Republic

of
the
Philippines
SUPREME
COURT
Manila
THIRD DIVISION
G.R. No. 181416
November 11, 2013
MEDICAL PLAZA MAKATI CONDOMINIUM CORPORATION, Petitioner,
vs.
ROBERT H. CULLEN, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the Court of Appeals (CA) Decision1 dated July 10, 2007 and
Resolution2 dated January 25, 2008 in CA-G.R. CV No. 86614. The assailed decision
reversed and set aside the September 9, 2005 Order3 of the Regional Trial Court
(RTC) of Makati, Branch 58 in Civil Case No. 03-1018; while the assailed resolution
denied the separate motions for reconsideration filed by petitioner Medical Plaza
Makati Condominium Corporation (MPMCC) and Meridien Land Holding, Inc.
(MLHI).
The factual and procedural antecedents are as follows:
Respondent Robert H. Cullen purchased from MLHI condominium Unit No. 1201 of
the Medical Plaza Makati covered by Condominium Certificate of Title No. 45808 of
the Register of Deeds of Makati. Said title was later cancelled and Condominium
Certificate of Title No. 64218 was issued in the name of respondent.
On September 19, 2002, petitioner, through its corporate secretary, Dr. Jose Giovanni
E. Dimayuga, demanded from respondent payment for alleged unpaid association
dues and assessments amounting to P145,567.42. Respondent disputed this demand
claiming that he had been religiously paying his dues shown by the fact that he was
previously elected president and director of petitioner.4 Petitioner, on the other hand,
claimed that respondents obligation was a carry-over of that of
MLHI.5 Consequently, respondent was prevented from exercising his right to vote
and be voted for during the 2002 election of petitioners Board of
Directors.6Respondent thus clarified from MLHI the veracity of petitioners claim,
but MLHI allegedly claimed that the same had already been settled.7 This prompted
respondent to demand from petitioner an explanation why he was considered a
delinquent payer despite the settlement of the obligation. Petitioner failed to make
such explanation. Hence, the Complaint for Damages8 filed by respondent against
petitioner and MLHI, the pertinent portions of which read:
xxxx

6. Thereafter, plaintiff occupied the said condominium unit no. 1201 and
religiously paid all the corresponding monthly contributions/association dues
and other assessments imposed on the same. For the years 2000 and 2001,
plaintiff served as President and Director of the Medical Plaza Makati
Condominium Corporation;
7. Nonetheless, on September 19, 2002, plaintiff was shocked/surprised to
receive a letter from the incumbent Corporate Secretary of the defendant
Medical Plaza Makati, demanding payment of alleged unpaid association dues
and assessments arising from plaintiffs condominium unit no. 1201. The said
letter further stressed that plaintiff is considered a delinquent member of the
defendant Medical Plaza Makati.
x x x;
8. As a consequence, plaintiff was not allowed to file his certificate of
candidacy as director. Being considered a delinquent, plaintiff was also barred
from exercising his right to vote in the election of new members of the Board
of Directors x x x;
9. x x x Again, prior to the said election date, x x x counsel for the defendant
[MPMCC] sent a demand letter to plaintiff, anent the said delinquency,
explaining that the said unpaid amount is a carry-over from the obligation of
defendant Meridien. x x x;
10. Verification with the defendant [MPMCC] resulted to the issuance of a
certification stating that Condominium Unit 1201 has an outstanding unpaid
obligation in the total amount of P145,567.42 as of November 30, 2002,
which again, was attributed by defendant [MPMCC] to defendant Meridien. x
x x;
11. Due to the seriousness of the matter, and the feeling that defendant
Meridien made false representations considering that it fully warranted to
plaintiff that condominium unit 1201 is free and clear from all liens and
encumbrances, the matter was referred to counsel, who accordingly sent a
letter to defendant Meridien, to demand for the payment of said unpaid
association dues and other assessments imposed on the condominium unit and
being claimed by defendant [MPMCC]. x x x;
12. x x x defendant Meridien claimed however, that the obligation does not
exist considering that the matter was already settled and paid by defendant
Meridien to defendant [MPMCC]. x x x;
13. Plaintiff thus caused to be sent a letter to defendant [MPMCC] x x x. The
said letter x x x sought an explanation on the fact that, as per the letter of
defendant Meridien, the delinquency of unit 1201 was already fully paid and
settled, contrary to the claim of defendant [MPMCC]. x x x;

14. Despite receipt of said letter on April 24, 2003, and to date however, no
explanation was given by defendant [MPMCC], to the damage and prejudice
of plaintiff who is again obviously being barred from voting/participating in
the election of members of the board of directors for the year 2003;
15. Clearly, defendant [MPMCC] acted maliciously by insisting that plaintiff
is a delinquent member when in fact, defendant Meridien had already paid the
said delinquency, if any. The branding of plaintiff as delinquent member was
willfully and deceitfully employed so as to prevent plaintiff from exercising
his right to vote or be voted as director of the condominium corporation; 16.
Defendant [MPMCC]s ominous silence when confronted with claim of
payment made by defendant Meridien is tantamount to admission that indeed,
plaintiff is not really a delinquent member;
17. Accordingly, as a direct and proximate result of the said acts of defendant
[MPMCC], plaintiff experienced/suffered from mental anguish, moral shock,
and serious anxiety. Plaintiff, being a doctor of medicine and respected in the
community further suffered from social humiliation and besmirched
reputation thereby warranting the grant of moral damages in the amount
of P500,000.00 and for which defendant [MPMCC] should be held liable;
18. By way of example or correction for the public good, and as a stern
warning to all similarly situated, defendant [MPMCC] should be ordered to
pay plaintiff exemplary damages in the amount of P200,000.00;
19. As a consequence, and so as to protect his rights and interests, plaintiff
was constrained to hire the services of counsel, for an acceptance fee
of P100,000.00 plus P2,500.00 per every court hearing attended by counsel;
20. In the event that the claim of defendant [MPMCC] turned out to be true,
however, the herein defendant Meridien should be held liable instead, by
ordering the same to pay the said delinquency of condominium unit 1201 in
the amount of P145,567.42 as of November 30, 2002 as well as the above
damages, considering that the non-payment thereof would be the proximate
cause of the damages suffered by plaintiff;9
Petitioner and MLHI filed their separate motions to dismiss the complaint on the
ground of lack of jurisdiction.10MLHI claims that it is the Housing and Land Use
Regulatory Board (HLURB) which is vested with the exclusive jurisdiction to hear
and decide the case. Petitioner, on the other hand, raises the following specific
grounds for the dismissal of the complaint: (1) estoppel as respondent himself
approved the assessment when he was the president; (2) lack of jurisdiction as the
case involves an intra-corporate controversy; (3) prematurity for failure of respondent
to exhaust all intra-corporate remedies; and (4) the case is already moot and
academic, the obligation having been settled between petitioner and MLHI.11

On September 9, 2005, the RTC rendered a Decision granting petitioners and

MLHIs motions to dismiss and, consequently, dismissing respondents complaint.
The trial court agreed with MLHI that the action for specific performance filed by
respondent clearly falls within the exclusive jurisdiction of the HLURB.12 As to
petitioner, the court held that the complaint states no cause of action, considering that
respondents obligation had already been settled by MLHI. It, likewise, ruled that the
issues raised are intra-corporate between the corporation and member.13
On appeal, the CA reversed and set aside the trial courts decision and remanded the
case to the RTC for further proceedings. Contrary to the RTC conclusion, the CA
held that the controversy is an ordinary civil action for damages which falls within the
jurisdiction of regular courts.14 It explained that the case hinged on petitioners
refusal to confirm MLHIs claim that the subject obligation had already been settled
as early as 1998 causing damage to respondent.15 Petitioners and MLHIs motions
for reconsideration had also been denied.16
Aggrieved, petitioner comes before the Court based on the following grounds:
I.
THE COURT A QUO HAS DECIDED A QUESTION OF SUBSTANCE, NOT
THERETOFORE DETERMINED BY THE SUPREME COURT, OR HAS
DECIDED IT IN A WAY NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT DECLARED
THE INSTANT CASE AN ORDINARY ACTION FOR DAMAGES INSTEAD OF
AN INTRA-CORPORATE CONTROVERSY COGNIZABLE BY A SPECIAL
COMMERCIAL COURT.
II.
THE COURT A QUO HAS DECIDED THE INSTANT CASE IN A WAY NOT IN
ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT TOOK COGNIZANCE OF THE APPEAL WHILE
RAISING ONLY PURE QUESTIONS OF LAW.17
The petition is meritorious.
It is a settled rule that jurisdiction over the subject matter is determined by the
allegations in the complaint. It is not affected by the pleas or the theories set up by the
defendant in an answer or a motion to dismiss. Otherwise, jurisdiction would become
dependent almost entirely upon the whims of the defendant.18 Also illuminating is the
Courts pronouncement in Go v. Distinction Properties Development and
Construction, Inc.:19
Basic as a hornbook principle is that jurisdiction over the subject matter of a case is
conferred by law and determined by the allegations in the complaint which comprise
a concise statement of the ultimate facts constituting the plaintiffs cause of action.
The nature of an action, as well as which court or body has jurisdiction over it, is

determined based on the allegations contained in the complaint of the plaintiff,

irrespective of whether or not the plaintiff is entitled to recover upon all or some of
the claims asserted therein. The averments in the complaint and the character of the
relief sought are the ones to be consulted. Once vested by the allegations in the
complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff
is entitled to recover upon all or some of the claims asserted therein. x x x20
Based on the allegations made by respondent in his complaint, does the controversy
involve intra-corporate issues as would fall within the jurisdiction of the RTC sitting
as a special commercial court or an ordinary action for damages within the
jurisdiction of regular courts?
In determining whether a dispute constitutes an intra-corporate controversy, the Court
uses two tests, namely, the relationship test and the nature of the controversy test.21
An intra-corporate controversy is one which pertains to any of the following
relationships: (1) between the corporation, partnership or association and the public;
(2) between the corporation, partnership or association and the State insofar as its
franchise, permit or license to operate is concerned; (3) between the corporation,
partnership or association and its stockholders, partners, members or officers; and (4)
among the stockholders, partners or associates themselves.22 Thus, under the
relationship test, the existence of any of the above intra-corporate relations makes the
case intra-corporate.23
Under the nature of the controversy test, "the controversy must not only be rooted in
the existence of an intra-corporate relationship, but must as well pertain to the
enforcement of the parties correlative rights and obligations under the Corporation
Code and the internal and intra-corporate regulatory rules of the corporation."24 In
other words, jurisdiction should be determined by considering both the relationship of
the parties as well as the nature of the question involved.25
Applying the two tests, we find and so hold that the case involves intra-corporate
controversy. It obviously arose from the intra-corporate relations between the parties,
and the questions involved pertain to their rights and obligations under the
Corporation Code and matters relating to the regulation of the corporation.26
Admittedly, petitioner is a condominium corporation duly organized and existing
under Philippine laws, charged with the management of the Medical Plaza Makati.
Respondent, on the other hand, is the registered owner of Unit No. 1201 and is thus a
stockholder/member of the condominium corporation. Clearly, there is an intracorporate relationship between the corporation and a stockholder/member.
The nature of the action is determined by the body rather than the title of the
complaint.1wphi1 Though denominated as an action for damages, an examination of
the allegations made by respondent in his complaint shows that the case principally
dwells on the propriety of the assessment made by petitioner against respondent as

well as the validity of petitioners act in preventing respondent from participating in

the election of the corporations Board of Directors. Respondent contested the alleged
unpaid dues and assessments demanded by petitioner.
The issue is not novel. The nature of an action involving any dispute as to the validity
of the assessment of association dues has been settled by the Court in Chateau de
Baie Condominium Corporation v. Moreno.27 In that case, respondents therein filed a
complaint for intra-corporate dispute against the petitioner therein to question how it
calculated the dues assessed against them, and to ask an accounting of association
dues. Petitioner, however, moved for the dismissal of the case on the ground of lack
of jurisdiction alleging that since the complaint was against the owner/developer of a
condominium whose condominium project was registered with and licensed by the
HLURB, the latter has the exclusive jurisdiction. In sustaining the denial of the
motion to dismiss, the Court held that the dispute as to the validity of the assessments
is purely an intra-corporate matter between petitioner and respondent and is thus
within the exclusive jurisdiction of the RTC sitting as a special commercial court.
More so in this case as respondent repeatedly questioned his characterization as a
delinquent member and, consequently, petitioners decision to bar him from
exercising his rights to vote and be voted for. These issues are clearly corporate and
the demand for damages is just incidental. Being corporate in nature, the issues
should be threshed out before the RTC sitting as a special commercial court. The
issues on damages can still be resolved in the same special commercial court just like
a regular RTC which is still competent to tackle civil law issues incidental to intracorporate disputes filed before it.28
Moreover, Presidential Decree No. 902-A enumerates the cases over which the
Securities and Exchange Commission (SEC) exercises exclusive jurisdiction:
xxxx
b) Controversies arising out of intra-corporate or partnership relations,
between and among stockholders, members or associates; between any or all
of them and the corporation, partnership or association of which they are
stockholders, members, or associates, respectively; and between such
corporation, partnership or association and the State insofar as it concerns
their individual franchise or right to exist as such entity; and
c) Controversies in the election or appointment of directors, trustees, officers,
or managers of such corporations, partnerships, or associations.29
To be sure, this action partakes of the nature of an intra-corporate controversy, the
jurisdiction over which pertains to the SEC. Pursuant to Section 5.2 of Republic Act
No. 8799, otherwise known as the Securities Regulation Code, the jurisdiction of the
SEC over all cases enumerated under Section 5 of Presidential Decree No. 902-A has
been transferred to RTCs designated by this Court as Special Commercial

