II. CAUSE OF ACTION

19Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 156848             October 11, 2007

PIONEER INTERNATIONAL, LTD., petitioner, vs.HON. TEOFILO GUADIZ, JR., in his capacity as Presiding Judge of Regional Trial Court, Branch 147, Makati City, and ANTONIO D. TODARO, respondents.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review on certiorari1 of the Decision2 dated 27 September 2001 and of the Resolution3 dated 14 January 2003 of the Court of Appeals (appellate court) in CA-G.R. SP No. 54062. The Decision affirmed the Orders4 dated 4 January 19995 and 3 June 19996 of Branch 147 of the Regional Trial Court of Makati City (trial court) in Civil Case No. 98-124. The trial court denied the motion to dismiss filed by Pioneer International, Ltd. (PIL)7 in its special appearance.

The Facts

On 16 January 1998, Antonio D. Todaro (Todaro) filed a complaint for sum of money and damages with preliminary attachment against PIL, Pioneer Concrete Philippines, Inc. (PCPI), Pioneer Philippines Holdings, Inc. (PPHI), John G. McDonald (McDonald), and Philip J. Klepzig (Klepzig). PIL and its co-defendants were served copies of the summons and of the complaint at PPHI and PCPI’s office in Alabang, Muntinlupa, through Cecille L. De Leon (De Leon), who was Klepzig’s Executive Assistant.

Todaro alleged that PIL is a corporation duly organized under Australian laws, while PCPI and PPHI are corporations duly organized under Philippine laws. PIL is engaged in the ready-mix and concrete aggregates business and has established a presence worldwide. PIL established PPHI as the holding company of the stocks of its operating company in the Philippines, PCPI. McDonald is the Chief Executive Officer of PIL’s Hong Kong office while Klepzig is the President and Managing Director of PPHI and PCPI. For his part, Todaro further alleged that he was the managing director of Betonval Readyconcrete, Inc. (Betonval) from June 1975 up to his resignation in February 1996.

Before Todaro filed his complaint, there were several meetings and exchanges of letters between Todaro and the officers of Pioneer Concrete (Hong Kong) Limited, Pioneer Concrete Group HK, PPHI, and PIL. According to Todaro, PIL contacted him in May 1996 and asked if he could join it in establishing a pre-mixed concrete plant and in overseeing its operations in the Philippines. Todaro

confirmed his availability and expressed interest in joining PIL. Todaro met with several of PIL’s representatives and even gave PIL the names of three of his subordinates in Betonval whom he would like to join him in PIL.

Todaro attached nine letters, marked as Annexes "A" to "I," to his complaint. Annex "A"8 shows that on 15 July 1996, Todaro, under the letterhead of Ital Tech Distributors, Inc., sent a letter to Max Lindsay (Lindsay) of Pioneer Concrete (Hong Kong) Limited. Todaro wrote that "[m]y aim is to run again a ready-mix concrete company in the Philippines and not to be a part-time consultant. Otherwise, I could have charged your company with a much higher fee."

Annex "B"9 shows that on 4 September 1996, Lindsay, under the letterhead of Pioneer Concrete (Hong Kong) Limited, responded by fax to Todaro’s faxed letter to McDonald and proposed that Todaro "join Pioneer on a retainer basis for 2 to 3 months on the understanding that [Todaro] would become a permanent employee if as we expect, our entry proceeds." The faxed letter to McDonald referred to by Lindsay is not found in the rollo and was not attached to Todaro’s complaint.

Annex "C"10 shows that on the same date as that of Annex "B," Todaro, under the letterhead of Ital Tech Distributors, Inc., faxed another letter to Lindsay of Pioneer Concrete (Hong Kong) Limited. Todaro asked for a formal letter addressed to him about the proposed retainer. Todaro requested that the letter contain a statement on his remuneration package and on his permanent employment "with PIONEER once it has established itself on a permanent basis in the Philippines."

Annex "D"11 shows that Todaro, under the letterhead of Ital Tech Distributors, Inc., sent a letter to McDonald of PIL. Todaro confirmed the following to McDonald:

1. That I am accepting the proposal of PIONEER INT’L. as a consultant for three (3) months, starting October 1, 1996, with a retainer fee of U.S. $15,000.00 per month;

2. That after three (3) months consultancy, I should be employed by PIONEER INT’L., on a permanent basis, as its Managing Director or CEO in the Philippines. Remuneration package will be mutually agreed upon by PIONEER and the undersigned;

3. That Gino Martinel and the Sales Manager – Jun Ong, will be hired as well, on a permanent basis, by PIONEER as soon as the company is established. Salary, likewise, will be accepted by both PIONEER and the respective parties.

Annex "E"12 is a faxed letter dated 18 November 1996 of McDonald, under the letterhead of Pioneer Concrete Group HK, to Todaro of Ital Tech Distributors, Inc. The first three paragraphs of McDonald’s letter read:

Further to our recent meeting in Hong Kong, I am now able to confirm my offer to engage you as a consultant to Pioneer International Ltd. Should Pioneer proceed with an investment in the Philippines, then Pioneer would offer you a position to manage the premixed concrete operations.

Pioneer will probably be in a position to make a decision on proceeding with an investment by mid January ‘97.

The basis for your consultancy would be:

Monthly fee USD 15,000 per month billed on monthly basis and payable 15 days from billing date.

Additional pre-approved expenses to be reimbursed. Driver and secretarial support-basis for reimbursement of this to be agreed. Arrangement to commence from 1st November ‘96, reflecting your

contributions so far and to continue until Pioneer makes a decision.

Annex "F"13 shows Todaro’s faxed reply, under the letterhead of Ital Tech Distributors, Inc., to McDonald of Pioneer Concrete Group HK dated 19 November 1996. Todaro confirmed McDonald’s package concerning the consultancy and reiterated his desire to be the manager of Pioneer’s Philippine business venture.

Annex "G"14 shows Todaro’s faxed reply, under the letterhead of Ital Tech Distributors, Inc., to McDonald of PIL dated 8 April 1997. Todaro informed McDonald that he was willing to extend assistance to the Pioneer representative from Queensland. The tenor of the letter revealed that Todaro had not yet occupied his expected position.

Annex "H"15 shows Klepzig’s letter, under the letterhead of PPHI, to Todaro dated 18 September 1997. Klepzig’s message reads:

It has not proven possible for this company to meet with your expectations regarding the conditions of your providing Pioneer with consultancy services. This, and your refusal to consider my terms of offer of permanent employment, leave me no alternative but to withdraw these offers of employment with this company.

As you provided services under your previous agreement with our Pioneer Hong Kong office during the month of August, I will see that they pay you at the previous rates until the end of August. They have authorized me on behalf of Pioneer International Ltd. to formally advise you that the agreement will cease from August 31st as per our previous discussions.

Annex "I"16 shows the letter dated 20 October 1997 of K.M. Folwell (Folwell), PIL’s Executive General Manager of Australia and Asia, to Todaro. Folwell confirmed the contents of Klepzig’s 18 September 1997 letter. Folwell’s message reads:

Thank you for your letter to Dr. Schubert dated 29th September 1997 regarding the alleged breach of contract with you. Dr. Schubert has asked me to investigate this matter.

I have discussed and examined the material regarding your association with Pioneer over the period from mid 1996 through to September 1997.

Clearly your consultancy services to Pioneer Hong Kong are well documented and have been appropriately rewarded. However, in regard to your request and expectation to be given permanent employment with Pioneer Philippines Holdings, Inc. I am informed that negotiations to reach agreement on appropriate terms and conditions have not been successful.

The employment conditions you specified in your letter to John McDonald dated 11th September are well beyond our expectations.

Mr. Todaro, I regret that we do not wish to pursue our association with you any further. Mr. Klepzig was authorized to terminate this association and the letter he sent to you dated 18th September has my support.

Thank you for your involvement with Pioneer. I wish you all the best for the future. (Emphasis added)

PIL filed, by special appearance, a motion to dismiss Todaro’s complaint. PIL’s co-defendants, PCPI, PPHI, and Klepzig, filed a separate motion to dismiss.17 PIL asserted that the trial court has no jurisdiction over PIL because PIL is a foreign corporation not doing business in the Philippines. PIL also questioned the service of summons on it. Assuming arguendo that Klepzig is PIL’s agent in the Philippines, it was not Klepzig but De Leon who received the summons for PIL. PIL further stated that the National Labor Relations Commission (NLRC), and not the trial court, has jurisdiction over the subject matter of the action. It claimed that assuming that the trial court has jurisdiction over the subject matter of the action, the complaint should be dismissed on the ground of forum non-conveniens. Finally, PIL maintained that the complaint does not state a cause of action because there was no perfected contract, and no personal judgment could be rendered by the trial court against PIL because PIL is a foreign corporation not doing business in the Philippines and there was improper service of summons on PIL.

Todaro filed a Consolidated Opposition dated 26 August 1998 to refute PIL’s assertions. PIL filed, still by special appearance, a Reply on 2 October 1998.

The Ruling of the Trial Court

On 4 January 1999, the trial court issued an order18 which ruled in favor of Todaro. The trial court denied the motions to dismiss filed by PIL, PCPI, PPHI, and Klepzig.

The trial court stated that the merits of a motion to dismiss a complaint for lack of cause of action are tested on the strength of the allegation of facts in the complaint. The trial court found that the allegations in the complaint sufficiently establish a cause of action. The trial court declared that Todaro’s cause of action is based on an alleged breach of a contractual obligation and an alleged violation of Articles 19 and 21 of the Civil Code. Therefore, the cause of action does not lie within the jurisdiction of the NLRC but with the trial court.

The trial court also asserted its jurisdiction over PIL, holding that PIL did business in the Philippines when it entered into a contract with Todaro. Although PIL questions the service of summons on Klepzig, whom PIL claims is not its agent, the trial court ruled that PIL failed to adduce evidence to prove its contention. Finally, on the issue of forum non-conveniens, the trial court found that it is more convenient to hear and decide the case in the Philippines because Todaro resides in the Philippines and the contract allegedly breached involves employment in the Philippines.

PIL filed an urgent omnibus motion for the reconsideration of the trial court’s 4 January 1999 order and for the deferment of filing its answer. PCPI, PPHI, and Klepzig likewise filed an urgent omnibus motion. Todaro filed a consolidated opposition, to which PIL, PCPI, PPHI, and Klepzig filed a joint reply. The trial court issued an order19on 3 June 1999 denying the motions of PIL, PCPI, PPHI, and Klepzig. The trial court gave PIL, PCPI, PPHI, and Klepzig 15 days within which to file their respective answers.

PIL did not file an answer before the trial court and instead filed a petition for certiorari before the appellate court.

The Ruling of the Appellate Court

The appellate court denied PIL’s petition and affirmed the trial court’s ruling in toto. The dispositive portion of the appellate court’s decision reads:

WHEREFORE, premises considered, the present petition for certiorari is hereby DENIED DUE COURSE and accordingly DISMISSED. The assailed Orders dated January 4, 1999 and June 3, 1999 of the Regional Trial Court of Makati City, Branch 147, in Civil Case No, 98-124 are hereby AFFIRMED in toto.

SO ORDERED.20

On 14 January 2003, the appellate court dismissed21 PIL’s motion for reconsideration for lack of merit. The appellate court stated that PIL’s motion raised no new substantial or weighty arguments that could impel the appellate court from departing or overturning its previous decision. PIL then filed a petition for review on certiorari before this Court.

The Issues

PIL raised the following issues before this Court:

A. [The trial court] did not and cannot acquire jurisdiction over the person of [PIL] considering that:

A.1. [PIL] is a foreign corporation "not doing business" in the Philippines.

A.2. Moreover, the complaint does not contain appropriate allegations of ultimate facts showing that [PIL] is doing or transacting business in the Philippines.

A.3. Assuming arguendo that jurisdiction may be acquired over the person of [PIL], [the trial court] still failed to acquire jurisdiction since summons was improperly served on [PIL].

B. [Todaro] does not have a cause of action and the complaint fails to state a cause of action. Jurisprudence is settled in that in resolving a motion to dismiss, a court can consider all the pleadings filed in the case, including annexes, motions and all evidence on record.

C. [The trial court] did not and cannot acquire jurisdiction over the subject matter of the complaint since the allegations contained therein indubitably show that [Todaro] bases his claims on an alleged breach of an employment contract. Thus, exclusive jurisdiction is vested with the [NLRC].

D. Pursuant to the principle of forum non-conveniens, [the trial court] committed grave abuse of discretion when it took cognizance of the case.22

The Ruling of the Court

The petition has partial merit. We affirm with modification the rulings of the trial and appellate courts. Apart from the issue on service of summons, the rulings of the trial and appellate courts on the issues raised by PIL are correct.

Cause of Action

Section 2, Rule 2 of the 1997 Rules of Civil Procedure states that a cause of action is the act or omission by which a party violates a right of another.

The general rule is that the allegations in a complaint are sufficient to constitute a cause of action against the defendants if, admitting the facts alleged, the court can render a valid judgment upon the same in accordance with the prayer therein. A cause of action exists if the following elements are present, namely: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of 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.23

In the present case, the summary of Todaro’s allegations states that PIL, PCPI, PPHI, McDonald, and Klepzig did not fulfill their contractual obligation to employ Todaro on a permanent basis in PIL’s Philippine office. Todaro’s allegations are thus sufficient to establish a cause of action. We quote with approval the trial court’s ruling on this matter:

On the issue of lack of cause of action – It is well-settled that the merits of a motion to dismiss a complaint for lack of cause of action is tested on the strength of the allegations of fact contained in the complaint and no other (De Jesus, et al. vs. Belarmino, et al., 95 Phil. 366 [1954]). This Court finds that the allegations of the complaint, specifically paragraphs 13-33 thereof, paragraphs 30-33 alleging as follows:

"30. All of the acts set forth in the foregoing have been done with the knowledge, consent and/or approval of the defendants who acted in concert and/or in conspiracy with one another.

31. Under the circumstances, there is a valid contract entered into between [Todaro] and the Pioneer Group, whereby, among others, the Pioneer Group would employ [Todaro], on a permanent basis, to manage and operate the ready-mix concrete operations, if the Pioneer Group decides to invest in the Philippines.

32. The Pioneer Group has decided to invest in the Philippines. The refusal of the defendants to comply with the Pioneer Group’s undertaking to employ [Todaro] to manage their Philippine ready-mix operations, on a permanent basis, is a direct breach of an obligation under a valid and perfected contract.

33. Alternatively, assuming without conceding, that there was no contractual obligation on the part of the Pioneer Group to employ [Todaro] on a permanent basis, in their Philippine operations, the Pioneer Group and the other defendants did not act with justice, give [Todaro] his due and observe honesty and good faith and/or they have willfully caused injury to [Todaro] in a manner that is contrary to morals, good customs, and public policy, as mandated under Arts. 19 and 21 of the New Civil Code."

sufficiently establish a cause of action for breach of contract and/or violation of Articles 19 and 21 of the New Civil Code. Whether or not these allegations are true is immaterial for the court cannot inquire into the truth thereof, the test being whether, given the allegations of fact

in the complaint, a valid judgment could be rendered in accordance with the prayer in the complaint.24

It should be emphasized that the presence of a cause of action rests on the sufficiency, and not on the veracity, of the allegations in the complaint. The veracity of the allegations will have to be examined during the trial on the merits. In resolving a motion to dismiss based on lack of cause of action, the trial court is limited to the four corners of the complaint and its annexes. It is not yet necessary for the trial court to examine the truthfulness of the allegations in the complaint. Such examination is proper during the trial on the merits.

Forum Non-Conveniens

The doctrine of forum non-conveniens requires an examination of the truthfulness of the allegations in the complaint. Section 1, Rule 16 of the 1997 Rules of Civil Procedure does not mention forum non-conveniens as a ground for filing a motion to dismiss. The propriety of dismissing a case based on forum non-conveniens requires a factual determination; hence, it is more properly considered a matter of defense. While it is within the discretion of the trial court to abstain from assuming jurisdiction on this ground, the trial court should do so only after vital facts are established to determine whether special circumstances require the court’s desistance.25

Jurisdiction over PIL

PIL questions the trial court’s exercise of jurisdiction over it on two levels. First, that PIL is a foreign corporation not doing business in the Philippines and because of this, the service of summons on PIL did not follow the mandated procedure. Second, that Todaro’s claims are based on an alleged breach of an employment contract so Todaro should have filed his complaint before the NLRC and not before the trial court.

Transacting Business in the Philippines andService of Summons

The first level has two sub-issues: PIL’s transaction of business in the Philippines and the service of summons on PIL. Section 12, Rule 14 of the 1997 Rules of Civil Procedure provides the manner by which summons may be served upon a foreign juridical entity which has transacted business in the Philippines. Thus:

Service upon foreign private juridical entity. — When the defendant is a foreign juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or any of its officers or agents within the Philippines.

As to the first sub-issue, PIL insists that its sole act of "transacting" or "doing business" in the Philippines consisted of its investment in PPHI. Under Philippine law, PIL’s mere investment in PPHI does not constitute "doing business." However, we affirm the lower courts’ ruling and declare that, based on the allegations in Todaro’s complaint, PIL was doing business in the Philippines when it negotiated Todaro’s employment with PPHI. Section 3(d) of Republic Act No. 7042, Foreign Investments Act of 1991, states:

The phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors

domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty [180] days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or of the purpose and object of the business organization:Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account; (Emphases added)

PIL’s alleged acts in actively negotiating to employ Todaro to run its pre-mixed concrete operations in the Philippines, which acts are hypothetically admitted in PIL’s motion to dismiss, are not mere acts of a passive investor in a domestic corporation. Such are managerial and operational acts in directing and establishing commercial operations in the Philippines. The annexes that Todaro attached to his complaint give us an idea on the extent of PIL’s involvement in the negotiations regarding Todaro’s employment. In Annex "E," McDonald of Pioneer Concrete Group HK confirmed his offer to engage Todaro as a consultant of PIL. In Annex "F," Todaro accepted the consultancy. In Annex "H," Klepzig of PPHI stated that PIL authorized him to tell Todaro about the cessation of his consultancy. Finally, in Annex "I," Folwell of PIL wrote to Todaro to confirm that "Pioneer" no longer wishes to be associated with Todaro and that Klepzig is authorized to terminate this association. Folwell further referred to a Dr. Schubert and to Pioneer Hong Kong. These confirmations and references tell us that, in this instance, the various officers and companies under the Pioneer brand name do not work independently of each other. It cannot be denied that PIL had knowledge of and even authorized the non-implementation of Todaro’s alleged permanent employment. In fact, in the letters to Todaro, the word "Pioneer" was used to refer not just to PIL alone but also to all corporations negotiating with Todaro under the Pioneer name.

As further proof of the interconnection of the various Pioneer corporations with regard to their negotiations with Todaro, McDonald of Pioneer Concrete Group HK confirmed Todaro’s engagement as consultant of PIL (Annex "E") while Folwell of PIL stated that Todaro rendered consultancy services to Pioneer HK (Annex "I"). In this sense, the various Pioneer corporations were not acting as separate corporations. The behavior of the various Pioneer corporations shoots down their defense that the corporations have separate and distinct personalities, managements, and operations. The various Pioneer corporations were all working in concert to negotiate an employment contract between Todaro and PPHI, a domestic corporation.

Finally, the phrase "doing business in the Philippines" in the former version of Section 12, Rule 14 now reads "has transacted business in the Philippines." The scope is thus broader in that it is enough for the application of the Rule that the foreign private juridical entity "has transacted business in the Philippines."26

As to the second sub-issue, the purpose of summons is not only to acquire jurisdiction over the person of the defendant, but also to give notice to the defendant that an action has been commenced against it and to afford it an opportunity to be heard on the claim made against it. The requirements of the rule on summons must be strictly followed; otherwise, the trial court will not acquire jurisdiction over the defendant.

When summons is to be served on a natural person, service of summons should be made in person on the defendant.27 Substituted service is resorted to only upon the concurrence of two requisites: (1) when the defendant cannot be served personally within a reasonable time and (2) when there is impossibility of prompt service as shown by the statement in the proof of service in the efforts made to find the defendant personally and that such efforts failed.28

The statutory requirements of substituted service must be followed strictly, faithfully, and fully, and any substituted service other than by the statute is considered ineffective. Substituted service is in derogation of the usual method of service. It is a method extraordinary in character and may be used only as prescribed and in the circumstances authorized by the statute.29 The need for strict compliance with the requirements of the rule on summons is also exemplified in the exclusive enumeration of the agents of a domestic private juridical entity who are authorized to receive summons.

At present, Section 11 of Rule 14 provides that when the defendant is a domestic private juridical entity, service may be made on the "president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel." The previous version of Section 11 allowed for the service of summons on the "president, manager, secretary, cashier, agent, or any of its directors." The present Section 11 qualified "manager" to "general manager" and "secretary" to "corporate secretary." The present Section 11 also removed "cashier, agent, or any of its directors" from the exclusive enumeration.

When summons is served on a foreign juridical entity, there are three prescribed ways: (1) service on its resident agent designated in accordance with law for that purpose, (2) service on the government official designated by law to receive summons if the corporation does not have a resident agent, and (3) service on any of the corporation’s officers or agents within the Philippines.30

In the present case, service of summons on PIL failed to follow any of the prescribed processes. PIL had no resident agent in the Philippines. Summons was not served on the Securities and Exchange Commission (SEC), the designated government agency,31 since PIL is not registered with the SEC. Summons for PIL was served on De Leon, Klepzig’s Executive Assistant. Klepzig is PIL’s "agent within the Philippines" because PIL authorized Klepzig to notify Todaro of the cessation of his consultancy (Annexes "H" and "I").32 The authority given by PIL to Klepzig to notify Todaro implies that Klepzig was likewise authorized to receive Todaro’s response to PIL’s notice. Todaro responded to PIL’s notice by filing a complaint before the trial court.

However, summons was not served personally on Klepzig as agent of PIL. Instead, summons was served on De Leon, Klepzig’s Executive Assistant. In this instance, De Leon was not PIL’s agent but a mere employee of Klepzig. In effect, the sheriff33 resorted to substituted service. For symmetry, we apply the rule on substituted service of summons on a natural person and we find that no reason was given to justify the service of PIL’s summons on De Leon.

Thus, we rule that PIL transacted business in the Philippines and Klepzig was its agent within the Philippines. However, there was improper service of summons on PIL since summons was not served personally on Klepzig.

NLRC Jurisdiction

As to the second level, Todaro prays for payment of damages due him because of PIL’s non-implementation of Todaro’s alleged employment agreement with PPHI. The appellate court stated its ruling on this matter, thus:

It could not be denied that there was no existing contract yet to speak of between PIONEER INTL. and [Todaro]. Since there was an absence of an employment contract between the two parties, this Court is of the opinion and so holds that no employer-employee relationship actually exists. Record reveals that all that was agreed upon by [Todaro] and the Pioneer Concrete, acting in behalf of PIONEER INTL., was the confirmation of the offer to engage the services of the former as consultant of PIONEER INTL. (Rollo, p. 132). The failure on the part of PIONEER INTL. to abide by the said agreement, which was duly confirmed by PIONEER INTL., brought about a breach of an obligation on a valid and perfected agreement. There being no employer-employee relationship established between [PIL] and [Todaro], it could be said that the instant case falls within the jurisdiction of the regular courts of justice as the money claim of [Todaro] did not arise out of or in connection with [an] employer-employee relationship.34

Todaro’s employment in the Philippines would not be with PIL but with PPHI as stated in the 20 October 1997 letter of Folwell. Assuming the existence of the employment agreement, the employer-employee relationship would be between PPHI and Todaro, not between PIL and Todaro. PIL’s liability for the non-implementation of the alleged employment agreement is a civil dispute properly belonging to the regular courts. Todaro’s causes of action as stated in his complaint are, in addition to breach of contract, based on "violation of Articles 19 and 21 of the New Civil Code" for the "clear and evident bad faith and malice"35 on the part of defendants. The NLRC’s jurisdiction is limited to those enumerated under Article 217 of the Labor Code.36

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated 27 September 2001 and the Resolution dated 14 January 2003 of the appellate court are AFFIRMED with the MODIFICATION that there was improper service of summons on Pioneer International, Ltd. The case is remanded to the trial court for proper service of summons and trial. No costs.

SO ORDERED.

Quisumbing, Carpio-Morales, Tinga, Velasco, Jr., JJ., concur.

19-A

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 155785             April 13, 2007

SIMPLICIO GALICIA, for himself, and as Attorney-in-Fact of ROSALIA G. TORRE, PAQUITO GALICIA, NELLIE GALICIA, LETICIA G. MAESTRO and CLARO GALICIA, Petitioners, vs.LOURDES MANLIQUEZ vda. de MINDO and LILIA RICO MINANO, Respondents.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari seeking to annul and set aside the Decision1 of the Court of Appeals (CA) dated January 14, 2002 in CA-G.R. SP No. 58834 and its Resolution2 of October 21, 2002 denying petitioners’ Motion for Reconsideration.

The present case originated from a complaint filed with the Regional Trial Court (RTC) of Odiongan, Romblon by herein petitioners, in their capacity as heirs of Juan Galicia (Juan), against Milagros Rico-Glori (Milagros) and her tenants Dominador Musca and Alfonso Fallar, Jr. for Recovery of Possession and Ownership, Annulment of Title, Documents and Other Papers. The case is docketed as Civil Case No. OD-306.

In their Complaint, petitioners contended that their predecessor, Juan, was the true and lawful owner of a parcel of land situated in Concepcion Sur, Sta. Maria, Romblon known as Lot No. 139 and containing an area of 5.5329 hectares, the same having been declared in his name under various tax declarations the latest of which being Tax Declaration No. 0037, Series of 1994; after years of possession of the said land, Juan was driven away from the property through force by the heirs of a certain Ines Ramirez (Ines), one of whom is defendant Milagros; because of poverty and lack of knowledge, Juan was not able to assert his right to the said property but he informed his children that they own the above-described parcel of land; and the continuous possession of the property by Milagros and her co-defendants, tenants has further deprived herein petitioners of their right over the same.

Defendants denied the allegations of petitioners in their complaint asserting that Juan was not the owner and never took possession of the disputed lot. They also contended that the subject property was part of a larger parcel of land which was acquired by Ines, Milagros’s predecessor-in-interest in 1947 from a certain Juan Galicha who is a different person from Juan Galicia.

During the scheduled pre-trial conference on May 21, 1997, none of the defendants appeared. They filed a motion for postponement of the pre-trial conference but it was belatedly received by the trial court. As a consequence, defendants were declared in default. Herein petitioners, as plaintiffs, were then allowed to present evidence ex parte.

On December 2, 1997, the RTC rendered judgment with the following dispositive portion:

WHEREFORE, premises considered, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiffs and against the defendants:

1. Declaring plaintiffs as the true and absolute owner of the property subject of the case and particularly described in paragraph II of the complaint;

2. Affirming and confirming the validity and legality of plaintiffs’ ownership over the property;

3. Ordering defendants to vacate the land adverted to in paragraph II of the complaint;

4. For the defendants to respect plaintiffs' peaceful possession and ownership of the land aforesaid; and

5. To pay the costs.

SO ORDERED.3

On December 15, 1997, the RTC received a Motion for Leave of Court to Intervene with an attached Answer-in-Intervention filed by the compulsory heirs of Ines, among whom are herein respondents, who are also co-heirs of defendant Milagros. The intervenors contended that the subject parcel of land forms part of the estate of Ines which is yet to be partitioned among them; an intestate proceeding is presently pending in the RTC of Odiongan, Romblon, Branch 81; the outcome of Civil Case No. OD-306, one way or the other, would adversely affect their interest; their rights would be better protected in the said civil case; and their intervention would not unduly delay, or in any way prejudice the rights of the original parties.

In its Order of December 23, 1997, the RTC denied the said motion to intervene on the ground that it has already rendered judgment and under Section 2, Rule 19 of the Rules of Court, the motion to intervene should have been filed before rendition of judgment by the trial court.

Meanwhile, the defendants in Civil Case No. OD-306 filed an appeal with the CA. Their Notice of Appeal was filed on February 27, 1998. On June 23, 1999, the CA issued a Resolution dismissing the appeal for failure of the defendants-appellants to file their brief within the extended period granted by the appellate court. On August 13, 1999, the abovementioned CA Resolution became final and executory.

Subsequently, the trial court issued a writ of execution dated March 3, 2000.

On May 23, 2000, herein respondents filed a petition for annulment of judgment with the CA anchored on grounds of lack of jurisdiction over their persons and property and on extrinsic fraud.

On January 14, 2002, the CA promulgated the presently assailed Decision with the following dispositive portion:

WHEREFORE, the present petition is hereby GRANTED. The Decision dated December 2, 1997 and Writ of Execution dated March 3, 2000 of Branch 82 of the Regional Trial Court of Odiongan, Romblon are hereby ANNULLED and SET ASIDE.

SO ORDERED.4

Herein petitioners filed a Motion for Reconsideration but it was denied by the CA in its Resolution5 dated October 21, 2002.

Hence, the instant petition for review based on the following assignment of errors:

1. THAT THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN ANNULLING AND SETTING ASIDE THE DECISION DATED 2 DECEMBER 1997 AND WRIT OF EXECUTION DATED 3 MARCH 2000 OF BRANCH 82 OF THE REGIONAL TRIAL COURT OF ODIONGAN, ROMBLON FOR LACK OF JURISDICTION OVER THE PERSONS OF PETITIONERS (NOW RESPONDENTS IN THE ABOVE-ENTITLED CASE), A DECISION NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT.

