence of qualifying or restrictive words. They should be considered merely as an agreement or additional forum, not as limiting venue to the specified place. They are not exclusive but, rather permissive. If the intention of the parties were to restrict venue, there must be accompanying language clearly and categorically expressing their purpose and design that actions between them be litigated only at the place named by them.32

In the instant case, no restrictive words like "only," "solely," "exclusively in this court," "in no other court save —," "particularly," "nowhere else but/except —," or words of equal import were stated in the contract.33 It cannot be said that the court of arbitration in London is an exclusive venue to bring forth any complaint arising out of the employment contract.

Petitioners contend that respondent should have filed his Complaint in his place of permanent

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residence, or where the PCIJ holds its principal office, at the place where the contract of employment was signed, in London as stated in their contract. By enumerating possible venues where respondent could have filed his complaint, however, petitioners themselves admitted that the provision on venue in the employment contract is indeed merely permissive.

Petitioners’ insistence on the application of the principle of forum non conveniens must be rejected. The bare fact that respondent is a Canadian citizen and was a repatriate does not warrant the application of the principle for the following reasons:

First. The Labor Code of the Philippines does not include forum non conveniens as a ground for the dismissal of the complaint.34

Second. The propriety of dismissing a case based on this principle requires a factual determination; hence, it is properly considered as defense.35

Third. In Bank of America, NT&SA, Bank of America International, Ltd. v. Court of Appeals,36 this Court held that:

x x x [a] Philippine Court may assume jurisdiction over the case if it chooses to do so; provided, that the following requisites are met: (1) that the Philippine Court is one to which the parties may conveniently resort to; (2) that the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, (3) that the Philippine Court has or is likely to have power to enforce its decision. x x x

Admittedly, all the foregoing requisites are present in this case.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 76563 is AFFIRMED. This case is REMANDED to the Labor Arbiter for disposition of the case on the merits. Cost against petitioners.

SO ORDERED.

G.R. No. 161417 February 8, 2007

MA. TERESA CHAVES BIACO, Petitioner, vs. PHILIPPINE COUNTRYSIDE RURAL BANK, Respondent.

TINGA, J.:

Petitioner, Ma. Teresa Chaves Biaco, seeks a review of the Decision1 of the Court of Appeals in CA-G.R. No. 67489 dated August 27, 2003, which denied her petition for annulment of judgment, and the Resolution2 dated December 15, 2003 which denied her motion for reconsideration.

The facts as succinctly stated by the Court of Appeals are as follows:

Ernesto Biaco is the husband of petitioner Ma. Teresa Chaves Biaco. While employed in the Philippine Countryside Rural Bank (PCRB) as branch manager, Ernesto obtained several loans from the respondent bank as evidenced by the following promissory notes:

Feb. 17, 1998 P 65,000.00

Mar. 18, 1998 30,000.00

May 6, 1998 60,000.00

May 20, 1998 350,000.00

July 30, 1998 155,000.00

Sept. 8, 1998 40,000.00

Sept. 8, 1998 120,000.00

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As security for the payment of the said loans, Ernesto executed a real estate mortgage in favor of the bank covering the parcel of land described in Original Certificate of Title (OCT) No. P-14423. The real estate mortgages bore the signatures of the spouses Biaco.

When Ernesto failed to settle the above-mentioned loans on its due date, respondent bank through counsel sent him a written demand on September 28, 1999. The amount due as of September 30, 1999 had already reached ONE MILLION EIGHTY THOUSAND SIX HUNDRED SEVENTY SIX AND FIFTY CENTAVOS (P1,080,676.50).

The written demand, however, proved futile.

On February 22, 2000, respondent bank filed a complaint for foreclosure of mortgage against the spouses Ernesto and Teresa Biaco before the RTC of Misamis Oriental. Summons was served to the spouses Biaco through Ernesto at his office (Export and Industry Bank) located at Jofelmor Bldg., Mortola Street, Cagayan de Oro City.

Ernesto received the summons but for unknown reasons, he failed to file an answer. Hence, the spouses Biaco were declared in default upon motion of the respondent bank. The respondent bank was allowed to present its evidence ex parte before the Branch Clerk of Court who was then appointed by the court as Commissioner.

Arturo Toring, the branch manager of the respondent bank, testified that the spouses Biaco had been obtaining loans from the bank since 1996 to 1998. The loans for the years 1996-1997 had already been paid by the spouses Biaco, leaving behind a balance of P1,260,304.33 representing the 1998 loans. The amount being claimed is inclusive of interests, penalties and service charges as agreed upon by the parties. The appraisal value of the land subject of the mortgage is only P150,000.00 as reported by the Assessor’s Office.

Based on the report of the Commissioner, the respondent judge ordered as follows:

WHEREFORE, judgment is hereby rendered ordering defendants spouses ERNESTO R. BIACO and MA. THERESA [CHAVES] BIACO to pay plaintiff bank within a period of not less than ninety (90) days nor more than one hundred (100) days from receipt of this decision the loan of ONE MILLION TWO HUNDRED SIXTY THOUSAND THREE HUNDRED FOUR PESOS and THIRTY THREE CENTAVOS (P1,260,304.33) plus litigation expenses in the amount of SEVEN THOUSAND SIX HUNDRED FORTY PESOS (P7,640.00) and attorney’s fees in the amount of TWO HUNDRED FIFTY TWO THOUSAND THIRTY PESOS and FORTY THREE CENTAVOS (P252,030.43) and cost of this suit.