Courts.30 While the CA may be correct that the RTC has jurisdiction, the case should
have been filed not with the regular court but with the branch of the RTC designated
as a special commercial court. Considering that the RTC of Makati City, Branch 58
was not designated as a special commercial court, it was not vested with jurisdiction
over cases previously cognizable by the SEC.31 The CA, therefore, gravely erred in
remanding the case to the RTC for further proceedings.
Indeed, Republic Act (RA) No. 9904, or the Magna Carta for Homeowners and
Homeowners Associations, approved on January 7, 2010 and became effective on
July 10, 2010, empowers the HLURB to hear and decide inter-association and/or
intra-association controversies or conflicts concerning homeowners associations.
However, we cannot apply the same in the present case as it involves a controversy
between a condominium unit owner and a condominium corporation. While the term
association as defined in the law covers homeowners associations of other residential
real property which is broad enough to cover a condominium corporation, it does not
seem to be the legislative intent. A thorough review of the deliberations of the
bicameral conference committee would show that the lawmakers did not intend to
extend the coverage of the law to such kind of association. We quote hereunder the
pertinent portion of the Bicameral Conference Committees deliberation, to wit:
THE CHAIRMAN (SEN. ZUBIRI). Lets go back, Mr. Chair, very quickly on
homeowners.
THE ACTING CHAIRMAN (REP. ZIALCITA). Ang sa akin lang, I think our views
are similar, Your Honor, Senator Zubiri, the entry of the condominium units might
just complicate the whole matters. So wed like to put it on record that were very
much concerned about the plight of the Condominium Unit Homeowners
Association. But this could very well be addressed on a separate bill that Im willing
to co-sponsor with the distinguished Senator Zubiri, to address in the Condominium
Act of the Philippines, rather than address it here because it might just create a red
herring into the entire thing and it will just complicate matters, hindi ba?
THE CHAIRMAN (SEN. ZUBIRI). I also agree with you although I sympathize with
them---although we sympathize with them and we feel that many times their rights
have been also violated by abusive condominium corporations. However, there are
certain things that we have to reconcile. There are certain issues that we have to
reconcile with this version.
In the Condominium Code, for example, they just raised a very peculiar situation
under the Condominium Code --- Condominium Corporation Act. Its five years the
proxy, whereas here, its three years. So there would already be violation or there will
be already a problem with their version and our version. Sino ang matutupad doon?
Will it be our version or their version?

So I agree that has to be studied further. And because they have a law pertaining to
the condominium housing units, I personally feel that it would complicate matters if
we include them. Although I agree that they should be looked after and their
problems be looked into.
Probably we can ask our staff, Your Honor, to come up already with the bill although
we have no more time. Hopefully we can tackle this again on the 15th Congress. But I
agree with the sentiments and the inputs of the Honorable Chair of the House panel.
May we ask our resource persons to also probably give comments?
Atty. Dayrit.
MR. DAYRIT.
Yes I agree with you. There are many, I think, practices in their provisions in the
Condominium Law that may be conflicting with this version of ours.
For instance, in the case of, lets say, the condominium, the so-called common areas
and/or maybe so called open spaces that they may have, especially common areas,
they are usually owned by the condominium corporation. Unlike a subdivision where
the open spaces and/or the common areas are not necessarily owned by the
association. Because sometimes --- generally these are donated to the municipality or
to the city. And it is only when the city or municipality gives the approval or the
conformity that this is donated to the homeowners association. But generally, under
PD [Presidential Decree] 957, its donated. In the Condominium Corporation, hindi.
Lahat ng mga open spaces and common areas like corridors, the function rooms and
everything, are owned by the corporation. So thats one main issue that can be
conflicting.
THE CHAIRMAN (SEN. ZUBIRI). Ill just ask for a one-minute suspension so we
can talk.
THE ACTING CHAIRMAN (REP. ZIALCITA). Unless you want to put a catchall
phrase like what we did in the Senior Citizens Act. Something like, to the extent --paano ba iyon? To the extent that it is practicable and applicable, the rights and
benefits of the homeowners, are hereby extended to the --- mayroon kaming ginamit
na phrase eh...to the extent that it be practicable and applicable to the unit
homeoweners, is hereby extended, something like that. Its a catchall phrase. But then
again, it might create a...
MR. JALANDONI. It will become complicated. There will be a lot of conflict of
laws between the two laws.
THE ACTING CHAIRMAN (REP. ZIALCITA). Kaya nga eh. At saka, I dont know.
I think the --- mayroon naman silang protection sa ano eh, di ba? Buyers decree doon
sa Condominium Act. Im sure there are provisions there eh. Huwag na lang, huwag
na lang.

MR. JALANDONI. Mr. Chairman, I think it would be best if your previous

comments that youd be supporting an amendment.1wphi1 I think that would be --Well, that would be the best course of action with all due respect.
THE ACTING CHAIRMAN (REP. ZIALCITA). Yeah. Okay. Thank you. So iyon na
lang final proposal naming yung catchall phrase, "With respect to the..."32
xxxx
THE CHAIRMAN (SEN. ZUBIRI). xxx And so, what is their final decision on the
definition of homeowners?
THE ACTING CHAIRMAN (REP. ZIALCITA).
We stick to the original, Mr. Chairman. Well just open up a whole can of worms and
a whole new ball game will come into play. Besides, I am not authorized, neither are
you, by our counterparts to include the condominium owners.
THE CHAIRMAN (SEN. ZUBIRI).
Basically that is correct. We are not authorized by the Senate nor because we have
discussed this lengthily on the floor, actually, several months on the floor. And we
dont have the authority as well for other Bicam members to add a provision to
include a separate entity that has already their legal or their established Republic Act
tackling on that particular issue. But we just like to put on record, we sympathize with
the plight of our friends in the condominium associations and we will just guarantee
them that we will work on an amendment to the Condominium Corporation Code. So
with that we skipped, that is correct, we have to go back to homeowners
association definition, Your Honor, because we had skipped it altogether. So just
quickly going back to Page 7 because there are amendments to the definition of
homeowners. If it is alright with the House Panel, adopt the opening phrase of
Subsection 7 of the Senate version as opening phrase of Subsection 10 of the
reconciled version.
x x x x33
To be sure, RA 4726 or the Condominium Act was enacted to specifically govern a
condominium. Said law sanctions the creation of the condominium corporation which
is especially formed for the purpose of holding title to the common area, in which the
holders of separate interests shall automatically be members or shareholders, to the
exclusion of others, in proportion to the appurtenant interest of their respective
units.34 The rights and obligations of the condominium unit owners and the
condominium corporation are set forth in the above Act.
Clearly, condominium corporations are not covered by the amendment. Thus, the
intra-corporate dispute between petitioner and respondent is still within the
jurisdiction of the RTC sitting as a special commercial court and not the HLURB.
The doctrine laid down by the Court in Chateau de Baie Condominium Corporation v.

Moreno35 which in turn cited Wack Wack Condominium Corporation, et al v. CA36 is

still a good law.
WHEREFORE, we hereby GRANT the petition and REVERSE the Court of Appeals
Decision dated July 10, 2007 and Resolution dated January 25, 2008 in CA-G.R. CV
No. 86614. The Complaint before the Regional Trial Court of Makati City, Branch
58, which is not a special commercial court, docketed as Civil Case No. 03-1018 is
ordered DISMISSED for lack of jurisdiction. Let the case be REMANDED to the
Executive Judge of the Regional Trial Court of Makati City for re-raffle purposes
among the designated special commercial courts.
SO ORDERED.

[G.R. No. 141833. March 26, 2003]

LM

POWER ENGINEERING CORPORATION, petitioner, vs. CAPITOL

INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.

DECISION
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like arbitration, mediation,
negotiation and conciliation -- are encouraged by the Supreme Court. By enabling
parties to resolve their disputes amicably, they provide solutions that are less timeconsuming, less tedious, less confrontational, and more productive of goodwill and
lasting relationships.[1]

The Case
Before us is a Petition for Review on Certiorari[2] under Rule 45 of the Rules of
Court, seeking to set aside the January 28, 2000 Decision of the Court of
Appeals[3] (CA) in CA-GR CV No. 54232. The dispositive portion of the Decision
reads as follows:

WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The
parties are ORDERED to present their dispute to arbitration in accordance with their
Sub-contract Agreement. The surety bond posted by [respondent] is [d]ischarged.[4]

take-over of some work items had been intended to be a termination of the original
contract under Letter K of the Subcontract. It ruled likewise on two other issues:
whether petitioner was liable under the warranty clause of the Agreement, and
whether it should reimburse respondent for the work the latter had taken over.[15]
Hence, this Petition.[16]

The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and
Respondent Capitol Industrial Construction Groups Inc. entered into a Subcontract
Agreement involving electrical work at the Third Port of Zamboanga.[5]
On April 25, 1985, respondent took over some of the work contracted to
petitioner.[6] Allegedly, the latter had failed to finish it because of its inability to
procure materials.[7]
Upon completing its task under the Contract, petitioner billed respondent in the
amount of P6,711,813.90.[8] Contesting the accuracy of the amount of advances and
billable accomplishments listed by the former, the latter refused to pay. Respondent
also took refuge in the termination clause of the Agreement.[9] That clause allowed it
to set off the cost of the work that petitioner had failed to undertake -- due to
termination or take-over -- against the amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of
Makati (Branch 141) a Complaint[10] for the collection of the amount representing the
alleged balance due it under the Subcontract. Instead of submitting an Answer,
respondent filed a Motion to Dismiss,[11] alleging that the Complaint was premature,
because there was no prior recourse to arbitration.
In its Order[12] dated September 15, 1987, the RTC denied the Motion on the
ground that the dispute did not involve the interpretation or the implementation of the
Agreement and was, therefore, not covered by the arbitral clause.[13]
After trial on the merits, the RTC[14] ruled that the take-over of some work items
by respondent was not equivalent to a termination, but a mere modification, of the
Subcontract. The latter was ordered to give full payment for the work completed by
petitioner.

Ruling of the Court of Appeals

On appeal, the CA reversed the RTC and ordered the referral of the case to
arbitration. The appellate court held as arbitrable the issue of whether respondents

The Issues
In its Memorandum, petitioner raises the following issues for the Courts
consideration:
A
Whether or not there exist[s] a controversy/dispute between petitioner and respondent
regarding the interpretation and implementation of the Sub-Contract Agreement dated
February 22, 1983 that requires prior recourse to voluntary arbitration;
B
In the affirmative, whether or not the requirements provided in Article III [1] of
CIAC Arbitration Rules regarding request for arbitration ha[ve] been complied
with[.][17]
The Courts Ruling
The Petition is unmeritorious.

First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the
implementation of the Agreement. Thus, without having to resort to prior arbitration,
it is entitled to collect the value of the services it rendered through an ordinary action
for the collection of a sum of money from respondent. On the other hand, the latter

contends that there is a need for prior arbitration as provided in the Agreement. This
is because there are some disparities between the parties positions regarding the
extent of the work done, the amount of advances and billable accomplishments, and
the set off of expenses incurred by respondent in its take-over of petitioners work.
We side with respondent. Essentially, the dispute arose from the parties
ncongruent positions on whether certain provisions of their Agreement could be
applied to the facts. The instant case involves technical discrepancies that are better
left to an arbitral body that has expertise in those areas. In any event, the inclusion of
an arbitration clause in a contract does not ipso factodivest the courts of jurisdiction
to pass upon the findings of arbitral bodies, because the awards are still judicially
reviewable under certain conditions.[18]
In the case before us, the Subcontract has the following arbitral clause:
6. The Parties hereto agree that any dispute or conflict as regards to
interpretation and implementation of this Agreement which cannot be settled
between [respondent] and [petitioner] amicably shall be settled by means of
arbitration x x x.[19]
Clearly, the resolution of the dispute between the parties herein requires a referral
to the provisions of their Agreement. Within the scope of the arbitration clause are
discrepancies as to the amount of advances and billable accomplishments, the
application of the provision on termination, and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on the
following questions: (1) Did a take-over/termination occur? (2) May the expenses
incurred by respondent in the take-over be set off against the amounts it owed
petitioner? (3) How much were the advances and billable accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions
of the Agreement. According to respondent, the take-over was caused by petitioners
delay in completing the work. Such delay was in violation of the provision in the
Agreement as to time schedule:
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule related to the WORK and
complete the WORK within the period set forth in Annex C hereof. NO time
extension shall be granted by [respondent] to [petitioner] unless a
corresponding time extension is granted by [the Ministry of Public Works
and Highways] to the CONSORTIUM.[20]

Because of the delay, respondent alleges that it took over some of the work
contracted to petitioner, pursuant to the following provision in the Agreement:
K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take over this Agreement for
any of the following causes:
x
x

xxx
6.
If despite previous warnings by [respondent], [petitioner] does
not execute the WORK in accordance with this Agreement,
or persistently or flagrantly neglects to carry out [its] obligations under
this Agreement.[21]