2. THAT THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT DISMISSING THE PETITION FOR ANNULMENT OF JUDGMENT ON THE GROUND OF ESTOPPEL ON THE PART OF THE PETITIONERS IN CA-G.R. SP. NO. 58834.6

As to their first assigned error, petitioners invoke the principle that jurisdiction over the person is acquired by the voluntary appearance of a party in court and his submission to its authority. Applying this rule in the present case, petitioners argue that by filing their Motion for Leave to Intervene in the RTC, herein respondents voluntarily submitted themselves to the authority of the trial court, hence placing themselves under its jurisdiction; that by filing the said Motion, they recognized the authority of the court to hear and decide not only their Motion but the case itself; and that by acting on their Motion, the court actually exercised jurisdiction over the persons of petitioners.

With respect to their second assigned error, petitioners contend that by respondents’ voluntary submission to the jurisdiction of the trial court they are already estopped in denying the authority of the court which they invoked when they filed their Motion. Petitioners also contend that respondents had several opportunities to raise the issue of the court’s lack of jurisdiction over their persons but they remained silent and did not pursue the remedies available to them for an unreasonable length of time; hence, they are now barred by laches from questioning the court’s jurisdiction.

On the other hand, respondents counter that the CA did not err in setting aside the trial court's decision on the ground that defendants, as indispensable parties, were not joined in the complaint. Respondents argue that the CA correctly held that when an indispensable party is not before the court then the action should be dismissed because the absence of such indispensable party renders all subsequent actions of the court null and void for want of authority to act not only as against him but even as against those present.

Respondents also aver that even assuming that herein petitioners were the true owners of the subject land, they have lost such ownership by extinctive prescription because respondents and their predecessors had been in uninterrupted adverse possession of the subject lot for more than 40 years. As such, they had become the owners thereof by acquisitive prescription.

The petition lacks merit but the CA Decision will have to be modified in the interest of substantial justice and for the orderly administration of justice, as will be shown forthwith.

It is true that the allowance and disallowance of a motion to intervene is addressed to the sound discretion of the court hearing the case.7 However, jurisprudence is replete with cases wherein the Court ruled that a motion to intervene may be entertained or allowed even if filed after judgment was rendered by the trial court, especially in cases where the intervenors are indispensable parties.8 In Pinlac v. Court of Appeals, this Court held:

The rule on intervention, like all other rules of procedure, is intended to make the powers of the Court fully and completely available for justice. It is aimed to facilitate a comprehensive adjudication of rival claims overriding technicalities on the timeliness of the filing thereof. Indeed, in exceptional cases, the Court has allowed intervention notwithstanding the rendition of judgment by the trial court.9

Since it is not disputed that herein respondents are compulsory heirs of Ines who stand to be affected by the judgment of the trial court, the latter should have granted their Motion to Intervene and should have admitted their Answer-in-Intervention.

Section 7, Rule 3 of the Rules of Court, defines indispensable parties as parties-in-interest without whom there can be no final determination of an action. As such, they must be joined either as plaintiffs or as defendants. The general rule with reference to the making of parties in a civil action requires the joinder of all necessary parties where possible and the joinder of all indispensable parties under any and all conditions, their presence being a sine qua non for the exercise of judicial power.10 It is precisely when an indispensable party is not before the court that the action

should be dismissed.11 The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present.12 The evident aim and intent of the Rules regarding the joinder of indispensable and necessary parties is a complete determination of all possible issues, not only between the parties themselves but also as regards to other persons who may be affected by the judgment.13 A valid judgment cannot even be rendered where there is want of indispensable parties.14

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As to the question of whether the trial court acquired jurisdiction over the persons of herein respondents, the Court has held that the filing of motions seeking affirmative relief, such as, to admit answer, for additional time to file answer, for reconsideration of a default judgment, and to lift order of default with motion for reconsideration, are considered voluntary submission to the jurisdiction of the court.15 Hence, in the present case, when respondents filed their Motion for Leave to Intervene, attaching thereto their Answer-in-Intervention, they have effectively submitted themselves to the jurisdiction of the court and the court, in turn, acquired jurisdiction over their persons. But this circumstance did not cure the fatal defect of non-inclusion of respondents as indispensable parties in the complaint filed by petitioner. It must be emphasized that respondents were not able to participate during the pre-trial much less present evidence in support of their claims. In other words, the court acquired jurisdiction over the persons of herein respondents only when they filed their Motion for Leave to Intervene with the RTC. Prior to that, they were strangers to Civil Case No. OD-306.

It is basic that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court.16 In the present case, respondents and their co-heirs are adversely affected by the judgment rendered by the trial court considering their ostensible ownership of the property. It will be the height of inequity to declare herein petitioners as owners of the disputed lot without giving respondents the opportunity to present any evidence in support of their claim that the subject property still forms part of the estate of their deceased predecessor and is the subject of a pending action for partition among the compulsory heirs. Much more, it is tantamount to a violation of the constitutional guarantee that no person shall be deprived of property without due process of law.17

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This Court held in Metropolitan Bank and Trust Company v. Alejo that:

A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal effect. Hence, it can never become final and any writ of execution based on it is void: x x x it may be said to be a lawless thing which can be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits its head.18

In the absence of herein respondents and their co-heirs who are indispensable parties, the trial court had in the first place no authority to act on the case. Thus, the judgment of the trial court was null and void due to lack of jurisdiction over indispensable parties.19 The CA correctly annulled the RTC Decision and writ of execution.

As to the timeliness of the petition for annulment of judgment filed with the CA, Section 3, Rule 47 of the Rules of Court provides that a petition for annulment of judgment based on extrinsic fraud must be filed within four years from its discovery; and if based on lack of jurisdiction, before it is barred by laches or estoppel.

The principle of laches or "stale demands" ordains that the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have

been done earlier, or the negligence or omission to assert a right within a reasonable time, warrants a presumption that the party entitled to assert it either has abandoned it or declined to assert it.20

There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances.21 The question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations.22 It cannot be used to defeat justice or perpetrate fraud and injustice.23 It is the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to do so, manifest wrong or injustice would result.24

In the present case, the CA found no evidence to show when respondents acquired knowledge of the complaint that petitioners filed with the RTC. Moreover, the Court finds that herein respondents' right to due process is the overriding consideration in allowing them to intervene in Civil Case No. OD-306.

Petitioners also fault herein respondents for their failure to avail of other remedies before filing a petition for annulment of judgment with the CA. Petitioners cited the remedies enumerated by the RTC in its Order of December 23, 1997. However, the Court notes that the remedies enumerated therein refer to those available to a party who has been declared in default. In the present case, herein respondents could not have been declared in default, and thus could not have availed of these remedies, because they never became parties to Civil Case No. OD-306.

The settled rule is that a judgment rendered or final order issued by the RTC without jurisdiction is null and void and may be assailed any time either collaterally or in a direct action or by resisting such judgment or final order in any action or proceeding whenever it is invoked, unless barred by laches.25 Indeed, jurisprudence upholds the soundness of an independent action to declare as null and void a judgment rendered without jurisdiction as in this case.26

As a result of and in consonance with the foregoing discussions, the complaint filed by herein petitioners with the trial court should have been dismissed at the outset, in the absence of indispensable parties.

Inevitably, the following questions come to mind: what happens to the original defendants who were declared as in default and judgment by default was rendered against them? What happens to the final and executory dismissal of the appeal of the defaulted defendants by the CA?

It is an accepted rule of procedure for this Court to strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the seeds of future litigation.27

In concurrence therewith, the Court makes the following observations:

To dismiss the complaint of herein petitioners for non-inclusion of herein respondents as indispensable parties, the former would have no other recourse but to file anew a complaint against the latter and the original defendants. This would not be in keeping with the Court's policy of promoting a just and inexpensive disposition of a case. It is best that the complaint remains which is deemed amended by the admission of the Answer-in-Intervention of the indispensable parties.

The trial court’s declaration of the defendants as in default in Civil Case No. OD-306 for their failure to attend the pre-trial conference and the consequent final and executory judgment by default, are altogether void and of no effect considering that the RTC acted without jurisdiction from the very

beginning because of non-inclusion of indispensable parties. The Court reiterates the ruling in Metropolitan Bank and Trust Company that void judgment for want of jurisdiction is no judgment at all; it cannot be the source of any right nor the creator of any obligation.28

Parties are reverted back to the stage where all the defendants have filed their respective Answers.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals areAFFIRMED with MODIFICATION to the effect that the Regional Trial Court of Odiongan, Romblon, Branch 82 is ordered to GRANT the Motion for Leave to Intervene of respondents and their other co-heirs, ADMIT their Answer-in-Intervention, MAINTAIN the Answer of original defendants, and from there to PROCEED with Civil Case No. OD-306 in accordance with the Rules of Court.

Costs against petitioners.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGOAssociate Justice

Chairperson

ROMEO J. CALLEJO, SR.Associate Justice

MINITA V. CHICO-NAZARIOAsscociate Justice

ANTONIO EDUARDO B. NACHURAAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGOAssociate JusticeChairperson, Third Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice

III. Parties to civil action

20.

THIRD DIVISION

[G.R. No. 162788.  July 28, 2005]

Spouses JULITA DE LA CRUZ and FELIPE DE LA CRUZ, petitioners, vs. PEDRO JOAQUIN, respondent.

D E C I S I O NPANGANIBAN, 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 Review[1] under Rule 45 of the Rules of Court, assailing the August 26, 2003 Decision[2] and the March 9, 2004 Resolution[3] 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

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.

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 inthe 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 counsel [32] 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 ordered[33] 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.

20-A

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

 

G.R. No. 110318 August 28, 1996

COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, PARAMOUNT PICTURES CORPORATION, TWENTIETH CENTURY FOX FILM CORPORATION, UNITED ARTISTS CORPORATION, UNIVERSAL CITY STUDIOS, INC., THE WALT DISNEY COMPANY, and WARNER BROTHERS, INC., petitioners, vs.COURT OF APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A. PELINDARIO, respondents.

 

REGALADO, J.:p

Before us is a petition for review on certiorari of the decision of the Court of Appeals 1 promulgated on July 22, 1992 and its resolution 2 of May 10, 1993 denying petitioners' motion for reconsideration, both of which sustained the order 3 of the Regional Trial Court, Branch 133, Makati, Metro Manila, dated November 22, 1988 for the quashal of Search Warrant No. 87-053 earlier issued per its own order 4 on September 5, 1988 for violation of Section 56 of Presidential Decree No. 49, as amended, otherwise known as the "Decree on the Protection of Intellectual Property."

The material facts found by respondent appellate court are as follows:

Complainants thru counsel lodged a formal complaint with the National Bureau of Investigation for violation of PD No. 49, as amended, and sought its assistance in their anti-film piracy drive. Agents of the NBI and private researchers made discreet surveillance on various video establishments in Metro Manila including Sunshine Home Video Inc. (Sunshine for brevity), owned and operated by Danilo A. Pelindario with address at No. 6 Mayfair Center, Magallanes, Makati, Metro Manila.

On November 14, 1987, NBI Senior Agent Lauro C. Reyes applied for a search warrant with the courta quo against Sunshine seeking the seizure, among others, of pirated video tapes of copyrighted films all of which were enumerated in a list attached to the application; and, television sets, video cassettes and/or laser disc recordings equipment and other machines and paraphernalia used or intended to be used in the unlawful exhibition, showing, reproduction, sale, lease or disposition of videograms tapes in the premises above described. In the hearing of the application, NBI Senior Agent Lauro C. Reyes, upon questions by the court a quo, reiterated in substance his averments in his affidavit. His testimony was corroborated by another witness, Mr. Rene C. Baltazar. Atty. Rico V. Domingo's deposition was also taken. On the basis of the affidavits and depositions of NBI Senior Agent Lauro C. Reyes, Rene C. Baltazar and Atty. Rico V. Domingo, Search Warrant No. 87-053 for violation of Section 56 of PD No. 49, as amended, was issued by the court a quo.

The search warrant was served at about 1:45 p.m. on December 14, 1987 to Sunshine and/or their representatives. In the course of the search of the premises indicated in the search warrant, the NBI Agents found and seized various video tapes of duly copyrighted motion pictures/films owned or exclusively distributed by private complainants, and machines, equipment, television sets, paraphernalia, materials, accessories all of which were included in the receipt for properties accomplished by the raiding team. Copy of the receipt was furnished and/or tendered to Mr. Danilo A. Pelindario, registered owner-proprietor of Sunshine Home Video.

On December 16, 1987, a "Return of Search Warrant" was filed with the Court.

A "Motion To Lift the Order of Search Warrant" was filed but was later denied for lack of merit (p. 280, Records).

A Motion for reconsideration of the Order of denial was filed. The court a quo granted the said motion for reconsideration and justified it in this manner:

It is undisputed that the master tapes of the copyrighted films from which the pirated films were allegedly copies (sic), were never presented in the proceedings for the issuance of the search warrants in question. The orders of the Court granting the search warrants and denying the urgent motion to lift order of search warrants were, therefore, issued in error. Consequently, they must be set aside. (p. 13, Appellant's Brief) 5

Petitioners thereafter appealed the order of the trial court granting private respondents' motion for reconsideration, thus lifting the search warrant which it had theretofore issued, to the Court of Appeals. As stated at the outset, said appeal was dismissed and the motion for reconsideration thereof was denied. Hence, this petition was brought to this Court particularly

challenging the validity of respondent court's retroactive application of the ruling in 20th Century Fox Film Corporation vs. Court of Appeals, et al., 6 in dismissing petitioners' appeal and upholding the quashal of the search warrant by the trial court.

I

Inceptively, we shall settle the procedural considerations on the matter of and the challenge to petitioners' legal standing in our courts, they being foreign corporations not licensed to do business in the Philippines.

Private respondents aver that being foreign corporations, petitioners should have such license to be able to maintain an action in Philippine courts. In so challenging petitioners' personality to sue, private respondents point to the fact that petitioners are the copyright owners or owners of exclusive rights of distribution in the Philippines of copyrighted motion pictures or films, and also to the appointment of Atty. Rico V. Domingo as their attorney-in-fact, as being constitutive of "doing business in the Philippines" under Section 1 (f)(1) and (2), Rule 1 of the Rules of the Board of Investments. As foreign corporations doing business in the Philippines, Section 133 of Batas Pambansa Blg. 68, or the Corporation Code of the Philippines, denies them the right to maintain a suit in Philippine courts in the absence of a license to do business. Consequently, they have no right to ask for the issuance of a search warrant. 7

In refutation, petitioners flatly deny that they are doing business in the Philippines,  8 and contend that private respondents have not adduced evidence to prove that petitioners are doing such business here, as would require them to be licensed by the Securities and Exchange Commission, other than averments in the quoted portions of petitioners' "Opposition to Urgent Motion to Lift Order of Search Warrant" dated April 28, 1988 and Atty. Rico V. Domingo's affidavit of December 14, 1987. Moreover, an exclusive right to distribute a product or the ownership of such exclusive right does not conclusively prove the act of doing business nor establish the presumption of doing business.9

The Corporation Code provides:

Sec. 133. Doing business without a license. — No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

The obtainment of a license prescribed by Section 125 of the Corporation Code is not a condition precedent to the maintenance of any kind of action in Philippine courts by a foreign corporation. However, under the aforequoted provision, no foreign corporation shall be permitted to transact business in the Philippines, as this phrase is understood under the Corporation Code, unless it shall have the license required by law, and until it complies with the law intransacting business here, it shall not be permitted to maintain any suit in local courts. 10 As thus interpreted, any foreign corporation not doing business in the Philippines may maintain an action in our courts upon any cause of action, provided that the subject matter and the defendant are within the jurisdiction of the court. It is not the absence of the prescribed license but "doing business" in the Philippines without such license which debars the foreign corporation from access to our courts. In other words, although a foreign corporation is without license to transact business in the Philippines, it does not follow that it has no capacity to bring an action. Such license is not necessary if it is not engaged in business in the Philippines.  11

Statutory provisions in many jurisdictions are determinative of what constitutes "doing business" or "transacting business" within that forum, in which case said provisions are controlling there. In others where no such definition or qualification is laid down regarding acts or transactions failing within its purview, the question rests primarily on facts and intent. It is thus held that all the combined acts of a foreign corporation in the State must be considered, and every circumstance is material which indicates a purpose on the part of the corporation to engage in some part of its regular business in the State. 12

No general rule or governing principles can be laid down as to what constitutes "doing" or "engaging in" or "transacting" business. Each case must be judged in the light of its own peculiar environmental circumstances. 13 The true tests, however, seem to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another.  14

As a general proposition upon which many authorities agree in principle, subject to such modifications as may be necessary in view of the particular issue or of the terms of the statute involved, it is recognized that a foreign corporation is "doing," "transacting," "engaging in," or "carrying on" business in the State when, and ordinarily only when, it has entered the State by its agents and is there engaged in carrying on and transacting through them some substantial part of its ordinary or customary business, usually continuous in the sense that it may be distinguished from merely casual, sporadic, or occasional transactions and isolated acts. 15

The Corporation Code does not itself define or categorize what acts constitute doing or transacting business in the Philippines. Jurisprudence has, however, held that the term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to or in progressive prosecution of the purpose and subject of its organization. 16

This traditional case law definition has evolved into a statutory definition, having been adopted with some qualifications in various pieces of legislation in our jurisdiction.

For instance, Republic Act No. 5455 17 provides:

Sec. 1. Definitions and scope of this Act. — (1) . . . ; and the phrase "doing business" shall include soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.

Presidential Decree No. 1789, 18 in Article 65 thereof, defines "doing business" to include soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of

commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.

The implementing rules and regulations of said presidential decree conclude the enumeration of acts constituting "doing business" with a catch-all definition, thus:

Sec. 1(g). "Doing Business" shall be any act or combination of acts enumerated in Article 65 of the Code. In particular "doing business" includes:

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(10) Any other act or acts which imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, or in the progressive prosecution of, commercial gain or of the purpose and object of the business organization.

Finally, Republic Act No. 7042 19 embodies such concept in this wise:

Sec. 3. Definitions. — As used in this Act:

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(d) the phrase "doing business shall include soliciting orders, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y) (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account.

Based on Article 133 of the Corporation Code and gauged by such statutory standards, petitioners are not barred from maintaining the present action. There is no showing that, under our statutory or case law, petitioners are doing, transacting, engaging in or carrying on business in the Philippines as would require obtention of a license before they can seek redress from our courts. No evidence has been offered to show that petitioners have performed any of the enumerated acts or any other specific act indicative of an intention to conduct or transact business in the Philippines.

Accordingly, the certification issued by the Securities and Exchange Commission  20 stating that its records do not show the registration of petitioner film companies either as corporations or partnerships or that they have been licensed to transact business in the Philippines, while

undeniably true, is of no consequence to petitioners' right to bring action in the Philippines. Verily, no record of such registration by petitioners can be expected to be found for, as aforestated, said foreign film corporations do not transact or do business in the Philippines and, therefore, do not need to be licensed in order to take recourse to our courts.

Although Section 1(g) of the Implementing Rules and Regulations of the Omnibus Investments Code lists, among others —

(1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm, or by an agent of such foreign firm, not acting independently of the foreign firm amounting to negotiations or fixing of the terms and conditions of sales or service contracts, regardless of where the contracts are actually reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines. The arrangements agreed upon as to manner, time and terms of delivery of the goods or the transfer of title thereto is immaterial. A foreign firm which does business through the middlemen acting in their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.

(2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account of a principal. Thus, where a foreign firm is represented in the Philippines by a person or local company which does not act in its name but in the name of the foreign firm, the latter is doing business in the Philippines.

as acts constitutive of "doing business," the fact that petitioners are admittedly copyright owners or owners of exclusive distribution rights in the Philippines of motion pictures or films does not convert such ownership into an indicium of doing business which would require them to obtain a license before they can sue upon a cause of action in local courts.

Neither is the appointment of Atty. Rico V. Domingo as attorney-in-fact of petitioners, with express authority pursuant to a special power of attorney, inter alia —

To lay criminal complaints with the appropriate authorities and to provide evidence in support of both civil and criminal proceedings against any person or persons involved in the criminal infringement of copyright or concerning the unauthorized importation, duplication, exhibition or distribution of any cinematographic work(s) — films or video cassettes — of which . . . is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any agreement(s) between . . . and the respective owners of copyright in such cinematographic work(s), to initiate and prosecute on behalf of . . . criminal or civil actions in the Philippines against any person or persons unlawfully distributing, exhibiting, selling or offering for sale any films or video cassettes of which . . . is the owner of copyright or the owner of exclusive rights of distribution in the Philippines pursuant to any agreement(s) between . . . and the respective owners of copyright in such works. 21

tantamount to doing business in the Philippines. We fail to see how exercising one's legal and property rights and taking steps for the vigilant protection of said rights, particularly the

appointment of an attorney-in-fact, can be deemed by and of themselves to be doing business here.

As a general rule, a foreign corporation will not be regarded as doing business in the State simply because it enters into contracts with residents of the State, where such contracts are consummated outside the State. 22 In fact, a view is taken that a foreign corporation is not doing business in the State merely because sales of its product are made there or other business furthering its interests is transacted there by an alleged agent, whether a corporation or a natural person, where such activities are not under the direction and control of the foreign corporation but are engaged in by the alleged agent as an independent business.  23

It is generally held that sales made to customers in the State by an independent dealer who has purchased and obtained title from the corporation to the products sold are not a doing of business by the corporation.24 Likewise, a foreign corporation which sells its products to persons styled "distributing agents" in the State, for distribution by them, is not doing business in the State so as to render it subject to service of process therein, where the contract with these purchasers is that they shall buy exclusively from the foreign corporation such goods as it manufactures and shall sell them at trade prices established by it. 25

It has moreover been held that the act of a foreign corporation in engaging an attorney to represent it in a Federal court sitting in a particular State is not doing business within the scope of the minimum contact test.26 With much more reason should this doctrine apply to the mere retainer of Atty. Domingo for legal protection against contingent acts of intellectual piracy.

In accordance with the rule that "doing business" imports only acts in furtherance of the purposes for which a foreign corporation was organized, it is held that the mere institution and prosecution or defense of a suit, particularly if the transaction which is the basis of the suit took place out of the State, do not amount to the doing of business in the State. The institution of a suit or the removal thereof is neither the making of a contract nor the doing of business within a constitutional provision placing foreign corporations licensed to do business in the State under the same regulations, limitations and liabilities with respect to such acts as domestic corporations. Merely engaging in litigation has been considered as not a sufficient minimum contact to warrant the exercise of jurisdiction over a foreign corporation. 27

As a consideration aside, we have perforce to comment on private respondents' basis for arguing that petitioners are barred from maintaining suit in the Philippines. For allegedly being foreign corporations doing business in the Philippines without a license, private respondents repeatedly maintain in all their pleadings that petitioners have thereby no legal personality to bring an action before Philippine Courts. 28

Among the grounds for a motion to dismiss under the Rules of Courtare lack of legal capacity to sue 29 and that the complaint states no cause of action. 30 Lack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary qualification to appear in the case, or does not have the character or representation he claims. 31 On the other hand, a case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party in interest, hence grounded on failure to state a cause of action. 32 The term "lack of capacity to sue" should not be confused with the term "lack of personality to sue." While the former refers to a plaintiff's general disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality or any other general disqualifications of a party, the latter refers to the fact that the plaintiff is not the real party in interest. Correspondingly, the first can be a ground for a motion to dismiss based on the ground of lack of legal capacity to sue; 33 whereas the second can be used as a ground for a motion to

dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of action. 34

Applying the above discussion to the instant petition, the ground available for barring recourse to our courts by an unlicensed foreign corporation doing or transacting business in the Philippines should properly be "lack of capacity to sue," not "lack of personality to sue." Certainly, a corporation whose legal rights have been violated is undeniably such, if not the only, real party in interest to bring suit thereon although, for failure to comply with the licensing requirement, it is not capacitated to maintain any suit before our courts.

Lastly, on this point, we reiterate this Court's rejection of the common procedural tactics of erring local companies which, when sued by unlicensed foreign corporations not engaged in business in the Philippines, invoke the latter's supposed lack of capacity to sue. The doctrine of lack of capacity to sue based on failure to first acquire a local license is based on considerations of public policy. It was never intended to favor nor insulate from suit unscrupulous establishments or nationals in case of breach of valid obligations or violation of legal rights of unsuspecting foreign firms or entities simply because they are not licensed to do business in the country. 35

II

We now proceed to the main issue of the retroactive application to the present controversy of the ruling in20th Century Fox Film Corporation vs. Court of Appeals, et al., promulgated on August 19, 1988, 36 that for the determination of probable cause to support the issuance of a search warrant in copyright infringement cases involving videograms, the production of the master tape for comparison with the allegedly pirate copies is necessary.

Petitioners assert that the issuance of a search warrant is addressed to the discretion of the court subject to the determination of probable cause in accordance with the procedure prescribed therefore under Sections 3 and 4 of Rule 126. As of the time of the application for the search warrant in question, the controlling criterion for the finding of probable cause was that enunciated in Burgos vs. Chief of Staff 37 stating that:

Probable cause for a search warrant is defined as such facts and circumstances which would lead a reasonably discreet and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched.

According to petitioners, after complying with what the law then required, the lower court determined that there was probable cause for the issuance of a search warrant, and which determination in fact led to the issuance and service on December 14, 1987 of Search Warrant No. 87-053. It is further argued that any search warrant so issued in accordance with all applicable legal requirements is valid, for the lower court could not possibly have been expected to apply, as the basis for a finding of probable cause for the issuance of a search warrant in copyright infringement cases involving videograms, a pronouncement which was not existent at the time of such determination, on December 14, 1987, that is, the doctrine in the 20th Century Fox case that was promulgated only on August 19, 1988, or over eight months later.

Private respondents predictably argue in support of the ruling of the Court of Appeals sustaining the quashal of the search warrant by the lower court on the strength of that 20th Century Fox ruling which, they claim, goes into the very essence of probable cause. At the

time of the issuance of the search warrant involved here, although the 20th Century Fox case had not yet been decided, Section 2, Article III of the Constitution and Section 3, Rule 126 of the 1985 Rules on Criminal Procedure embodied the prevailing and governing law on the matter. The ruling in 20th Century Fox was merely an application of the law on probable cause. Hence, they posit that there was no law that was retrospectively applied, since the law had been there all along. To refrain from applying the 20th Century Fox ruling, which had supervened as a doctrine promulgated at the time of the resolution of private respondents' motion for reconsideration seeking the quashal of the search warrant for failure of the trial court to require presentation of the master tapes prior to the issuance of the search warrant, would have constituted grave abuse of discretion. 38

Respondent court upheld the retroactive application of the 20th Century Fox ruling by the trial court in resolving petitioners' motion for reconsideration in favor of the quashal of the search warrant, on this renovated thesis:

And whether this doctrine should apply retroactively, it must be noted that in the 20th Century Fox case, the lower court quashed the earlier search warrant it issued. On certiorari, the Supreme Court affirmed the quashal on the ground among others that the master tapes or copyrighted films were not presented for comparison with the purchased evidence of the video tapes to determine whether the latter is an unauthorized reproduction of the former.

If the lower court in the Century Fox case did not quash the warrant, it is Our view that the Supreme Court would have invalidated the warrant just the same considering the very strict requirement set by the Supreme Court for the determination of "probable cause" in copyright infringement cases as enunciated in this 20th Century Fox case. This is so because, as was stated by the Supreme Court in the said case, the master tapes and the pirated tapes must be presented for comparison to satisfy the requirement of "probable cause." So it goes back to the very existence of probablecause. . . . 39

Mindful as we are of the ramifications of the doctrine of stare decisis and the rudiments of fair play, it is our considered view that the 20th Century Fox ruling cannot be retroactively applied to the instant case to justify the quashal of Search Warrant No. 87-053. Herein petitioners' consistent position that the order of the lower court of September 5, 1988 denying therein defendants' motion to lift the order of search warrant was properly issued, there having been satisfactory compliance with the then prevailing standards under the law for determination of probable cause, is indeed well taken. The lower court could not possibly have expected more evidence from petitioners in their application for a search warrant other than what the law and jurisprudence, then existing and judicially accepted, required with respect to the finding of probable cause.

Article 4 of the Civil Code provides that "(l)aws shall have no retroactive effect, unless the contrary is provided. Correlatively, Article 8 of the same Code declares that "(j)udicial decisions applying the laws or the Constitution shall form part of the legal system of the Philippines."

Jurisprudence, in our system of government, cannot be considered as an independent source of law; it cannot create law. 40 While it is true that judicial decisions which apply or interpret the Constitution or the laws are part of the legal system of the Philippines, still they are not laws. Judicial decisions, though not laws, are nonetheless evidence of what the laws mean,

and it is for this reason that they are part of the legal system of the Philippines.  41Judicial decisions of the Supreme Court assume the same authority as the statuteitself. 42

Interpreting the aforequoted correlated provisions of the Civil Code and in light of the above disquisition, this Court emphatically declared in Co vs. Court of Appeals, et al. 43 that the principle of prospectivity applies not only to original or amendatory statutes and administrative rulings and circulars, but also, and properly so, to judicial decisions. Our holding in the earlier case of People vs. Jabinal 44 echoes the rationale for this judicial declaration, viz.:

Decisions of this Court, although in themselves not laws, are nevertheless evidence of what the laws mean, and this is the reason why under Article 8 of the New Civil Code, "Judicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system." The interpretation upon a law by this Court constitutes, in a way, a part of the law as of the date that the law was originally passed, since this Court's construction merely establishes the contemporaneous legislative intent that the law thus construed intends to effectuate. The settled rule supported by numerous authorities is a restatement of the legal maxim "legis interpretatio legis vim obtinet" — the interpretation placed upon the written law by a competent court has the force of law. . . . , but when a doctrine of this Court is overruled and a different view is adopted, the new doctrine should be applied prospectively, and should not apply to parties who had relied on the old doctrine and acted on the faith thereof . . . . (Emphasis supplied).