In case of non-payment within the period, the Sheriff of this Court is ordered to sell at public auction the mortgaged Lot, a parcel of registered land (Lot 35802, Cad. 237 {Lot No. 12388-B, Csd-10-002342-D}), located at Gasi, Laguindingan, Misamis Oriental and covered by TCT No. P-14423 to satisfy the mortgage debt, and the surplus if there be any should be delivered to the defendants spouses ERNESTO and MA. THERESA [CHAVES] BIACO. In the event however[,] that the proceeds of the auction sale of the mortgage[d] property is not enough to pay the outstanding obligation, the defendants are ordered to pay any deficiency of the judgment as their personal liability.

SO ORDERED.

On July 12, 2000, the sheriff personally served the above-mentioned judgment to Ernesto Biaco at his office at Export and Industry Bank. The spouses Biaco did not appeal from the adverse decision of the trial court. On October 13, 2000, the respondent bank filed an ex parte motion for execution to direct the sheriff to sell the mortgaged lot at public auction. The respondent bank

alleged that the order of the court requiring the spouses Biaco to pay within a period of 90 days had passed, thus making it necessary to sell the mortgaged lot at public auction, as previously mentioned in the order of the court. The motion for execution was granted by the trial court per Order dated October 20, 2000.

On October 31, 2000, the sheriff served a copy of the writ of execution to the spouses Biaco at their residence in #92 9th Street, Nazareth, Cagayan de Oro City. The writ of execution was personally received by Ernesto. By virtue of the writ of execution issued by the trial court, the mortgaged property was sold at public auction in favor of the respondent bank in the amount of ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00).

The amount of the property sold at public auction being insufficient to cover the full amount of the obligation, the respondent bank filed an "ex parte motion for judgment" praying for the issuance of a writ of execution against the other properties of the spouses Biaco for the full settlement of the remaining obligation. Granting the motion, the court ordered that a writ of execution be issued against the spouses Biaco to enforce and satisfy the judgment of the court for the balance of ONE MILLION THREE HUNDRED SIXTY NINE THOUSAND NINE HUNDRED SEVENTY FOUR PESOS AND SEVENTY CENTAVOS (P1,369,974.70).

The sheriff executed two (2) notices of levy against properties registered under the name of petitioner Ma. Teresa Chaves Biaco. However, the notices of levy were denied registration because Ma. Teresa had already sold the two (2) properties to her daughters on April 11, 2001.3

Petitioner sought the annulment of the Regional Trial Court decision contending that extrinsic fraud prevented her from participating in the judicial foreclosure proceedings. According to her, she came to know about the judgment in the case only after the lapse of more than six (6) months after its finality. She claimed that extrinsic fraud was perpetrated against her because the bank failed to verify the authenticity of her signature on the real estate mortgage and did not inquire into the reason for the absence of her signature on the promissory notes. She moreover asserted that the trial court failed to acquire jurisdiction because summons were served on her through her husband without any explanation as to why personal service could not be made.

The Court of Appeals considered the two circumstances that kept petitioner in the dark about the judicial foreclosure proceedings: (1) the failure of the sheriff to personally serve summons on petitioner; and (2) petitioner’s husband’s concealment of his knowledge of the foreclosure proceedings. On the validity of the service of summons, the appellate court ruled that judicial foreclosure proceedings are actions quasi in rem. As such, jurisdiction over the person of the defendant is not essential as long as the court acquires jurisdiction over the res. Noting that the spouses Biaco were not opposing parties in the case, the Court of Appeals further ruled that the fraud committed by one against the other cannot be considered extrinsic fraud.

Her motion for reconsideration having been denied, petitioner filed the instant Petition for Review,4 asserting that even if the action is quasi in rem, personal service of summons is essential in order to afford her due process. The substituted service made by the sheriff at her husband’s office cannot be deemed proper service absent any explanation that efforts had been made to personally serve summons upon her but that such efforts failed. Petitioner contends that extrinsic fraud was perpetrated not so much by her husband, who did not inform her of the judicial foreclosure proceedings, but by the sheriff who allegedly connived with her husband to just leave a copy of the summons intended for her at the latter’s office.

Petitioner further argues that the deficiency judgment is a personal judgment which should be deemed void for lack of jurisdiction over her person.

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Respondent PCRB filed its Comment,5 essentially reiterating the appellate court’s ruling. Respondent avers that service of summons upon the defendant is not necessary in actions quasi in rem it being sufficient that the court acquire jurisdiction over the res. As regards the alleged conspiracy between petitioner’s husband and the sheriff, respondent counters that this is a new argument which cannot be raised for the first time in the instant petition.

We required the parties to file their respective memoranda in the Resolution6 dated August 18, 2004. Accordingly, petitioner filed her Memorandum7 dated October 10, 2004, while respondent filed its Memorandum for Respondent8 dated September 9, 2004.