Supposedly, as a result of the take-over, respondent incurred expenses in

excess of the contracted price. It sought to set off those expenses against the amount
claimed by petitioner for the work the latter accomplished, pursuant to the following
provision:
If the total direct and indirect cost of completing the remaining part of the WORK
exceed the sum which would have been payable to [petitioner] had it completed the
WORK, the amount of such excess [may be] claimed by [respondent] from either of
the following:
1. Any amount due [petitioner] from [respondent] at the time of the termination of
this Agreement.[22]
The issue as to the correct amount of petitioners advances and billable
accomplishments involves an evaluation of the manner in which the parties
completed the work, the extent to which they did it, and the expenses each of them
incurred in connection therewith. Arbitrators also need to look into the computation
of foreign and local costs of materials, foreign and local advances, retention fees and
letters of credit, and taxes and duties as set forth in the Agreement. These data can be
gathered from a review of the Agreement, pertinent portions of which are reproduced
hereunder:
C. CONTRACT PRICE AND TERMS OF PAYMENT

xxx
All progress payments to be made by [respondent] to [petitioner] shall be
subject to a retention sum of ten percent (10%) of the value of the approved
quantities. Any claims by [respondent] on [petitioner] may be deducted by
[respondent] from the progress payments and/or retained amount. Any
excess from the retained amount after deducting [respondents] claims shall
be released by [respondent] to [petitioner] after the issuance of [the Ministry
of Public Works and Highways] of the Certificate of Completion and final
acceptance of the WORK by [the Ministry of Public Works and Highways].
x

xxx

D. IMPORTED MATERIALS AND EQUIPMENT

[Respondent shall open the letters of credit for the importation of
equipment and materials listed in Annex E hereof after the drawings,
brochures, and other technical data of each items in the list have been
formally approved by [the Ministry of Public Works and
Highways]. However, petitioner will still be fully responsible for all
imported materials and equipment.
All expenses incurred by [respondent], both in foreign and local currencies
in connection with the opening of the letters of credit shall be deducted from
the Contract Prices.
x

xxx

N. OTHER CONDITIONS
x
x

Being an inexpensive, speedy and amicable method of settling

disputes,[24] arbitration -- along with mediation, conciliation and negotiation -- is
encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial
kind.[25] It is thus regarded as the wave of the future in international civil and
commercial disputes.[26] Brushing aside a contractual agreement calling for arbitration
between the parties would be a step backward.[27]
Consistent with the above-mentioned policy of encouraging alternative dispute
resolution methods, courts should liberally construe arbitration clauses. Provided
such clause is susceptible of an interpretation that covers the asserted dispute, an
order to arbitrate should be granted.[28] Any doubt should be resolved in favor of
arbitration.[29]

x
xxx

2. All customs duties, import duties, contractors taxes, income taxes, and
other taxes that may be required by any government agencies in connection
with this Agreement shall be for the sole account of [petitioner].[23]

Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the
failure to file a formal request for arbitration with the Construction Industry
Arbitration Commission (CIAC) precluded the latter from acquiring jurisdiction over
the question. To bolster its position, petitioner even cites our ruling in Tesco Services
Incorporated v. Vera.[30] We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction
Arbitration indeed required the submission of a request for arbitration, as follows:
SECTION. 1. Submission to Arbitration -- Any party to a construction contract
wishing to have recourse to arbitration by the Construction Industry Arbitration
Commission (CIAC) shall submit its Request for Arbitration in sufficient copies to
the Secretariat of the CIAC; PROVIDED, that in the case of government construction
contracts, all administrative remedies available to the parties must have been
exhausted within 90 days from the time the dispute arose.
Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure
Governing Construction Arbitration has dispensed with this requirement and recourse
to the CIAC may now be availed of whenever a contract contains a clause for the
submission of a future controversy to arbitration, in this wise:

SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a

construction contract or a submission to arbitration of a construction dispute shall be
deemed an agreement to submit an existing or future controversy to CIAC
jurisdiction, notwithstanding the reference to a different arbitration institution or
arbitral body in such contract or submission. When a contract contains a clause for
the submission of a future controversy to arbitration, it is not necessary for the parties
to enter into a submission agreement before the claimant may invoke the jurisdiction
of CIAC.
The foregoing amendments in the Rules were formalized by CIAC Resolution
Nos. 2-91 and 3-93.[31]
The difference in the two provisions was clearly explained in China Chang Jiang
Energy Corporation (Philippines) v. Rosal Infrastructure Builders et al.[32] (an
extended unsigned Resolution) and reiterated in National Irrigation Administration v.
Court of Appeals,[33] from which we quote thus:
Under the present Rules of Procedure, for a particular construction contract to fall
within the jurisdiction of CIAC, it is merely required that the parties agree to submit
the same to voluntary arbitration Unlike in the original version of Section 1, as
applied in the Tesco case, the law as it now stands does not provide that the parties
should agree to submit disputes arising from their agreement specifically to the CIAC
for the latter to acquire jurisdiction over the same. Rather, it is plain and clear that as
long as the parties agree to submit to voluntary arbitration, regardless of what forum
they may choose, their agreement will fall within the jurisdiction of the CIAC, such
that, even if they specifically choose another forum, the parties will not be precluded
from electing to submit their dispute before the CIAC because this right has been
vested upon each party by law, i.e., E.O. No. 1008.[34]
Clearly, there is no more need to file a request with the CIAC in order to vest it
with jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to
submit to arbitration the disputes covered therein. Because that clause is binding,
they are expected to abide by it in good faith.[35] And because it covers the dispute
between the parties in the present case, either of them may compel the other to
arbitrate.[36]
Since petitioner has already filed a Complaint with the RTC without prior recourse
to arbitration, the proper procedure to enable the CIAC to decide on the dispute is to
request the stay or suspension of such action, as provided under RA 876 [the Arbitration
Law].[37]

WHEREFORE,
the
Petition
is DENIED and
Decision AFFIRMED. Costs against petitioner.

the

assailed

SO ORDERED.

[G.R. No. 144074. March 20, 2001]

MEDINA INVESTIGATION & SECURITY CORPORATION and ERNESTO

Z. MEDINA, petitioners, vs. COURT OF APPEALS, NATIONAL
LABOR
RELATIONS
COMMISSION
and
ROMEO
TABURNAL, respondents.
RESOLUTION
GONZAGA-REYES, J.:
Before this Court is a Petition for Review seeking to set aside the Resolution
dated June 2, 2000 dismissing the petition for being filed beyond the 60-day
reglementary period and the Resolution dated July 12, 2000 denying the motion for
reconsideration, both issued by the Court of Appeals in CA-G.R. SP No. 58968.
Respondent Romeo Taburnal was hired by petitioner corporation as security
guard on September 8, 1996 and was assigned to one of its clients, Abenson, Inc. at
Sta. Lucia Grand Mall. On September 5, 1997, the client requested that respondent
Taburnal be relieved due to violations pursuant to the Service Contract such as
reporting late for duty, below standard performance of duties, and exceeding the
maximum six (6) months duty in the company. In view of his replacement,
respondent Taburnal filed a complaint for Illegal Dismissal claiming for separation
pay, non-payment of legal/special holiday and overtime pay, underpayment of 13th
month pay and cash bond and tax refund. On April 29, 1999, the Labor Arbiter
rendered judgment ordering the reinstatement of respondent Taburnal without loss of
seniority rights and the payment of full backwages and salary
differentials. Petitioners appealed to the NLRC which dismissed the same for lack of
jurisdiction. The Motion for Reconsideration thereto was denied. Herein petitioners

filed a petition for certiorari with the Court of Appeals which dismissed the petition
outright for having been filed beyond the 60-day reglementary period or on the 67th
day per its Resolution on June 2, 2000. The Court of Appeals ruled that the petition
was filed on the sixty-seventh (67th) day since petitioners received on November 10,
1999 the Order dated August 26, 1999 of the NLRC and the Motion for
Reconsideration thereto was filed of November 19, 1999. Copy of the order denying
the said motion was received by petitioners on April 3, 2000, while the petition was
filed with the Court of Appeals on May 31, 2000. The Court of Appeals did not
discuss the merits of the petition. Hence, the petition raising the following grounds:
THE COURT OF APPEALS ERRED WHEN IT RULED THAT THE
PETITION
FOR
CERTIORARI WAS
FILED
BEYOND
THE
REGLEMENTARY PERIOD.
PUBLIC APPELLEES COMMITTED A REVERSIBLE ERROR WHEN
THEY DISMISSED THE PETITION, THEREBY AFFIRMING THE
DECISION OF LABOR ARBITER FELIPE P. PATI WHICH AWARDED
MONETARY CLAIMS AND OTHER RELIEF NOT PRAYED FOR IN THE
COMPLAINT, IN GRAVE ABUSE OF THEIR DISCRETION, AMOUNTING
TO LACK OR EXCESS OF JURISDICTION.
PUBLIC APPELLEES GROSSLY ERRED AND GRAVELY ABUSED
THEIR DISCRETION, WHEN THEY HELD APPELLANT ERNESTO Z.
MEDINA JOINTLY AND SEVERALLY LIABLE WITH APPELLANT
MISCOR, INSPITE OF THE FACT THAT THERE IS NO EVIDENCE TO
THAT EFFECT.
Petitioners main contention is that their petition for certiorari filed with the
Court of Appeals was within the 60-day reglementary period pursuant to Rule
65. They insist that when the assailed Order was received on April 3, 2000, the
petition filed on May 31, 2000 was the 58th day, citing Section 1, Rule 22 of the 1997
Rules on Civil Procedure and Article 13 of the Civil Code.
In his Comment, private respondent Romeo Taburnal alleges that he is aware that
Section 4, Rule 65 of the 1997 Rules on Civil Procedure was later amended, which
amendment took effect on September 1, 2000. He insists however that the petition
filed with the Court of Appeals was not yet covered by said amendment. Private
respondent further avers that Article 223 of the Labor Code and the NLRC Rules of
Procedure provide that appeal is the proper remedy for a party aggrieved by a
decision of the Labor Arbiter and the filing of a petition for certiorari with the NLRC
by petitioners is definitely a wrong remedy.

A.M. No. 00-2-03-SC amending Section 4, Rule 65 of the 1997 Rules of Civil
Procedure (as amended by the Resolution of July 21, 1998) took effect on September
1, 2000 and provides, to wit:
SEC. 4. When and where petition filed. --- The petition shall be filed not later than
sixty (60) days from notice of the judgment, order or resolution. In case a motion
for reconsideration or new trial is timely filed, whether such motion is required
or not, the sixty (60) day period shall be counted from notice of the denial of said
motion.
The petition shall be filed in the Supreme Court or, if it relates to the acts or
omissions of a lower court or of a corporation, board, officer or person, in the
Regional Trial Court exercising jurisdiction over the territorial area as defined by the
Supreme Court. It may also be filed in the Court of Appeals whether or not the same
is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its
appellate jurisdiction. If it involves the acts or omissions of a quasi-judicial agency,
unless otherwise provided by law or these rules, the petition shall be filed in and
cognizable only by the Court of Appeals.
No extension of time to file the petition shall be granted except for compelling reason
and in no case exceeding fifteen (15) days.
Contrary to the position of respondents that such amendment should not apply in
this case, we have ruled in the cases of Systems Factors Corporation and Modesto
Dean vs. NLRC, et al., G.R. No. 143789 (promulgated on November 27,
2000) and Unity Fishing Development Corp. and/or Antonio Dee vs. CA, et al.,
G.R. No. 145415 (promulgated on February 2, 2001) that the amendment under
A.M. No. 00-2-03-SC wherein the sixty-day period to file a petition for certiorari is
reckoned from receipt of the resolution denying the motion for reconsideration should
be deemed applicable. We reiterate that remedial statutes or statutes relating to
remedies or modes of procedure, which do not create new or take away vested rights,
but only operate in furtherance of the remedy or confirmation of rights already
existing, do not come within the legal conception of a retroactive law, or the general
rule against retroactive operation of statutes.[1] Statutes regulating the procedure of
the courts will be construed as applicable to actions pending and undetermined at the
time of their passage. Procedural laws are retroactive in that sense and to that
extent. The retroactive application of procedural laws is not violative of any right of
a person who may feel that he is adversely affected.[2] The reason is that as a general
rule, no vested right may attach to nor arise from procedural laws.[3]
The above conclusion is consonant with the provision in Section 6, Rule 1 of the
1997 Rules of Civil Procedure that (T)hese Rules shall be liberally construed in

order to promote their objective of securing a just, speedy and inexpensive disposition
of every action and proceeding.
The other issues raised by petitioners should be addressed and resolved by the
court below.
WHEREFORE, the Resolutions dated June 2, 2000 and July 12, 2000 are
hereby SET ASIDE and the case is REMANDED to the Court of Appeals for further
proceedings.
SO ORDERED.