This was forcefully reiterated in Spouses Benzonan vs. Court of Appeals, et al., 45 where the Court expounded:

. . . . But while our decisions form part of the law of the land, they are also subject to Article 4 of the Civil Code which provides that "laws shall have no retroactive effect unless the contrary is provided." This is expressed in the familiar legal maxim lex prospicit, non respicit, the law looks forward not backward. The rationale against retroactivity is easy to perceive. The retroactive application of a law usually divests rights that have already become vested or impairs the obligations of contract and hence, is unconstitutional (Francisco v. Certeza, 3 SCRA 565 [1961]). The same consideration underlies our rulings giving only prospective effect to decisions enunciating new doctrines. . . . .

The reasoning behind Senarillos vs. Hermosisima 46 that judicial interpretation of a statute constitutes part of the law as of the date it was originally passed, since the Court's construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect, is all too familiar. Such judicial doctrine does not amount to the passage of a new law but consists merely of a construction or interpretation of a pre-existing one, and that is precisely the situation obtaining in this case.

It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a different view is adopted, and more so when there is a reversal thereof, the new doctrine should be applied prospectively and should not apply to parties who relied on the old doctrine and acted in good faith. 47 To hold otherwise would be to deprive the law of its quality of fairness and justice then, if there is no recognition of what had transpired prior to such adjudication. 48

There is merit in petitioners' impassioned and well-founded argumentation:

The case of 20th Century Fox Film Corporation vs. Court of Appeals, et al., 164 SCRA 655 (August 19, 1988) (hereinafter 20th Century Fox) was inexistent in December of 1987 when Search Warrant 87-053 was issued by the lower court. Hence, it boggles the imagination how the lower court could be expected to apply the formulation of 20th Century Fox in finding probable cause when the formulation was yet non-existent.

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In short, the lower court was convinced at that time after conducting searching examination questions of the applicant and his witnesses that "an offense had been committed and that the objects sought in connection with the offense (were) in the place sought to be searched" (Burgos v. Chief of Staff, et al., 133 SCRA 800). It is indisputable, therefore, that at the time of the application, or on December 14, 1987, the lower court did not commit any error nor did it fail to comply with any legal requirement for the valid issuance of search warrant.

. . . (W)e believe that the lower court should be considered as having followed the requirements of the law in issuing Search Warrant No. 87-053. The search warrant is therefore valid and binding. It must be noted that nowhere is it found in the allegations of the Respondents that the lower court failed to apply the law as then interpreted in 1987. Hence, we find it absurd that it is (sic) should be seen otherwise, because it is simply impossible to have required the lower court to apply a formulation which will only be defined six months later.

Furthermore, it is unjust and unfair to require compliance with legal and/or doctrinal requirements which are inexistent at the time they were supposed to have been complied with.

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. . . If the lower court's reversal will be sustained, what encouragement can be given to courts and litigants to respect the law and rules if they can expect with reasonable certainty that upon the passage of a new rule, their conduct can still be open to question? This certainly breeds instability in our system of dispensing justice. For Petitioners who took special effort to redress their grievances and to protect their property rights by resorting to the remedies provided by the law, it is most unfair that fealty to the rules and procedures then obtaining would bear but fruits ofinjustice. 49

Withal, even the proposition that the prospectivity of judicial decisions imports application thereof not only to future cases but also to cases still ongoing or not yet final when the decision was promulgated, should not be countenanced in the jural sphere on account of its inevitably unsettling repercussions. More to the point, it is felt that the reasonableness of the added requirement in 20th Century Fox calling for the production of the master tapes of the copyrighted films for determination of probable cause in copyright infringement cases needs revisiting and clarification.

It will be recalled that the 20th Century Fox case arose from search warrant proceedings in anticipation of the filing of a case for the unauthorized sale or renting out of copyrighted films in videotape format in violation of Presidential Decree No. 49. It revolved around the

meaning of probable cause within the context of the constitutional provision against illegal searches and seizures, as applied to copyright infringement cases involving videotapes.

Therein it was ruled that —

The presentation of master tapes of the copyrighted films from which the pirated films were allegedly copied, was necessary for the validity of search warrants against those who have in their possession the pirated films. The petitioner's argument to the effect that the presentation of the master tapes at the time of application may not be necessary as these would be merely evidentiary in nature and not determinative of whether or not a probable cause exists to justify the issuance of the search warrants is not meritorious. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it owns.

The application for search warrants was directed against video tape outlets which allegedly were engaged in the unauthorized sale and renting out of copyrighted films belonging to the petitioner pursuant to P.D. 49.

The essence of a copyright infringement is the similarity or at least substantial similarity of the purported pirated works to the copyrighted work. Hence, the applicant must present to the court the copyrighted films to compare them with the purchased evidence of the video tapes allegedly pirated to determine whether the latter is an unauthorized reproduction of the former. This linkage of the copyrighted films to the pirated films must be established to satisfy the requirements of probable cause. Mere allegations as to the existence of the copyrighted films cannot serve as basis for the issuance of a search warrant.

For a closer and more perspicuous appreciation of the factual antecedents of 20th Century Fox, the pertinent portions of the decision therein are quoted hereunder, to wit:

In the instant case, the lower court lifted the three questioned search warrants against the private respondents on the ground that it acted on the application for the issuance of the said search warrants and granted it on the misrepresentations of applicant NBI and its witnesses that infringement of copyright or a piracy of a particular film have been committed. Thus the lower court stated in its questioned order dated January 2, 1986:

According to the movant, all three witnesses during the proceedings in the application for the three search warrants testified of their own personal knowledge. Yet, Atty. Albino Reyes of the NBI stated that the counsel or representative of the Twentieth Century Fox Corporation will testify on the video cassettes that were pirated, so that he did not have personal knowledge of the alleged piracy. The witness Bacani also said that the video cassettes were pirated without stating the manner it was pirated and that it was Atty. Domingo that has knowledge of that fact.

On the part of Atty. Domingo, he said that the re-taping of the allegedly pirated tapes was from master tapes allegedly belonging to the Twentieth Century Fox, because, according to him it is of his personal knowledge.

At the hearing of the Motion for Reconsideration, Senior NBI Agent Atty. Albino Reyes testified that when the complaint for infringement was brought to the NBI, the master tapes of the allegedly pirated tapes were shown to him and he made comparisons of the tapes with those purchased by their man Bacani. Why the master tapes or at least the film reels of the allegedly pirated tapes were not shown to the Court during the application gives some misgivings as to the truth of that bare statement of the NBI agent on the witness stand.

Again as the application and search proceedings is a prelude to the filing of criminal cases under PD 49, the copyright infringement law, and although what is required for the issuance thereof is merely the presence of probable cause, that probable cause must be satisfactory to the Court, for it is a time-honored precept that proceedings to put a man to task as an offender under our laws should be interpreted in strictissimi juris against the government and liberally in favor of the alleged offender.

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This doctrine has never been overturned, and as a matter of fact it had been enshrined in the Bill of Rights in our 1973 Constitution.

So that lacking in persuasive effect, the allegation that master tapes were viewed by the NBI and were compared to the purchased and seized video tapes from the respondents' establishments, it should be dismissed as not supported by competent evidence and for that matter the probable cause hovers in that grey debatable twilight zone between black and white resolvable in favor of respondents herein.

But the glaring fact is that "Cocoon," the first video tape mentioned in the search warrant, was not even duly registered or copyrighted in the Philippines. (Annex C of Opposition p. 152 record.) So, that lacking in the requisite presentation to the Court of an alleged master tape for purposes of comparison with the purchased evidence of the video tapes allegedly pirated and those seized from respondents, there was no way to determine whether there really was piracy, or copying of the film of the complainant Twentieth Century Fox.

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The lower court, therefore, lifted the three (3) questioned search warrants in the absence of probable cause that the private respondents violated P.D. 49. As found out by the court, the NBI agents who acted as witnesses did not have personal knowledge of the subject matter of their testimony which was the alleged commission of the offense by the private respondents. Only the petitioner's counsel who was also a witness during the application for the issuance of the search warrants stated that he had personal knowledge that the confiscated tapes owned by the private respondents were pirated tapes taken from master tapes belonging to the petitioner. However, the lower court did not give much credence to his testimony in view of the fact that the master tapes of the allegedly pirated tapes were not shown to the court during the application (Emphasis ours).

The italicized passages readily expose the reason why the trial court therein required the presentation of the master tapes of the allegedly pirated films in order to convince itself of the existence of probable cause under the factual milieu peculiar to that case. In the case at bar, respondent appellate court itself observed:

We feel that the rationale behind the aforequoted doctrine is that the pirated copies as well as the master tapes, unlike the other types of personal properties which may be seized, were available for presentation to the court at the time of the application for a search warrant to determine the existence of the linkage of the copyrighted films with the pirated ones. Thus, there is no reason not the present them (Emphasis supplied ). 50

In fine, the supposed pronunciamento in said case regarding the necessity for the presentation of the master tapes of the copyrighted films for the validity of search warrants should at most be understood to merely serve as a guidepost in determining the existence of probable cause in copyright infringement caseswhere there is doubt as to the true nexus between the master tape and the pirated copies. An objective and careful reading of the decision in said case could lead to no other conclusion than that said directive was hardly intended to be a sweeping and inflexible requirement in all or similar copyright infringement cases. Judicial dicta should always be construed within the factual matrix of their parturition, otherwise a careless interpretation thereof could unfairly fault the writer with the vice of overstatement and the reader with the fallacy of undue generalization.

In the case at bar, NBI Senior Agent Lauro C. Reyes who filed the application for search warrant with the lower court following a formal complaint lodged by petitioners, judging from his affidavit 51 and his deposition,52 did testify on matters within his personal knowledge based on said complaint of petitioners as well as his own investigation and surveillance of the private respondents' video rental shop. Likewise, Atty. Rico V. Domingo, in his capacity as attorney-in-fact, stated in his affidavit 53 and further expounded in his deposition 54 that he personally knew of the fact that private respondents had never been authorized by his clients to reproduce, lease and possess for the purpose of selling any of the copyrighted films.

Both testimonies of Agent Reyes and Atty. Domingo were corroborated by Rene C. Baltazar, a private researcher retained by Motion Pictures Association of America, Inc. (MPAA, Inc.), who was likewise presented as a witness during the search warrant proceedings.  55 The records clearly reflect that the testimonies of the abovenamed witnesses were straightforward and stemmed from matters within their personal knowledge. They displayed none of the ambivalence and uncertainty that the witnesses in the 20th Century Fox case exhibited. This categorical forthrightness in their statements, among others, was what initially and correctly convinced the trial court to make a finding of the existence of probable cause.

There is no originality in the argument of private respondents against the validity of the search warrant, obviously borrowed from 20th Century Fox, that petitioners' witnesses — NBI Agent Lauro C. Reyes, Atty. Rico V. Domingo and Rene C. Baltazar — did not have personal knowledge of the subject matter of their respective testimonies and that said witnesses' claim that the video tapes were pirated, without stating the manner by which these were pirated, is a conclusion of fact without basis. 56 The difference, it must be pointed out, is that the records in the present case reveal that (1) there is no allegation of misrepresentation, much less a finding thereof by the lower court, on the part of petitioners' witnesses; (2) there is no denial on the part of private respondents that the tapes seized were illegitimate copies of the copyrighted ones not have they shown that they were given any authority by petitioners to copy, sell, lease, distribute or circulate, or at least, to offer for sale, lease, distribution or circulation the said video tapes; and (3) a discreet but extensive surveillance

of the suspected area was undertaken by petitioners' witnesses sufficient to enable them to execute trustworthy affidavits and depositions regarding matters discovered in the course thereof and of which they have personal knowledge.

It is evidently incorrect to suggest, as the ruling in 20th Century Fox may appear to do, that in copyright infringement cases, the presentation of master tapes of the copyrighted films is always necessary to meet the requirement of probable cause and that, in the absence thereof, there can be no finding of probable cause for the issuance of a search warrant. It is true that such master tapes are object evidence, with the merit that in this class of evidence the ascertainment of the controverted fact is made through demonstrations involving the direct use of the senses of the presiding magistrate. 57 Such auxiliary procedure, however, does not rule out the use of testimonial or documentary evidence, depositions, admissions or other classes of evidence tending to prove the factum probandum, 58 especially where the production in court of object evidence would result in delay, inconvenience or expenses out of proportion to its evidentiary value. 59

Of course, as a general rule, constitutional and statutory provisions relating to search warrants prohibit their issuance except on a showing of probable cause, supported by oath or affirmation. These provisions prevent the issuance of warrants on loose, vague, or doubtful bases of fact, and emphasize the purpose to protect against all general searches. 60 Indeed, Article III of our Constitution mandates in Sec. 2 thereof that no search warrant shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized; and Sec. 3 thereof provides that any evidence obtained in violation of the preceding section shall be inadmissible for any purpose in any proceeding.

These constitutional strictures are implemented by the following provisions of Rule 126 of the Rules of Court:

Sec. 3. Requisites for issuing search warrant. — A search warrant shall not issue but upon probable cause in connection with one specific offense to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized.

Sec. 4. Examination of complainant; record. — The judge must, before issuing the warrant, personally examine in the form of searching questions and answers, in writing and under oath the complainant and any witnesses he may produce on facts personally known to them and attach to the record their sworn statements together with any affidavits submitted.

Sec. 5. Issuance and form of search warrant. — If the judge is thereupon satisfied of the existence of facts upon which the application is based, or that there is probable cause to believe that they exist, he must issue the warrant, which must be substantially in the form prescribed by these Rules.

The constitutional and statutory provisions of various jurisdictions requiring a showing of probable cause before a search warrant can be issued are mandatory and must be complied with, and such a showing has been held to be an unqualified condition precedent to the issuance of a warrant. A search warrant not based on probable cause is a nullity, or is void, and the issuance thereof is, in legal contemplation, arbitrary. 61 It behooves us, then, to review

the concept of probable cause, firstly, from representative holdings in the American jurisdiction from which we patterned our doctrines on the matter.

Although the term "probable cause" has been said to have a well-defined meaning in the law, the term is exceedingly difficult to define, in this case, with any degree of precision; indeed, no definition of it which would justify the issuance of a search warrant can be formulated which would cover every state of facts which might arise, and no formula or standard, or hard and fast rule, may be laid down which may be applied to the facts of every situation. 62 As to what acts constitute probable cause seem incapable of definition.63 There is, of necessity, no exact test. 64

At best, the term "probable cause" has been understood to mean a reasonable ground of suspicion, supported by circumstances sufficiently strong in themselves to warrant a cautious man in the belief that the person accused is guilty of the offense with which he is charged; 65 or the existence of such facts and circumstances as would excite an honest belief in a reasonable mind acting on all the facts and circumstances within the knowledge of the magistrate that the charge made by the applicant for the warrant is true. 66

Probable cause does not mean actual and positive cause, nor does it import absolute certainty. The determination of the existence of probable cause is not concerned with the question of whether the offense charged has been or is being committed in fact, or whether the accused is guilty or innocent, but only whether the affiant has reasonable grounds for his belief. 67 The requirement is less than certainty or proof , butmore than suspicion or possibility. 68

In Philippine jurisprudence, probable cause has been uniformly defined as such facts and circumstances which would lead a reasonable, discreet and prudent man to believe that an offense has been committed, and that the objects sought in connection with the offense are in the place sought to be searched. 69 It being the duty of the issuing officer to issue, or refuse to issue, the warrant as soon as practicable after the application therefor is filed,  70 the facts warranting the conclusion of probable cause must be assessed at the time of such judicial determination by necessarily using legal standards then set forth in law and jurisprudence, and not those that have yet to be crafted thereafter.

As already stated, the definition of probable cause enunciated in Burgos, Sr. vs. Chief of Staff, et al., supra,vis-a-vis the provisions of Sections 3 and 4 of Rule 126, were the prevailing and controlling legal standards, as they continue to be, by which a finding of probable cause is tested. Since the propriety of the issuance of a search warrant is to be determined at the time of the application therefor, which in turn must not be too remote in time from the occurrence of the offense alleged to have been committed, the issuing judge, in determining the existence of probable cause, can and should logically look to the touchstones in the laws theretofore enacted and the decisions already promulgated at the time, and not to those which had not yet even been conceived or formulated.

It is worth noting that neither the Constitution nor the Rules of Court attempt to define probable cause, obviously for the purpose of leaving such matter to the court's discretion within the particular facts of each case. Although the Constitution prohibits the issuance of a search warrant in the absence of probable cause, such constitutional inhibition does not command the legislature to establish a definition or formula for determining what shall constitute probable cause. 71 Thus, Congress, despite its broad authority to fashion standards of reasonableness for searches and seizures, 72 does not venture to make such a definition or standard formulation of probable cause, nor categorize what facts and circumstances make up the same, much less limit the determination thereof to and within the circumscription of a particular class of evidence, all in deference to judicial discretion and probity. 73

Accordingly, to restrict the exercise of discretion by a judge by adding a particular requirement (the presentation of master tapes, as intimated by 20th Century Fox) not provided nor implied in the law for a finding of probable cause is beyond the realm of judicial competence or statesmanship. It serves no purpose but to stultify and constrict the judicious exercise of a court's prerogatives and to denigrate the judicial duty of determining the existence of probable cause to a mere ministerial or mechanical function. There is, to repeat, no law or rule which requires that the existence of probable cause is or should be determined solely by a specific kind of evidence. Surely, this could not have been contemplated by the framers of the Constitution, and we do not believe that the Court intended the statement in 20th Century Fox regarding master tapes as the dictum for all seasons and reasons in infringement cases.

Turning now to the case at bar, it can be gleaned from the records that the lower court followed the prescribed procedure for the issuance of a search warrant: (1) the examination under oath or affirmation of the complainant and his witnesses, with them particularly describing the place to be searched and the things to be seized; (2) an examination personally conducted by the judge in the form of searching questions and answers, in writing and under oath of the complainant and witnesses on facts personally known to them; and, (3) the taking of sworn statements, together with the affidavits submitted, which were duly attached to the records.

Thereafter, the court a quo made the following factual findings leading to the issuance of the search warrant now subject of this controversy:

In the instant case, the following facts have been established: (1) copyrighted video tapes bearing titles enumerated in Search Warrant No. 87-053 were being sold, leased, distributed or circulated, or offered for sale, lease, distribution, or transferred or caused to be transferred by defendants at their video outlets, without the written consent of the private complainants or their assignee; (2) recovered or confiscated from defendants' possession were video tapes containing copyrighted motion picture films without the authority of the complainant; (3) the video tapes originated from spurious or unauthorized persons; and (4) said video tapes were exact reproductions of the films listed in the search warrant whose copyrights or distribution rights were owned by complainants.

The basis of these facts are the affidavits and depositions of NBI Senior Agent Lauro C. Reyes, Atty. Rico V. Domingo, and Rene C. Baltazar. Motion Pictures Association of America, Inc. (MPAA) thru their counsel, Atty. Rico V. Domingo, filed a complaint with the National Bureau of Investigation against certain video establishments one of which is defendant, for violation of PD No. 49 as amended by PD No. 1988. Atty. Lauro C. Reyes led a team to conduct discreet surveillance operations on said video establishments. Per information earlier gathered by Atty. Domingo, defendants were engaged in the illegal sale, rental, distribution, circulation or public exhibition of copyrighted films of MPAA without its written authority or its members. Knowing that defendant Sunshine Home Video and its proprietor, Mr. Danilo Pelindario, were not authorized by MPAA to reproduce, lease, and possess for the purpose of selling any of its copyrighted motion pictures, instructed his researcher, Mr. Rene Baltazar to rent two video cassettes from said defendants on October 21, 1987. Rene C. Baltazar proceeded to Sunshine Home Video and rented tapes containing Little Shop of Horror. He was issued rental slip No. 26362 dated October 21, 1987 for P10.00 with a deposit of P100.00. Again, on December 11, 1987, the returned to Sunshine Home Video and rented Robocop with rental slip No. 25271 also for P10.00: On the

basis of the complaint of MPAA thru counsel, Atty. Lauro C. Reyes personally went to Sunshine Home Video at No. 6 Mayfair Center, Magallanes Commercial Center, Makati. His last visit was on December 7, 1987. There, he found the video outlet renting, leasing, distributing video cassette tapes whose titles were copyrighted and without the authority of MPAA.

Given these facts, a probable cause exists. . . . 74

The lower court subsequently executed a volte-face, despite its prior detailed and substantiated findings, by stating in its order of November 22, 1988 denying petitioners' motion for reconsideration and quashing the search warrant that —

. . . The two (2) cases have a common factual milieu; both involve alleged pirated copyrighted films of private complainants which were found in the possession or control of the defendants. Hence, the necessity of the presentation of the master tapes from which the pirated films were allegedly copied is necessary in the instant case, to establish the existence of probable cause. 75

Being based solely on an unjustifiable and improper retroactive application of the master tape requirement generated by 20th Century Fox upon a factual situation completely different from that in the case at bar, and without anything more, this later order clearly defies elemental fair play and is a gross reversible error. In fact, this observation of the Court in La Chemise Lacoste, S.A. vs. Fernandez, et al., supra, may just as easily apply to the present case:

A review of the grounds invoked . . . in his motion to quash the search warrants reveals the fact that they are not appropriate for quashing a warrant. They are matters of defense which should be ventilated during the trial on the merits of the case. . . .

As correctly pointed out by petitioners, a blind espousal of the requisite of presentation of the master tapes in copyright infringement cases, as the prime determinant of probable cause, is too exacting and impracticable a requirement to be complied with in a search warrant application which, it must not be overlooked, is only an ancillary proceeding. Further, on realistic considerations, a strict application of said requirement militates against the elements of secrecy and speed which underlie covert investigative and surveillance operations in police enforcement campaigns against all forms of criminality, considering that the master tapes of a motion picture required to be presented before the court consists of several reels contained in circular steel casings which, because of their bulk, will definitely draw attention, unlike diminutive objects like video tapes which can be easily concealed.  76 With hundreds of titles being pirated, this onerous and tedious imposition would be multiplied a hundredfold by judicial fiat, discouraging and preventing legal recourses in foreign jurisdictions.

Given the present international awareness and furor over violations in large scale of intellectual property rights, calling for transnational sanctions, it bears calling to mind the Court's admonition also in La Chemise Lacoste, supra, that —

. . . . Judges all over the country are well advised to remember that court processes should not be used as instruments to, unwittingly or otherwise, aid counterfeiters and intellectual pirates, tie the hands of the law as it seeks to protect the Filipino consuming public and frustrate executive and administrative implementation of solemn commitments pursuant to international conventions and treaties.

III

The amendment to Section 56 of Presidential Decree No. 49 by Presidential Decree No. 1987, 77 which should here be publicized judicially, brought about the revision of its penalty structure and enumerated additional acts considered violative of said decree on intellectual property, namely, (1) directly or indirectly transferring or causing to be transferred any sound recording or motion picture or other audio-visual works so recorded with intent to sell, lease, publicly exhibit or cause to be sold, leased or publicly exhibited, or to use or cause to be used for profit such articles on which sounds, motion pictures, or other audio-visual works are so transferred without the written consent of the owner or his assignee; (2) selling, leasing, distributing, circulating, publicly exhibiting, or offering for sale, lease, distribution, or possessing for the purpose of sale, lease, distribution, circulation or public exhibition any of the abovementioned articles, without the written consent of the owner or his assignee; and, (3) directly or indirectly offering or making available for a fee, rental, or any other form of compensation any equipment, machinery, paraphernalia or any material with the knowledge that such equipment, machinery, paraphernalia or material will be used by another to reproduce, without the consent of the owner, any phonograph record, disc, wire, tape, film or other article on which sounds, motion pictures or other audio-visual recordings may be transferred, and which provide distinct bases for criminal prosecution, being crimes independently punishable under Presidential Decree No. 49, as amended, aside from the act of infringing or aiding or abetting such infringement under Section 29.

The trial court's finding that private respondents committed acts in blatant transgression of Presidential Decree No. 49 all the more bolsters its findings of probable cause, which determination can be reached even in the absence of master tapes by the judge in the exercise of sound discretion. The executive concern and resolve expressed in the foregoing amendments to the decree for the protection of intellectual property rights should be matched by corresponding judicial vigilance and activism, instead of the apathy of submitting to technicalities in the face of ample evidence of guilt.

The essence of intellectual piracy should be essayed in conceptual terms in order to underscore its gravity by an appropriate understanding thereof. Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous term in this connection, consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright. 78

A copy of a piracy is an infringement of the original, and it is no defense that the pirate, in such cases, did not know what works he was indirectly copying, or did not know whether or not he was infringing any copyright; he at least knew that what he was copying was not his, and he copied at his peril. In determining the question of infringement, the amount of matter copied from the copyrighted work is an important consideration. To constitute infringement, it is not necessary that the whole or even a large portion of the work shall have been copied. If so much is taken that the value of the original is sensibly diminished, or the labors of the original author are substantially and to an injurious extent appropriated by another, that is sufficient in point of law to constitute apiracy. 79 The question of whether there has been an actionable infringement of a literary, musical, or artistic work in motion pictures, radio or television being one of fact, 80 it should properly be determined during the trial. That is the stage calling for conclusive or preponderating evidence, and not the summary proceeding for the issuance of a search warrant wherein both lower courts erroneously require the master tapes.

In disregarding private respondent's argument that Search Warrant No. 87-053 is a general warrant, the lower court observed that "it was worded in a manner that the enumerated seizable items bear direct relation to the offense of violation of Sec. 56 of PD 49 as amended. It authorized only the seizur(e) of articles used or intended to be used in the unlawful sale, lease and other unconcerted acts in violation of PD 49 as amended. . . . 81

On this point, Bache and Co., (Phil.), Inc., et al. vs. Ruiz, et al., 82 instructs and enlightens:

A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the circumstances will ordinarily allow (People vs. Rubio, 57 Phil. 384); or when the description expresses a conclusion of fact — not of law — by which the warrant officer may be guided in making the search and seizure (idem., dissent of Abad Santos, J.,); or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued (Sec 2, Rule 126, Revised Rules of Court). . . . If the articles desired to be seized have any direct relation to an offense committed, the applicant must necessarily have some evidence, other than those articles, to prove the said offense; and the articles subject of search and seizure should come in handy merely to strengthen such evidence. . . .

On private respondents' averment that the search warrant was made applicable to more than one specific offense on the ground that there are as many offenses of infringement as there are rights protected and, therefore, to issue one search warrant for all the movie titles allegedly pirated violates the rule that a search warrant must be issued only in connection with one specific offense, the lower court said:

. . . . As the face of the search warrant itself indicates, it was issued for violation of Section 56, PD 49 as amended only. The specifications therein (in Annex A) merely refer to the titles of the copyrighted motion pictures/films belonging to private complainants which defendants were in control/possession for sale, lease, distribution or public exhibition in contravention of Sec. 56, PD 49 as amended.  83

That there were several counts of the offense of copyright infringement and the search warrant uncovered several contraband items in the form of pirated video tapes is not to be confused with the number of offenses charged. The search warrant herein issued does not violate the one-specific-offense rule.

It is pointless for private respondents to insist on compliance with the registration and deposit requirements under Presidential Decree No. 49 as prerequisites for invoking the court's protective mantle in copyright infringement cases. As explained by the court below:

Defendants-movants contend that PD 49 as amended covers only producers who have complied with the requirements of deposit and notice (in other words registration) under Sections 49 and 50 thereof. Absent such registration, as in this case, there was no right created, hence, no infringement under PD 49 as amended. This is not well-taken.

As correctly pointed out by private complainants-oppositors, the Department of Justice has resolved this legal question as far back as December 12, 1978 in its Opinion No. 191 of the then Secretary of Justice Vicente Abad Santos which stated that Sections 26 and 50 do not apply to cinematographic works and PD No. 49 "had done away with the registration and deposit of cinematographic works" and that

"even without prior registration and deposit of a work which may be entitled to protection under the Decree, the creator can file action for infringement of its rights". He cannot demand, however, payment of damages arising from infringement. The same opinion stressed that "the requirements of registration and deposit are thus retained under the Decree, not as conditions for the acquisition of copyright and other rights, but as prerequisites to a suit for damages". The statutory interpretation of the Executive Branch being correct, is entitled (to) weight and respect.

xxx xxx xxx

Defendants-movants maintain that complainant and his witnesses led the Court to believe that a crime existed when in fact there was none. This is wrong. As earlier discussed, PD 49 as amended, does not require registration and deposit for a creator to be able to file an action for infringement of his rights. These conditions are merely pre-requisites to an action for damages. So, as long as the proscribed acts are shown to exist, an action for infringement may be initiated. 84

Accordingly, the certifications 85 from the Copyright Section of the National Library, presented as evidence by private respondents to show non-registration of some of the films of petitioners, assume no evidentiary weight or significance whatsoever.

Furthermore, a closer review of Presidential Decree No. 49 reveals that even with respect to works which are required under Section 26 thereof to be registered and with copies to deposited with the National Library, such as books, including composite and cyclopedic works, manuscripts, directories and gazetteers; and periodicals, including pamphlets and newspapers; lectures, sermons, addresses, dissertations prepared for oral delivery; and letters, the failure to comply with said requirements does not deprive the copyright owner of the right to sue for infringement. Such non-compliance merely limits the remedies available to him and subjects him to the corresponding sanction.