Annulment of judgment is a recourse equitable in character, allowed only in exceptional cases as where there is no available or other adequate remedy. Jurisprudence and Sec. 2, Rule 47 of the 1997 Rules of Civil Procedure (Rules of Court) provide that judgments may be annulled only on grounds of extrinsic fraud and lack of jurisdiction or denial of due process.9

Petitioner asserts that extrinsic fraud consisted in her husband’s concealment of the loans which he obtained from respondent PCRB; the filing of the complaint for judicial foreclosure of mortgage; service of summons; rendition of judgment by default; and all other proceedings which took place until the writ of garnishment was served.10

Extrinsic fraud exists when there is a fraudulent act committed by the prevailing party outside of the trial of the case, whereby the defeated party was prevented from presenting fully his side of the case by fraud or deception practiced on him by the prevailing party.11 Extrinsic fraud is present where the unsuccessful party had been prevented from exhibiting fully his case, by fraud or deception practiced on him by his opponent, as by keeping him away from court, a false promise of a compromise; or where the defendant never had knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority assumes to represent a party and connives at his defeat; or where the attorney regularly employed corruptly sells out his client’s interest to the other side. The overriding consideration is that the fraudulent scheme of the prevailing litigant prevented a party from having his day in court.12

With these considerations, the appellate court acted well in ruling that there was no fraud perpetrated by respondent bank upon petitioner, noting that the spouses Biaco were co-defendants in the case and shared the same interest. Whatever fact or circumstance concealed by the husband from the wife cannot be attributed to respondent bank.

Moreover, petitioner’s allegation that her signature on the promissory notes was forged does not evince extrinsic fraud. It is well-settled that the use of forged instruments during trial is not extrinsic fraud because such evidence does not preclude the participation of any party in the proceedings.13

The question of whether the trial court has jurisdiction depends on the nature of the action, i.e., whether the action is in personam, in rem, or quasi in rem. The rules on service of summons under Rule 14 of the Rules of Court likewise apply according to the nature of the action.

An action in personam is an action against a person on the basis of his personal liability. An action in rem is an action against the thing itself instead of against the person. An action quasi in rem is one wherein an individual is named as defendant and the purpose of the proceeding is to subject his interest therein to the obligation or lien burdening the property.14

In an action in personam, jurisdiction over the person of the defendant is necessary for the court

to validly try and decide the case. In a proceeding in rem or quasi in rem, jurisdiction over the person of the defendant is not a prerequisite to confer jurisdiction on the court provided that the court acquires jurisdiction over the res. Jurisdiction over the res is acquired either (1) by the seizure of the property under legal process, whereby it is brought into actual custody of the law; or (2) as a result of the institution of legal proceedings, in which the power of the court is recognized and made effective.15

Nonetheless, summons must be served upon the defendant not for the purpose of vesting the court with jurisdiction but merely for satisfying the due process requirements.16

A resident defendant who does not voluntarily appear in court, such as petitioner in this case, must be personally served with summons as provided under Sec. 6, Rule 14 of the Rules of Court. If she cannot be personally served with summons within a reasonable time, substituted service may be effected (1) by leaving copies of the summons at the defendant’s residence with some person of suitable age and discretion then residing therein, or (2) by leaving the copies at defendant’s office or regular place of business with some competent person in charge thereof in accordance with Sec. 7, Rule 14 of the Rules of Court.

In this case, the judicial foreclosure proceeding instituted by respondent PCRB undoubtedly vested the trial court with jurisdiction over the res. A judicial foreclosure proceeding is an action quasi in rem. As such, jurisdiction over the person of petitioner is not required, it being sufficient that the trial court is vested with jurisdiction over the subject matter.

There is a dimension to this case though that needs to be delved into. Petitioner avers that she was not personally served summons. Instead, summons was served to her through her husband at his office without any explanation as to why the particular surrogate service was resorted to. The Sheriff’s Return of Service dated March 21, 2000 states:

x x x x

That on March 16, 2000, the undersigned served the copies of Summons, complaint and its annexes to the defendants Sps. Ernesto R. & Ma. Teresa Ch. Biaco thru Ernesto R. Biaco[,] defendant of the above-entitled case at his office EXPORT & INDUSTRY BANK, Jofelmore Bldg.[,] Mortola St., Cagayan de Oro City and he acknowledged receipt thereof as evidenced with his signature appearing on the original copy of the Summons.17 [Emphasis supplied]

Without ruling on petitioner’s allegation that her husband and the sheriff connived to prevent summons from being served upon her personally, we can see that petitioner was denied due process and was not able to participate in the judicial foreclosure proceedings as a consequence. The violation of petitioner’s constitutional right to due process arising from want of valid service of summons on her warrants the annulment of the judgment of the trial court.

There is more, the trial court granted respondent PCRB’s ex-parte motion for deficiency judgment and ordered the issuance of a writ of execution against the spouses Biaco to satisfy the remaining balance of the award. In short, the trial court went beyond its jurisdiction over the res and rendered a personal judgment against the spouses Biaco. This cannot be countenanced.1awphil.net

In Sahagun v. Court of Appeals,18 suit was brought against a non-resident defendant, Abelardo Sahagun, and a writ of attachment was issued and subsequently levied on a house and lot registered in his name. Claiming ownership of the house, his wife, Carmelita Sahagun, filed a motion to intervene. For failure of plaintiff to serve summons extraterritorially upon Abelardo, the

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complaint was dismissed without prejudice.