[G.R. No. 149692. July 30, 2002]

HEIRS OF SPOUSES JULIAN DELA CRUZ AND MAGDALENA TUAZON,

represented by their Attorney-in-Fact and co-heir, VIRGILIO C.
ALVENDIA,petitioners, vs. HEIRS OF FLORENTINO QUINTOS, SR.,
namely, FLORENTINO QUINTOS, JR. and GLORIA QUINTOS
BUGAYONG,respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before Us is a petition for review on certiorari under Rule 45 filed by petitioners
seeking to reverse and set aside the Resolution dated May 29, 2001 of the Court of
Appeals[1] which dismissed their petition for review of the decision of the Regional
Trial Court of Lingayen, Pangasinan (Branch 38) on the ground that the petition was
filed out of time; and, the Resolution dated August 29, 2001[2] denying their motion
for reconsideration.
Sometime in 1996, petitioners filed with the Municipal Trial Court of Lingayen,
Pangasinan an action for reconveyance with damages[3] against respondents
alleging, among others, that they are the children of the late Ariston dela Cruz, who

was the only forced and legal heir of his deceased parents, Julian dela Cruz and
Magdalena Tuazon who died intestate; that sometime in 1897, Magdalena Tuazon
purchased from Herminigildo and Filomena Tiong a certain parcel of land located at
Heroes Street, Lingayen, Pangasinan consisting of 605 square meters and since
then respondents and their predecessors had been in continuous occupation and
adverse possession of the subject land; that sometime in 1987, private respondents
predecessor Florentino Quintos, Sr., filed an application for the judicial registration
of a certain land which included petitioners land; that the land registration court
granted Quintos application and decreed the land in Florentino Quintos
name and OCT No. 22665 was subsequently issued; that OCT No. 22665 was
partitioned into four separate lots and petitioners land was covered by TCT No.
173052; that respondents subsequently filed a complaint (docketed as Civil Case No.
4118) for illegal detainer against petitioners for the latters refusal to vacate the
subject land which resulted in petitioners ejectment from the subject property.
Respondents filed their answer with counterclaim, alleging that the subject land
had always belonged to respondents late father Florentino Quintos, Sr., who in turn
inherited the same from his mother, Dolores Tuazon; that the affidavit evidencing
petitioners ownership of the subject land was not attached to the complaint; that
respondents predecessors merely tolerated petitioners possession of the subject land;
that petitioners never filed their opposition to respondents application for registration
despite knowledge thereof; that the land registration case which was the basis for the
issuance of OCT No. 22665 in the name of the predecessor of respondents was a
proceeding in rem which bound all persons whether notified or not.
On January 29, 1999, a decision[4] was rendered by the MTC declaring
petitioners as the legal owners of the land covered by TCT No. 173052 and ordering
respondents to convey to petitioners the subject land and to pay damages to
petitioners. [5]
Respondents filed their appeal before the Regional Trial Court, Lingayen,
Pangasinan (Branch 38). On January 19, 2000, the RTC[6] reversed the decision of
the MTC dismissing the complaint, declaring respondents as the absolute owners of
the subject land and ordering petitioners to pay damages to respondents.
Petitioners filed their motion for reconsideration which the trial court denied in a
Resolution dated March 8, 2000.[7]
On April 18, 2000, petitioners, through counsel, filed with the Court of Appeals
(CA) a motion for extension of time to file a petition for review which she
subsequently filed on May 2, 2000. Respondents filed a motion to dismiss the petition
for review for being filed out of time since the certification issued by Postmaster
Elizabeth I. Torio of Dagupan City Post Office and the affidavit of Ricardo C. Castro,
Clerk III of the Regional Trial Court show that the trial courts Resolution dated

March 8, 2000 denying petitioners motion for reconsideration was received by the
secretary of petitioners counsel on March 16, 2000, thus the filing of the petition
was filed 28 days late.
Petitioners counsel filed her Comment to respondents motion to dismiss
alleging that when she arrived in her office on April 3, 2000, she found copies of
pleadings and correspondence including a copy of the trial courts Resolution dated
March 8, 2000 denying her motion for reconsideration; that she thought that these
pleadings and correspondence were all received on April 3, 2000; that upon receipt of
respondents motion to dismiss, she confronted her secretary who told her that the
envelope containing the Resolution was only opened on April 3, 2000 and her
secretary could not recall if the Resolution was among those she received on March
16, 2000.
On May 29, 2001, the CA issued the assailed Resolution dismissing petitioners
petition for review for being filed out of time. It found the explanation given by
petitioners counsel unconvincing since she failed to give the reason why the
envelope was opened only on April 3, 2000; that counsels secretary did not even
admit that she actually received the said Resolution; that it is the counsels duty to
adopt and strictly maintain a system that efficiently takes into account all court
notices sent to her and she failed to instruct and remind her secretary on what should
be done with respect to such notices and processes. Petitioners motion for
reconsideration was denied in a Resolution dated August 29, 2001.
Hence, the present petition on the following grounds:
1) The appellate court rejected and refused to consider the valid reason
submitted by the petitioners counsel for the apparent delay in the filing
of the petition for review with said court; hence the dismissal of the
petition was tainted with grave abuse of discretion;
2) Granting, arguendo, that there is a basis for the dismissal of the petition,
the appellate court should have applied the principle of liberal
construction of the Rules pursuant to Rule 1, Section 6 of the 1997 Rules
of Civil Procedure (1997 RCP), considering the valid and meritorious
case of petitioners.
3) In either case, it is respectfully submitted that the appellate court has
departed from the accepted and usual course of judicial proceedings in
dismissing outright the petition for review as to call for the supervision of
this Honorable Court in the exercise of its equity jurisdiction.[8]
We deny the petition.
Section 1, Rule 42 of the 1997 Rules on Civil Procedure, provides that the
petition shall be filed and served within 15 days from notice of the decision sought to

be reviewed or of the denial of petitioners motion for new trial or reconsideration

filed in due time after judgment.[9] In the instant case, it has been established that the
resolution denying petitioners motion for reconsideration of the trial courts decision
was received by the secretary of petitioners former counsel on March 16, 2000, thus
the last day of the 15-day period within which to file the petition for review with the
respondent court was March 31, 2000. Considering that counsel filed a motion for
extension of time to file a petition for review with the respondent court only on April
18, 2000, the judgment of the RTC subject of the petition for review had already
become final and executory. Consequently, the CA did not err in dismissing the
petition for being filed out of time since it has no more jurisdiction to entertain the
petition much less to alter a judgment.
This Court has invariably ruled that perfection of an appeal in the manner and
within the period laid down by law is not only mandatory but also
jurisdictional.[10] The failure to perfect an appeal as required by the rules has the
effect of defeating the right to appeal of a party and precluding the appellate court
from acquiring jurisdiction over the case.[11] The right to appeal is not a natural right
nor a part of due process; it is merely a statutory privilege, and may be exercised only
in the manner and in accordance with the provisions of the law.[12] The party who
seeks to avail of the same must comply with the requirement of the rules. Failing to
do so, the right to appeal is lost. [13]
We agree with the CA when it found that the reason advanced by petitioners
former counsel, which is that she received the resolution denying her motion for
reconsideration only on April 3, 2000 as she found it on her table on the same date,
unacceptable. The negligence of her secretary in failing to immediately give the trial
courts resolution denying petitioners motion for reconsideration upon receipt to the
counsel and the negligence of counsel to adopt and arrange matters in order to ensure
that official or judicial communications sent by mail would reach her promptly cannot
be considered excusable. The Court has also often repeated that the negligence of the
clerks which adversely affect the cases handled by lawyers, is binding upon the
latter.[14]The doctrinal rule is that the negligence of counsel binds the client because
otherwise, there would never be an end to a suit so long as new counsel could be
employed who could allege and show that prior counsel had not be sufficiently
diligent, or experienced, or learned.[15]
Petitioners claim that there should be a liberal construction of the rules of
procedure in order to effect substantial justice and appeal to this Courts exercise of
equity jurisdiction. We are not persuaded. There is no showing in this case of any
extraordinary circumstance which may justify a deviation from the rule on timely
filing of appeals. As held in the case of Tupas vs. CA:[16]

Rules of procedure are intended to ensure the orderly administration of justice and
the protection of substantive rights in judicial and extrajudicial proceedings. It is a
mistake to suppose that substantive law and adjective law are contradictory to each
other or, has often been suggested, that enforcement of procedural rules should never
be permitted if it will result in prejudice to the substantive rights of the litigants. This
is not exactly true; the concept is much misunderstood. As a matter of fact, the policy
of the courts is to give effect to both kinds of law, as complementing each other, in
the just and speedy resolution of the dispute between the parties. Observance of both
substantive and procedural rights is equally guaranteed by due process, whatever the
source of such rights, be it the Constitution itself or only a statute or a rule of court.
(Limpot vs. CA, 170 SCRA 369)
xxx xxx
xxx
For all its conceded merits, equity is available only in the absence of law and not as
its replacement. Equity is described as justice outside legality, which simply means
that it cannot supplant although it may, as often happens, supplement the law. We
said in an earlier case, and we repeat it now, that all abstract arguments based only on
equity should yield to positive rules, which pre-empt and prevail over such
persuasions. Emotional appeals for justice, while they may wring the heart of the
Court, cannot justify disregard of the mandate of the law as long as it remains in
force. The applicable maxim, which goes back to the ancient days of the Roman
jurists- and is now still reverently observed- is `aequetas nunquam contravenit legis.
(Aguila vs. CA, 160 SCRA 359)
At any rate, we find no reversible error committed by the RTC in dismissing
petitioners complaint for reconveyance against respondents. Petitioners claim of
ownership was based on the affidavit of Herminigildo and Filomena Tiong executed
on November 9, 1926 which stated among others that they were the former owners in
common of the subject parcel of land which they sold to Magdalena Tuazon
(petitioners predecessor in interest) on or about the year 1897. However, such
affidavit was not accompanied by any instrument showing the sale between the Tiong
spouses and Magdalena Tuazon. By itself, an affidavit is not a mode of acquiring
ownership,[17] thus it cannot serve as the basis of ownership of the
petitioners. Moreover, the RTC found that there was no tax declaration or title in the
name of the Tiong spouses to evidence their ownership of the subject land. On the
other hand, respondents ownership of the subject land was by virtue of a land
registration case where the land registration court found sufficient the well
documented evidence submitted by applicant Florentino Quintos, Sr. ( respondents
predecessor in interest ) to prove their ownership of 2,048 sq. meters lot which
included the subject land.

In civil cases, the burden of proof is on the plaintiff to establish his case by a
preponderance of evidence. If he claims a right granted or created by law, he must
prove his claim by competent evidence. He must rely on the strength of his own
evidence and not on the weakness of that of his opponent.[18] The RTC had correctly
ruled that petitioners failed to show sufficient proof of ownership over the subject
land covered by TCT No. 173052 so as to entitle them the return of the same.
WHEREFORE, the petition is DENIED. The Court of Appeals Resolution
dated May 29, 2001 and Resolution dated August 29, 2001 are AFFIRMED. Costs
against petitioners.
SO ORDERED.

[G.R. No. 144294. March 11, 2003]

SOLEDAD CHANLIONGCO RAMOS, FRANCISCO D. CHANLIONGCO,

ADELBERTO D. CHANLIONGCO, ARMANDO D. CHANLIONGCO
and FLORENCIO D. CHANLIONGCO, petitioners, vs. TERESITA D.
RAMOS, Spouses TERESITA and EDMUNDO S. MUYOT, Spouses
VEDASTA and FLORENCIO M. DATO, LORETO MUYOT, Spouses
TERESITA and ELMER SOLIS, LICERIA TORRES, Spouses CORAZON
and VICENTE MACATUNGAL, Spouses PRECILLA and CRISOSTOMO
MUYOT, and Spouses CARIDAD and SALVADOR PINGOL, respondents.
DECISION
PANGANIBAN, J.:
Well-settled is the rule that a final judgment is immutable and unalterable. The
only exceptions to this rule are (1) the correction of clerical errors, (2) the socalled nunc pro tunc entries which cause no prejudice to any party, and (3) void
judgments.

The Case
Before us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of
Court, seeking to set aside the July 31, 2000 Resolution[2] of the Court of Appeals
(CA) in CA-GR CV No. 29507 which denied petitioners Motion to Set Aside the CA
Decision[3] dated September 28, 1995. The assailed Resolution disposed as follows:
Finding the opposition of
hereby DENIES the Motion].[4]

[respondents]

to

be

well-taken,

the

[Court

The Facts
Petitioners are children of the late Paulino V. Chanliongco Jr., who was the coowner of a parcel of land known as Lot No. 2-G of Subdivision Plan SWO No.
7308. Situated in Tondo, Manila, it was co-owned by him, his sister Narcisa, and his
brothers Mario and Antonio. By virtue of a Special Power of Attorney executed by
the co-owners in favor of Narcisa, her daughter Adoracion C. Mendoza had sold the
lot to herein respondents on different days in September 1986. Because of conflict
among the heirs of the co-owners as to the validity of the sale, respondents filed with
the Regional Trial Court (RTC)[5] a Complaint[6] for interpleader to resolve the
various ownership claims.
The RTC upheld the sale insofar as the share of Narcisa was concerned. It ruled
that Adoracion had no authority to sell the shares of the other co-owners, because the
Special Power of Attorney had been executed in favor only of her mother, Narcisa.
On appeal, the CA modified the ruling of the RTC. It held that while there was
no Special Power of Attorney in favor of Adoracion, the sale was nonetheless valid,
because she had been authorized by her mother to be the latters sub-agent. There
was thus no need to execute another special power of attorney in her favor as subagent. This CA Decision was not appealed, became final and was entered in favor of
respondents on August 8, 1996.[7]
On April 10, 1999, petitioners filed with the CA a Motion to Set Aside the
Decision. They contended that they had not been served a copy of either the
Complaint or the summons. Neither had they been impleaded as parties to the case in
the RTC. As it was, they argued, the CA Decision should be set aside because it
adversely affected their respective shares in the property without due process.

In denying the Motion of petitioners, the CA cited the grounds raised in

respondents Opposition: (a) the Motion was not allowed as a remedy under the 1997
Rules of Civil Procedure; (b) the Decision sought to be set aside had long become
final and executory; (c) the movants did not have any legal standing; and (d) the
Motion was purely dilatory and without merit.[8]
Hence, this Petition.[9]

The Issue
In their Memorandum, petitioners raise this sole issue for the Courts
consideration:
x x x [W]hether the Court of Appeals erred in denying petitioners Motion and
allowing its Decision dated September 25, 1995 to take its course, inspite of its
knowledge that the lower court did not acquire jurisdiction over the person of
petitioners and passing petitioners property in favor of respondents, hence without
due process of law.[10]
The Courts Ruling
The Petition is unmeritorious.