The reason for this is expressed in Section 2 of the decree which prefaces its enumeration of copyrightable works with the explicit statement that "the rights granted under this Decree shall, from the moment of creation, subsist with respect to any of the following classes of works." This means that under the present state of the law, the copyright for a work is acquired by an intellectual creator from the moment of creation even in the absence of registration and deposit. As has been authoritatively clarified:

The registration and deposit of two complete copies or reproductions of the work with the National Library within three weeks after the first public dissemination or performance of the work, as provided for in Section 26 (P.D. No. 49, as amended), is not for the purpose of securing a copyright of the work, but rather to avoid the penalty for non-compliance of the deposit of said two copies and in order to recover damages in an infringement suit. 86

One distressing observation. This case has been fought on the basis of, and its resolution long delayed by resort to, technicalities to a virtually abusive extent by private respondents, without so much as an attempt to adduce any credible evidence showing that they conduct their business legitimately and fairly. The fact that private respondents could not show proof of their authority or that there was consent from the copyright owners for them to sell, lease, distribute or circulate petitioners' copyrighted films immeasurably bolsters the lower court's initial finding of probable cause. That private respondents are licensed by the Videogram Regulatory Board does not insulate them from criminal and civil liability for their unlawful

business practices. What is more deplorable is that the reprehensible acts of some unscrupulous characters have stigmatized the Philippines with an unsavory reputation as a hub for intellectual piracy in this part of the globe, formerly in the records of the General Agreement on Tariffs and Trade and, now, of the World Trade Organization. Such acts must not be glossed over but should be denounced and repressed lest the Philippines become an international pariah in the global intellectual community.

WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals, and necessarily inclusive of the order of the lower court dated November 22, 1988, are hereby REVERSED and SET ASIDE. The order of the court a quo of September 5, 1988 upholding the validity of Search Warrant No. 87-053 is hereby REINSTATED, and said court is DIRECTED to take and expeditiously proceed with such appropriate proceedings as may be called for in this case. Treble costs are further assessed against private respondents.

SO ORDERED.

Narvasa, C.J., Padilla, Davide, Jr., Romero, Melo, Puno, Vitug, Kapunan, Mendoza, Francisco, Hermosisima, Jr., Panganiban and Torres, Jr., JJ., concur.

Bellosillo, J., took no part.

IV. Venue

21

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. Nos. 146653-54             February 20, 2006

WESTMONT PHARMACEUTICALS, INC., UNITED LABORATORIES, INC., and/or JOSE YAO CAMPOS, CARLOS EJERCITO, ERNESTO SALAZAR, ELIEZER SALAZAR, JOSE SOLIDUM, JR., Petitioners, vs.RICARDO C. SAMANIEGO, Respondent.

x - - - - - - - - - - - - - - - x

G.R. Nos. 147407-08             February 20, 2006

RICARDO C. SAMANIEGO, Petitioner, vs.WESTMONT PHARMACEUTICALS, INC. and UNITED LABORATORIES, INC., Respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us are consolidated petitions for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, filed by both contending parties assailing the Decision1 dated January 8, 2001 and the Resolution2dated March 9, 2001 rendered by the Court of Appeals in CA-G.R. SP No. 60400.

The factual antecedents as borne by the records are:

On May 5, 1998, Ricardo C. Samaniego filed with the Office of the Labor Arbiter, Regional Arbitration Branch (RAB) No. II, Tuguegarao City, Cagayan, a complaint for illegal dismissal and damages against Westmont Pharmaceuticals, Inc. (Westmont) and United Laboratories, Inc. (Unilab), herein Respondents. Also impleaded as respondents are Unilab’s officers, Jose Yao Campos, Carlos Ejercito, Ernesto Salazar, Eliezer Salazar, and Jose Solidum, Jr.

The complaint alleges that Unilab initially hired Samaniego as Professional Service Representative of its marketing arm, Westmont. Later, Unilab promoted him as Senior Business Development Associate and assigned him in Isabela as Acting District Manager of Westmont and Chairman of Unilab Special Projects. In August 1995, he was transferred to Metro Manila pending investigation of his subordinate and physicians of Region II involved in a sales discount and Rx trade-off controversy. He was then placed under "floating status" and assigned to perform duties not connected with his position, like fetching at the airport physicians coming from the provinces; making deposits in banks; fetching field men and doing messengerial works. His transfer to Metro Manila resulted in the diminution of his salary as his per diem was reduced from P13,194.00 to P2,299.00 only.

On June 26, 1998, Westmont and Unilab filed a motion to dismiss Samaniego’s complaint on the ground of improper venue and lack of cause of action. They argued that the complaint should have been filed with the National Labor Relations Commission (NLRC) in Manila, not with the Office of the Labor Arbiter in Tuguegarao City, Cagayan; and that the action should only be against Westmont, Samaniego’s employer.

Samaniego filed an Opposition to the motion to which Westmont and Unilab filed a Reply.

On August 13, 1998, the Labor Arbiter denied the motion to dismiss, citing Section 1, Rule IV of the NLRC New Rules of Procedure. This provision allows the Labor Arbiter to order a change of venue in meritorious cases.

The Labor Arbiter then set the case for preliminary conference during which Westmont and Unilab expressly reserved their right to contest the order denying their motion to dismiss.

On September 3, 1998, Westmont and Unilab filed with the NLRC an Urgent Petition to Change or Transfer Venue. On the same date, they filed with the Office of the Labor Arbiter in Cagayan a Motion to Suspend Proceedings in view of the pendency of their petition for change or transfer of venue in the NLRC.

On September 8, 1998, the Labor Arbiter issued an Order directing the parties to submit their respective position papers and supporting documents within twenty (20) days from notice, after which the case shall be deemed submitted for decision.

On September 22, 1998, the NLRC, acting on the petition to change venue, directed the Labor Arbiter to forward to the NLRC the records of the case. The Labor Arbiter retained the complete duplicate original copies of the records and set the case for hearing. Westmont and Unilab repeatedly filed motions for cancellation of the scheduled dates of hearing on the ground that their petition for change of venue has remained unresolved. They did not file their position papers nor did they attend the hearing. Thus, the Labor Arbiter considered the case submitted for Decision based on the records and the evidence submitted by Samaniego.

On December 16, 1998, the Labor Arbiter rendered a Decision finding that Samaniego was "illegally and unjustly dismissed constructively" and ordering his reinstatement to his former position without loss of seniority rights and privileges; and payment of his full backwages from the date of his dismissal from the service up to the date of his actual reinstatement, as well as per diem differential, profit share, and actual, moral and exemplary damages, plus 10% attorney’s fees.

On January 21, 1999, Westmont and Unilab interposed an appeal to the NLRC. In its Resolution dated August 31, 1999, the NLRC dismissed the petition for change of venue, holding that when the cause of action arose, Samaniego’s workplace was in Isabela over which the Labor Arbiter in Cagayan has jurisdiction; and that the Labor Arbiter’s Decision is not appealable.

In the same Resolution, the NLRC declared the Labor Arbiter’s Decision null and void, finding that:

x x x the Executive Labor Arbiter below only allowed the transmittal of the official records of the instant case to the Commission. Throwing caution into the wind, he retained complete duplicate original copies of the same, conducted further proceedings and rendered his now contested Decision despite the pendency of the appeal-treated Urgent Petition for Change of Venue.

As a consequence, respondents-appellants were deprived of their opportunity to be heard and defend themselves on the issues raised in the instant case. They were therefore denied of their right to due process of law in violation of Section 1, Article III of the Constitution which provides: "No person shall be deprived of his....property without due process of law."

The dispositive portion of the NLRC Resolution reads:

WHEREFORE, premises considered, the main Appeal and Motion to Quash are hereby PARTIALLY GRANTED and the appeal-treated Petition for Change of Venue DISMISSED for lack of jurisdiction and/or merit. Accordingly, the Decision appealed from is declared NULL and VOID and the Order appealed from SUSTAINED insofar as the denial of the Motion to Dismiss is concerned. The entire records of the instant case are DIRECTED to be immediately remanded to the Executive Labor Arbiter of origin for immediate conduct of further proceeding. The respondents-appellants are DIRECTED to pay complainant-appellee the amount of Two Hundred Thirty Thousand Seven Hundred Twenty Pesos and Thirty Centavos (P230,720.30) representing his salary from January 1, 1999 to August 31, 1999, the date of issuance of this Resolution less any salary collected by him by way of execution pending appeal.

SO ORDERED.

The parties separately filed their motions for reconsideration but were both denied by the NLRC in its Resolution dated June 27, 2000.

On January 8, 2001, the Court of Appeals, acting on the parties’ petitions for certiorari, rendered its Decision setting aside the NLRC Resolutions and affirming with modification the Labor Arbiter’s

Decision in the sense that the award of moral damages was reduced from P5,000,000.00 to P500,000.00; and the exemplary damages fromP1,000,000.00 to P300,000.00, thus:

x x x

While this Court concurs with the ruling of the Executive Labor Arbiter that there was constructive dismissal committed against Ricardo Samaniego, this Court finds the award on moral and exemplary damages unconscionable.

x x x

WHEREFORE, the NLRC’s resolutions dated August 31, 1999 and June 27, 2000 are hereby SET ASIDE. The decision of the Executive Labor Arbiter dated December 16, 1998 is REINSTATED and AFFIRMED in all respect except with the following modification: the moral and exemplary damages are reduced to P500,000.00 andP300,000.00, respectively.

SO ORDERED.

Hence, these consolidated petitions for review on certiorari filed by the opposing parties.

In their petition, Westmont and Unilab allege that the Court of Appeals erred in denying their motion to dismiss by reason of improper venue and in sustaining the Labor Arbiter’s Decision declaring that Samaniego was constructively dismissed; and that they were denied due process.

For his part, Samaniego maintains that the Court of Appeals did not err in its ruling. However, he claims that the Appellate Court should not have reduced the Labor Arbiter’s award for moral and exemplary damages.

The petition to change or transfer venue filed by Westmont and Unilab with the NLRC is not the proper remedyto assail the Labor Arbiter’s Order denying their motion to dismiss. Such Order is merely interlocutory, hence, not appealable. Section 3, Rule V of the Rules of Procedure of the NLRC, as amended, provides:

SECTION 3. Motion to Dismiss. On or before the date set for the conference, the respondent may file a motion to dismiss. Any motion to dismiss on the ground of lack of jurisdiction, improper venue, or that the cause of action is barred by prior judgment, prescription or forum shopping, shall be immediately resolved by the Labor Arbiter by a written order. An order denying the motion to dismiss or suspending its resolution until the final determination of the case is not appealable.

In Indiana Aerospace University v. Commission on Higher Education,3 we held:

An order denying a motion to dismiss is interlocutory, and so the proper remedy in such a case is to appeal after a decision has been rendered.

Assuming that the petition to change or transfer venue is the proper remedy, still we find that the Court of Appeals did not err in sustaining the Labor Arbiter’s Order denying the motion to dismiss.

Section 1(a), Rule IV of the NLRC Rules of Procedure, as amended, provides: 1avvphil.net

SECTION 1. Venue. – (a) All cases which Labor Arbiters have authority to hear and decide may be filed in the Regional Arbitration Branch having jurisdiction over the workplace of the complainant/petitioner.

For purposes of venue, workplace shall be understood as the place or locality where the employee is regularly assigned when the cause of action arose. It shall include the place where the employee is supposed to report back after a temporary detail, assignment or travel. In the case of field employees, as well as ambulant or itinerant workers, their workplace is where they are regularly assigned, or where they are supposed to regularly receive their salaries/wages or work instructions from and report the results of their assignment to, their employers.

In Sulpicio Lines, Inc. v. NLRC,4 we held:

The question of venue essentially relates to the trial and touches more upon the convenience of the parties, rather than upon the substance and merits of the case. Our permissive rules underlying provisions on venue are intended to assure convenience for the plaintiff and his witnesses and to promote the ends of justice. This axiom all the more finds applicability in cases involving labor and management because of the principle, paramount in our jurisdiction, that the State shall afford full protection to labor.

x x x

This provision is obviously permissive, for the said section uses the word "may," allowing a different venue when the interests of substantial justice demand a different one. In any case, as stated earlier, the Constitutional protection accorded to labor is a paramount and compelling factor, provided the venue chosen is not altogether oppressive to the employer.

Here, it is undisputed that Samaniego’s regular place of assignment was in Isabela when he was transferred to Metro Manila or when the cause of action arose. Clearly, the Appellate Court was correct in affirming the Labor Arbiter’s finding that the proper venue is in the RAB No. II at Tuguegarao City, Cagayan.

On the contention of Westmont and Unilab that they were denied due process, well settled is the rule that theessence of due process is simply an opportunity to be heard or, as applied to administrative proceedings, an opportunity to explain one’s side or an opportunity to seek a reconsideration of the action or ruling complained of. The requirement of due process in labor cases before a Labor Arbiter is satisfied when the parties are given the opportunity to submit their position papers to which they are supposed to attach all the supporting documents or documentary evidence that would prove their respective claims, in the event the Labor Arbiter determines that no formal hearing would be conducted or that such hearing was not necessary.5

As shown by the records, the Labor Arbiter gave Westmont and Unilab, not only once, but thrice, the opportunity to submit their position papers and supporting affidavits and documents. But they were obstinate. Clearly, they were not denied their right to due process.

The ultimate issue for our resolution is whether the Court of Appeals erred in holding that Samaniego was constructively dismissed by Westmont and Unilab.

To recapitulate, Samaniego claims that upon his reassignment and/or transfer to Metro Manila, he was placed on "floating status" and directed to perform functions not related to his position. For their

part, Westmont and Unilab explain that his transfer is based on a sound business judgment, a management prerogative.

In constructive dismissal, the employer has the burden of proving that the transfer of an employee is for just and valid grounds, such as genuine business necessity. The employer must be able to show that the transfer is not unreasonable, inconvenient, or prejudicial to the employee. It must not involve a demotion in rank or a diminution of salary and other benefits. If the employer cannot overcome this burden of proof, the employee’s transfer shall be tantamount to unlawful constructive dismissal.6

Westmont and Unilab failed to discharge this burden. Samaniego was unceremoniously transferred from Isabela to Metro Manila. We hold that such transfer is economically and emotionally burdensome on his part. He was constrained to maintain two residences – one for himself in Metro Manila, and the other for his family in Tuguegarao City, Cagayan. Worse, immediately after his transfer to Metro Manila, he was placed "on floating status" and was demoted in rank, performing functions no longer supervisory in nature.

There may also be constructive dismissal if an act of clear insensibility or disdain by an employer becomes so unbearable on the part of the employee that it could foreclose any choice by him except to forego his continued employment.7 This was what happened to Samaniego. Thus, he is entitled to reinstatement without loss of seniority rights, full backwages, inclusive of allowances, and other benefits or their monetary equivalent,computed from the time his compensation was withheld from him up to the time of his actual reinstatement.8

However, the circumstances obtaining in this case do not warrant the reinstatement of Samaniego. Antagonism caused a severe strain in the relationship between him and his employer. A more equitable disposition would be an award of separation pay equivalent to at least one month pay, or one month pay for every year of service, whichever is higher (with a fraction of at least six [6 months being considered as one [1 whole year),9 in addition to his full backwages, allowances and other benefits.10

Records show that Samaniego was employed from October 1982 to May 27, 1998,11 or for sixteen (16) years and seven (7) months, with a monthly salary of P25,000.00. Hence, he is entitled to a separation pay of P425,000.00.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 60400 and CA-G.R. SP No. 60478 are AFFIRMED, with MODIFICATION in the sense that Westmont and Unilab are ordered to pay Samaniego his separation pay equivalent to P425,000.00, plus his full backwages, and other privileges and benefits, or their monetary equivalent, from the time of his dismissal up to his supposed actual reinstatement. The award for moral and exemplary damages is deleted.

Costs against Westmont and Unilab.

SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZAssociate Justice

WE CONCUR:

REYNATO S. PUNO Associate Justice 

Chairperson

(On leave)RENATO C. CORONA* 

Associate JusticeADOLFO S. AZCUNA

Asscociate Justice

CANCIO C. GARCIA Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

REYNATO S. PUNO Associate JusticeChairperson, Second Division

C E R T I F I C A T I O N

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

ARTEMIO V. PANGANIBAN Chief Justice

22

(Di ko makita yung Unimasters vs…. ikaw na lang maghanap. )

23

(Di ko rin to makita yung Lantin vs lantin)

V. Counterclaim

24Republic of the Philippines

SUPREME COURTManila

THIRD DIVISION

G.R. No. 155173             November 23, 2004

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION and PHILIP ROSEBERG, petitioners, vs.CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A. MARIANO, respondents.

D E C I S I O N

PANGANIBAN, J.:

May defendants in civil cases implead in their counterclaims persons who were not parties to the original complaints? This is the main question to be answered in this controversy.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the May 22, 20022 and the September 3, 2002 Orders3 of the Regional Trial Court (RTC) of Quezon City (Branch 80) in Civil Case No. Q-00-41103. The decretal portion of the first assailed Order reads:

"WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to dismiss claims is granted. Accordingly, the defendants' claims against Mr. Lim and Mr. Mariano captioned as their counterclaims are dismissed."4

The second challenged Order denied petitioners' Motion for Reconsideration.

The Facts

Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by both parties on August 11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase the cement business of Respondent Continental Cement Corporation (CCC). On October 21, 1998, both parties entered into a Sale and Purchase Agreement (SPA). At the time of the foregoing transactions, petitioners were well aware that CCC had a case pending with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation.

In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of the contract price in the amount of P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be deposited in an interest-bearing account in the First National City Bank of New York (Citibank) for payment to APT, the petitioner in GR No. 119712.

However, petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent finality of the Decision in GR No. 119712 in favor of the latter and the repeated instructions of Respondent CCC. Fearful that nonpayment to APT would result in the foreclosure, not just of its properties covered by the SPA with Lafarge but of several other properties as well, CCC filed before the Regional Trial Court of Quezon City on June 20, 2000, a "Complaint with Application for Preliminary Attachment" against petitioners. Docketed as Civil Case No. Q-00-41103, the Complaint prayed, among others, that petitioners be directed to pay the "APT Retained Amount" referred to in Clause 2 (c) of the SPA.

Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-shopping. Respondent CCC had allegedly made the same claim it was raising in Civil Case No. Q-00-41103 in another action, which involved the same parties and which was filed earlier before the International Chamber of Commerce. After the trial court denied the Motion to Dismiss in its November 14, 2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR SP No. 68688.

In the meantime, to avoid being in default and without prejudice to the outcome of their appeal, petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial court in Civil Case No. Q-00-41103. In their Answer, they denied the allegations in the Complaint. They prayed -- by way of compulsory counterclaims against Respondent CCC, its majority stockholder and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each as moral damages, and (d) P5,000,000 each as attorney's fees plus costs of suit.

Petitioners alleged that CCC, through Lim and Mariano, had filed the "baseless" Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad faith. Relying on this Court's pronouncement in Sapugay v. CA,5 petitioners prayed that both Lim and Mariano be held "jointly and solidarily" liable with Respondent CCC.

On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss petitioners' compulsory counterclaims on grounds that essentially constituted the very issues for resolution in the instant Petition.

Ruling of the Trial Court

On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed petitioners' counterclaims for several reasons, among which were the following: a) the counterclaims against Respondents Lim and Mariano were not compulsory; b) the ruling in Sapugay was not applicable; and c) petitioners' Answer with Counterclaims violated procedural rules on the proper joinder of causes of action.6

Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an Amended Order dated September 3, 20027 -- admitted some errors in its May 22, 2002 Order, particularly in its pronouncement that their counterclaim had been pleaded against Lim and Mariano only. However, the RTC clarified that it was dismissing the counterclaim insofar as it impleaded Respondents Lim and Mariano, even if it included CCC.

Hence this Petition.8

Issues

In their Memorandum, petitioners raise the following issues for our consideration:

"[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no personality to move to dismiss petitioners' compulsory counterclaims on Respondents Lim and Mariano's behalf.

"[b] Whether or not the RTC gravely erred in ruling that (i) petitioners' counterclaims against Respondents Lim and Mariano are not compulsory; (ii) Sapugay v. Court of Appeals is inapplicable here; and (iii) petitioners violated the rule on joinder of causes of action."9

For clarity and coherence, the Court will resolve the foregoing in reverse order.

The Court's Ruling

The Petition is meritorious.

First Issue:

Counterclaims and Joinder of Causes of Action.

Petitioners' Counterclaims Compulsory

Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any claim which a defending party may have against an opposing party." They are generally allowed in order to avoid a multiplicity of suits and to facilitate the disposition of the whole controversy in a single action, such that the defendant's demand may be adjudged by a counterclaim rather than by an independent suit. The only limitations to this principle are (1) that the court should have jurisdiction over the subject matter of the counterclaim, and (2) that it could acquire jurisdiction over third parties whose presence is essential for its adjudication.10

A counterclaim may either be permissive or compulsory. It is permissive "if it does not arise out of or is not necessarily connected with the subject matter of the opposing party's claim."11 A permissive counterclaim is essentially an independent claim that may be filed separately in another case.

A counterclaim is compulsory when its object "arises out of or is necessarily 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."12

Unlike permissive counterclaims, compulsory counterclaims should be set up in the same action; otherwise, they would be barred forever. NAMARCO v. Federation of United Namarco Distributors13 laid down the following criteria to determine whether a counterclaim is compulsory or permissive: 1) Are issues of fact and law raised by the claim and by the 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 as defendant's counterclaim? 4) Is there any logical relation between the claim and the counterclaim? A positive answer to all four questions would indicate that the counterclaim is compulsory.

Adopted in Quintanilla v. CA14 and reiterated in Alday v. FGU Insurance Corporation,15 the "compelling test of compulsoriness" characterizes a counterclaim as compulsory if there should exist a "logical relationship" between the main claim and the counterclaim. There exists such a relationship when conducting separate trials of the respective claims of the parties would entail substantial duplication of time and effort by the parties and the court; when the multiple claims involve the same factual and legal issues; or when the claims are offshoots of the same basic controversy between the parties.

We shall now examine the nature of petitioners' counterclaims against respondents with the use of the foregoing parameters.

Petitioners base their counterclaim on the following allegations:

"Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad faith decisions for, and causing plaintiff to file this baseless suit and to procure an unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no right to bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was motivated by his personal interests as one of the owners of plaintiff while Anthony A. Mariano was motivated by his sense of personal loyalty to Gregory T. Lim, for which reason he disregarded the fact that plaintiff is without any valid cause.

"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint tortfeasors in the commission of the acts complained of in this answer and in the compulsory counterclaims pleaded below. As such they should be held jointly and solidarily liable as plaintiff's co-defendants to those compulsory counterclaims pursuant to the Supreme Court's decision in Sapugay v. Mobil.

x x x         x x x         x x x

"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless case has compelled the defendants to engage the services of counsel for a fee and to incur costs of litigation, in amounts to be proved at trial, but in no case less than P5 million for each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable.

"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the reputations of the defendants and they should be held jointly and solidarily liable to them for moral damages of P100 million each.

"In order to serve as an example for the public good and to deter similar baseless, bad faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable to the defendants for exemplary damages of P100 million each." 16

The above allegations show that petitioners' counterclaims for damages were the result of respondents' (Lim and Mariano) act of filing the Complaint and securing the Writ of Attachment in bad faith. Tiu Po v. Bautista17 involved the issue of whether the counterclaim that sought moral, actual and exemplary damages and attorney's fees against respondents on account of their "malicious and unfounded" complaint was compulsory. In that case, we held as follows:

"Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory counterclaim. They are damages claimed to have been suffered by petitioners as a consequence of the action filed against them. They have to be pleaded in the same action; otherwise, petitioners would be precluded by the judgment from invoking the same in an independent action. The pronouncement in Papa vs. Banaag (17 SCRA 1081) (1966) is in point:

"Compensatory, moral and exemplary damages, allegedly suffered by the creditor in consequence of the debtor's action, are also compulsory counterclaim barred by the dismissal of the debtor's action. They cannot be claimed in a subsequent action by the creditor against the debtor."

"Aside from the fact that petitioners' counterclaim for damages cannot be the subject of an independent action, it is the same evidence that sustains petitioners' counterclaim that will refute private respondent's own claim for damages. This is an additional factor that characterizes petitioners' counterclaim as compulsory."18

Moreover, using the "compelling test of compulsoriness," we find that, clearly, the recovery of petitioners' counterclaims is contingent upon the case filed by respondents; thus, conducting separate trials thereon will result in a substantial duplication of the time and effort of the court and the parties.

Since the counterclaim for damages is compulsory, it must be set up in the same action; otherwise, it would be barred forever. If it is filed concurrently with the main action but in a different proceeding, it would be abated on the ground of litis pendentia; if filed subsequently, it would meet the same fate on the ground of res judicata.19

Sapugay v. Court of Appeals Applicable to the Case at Bar

Sapugay v. Court of Appeals finds application in the present case. In Sapugay, Respondent Mobil Philippines filed before the trial court of Pasig an action for replevin against Spouses Marino and Lina Joel Sapugay. The Complaint arose from the supposed failure of the couple to keep their end of their Dealership Agreement. In their Answer with Counterclaim, petitioners alleged that after incurring expenses in anticipation of the Dealership Agreement, they requested the plaintiff to allow them to get gas, but that it had refused. It claimed that they still had to post a surety bond which, initially fixed at P200,000, was later raised to P700,000.

The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of the Dealership Agreement, which respondent continued to withhold from them. Later, petitioners discovered that respondent and its manager, Ricardo P. Cardenas, had intended all along to award the dealership to Island Air Product Corporation.

In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its manager -- Ricardo P. Cardenas -- as defendants. They prayed that judgment be rendered, holding both jointly and severally liable for pre-operation expenses, rental, storage, guarding fees, and unrealized profit including damages. After both Mobil and Cardenas failed to respond to their Answer to the Counterclaim, petitioners filed a "Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on Defendant's Counterclaim."

Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original action, might nevertheless be impleaded in the counterclaim. We disposed of this issue as follows:

"A counterclaim is defined as any claim for money or other relief which a defending party may have against an opposing party. However, the general rule that a defendant cannot by a counterclaim bring into the action any claim against persons other than the plaintiff admits of an exception under Section 14, Rule 6 which provides that 'when the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be brought in as defendants, if jurisdiction over them can be obtained.' The inclusion, therefore, of Cardenas in petitioners' counterclaim is sanctioned by the rules."20

The prerogative of bringing in new parties to the action at any stage before judgment is intended to accord complete relief to all of them in a single action and to avert a duplicity and even a multiplicity of suits thereby.

In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot be included in a counterclaim, except when no complete relief can be had. They add that "[i]n the present case, Messrs. Lim and Mariano are not necessary for petitioners to obtain complete relief from Respondent CCC as plaintiff in the lower court. This is because Respondent CCC as a corporation with a separate [legal personality] has the juridical capacity to indemnify petitioners even without Messrs. Lim and Mariano."21

We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim and Mariano in the instant case -- is not premised on the assumption that the plaintiff corporation does not have the financial ability to answer for damages, such that it has to share its liability with individual defendants. Rather, such inclusion is based on the allegations of fraud and bad faith on the part of the corporate officer or stockholder. These allegations may warrant the piercing of the veil of corporate fiction, so that the said individual may not seek refuge therein, but may be held individually and personally liable for his or her actions.

In Tramat Mercantile v. Court of Appeals,22 the Court held that generally, it should only be the corporation that could properly be held liable. However, circumstances may warrant the inclusion of the personal liability of a corporate director, trustee, or officer, if the said individual is found guilty of bad faith or gross negligence in directing corporate affairs.

Remo Jr. v. IAC23 has stressed that while a corporation is an entity separate and distinct from its stockholders, the corporate fiction may be disregarded if "used to defeat public convenience, justify a wrong, protect fraud, or defend crime." In these instances, "the law will regard the corporation as an association of persons, or in case of two corporations, will merge them into one." Thus, there is no

debate on whether, in alleging bad faith on the part of Lim and Mariano the counterclaims had in effect made them "indispensable parties" thereto; based on the alleged facts, both are clearly parties in interest to the counterclaim.24

Respondents further assert that "Messrs. Lim and Mariano cannot be held personally liable [because their assailed acts] are within the powers granted to them by the proper board resolutions; therefore, it is not a personal decision but rather that of the corporation as represented by its board of directors."25 The foregoing assertion, however, is a matter of defense that should be threshed out during the trial; whether or not "fraud" is extant under the circumstances is an issue that must be established by convincing evidence.26

Suability and liability are two distinct matters. While the Court does rule that the counterclaims against Respondent CCC's president and manager may be properly filed, the determination of whether both can in fact be held jointly and severally liable with respondent corporation is entirely another issue that should be ruled upon by the trial court.

However, while a compulsory counterclaim may implead persons not parties to the original complaint, the general rule -- a defendant in a compulsory counterclaim need not file any responsive pleading, as it is deemed to have adopted the allegations in the complaint as its answer -- does not apply. The filing of a responsive pleading is deemed a voluntary submission to the jurisdiction of the court; a new party impleaded by the plaintiff in a compulsory counterclaim cannot be considered to have automatically and unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in mischievous consequences whereby a party may be indiscriminately impleaded as a defendant in a compulsory counterclaim; and judgment rendered against it without its knowledge, much less participation in the proceedings, in blatant disregard of rudimentary due process requirements.

The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of the Rules of Court, to "order [such impleaded parties] to be brought in as defendants, if jurisdiction over them can be obtained," by directing that summons be served on them. In this manner, they can be properly appraised of and answer the charges against them. Only upon service of summons can the trial court obtain jurisdiction over them.