Subsequently, plaintiff filed a motion for leave to serve summons by publication upon Abelardo. The trial court granted the motion. Plaintiff later filed an amended complaint against Abelardo, this time impleading Carmelita and Rallye as additional defendants. Summons was served on Abelardo through publication in the Manila Evening Post. Abelardo failed to file an answer and was declared in default. Carmelita went on certiorari to the Court of Appeals assailing as grave abuse of discretion the declaration of default of Abelardo. The Court of Appeals dismissed the petition and denied reconsideration.

In her petition with this Court, Carmelita raised the issue of whether the trial court acquired jurisdiction over her husband, a non-resident defendant, by the publication of summons in a newspaper of general circulation in the Philippines. The Court sustained the correctness of extrajudicial service of summons by publication in such newspaper.

The Court explained, citing El Banco Español-Filipino v. Palanca,19 that foreclosure and attachment proceedings are both actions quasi in rem. As such, jurisdiction over the person of the (non-resident) defendant is not essential. Service of summons on a non-resident defendant who is not found in the country is required, not for purposes of physically acquiring jurisdiction over his person but simply in pursuance of the requirements of fair play, so that he may be informed of the pendency of the action against him and the possibility that property belonging to him or in which he has an interest may be subjected to a judgment in favor of a resident, and that he may thereby be accorded an opportunity to defend in the action, should he be so minded.

Significantly, the Court went on to rule, citing De Midgely v. Ferandos, et. al.20 and Perkins v. Dizon, et al.21 that in a proceeding in rem or quasi in rem, the only relief that may be granted by the court against a defendant over whose person it has not acquired jurisdiction either by valid service of summons or by voluntary submission to its jurisdiction, is limited to the res.

Similarly, in this case, while the trial court acquired jurisdiction over the res, its jurisdiction is limited to a rendition of judgment on the res. It cannot extend its jurisdiction beyond the res and issue a judgment enforcing petitioner’s personal liability. In doing so without first having acquired jurisdiction over the person of petitioner, as it did, the trial court violated her constitutional right to due process, warranting the annulment of the judgment rendered in the case.

WHEREFORE, the instant petition is GRANTED. The Decision dated August 27, 2003 and the Resolution dated December 15, 2003 of the Court of Appeals in CA-G.R. SP No. 67489 are SET ASIDE. The Judgment dated July 11, 2000 and Order dated February 9, 2001 of the Regional Trial Court of Cagayan de Oro City, Branch 20, are likewise SET ASIDE.

SO ORDERED.

G.R. No. 173002 July 4, 2008

BENJAMIN BAUTISTA, petitioner, vs.

SHIRLEY G. UNANGST and OTHER UNKNOWN PERSONS, respondentS.

REYES, R.T., J.:

THE presumption of equitable mortgage imposes a burden on the buyer to present clear evidence to rebut it. He must overthrow it, lest it persist.1 To overturn that prima facie presumption, the buyer needs to adduce substantial and credible evidence to prove that the contract was a bona fide deed of sale with right to repurchase.

This petition for review on certiorari impugns the Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 859423 which reversed and set aside that4 of the Regional Trial Court (RTC) in an action for specific performance or recovery of possession, for sum of money, for consolidation of ownerships and damages.

The Facts

On November 15, 1996, Hamilton Salak rented a car from GAB Rent-A-Car, a car rental shop owned by petitioner Benjamin Bautista. The lease was for three (3) consecutive days at a rental fee of P1,000.00 per day.5 However, Salak failed to return the car after three (3) days prompting petitioner to file a complaint against him for estafa, violation of Batas Pambansa Blg. 22 and carnapping.6

On February 2, 1997, Salak and his common-law wife, respondent Shirley G. Unangst, were

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arrested by officers of the Criminal Investigation Service Group (CISG) of the Philippine National Police while riding the rented car along Quezon City. The next day, petitioner demanded from Salak at the CISG Office the sum of P232,372.00 as payment for car rental fees, fees incurred in locating the car, attorney's fees, capital gains tax, transfer tax, and other incidental expenses.7

Salak and respondent expressed willingness to pay but since they were then short on cash, Salak proposed to sell to petitioner a house and lot titled in the name of respondent. Petitioner welcomed the proposal after consulting his wife, Cynthia. Cynthia, on the other hand, further agreed to pay the mortgage loan of respondent over the subject property to a certain Jojo Lee in the amount of P295,000.00 as the property was then set to be publicly auctioned on February 17, 1997.8

To formalize their amicable settlement, Cynthia, Salak and respondent executed a written agreement.9 They stipulated that respondent would sell, subject to repurchase, her residential property in favor of Cynthia for the total amount of P527,372.00 broken down, as follows: (1) P295,000.00 for the amount paid by Cynthia to Lee to release the mortgage on the property; and (2) P232,372.00, which is the amount due to GAB Rent-A-Car. Cynthia also agreed to desist from pursuing the complaint against Salak and respondent.10