Main Issue:
Entitlement to Summons
It is well settled that a decision that has acquired finality becomes immutable and
unalterable. A final judgment may no longer be modified in any respect, even if the
modification is meant to correct erroneous conclusions of fact or law;[11] and whether
it will be made by the court that rendered it or by the highest court in the land. [12] The
only exceptions to this rule are the correction of (1) clerical errors, (2) the socalled nunc pro tunc entries which cause no prejudice to any party, and (3) void
judgments.[13] To determine whether the CA Decision of September 28, 1995 is void,
the failure to implead and to serve summons upon petitioners will now be
addressed.[14]

To be able to rule on this point, the Court needs to determine whether the action
is in personam, in rem or quasi in rem. The rules on the service of summons differ
depending on the nature of the action.
An action in personam is lodged against a person based on personal liability; an
action in rem is directed against the thing itself instead of the person;[15] while an
action quasi in rem names a person as defendant, but its object is to subject that
persons interest in a property to a corresponding lien or obligation.[16]
The Complaint filed by respondents with the RTC called for an interpleader to
determine the ownership of the real property in question.[17] Specifically, it forced
persons claiming an interest in the land to settle the dispute among themselves as to
which of them owned the property. Essentially, it sought to resolve the ownership of
the land and was not directed against the personal liability of any particular person. It
was therefore a real action, because it affected title to or possession of real
property.[18] As such, the Complaint was brought against the deceased registered coowners: Narcisa, Mario, Paulino and Antonio Chanliongco, as represented by their
respective estates.
Clearly, petitioners were not the registered owners of the land, but represented
merely an inchoate interest thereto as heirs of Paulino. They had no standing in court
with respect to actions over a property of the estate, because the latter was
represented by an executor or administrator.[19] Thus, there was no need to implead
them as defendants in the case, inasmuch as the estates of the deceased co-owners had
already been made parties.
Furthermore, at the time the Complaint was filed, the 1964 Rules of Court were
still in effect. Under the old Rules, specifically Section 3 of Rule 3,[20] an executor or
administrator may sue or be sued without joining the party for whose benefit the
action is prosecuted or defended.[21] The present rule,[22] however, requires the joinder
of the beneficiary or the party for whose benefit the action is brought. Under the
former Rules, an executor or administrator is allowed to either sue or be sued alone in
that capacity. In the present case, it was the estate of petitioners father Paulino
Chanliongco, as represented by Sebrio Tan Quiming and Associates, that was
included as defendant[23] and served summons.[24] As it was, there was no need to
include petitioners as defendants. Not being parties, they were not entitled to be
served summons.
Petitioner Florencio D. Chanliongco, on the other hand, was impleaded in the
Complaint, but not served summons. However, the service of summons upon the
estate of his deceased father was sufficient, as the estate appeared for and on behalf of
all the beneficiaries and the heirs of Paulino Chanliongco, including Florencio.
We also note that the counsel of petitioners, Atty. Felino V. Quiming Jr., is a
partner of the law firm that represented the estate of the deceased father. Hence, it

can reasonably be expected that the service upon the law firm was sufficient notice to
all the beneficiaries of the estate, including Petitioner Florencio D. Chanliongco.
WHEREFORE, the Petition is hereby DENIED and the assailed
Resolution AFFIRMED. Costs against petitioners.
SO ORDERED.

[G.R. No. 155736. March 31, 2005]

SPOUSES DANILO and CRISTINA DECENA, petitioners, vs. SPOUSES

PEDRO and VALERIA PIQUERO, respondents.
RESOLUTION
CALLEJO, SR., J.:
The petitioners, Spouses Danilo and Cristina Decena were the owners of a parcel
of land, with a house constructed thereon, located in Paraaque, Metro Manila (now
Paraaque City) covered by Transfer Certificate of Title (TCT) No. 134391 issued on
February 24, 1998.[1]
On September 7, 1997, the petitioners and the respondents, the Spouses Pedro
and Valeria Piquero, executed a Memorandum of Agreement (MOA)[2] in which the
former sold the property to the latter for the price of P940,250.00 payable in six (6)
installments via postdated checks. The vendees forthwith took possession of the
property.
It appears in the MOA that the petitioners obliged themselves to transfer the
property to the respondents upon the execution of the MOA with the condition that if
two of the postdated checks would be dishonored by the drawee bank, the latter
would be obliged to reconvey the property to the petitioners.
On May 17, 1999, the petitioners, then residents of Malolos, Bulacan, filed a
Complaint[3] against the respondents with the Regional Trial Court (RTC) of Malolos,
Bulacan, for the annulment of the sale/MOA, recovery of possession and damages.

The petitioners alleged therein that, they did not transfer the property to and in the
names of the respondents as vendees because the first two checks drawn and issued
by them in payment for the purchase price of the property were dishonored by the
drawee bank, and were not replaced with cash despite demands therefor.
The petitioners prayed that, after due proceedings, judgment be rendered in their
favor, thus:
a.
The sale/Memorandum of Agreement (Annex A, supra) be declared null and
void, rescinded and with no further force and effect;
b.
Defendants, and all persons claiming right under them, be ordered to
immediately vacate the subject property and turnover its possession to the plaintiffs;
c.
Defendants, jointly and severally, be ordered to pay the plaintiffs:
i. P10,000.00 monthly, starting 01 October 1997 until complete turnover of the
subject property to the plaintiffs, as reasonable compensation for its continued
unlawful use and occupation by the defendants;
ii. P200,000.00 moral damages;
iii. P200,000.00 exemplary damages;
iv. P250,000.00 attorneys fees and litigation related expenses; and
v. the costs of suit.
Other reliefs just and equitable are, likewise, prayed for.[4]
The petitioners declared in their complaint that the property subject of the
complaint was valued at P6,900,000.00. They appended copies of the MOA and TCT
No. 134391 to their complaint. The case was eventually raffled to Branch 13 of the
RTC of Malolos, Bulacan.
The respondents filed a motion to dismiss the complaint on the ground, inter alia,
of improper venue and lack of jurisdiction over the property subject matter of the
action.
On the first ground, the respondents averred that the principal action of the
petitioners for the rescission of the MOA, and the recovery of the possession of the
property is a real action and not a personal one; hence, it should have been brought in
the RTC of Paraaque City, where the property subject matter of the action was
located, and not in the RTC of Malolos, Bulacan, where the petitioners resided. The
respondents posited that the said court had no jurisdiction over the property subject
matter of the action because it was located in Paraaque City.[5]
In opposition, the petitioners insisted that their action for damages and attorneys
fees is a personal action and not a real action; hence, it may be filed in the RTC of

Bulacan where they reside. They averred that while their second cause of action for
the recovery of the possession of the property is a real action, the same may,
nevertheless, be joined with the rest of their causes of action for damages,
conformably with Section 5(c), Rule 2 of the Rules of Court.[6]
By way of reply, the respondents averred that Section 5(c), Rule 2 of the Rules of
Court applies only when one or more of multiple causes of action falls within the
exclusive jurisdiction of the first level courts, and the other or others are within the
exclusive jurisdiction of the RTC, and the venue lies therein.
On February 9, 2000, the trial court issued an Order[7] denying the motion for
lack of merit. It found merit in the petitioners contention that Section 5(c), Rule 2
was applicable.
Meanwhile, the case was re-raffled to Branch 10 of the RTC of Malolos,
Bulacan. In a Motion[8] dated December 20, 2000, the respondents prayed for the
reconsideration of the trial courts February 9, 2000 Order. On October 16, 2001, the
court issued an Order[9] granting the motion and ordered the dismissal of the
complaint. It ruled that the principal action of the petitioners was a real action and
should have been filed in the RTC of Paraaque City where the property subject
matter of the complaint was located. However, since the case was filed in the RTC of
Bulacan where the petitioners reside, which court had no jurisdiction over the subject
matter of the action, it must be dismissed.
Hence, the present recourse.
The petition has no merit.
The sole issue is whether or not venue was properly laid by the petitioners in the
RTC of Malolos, Bulacan. The resolution of this issue is, in turn, anchored on
whether Section 5, Rule 2 of the Rules of Court invoked by the petitioners is
applicable in this case.
Under the said Rule, 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 conditions therein enumerated, one of which is Section 5(c) which reads:
Sec. 5. Joinder of causes of action. --

(c) Where the causes of action are between the same parties but pertain to different
venues or jurisdiction, the joinder may be allowed in the Regional Trial Court
provided one of the causes of action falls within the jurisdiction of said court and the
venue lies therein;
Explaining the aforequoted condition, Justice Jose Y. Feria declared:

(c) Under the third condition, if one cause of action falls within the jurisdiction of the
Regional Trial Court and the other falls within the jurisdiction of a Municipal Trial
Court, the action should be filed in the Regional Trial Court. If the causes of action
have different venues, they may be joined in any of the courts of proper venue.
Hence, a real action and a personal action may be joined either in the Regional Trial
Court of the place where the real property is located or where the parties reside.[10]
A cause of action is an act or omission of one party in violation of the legal right
of the other which causes the latter injury. The essential elements of a cause of action
are the following: (1) the existence of a legal right of the plaintiff; (2) a correlative
legal duty of the defendant to respect ones right; and (3) an act or omission of the
defendant in violation of the plaintiffs right.[11] A cause of action should not be
confused with the remedies or reliefs prayed for. A cause of action is to be found in
the facts alleged in the complaint and not in the prayer for relief. It is the substance
and not the form that is controlling.[12] A party may have two or more causes of action
against another party.
A joinder of causes of action is the uniting of two or more demands or right of
action in a complaint. The question of the joinder of causes of action involves in
particular cases a preliminary inquiry as to whether two or more causes of action are
alleged.[13] In declaring whether more than one cause of action is alleged, the main
thrust is whether more than one primary right or subject of controversy is present.
Other tests are whether recovery on one ground would bar recovery on the other,
whether the same evidence would support the other different counts and whether
separate actions could be maintained for separate relief;[14] or whether more than one
distinct primary right or subject of controversy is alleged for enforcement or
adjudication.[15]
A cause of action may be single although the plaintiff seeks a variety of
remedies. The mere fact that the plaintiff prays for multiple reliefs does not indicate
that he has stated more than one cause of action. The prayer may be an aid in
interpreting the petition and in determining whether or not more than one cause of
action is pleaded.[16] If the allegations of the complaint show one primary right and
one wrong, only one cause of action is alleged even though other matters are
incidentally involved, and although different acts, methods, elements of injury, items
of claims or theories of recovery are set forth.[17] Where two or more primary rights
and wrongs appear, there is a joinder of causes of action.
After due consideration of the foregoing, we find and so rule that Section 5(c),
Rule 2 of the Rules of Court does not apply. This is so because the petitioners, as
plaintiffs in the court a quo, had only one cause of action against the respondents,
namely, the breach of the MOA upon the latters refusal to pay the first two

installments in payment of the property as agreed upon, and turn over to the
petitioners the possession of the real property, as well as the house constructed
thereon occupied by the respondents. The claim for damages for reasonable
compensation for the respondents use and occupation of the property, in the interim,
as well as moral and exemplary damages suffered by the petitioners on account of the
aforestated breach of contract of the respondents are merely incidental to the main
cause of action, and are not independent or separate causes of action.[18]
The action of the petitioners for the rescission of the MOA on account of the
respondents breach thereof and the latters failure to return the premises subject of
the complaint to the petitioners, and the respondents eviction therefrom is a real
action.[19] As such, the action should have been filed in the proper court where the
property is located, namely, in Paraaque City, conformably with Section 1, Rule 4 of
the Rules of Court which reads:
SECTION 1. Venue of real actions. Actions affecting title to or possession of real
property, or interest therein, shall be commenced and tried in the proper court which
has jurisdiction over the area wherein the real property involved, or a portion thereof,
is situated.
Since the petitioners, who were residents of Malolos, Bulacan, filed their
complaint in the said RTC, venue was improperly laid; hence, the trial court acted
conformably with Section 1(c), Rule 16 of the Rules of Court when it ordered the
dismissal of the complaint.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of
merit. Costs against the petitioners.
SO ORDERED.

SECOND DIVISION

SPS. VICTOR & MILAGROS PEREZ

and
CRISTINA
AGRAVIADOR
AVISO,
P e t i t i o n e r s,

G.R. No. 147417

Present:
PUNO,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA and
CHICO-NAZARIO, JJ.

- versus -

Promulgated:
ANTONIO HERMANO,
R e s p o
t.