In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file any responsive pleading to the counterclaim leveled against him. Nevertheless, the Court gave due consideration to certain factual circumstances, particularly the trial court's treatment of the Complaint as the Answer of Cardenas to the compulsory counterclaim and of his seeming acquiescence thereto, as evidenced by his failure to make any objection despite his active participation in the proceedings. It was held thus:

"It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against him on the ground of lack of jurisdiction. While it is a settled rule that the issue of jurisdiction may be raised even for the first time on appeal, this does not obtain in the instant case. Although it was only Mobil which filed an opposition to the motion to declare in default, the fact that the trial court denied said motion, both as to Mobil and Cardenas on the ground that Mobil's complaint should be considered as the answer to petitioners' compulsory counterclaim, leads us to the inescapable conclusion that the trial court treated the opposition as having been filed in behalf of both Mobil and Cardenas and that the latter had adopted as his answer the allegations raised in the complaint of Mobil. Obviously, it was this ratiocination which led the trial court to deny the motion to declare Mobil and Cardenas in default. Furthermore, Cardenas was not unaware of said incidents and the proceedings therein as he testified and was present during trial, not to speak of the fact that as manager of Mobil he would

necessarily be interested in the case and could readily have access to the records and the pleadings filed therein.

"By adopting as his answer the allegations in the complaint which seeks affirmative relief, Cardenas is deemed to have recognized the jurisdiction of the trial court over his person and submitted thereto. He may not now be heard to repudiate or question that jurisdiction."27

Such factual circumstances are unavailing in the instant case. The records do not show that Respondents Lim and Mariano are either aware of the counterclaims filed against them, or that they have actively participated in the proceedings involving them. Further, in dismissing the counterclaims against the individual respondents, the court a quo -- unlike in Sapugay -- cannot be said to have treated Respondent CCC's Motion to Dismiss as having been filed on their behalf.

Rules on Permissive Joinder of Causesof Action or Parties Not Applicable

Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of causes of action. It argues that while the original Complaint was a suit for specific performance based on a contract, the counterclaim for damages was based on the tortuous acts of respondents.28 In its Motion to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Civil Procedure, which we quote:

"Section 5. Joinder of causes of action. – A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may have against an opposing party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of parties; x x x"

Section 6. Permissive joinder of parties. – All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist whether jointly, severally, or in the alternative, may, except as otherwise provided in these Rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest."

The foregoing procedural rules are founded on practicality and convenience. They are meant to discourage duplicity and multiplicity of suits. This objective is negated by insisting -- as the court a quo has done -- that the compulsory counterclaim for damages be dismissed, only to have it possibly re-filed in a separate proceeding. More important, as we have stated earlier, Respondents Lim and Mariano are real parties in interest to the compulsory counterclaim; it is imperative that they be joined therein. Section 7 of Rule 3 provides:

"Compulsory joinder of indispensable parties. – Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants."

Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being consistent with the solidary nature of the liability alleged therein.

Second Issue:

CCC's Personality to Move to Dismiss the Compulsory Counterclaims

Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as "joint and solidary," petitioners prayed:

"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:

"1. Dismissing the complaint in its entirety;

"2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to pay defendant actual damages in the sum of at least P2,700,000.00;

"3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to pay the defendants LPI, LCLC, COC and Roseberg:

"a. Exemplary damages of P100 million each;

"b. Moral damages of P100 million each; and

"c. Attorney's fees and costs of suit of at least P5 million each.

Other reliefs just and equitable are likewise prayed for."29

Obligations may be classified as either joint or solidary. "Joint" or "jointly" or "conjoint" means mancum or mancomunada or pro rata obligation; on the other hand, "solidary obligations" may be used interchangeably with "joint and several" or "several." Thus, petitioners' usage of the term "joint and solidary" is confusing and ambiguous.

The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if proven, is solidary. This characterization finds basis in Article 1207 of the Civil Code, which provides that obligations are generally considered joint, except when otherwise expressly stated or when the law or the nature of the obligation requires solidarity. However, obligations arising from tort are, by their nature, always solidary. We have assiduously maintained this legal principle as early as 1912 in Worcester v. Ocampo,30 in which we held:

"x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the present action is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only individually liable for the tort in which he participates, but is also jointly liable with his tort feasors. x x x

"It may be stated as a general rule that joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. They are each liable as principals, to the same extent and in the same manner as if they had performed the wrongful act themselves. x x x

"Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable for the whole damage. It is no defense for one

sued alone, that the others who participated in the wrongful act are not joined with him as defendants; nor is it any excuse for him that his participation in the tort was insignificant as compared to that of the others. x x x

"Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among themselves. They cannot insist upon an apportionment, for the purpose of each paying an aliquot part. They are jointly and severally liable for the whole amount. x x x

"A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which might exist against the others. There can be but satisfaction. The release of one of the joint tort feasors by agreement generally operates to discharge all. x x x

"Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not liable. The courts may release some for lack of evidence while condemning others of the alleged tort feasors. And this is true even though they are charged jointly and severally."

In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint and several" obligation, the relationship between the active and the passive subjects is so close that each of them must comply with or demand the fulfillment of the whole obligation.31 The fact that the liability sought against the CCC is for specific performance and tort, while that sought against the individual respondents is based solely on tort does not negate the solidary nature of their liability for tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point:

"Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions."

The solidary character of respondents' alleged liability is precisely why credence cannot be given to petitioners' assertion. According to such assertion, Respondent CCC cannot move to dismiss the counterclaims on grounds that pertain solely to its individual co-debtors.32 In cases filed by the creditor, a solidary debtor may invoke defenses arising from the nature of the obligation, from circumstances personal to it, or even from those personal to its co-debtors. Article 1222 of the Civil Code provides:

"A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible." (Emphasis supplied).

The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim on grounds that pertain only to its individual co-debtors -- is therefore allowed.

However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it on behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be dismissed. Be that as it may, Respondent CCC cannot be declared in default. Jurisprudence teaches that if the issues raised in the compulsory counterclaim are so intertwined with the allegations in the complaint, such issues are deemed automatically joined.33 Counterclaims that are only for damages and attorney's fees and that arise from the filing of the complaint shall be considered as special defenses and need not be answered.34

CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed

While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple reason that it lacks the requisite authority to do so. A corporation has a legal personality entirely separate and distinct from that of its officers and cannot act for and on their behalf, without being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory counterclaim filed by Respondent CCC has no force and effect as to them.

In summary, we make the following pronouncements:

1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A. Mariano are compulsory.

2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A. Mariano, even if both were not parties in the original Complaint.

3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may include, in a Motion to Dismiss, defenses available to their co-defendants; nevertheless, the same Motion cannot be deemed to have been filed on behalf of the said co-defendants.

4. Summons must be served on Respondents Lim and Mariano before the trial court can obtain jurisdiction over them.

WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners' Answer with Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim and Anthony A. Mariano. No costs.

SO ORDERED.

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

25Republic of the Philippines

SUPREME COURTManila

THIRD DIVISION

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 Makati1alleging 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.3Petitioner 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.5However, 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 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 ofSun 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 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.

26Republic of the Philippines

SUPREME COURTManila

FIRST DIVISION

G.R. No. 139018             April 11, 2005

ESTHERLITA CRUZ-AGANA, Petitioner, vs.HON. JUDGE AURORA SANTIAGO-LAGMAN (In her capacity as Presiding Judge of Regional Trial Court, Branch 77, Malolos, Bulacan) and B. SERRANO ENTERPRISES, INC., Respondents.

D E C I S I O N

CARPIO, J.:

The Case

This petition for certiorari1 seeks to reverse the Order of the Regional Trial Court, Branch 77, Malolos, Bulacan ("trial court"), dated 4 June 1999, recalling its previous Order dated 25 May 1999 dismissing B. Serrano Enterprises, Inc.'s ("respondent") counterclaim upon a motion to dismiss filed by petitioner Estherlita Cruz-Agana ("petitioner").

Antecedent Facts

On 18 March 1996, petitioner filed a Complaint for annulment of title with prayer for preliminary mandatory injunction against respondent.  Petitioner claims that as the sole heir of one Teodorico Cruz, she is the sole owner of a lot covered by Transfer Certificate of Title No. T-3907.  Petitioner

further claims that the lot was fraudulently sold to Eugenio Lopez, Jr. who later on transferred the lot to respondent. The case was raffled to the Regional Trial Court, Branch 77, Malolos, Bulacan presided by Judge Aurora Santiago-Lagman and docketed as Civil Case No. 210-M-96.

Respondent seasonably filed its Answer with compulsory counterclaim. Petitioner moved to dismiss respondent's counterclaim for lack of a certificate of non-forum shopping.

In an Order dated 11 March 1999, the trial court denied petitioner's motion to dismiss respondent's counterclaim.  The trial court reasoned that respondent's counterclaim is compulsory and therefore excluded from the coverage of Section 5, Rule 7 of the Rules of Court.  Petitioner moved that the trial court reconsider its Order invoking the mandatory nature of a certificate of non-forum shopping under Supreme Court Administrative Circular No. 04-94.2  On 25 May 1999, the trial court reversed its 11 March 1999 Order and dismissed respondent's counterclaim for lack of a certificate of non-forum shopping.

Respondent seasonably filed a motion for reconsideration arguing that Administrative Circular No. 04-94 does not apply to compulsory counterclaims following the ruling in Santo Tomas University Hospital v. Surla.3  On 4 June 1999, the trial court again reversed itself and recalled its Order dismissing respondent's counterclaim.

Petitioner now comes before this Court through Rule 65 of the 1997 Rules of Civil Procedure.

The Trial Court's Ruling

The trial court found that respondent's counterclaim is compulsory in nature. The trial court ruled that the filing of a compulsory counterclaim does not require a certificate of non-forum shopping.  On the effect of Santo Tomason Administrative Circular No. 04-94, the trial court explained:

It is settled rule that it is one of the inherent powers of the court to amend and control its processes and orders so as to make them conformable to law and justice. This power includes the right to reverse itself, specially when in its honest opinion, it has committed an error or mistake in judgment, and that to adhere to its decision will cause injustice to a party litigant.

The Issue

Petitioner raises the following issue:

WHETHER THE TRIAL COURT COMMITTEDGRAVE ABUSE OF DISCRETION IN REFUSINGTO DISMISS RESPONDENT'S COUNTERCLAIM.

The Ruling of the Court

The petition lacks merit.

The issue presented is not novel.  This Court has squarely settled this issue in Santo Tomas University Hospital v. Surla.3  Writing for the Court, Justice Jose C. Vitug began his ponencia thus:

Can a compulsory counterclaim pleaded in an Answer be dismissed on the ground of a failure to accompany it with a certificate of non-forum shopping? This question is the core issue presented for resolution in the instant petition.

Santo Tomas clarified the scope of Administrative Circular No. 04-94 with respect to counterclaims.  The Court pointed out that this circular is intended primarily to cover "an initiatory pleading or an incipient application of a party asserting a claim for relief."  The distinction between a compulsory and a permissive counterclaim is vital in the application of the circular.  The Court explained:

It should not be too difficult, the foregoing rationale of the circular aptly taken, to sustain the view that the circular in question has not, in fact, been contemplated to include a kind of claim which, by its very nature as being auxiliary to the proceedings in the suit and as deriving its substantive and jurisdictional support therefrom, can only be appropriately pleaded in the answer and not remain outstanding for independent resolution except by the court where the main case pends. Prescinding from the foregoing, the proviso in the second paragraph of Section 5, Rule 8 of the 1997 Rules of Civil Procedure, i.e., that the violation of the anti-forum shopping rule "shall not be curable by mere amendment xxx but shall be cause for the dismissal of the case without prejudice," being predicated on the applicability of the need for a certification against forum-shopping, obviously does not include a claim which cannot be independently set up.

The Court reiterated this ruling in Ponciano v. Judge Parentela, Jr.4

Administrative Circular No. 04-94 does not apply to compulsory counterclaims.  The circular applies to initiatory and similar pleadings.  A compulsory counterclaim set up in the answer is not an "initiatory" or similar pleading.  The initiatory pleading is the plaintiff's complaint.  A respondent has no choice but to raise a compulsory counterclaim the moment the plaintiff files the complaint.  Otherwise, respondent waives the compulsory counterclaim.5 In short, the compulsory counterclaim is a reaction or response, mandatory upon pain of waiver, to an initiatory pleading which is the complaint.

Petitioner argues, however, that the Court's rulings in Santo Tomas and Ponciano are "contrary to the mandate of Administrative Circular No. 04-94" and other procedural laws.6

Petitioner is mistaken.

The Constitution expressly bestows on this Court the power to promulgate rules concerning the pleading, practice and procedure in all courts.7 Procedural matters are within the sole jurisdiction of this Court to prescribe.  Administrative Circular No. 04-94 is an issuance of this Court. It covers a matter of procedure. Administrative Circular No. 04-94 is not an enactment of the Legislature.  This Court has the exclusive jurisdiction to interpret, amend or revise the rules it promulgates, as long as the rules do not diminish, increase, or modify substantive rights.  This is precisely the purpose of Santo Tomas as far as Administrative Circular No. 04-94 is concerned.

Petitioner's counsel fails or simply refuses to accept the distinction between a permissive counterclaim and a compulsory counterclaim.  This distinction was the basis for the ruling in Santo Tomas and Ponciano.  The sole issue for resolution in the present case is whether respondent's counterclaim is compulsory or permissive.  If it is a permissive counterclaim, the lack of a certificate of non-forum shopping is fatal.  If it is a compulsory counterclaim, the lack of a certificate of non-forum shopping is immaterial.

A compulsory counterclaim is any claim for money or other relief, which a defending party may have against an opposing party, which at the time of suit arises out of, or is necessarily connected with, the same transaction or occurrence that is the subject matter of plaintiff's complaint.8 It is compulsory in the sense that it is within the jurisdiction of the court, does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction, and will be barred in the future if not set up in the answer to the complaint in the same case.  Any other counterclaim is permissive.

Respondent's counterclaim as set up in its answer states:

3.  That because of the unwarranted, baseless, and unjustified acts of the plaintiff, herein defendant has suffered and continue to suffer actual damages in the sum of at least P400,000,000.00 which the law, equity, and justice require that to be paid by the plaintiff and further to reimburse the attorney's fees ofP2,000,000.00;9

It is clear that the counterclaim set up by respondent arises from the filing of plaintiff's complaint.  The counterclaim is so intertwined with the main case that it is incapable of proceeding independently.  The counterclaim will require a re-litigation of the same evidence if the counterclaim is allowed to proceed in a separate action.  Even petitioner recognizes that respondent's counterclaim is compulsory.10 A compulsory counterclaim does not require a certificate of non-forum shopping because a compulsory counterclaim is not an initiatory pleading.

WHEREFORE, the instant petition is DENIED for lack of merit. We AFFIRM the Order of the Regional Trial Court, Branch 77, Malolos Bulacan, dated 4 June 1999 recalling the Order dated 25 May 1999 which dismissed the compulsory counterclaim of respondent B. Serrano Enterprises, Inc.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

Footnotes

1 Under Rule 65 of the Rules of Court.

2 Paragraphs 1 and 2 of Supreme Court Administrative Circular No. 04-94 provide:

1. The plaintiff, petitioner, applicant or principal party seeking relief in the complaint, petition, application or other initiatory pleading shall certify under oath in such original pleading, or in a sworn certification annexed thereto and simultaneously filed therewith, to the truth of the following facts and undertakings: (a) he has not theretofore commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceedings is pending in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (c) if there is any such action or proceeding which is either pending or may have been terminated, he must state the status thereof; and (d) if he should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals or any other tribunal or agency, he undertakes to report that fact within five

(5) days therefrom to the court or agency wherein the original pleading and sworn certification contemplated herein have been filed.

The complaint and other initiatory pleadings referred to and subject of this Circular are the original civil complaint, counterclaim, cross-claim, third (fourth, etc.) party complaint, or complaint-in-intervention, petition, or application wherein a party asserts his claim for relief.

2. Any violation of this Circular shall be a cause for the dismissal of the complaint, petition, application or other initiatory pleading, upon motion and after hearing. However, any clearly willful and deliberate forum shopping by any party and his counsel through the filing of multiple complaints or other initiatory pleadings to obtain favorable action shall be a ground for summary dismissal thereof and shall constitute direct contempt of court. Furthermore, the submission of a false certification or non-compliance with the undertakings therein, as provided in Paragraph 1 hereof, shall constitute indirect contempt of court, without prejudice to disciplinary proceedings against the counsel and the filing of a criminal action against the guilty party.

27Republic of the Philippines

SUPREME COURTManila

EN BANC

G.R. No. 172302               February 18, 2014

PRYCE CORPORATION, Petitioner, vs.CHINA BANKING CORPORATION, Respondent.

R E S O L U T I O N

LEONEN, J.:

This case resolves conflicting decisions between two divisions. Only one may serve as res judicata or a bar for the other to proceed. This case also settles the doctrine as to whether a hearing is needed prior to the issuance of a stay order in corporate rehabilitation proceedings.

The present case originated from a petition for corporate rehabilitation filed by petitioner Pryce Corporation on July 9, 2004 with the Regional Trial Court of Makati, Branch 138.1

The rehabilitation court found the petition sufficient in form and substance and issued a stay order on July 13, 2004 appointing Gener T. Mendoza as rehabilitation receiver.2

On September 13, 2004, the rehabilitation court gave due course to the petition and directed the rehabilitation receiver to evaluate and give recommendations on petitioner Pryce Corporation’s proposed rehabilitation plan attached to its petition.3

The rehabilitation receiver did not approve this plan and submitted instead an amended rehabilitation plan, which the rehabilitation court approved by order dated January 17, 2005.4 In its disposition, the court found petitioner Pryce Corporation "eligible to be placed in a state of corporate rehabilitation."5 The disposition likewise identified the assets to be held and disposed of by petitioner Pryce Corporation and the manner by which its liabilities shall be paid and liquidated.6

On February 23, 2005, respondent China Banking Corporation elevated the case to the Court of Appeals. Its petition questioned the January 17, 2005 order that included the following terms:

1. The indebtedness to China Banking Corporation and Bank of the Philippine Islands as well as the long term commercial papers will be paid through a dacion en pago of developed real estate assets of the petitioner.

x x x x

4. All accrued penalties are waived[.]

5. Interests shall accrue only up to July 13, 2004, the date of issuance of the stay order[.]

6. No interest will accrue during the pendency of petitioner’s corporate rehabilitation[.]

7. Dollar-denominated loans will be converted to Philippine Pesos on the date of the issuance of this Order using the reference rate of the Philippine Dealing System as of this date.7

Respondent China Banking Corporation contended that the rehabilitation plan’s approval impaired the obligations of contracts. It argued that neither the provisions of Presidential Decree No. 902-A nor the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules) empowered commercial courts "to render without force and effect valid contractual stipulations."8 Moreover, the plan’s approval authorizing dacion en pago of petitioner Pryce Corporation’s properties without respondent China Banking Corporation’s consent not only violated "mutuality of contract and due process, but [was] also antithetical to the avowed policies of the state to maintain a competitive financial system."9

The Bank of the Philippine Islands (BPI), another creditor of petitioner Pryce Corporation, filed a separate petition with the Court of Appeals assailing the same order by the rehabilitation court. BPI called the attention of the court "to the non-impairment clause and the mutuality of contracts purportedly ran roughshod by the [approved rehabilitation plan]."10

On July 28, 2005, the Court of Appeals Seventh (7th) Division11 granted respondent China Banking Corporation's petition, and reversed and set aside the rehabilitation court’s: (1) July 13, 2004 stay order that also appointed Gener T. Mendoza as rehabilitation receiver; (2) September 13, 2004 order giving due course to the petition and directing the rehabilitation receiver to evaluate and give recommendations on petitioner Pryce Corporation’s proposed rehabilitation plan; and (3) January 17, 2005 order finding petitioner Pryce Corporation eligible to be placed in a state of corporate rehabilitation, identifying assets to be disposed of, and determining the manner of liquidation to pay the liabilities.12

With respect to BPI’s separate appeal, the Court of Appeals First (1st) Division13 granted its petition initially and set aside the January 17, 2005 order of the rehabilitation court in its decision dated May 3, 2006.14 On reconsideration, the court issued a resolution dated May 23, 2007 setting aside its

original decision and dismissing the petition.15 BPI elevated the case to this court, docketed as G.R. No. 180316. By resolution dated January 30, 2008, the First (1st) Division of this court denied the petition.16 By resolution dated April 28, 2008, this court denied reconsideration with finality.17

Meanwhile, petitioner Pryce Corporation also appealed to this court assailing the July 28, 2005 decision of the Court of Appeals Seventh (7th) Division granting respondent China Banking Corporation’s petition as well as the resolution denying its motion for reconsideration.

In the decision dated February 4, 2008,18 the First (1st) Division of this court denied its petition with the dispositive portion as follows:

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 88479 is AFFIRMED with the modification discussed above. Let the records of this case be REMANDED to the RTC, Branch 138, Makati City, sitting as Commercial Court, for further proceedings with dispatch to determine the merits of the petition for rehabilitation. No costs.19

Petitioner Pryce Corporation filed an omnibus motion for (1) reconsideration or (2) partial reconsideration and (3) referral to the court En Banc dated February 29, 2008. Respondent China Banking Corporation also filed a motion for reconsideration on even date, praying that the February 4, 2008 decision be set aside and reconsidered only insofar as it ordered the remand of the case for further proceedings "to determine whether petitioner's financial condition is serious and whether there is clear and imminent danger that it will lose its corporate assets."20

By resolution dated June 16, 2008, this court denied with finality the separate motions for reconsideration filed by the parties.

On September 10, 2008, petitioner Pryce Corporation filed a second motion for reconsideration praying that the Court of Appeals’ decision dated February 4, 2008 be set aside.

The First Division of this court referred this case to the En Banc en consulta by resolution dated June 22, 2009.21The court En Banc, in its resolution dated April 13, 2010, resolved to accept this case.22

On July 30, 2013, petitioner Pryce Corporation and respondent China Banking Corporation, through their respective counsel, filed a joint manifestation and motion to suspend proceedings. The parties requested this court to defer its ruling on petitioner Pryce Corporation’s second motion for reconsideration "so as to enable the parties to work out a mutually acceptable arrangement."23

By resolution dated August 6, 2013, this court granted the motion but only for two (2) months. The registry receipts showed that counsel for respondent China Banking Corporation and counsel for petitioner Pryce Corporation received their copies of this resolution on September 5, 2013.24

More than two months had lapsed since September 5, 2013, but no agreement was filed by the parties. Thus, we proceed to rule on petitioner Pryce Corporation’s second motion for reconsideration.

This motion raises two grounds.

First, petitioner Pryce Corporation argues that the issue on the validity of the rehabilitation court orders is now res judicata. Petitioner Pryce Corporation submits that the ruling in BPI v. Pryce

Corporation docketed as G.R. No. 180316 contradicts the present case, and it has rendered the issue on the validity and regularity of the rehabilitation court orders as res judicata.25

Second, petitioner Pryce Corporation contends that Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation26 does not require the rehabilitation court to hold a hearing before issuing a stay order. Considering that the Interim Rules was promulgated later than Rizal Commercial Banking Corp. v. IAC27 that enunciated the "serious situations" test,28 petitioner Pryce Corporation argues that the test has effectively been abandoned by the "sufficiency in form and substance test" under the Interim Rules.29

The present second motion for reconsideration involves the following issues:

I. WHETHER THE ISSUE ON THE VALIDITY OF THE REHABILITATION ORDER DATED JANUARY 17, 2005 IS NOW RES JUDICATA IN LIGHT OF BPI V. PRYCE CORPORATION DOCKETED AS G.R. NO. 180316;

II. WHETHER THE REHABILITATION COURT IS REQUIRED TO HOLD A HEARING TO COMPLY WITH THE "SERIOUS SITUATIONS" TEST LAID DOWN IN THE CASE OF RIZAL COMMERCIAL BANKING CORP. V. IAC BEFORE ISSUING A STAY ORDER.

We proceed to discuss the first issue.

BPI v. Pryce Corporation docketed as G.R. No. 180316 rendered the issue on the validity of the rehabilitation court’s January 17, 2005 order approving the amended rehabilitation plan as res judicata.

In BPI v. Pryce Corporation, the Court of Appeals set aside initially the January 17, 2005 order of the rehabilitation court.30 On reconsideration, the court set aside its original decision and dismissed the petition.31 On appeal, this court denied the petition filed by BPI with finality. An entry of judgment was made for BPI v. Pryce Corporation on June 2, 2008.32 In effect, this court upheld the January 17, 2005 order of the rehabilitation court.

According to the doctrine of 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 on all points and matters determined in the former suit."33

The elements for res judicata to apply are as follows: (a) the former judgment was final; (b) the court that rendered it had jurisdiction over the subject matter and the parties; (c) the judgment was based on the merits; and (d) between the first and the second actions, there was an identity of parties, subject matters, and causes of action.34

Res judicata embraces two concepts: (1) bar by prior judgment35 and (2) conclusiveness of judgment.36

Bar by prior judgment exists "when, as between the first case where the judgment was rendered and the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action."37

On the other hand, the concept of conclusiveness of judgment finds application "when a fact or question has been squarely put in issue, judicially passed upon, and adjudged in a former suit by a court of competent jurisdiction."38This principle only needs identity of parties and issues to apply.39

The elements of res judicata through bar by prior judgment are present in this case.

On the element of identity of parties, res judicata does not require absolute identity of parties as substantial identity is enough.40 Substantial identity of parties exists "when there is a community of interest between a party in the first case and a party in the second case, even if the latter was not impleaded in the first case."41 Parties that represent the same interests in two petitions are, thus, considered substantial identity of parties for purposes of res judicata.42 Definitely, one test to determine substantial identity of interest would be to see whether the success or failure of one party materially affects the other.

In the present case, respondent China Banking Corporation and BPI are creditors of petitioner Pryce Corporation and are both questioning the rehabilitation court’s approval of the amended rehabilitation plan. Thus, there is substantial identity of parties since they are litigating for the same matter and in the same capacity as creditors of petitioner Pryce Corporation.

There is no question that both cases deal with the subject matter of petitioner Pryce Corporation’s rehabilitation. The element of identity of causes of action also exists.

In separate appeals, respondent China Banking Corporation and BPI questioned the same January 17, 2005 order of the rehabilitation court before the Court of Appeals.

Since the January 17, 2005 order approving the amended rehabilitation plan was affirmed and made final in G.R. No. 180316, this plan binds all creditors, including respondent China Banking Corporation.

In any case, the Interim Rules or the rules in effect at the time the petition for corporate rehabilitation was filed in 2004 adopts the cram-down principle which "consists of two things: (i) approval despite opposition and (ii) binding effect of the approved plan x x x."43

First, the Interim Rules allows the rehabilitation court44 to "approve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable."45

Second, it also provides that upon approval by the court, the rehabilitation plan and its provisions "shall be binding upon the debtor and all persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings or opposed the plan or whether or not their claims have been scheduled."46

Thus, the January 17, 2005 order approving the amended rehabilitation plan, now final and executory resulting from the resolution of BPI v. Pryce Corporation docketed as G.R. No. 180316, binds all creditors including respondent China Banking Corporation.

This judgment in BPI v. Pryce Corporation covers necessarily the rehabilitation court’s September 13, 2004 order giving due course to the petition. The general rule precluding relitigation of issues extends to questions implied necessarily in the final judgment, viz:

The general rule precluding the relitigation of material facts or questions which were in issue and adjudicated in former action are commonly applied to all matters essentially connected with the subject matter of the litigation. Thus, it extends to questions necessarily implied in the final judgment,

although no specific finding may have been made in reference thereto and although such matters were directly referred to in the pleadings and were not actually or formally presented. x x x.47

The dispositive portion of the Court of Appeals’ decision in BPI v. Pryce Corporation, reversed on reconsideration, only mentioned the January 17, 2005 order of the rehabilitation court approving the amended rehabilitation plan. Nevertheless, the affirmation of its validity necessarily included the September 13, 2004 order as this earlier order gave due course to the petition and directed the rehabilitation receiver to evaluate and give recommendations on the rehabilitation plan proposed by petitioner.48

In res judicata, the primacy given to the first case is related to the principle of immutability of final judgments essential to an effective and efficient administration of justice, viz:

x x x [W]ell-settled is the principle that a decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect even if the modification is meant to correct

erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land.

The reason for this is that litigation must end and terminate sometime and somewhere, and it is essential to an effective and efficient administration of justice that, once a judgment has become final, the winning party be not deprived of the fruits of the verdict. Courts must guard against any scheme calculated to bring about that result and must frown upon any attempt to prolong the controversies.

The only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.49 (Emphasis provided)

Generally, the later case is the one abated applying the maxim qui prior est tempore, potior est jure (he who is before in time is the better in right; priority in time gives preference in law).50 However, there are limitations to this rule as discussed in Victronics Computers, Inc. v. Regional Trial Court, Branch 63, Makati:51

In our jurisdiction, the law itself does not specifically require that the pending action which would hold in abatement the other must be a pending prior action. Thus, in Teodoro vs. Mirasol, this Court observed:

It is to be noted that the Rules do not require as a ground for dismissal of a complaint that there is a prior pending action. They provide that there is a pending action, not a pending prior action. The fact that the unlawful detainer suit was of a later date is no bar to the dismissal of the present action. We find, therefore, no error in the ruling of the court a quo that plaintiff's action should be dismissed on the ground of the pendency of another more appropriate action between the same parties and for the same cause.