Respondent and petitioner also executed a separate deed of sale with right to repurchase, 11

specifying, among others, that: (1) respondent, as vendor, shall pay capital gains tax, current real estate taxes and utility bills pertaining to the property; (2) if respondent fails to repurchase the property within 30 days from the date of the deed, she and her assigns shall immediately vacate the premises and deliver its possession to petitioner without need of a judicial order; and (3) respondent's refusal to do so will entitle petitioner to take immediate possession of the property.12

Respondent failed to repurchase the property within the stipulated period. As a result, petitioner filed, on June 5, 1998, a complaint for specific performance or recovery of possession, for sum of money, for consolidation of ownership and damages against respondent and other unnamed persons before the RTC of Olongapo City.

In his complaint,13 petitioner alleged, among others, that after respondent failed to repurchase the subject realty, he caused the registration of the deed of sale with the Register of Deeds and the transfer of the tax declarations in his name; that respondent failed to pay the capital gains taxes and update the real estate taxes forcing him to pay said amounts in the sum of P71,129.05 and P11,993.72, respectively; and that respondent violated the terms of the deed when she, as well as the other unnamed persons, refused to vacate the subject property despite repeated demands.14

Petitioner prayed before the RTC that an order be issued in his favor directing respondents to: (1) surrender the possession of the property; (2) pay P150,000.00 for the reasonable compensation for its use from March 7, 1997 to June 7, 1998, plus P10,000.00 per month afterward; (3) pay the amount advanced by petitioner, to wit: P71,129.05 and P11,993.72 for the payment of capital gains tax and real estate taxes, respectively; and P70,000.00 for attorney's fees.15

On June 16, 1998, petitioner filed an amended complaint,16 reiterating his previous allegations but with the added prayer for consolidation of ownership pursuant to Article 1607 of the Civil Code.17

On the other hand, respondents controverted the allegations in the complaint and averred in their Answer,18 among others, that plaintiff had no cause of action inasmuch as respondent Unangst signed the subject deed of sale under duress and intimidation employed by petitioner

and his cohorts; that, assuming that her consent was freely given, the contract of sale was simulated and fictitious since the vendor never received the stipulated consideration; that the sale should be construed as an equitable mortgage pursuant to Articles 1602 and 1604 of the Civil Code because of its onerous conditions and shockingly low consideration; that their indebtedness in the form of arrears in car rentals merely amounts to P90,000.00; and that the instant action was premature as plaintiff had not yet consolidated ownership over the property. Defendants counterclaimed for moral damages in the amount of P500,000.00 and attorney's fees in the amount of P50,000.00, plus P500.00 per appearance.19

On July 29, 2004, after due proceedings, the RTC rendered a decision in favor of petitioner, disposing as follows:

WHEREFORE, judgment is rendered finding the Deed of Sale with Right to Repurchase (Exh. "C") as, indeed, a document of sale executed by the defendant in favor of the plaintiff covering the parcel of land house (sic) situated at Lot 3-B, Blk. 10, Waterdam Road, Gordon Heights, Olongapo City, declared under Tax Declaration Nos. 004-7756R and 7757R (Exhs. "I" and "I-1"). The defendant and any person taking rights from her is (sic) ordered to immediately vacate from the place and turn over its possession to the plaintiff. They are likewise directed not to remove any part of the building on the lot.

The ownership of the said property is properly consolidated in the name of the plaintiff.

The defendant is further ordered to pay to the plaintiff the amount of P10,000.00 a month from March 7, 1997 up to the time possession of the lot and house is restored to the plaintiff representing the reasonable value for the use of the property; the amount of P71,129.05 representing the payment made by the plaintiff on the capital gain taxes and the further amount of P70,000.00 for attorney's fees and the costs of suit.

SO ORDERED.20

Respondents failed to interpose a timely appeal. However, on September 10, 2004, respondent Unangst filed a petition for relief pursuant to Section 38 of the 1997 Rules on Civil Procedure. She argued that she learned of the decision of the RTC only on September 6, 2004 when she received a copy of the motion for execution filed by petitioner.21

Petitioner, on the other hand, moved for the dismissal of respondent's petition on the ground that the latter paid an insufficient sum of P200.00 as docket fees.22

It appears that respondent Unangst initially paid P200.00 as docket fees as this was the amount assessed by the Clerk of Court of the RTC.23 Said amount was insufficient as the proper filing fees amount to P1,715.00. Nevertheless, the correct amount was subsequently paid by said respondent on February 22, 2005.24

In their comment,25 respondents countered that they should not be faulted for paying deficient docket fees as it was due to an erroneous assessment of the Clerk of Court.26

The RTC granted the petition for relief. Subsequently, it directed respondents to file a notice of appeal within twenty-four (24) hours from receipt of the order.27 Accordingly, on February 23, 2005, respondents filed their notice of appeal.28

Respondents contended before the CA that the RTC erred in: (1) not annulling the deed of sale with right to repurchase; (2) declaring that the deed of sale with right to repurchase is a real contract of sale; (3) ordering the consolidation of ownership of the subject property in the name