July 8, 2005
n

to Dismiss the Complaint or Ordered Severed for Separate Trial which was granted
by the trial court in an Order dated 28 February 2000.

x--------------------------------------------------x
DECISION
CHICO-NAZARIO, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the Resolution[1] of the Court of Appeals dismissing petitioners original
action forcertiorari under Rule 65 for being filed out of time. Assailed as well is the
Resolution[2] dismissing petitioners motion for reconsideration.
The pertinent facts of the case are as follows:
On 27 April 1998, petitioners Cristina Agraviador Aviso and spouses Victor
and Milagros Perez filed a civil case for Enforcement of Contract and Damages with
Prayer for the Issuance of a Temporary Restraining Order (TRO) and/or Preliminary
Injunction against Zescon Land, Inc. and/or its President Zenie Sales-Contreras, Atty.
Perlita Vitan-Ele and against respondent herein Antonio Hermano before the
Regional Trial Court (RTC) of Quezon City, Branch 224.[3] On 15 May 1998,
respondent (then defendant) Hermano filed his Answer with Compulsory
Counterclaim. On 17 January 2000, respondent Hermano filed a Motion with Leave

This Order was received by petitioners on 21 March 2000. On 23 March 2000,

petitioners moved for reconsideration which was denied by the trial court on 25 May
2000 and received by petitioners on 18 June 2000. On 17 August 2000, petitioners
filed an original action for certiorari before the Court of Appeals imputing grave
abuse of discretion on the part of the trial court in dismissing the complaint against
respondent Hermano.
On 19 October 2000, the Court of Appeals rendered the first assailed
Resolution dismissing the petition for certiorari for having been filed beyond the
reglementary period pursuant to Section 4, Rule 65 of the 1997 Rules on Civil
Procedure, as amended. On 02 March 2001, the second assailed Resolution was
promulgated dismissing petitioners motion for reconsideration, the Court of Appeals
holding that:
From the time petitioners received the assailed Order on March
21, 2000 and filed their motion for reconsideration, four (4) days had
elapsed. On June 18, 2000, petitioners received the denial of their
motion for reconsideration. When the instant petition was filed on
August 17, 2000, a total of 63 days had elapsed.
A.M. No. 00-2-03-50 further amending Section 4, Rule 65 of
the New Rules on Civil Procedure states that the petition shall be filed
not later than sixty (60) days from notice of the judgment, Order or
Resolution and in case a motion for reconsideration or new trial is
timely filed, whether such motion is required or not, the 60-day period
shall be counted from notice of the denial of said motion.
Viewed from its light, the assailed Orders had already attained
finality, and are now beyond the power of this Court to review.[4]

Aggrieved by the foregoing ruling, petitioners are now before us assigning the
following

MANIFEST AND/OR SERIOUS ERROR COMMITTED BY THE

HONORABLE COURT OF APPEALS IN THE COMPUTATION OF
THE PERIOD WITHIN WHICH THE PETITIONERS FILED THEIR
PETITION
FOR
CERTIORARI
BEFORE
IT
AND
CONSEQUENTLY
COMMITTED
GRAVE
ABUSE
OF
DISCRETION IN THE APPRECIATION OF FACTS AND/OR
MISAPPREHENSION OF FACTS, WITH ITS FINDING OF FACT
NOT BEING BORNE BY THE RECORD OR EVIDENCE, AND
THUS ITS CONCLUSION IS ENTIRELY BASELESS.[5]

resolution, the period herein fixed shall be interrupted. If the motion

is denied, the aggrieved party may file the petition within the
remaining period, but which shall not be less than five (5) days in
any event, reckoned from notice of such denial. No extension of
time to file the petition shall be granted except for the most compelling
reason and in no case to exceed fifteen (15) days. (Emphasis supplied)

However, on 01 September 2000, during the pendency of the case before the
Court of Appeals, Section 4 was amended anew by A.M. No. 00-2-03-SC[6] which
now provides:
According to petitioners, following the amendment introduced by A.M. No.
00-2-03-SC to Section 4, Rule 65 of the 1997 Rules on Civil Procedure, their petition
was filed on the 60th day, thus, within the reglementary period. Respondent insists,
on the other hand, that the petition was filed on the 61st day while the Court of
Appeals had declared that the petition was filed on the 63rd day.
We agree in the position taken by petitioners.
Admittedly, at the time petitioners filed their petition for certiorari on 17
August 2000, the rule then prevailing was Section 4, Rule 65 of the 1997 Rules on
Civil Procedure, as amended by Circular No. 39-98 effective 01 September 1998,
which provides:
Sec. 4. Where petition filed. The petition shall be filed not
later than sixty (60) days from notice of the judgment, order or
resolution sought to be assailed in the Supreme Court, or if it relates to
the acts or omissions of a lower court or of a corporation, board,
officer or person in the Regional Trial Court exercising jurisdiction
over the territorial area as defined by the Supreme Court. It may also
be filed in the Court of Appeals whether or not the same is in aid of its
appellate jurisdiction, or in the Sandiganbayan if it is in aid of its
jurisdiction. If it involves the acts or omissions of a quasi-judicial
agency, and unless otherwise provided by law or these Rules, the
petition shall be filed in and cognizable only by the Court of Appeals.
If the petitioner had filed a motion for new trial or
reconsideration in due time after notice of said judgment, order, or

Sec. 4. When and where petition filed. The petition shall be

filed not later than sixty (60) days from notice of the judgment, order
or resolution. In case a motion for reconsideration or new trial is
timely filed, whether such motion is required or not, the sixty (60)
day period shall be counted from notice of the denial of said
motion.
The petition shall be filed in the Supreme Court or, if it relates
to the acts or omissions of a lower court or of a corporation, board,
officer or person, in the Regional Trial Court exercising jurisdiction
over the territorial area as defined by the Supreme Court. It may also
be filed in the Court of Appeals whether or not the same is in aid of its
appellate jurisdiction, or in the Sandiganbayan if it is in aid of its
appellate jurisdiction. If it involves the acts or omissions of a quasijudicial agency, unless otherwise provided by law or these rules, the
petition shall be filed in and cognizable only by the Court of Appeals.
No extension of time to file the petition shall be granted except
for compelling reason and in no case exceeding fifteen (15) days.
(Emphasis supplied)

Under this amendment, the 60-day period within which to file the petition starts to
run from receipt of notice of the denial of the motion for reconsideration, if one is
filed.[7]

[8]

In Narzoles v. National Labor Relations Commission, we described this

latest amendment as curative in nature as it remedied the confusion brought about by
Circular No. 39-98 because, historically, i.e., even before the 1997 revision to the
Rules of Civil Procedure, a party had a fresh period from receipt of the order denying
the motion for reconsideration to file a petition for certiorari. Curative statutes,
which are enacted to cure defects in a prior law or to validate legal proceedings which
would otherwise be void for want of conformity with certain legal requirements, by
their very essence, are retroactive.[9] And, being a procedural rule, we held in Sps.
Ma. Carmen and Victor Javellana v. Hon. Presiding Judge Benito Legarda[10] that
procedural laws are construed to be applicable to actions pending and undetermined
at the time of their passage, and are deemed retroactive in that sense and to that
extent.
Consequently, petitioners had a fresh period of 60 days from the time they
received the Order of the trial court denying their motion for reconsideration on 18
June 2000. When they filed their petition with the Court of Appeals on 17 August
2000, exactly 60 days had elapsed following the rule that in computing a period, the
first day shall be excluded and the last day included.[11] Hence, there can be no doubt
that the petition was filed within the reglementary period for doing so and it was
reversible error on the part of the Court of Appeals in not giving said petition due
course. However, instead of remanding the case to the Court of Appeals which would
only unduly prolong the disposition of the substantive issue raised, we shall resolve
the petition originally filed therein.
Petitioners brought to the Court of Appeals on petition for certiorari under
Rule 65 the lone issue of:
WHETHER OR NOT THE PUBLIC RESPONDENT [Hon.
Emilio L. Leachon, Jr., Presiding Judge, RTC, Branch 224, Quezon
City] HAD PLAINLY AND MANIFESTLY ACTED WITH GRAVE
ABUSE OF DISCRETION, IN EXCESS OF JURISDICTION,
TANTAMOUNT TO LACK OF JURISDICTION, IN DISMISSING
THE COMPLAINT AS AGAINST RESPONDENT ANTONIO
HERMANO IN CIVIL CASE NO. Q-98-34211.[12]

Petitioners assert that respondent Hermano should not have been dismissed
from the complaint because: (1) He did not file a motion to dismiss under Rule 16 of
the Rules of Court and, in fact, his Motion with Leave to Dismiss the Complaint or
Ordered Severed for Separate Trial was filed almost two years after he filed his
Answer to the complaint; (2) There was no misjoinder of causes of action in this case;
and (3) There was no misjoinder of parties.
The case filed by petitioners against respondent Hermano and the other
defendants, namely Zescon Land, Inc. and/or its President Zenie Sales-Contreras and
Atty. Perlita Vitan-Ele, was one for Enforcement of Contract and Damages with
Prayer for the Issuance of a Temporary Restraining Order (TRO) and/or Preliminary
Injunction docketed as Civil Case No. Q-98-34211 and raffled to Branch 224.
Petitioners presented three causes of action in their complaint, the first for
enforcement of contract to sell entered into between petitioners and Zescon Land,
Inc., the second for annulment or rescission of two contracts of mortgage entered into
between petitioners and respondent Hermano and the third for damages against all
defendants.
For the first cause of action, petitioners allege that sometime in November
1997, they entered into a Contract to Sell with Zescon Land, Inc., through Zenie
Sales-Contreras, for the purchase of five (5) parcels of land in the total amount of
Nineteen Million One Hundred Four Thousand Pesos (P19,104,000.00). As part of
their agreement, a portion of the purchase price would be paid to them as down
payment, another portion to be given to them as cash advance upon the execution of
the contract and another portion to be used by the buyer, Zescon Land, Inc., to pay for
loans earlier contracted by petitioners which loans were secured by mortgages.
Re-pleading the foregoing in their second cause of action, petitioners contend
that in a tricky machination and simultaneous with the execution of the aforesaid
Contract to Sell, they were made to sign other documents, two of which were
Mortgage deeds over the same five properties in favor of respondent Hermano, whom
they had never met. It was allegedly explained to them by Sales-Contreras that the
mortgage contracts would merely serve to facilitate the payment of the price as
agreed upon in their Contract to Sell. Petitioners claim that it was never their
intention to mortgage their property to respondent Hermano and that they have never
received a single centavo from mortgaging their property to him. Petitioners
acknowledge, however, that respondent Hermano was responsible for discharging
their obligations under the first mortgage and for having the titles over the subject

lands released, albeit not to them but to respondent Hermano. They seek a TRO
against respondent Hermano who had informed them that he would be foreclosing the
subject properties.
In their third cause of action, petitioners pray for damages against all the
defendants alleging that:
Due to the failure and refusal, without any valid justification
and reason, by defendants Zescon and Contreras to comply with their
obligations under the Contract to Sell, including their failure and
refusal to pay the sums stipulated therein, and in misleading and
misrepresenting the plaintiffs into mortgaging their properties to
defendant Antonio Hermano, who in turn had not paid the plaintiffs
the proceeds thereof, putting them in imminent danger of losing the
same, plaintiffs had suffered, and continue to suffer, sleepless nights
.
By reason of defendants Zescon and Contrerass failure and
refusal to pay the sums stipulated in the Contract to Sell, and of
defendant Antonio Hermanos not having paid plaintiffs the proceeds
of the mortgage agreements, plaintiffs had been deprived of the
beneficial use of the proceeds and stood to lose, as they continue to
lose, by way of unearned profits at least P1,000,000.00.[13]

In his Answer with (Compulsory) Counterclaim dated 15 May 1998,

respondent Hermano denied petitioners allegations.[14] Then, on 19 February 1999,
respondent Hermano filed a civil case entitled Judicial Foreclosure of Real Estate
Mortgage against petitioner Aviso docketed as Civil Case No. Q-99-36914 and
raffled to Branch 216 of the RTC of Quezon City. On 17 January 2000, respondent
Hermano filed a Motion With Leave To Dismiss The Complaint Against Defendant
Antonio Hermano, Or Ordered Severed For Separate Trial before Branch 224. In
said motion, respondent Hermano argued that there was a mis-joinder of causes of
action under Rule 2, Section 6 of the Rules of Court. To quote respondent Hermano:
3. In the instant case, the plaintiffs action for the Enforcement
of Contract and Damages with Prayer for The Issuance of a Temporary
Restraining Order And/Or Preliminary Injunction against Zescon

Land, Inc., and/or its President Zenie Sales Contreras, may not, under
Rule 2, Section 6 of the 1997 Rules of Civil Procedure, join defendant
Hermano as party defendant to annul and/or rescind the Real Estate
Mortgages of subject properties. There is a misjoinder of parties
defendants under a different transaction or cause of action; that under
the said Rule 2, Section 6, upon motion of defendant Hermano in the
instant case, the complaint against defendant Hermano can be severed
and tried separately; . . . .[15]

Over petitioners opposition to said motion, the same was granted by the trial
court in its Order dated 28 February 2000 on the justification that:
. . . [D]efendant having filed a special civil action for judicial
foreclosure of mortgage and now pending before RTC Branch 216, he
should be dropped as one of the defendants in this case and whatever
claims plaintiffs may have against defendant Hermano, they can set it
up by way of an answer to said judicial foreclosure.[16]

And, in an Order dated 25 May 2000, the trial court resolved petitioners motion
for reconsideration by dismissing the same, to wit:
After going over the arguments of the parties, the Court
believes that defendant Hermano has nothing to do with the transaction
which the plaintiffs entered into with defendant Zescon Land, Inc.
Besides, the said motion raised matters and defenses previously
considered and passed upon by the Court.[17]

It is these two Orders that were brought up by petitioners to the Court of

Appeals on petition for Certiorari under Rule 65. The pivotal issue to be resolved,
therefore, is whether or not respondent trial court committed grave abuse of discretion
in dismissing the complaint against respondent Hermano in Civil Case No. Q-9834211.