In Roa-Magsaysay vs. Magsaysay, wherein it was the first case which was abated, this Court ruled:

In any event, since We are not really dealing with jurisdiction but mainly with venue, considering both courts concerned do have jurisdiction over the causes of action of the parties herein against each other, the better rule in the event of conflict between two courts of concurrent jurisdiction as in the present case, is to allow the litigation to be tried and decided by the court which, under the

circumstances obtaining in the controversy, would, in the mind of this Court, be in a better position to serve the interests of justice, considering the nature of the controversy, the comparative accessibility of the court to the parties, having in view their peculiar positions and capabilities, and other similar factors. Without in any manner casting doubt as to the capacity of the Court of First Instance of Zambales to adjudicate properly cases involving domestic relations, it is easy to see that the Juvenile and Domestic Relations Court of Quezon City which was created in order to give specialized attention to family problems, armed as it is with adequate and corresponding facilities not available to ordinary courts of first instance, would be able to attend to the matters here in dispute with a little more degree of expertise and experience, resulting in better service to the interests of justice. A reading of the causes of action alleged by the contending spouses and a consideration of their nature, cannot but convince Us that, since anyway, there is an available Domestic Court that can legally take cognizance of such family issues, it is better that said Domestic Court be the one chosen to settle the same as the facts and the law may warrant.

We made the same pronouncement in Ramos vs. Peralta:

Finally, the rule on litis pendentia does not require that the later case should yield to the earlier case. What is required merely is that there be another pending action, not a prior pending action. Considering the broader scope of inquiry involved in Civil Case No. 4102 and the location of the property involved, no error was committed by the lower court in deferring to the Bataan court's jurisdiction.

An analysis of these cases unravels the ratio for the rejection of the priority-in-time rule and establishes the criteria to determine which action should be upheld and which is to be abated. In Teodoro, this Court used the criterion of the more appropriate action. We ruled therein that the unlawful detainer case, which was filed later, was the more appropriate action because the earlier case — for specific performance or declaratory relief — filed by the lessee (Teodoro) in the Court of First Instance (CFI) to seek the extension of the lease for another two (2) years or the fixing of a longer term for it, was "prompted by a desire on plaintiff's part to anticipate the action for unlawful detainer, the probability of which was apparent from the letter of the defendant to the plaintiff advising the latter that the contract of lease expired on October 1, 1954." The real issue between the parties therein was whether or not the lessee should be allowed to continue occupying the leased premises under a contract the terms of which were also the subject matter of the unlawful detainer case. Consonant with the doctrine laid down in Pue vs. Gonzales and Lim Si vs. Lim, the right of the lessee to occupy the land leased against the lessor should be decided under Rule 70 of the Rules of Court; the fact that the unlawful detainer case was filed later then of no moment. Thus, the latter was the more appropriate action.

x x x x

In Roa-Magsaysay[,] the criterion used was the consideration of the interest of justice. In applying this standard, what was asked was which court would be "in a better position to serve the interests of justice," taking into account (a) the nature of the controversy, (b) the comparative accessibility of the court to the parties and (c) other similar factors. While such a test was enunciated therein, this Court relied on its constitutional authority to change venue to avoid a miscarriage of justice.

It is interesting to note that in common law, as earlier adverted to, and pursuant to the Teodoro vs. Mirasol case, the bona fides or good faith of the parties is a crucial element. In the former, the second case shall not be abated if not brought to harass or vex; in the latter, the first case shall be abated if it is merely an anticipatory action or, more appropriately, an anticipatory defense against an expected suit — a clever move to steal the march from the aggrieved party.52 (Emphasis provided and citations omitted)

None of these situations are present in the facts of this instant suit. In any case, it is the better part of wisdom in protecting the creditors if the corporation is rehabilitated.

We now proceed to the second issue on whether the rehabilitation court is required to hold a hearing to comply with the "serious situations" test laid down in Rizal Commercial Banking Corp. v. IAC before issuing a stay order.

The rehabilitation court complied with the Interim Rules in its order dated July 13, 2004 on the issuance of a stay order and appointment of Gener T. Mendoza as rehabilitation receiver.53

The 1999 Rizal Commercial Banking Corp. v. IAC54 case provides for the "serious situations" test in that the suspension of claims is counted only upon the appointment of a rehabilitation receiver,55 and certain situations serious in nature must be shown to exist before one is appointed, viz:

Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does not always result in the appointment of a receiver or the creation of a management committee. The SEC has to initially determine whether such appointment is appropriate and necessary under the circumstances. Under Paragraph (d), Section 6 of Presidential Decree No. 902-A, certain situations must be shown to exist before a management committee may be created or appointed, such as:

1. when there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties; or

2. when there is paralization of business operations of such corporations or entities which may be prejudicial to the interest of minority stockholders, parties-litigants or to the general public.

On the other hand, receivers may be appointed whenever:

1. necessary in order to preserve the rights of the parties-litigants; and/or

2. protect the interest of the investing public and creditors. (Section 6 [c], P.D. 902-A.)

These situations are rather serious in nature, requiring the appointment of a management committee or a receiver to preserve the existing assets and property of the corporation in order to protect the interests of its investors and creditors. Thus, in such situations, suspension of actions for claims against a corporation as provided in Paragraph (c) of Section 6, of Presidential Decree No. 902-A is necessary, and here we borrow the words of the late Justice Medialdea, "so as not to render the SEC management Committee irrelevant and inutile and to give it unhampered ‘rescue efforts’ over the distressed firm" (Rollo, p. 265)."

Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent danger of losing the corporate assets, a management committee or rehabilitation receiver need not be appointed and suspension of actions for claims may not be ordered by the SEC. When the SEC does not deem it necessary to appoint a receiver or to create a management committee, it may be assumed, that there are sufficient assets to sustain the rehabilitation plan, and that the creditors and investors are amply protected.56

However, this case had been promulgated prior to the effectivity of the Interim Rules that took effect on December 15, 2000.

Section 6 of the Interim Rules states explicitly that "[i]f the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all claims x x x."57

Compliant with the rules, the July 13, 2004 stay order was issued not later than five (5) days from the filing of the petition on July 9, 2004 after the rehabilitation court found the petition sufficient in form and substance.

We agree that when a petition filed by a debtor "alleges all the material facts and includes all the documents required by Rule 4-2 [of the Interim Rules],"58 it is sufficient in form and substance.

Nowhere in the Interim Rules does it require a comprehensive discussion in the stay order on the court’s findings of sufficiency in form and substance.

The stay order and appointment of a rehabilitation receiver dated July 13, 2004 is an "extraordinary, preliminary, ex parte remed[y]."59 The effectivity period of a stay order is only "from the date of its issuance until dismissal of the petition or termination of the rehabilitation proceedings."60 It is not a final disposition of the case. It is an interlocutory order defined as one that "does not finally dispose of the case, and does not end the Court’s task of adjudicating the parties’ contentions and determining their rights and liabilities as regards each other, but obviously indicates that other things remain to be done by the Court."61

Thus, it is not covered by the requirement under the Constitution that a decision must include a discussion of the facts and laws on which it is based.62

Neither does the Interim Rules require a hearing before the issuance of a stay order. What it requires is an initial hearing before it can give due course to63 or dismiss64 a petition.

Nevertheless, while the Interim Rules does not require the holding of a hearing before the issuance of a stay order, neither does it prohibit the holding of one. Thus, the trial court has ample discretion to call a hearing when it is not confident that the allegations in the petition are sufficient in form and substance, for so long as this hearing is held within the five (5)-day period from the filing of the petition — the period within which a stay order may issue as provided in the Interim Rules.

One of the important objectives of the Interim Rules is "to promote a speedy disposition of corporate rehabilitation cases[,] x x x apparent from the strict time frames, the non-adversarial nature of the proceedings, and the prohibition of certain kinds of pleadings."65 It is in light of this objective that a court with basis to issue a stay order must do so not later than five (5) days from the date the petition was filed.66

Moreover, according to the November 17, 2000 memorandum submitted by the Supreme Court Committee on the Interim Rules of Procedure on Corporate Rehabilitation:

The Proposed Rules remove the concept of the Interim Receiver and replace it with a rehabilitation receiver. This is to justify the immediate issuance of the stay order because under Presidential Decree No. 902-A, as amended, the suspension of actions takes effect only upon appointment of the rehabilitation receiver.67 (Emphasis provided)

Even without this court going into the procedural issues, addressing the substantive merits of the case will yield the same result.

Respondent China Banking Corporation mainly argues the violation of the constitutional proscription against impairment of contractual obligations68 in that neither the provisions of Pres. Dec. No. 902-A as amended nor the Interim Rules empower commercial courts "to render without force and effect valid contractual stipulations."69

The non-impairment clause first appeared in the United States Constitution as a safeguard against the issuance of worthless paper money that disturbed economic stability after the American Revolution.70 This constitutional provision was designed to promote commercial stability.71 At its core is "a prohibition of state interference with debtor-creditor relationships."72

This clause first became operative in the Philippines through the Philippine Bill of 1902, the fifth paragraph of Section 5 which states "[t]hat no law impairing the obligation of contracts shall be enacted." It was consistently adopted in subsequent Philippine fundamental laws, namely, the Jones Law of 1916,73 the 1935 Constitution,74the 1973 Constitution,75 and the present Constitution.76

Nevertheless, this court has brushed aside invocations of the non-impairment clause to give way to a valid exercise of police power77 and afford protection to labor.78

In Pacific Wide Realty and Development Corporation v. Puerto Azul Land, Inc.79 which similarly involved corporate rehabilitation, this court found no merit in Pacific Wide’s invocation of the non-impairment clause, explaining as follows:

We also find no merit in PWRDC’s contention that there is a violation of the impairment clause. Section 10, Article III of the Constitution mandates that no law impairing the obligations of contract shall be passed. This case does not involve a law or an executive issuance declaring the modification of the contract among debtor PALI, its creditors and its accommodation mortgagors. Thus, the non-impairment clause may not be invoked. Furthermore, as held in Oposa v. Factoran, Jr. even assuming that the same may be invoked, the non-impairment clause must yield to the police power of the State. Property rights and contractual rights are not absolute. The constitutional guaranty of non-impairment of obligations is limited by the exercise of the police power of the State for the common good of the general public.

Successful rehabilitation of a distressed corporation will benefit its debtors, creditors, employees, and the economy in general. The court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. The rehabilitation plan, once approved, is binding upon the debtor and all persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings or have opposed the plan or whether or not their claims have been scheduled.80

Corporate rehabilitation is one of many statutorily provided remedies for businesses that experience a downturn. Rather than leave the various creditors unprotected, legislation now provides for an orderly procedure of equitably and fairly addressing their concerns. Corporate rehabilitation allows a court-supervised process to rejuvenate a corporation. Its twin, insolvency, provides for a system of liquidation and a procedure of equitably settling various debts owed by an individual or a business. It provides a corporation’s owners a sound chance to re-engage the market, hopefully with more vigor and enlightened services, having learned from a painful experience.

Necessarily, a business in the red and about to incur tremendous losses may not be able to pay all its creditors. Rather than leave it to the strongest or most resourceful amongst all of them, the state steps in to equitably distribute the corporation’s limited resources.

The cram-down principle adopted by the Interim Rules does, in effect, dilute contracts. When it permits the approval of a rehabilitation plan even over the opposition of creditors,81 or when it imposes a binding effect of the approved plan on all parties including those who did not participate in the proceedings,82 the burden of loss is shifted to the creditors to allow the corporation to rehabilitate itself from insolvency.

Rather than let struggling corporations slip and vanish, the better option is to allow commercial courts to come in and apply the process for corporate rehabilitation.

This option is preferred so as to avoid what Garrett Hardin called the Tragedy of Commons. Here, Hardin submits that "coercive government regulation is necessary to prevent the degradation of common-pool resources [since] individual resource appropriators receive the full benefit of their use and bear only a share of their cost."83 By analogy to the game theory, this is the prisoner’s dilemma: "Since no individual has the right to control or exclude others, each appropriator has a very high discount rate [with] little incentive to efficiently manage the resource in order to guarantee future use."84 Thus, the cure is an exogenous policy to equitably distribute scarce resources. This will incentivize future creditors to continue lending, resulting in something productive rather than resulting in nothing.

In fact, these corporations exist within a market. The General Theory of Second Best holds that "correction for one market imperfection will not necessarily be efficiency-enhancing unless [there is also] simultaneous [correction] for all other market imperfections."85 The correction of one market imperfection may adversely affect market efficiency elsewhere, for instance, "a contract rule that corrects for an imperfection in the market for consensual agreements may [at the same time] induce welfare losses elsewhere."86 This theory is one justification for the passing of corporate rehabilitation laws allowing the suspension of payments so that corporations can get back on their feet.

As in all markets, the environment is never guaranteed. There are always risks. 1avvphi1 Contracts are indeed sacred as the law between the parties. However, these contracts exist within a society where nothing is risk-free, and the government is constantly being called to attend to the realities of the times.

Corporate rehabilitation is preferred for addressing social costs. 1âwphi1 Allowing the corporation room to get back on its feet will retain if not increase employment opportunities for the market as a whole. Indirectly, the services offered by the corporation will also benefit the market as "[t]he fundamental impulse that sets and keeps the capitalist engine in motion comes from [the constant entry of] new consumers’ goods, the new methods of production or transportation, the new markets, [and] the new forms of industrial organization that capitalist enterprise creates."87

As a final note, this is not the first time this court was made to review two separate petitions appealed from two conflicting decisions, rendered by two divisions of the Court of Appeals, and originating from the same case. In Serrano v. Ambassador Hotel, Inc.,88 we ordered the Court of Appeals to adopt immediately a more efficient system in its Internal Rules to avoid situations as this.

In this instance, it is fortunate that this court had the opportunity to correct the situation and prevent conflicting judgments from reaching impending finality with the referral to the En Banc.

We reiterate the need for our courts to be "constantly vigilant in extending their judicial gaze to cases related to the matters submitted for their resolution"89 as to "ensure against judicial confusion and [any] seeming conflict in the judiciary’s decisions."90

WHEREFORE, petitioner Pryce Corporation's motion is GRANTED. This court's February 4, 2008 decision is RECONSIDERED and SET ASIDE.

SO ORDERED.

MARVIC MARIO VICTOR F. LEONENAssociate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENOChief Justice

ANTONIO T. CARPIOAssociate Justice

PRESBITERO J. VELASCO, JR.Associate Justice

TERESITA J. LEONARDO-DE CASTROAssociate Justice

(On Leave)ARTURO D. BRION*

Associate Justice

DIOSDADO M. PERALTAAssociate Justice

LUCAS P. BERSAMINAssociate Justice

MARIANO C. DEL CASTILLOAssociate Justice

ROBERTO A. ABADAssociate Justice

MARTIN S. VILLARAMA, JR.Associate Justice

JOSE PORTUGAL PEREZAssociate Justice

JOSE CATRAL MENDOZAAssociate Justice

BIENVENIDO L. REYESAssociate Justice

ESTELA M. PERLAS-BERNABEAssociate Justice

C E R T I F I C A T I O N

I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the court.

MARIA LOURDES P. A. SERENOChief Justice

VI. PLEADINGS

28

Republic of the PhilippinesSupreme Court

Manila 

SECOND DIVISION MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY,

Petitioner, 

     -         versus  -

   

HEIRS of ESTANISLAO MIÑOZA, namely: The HEIRS of FILOMENO T.MIÑOZA, represented by LAUREANO M. MIÑOZA; The HEIRS of PEDRO T.MIÑOZA; and The HEIRS of FLORENCIA T. MIÑOZA, represented by ANTONIO M.URBIZTONDO,

Respondents.

      G.R. No. 186045              Present:         CARPIO, J., Chairperson,       NACHURA,       PERALTA,       ABAD, and       MENDOZA, JJ.                           Promulgated:         February 2, 2011

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x 

DECISION  PERALTA, J.:

 This is a petition for review on certiorari seeking to reverse and set aside the

Decision[1] dated March 25, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 70429, and the Resolution[2] dated January 8, 2009 denying petitioner’s motion for

reconsideration.                                                                                                                                              

The procedural and factual antecedents, as found by the CA, are as follows: On July 6, 1998, a Complaint[3] for Reconveyance, Cancellation of

Defendant’s Title, Issuance of New Title to Plaintiffs and Damages was filed by Leila M. Hermosisima (Leila) for herself and on behalf of the other heirs of the late Estanislao Miñoza.  The complaint alleged that Leila’s late great grandfather, Estanislao Miñoza, was the registered owner of Cadastral Lot Nos. 986 and 991-A, located at Banilad Estate, Cebu City, per TCT Nos. RT-6101 (T-10534) and RT-6102 (T10026).  It was, likewise, alleged that the late Estanislao Miñoza had three children, namely, Adriana, Patricio, and Santiago, all surnamed Miñoza.  In the late 1940s, the National Airports Corporation (NAC) embarked in an expansion project of the Lahug Airport. For said purpose, the NAC acquired several properties which surrounded the airport either through negotiated sale or through expropriation.  Among the properties that were acquired by the NAC through a negotiated sale were Lot Nos. 986 and 991-A.[4]

 Leila claimed that their predecessors-in-interest, specifically, Adriana,

Patricio, and Santiago executed a Deed of Sale on February 15, 1950 conveying the subject lots to the NAC on the assurance made by the latter that they (Leila’s predecessors-in-interest) can buy the properties back if the lots are no longer needed.  Consequently, they sold Lot No. 986 to the NAC for onlyP157.20 and Lot No. 991-A for P105.40.  However, the expansion project did not push through.  More than forty years after the sale, plaintiffs informed the NAC’s successor-in-interest, the Mactan-Cebu International Airport Authority (MCIAA), that they were exercising the buy-back option of the agreement, but the MCIAA refused to allow the repurchase on the ground that the sale was in fact unconditional.         

The MCIAA, through the Office of the Solicitor General (OSG), filed an Answer with Counterclaim.         

After the parties filed their respective pleadings, trial ensued.         

On November 16, 1999, before the MCIAA could present evidence in support of its case, a Motion for Intervention,[5] with an attached Complainant-in-Intervention, was filed before the Regional Trial Court (RTC) of Cebu City, Branch 22, by the heirs of Filomeno T. Miñoza, represented by Laureano M. Miñoza; the heirs of Pedro T, Miñoza, represented by Leoncio J. Miñoza; and the Heirs of Florencia T. Miñoza, represented by Antonio M. Urbiztondo (Intervenors), who claimed to be the true, legal, and legitimate heirs of the late Estanislao Miñoza. The intervenors alleged in their complaint  (1) that the plaintiffs in the main case are not related to the late spouses Estanislao Miñoza and Inocencia Togono whose true and legitimate children were: Filomeno, Pedro, and Florencia, all surnamed Miñoza; (2) that, on January 21, 1958, Adriana, Patricio, and Santiago, executed, in fraud of the intervenors, an Extrajudicial Settlement of the Estate of the late spouses Estanislao Miñoza and Inocencia Togono and adjudicated unto themselves the estate of the deceased spouses; and (3) that, on February 15, 1958, the same Adriana, Patricio, and Santiago, fraudulently, deceitfully, and in bad faith, sold Lot Nos. 986 and 991-A to the NAC.  The intervenors thus prayed for the following reliefs: 

a. Declaring herein intervenors as the true, legal and legitimate heirs of the late spouses Estanislao Miñoza and Inocencia Togono; b. Declaring herein intervenors as the true, rightful and registered owners of Lots 986 and 991-A of the Banilad Friar Lands Estate; c. Declaring the Extrajudicial Settlement executed on January 21, 1958 by the late Adriana Miñoza and the late Patricio Miñoza and the late Santiago Miñoza that they are the only heirs of the late spouses Estanislao Miñoza and Inocencia Togono, who died intestate and without any debts or obligations and adjudicating among themselves the estate of the deceased x x x as void ab initio;

 d. Declaring the sale of Lots 986 and 991-A of the Banilad Friar Lands Estate executed by the late Adriana Miñoza, the late Patricio Miñoza and the late Santiago Miñoza in favor of the National Airport Corporation on February 15, 1958 x x x  as void ab initio; e. Ordering the cancellation of Transfer Certificate of Title Nos. 120370 and 120372 for Lots 986 and 991-A in the name of the Mactan-Cebu International Airport Authority and restoring Transfer Certificate of Title Nos. RT-6101 (T-10534) and RT-6102 (T-10026) to be the true and valid torrens titles to Lots 986 and 991-[A]. f. Condemning plaintiffs Leila M. Hermosisima and Constancio Miñoza to pay intervenors, who are the true, lawful and legitimate heirs of the late Spouses Estanislao Miñoza and Inocencia Togono, the amounts ofP300,000.00 and P100,000.00 as moral and exemplary damages respectively; g. Condemning plaintiffs to pay the cost of suit.[6]

 On February 18, 2000, the RTC of Cebu City, Branch 22, issued an

Order[7] denying the Motion for Intervention.  In denying the motion, the trial court opined that the ownership of the

subject lots was merely a collateral issue in the action.  The principal issue to be resolved was whether or not the heirs of the late Estanislao Miñoza – whoever they may be – have a right to repurchase the said lots from the MCIAA.  Consequently, the rights being claimed by the intervenors should be asserted in and would be fully protected by a separate proceeding.  Moreover, if the motion was granted, it would unduly delay the proceedings in the instant case.  Finally, the complaint-in-intervention was flawed, considering that it was not verified and does not contain the requisite certification of non-forum shopping.

 The intervenors filed a Motion for Reconsideration,[8] to which was attached

a Complaint-in-Intervention with the required Verification and Certificate of Non-Forum Shopping.[9] However, the RTC denied the motion in its Order dated July 25, 2000.

 

Aggrieved, the intervenors sought recourse before the CA, docketed as CA-G.R. CV No. 70429, on the following assignment of errors:

 I. 

THE COURT A QUO IN ITS ORDER DATED FEBRUARY 18, 2000 GRAVELY ERRED IN DISMISSING THE ABOVE CAPTIONED COMPLAINT BASED ON THE GROUND THAT:  1). THE RIGHTS CLAIMED BY MOVANTS-INTERVERNORS (NOW INTERVENORS-APPELLANTS) WOULD MORE APPROPRIATELY BE ASSERTED IN, AND WOULD BE FULLY PROTECTED BY, A SEPARATE PROCEEDING; 2). IT (THE COMPLAINT-IN-INTERVENTION) WILL DELAY THE PROCEEDINGS OF THE INSTANT CASE; AND 3). THAT THE COMPLAINT-IN-INTERVENTION IS NOT VERIFIED AND DOES NOT CONTAIN THE REQUISITE CERTIFICATION OF NON-FORUM SHOPPING.  

II. 

THE COURT A QUO IN ITS ORDER DATED JULY 25, 2000 GRAVELY ERRED WHEN IT DENIED MOVANTS-INTERVENORS’ (NOW INTERVENORS-APPELLANTS) MOTION FOR RECONSIDERATION DATED MARCH 20, 2000, AGAIN ON THE GROUND THAT TO ALLOW THE INTERVENORS TO INTERVENE IN THIS CASE WHICH IS ALREADY SUBMITTED FOR DECISION WOULD ONLY DELAY THE DISPOSAL OF THIS CASE AND THAT ANYWAY, THE INTERVERNORS HAVE NOTHING TO FEAR BECAUSE THEIR CLAIMS, IF THERE IS ANY, CAN BE WELL THRESHED OUT IN ANOTHER PROCEEDING.[10]

 

On March 25, 2008, the CA rendered the assailed Decision, the decretal portion of which provides:

 WHEREFORE, the appealed Orders dated February 18, 2000 and July

25, 2000 of the RTC of Cebu City, in Civil Case No. 22290, are REVERSED and SET ASIDE.  The RTC of Cebu City is directed to resolve with deliberate dispatch Civil Case No. 22290 and to admit the complaint-in-intervention filed by the intervenors-appellants.

 SO ORDERED.[11]

 

In ruling for the intervenors, the CA ratiocinated that contrary to the findings of the trial court, the determination of the true heirs of the late Estanislao Miñoza is not only a collateral, but the focal issue of the case, for if the intervenors can prove that they are indeed the true heirs of Estanislao Miñoza, there would be no more need to determine whether the right to buy back the subject lots exists or not as the MCIAA would not have acquired rights to the subject lots in the first place.  In addition, to grant the motion for intervention would avoid multiplicity of suits.  As to the lack of verification and certification on non-forum shopping, the CA opined that the filing of the motion for reconsideration with an appended complaint-in-intervention containing the required verification and certificate of non-forum shopping amounted to substantial compliance of the Rules.

 Petitioner then filed a motion for reconsideration, but it was denied in the

Resolution dated January 8, 2009. Hence, the petition assigning the lone error that: THE COURT OF APPEALS (CEBU CITY) GRAVELY ERRED IN ALLOWING RESPONDENTS TO INTERVENE IN CIVIL CASE NO. CEB-22290.[12]

  

Petitioner argues that to allow the intervenors to intervene in the proceedings before the trial court would not only unduly prolong and delay the resolution of the case, it would make the proceedings unnecessarily complicated and change the nature of the proceedings.  Furthermore, contrary to the requirements for the allowance of a motion for intervention, their legal interest in the subject properties appear to be merely contingent or expectant and not of direct or immediate character.  Petitioner also posits that the intervenors’ rights can be better protected in another proceeding.

 

Anent the lack of verification and certification on non-forum shopping, petitioner maintains that the trial court was correct in denying the motion on this ground.  In addition, even if the complaint-in-intervention with the required verification and certificate of non-forum shopping was appended to the intervenors’ motion for reconsideration, the complaint-in-intervention was not verified by all the interested parties or all the heirs of Filomeno Miñoza, which still warrants its dismissal.

 The petition is meritorious. At the outset, on the procedural aspect, contrary to petitioner’s contention,

the initial lack of the complaint-in-intervention of the requisite verification and certification on non-forum shopping was cured when the intervenors, in their motion for reconsideration of the order denying the motion to intervene, appended a complaint-in-intervention containing the required verification and certificate of non-forum shopping. 

 In the case of Altres v. Empleo,[13] this Court clarified, among other things,

that as to verification, non-compliance therewith or a defect therein does not necessarily render the pleading fatally defective. The court may order its submission or correction, or act on the pleading if the attending circumstances are such that strict compliance with the Rule may be dispensed with in order that the ends of justice may be served thereby.  Further, a verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations in the complaint or petition signs the verification, and when matters alleged in the petition have been made in good faith or are true and correct.[14]

 Moreover, as to the certification against forum shopping, non-compliance

therewith or a defect therein, unlike in verification, is generally not curable by its

subsequent submission or correction thereof, unless there is a need to relax the Rules on the ground of “substantial compliance” or presence of “special circumstances or compelling reasons.” Also, the certification against forum shopping must be signed by all the plaintiffs or petitioners in a case; otherwise, those who did not sign will be dropped as parties to the case.  Under reasonable or justifiable circumstances, however, as when all the plaintiffs or petitioners share a common interest and invoke a common cause of action or defense, the signature of only one of them in the certification against forum shopping substantially complies with the Rule.[15]

 Thus, considering that the intervenors in their motion for reconsideration,

appended a complaint-in-intervention with the required verification and certificate of non-forum shopping, the requirement of the Rule was substantially complied with.

 Notwithstanding the intervenors’ compliance with the procedural

requirements, their attempt to intervene is doomed to fail. Intervention is a remedy by which a third party, not originally impleaded in

the proceedings, becomes a litigant therein to enable him, her or it to protect or preserve a right or interest which may be affected by such proceedings.[16]  It is a proceeding in a suit or action by which a third person is permitted by the court to make himself a party, either joining plaintiff in claiming what is sought by the complaint, or uniting with defendant in resisting the claims of plaintiff, or demanding something adversely to both of them; the act or proceeding by which a third person becomes a party in a suit pending between others; the admission, by leave of court, of a person not an original party to pending legal proceedings, by which such person becomes a party thereto for the protection of some right of interest alleged by him to be affected by such proceedings.[17]

 

Section 1, Rule 19 of the Rules of Court states: 

SECTION 1. Who may intervene. — A person who has a legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof may, with leave of court, be allowed to intervene in the action. The court shall consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties, and whether or not the intervenor’s rights may be fully protected in a separate proceeding.

 Under this Rule, intervention shall be allowed when a person has (1) a legal

interest in the matter in litigation; (2) or in the success of any of the parties; (3) or an interest against the parties; (4) or when he is so situated as to be adversely affected by a distribution or disposition of property in the custody of the court or an officer thereof.[18]  Moreover, the court must take into consideration whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties, and whether or not the intervenor’s right or interest can be adequately pursued and protected in a separate proceeding.

 In the case at bar, the intervenors are claiming that they are the legitimate

heirs of Estanislao Miñoza and Inocencia Togono and not the original plaintiffs represented by Leila Hermosisima. True, if their allegations were later proven to be valid claims, the intervenors would surely have a legal interest in the matter in litigation.  Nonetheless, this Court has ruled that the interest contemplated by law must be actual, substantial, material, direct and immediate, and not simply contingent or expectant.  It must be of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment.[19]  Otherwise, if persons not parties to the action were allowed to intervene, proceedings would become unnecessarily complicated, expensive and interminable.[20]

 

Moreover, the intervenors’ contentions that Leila’s predecessors-in-interest executed, in fraud of the intervenors, an extra judicial settlement of the estate of the late spouses Estanislao Miñoza and Inocencia Togono and adjudicated unto themselves the estate of the deceased spouses, and that subsequently, her predecessors-in-interest fraudulently and deceitfully sold the subject lots to the NAC, would unnecessarily complicate and change the nature of the proceedings. 

 In addition to resolving who the true and legitimate heirs of Estanislao

Miñoza and Inocencia Togono are, the parties would also present additional evidence in support of this new allegation of fraud, deceit, and bad faith and resolve issues of conflicting claims of ownership, authenticity of certificates of titles, and regularity in their acquisition.  Verily, this would definitely cause unjust delay in the adjudication of the rights claimed by the original parties, which primarily hinges only on the issue of whether or not the heirs represented by Leila have a right to repurchase the subject properties from the MCIAA.