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of petitioner.29 They argued that respondent Unangst's consent to the deed of sale with right to repurchase was procured under duress and that even assuming that her consent was freely given, the contract partakes of the nature of an equitable mortgage.30

On the other hand, petitioner insisted, among others, that although the petition for relief of respondents was filed on time, the proper filing fees for said petition were paid beyond the 60-day reglementary period. He posited that jurisdiction is acquired by the court over the action only upon full payment of prescribed docket fees.31

CA Disposition

In a Decision32 dated April 7, 2006, the CA reversed and set aside the RTC judgment. 33 The dispositive part of the appellate court's decision reads, thus:

IN VIEW OF ALL THE FOREGOING, the instant appeal is hereby GRANTED, the challenged Decision dated July 29, 2004 hereby (sic) REVERSED and SET ASIDE, and a new one entered declaring the Deed of Sale With Right Of Repurchase dated February 4, 1997 as an equitable mortgage. No cost.

SO ORDERED.34

The CA declared that the Deed of Sale with Right of Repurchase executed by the parties was an equitable mortgage. On the procedural aspect pertaining to the petition for relief filed by respondent Unangst, the CA ruled that "the trial court, in opting to apply the rules liberally, cannot be faulted for giving due course to the questioned petition for relief which enabled appellants to interpose the instant appeal."35 It ratiocinated:

Appellee recognizes the timely filing of appellants' petition for relief to be able to appeal judgment but nonetheless points out that the proper filing fees were paid beyond the 60-day reglementary period. Arguing that the court acquires jurisdiction over the action only upon full payment of the prescribed docket fees, he submits that the trial court erred in granting appellants' petition for relief despite the late payment of the filing fees.

While this Court is fully aware of the mandatory nature of the requirement of payment of appellate docket fee, the High Court has recognized that its strict application is qualified by the following: first, failure to pay those fees within the reglementary period allows only discretionary, not automatic, dismissal; second, such power should be used by the court in conjunction with its exercise of sound discretion in accordance with the tenets of justice and fair play, as well as with a great deal of circumspection in consideration of all attendant circumstances (Meatmasters International Corporation v. Lelis Integrated Development Corporation, 452 SCRA 626 [2005], citing La Salette College v. Pilotin, 418 SCRA 380 [2003]).

Applied in the instant case, the docket fees were admittedly paid only on February 22, 2005, or a little less than two (2) months after the period for filing the petition lapsed. Yet, this matter was sufficiently explained by appellants. The records bear out that appellants initially paid P200.00 as docket fees because this was the amount assessed by the Clerk of Court of the RTC of Olongapo City (p. 273, Records). As it turned out, the fees paid was insufficient, the proper filing fees being P1,715.00, which was eventually paid by appellants on February 1, 2005 (p. 296, Records). As such, appellants cannot be faulted for their failure to pay the proper docket fees for, given the prevailing circumstances, such failure was clearly not a dilatory tactic nor intended to circumvent the Rules of Court. On the contrary, appellants demonstrated their willingness to pay the docket fees when they subsequently paid on the same day they were assessed the correct fees (p. 299, Records). Notably, in Yambao v. Court of Appeals (346 SCRA 141 [2000]), the High Court declared

therein that "the appellate court may extend the time for the payment of the docket fees if appellants is able to show that there is a justifiable reason for his failure to pay the correct amount of docket fees within the prescribed period, like fraud, accident, mistake, excusable negligence, or a similar supervening casualty, without fault on the part of appellant." Verily, the trial court, in opting to apply the rules liberally, cannot be faulted for giving due course to the questioned petition for relief which enabled appellants to interpose the instant appeal.36

On the substantial issues, the CA concluded that "While the records is bereft of any proof or evidence that appellee employed unlawful or improper pressure against appellant Unangst to give her consent to the contract of sale, there is, nevertheless, sufficient basis to hold the subject contract as one of equitable mortgage."37 It explained:

Jurisprudence has consistently held that the nomenclature used by the contracting parties to describe a contract does not determine its nature. The decisive factor in determining the true nature of the transaction between the parties is the intent of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situations of the parties at that time; the attitudes, acts, conduct, and declarations of the parties; the negotiations between them leading to the deed; and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding (Legaspi v. Ong, 459 SCRA 122 [2005]).

It must be stressed, however, that there is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. In fact, it is often a question difficult to resolve and is frequently made to depend on the surrounding circumstances of each case. When in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in controversy (Legaspi, ibid.).

Article 1602 of the Civil Code enumerates the instances where a contract shall be presumed to be an equitable mortgage when - (a) the price of a sale with right to repurchase is unusually inadequate; (b) the vendor remains in possession as lessee or otherwise; (c) upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (d) the purchaser retains for himself a part of the purchase price; (e) the vendor binds himself to pay taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation (Legaspi, supra; Martinez v. Court of Appeals, 358 SCRA 38 [2001]).