As far as we can glean from the Orders of the trial court, respondent Hermano
was dropped from the complaint on the ground of misjoinder of causes of action.
Petitioners, on the other hand, insist that there was no misjoinder in this case.
To better understand the present controversy, it is vital to revisit the rules on
joinder of causes of action as exhaustively discussed in Republic v.
Hernandez,[18] thus:
By a joinder of actions, or more properly, a joinder of causes of
action, is meant the uniting of two or more demands or rights of action
in one action; the statement of more than one cause of action in a
declaration. It is the union of two or more civil causes of action, each
of which could be made the basis of a separate suit, in the same
complaint, declaration or petition. A plaintiff may under certain
circumstances join several distinct demands, controversies or rights of
action in one declaration, complaint or petition.
As can easily be inferred from the above definitions, a party is
generally not required to join in one suit several distinct causes of
action. The joinder of separate causes of action, where allowable, is
permissive and not mandatory in the absence of a contrary statutory
provision, even though the causes of action arose from the same
factual setting and might under applicable joinder rules be joined.
Modern statutes and rules governing joinders are intended to avoid a
multiplicity of suits and to promote the efficient administration of
justice wherever this may be done without prejudice to the rights of the
litigants. To achieve these ends, they are liberally construed.
While joinder of causes of action is largely left to the option of
a party litigant, Section 5, Rule 2 of our present Rules allows causes of
action to be joined in one complaint conditioned upon the following
requisites: (a) it will not violate the rules on jurisdiction, venue and
joinder of parties; and (b) the causes of action arise out of the same
contract, transaction or relation between the parties, or are for demands
for money or are of the same nature and character.
The objectives of the rule or provision are to avoid a
multiplicity of suits where the same parties and subject matter are to be
dealt with by effecting in one action a complete determination of all

matters in controversy and litigation between the parties involving one

subject matter, and to expedite the disposition of litigation at minimum
cost. The provision should be construed so as to avoid such
multiplicity, where possible, without prejudice to the rights of the
litigants. Being of a remedial nature, the provision should be liberally
construed, to the end that related controversies between the same
parties may be adjudicated at one time; and it should be made effectual
as far as practicable, with the end in view of promoting the efficient
administration of justice.
The statutory intent behind the provisions on joinder of causes
of action is to encourage joinder of actions which could reasonably be
said to involve kindred rights and wrongs, although the courts have not
succeeded in giving a standard definition of the terms used or in
developing a rule of universal application. The dominant idea is to
permit joinder of causes of action, legal or equitable, where there is
some substantial unity between them. While the rule allows a plaintiff
to join as many separate claims as he may have, there should
nevertheless be some unity in the problem presented and a common
question of law and fact involved, subject always to the restriction
thereon regarding jurisdiction, venue and joinder of parties. Unlimited
joinder is not authorized.
Our rule on permissive joinder of causes of action, with the
proviso subjecting it to the correlative rules on jurisdiction, venue and
joinder of parties and requiring a conceptual unity in the problems
presented, effectively disallows unlimited joinder.

Section 6, Rule 2 on misjoinder of causes of action provides:

Sec. 6. Misjoinder of causes of action. - Misjoinder of causes
of action is not a ground for dismissal of an action. A misjoined cause
of action may, on motion of a party or on the initiative of the court, be
severed and proceeded with separately.

There is misjoinder of causes of action when the conditions for joinder under
Section 5, Rule 2 are not met. Section 5 provides:
Sec. 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;
(b)

The joinder shall not include special civil actions or actions

governed by special rules;

(c)

Where the causes of action are between the same parties but
pertain to different venues or jurisdictions, the joinder may be
allowed in the Regional Trial Court provided one of the causes
of action falls within the jurisdiction of said court and the
venue lies therein; and

(d)

Where the claims in all the causes of action are principally for
recovery of money, the aggregate amount claimed shall be the
test of jurisdiction.

As far as can be gathered from the assailed Orders, it is the first condition - on
joinder of parties - that the trial court deemed to be lacking. It is well to remember
that the joinder of causes of action may involve the same parties or different parties.
If the joinder involves different parties, as in this case, there must be a question of
fact or of law common to both parties joined, arising out of the same transaction or
series of transaction.[19]

In herein case, petitioners have adequately alleged in their complaint that after
they had already agreed to enter into a contract to sell with Zescon Land, Inc.,
through Sales-Contreras, the latter also gave them other documents to sign, to wit: A
Deed of Absolute Sale over the same properties but for a lower consideration, two

mortgage deeds over the same properties in favor of respondent Hermano with
accompanying notes and acknowledgment receipts for Ten Million pesos
(P10,000,000) each. Petitioners claim that Zescon Land, Inc., through SalesContreras, misled them to mortgage their properties which they had already agreed to
sell to the latter.
From the above averments in the complaint, it becomes reasonably apparent
that there are questions of fact and law common to both Zescon Land, Inc., and
respondent Hermano arising from a series of transaction over the same properties.
There is the question of fact, for example, of whether or not Zescon Land, Inc.,
indeed misled petitioners to sign the mortgage deeds in favor of respondent Hermano.
There is also the question of which of the four contracts were validly entered into by
the parties. Note that under Article 2085 of the Civil Code, for a mortgage to be
valid, it is imperative that the mortgagor be the absolute owner of the thing
mortgaged. Thus, respondent Hermano will definitely be affected if it is subsequently
declared that what was entered into by petitioners and Zescon Land, Inc., was a
Contract of Sale (as evidenced by the Deed of Absolute Sale signed by them) because
this would mean that the contracts of mortgage were void as petitioners were no
longer the absolute owners of the properties mortgaged. Finally, there is also the
question of whether or not Zescon Land, Inc., as represented by Sales-Contreras, and
respondent Hermano committed fraud against petitioners as to make them liable for
damages.
Prescinding from the foregoing, and bearing in mind that the joinder of causes
of action should be liberally construed as to effect in one action a complete
determination of all matters in controversy involving one subject matter, we hold that
the trial court committed grave abuse of discretion in severing from the complaint
petitioners cause of action against respondent Hermano.
WHEREFORE, premises considered, the Resolution of the Court of Appeals
dated 19 October 2000 dismissing petitioners petition for certiorari and its
Resolution dated 02 March 2001 denying petitioners motion for reconsideration are
REVERSED and SET ASIDE. The petition for certiorari is hereby GRANTED. The
Orders of the Regional Trial Court of Quezon City, Branch 224, dated 28 February
2000 and 25 May 2000 are ANNULLED and SET ASIDE. The RTC is further
ordered to reinstate respondent Antonio Hermano as one of the defendants in Civil
Case No. Q-98-34211. No costs.
SO ORDERED.

FIRST DIVISION

[G.R. No. 164041. July 29, 2005]

ROSENDO ALBA, minor, represented by his mother and natural guardian,

Armi A. Alba, and ARMI A. ALBA, in her personal capacity, petitioners,
vs. COURT OF APPEALS and ROSENDO C. HERRERA, respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for certiorari[1] are the February 27, 2004 decision[2] and
the May 14, 2004 resolution[3] of the Court of Appeals in CA-G.R. SP No. 61883,
which dismissed petitioners original action for annulment of judgment[4] of the
Regional Trial Court of Manila, Branch 37, and denied the motion for
reconsideration, respectively.
The antecedent facts show that on October 21, 1996, private respondent Rosendo
C. Herrera filed a petition[5] for cancellation of the following entries in the birth
certificate of Rosendo Alba Herrera, Jr., to wit: (1) the surname Herrera as
appended to the name of said child; (2) the reference to private respondent as the
father of Rosendo Alba Herrera, Jr.; and (3) the alleged marriage of private
respondent to the childs mother, Armi A. Alba (Armi) on August 4, 1982 in
Mandaluyong City. He claimed that the challenged entries are false and that it was
only sometime in September 1996 that he learned of the existence of said birth
certificate.
Private respondent alleged that he married only once, i.e., on June 28, 1965 with
Ezperanza C. Santos and never contracted marriage with Armi nor fathered Rosendo
Alba Herrera, Jr. In support thereof, he presented certifications from the Civil
Registrar of Mandaluyong City[6] and the National Statistics Office,[7] both stating
that they have no record of marriage between private respondent and Armi.

On November 12, 1996, private respondent filed an amended

petition,[8] impleading Armi and all the persons who have or claim any interest in
th[e] petition.[9]
On November 27, 1996, the trial court issued an Order setting the petition for
hearing on January 24, 1997, and directed the publication and service of said order to
Armi at her address appearing in the birth certificate which is No. 418 Arquiza St.,
Ermita, Manila, and to the Civil Registrar of the City of Manila and the Solicitor
General. The full text of the order, reads:
In a verified Amended Petition for Correction of Entry, the Petitioner prays, inter alia,
that the following entries appearing in the subject Certificate of Live Birth be deleted:
1.
All informations having reference to him as the father of the child mentioned
therein;
2.
The surname Herrera appended to the childs name;
3.
His alleged marriage with the natural mother of the child.
Finding the Petition to be sufficient in form and substance, let the Petition be set for
hearing on January 24, 1997 at nine oclock in the morning before this Branch at
Rooms 447-449, Fourth Floor, Manila City Hall. All interested parties are hereby
notified of the said hearing and are ordered to show cause why the Petition should not
be granted.
Let a copy of this Order be published at the expense of the Petitioner, once a week for
three (3) consecutive weeks, in a newspaper of general circulation in the City of
Manila, and raffled pursuant to P.D. 1079.
Furnish the Office of the Solicitor General and the Office of the Local Civil Registrar
of the City of Manila with copies of the Petition and of this Order.
Let the same be likewise furnished the Private Respondent Armi Alba Herrera at the
address indicated in the subject Certificate of Live Birth.
SO ORDERED.[10]
On January 13, 1997, before the scheduled January 24, 1997 hearing, the trial
court issued an Amended Order[11] with substantially the same contents, except that
the hearing was re-scheduled to February 26, 1997. A copy of said Amended Order
was published in Today, a newspaper of general circulation in Manila in its January
20, 27, and February 3, 1997 issues. Copies thereof were also sent to Armi at No.
418 Arquiza St., Ermita, Manila, on January 17, 1997, the Local Civil Registrar of
Manila and the Solicitor General.
At the scheduled hearing on February 26, 1997, the counsel from the Office of
the Solicitor General appeared but filed no opposition to the petition. Armi, on the

other hand was not present. The return of the notice sent to her had the following
notation:
This is to certify that on January 17, 1997, the undersigned [process server]
personally served a copy of the Amended Order in Sp. Proc. No. 96-80512 dated
January 13, 1997 to the private respondent, Armi Alba Herrera at 418 Arquiza St.,
Ermita, Manila, but failed and unavailing for reason that (sic), private respondent
is no longer residing at said given address.[12]
On April 1, 1997, the court a quo rendered a decision which became final and
executory on June 2, 1997.[13] The dispositive portion thereof, states:
ACCORDINGLY, and pursuant to Rule 108 of the Revised Rules of Court, judgment
is hereby rendered ordering the correction of the entries in the Certificate of Live
Birth of Rosendo Alba Herrera, Jr., in such a way that the entry under the name of the
child, the surname Herrera, Jr.[,] is ordered deleted, and the child shall be known as
ROSENDO ALBA; and that the entry under the date and place of marriage, the date
August 4, 1982, Mandaluyong, MM is likewise ordered deleted or cancelled.
Let a copy of this Decision be furnished the Local Civil Registrar of Manila for
proper correction and entry.
SO ORDERED.[14]
Private respondent filed a motion[15] for amendment of the decretal portion of the
decision to include the cancellation of all entries having reference to him as the father
of petitioner minor. This was granted in the August 11, 1997 order of the trial court
as follows:
ACCORDINGLY, and pursuant to Rule 108 of the Revised Rules of Court, judgment
is hereby rendered ordering the correction of the entries in the Certificate of Live
Birth of Rosendo Alba Herrera, Jr., in such a way that the entries under the name of
the child, the surname Herrera, Jr., and the name of the father Rosendo Caparas
Herrera are ordered deleted, and the child shall be known as ROSENDO ALBA; and
the entry under the date and place of marriage, the date August 4, 1982,
Mandaluyong, MM is likewise ordered deleted or cancelled.
SO ORDERED.[16]
On November 24, 2000, Armi and petitioner minor filed a petition for annulment
of judgment before the Court of Appeals on the grounds of extrinsic fraud and lack of
jurisdiction over their person. She allegedly came to know of the decision of the trial

court only on February 26, 1998, when San Beda College, where her son was enrolled
as a high school student, was furnished by private respondent with a copy of a court
order directing the change of petitioner minors surname from Herrera to Alba.
Armi averred that private respondent was aware that her address is at Unit 302
Plaza Towers Condominium, 1175 Lorenzo Guerrero St., Ermita, Manila, because
such was her residence when she and private respondent cohabited as husband and
wife from 1982 to 1988; and her abode when petitioner minor was born on March 8,
1985. Even after their separation, private respondent continued to give support to
their son until 1998; and that Unit 302 was conveyed to her by private respondent on
June 14, 1991 as part of his support to petitioner minor. According to Armi, her
address i.e., No. 418 Arquiza St., Ermita, Manila, as appearing in the birth certificate
of their son, was entered in said certificate through the erroneous information given
by her sister, Corazon Espiritu. She stressed that private respondent knew all along
that No. 418 Arquiza St., is the residence of her sister and that he deliberately caused
the service of notice therein to prevent her from opposing the petition.
In his answer, private respondent denied paternity of petitioner minor and his
purported cohabitation with Armi. He branded the allegations of the latter as false
statements coming from a polluted source.[17]
On February 27, 2004, the Court of Appeals dismissed the petition holding,
among others, that petitioner failed to prove that private respondent employed fraud
and purposely deprived them of their day in court. It further held that as an
illegitimate child, petitioner minor should bear the surname of his
mother.[18] Petitioners filed a motion for reconsideration but was denied.
Hence, the instant petition.
Under Section 2, Rule 47 of the 1997 Revised Rules of Civil Procedure,
judgments may be annulled on the grounds of lack of jurisdiction and extrinsic
fraud.[19]
Whether or not the trial court acquired jurisdiction over the person of petitioner
and her minor child depends on the nature of private respondents action, that is, in
personam, in rem or quasi in rem. An action in personam is lodged against a person
based on personal liability; an action in rem is directed against the thing itself instead
of the person; while an action quasi in remnames a person as defendant, but its object
is to subject that persons interest in a property to a corresponding lien or
obligation.[20]
Hence, petitions directed against the thing itself or the res,[21] which concerns
the status of a person,[22] like a petition for adoption,[23] annulment of marriage,[24] or
correction of entries in the birth certificate,[25] as in the instant case, are actions in
rem.