 Verily, the allegation of fraud and deceit is an independent controversy

between the original parties and the intervenors.  In general, an independent controversy cannot be injected into a suit by intervention, hence, such intervention will not be allowed where it would enlarge the issues in the action and expand the scope of the remedies.  It is not proper where there are certain facts giving the intervenor’s case an aspect peculiar to himself and differentiating it clearly from that of the original parties; the proper course is for the would-be intervenor to litigate his claim in a separate suit.[21]  Intervention is not intended to change the nature and character of the action itself, or to stop or delay the placid operation of the machinery of the trial.  The remedy of intervention is not proper where it will have the effect of retarding the principal suit or delaying the trial of the action.[22]

 To be sure, not only will the intervenors’ rights be fully protected in a

separate proceeding, it would best determine the rights of the parties in relation to

the subject properties and the issue of who the legitimate heirs of Estanislao Miñoza and Inocencia Togono, would be laid to rest.

 Furthermore, the allowance or disallowance of a motion for intervention

rests on the sound discretion of the court after consideration of the appropriate circumstances.[23]  It is not an absolute right.  The statutory rules or conditions for the right of intervention must be shown.  The procedure to secure the right to intervene is to a great extent fixed by the statute or rule, and intervention can, as a rule, be secured only in accordance with the terms of the applicable provision.[24]

 Consequently, the denial of the motion to intervene by the RTC was but just

and proper.  The conclusion of the RTC is not bereft of rational bases.  It denied the motion to intervene in the exercise of its sound discretion and after taking into consideration the particular circumstances of the case.

 WHEREFORE, subject to the above disquisition, the petition

is GRANTED.  The Decision dated March 25, 2008 and the Resolution dated January 8, 2009, of the Court of Appeals in CA-G.R. CV No. 70429, are REVERSED and SET ASIDE.  The Orders of the Regional Trial Court of Cebu City, Branch 22, dated February 18, 2000 and July 25, 2000, are REINSTATED.

 SO ORDERED. 

                                                                    DIOSDADO M. PERALTA                                                                             Associate Justice  WE CONCUR: 

ANTONIO T. CARPIO

Associate JusticeChairperson

       ANTONIO EDUARDO B. NACHURA            ROBERTO A. ABAD                 Associate Justice                                       Associate Justice                

JOSE CATRAL MENDOZAAssociate Justice

   

ATTESTATION  

          I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.   

                                      ANTONIO T. CARPIO                                    Associate Justice

                                    Second Division, Chairperson     

CERTIFICATION 

          Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                                       RENATO C. CORONA                                                                           Chief Justice 

 29

  

Republic of the PhilippinesSupreme Court

Manila  

FIRST DIVISION  

VALLACAR TRANSIT, INC.,                        Petitioner,     

-  versus  -     JOCELYN CATUBIG,                        Respondent.

  G.R. No. 175512 Present: CORONA, C.J.,       Chairperson,     VELASCO, JR.,LEONARDO-DE CASTRO,PERALTA,* andPEREZ, JJ.  Promulgated: May 30, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - -x  

D E C I S I O N  LEONARDO-DE CASTRO, J.:  

For review under Rule 45 of the Rules of Court is the Decision [1] dated November 17, 2005 and the Resolution[2] dated November 16, 2006 of the Court Appeals in CA-G.R. CV No. 66815, which modified the Decision[3] dated January 26, 2000 of the Regional Trial Court (RTC), Branch 30 of Dumaguete City, in Civil Case No. 11360, an action for recovery of damages based on Article 2180, in relation to Article 2176, of the Civil Code, filed by respondent Jocelyn Catubig against petitioner Vallacar Transit, Inc.  While the RTC dismissed respondent’s claim for damages, the Court of Appeals granted the same.    

 The undisputed facts are as follows: Petitioner is engaged in the business of transportation and the franchise

owner of a Ceres Bulilit bus with Plate No. T-0604-1348.  Quirino C. Cabanilla (Cabanilla) is employed as a regular bus driver of petitioner. 

 On January 27, 1994, respondent’s husband, Quintin Catubig, Jr. (Catubig),

was on his way home from Dumaguete City riding in tandem on a motorcycle with his employee, Teddy Emperado (Emperado).  Catubig was the one driving the motorcycle.  While approaching a curve at kilometers 59 and 60, Catubig tried to overtake a slow moving ten-wheeler cargo truck by crossing-over to the opposite lane, which was then being traversed by the Ceres Bulilit bus driven by Cabanilla, headed for the opposite direction.  When the two vehicles collided, Catubig and Emperado were thrown from the motorcycle.  Catubig died on the spot where he was thrown, while Emperado died while being rushed to the hospital. 

 On February 1, 1994, Cabanilla was charged with reckless imprudence

resulting in double homicide in Criminal Case No. M-15-94 before the Municipal Circuit Trial Court (MCTC) of Manjuyod-Bindoy-Ayungon of the Province of Negros Oriental.  After preliminary investigation, the MCTC issued a Resolution on December 22, 1994, dismissing the criminal charge against Cabanilla.  It found

that Cabanilla was not criminally liable for the deaths of Catubig and Emperado, because there was no negligence, not even contributory, on Cabanilla’s part.

 Thereafter, respondent filed before the RTC on July 19, 1995 a Complaint

for Damages against petitioner, seeking actual, moral, and exemplary damages, in the total amount of P484,000.00, for the death of her husband, Catubig, based on Article 2180, in relation to Article 2176, of the Civil Code.  Respondent alleged that petitioner is civilly liable because the latter’s employee driver, Cabanilla, was reckless and negligent in driving the bus which collided with Catubig’s motorcycle.

 Petitioner, in its Answer with Counterclaim, contended that the proximate

cause of the vehicular collision, which resulted in the deaths of Catubig and Emperado, was the sole negligence of Catubig when he imprudently overtook another vehicle at a curve and traversed the opposite lane of the road.  As a special and affirmative defense, petitioner asked for the dismissal of respondent’s complaint for not being verified and/or for failure to state a cause of action, as there was no allegation that petitioner was negligent in the selection or supervision of its employee driver.

 In the Pre-Trial Order[4] dated June 10, 1997, the parties stipulated that the

primary issue for trial was whether or not petitioner should be held liable for Catubig’s death.  Trial then ensued. 

 Police Officer (PO) 2 Robert B. Elnas (Elnas),[5] Emilio Espiritu (Espiritu),

[6] Dr. Norberto Baldado, Jr. (Dr. Baldado),[7] Peter Cadimas (Cadimas),[8] and respondent[9] herself testified in support of respondent’s complaint. 

 PO2 Elnas conducted an investigation of the collision incident.  According

to PO2 Elnas, the bus was running fast, at a speed of 100 kilometers per hour, when it collided with the motorcycle which was trying to overtake a truck.  The collision occurred on the lane of the bus.  Catubig was flung 21 meters away, and Emperado, 11 meters away, from the point of impact.  The motorcycle was totaled; the chassis broke into three parts, and the front wheel and the steering wheel with the shock absorbers were found 26 meters and 38 meters, respectively, from the collision point.  In contrast, only the front bumper of the bus suffered damage.

 Cadimas personally witnessed the collision of the bus and the

motorcycle.  He recalled that he was then waiting for a ride to Dumaguete City and saw the Ceres Bulilit bus making a turn at a curve.  Cadimas signaled the said bus to halt but it was running fast.  Cadimas also recollected that there was a cargo truck running slow in the opposite direction of the bus.  Cadimas next heard a thud and saw that the bus already collided with a motorcycle.

 Espiritu was the photographer who took photographs of the scene of the

accident.  He identified the five photographs which he had taken of Catubig lying on the ground, bloodied; broken parts of the motorcycle; and the truck which Catubig tried to overtake. 

 Dr. Baldado was the medico-legal doctor who conducted the post-mortem

examination of Catubig’s body.  He reported that Catubig suffered from the following injuries: laceration and fracture of the right leg; laceration and fracture of the left elbow; multiple abrasions in the abdominal area, left anterior chest wall, posterior right arm, and at the back of the left scapular area; and contusion-hematoma just above the neck.  Dr. Baldado confirmed that Catubig was already dead when the latter was brought to the hospital, and that the vehicular accident could have caused Catubig’s instantaneous death.

 Respondent herself testified to substantiate the amount of damages she was

trying to recover from petitioner for Catubig’s death, such as Catubig’s earning capacity; expenses incurred for the wake and burial of Catubig, as well as of Emperado; the cost of the motorcycle; and the costs of the legal services and fees respondent had incurred.

 Respondent’s documentary exhibits consisted of her and Catubig’s Marriage

Contract dated August 21, 1982, their two children’s Certificate of Live Births, Catubig’s College Diploma dated March 24, 1983, the list and receipts of the expenses for Catubig’s burial, the sketch of the collision site prepared by PO2 Elnas, the excerpts from the police blotter, the photographs of the collision,[10] and the Post Mortem Report[11] on Catubig’s cadaver prepared by Dr. Baldado. 

 

In an Order[12] dated October 6, 1998, the RTC admitted all of respondent’s aforementioned evidence.

 On the other hand, Rosie C. Amahit (Amahit)[13] and Nunally Maypa

(Maypa)[14] took the witness stand for petitioner.  Amahit was a Court Stenographer at the MCTC who took the transcript of

stenographic notes (TSN) in Criminal Case No. M-15-94 against Cabanilla.  Amahit verified that the document being presented by the defense in the present case was a true and correct copy of the TSN of the preliminary investigation held in Criminal Case No. M-15-94 on May 25, 1994, and another document was a duplicate original of the MCTC Resolution dated December 22, 1994 dismissing Criminal Case No. M-15-94.

 Maypa is the Administrative and Personnel Manager at the Dumaguete

branch of petitioner.  He started working for petitioner on September 22, 1990 as a clerk at the Human Resources Development Department at the Central Office of petitioner in Bacolod City.  Sometime in November 1993, he became an Administrative Assistant at the Dumaguete branch of petitioner; and in August 1995, he was promoted to his current position at the same branch.

 While he was still an Administrative Assistant, Maypa was responsible for

the hiring of personnel including drivers and conductors.  Maypa explained that to be hired as a driver, an applicant should be 35 to 45 years old, have at least five years experience in driving big trucks, submit police, court, and medical clearances, and possess all the necessary requirements for driving a motor vehicle of more than 4,500 kilograms in gross weight such as a professional driver’s license with a restriction code of 3.  The applicant should also pass the initial interview, the actual driving and maintenance skills tests, and a written psychological examination involving defensive driving techniques.  Upon passing these examinations, the applicant still had to go through a 15-day familiarization of the bus and road conditions before being deployed for work.  Maypa, however, admitted that at the time of his appointment as Administrative Assistant at the Dumaguete branch, Cabanilla was already an employee driver of petitioner. 

 

Maypa further explained the investigation and grievance procedure followed by petitioner in cases of vehicular accidents involving the latter’s employee drivers.  Maypa related that Cabanilla had been put on preventive suspension following the vehicular accident on January 27, 1994 involving the bus Cabanilla was driving and the motorcycle carrying Catubig and Emperado.  Following an internal investigation of said accident conducted by petitioner, Cabanilla was declared not guilty of causing the same, for he had not been negligent.     

 Lastly, Maypa recounted the expenses petitioner incurred as a result of the

present litigation. The documentary exhibits of petitioner consisted of the TSN of the

preliminary investigation in Criminal Case No. M-15-94 held on May 25, 1994 before the MCTC of Manjuyod-Bindoy-Ayungon of the Province of Negros Oriental; Resolution dated December 22, 1994 of the MCTC in the same case; and the Minutes dated February 17, 1994 of the Grievance Proceeding conducted by petitioner involving Cabanilla.[15] 

 The RTC, in its Order[16] dated November 12, 1999, admitted all the

evidence presented by petitioner. On January 26, 2000, the RTC promulgated its Decision favoring

petitioner.  Based on the sketch prepared by PO2 Elnas, which showed that “the point of impact x x x occurred beyond the center lane near a curve within the lane of the Ceres bus[;]”[17] plus, the testimonies of PO2 Elnas and Cadimas that the motorcycle recklessly tried to overtake a truck near a curve and encroached the opposite lane of the road, the RTC ruled that the proximate cause of the collision of the bus and motorcycle was the negligence of the driver of the motorcycle, Catubig.  The RTC, moreover, was convinced through the testimony of Maypa, the Administrative and Personnel Manager of the Dumaguete branch of petitioner, that petitioner had exercised due diligence in the selection and supervision of its employee drivers, including Cabanilla.  

 After trial, the RTC concluded: 

WHEREFORE, finding preponderance of evidence in favor of the [herein petitioner] that the [herein respondent’s] husband is the reckless and negligent driver and not the driver of the [petitioner], the above-entitled case is hereby ordered dismissed.

 [Petitioner’s] counterclaim is also dismissed for lack of merit.[18]

  

Respondent appealed to the Court of Appeals. In its Decision dated November 17, 2005, the appellate court held that both Catubig and Cabanilla were negligent in driving their respective vehicles.  Catubig, on one hand, failed to use reasonable care for his own safety and ignored the hazard when he tried to overtake a truck at a curve.  Cabanilla, on the other hand, was running his vehicle at a high speed of 100 kilometers per hour.  The Court of Appeals also brushed aside the defense of petitioner that it exercised the degree of diligence exacted by law in the conduct of its business.  Maypa was not in a position to testify on the procedures followed by petitioner in hiring Cabanilla as an employee driver considering that Cabanilla was hired a year before Maypa assumed his post at the Dumaguete branch of petitioner.

 Thus, the Court of Appeals decreed:

 WHEREFORE, based on the foregoing, the assailed decision of the trial

court is modified.  We rule that [herein petitioner] is equally liable for the accident in question which led to the deaths of Quintin Catubig, Jr. and Teddy Emperado and hereby award to the heirs of Quintin Catubig, Jr. the amount [of] P250,000.00 as full compensation for the death of the latter.[19]

  

The Court of Appeals denied the motion for reconsideration of petitioner in a Resolution dated November 16, 2006.

 Hence, the instant Petition for Review. Petitioner asserts that respondent’s complaint for damages should be

dismissed for the latter’s failure to verify the same.  The certification against forum shopping attached to the complaint, signed by respondent, is not a valid substitute for respondent’s verification that she “has read the pleading and that the allegations therein are true and correct of her personal knowledge or based on authentic

records.”[20]  Petitioner cited jurisprudence in which the Court ruled that a pleading lacking proper verification is treated as an unsigned pleading, which produces no legal effect under Section 3, Rule 7 of the Rules of Court.

 Petitioner also denies any vicarious or imputed liability under Article 2180,

in relation to Article 2176, of the Civil Code.  According to petitioner, respondent failed to prove the culpability of Cabanilla, the employee driver of petitioner.  There are already two trial court decisions (i.e., the Resolution dated December 22, 1994 of the MCTC of Manjuyod-Bindoy-Ayungon of the Province of Negros Oriental in Criminal Case No. M-15-94 and the   Decision dated January 26, 2000 of the RTC in the instant civil suit) explicitly ruling that the proximate cause of the collision was Catubig’s reckless and negligent act.  Thus, without the fault or negligence of its employee driver, no liability at all could be imputed upon petitioner.

 Petitioner additionally argues, without conceding any fault or liability, that

the award by the Court of Appeals in respondent’s favor of the lump sum amount of P250,000.00 as total death indemnity lacks factual and legal basis.  Respondent’s evidence to prove actual or compensatory damages are all self-serving, which are either inadmissible in evidence or devoid of probative value. The award of moral and exemplary damages is likewise contrary to the ruling of the appellate court that Catubig should be equally held liable for his own death.

 Respondent maintains that the Court of Appeals correctly adjudged

petitioner to be liable for Catubig’s death and that the appellate court had already duly passed upon all the issues raised in the petition at bar.

  The petition is meritorious. At the outset, we find no procedural defect that would have warranted the

outright dismissal of respondent’s complaint.  Respondent filed her complaint for damages against petitioner on July 19,

1995, when the 1964 Rules of Court was still in effect.  Rule 7, Section 6 of the 1964 Rules of Court provided:

 SEC. 6. Verification.—A pleading is verified only by an affidavit stating

that the person verifying has read the pleading and that the allegations thereof are true of his own knowledge.

 Verifications based on "information and belief," or upon "knowledge,

information and belief," shall be deemed insufficient.  

On July 1, 1997, the new rules on civil procedure took effect.  The foregoing provision was carried on, with a few amendments, as Rule 7, Section 4 of the 1997 Rules of Court, viz:

 SEC. 4. Verification. – Except when otherwise specifically required by

law or rule, pleadings need not be under oath, verified or accompanied by affidavit.

 A pleading is verified by an affidavit that the affiant has read the pleading

and that the allegations therein are true and correct of his knowledge and belief. A pleading required to be verified which contains a verification based on

“information and belief,” or upon “knowledge, information and belief,” or lacks a proper verification, shall be treated as an unsigned pleading.”

  

The same provision was again amended by A.M. No. 00-2-10, which became effective on May 1, 2000.  It now reads:

 SEC. 4. Verification. - Except when otherwise specifically required by law

or rule, pleadings need not be under oath, verified or accompanied by affidavit.  A pleading is verified by an affidavit that the affiant has read the pleading

and that the allegations therein are true and correct of his personal knowledge or based on authentic records. 

 A pleading required to be verified which contains a verification based on

“information and belief” or upon “knowledge, information and belief,” or lacks a proper verification, shall be treated as an unsigned pleading.

  

The 1997 Rules of Court, even prior to its amendment by A.M. No. 00-2-10, clearly provides that a pleading lacking proper verification is to be treated as an unsigned pleading which produces no legal effect.  However, it also just as clearly

states that “[e]xcept when otherwise specifically required by law or rule, pleadings need not be under oath, verified or accompanied by affidavit.”  No such law or rule specifically requires that respondent’s complaint for damages should have been verified.  

 Although parties would often submit a joint verification and certificate

against forum shopping, the two are different.  In Pajuyo v. Court of Appeals,[21] we already pointed out that:

 A party’s failure to sign the certification against forum shopping is different

from the party’s failure to sign personally the verification.  The certificate of non-forum shopping must be signed by the party, and not by counsel.  The certification of counsel renders the petition defective.

 On the other hand, the requirement on verification of a pleading is a formal

and not a jurisdictional requisite.  It is intended simply to secure an assurance that what are alleged in the pleading are true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith.  The party need not sign the verification.  A party’s representative, lawyer or any person who personally knows the truth of the facts alleged in the pleading may sign the verification.[22]

  

In the case before us, we stress that as a general rule, a pleading need not be verified, unless there is a law or rule specifically requiring the same.  Examples of pleadings that require verification are: (1) all pleadings filed in civil cases under the 1991 Revised Rules on Summary Procedure; (2) petition for review from the Regional Trial Court to the Supreme Court raising only questions of law under Rule 41, Section 2; (3) petition for review of the decision of the Regional Trial Court to the Court of Appeals under Rule 42, Section 1; (4) petition for review from quasi-judicial bodies to the Court of Appeals under Rule 43, Section 5; (5) petition for review before the Supreme Court under Rule 45, Section 1; (6) petition for annulment of judgments or final orders and resolutions under Rule 47, Section 4; (7) complaint for injunction under Rule 58, Section 4; (8) application for preliminary injunction or temporary restraining order under Rule 58, Section 4; (9)  application for appointment of a receiver under Rule 59, Section 1; (10) application for support pendente lite under Rule 61, Section 1; (11) petition for certiorari against the judgments, final orders or resolutions of constitutional

commissions under Rule 64, Section 2; (12) petition for certiorari, prohibition, and mandamus under Rule 65, Sections 1 to 3; (13) petition for quo warranto under Rule 66, Section 1; (14) complaint for expropriation under Rule 67, Section 1; (15) petition for indirect contempt under Rule 71, Section 4, all from the 1997 Rules of Court; (16) all complaints or petitions involving intra-corporate controversies under the Interim Rules of Procedure on Intra-Corporate Controversies; (17) complaint or petition for rehabilitation and suspension of payment under the Interim Rules on Corporate Rehabilitation; and (18) petition for declaration of absolute nullity of void marriages and annulment of voidable marriages as well as petition for summary proceedings under the Family Code.

 In contrast, all complaints, petitions, applications, and other initiatory

pleadings must be accompanied by a certificate against forum shopping, first prescribed by Administrative Circular No. 04-94, which took effect on April 1, 1994, then later on by Rule 7, Section 5 of the 1997 Rules of Court.  It is not disputed herein that respondent’s complaint for damages was accompanied by such a certificate.

 In addition, verification, like in most cases required by the rules of

procedure, is a formal, not jurisdictional, requirement, and mainly intended to secure an assurance that matters which are alleged are done in good faith or are true and correct and not of mere speculation.  When circumstances warrant, the court may simply order the correction of unverified pleadings or act on it and waive strict compliance with the rules in order that the ends of justice may thereby be served.[23] 

 We agree with petitioner, nonetheless, that respondent was unable to prove

imputable negligence on the part of petitioner. Prefatorily, we restate the time honored principle that in a petition for review

under Rule 45, only questions of law may be raised.  It is not our function to analyze or weigh all over again evidence already considered in the proceedings below, our jurisdiction is limited to reviewing only errors of law that may have been committed by the lower court.  The resolution of factual issues is the function of lower courts, whose findings on these matters are received with respect.  A

question of law which we may pass upon must not involve an examination of the probative value of the evidence presented by the litigants.[24] 

 The above rule, however, admits of certain exceptions.  The findings of fact

of the Court of Appeals are generally conclusive but may be reviewed when: (1) the factual findings of the Court of Appeals and the trial court are contradictory; (2) the findings are grounded entirely on speculation, surmises or conjectures; (3) the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd or impossible; (4) there is grave abuse of discretion in the appreciation of facts; (5) the appellate court, in making its findings, goes beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; (6) the judgment of the Court of Appeals is premised on a misapprehension of facts; (7) the Court of Appeals fails to notice certain relevant facts which, if properly considered, will justify a different conclusion; and (8) the findings of fact of the Court of Appeals are contrary to those of the trial court or are mere conclusions without citation of specific evidence, or where the facts set forth by the petitioner are not disputed by respondent, or where the findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on record.[25]  

 The issue of negligence is basically factual.[26]  Evidently, in this case, the

RTC and the Court of Appeals have contradictory factual findings: the former found that Catubig alone was negligent, while the latter adjudged that both Catubig and petitioner were negligent.

 Respondent based her claim for damages on Article 2180, in relation to

Article 2176, of the Civil Code, which read: 

Art. 2176.  Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done.  Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.      

Art. 2180.  The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those persons for whom one is responsible.

 x x x x

 Employers shall be liable for the damages caused by their employees and

household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

 x x x x The responsibility treated of in this article shall cease when the persons

herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

  

There is merit in the argument of the petitioner that Article 2180 of the Civil Code – imputing fault or negligence on the part of the employer for the fault or negligence of its employee – does not apply to petitioner since the fault or negligence of its employee driver, Cabanilla, which would have made the latter liable for quasi-delict under Article 2176 of the Civil Code, has never been established by respondent.  To the contrary, the totality of the evidence presented during trial shows that the proximate cause of the collision of the bus and motorcycle is attributable solely to the negligence of the driver of the motorcycle, Catubig.  

 Proximate cause is defined as that cause, which, in natural and continuous

sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.  And more comprehensively, the proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an ordinary prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom.[27]

 The RTC concisely articulated and aptly concluded that Catubig’s

overtaking of a slow-moving truck ahead of him, while approaching a curve on the highway, was the immediate and proximate cause of the collision which led to his own death, to wit:

 Based on the evidence on record, it is crystal clear that the immediate

and proximate cause of the collision is the reckless and negligent act of Quintin Catubig, Jr. and not because the Ceres Bus was running very fast.  Even if the Ceres Bus is running very fast on its lane, it could not have caused the collision if not for the fact that Quintin Catubig, Jr. tried to overtake a cargo truck and encroached on the lane traversed by the Ceres Bus while approaching a curve.  As the driver of the motorcycle, Quintin Catubig, Jr. has not observed reasonable care and caution in driving his motorcycle which an ordinary prudent driver would have done under the circumstances.  Recklessness on the part of Quintin Catubig, Jr. is evident when he tried to overtake a cargo truck while approaching a curve in Barangay Donggo-an, Bolisong, Manjuyod, Negros Oriental.  Overtaking is not allowed while approaching a curve in the highway (Section 41(b), Republic Act [No.] 4136, as amended).  Passing another vehicle proceeding on the same direction should only be resorted to by a driver if the highway is free from incoming vehicle to permit such overtaking to be made in safety (Section 41(a), Republic Act [No.] 4136).  The collision happened because of the recklessness and carelessness of [herein respondent’s] husband who was overtaking a cargo truck while approaching a curve.  Overtaking another vehicle while approaching a curve constitute reckless driving penalized not only under Section 48 of Republic Act [No.] 4136 but also under Article 365 of the Revised Penal Code.

 The Court commiserate with the [respondent] for the untimely death of her

husband.  However, the Court as dispenser of justice has to apply the law based on the facts of the case.  Not having proved by preponderance of evidence that the proximate cause of the collision is the negligence of the driver of the Ceres bus, this Court has no other option but to dismiss this case.[28] (Emphases supplied.)

  

The testimonies of prosecution witnesses Cadimas and PO2 Elnas that Cabanilla was driving the bus at a reckless speed when the collision occurred lack probative value. 

 We are unable to establish the actual speed of the bus from Cadimas’s

testimony for he merely stated that the bus did not stop when he tried to flag it down because it was “running very fast.”[29]        

 PO2 Elnas, on the other hand, made inconsistent statements as to the actual

speed of the bus at the time of the collision.  During the preliminary investigation in Criminal Case No. M-15-94 before the MCTC, PO2 Elnas refused to give testimony as to the speed of either the bus or the motorcycle at the time of the

collision and an opinion as to who was at fault.[30]  But during the trial of the present case before the RTC, PO2 Elnas claimed that he was told by Cabanilla that the latter was driving the bus at the speed of around 100 kilometers per hour.[31]  

 As the RTC noted, Cadimas and PO2 Elnas both pointed out that the

motorcycle encroached the lane of the bus when it tried to overtake, while nearing a curve, a truck ahead of it, consistent with the fact that the point of impact actually happened within the lane traversed by the bus.  It would be more reasonable to assume then that it was Catubig who was driving his motorcycle at high speed because to overtake the truck ahead of him, he necessarily had to drive faster than the truck.  Catubig should have also avoided overtaking the vehicle ahead of him as the curvature on the road could have obstructed his vision of the oncoming vehicles from the opposite lane.

 The evidence shows that the driver of the bus, Cabanilla, was driving his

vehicle along the proper lane, while the driver of the motorcycle, Catubig, had overtaken a vehicle ahead of him as he was approaching a curvature on the road, in disregard of the provision of the law on reckless driving, at the risk of his life and that of his employee, Emperado.

 The presumption that employers are negligent under Article 2180 of the

Civil Code flows from the negligence of their employees.[32]  Having adjudged that the immediate and proximate cause of the collision resulting in Catubig’s death was his own negligence, and there was no fault or negligence on Cabanilla’s part, then such presumption of fault or negligence on the part of petitioner, as Cabanilla’s employer, does not even arise.  Thus, it is not even necessary to delve into the defense of petitioner that it exercised due diligence in the selection and supervision of Cabanilla as its employee driver.

 WHEREFORE, premises considered, the petition is GRANTED.  The

Decision dated November 17, 2005 and Resolution dated November 16, 2006 of the Court Appeals in CA-G.R. CV No. 66815 are SET ASIDE and the Decision dated January 26, 2000 of the Regional Trial Court, Branch 30 of Dumaguete City, dismissing  Civil Case No. 11360 is REINSTATED.

 SO ORDERED.

    

                                                  TERESITA J. LEONARDO-DE CASTRO

                                       Associate Justice      

WE CONCUR:     

RENATO C. CORONAChief JusticeChairperson

      

PRESBITERO J. VELASCO, JR.Associate Justice

DIOSDADO M. PERALTAAssociate Justice

                  

JOSE PORTUGAL PEREZAssociate Justice

  

 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.   

RENATO C. CORONAChief Justice

 30

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 180986             December 10, 2008

NORBERTO ALTRES, EVITA BULINGAN, EVANGELINE SASTINE, FELIPE SASA, LILIBETH SILLAR, RAMONITO JAYSON, JELO TUCALO, JUAN BUCA, JR., JUE CHRISTINE CALAMBA, ROMEO PACQUINGAN, JR., CLEO JEAN ANGARA, LOVENA OYAO, RODOLFO TRINIDAD, LEONILA SARA, SORINA BELDAD, MA. LINDA NINAL, LILIA PONCE, JOSEFINA ONGCOY, ADELYN BUCTUAN, ALMA ORBE, MYLENE SOLIVA, NAZARENE LLOREN, ELIZABETH MANSERAS, DIAMOND MOHAMAD, MARYDELL CADAVOS, ELENA DADIOS, ALVIN CASTRO, LILIBETH RAZO, NORMA CEPRIA, PINIDO BELEY, JULIUS HAGANAS, ARTHUR CABIGON, CERILA BALABA, LIEZEL SIMAN, JUSTINA YUMOL, NERLITA CALI, JANETH BICOY, HENRY LACIDA, CESARIO ADVINCULA, JR., MERLYN RAMOS, VIRGIE TABADA, BERNARDITA CANGKE, LYNIE GUMALO, ISABEL ADANZA, ERNESTO LOBATON, RENE ARIMAS, FE SALVACION ORBE, JULIE QUIJANO, JUDITHO LANIT, GILBERTO ELIMIA, MANUEL PADAYOGDOG, HENRY BESIN, ROMULO PASILANG, BARTOLOME TAPOYAO, JR., RUWENA GORRES, MARIBETH RONDEZ, FERDINAND CAORONG, TEODOMERO CORONEL, ELIZABETH SAGPANG, and JUANITA ALVIOLA, petitioners, vs.CAMILO G. EMPLEO, FRANKLIN MAATA, LIVEY VILLAREN, RAIDES CAGA, FRANCO BADELLES, ERNESTO BALAT, GRACE SAQUILABON, MARINA JUMALON and GEORGE DACUP, respondents.