For the presumption of an equitable mortgage to arise under Article 1602, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale; and, (b) that their intention was to secure an existing debt by way of a mortgage. Any of the circumstance laid out in Article 1602, not the concurrence nor an overwhelming number of the circumstances therein enumerated, suffices to construe a contract of sale to be one of equitable mortgage (Lorbes v. Court of Appeals, 351 SCRA 716 [2001]).

Applying the foregoing considerations in the instant case, there is hardly any doubt that the true intention of the parties is that the transaction shall secure the payment of a debt. It is not contested that before executing the subject deed, Unangst and Salak were under police custody and were sorely pressed for money. Such urgent prospect of prolonged detention helps explain why appellants would subscribe to an agreement like the deed in the instant case. This might very well explain appellants' insistence that Unangst was not truly free when she signed the questioned deed. Besides, there is no gainsaying that when appellee allowed appellants to retain

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possession of the realty sold for 30 days, as part of the agreement, that period of time surely signaled a time allotted to Salak and Unangst, as debtors, within which to pay their mortgage indebtedness.

The High Court, in several cases involving similar situations, has declared that "while it was true that plaintiffs were aware of the contents of the contracts, the preponderance of the evidence showed, however, that they signed knowing that said contracts did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them" (Lorbes, ibid.; Reyes v. Court of Appeals, 339 SCRA 97 [2000]; Lao v. Court of Appeals, 275 SCRA 237 [1997]; Zamora v. Court of Appeals, 260 SCRA 10 [1996]; Labasan v. Lacuesta, 86 SCRA 16 [1978]).

After all, Article 1602(6) provides that a contract of sale with right to repurchase is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any obligation. In fine, a careful review of the records convincingly shows that the obtaining facts in this case qualify the controversial agreement between the parties as an equitable mortgage under Article 1602 of the New Civil Code.38

Issues

Petitioner has resorted to the present recourse under Rule 45, assigning to the CA the following errors:

(a) The Honorable Court of Appeals committed grave error in finding that the respondent perfected an appeal via Petition for Relief To Be Able To Appeal Judgment even when the proper docket fees were paid beyond the period prescribed to bring such action under Section 3 of Rule 38 of the 1997 Rules of Civil Procedure in relation to the pronouncements by the Honorable Court in the cases of Philippine Rabbit Bus Lines, Inc. v. Arciaga [148 SCRA 433], Philippine Pryce Assurance Corp. v. Court of Appeals [148 SCRA 433] and Sun Insurance Office, Ltd. v. Asuncion [170 SCRA 274].

(b) The Honorable Court of Appeals erred on a question of law in reversing the Decision of the Court a quo finding the Deed of Sale with Right to Repurchase a document of sale executed by the respondent in favor of the petitioner and in further holding such contract as one of equitable mortgage.39

Our Ruling

On the first issue, petitioner contends that respondents' "Petition for Relief to Be Able to Appeal Judgment," which paved the way for the allowance of respondents' appeal of the RTC decision, was filed within the prescriptive period but the proper docket fees for it were belatedly paid. 40 He thus posits that the RTC did not acquire jurisdiction over said petition. Having no jurisdiction, the RTC could not have allowed respondents to appeal.

On this issue, respondent counters that the belated payment of proper docket fees was not due to their fault but to the improper assessment by the Clerk of Court. Respondent asserts the ruling of the CA that the court may extend the time for the payment of the docket fees if there is a justifiable reason for the failure to pay the correct amount. Moreover, respondent argues that petitioner failed to contest the RTC Order dated February 21, 2004 that allowed the payment of supplementary docket fees. Petitioner failed to file a motion for reconsideration or a petition for

certiorari to the higher court to question said order.

We agree with respondents. Their failure to pay the correct amount of docket fees was due to a justifiable reason.

The right to appeal is a purely statutory right. Not being a natural right or a part of due process, the right to appeal may be exercised only in the manner and in accordance with the rules provided therefor.41 For this reason, payment of the full amount of the appellate court docket and other lawful fees within the reglementary period is mandatory and jurisdictional. 42 Nevertheless, as this Court ruled in Aranas v. Endona,43 the strict application of the jurisdictional nature of the above rule on payment of appellate docket fees may be mitigated under exceptional circumstances to better serve the interest of justice. It is always within the power of this Court to suspend its own rules, or to except a particular case from their operation, whenever the purposes of justice require it.44

In not a few instances, the Court relaxed the rigid application of the rules of procedure to afford the parties the opportunity to fully ventilate their cases on the merits. This is in line with the time-honored principle that cases should be decided only after giving all parties the chance to argue their causes and defenses.45 For, it is far better to dispose of a case on the merit which is a primordial end, rather than on a technicality, if it be the case, that may result in injustice. 46 The emerging trend in the rulings of this Court is to afford every party-litigant the amplest opportunity for the proper and just determination of his cause, free from the constraints of technicalities.47

As early as 1946, in Segovia v. Barrios,48 the Court ruled that where an appellant in good faith paid less than the correct amount for the docket fee because that was the amount he was required to pay by the clerk of court, and he promptly paid the balance, it is error to dismiss his appeal because "(e)very citizen has the right to assume and trust that a public officer charged by law with certain duties knows his duties and performs them in accordance with law. To penalize such citizen for relying upon said officer in all good faith is repugnant to justice."49

Technicality and procedural imperfections should thus not serve as bases of decisions. 50 In that way, the ends of justice would be better served. For, indeed, the general objective of procedure is to facilitate the application of justice to the rival claims of contending parties, bearing always in mind that procedure is not to hinder but to promote the administration of justice.51

We go now to the crux of the petition. Should the deed of sale with right to repurchase executed by the parties be construed as an equitable mortgage? This is the pivotal question here.

According to petitioner, the deed should not be construed as an equitable mortgage as it does not fall under any of the instances mentioned in Article 1602 of the Civil Code where the agreement can be construed as an equitable mortgage. He added that the "language and terms of the Deed of Sale with Right to Repurchase executed by respondent in favor of the petition are clear and unequivocal. Said contract must be construed with its literal sense."52

We cannot agree.

Respondent is correct in alleging that the deed of sale with right to repurchase qualifies as an equitable mortgage under Article 1602. She merely secured the payment of the unpaid car rentals

and the amount advanced by petitioner to Jojo Lee.

The transaction between the parties is one of equitable mortgage and not a sale with right to purchase as maintained by petitioners. Article 1602 of the New Civil Code provides that the

contract is presumed to be an equitable mortgage in any of the following cases:

Page

52

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.53

(Emphasis ours)

The conclusion that the deed of sale with right to repurchase is an equitable mortgage is buttressed by the following:

First, before executing the deed, respondent and Salak were under police custody due to the complaint lodged against them by petitioner. They were sorely pressed for money, as they would not be released from custody unless they paid petitioner. It was at this point that respondent was constrained to execute a deed of sale with right to repurchase. Respondent was in no position whatsoever to bargain with their creditor, petitioner. Nel consensui tam contrarium est quam vis atqui metus. There can be no consent when under force or duress. Bale wala ang pagsang-ayon kung ito'y nakuha sa pamimilit o paraang di malaya.

It is established that respondent signed the deed only because of the urgent necessity of obtaining funds.1avvphi1 When the vendor is in urgent need of money when he executes the sale, the alleged sale with pacto de retro will be construed as an equitable mortgage.54

"Necessitous men are not, truly speaking, free men; but to answer a present emergency will submit to any terms that the crafty may impose upon them."55

Second, petitioner allowed respondent and Salak to retain the possession of the property despite the execution of the deed. In fact, respondent and Salak were not bound to deliver the possession of the property to petitioner if they would pay him the amount he demanded.56

Where in a contract of sale with pacto de retro, the vendor remains in possession, as a lessee or otherwise, the contract shall be presumed to be an equitable mortgage.57 The reason for the presumption lies in the fact that in a contract of sale with pacto de retro, the legal title to the property is immediately transferred to the vendee, subject to the vendor's right to redeem. Retention, therefore, by the vendor of the possession of the property is inconsistent with the vendee's acquisition of the right of ownership under a true sale. 58 It discloses, in the alleged vendee, a lack of interest in the property that belies the truthfulness of the sale a retro.59

Third, it is likewise undisputed that the deed was executed by reason of: (1) the alleged indebtedness of Salak to petitioner, that is, car rental payments; and (2) respondent's own obligation to petitioner, that is, reimbursement of what petitioner paid to the mortgagee, Jojo Lee. Fact is, the purchase price stated in the deed was the amount of the indebtedness of both respondent and Salak to petitioner.60

Apparently, the deed purports to be a sale with right to purchase. However, since it was executed in consideration of the aforesaid loans and/or indebtedness, said contract is indubitably an equitable mortgage. The rule is firmly settled that whenever it is clearly shown that a deed of sale with pacto de retro, regular on its face, is given as security for a loan, it must be regarded as an equitable mortgage.61

The above-mentioned circumstances preclude the Court from declaring that the parties intended the transfer of the property from one to the other by way of sale. They are more than sufficient to show that the true intention of the parties is to secure the payment of said debts. Verily, an equitable mortgage under paragraphs 2 and 6 of Article 1602 exists here. Settled is the rule that to create the presumption enunciated by Article 1602, the existence of one circumstance is enough.62

Moreover, under Article 1603 of the Civil Code it is provided that: "(i)n case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage." In this case, We have no doubt that the transaction between the parties is that of a loan secured by said property by way of mortgage.

In Lorbes v. Court of Appeals,63 the Court held that:

The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct, declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding. As such, documentary and parol evidence may be submitted and admitted to prove the intention of the parties.

Sales with rights to repurchase, as defined by the Civil Code, are not favored. We will not construe instruments to be sales with a right to repurchase, with the stringent and onerous effects which follow, unless the terms of the document and the surrounding circumstances require it. Whenever, under the terms of the writing, any other construction can fairly and reasonably be made, such construction will be adopted and the contract will be construed as a mere loan unless the court can see that, if enforced according to its terms, it is not an unconscionable one.64

Article 1602 of the Civil Code is designed primarily to curtail the evils brought about by contracts of sale with right of repurchase, such as the circumvention of the laws against usury and pactum commissorium.65

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.

Ynares-Santiago, Chairperson, Austria-Martinez, Chico-Nazario, Nachura, JJ., concur.