D E C I S I O N

CARPIO MORALES, J.:

Assailed via petition for review on certiorari are the Decision dated February 2, 20071 and Order dated October 22, 20072 of Branch 3 of the Regional Trial Court (RTC) of Iligan City, which denied

petitioners’ petition for mandamus praying for a writ commanding the city accountant of Iligan, Camilo G. Empleo (Empleo), or his successor in office, to issue a certification of availability of funds in connection with their appointments, issued by then Iligan City Mayor Franklin M. Quijano (Mayor Quijano), which were pending approval by the Civil Service Commission (CSC).

Sometime in July 2003, Mayor Quijano sent notices of numerous vacant career positions in the city government to the CSC. The city government and the CSC thereupon proceeded to publicly announce the existence of the vacant positions. Petitioners and other applicants submitted their applications for the different positions where they felt qualified.

Toward the end of his term or on May 27, June 1, and June 24, 2004, Mayor Quijano issued appointments to petitioners.

In the meantime, the Sangguniang Panglungsod issued Resolution No. 04-2423 addressed to the CSC Iligan City Field Office requesting a suspension of action on the processing of appointments to all vacant positions in the plantilla of the city government as of March 19, 2004 until the enactment of a new budget.

The Sangguniang Panglungsod subsequently issued Resolution No. 04-2664 which, in view of its stated policy against "midnight appointments," directed the officers of the City Human Resource Management Office to hold in abeyance the transmission of all appointments signed or to be signed by the incumbent mayor in order to ascertain whether these had been hurriedly prepared or carefully considered and whether the matters of promotion and/or qualifications had been properly addressed. The same Resolution enjoined all officers of the said Office to put off the transmission of all appointments to the CSC, therein making it clear that non-compliance therewith would be met with administrative action.

Respondent city accountant Empleo did not thus issue a certification as to availability of funds for the payment of salaries and wages of petitioners, as required by Section 1(e)(ii), Rule V of CSC Memorandum Circular No. 40, Series of 1998 reading:

x x x x

e. LGU Appointment. Appointment in local government units for submission to the Commission shall beaccompanied, in addition to the common requirements, by the following:

x x x x

ii. Certification by the Municipal/City Provincial Accountant/Budget Officer that funds are available. (Emphasis and underscoring supplied)

And the other respondents did not sign petitioners’ position description forms.

The CSC Field Office for Lanao del Norte and Iligan City disapproved the appointments issued to petitioners invariably due to lack of certification of availability of funds.

On appeal by Mayor Quijano, CSC Regional Office No. XII in Cotabato City, by Decision of July 30, 2004,5dismissed the appeal, it explaining that its function in approving appointments is only ministerial, hence, if an appointment lacks a requirement prescribed by the civil service law, rules

and regulations, it would disapprove it without delving into the reasons why the requirement was not complied with.

Petitioners thus filed with the RTC of Iligan City the above-stated petition for mandamus against respondent Empleo or his successor in office for him to issue a certification of availability of funds for the payment of the salaries and wages of petitioners, and for his co-respondents or their successors in office to sign the position description forms.

As stated early on, Branch 3 of the Iligan RTC denied petitioners’ petition for mandamus. It held that, among other things, while it is the ministerial duty of the city accountant to certify as to the availability of budgetary allotment to which expenses and obligations may properly be charged under Section 474(b)(4) of Republic Act No. 7160,6otherwise known as the Local Government Code of 1991, the city accountant cannot be compelled to issue a certification as to availability of funds for the payment of salaries and wages of petitioners as this ministerial function pertains to the city treasurer. In so holding, the trial court relied on Section 344 of the Local Government Code of 1991 the pertinent portion of which provides:

Sec. 344. Certification and Approval of Vouchers. – No money shall be disbursed unless the local budget officer certifies to the existence of appropriation that has been legally made for the purpose, the local accountant has obligated said appropriation, and the local treasurer certifies to the availability of funds for the purpose. x x x x (Underscoring supplied)

Petitioners filed a motion for reconsideration7 in which they maintained only their prayer for a writ of mandamus for respondent Empleo or his successor in office to issue a certification of availability of funds for the payment of their salaries and wages. The trial court denied the motion by Order of October 22, 2007,8 hence, the present petition.

By Resolution of January 22, 2008,9 this Court, without giving due course to the petition, required respondents to comment thereon within ten (10) days from notice, and at the same time required petitioners to comply, within the same period, with the relevant provisions of the 1997 Rules of Civil Procedure.

Petitioners filed a Compliance Report dated February 18, 200810 to which they attached 18 copies of (a) a verification and certification, (b) an affidavit of service, and (c) photocopies of counsel’s Integrated Bar of the Philippines (IBP) official receipt for the year 2008 and his privilege tax receipt for the same year.

Respondents duly filed their Comment,11 alleging technical flaws in petitioners’ petition, to which Comment petitioners filed their Reply12 in compliance with the Court’s Resolution dated April 1, 2008.13

The lone issue in the present petition is whether it is Section 474(b)(4) or Section 344 of the Local Government Code of 1991 which applies to the requirement of certification of availability of funds under Section 1(e)(ii), Rule V of CSC Memorandum Circular Number 40, Series of 1998. As earlier stated, the trial court ruled that it is Section 344. Petitioners posit, however, that it is Section 474(b)(4) under which it is the ministerial duty of the cityaccountant to issue the certification, and not Section 344 which pertains to the ministerial function of the citytreasurer to issue the therein stated certification.

A discussion first of the technical matters questioned by respondents is in order.

Respondents assail as defective the verification and certification against forum shopping attached to the petition as it bears the signature of only 11 out of the 59 petitioners, and no competent evidence of identity was presented by the signing petitioners. They thus move for the dismissal of the petition, citing Section 5, Rule 714 vis a visSection 5, Rule 4515 of the 1997 Rules of Civil Procedure and Docena v. Lapesura16 which held that the certification against forum shopping should be signed by all the petitioners or plaintiffs in a case and that the signing by only one of them is insufficient as the attestation requires personal knowledge by the party executing the same.17

Petitioners, on the other hand, argue that they have a justifiable cause for their inability to obtain the signatures of the other petitioners as they could no longer be contacted or are no longer interested in pursuing the case.18Petitioners plead substantial compliance, citing Huntington Steel Products, Inc., et al. v. NLRC19 which held, among other things, that while the rule is mandatory in nature, substantial compliance under justifiable circumstances is enough.

Petitioners’ position is more in accord with recent decisions of this Court.

In Iglesia ni Cristo v. Ponferrada,20 the Court held:

The substantial compliance rule has been applied by this Court in a number of cases: Cavile v. Heirs of Cavile, where the Court sustained the validity of the certification signed by only one of petitioners because he is a relative of the other petitioners and co-owner of the properties in dispute; Heirs of Agapito T. Olarte v. Office of the President of the Philippines, where the Court allowed a certification signed by only two petitioners because the case involved a family home in which all the petitioners shared a common interest;Gudoy v. Guadalquiver, where the Court considered as valid the certification signed by only four of the nine petitioners because all petitioners filed as co-owners pro indiviso a complaint against respondents for quieting of title and damages, as such, they all have joint interest in the undivided whole; and DAR v. Alonzo-Legasto, where the Court sustained the certification signed by only one of the spouses as they were sued jointly involving a property in which they had a common interest.21 (Italics in the original, underscoring supplied)

Very recently, in Tan, et al. v. Ballena, et al.,22 the verification and certification against forum shopping attached to the original petition for certiorari filed with the Court of Appeals was signed by only two out of over 100 petitioners and the same was filed one day beyond the period allowed by the Rules. The appellate court initially resolved to dismiss the original petition precisely for these reasons, but on the therein petitioners’ motion for reconsideration, the appellate court ordered the filing of an amended petition in order to include all the original complainants numbering about 240. An amended petition was then filed in compliance with the said order, but only 180 of the 240 original complainants signed the verification and certification against forum shopping. The Court of Appeals granted the motion for reconsideration and resolved to reinstate the petition.

In sustaining the Court of Appeals in Tan, the Court held that it is a far better and more prudent course of action to excuse a technical lapse and afford the parties a review of the case to attain the ends of justice, rather than dispose of the case on technicality and cause grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice.

The Court further discoursed in Tan:

Under justifiable circumstances, we have already allowed the relaxation of the requirements of verification and certification so that the ends of justice may be better served. Verification is simply intended to secure an assurance that the allegations in the pleading are true and

correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith; while the purpose of the aforesaid certification is to prohibit and penalize the evils of forum shopping.

In Torres v. Specialized Packaging Development Corporation, we ruled that the verification requirement had been substantially complied with despite the fact that only two (2) out of the twenty-five (25) petitioners have signed the petition for review and the verification. In that case, we held that the two signatories were unquestionably real parties-in-interest, who undoubtedly had sufficient knowledge and belief to swear to the truth of the allegations in the Petition.

In Ateneo de Naga University v. Manalo, we also ruled that there was substantial compliance with the requirement of verification when only one of the petitioners, the President of the University, signed for and on behalf of the institution and its officers.

Similarly, in Bases Conversion and Development Authority v. Uy, we allowed the signature of only one of the principal parties in the case despite the absence of a Board Resolution which conferred upon him the authority to represent the petitioner BCDA.

In the present case, the circumstances squarely involve a verification that was not signed by all the petitioners therein. Thus, we see no reason why we should not uphold the ruling of the Court of Appeals in reinstating the petition despite the said formal defect.

On the requirement of a certification of non-forum shopping, the well-settled rule is that all the petitioners must sign the certification of non-forum shopping. The reason for this is that the persons who have signed the certification cannot be presumed to have the personal knowledge of the other non-signing petitioners with respect to the filing or non-filing of any action or claim the same as or similar to the current petition. The rule, however, admits of an exception and that is when the petitioners show reasonable cause for failure to personally sign the certification. The petitioners must be able to convince the court that the outright dismissal of the petition would defeat the administration of justice.

In the case at bar, counsel for the respondents disclosed that most of the respondents who were the original complainants have since sought employment in the neighboring towns of Bulacan, Pampanga and Angeles City. Only the one hundred eighty (180) signatories were then available to sign the amended Petition for Certiorari and the accompanying verification and certification of non-forum shopping.23

In the present case, the signing of the verification by only 11 out of the 59 petitioners already sufficiently assures the Court that the allegations in the pleading are true and correct and not the product of the imagination or a matter of speculation; that the pleading is filed in good faith; and that the signatories are unquestionably real parties-in-interest who undoubtedly have sufficient knowledge and belief to swear to the truth of the allegations in the petition.

With respect to petitioners’ certification against forum shopping, the failure of the other petitioners to sign as they could no longer be contacted or are no longer interested in pursuing the case need not merit the outright dismissal of the petition without defeating the administration of justice. The non-signing petitioners are, however, dropped as parties to the case.

In fact, even Docena24 cited by respondents sustains petitioners’ position. In that case, the certification against forum shopping was signed by only one of the petitioning spouses. The Court held that the certification against forum shopping should be deemed to constitute substantial

compliance with the Rules considering, among other things, that the petitioners were husband and wife, and that the subject property was their residence which was alleged in their verified petition to be conjugal.25

With respect to petitioners’ non-presentation of any identification before the notary public at the time they swore to their verification and certification attached to the petition, suffice it to state that this was cured by petitioners’ compliance26 with the Court’s Resolution of January 22, 200827 wherein they submitted a notarized verification and certification bearing the details of their community tax certificates. This, too, is substantial compliance. The Court need not belabor its discretion to authorize subsequent compliance with the Rules.

For the guidance of the bench and bar, the Court restates in capsule form the jurisprudential pronouncements already reflected above respecting non-compliance with the requirements on, or submission of defective, verification and certification against forum shopping:

1) A distinction must be made between non-compliance with the requirement on or submission of defective verification, and non-compliance with the requirement on or submission of defective certification against forum shopping.

2) As to verification, non-compliance therewith or a defect therein does not necessarily render the pleading fatally defective. The court may order its submission or correction or act on the pleading if the attending circumstances are such that strict compliance with the Rule may be dispensed with in order that the ends of justice may be served thereby.28

3) Verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations in the complaint or petition signs the verification, and when matters alleged in the petition have been made in good faith or are true and correct.29

4) As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in verification, is generally not curable by its subsequent submission or correction thereof, unless there is a need to relax the Rule on the ground of "substantial compliance" or presence of "special circumstances or compelling reasons."30

5) The certification against forum shopping must be signed by all the plaintiffs or petitioners in a case;31otherwise, those who did not sign will be dropped as parties to the case. Under reasonable or justifiable circumstances, however, as when all the plaintiffs or petitioners share a common interest and invoke a common cause of action or defense, the signature of only one of them in the certification against forum shopping substantially complies with the Rule.32

6) Finally, the certification against forum shopping must be executed by the party-pleader, not by his counsel.33 If, however, for reasonable or justifiable reasons, the party-pleader is unable to sign, he must execute a Special Power of Attorney34 designating his counsel of record to sign on his behalf.

And now, on respondents’ argument that petitioners raise questions of fact which are not proper in a petition for review on certiorari as the same must raise only questions of law. They entertain doubt on whether petitioners seek the payment of their salaries, and assert that the question of whether the city accountant can be compelled to issue a certification of availability of funds under the circumstances herein obtaining is a factual issue.35

The Court holds that indeed petitioners are raising a question of law.

The Court had repeatedly clarified the distinction between a question of law and a question of fact. A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts; or when the issue does not call for an examination of the probative value of the evidence presented, the truth or falsehood of facts being admitted.36 A question of fact, on the other hand, exists when the doubt or difference arises as to the truth or falsehood of facts or when the query invites calibration of the whole evidence considering mainly the credibility of the witnesses, the existence and relevance of specific surrounding circumstances, as well as their relation to each other and to the whole, and the probability of the situation.37 When there is no dispute as to fact, the question of whether the conclusion drawn therefrom is correct is a question of law.38

In the case at bar, the issue posed for resolution does not call for the reevaluation of the probative value of the evidence presented, but rather the determination of which of the provisions of the Local Government Code of 1991 applies to the Civil Service Memorandum Circular requiring a certificate of availability of funds relative to the approval of petitioners’ appointments.

At all events, respondents contend that the case has become moot and academic as the appointments of petitioners had already been disapproved by the CSC. Petitioners maintain otherwise, arguing that the act of respondent Empleo in not issuing the required certification of availability of funds unduly interfered with the power of appointment of then Mayor Quijano; that the Sangguniang Panglungsod Resolutions relied upon by respondent Empleo constituted legislative intervention in the mayor’s power to appoint; and that the prohibition against midnight appointments applies only to presidential appointments as affirmed in De Rama v. Court of Appeals.39

The Court finds that, indeed, the case had been rendered moot and academic by the final disapproval of petitioners’ appointments by the CSC.

The mootness of the case notwithstanding, the Court resolved to rule on its merits in order to settle the issue once and for all, given that the contested action is one capable of repetition40 or susceptible of recurrence.

The pertinent portions of Sections 474(b)(4) and 344 of the Local Government Code of 1991 provide:

Section 474. Qualifications, Powers and Duties. –

x x x x

(b) The accountant shall take charge of both the accounting and internal audit services of the local government unit concerned and shall:

x x x x

(4) certify to the availability of budgetary allotment to which expenditures and obligations   may be properly charged . (Emphasis and underscoring supplied)

x x x x

Sec. 344. Certification and Approval of Vouchers. – No money shall be disbursed unless the local budget officer certifies to the existence of appropriation that has been legally made for the purpose, the local accountant has obligated said appropriation, and the local treasurer

certifies to the availability of funds for the purpose. x x x (Emphasis and underscoring supplied)

Petitioners propound the following distinctions between Sections 474(b)(4) and 344 of the Local Government Code of 1991:

(1) Section 474(b)(4) speaks of certification of availability of budgetary allotment, while Section 344 speaks of certification of availability of funds for disbursement;

(2) Under Section 474(b)(4), before a certification is issued, there must be an appropriation, while under Section 344, before a certification is issued, two requisites must concur: (a) there must be an appropriation legally made for the purpose, and (b) the local accountant has obligated said appropriation;

(3) Under Section 474(b)(4), there is no actual payment involved because the certification is for the purpose of obligating a portion of the appropriation; while under Section 344, the certification is for the purpose of payment after the local accountant had obligated a portion of the appropriation;

(4) Under Section 474(b)(4), the certification is issued if there is an appropriation, let us say, for the salaries of appointees; while under Section 344, the certification is issued if there is an appropriation and the same is obligated, let us say, for the payment of salaries of employees.41

Respondents do not squarely address the issue in their Comment.

Section 344 speaks of actual disbursements of money from the local treasury in payment of due and demandable obligations of the local government unit. The disbursements are to be made through the issuance, certification, and approval of vouchers. The full text of Section 344 provides:

Sec. 344. Certification and Approval of Vouchers. – No money shall be disbursed unless the local budget officer certifies to the existence of appropriation that has been legally made for the purpose, the local accountant has obligated said appropriation, and the local treasurer certifies to the availability of funds for the purpose. Vouchers and payrolls shall be certified to and approved by the head of the department or office who has administrative control of the fund concerned, as to validity, propriety, and legality of the claim involved. Except in cases of disbursements involving regularly recurring administrative expenses such as payrolls for regular or permanent employees, expenses for light, water, telephone and telegraph services, remittances to government creditor agencies such as GSIS, SSS, LDP, DBP, National Printing Office, Procurement Service of the DBM and others, approval of the disbursement voucher by the local chief executive himself shall be required whenever local funds are disbursed.

In cases of special or trust funds, disbursements shall be approved by the administrator of the fund.

In case of temporary absence or incapacity of the department head or chief of office, the officer next-in-rank shall automatically perform his function and he shall be fully responsible therefor. (Italics and underscoring supplied)

"Voucher," in its ordinary meaning, is a document which shows that services have been performed or expenses incurred.42 When used in connection with disbursement of money, it implies the existence of an instrument that shows on what account or by what authority a particular payment has been made, or that services have been performed which entitle the party to whom it is issued to payment.43

Section 344 of the Local Government Code of 1991 thus applies only when there is already an obligation to payon the part of the local government unit, precisely because vouchers are issued only when services have been performed or expenses incurred.

The requirement of certification of availability of funds from the city treasurer under Section 344 of the Local Government Code of 1991 is for the purpose of facilitating the approval of vouchers issued for the payment of services already rendered to, and expenses incurred by, the local government unit.

The trial court thus erred in relying on Section 344 of the Local Government Code of 1991 in ruling that the ministerial function to issue a certification as to availability of funds for the payment of the wages and salaries of petitioners pertains to the city treasurer. For at the time material to the required issuance of the certification, the appointments issued to petitioners were not yet approved by the CSC, hence, there were yet no services performed to speak of. In other words, there was yet no due and demandable obligation of the local government to petitioners.

Section 474, subparagraph (b)(4) of the Local Government Code of 1991, on the other hand, requires the cityaccountant to "certify to the availability of budgetary allotment to which expenditures and obligations may be properly charged."44 By necessary implication, it includes the duty to certify to the availability of funds for the payment of salaries and wages of appointees to positions in the plantilla of the local government unit, as required under Section 1(e)(ii), Rule V of CSC Memorandum Circular Number 40, Series of 1998, a requirement before the CSC considers the approval of the appointments.

In fine, whenever a certification as to availability of funds is required for purposes   other than   actual payment of an obligation which requires disbursement of money, Section 474(b)(4) of the Local Government Code of 1991 applies, and it is the ministerial duty of the city accountant to issue the certification.

WHEREFORE, the Court declares that it is Section 474(b)(4), not Section 344, of the Local Government Code of 1991, which applies to the requirement of certification of availability of funds under Section 1(e)(ii), Rule V of Civil Service Commission Memorandum Circular Number 40, Series of 1998.

SO ORDERED.

CONCHITA CARPIO MORALESAssociate Justice

WE CONCUR:

REYNATO S. PUNOChief Justice

LEONARDO A. QUISUMBINGAssociate Justice

CONSUELO YNARES-SANTIAGOAssociate Justice

ANTONIO T. CARPIOAssociate Justice

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

RENATO C. CORONAAssociate Justice

ADOLFO S. AZCUNAAssociate Justice

DANTE O. TINGAAssociate Justice

MINITA V. CHICO-NAZARIOAssociate Justice

PRESBITERO J. VELASCO, JR.Associate Justice

ANTONIO EDUARDO B. NACHURAAssociate Justice

RUBEN T. REYESAssociate Justice

TERESITA J. LEONARDO-DE CASTROAssociate Justice

*ARTURO D. BRIONAssociate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

REYNATO S. PUNOChief Justice

31SECOND DIVISION 

[G.R. No. 169292, April 13 : 2011] 

SPOUSES FRANCISCO DE GUZMAN, JR. AND AMPARO O. DE GUZMAN, PETITIONERS, VS. CESAR OCHOA AND SYLVIA A. OCHOA, REPRESENTED BY ARACELI S. AZORES, AS THEIR ATTORNEY-IN-

FACT, RESPONDENTS.

D E C I S I O N 

MENDOZA, J.:

This is a petition for review on certiorari assailing the August 11, 2005 Decision[1] of the Court of Appeals (CA), in CA-GR. SP No. 89329, filed by petitioners, Spouses Francisco De Guzman, Jr. and Amparo O. De Guzman (petitioners).  In the assailed decision, the CA found no commission of grave abuse of discretion when the public respondent therein, Judge Amelia A. Fabros (Judge Fabros), Presiding Judge of the Regional Trial Court, Pasig City, Branch 160(RTC), denied petitioners' second motion to dismiss, in Civil Case No. 68896, an action for annulment of contract and damages.

The facts of the case have been succinctly summarized by the CA as follows:

On March 25, 2002, respondent spouses Cesar Ochoa and Sylvia Ochoa, through respondent Araceli Azores, ostensibly acting as attorney-in-fact, commenced in the Regional Trial Court (RTC) in Pasig City an action seeking the annulment of contract of mortgage, foreclosure sale, certificate of sale and damages. The action, docketed as Civil Case No. 68896 and entitled Cesar Ochoa and Sylvia A. Ochoa, etc. v. Josefa M. Guevarra, et al., was raffled to Branch 160, presided by the respondent RTC Judge. 

On May 22, 2002, the petitioners, as defendants in Civil Case No. 68896, filed amotion to dismiss, alleging the sole ground that the complaint did not state a cause of action. The petitioners' motion to dismiss was formally opposed by the private respondents. 

On December 16, 2002, the respondent RTC Judge denied petitioners' motion to dismiss and at the same time set Civil Case No. 68896 for pre-trial conference, directing the parties to submit their respective pre-trial briefs. 

On March 31, 2003, the petitioners filed a second motion to dismiss, alleging that the certification against forum shopping attached to the complaint was not executed by the principal parties (plaintiffs) in violation of Sec. 5, Rule 7, 1997Rules of Civil Procedure, rendering the complaint fatally defective and thus dismissible.

The private respondents opposed the second motion to dismiss.

On February 12, 2004, the respondent RTC Judge issued her first assailed order, denying the second motion to dismiss, disposing thus:

xxx

Inasmuch as the records show that the pending incident is the second motion to dismiss filed by the defendants, the same is hereby Denied for lack of merit. 

SO ORDERED.

On May 25, 2004. the petitioners filed their motion for reconsideration, but the respondent RTC Judge denied the motion through her second assailed order dated December 29, 2004, to wit: 

Acting on the Motion for Reconsideration (of the Order dated February 12, 2004, filed by the defendant Spouses Francisco and Amparo De Guzman, through counsel, on May 25, 2004, and after considering the grounds stated therein in support of their motion, and finding no cogent reason to warrant the reconsideration sought for, the motion is DENIED. 

SO ORDERED.[2]

Aggrieved, petitioners elevated the order of denial to the CA via a petition for certiorari contending that the RTC should have dismissed the complaint motu proprio since it was fatally defective. They pointed out that the Verification and Certification of Non-Forum Shopping attached to the complaint was not signed by Cesar Ochoa or Sylvia Ochoa but by Araceli S. Azores (Azores), who was acting as the attorney-in-fact of Cesar Ochoa only. They invited the attention of the RTC to the fact that the powers delegated to Azores did not include the authority to institute an action in court. Thus, according to the petitioners, the denial by the RTC of their motion to dismiss was capricious, whimsical and arbitrary, amounting to lack or excess of jurisdiction and should be struck down as null and void. 

On August 11, 2005, the CA denied the petition for lack' of merit. The CA, in its decision, agreed with the RTC that following the omnibus motion rule, the defects of the complaint pointed out by the petitioners were deemed waived when they failed to raise it in their first motion to dismiss.

Not in conformity, the petitioners filed this petition for review under Rule 45, anchored on this:

GROUND

THE COURT A QUO DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH LAW AND JURISPRUDENCE WHEN IT REFUSED TO DISMISS, THE COMPLAINT DESPITE THE FACT THAT IT WAS INDUBITABLY SHOWN AND ESTABLISHED THAT THE ESSENTIAL REQUIREMENT OF

CERTIFICATION OF NON-FORUM SHOPPING PURSUANT TO SECTION 5, RULE 7 OF THE RULES OF COURT WAS NOT OBSERVED AND COMPLIED WITH SINCE THE SAME WAS NOT ACCOMPLISHED PERSONALLY BY THE PURPORTED PLAINTIFFS THEREIN.

It is the position of the petitioners that the second motion to dismiss does not violate the Omnibus Motion Rule under Section 8, Rule 15 of the Rules of Court because the issue raised in the second motion was a question of jurisdiction. For said reason, the matter of the defective verification and certification cannot be considered to have been waived when it was not interposed at the first instance. Considering that the issue is jurisdictional, the RTC should have dismissed the complaint motu proprio. 

The Court disagrees with the petitioners.

An order denying a motion to dismiss is an interlocutory order which neither terminates the case nor finally disposes of it, as it leaves something to be done by the court before the case is finally decided on the merits. As such, the general rule is that the denial of a motion to dismiss cannot be questioned in a special civil action for certiorari which is a remedy designed to correct errors of jurisdiction and not errors of judgment. [3]

Therefore, an order denying a motion to dismiss may only be reviewed in the ordinary course of law by an appeal from the judgment after trial.  The ordinary procedure to be followed in such cases is to file an answer, go to trial, and if the decision is adverse, reiterate the issue on appeal from the final judgment.[4] 

Only in exceptional cases where the denial of the motion to dismiss is tainted with grave abuse of discretion that the Court allows the extraordinary remedy of certiorari. By "grave abuse of discretion," we mean such capricious and whimsical exercise of judgment that is equivalent to lack of jurisdiction. The abuse of discretion must be grave as where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal-to perform the duty enjoined by or to .act all in contemplation of law.[5]

In this case, the petitioners failed to convincingly substantiate its charge of arbitrariness on the part of Judge Fabros. Absent such showing of arbitrariness, capriciousness, or ill motive, the Court cannot but sustain the ruling of the CA.

Section 8, Rule 15 of the Rules of Court defines an omnibus motion as a motion attacking a pleading, judgment or proceeding. A motion to dismiss is an omnibus motion because it attacks a pleading, that is, the complaint. For this reason, a motion to dismiss, like any other omnibus motion, must raise and include all objections available at the time of the filing of the motion because under Section 8, "all objections not so included shall be deemed waived." As inferred from the provision, only the following defenses under Section 1, Rule 9, are excepted from its application: [a] lack of jurisdiction over the subject matter; [b] there is another action pending between the same parties for the same cause (litis pendentia); [c] the action is barred by prior judgment (res judicata); and [d] the action is barred by the statute of limitations or prescription. 

In the case at bench, the petitioners raised the ground of defective verification and certification of forum shopping only when they filed their second motion to dismiss, despite the fact that this ground was existent and available to them at the time of the filing of their first motion to dismiss. Absent any justifiable reason to explain this fatal omission, the ground of defective verification and certification of forum shopping was deemed waived and could no longer be questioned by the petitioners in their second motion to dismiss.

Moreover, contrary to petitioners' assertion, the requirement regarding verification of a pleading is formal, not jurisdictional. Such requirement is simply a condition affecting the form of the pleading, and non-compliance with which does not necessarily render the pleading fatally defective. Verification is simply intended to secure an assurance that the allegations in the pleading are true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith. In fact, the court may order the correction of the pleading if verification is lacking or act on the pleading although it is not verified, if the attending circumstances are such that strict compliance with the rules may be dispensed with in order that the ends of justice may thereby be served.[6]

Similarly, the rule requiring the submission of such certification of non-forum shopping, although obligatory, is not jurisdictional.[7]  The certification requirement is rooted in the principle that a party-litigant shallnot be allowed to pursue simultaneous remedies in different fora, as this Q practice is detrimental to an orderly judicial procedure.[8]

As to whether the trial court should have dismissed the complaint motu proprio, the Court rules in the negative. Section 5, Rule 7 of the Rules of Court is clear that failure to comply with the requirements on the rule against forum shopping shall be cause for the dismissal of the case "upon motion and after hearing."

WHEREFORE, the petition is DENIED.

SO ORDERED.

Carpio, (Chairperson), Nachura, Peralta, and Abad, JJ., concur.

32

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