In an action in personam, jurisdiction over the person of the defendant is

necessary for the court to validly try and decide the case. In a proceeding in
rem or quasi in rem, jurisdiction over the person of the defendant is not a prerequisite
to confer jurisdiction on the court, provided that the latter has jurisdiction over
the res. Jurisdiction over the res is acquired either (a) by the seizure of the property
under legal process, whereby it is brought into actual custody of the law; or (b) as a
result of the institution of legal proceedings, in which the power of the court is
recognized and made effective.[26] The service of summons or notice to the defendant
is not for the purpose of vesting the court with jurisdiction but merely for satisfying
the due process requirements.[27]
In the case at bar, the filing with the trial court of the petition for cancellation
vested the latter jurisdiction over the res. Substantial corrections or cancellations of
entries in civil registry recordsaffecting the status or legitimacy of a person may be
effected through the institution of a petition under Rule 108 of the Revised Rules of
Court, with the proper Regional Trial Court.[28] Being a proceeding in rem,
acquisition of jurisdiction over the person of petitioner is therefore not required in the
present case. It is enough that the trial court is vested with jurisdiction over the
subject matter.
The service of the order at No. 418 Arquiza St., Ermita, Manila and the
publication thereof in a newspaper of general circulation in Manila, sufficiently
complied with the requirement of due process, the essence of which is an opportunity
to be heard. Said address appeared in the birth certificate of petitioner minor as the
residence of Armi. Considering that the Certificate of Birth bears her signature, the
entries appearing therein are presumed to have been entered with her approval.
Moreover, the publication of the order is a notice to all indispensable parties,
including Armi and petitioner minor, which binds the whole world to the judgment
that may be rendered in the petition. An in rem proceeding is validated essentially
through publication.[29] The absence of personal service of the order to Armi was
therefore cured by the trial courts compliance with Section 4, Rule 108, which
requires notice by publication, thus:
SEC. 4. Notice and publication. Upon the filing of the petition, the court shall, by
an order, fix the time and place for the hearing of the same, and cause reasonable
notice thereof to be given to the persons named in the petition. The court shall also
cause the order to be published once a week for three (3) consecutive weeks in a
newspaper of general circulation in the province.
In Barco v. Court of Appeals, the trial court granted a petition for
correction/change of entries in a minors birth certificate to reflect the name of the

minors real father as well as to effect the corresponding change of her surname. In
seeking to annul said decision, the other children of the alleged father claimed that
they are indispensable parties to the petition for correction, hence, the failure to
implead them is a ground to annul the decision of the trial court. The Court of
Appeals denied the petition which was sustained by this Court on the ground, inter
alia, that while petitioner is indeed an indispensable party, the failure to implead her
was cured by the publication of the order of hearing. Thus
Undoubtedly, Barco is among the parties referred to in Section 3 of Rule 108. Her
interest was affected by the petition for correction, as any judicial determination that
June was the daughter of Armando would affect her wards share in the estate of her
father. It cannot be established whether Nadina knew of Mary Joys existence at the
time she filed the petition for correction. Indeed, doubt may always be cast as to
whether a petitioner under Rule 108 would know of all the parties whose interests
may be affected by the granting of a petition. For example, a petitioner cannot be
presumed to be aware of all the legitimate or illegitimate offsprings of his/her spouse
or paramour. The fact that Nadina amended her petition to implead Francisco and
Gustilo indicates earnest effort on her part to comply with Section 3 as quoted above.
Yet, even though Barco was not impleaded in the petition, the Court of Appeals
correctly pointed out that the defect was cured by compliance with Section 4, Rule
108, which requires notice by publication, thus:
Section 4. Upon the filing of the petition, the court shall, by order, fix the time and
place for the hearing of the same, and cause reasonable notice thereof to be given to
the persons named in the petition. The court shall also cause the order to be published
once a week for three (3) consecutive weeks in a newspaper of general circulation in
the province.
The purpose precisely of Section 4, Rule 108 is to bind the whole world to the
subsequent judgment on the petition. The sweep of the decision would cover
even parties who should have been impleaded under Section 3, Rule 108, but
were inadvertently left out. The Court of Appeals correctly noted:
The publication being ordered was in compliance with, and borne out by the Order of
January 7, 1985. The actual publication of the September 22, 1983 Order, conferred
jurisdiction upon the respondent court to try and decide the case. While nobody
appeared to oppose the instant petition during the December 6, 1984 hearing, that
did not divest the court from its jurisdiction over the case and of its authority to

continue trying the case. For, the rule is well-settled, that jurisdiction, once acquired
continues until termination of the case.
Verily, a petition for correction is an action in rem, an action against a thing and not
against a person. The decision on the petition binds not only the parties thereto but the
whole world. An in rem proceeding is validated essentially through publication.
Publication is notice to the whole world that the proceeding has for its object to bar
indefinitely all who might be minded to make an objection of any sort against the
right sought to be established. It is the publication of such notice that brings in the
whole world as a party in the case and vests the court with jurisdiction to hear and
decide it.[30]
Furthermore, extrinsic fraud, which was private respondents alleged
concealment of Armis present address, was not proven. Extrinsic fraud exists when
there is a fraudulent act committed by the prevailing party outside of the trial of the
case, whereby the defeated party was prevented from presenting fully his side of the
case by fraud or deception practiced on him by the prevailing party. Here, Armi
contended that private respondent is aware of her present address because they lived
together as husband and wife in the condominium unit from 1982 to 1988 and
because private respondent continued to give support to their son until 1998. To
prove her claim, she presented (1) private respondents title over the condominium
unit; (2) receipts allegedly issued to private respondent for payment of homeowners
or association dues; (2) a photocopy of a January 14, 1991 deed of sale of the subject
unit in favor of Armi; and (3) the subsequent title issued to the latter. However, these
documents only tend to prove private respondents previous ownership of the unit and
the subsequent transfer thereof to Armi, but not the claimed live-in relationship of the
parties. Neither does the sale prove that the conveyance of the unit was part of
private respondents support to petitioner minor. Indeed, intimate relationships and
family relations cannot be inferred from what appears to be an ordinary business
transaction.
Although the January 14, 1991 deed of sale[31] stated that Armi resides at 1175 L.
Guerrero St., Ermita, Manila, the same is not sufficient to prove that private
respondent has knowledge of Armis address because the former objected to the offer
of the deed for being a mere photocopy.[32] The counsel for petitioners even admitted
that they do not have the original of the deed and that per certification of the Clerk of
Court, the Notary Public who notarized the deed of sale did not submit a copy of the
notarized document as required by the rules.[33] The deed cannot thus be the basis of
ascribing knowledge of Armis address to private respondent inasmuch as the

authenticity thereof was neither admitted by private respondent nor proven by

petitioners.
While Armi presented the alleged love letters/notes from private respondent, they
were only attached as annexes to the petition and not formally offered as evidence
before the Court of Appeals. More importantly, said letters/notes do not have
probative value because they were mere photocopies and never proven to be an
authentic writing of private respondent. In the same vein, the affidavits[34] of Armi
and her sister, Corazon Espiritu, are of no evidentiary weight. The basic rule of
evidence is that unless the affiants themselves are placed on the witness stand to
testify on their affidavits, such affidavits must be rejected for being hearsay. Stated
differently, the declarants of written statements pertaining to disputed facts must be
presented at the trial for cross-examination.[35] Inasmuch as Armi and her sister were
not presented before the Court of Appeals to affirm the veracity of their affidavits, the
same are considered hearsay and without probative value.
Ei incumbit probotio qui dicit, non qui negat. He who asserts, not he who denies,
must prove.[36] Armis claim that private respondent is aware of her present address is
anchored on the assertion of a live-in relationship and support to her son. Since the
evidence presented by Armi is not sufficient to prove the purported cohabitation and
support, it follows that private respondents knowledge of Armis address was
likewise not proven. Thus, private respondent could not have deliberately concealed
from the court that which was not shown to be known to him. The Court of Appeals
therefore correctly dismissed the petition for annulment of judgment on the ground of
failure to establish extrinsic fraud.
The proper remedy of a party aggrieved by a decision of the Court of Appeals in
an action to annul a judgment of a Regional Trial Court is a petition for review
on certiorari under Rule 45 of the Revised Rules of Civil Procedure, where only
questions of law may be raised. The resort of petitioner to the instant civil action
for certiorari under Rule 65 is therefore erroneous. The special civil action
of certiorari will not be allowed as a substitute for failure to timely file a petition for
review under Rule 45, which should be instituted within 15 days[37] from receipt of
the assailed decision or resolution. The wrong choice of remedy thus provides
another reason to dismiss this petition.[38]
Finally, petitioner failed to establish the merits of her petition to annul the trial
courts decision. In an action for annulment of judgment, the petitioner must
convince the court that something may indeed be achieved should the assailed
decision be annulled.[39] Under Article 176[40] of the Family Code as amended by
Republic Act (RA) No. 9255, which took effect on March 19, 2004, illegitimate
children shall use the surname of their mother, unless their father recognizes their
filiation, in which case they may bear the fathers surname. In Wang v. Cebu Civil

Registrar,[41] it was held that an illegitimate child whose filiation is not recognized by
the father, bears only a given name and his mothers surname. The name of the
unrecognized illegitimate child identifies him as such. It is only when said child is
recognized that he may use his fathers surname, reflecting his status as an
acknowledged illegitimate child.
In the present case, it is clear from the allegations of Armi that petitioner minor is
an illegitimate child because she was never married to private respondent.
Considering that the latter strongly asserts that he is not the father of petitioner minor,
the latter is therefore an unrecognized illegitimate child. As such, he must bear the
surname of his mother.
In sum, the substantive and procedural aspects of the instant controversy do not
warrant the annulment of the trial courts decision.
WHEREFORE, the petition is DISMISSED. The February 27, 2004 decision
and the May 14, 2004 resolution of the Court of Appeals in CA-G.R. SP No. 61883
are AFFIRMED.

Promulgated:

Respondent.
November 28, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

LEONARDO-DE CASTRO, J.:

On August 30, 2005, respondent Lepanto Consolidated Mining Company filed

with the Regional Trial Court (RTC) of Makati City a Complaint[3] against petitioner
NM Rothschild & Sons (Australia) Limited praying for a judgment declaring the loan
and hedging contracts between the parties void for being contrary to Article 2018[4] of
the Civil Code of the Philippines and for damages. The Complaint was docketed as
Civil Case No. 05-782, and was raffled to Branch 150. Upon respondents
(plaintiffs) motion, the trial court authorized respondents counsel to personally bring
the summons and Complaint to the Philippine Consulate General in Sydney, Australia
for the latter office to effect service of summons on petitioner (defendant).

Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

- versus -

LEPANTO
CONSOLIDATED
MINING COMPANY,

This is a Petition for Review on Certiorari assailing the Decision[1] of the

Court of Appeals dated September 8, 2006 in CA-G.R. SP No. 94382 and its
Resolution[2] dated December 12, 2006, denying the Motion for Reconsideration.

SO ORDERED.

NM
ROTHSCHILD
&
(AUSTRALIA) LIMITED,
Petitioner,

VILLARAMA, JR., JJ.

SONS

G.R. No. 175799

Present:
CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and

On October 20, 2005, petitioner filed a Special Appearance With Motion to

Dismiss[5] praying for the dismissal of the Complaint on the following grounds: (a) the
court has not acquired jurisdiction over the person of petitioner due to the defective
and improper service of summons; (b) the Complaint failed to state a cause of action
and respondent does not have any against petitioner; (c) the action is barred by
estoppel; and (d) respondent did not come to court with clean hands.
On November 29, 2005, petitioner filed two Motions: (1) a Motion for Leave
to take the deposition of Mr. Paul Murray (Director, Risk Management of petitioner)

before the Philippine Consul General; and (2) a Motion for Leave to Serve
Interrogatories on respondent.
On December 9, 2005, the trial court issued an Order[6] denying the Motion to
Dismiss. According to the trial court, there was a proper service of summons through
the Department of Foreign Affairs (DFA) on account of the fact that the defendant has
neither applied for a license to do business in the Philippines, nor filed with the
Securities and Exchange Commission (SEC) a Written Power of Attorney designating
some person on whom summons and other legal processes maybe served. The trial
court also held that the Complaint sufficiently stated a cause of action. The other
allegations in the Motion to Dismiss were brushed aside as matters of defense which
can best be ventilated during the trial.
On December 27, 2005, petitioner filed a Motion for Reconsideration.[7] On
March 6, 2006, the trial court issued an Order denying the December 27, 2005 Motion
for Reconsideration and disallowed the twin Motions for Leave to take deposition and
serve written interrogatories.[8]
On April 3, 2006, petitioner sought redress via a Petition for Certiorari[9] with
the Court of Appeals, alleging that the trial court committed grave abuse of discretion
in denying its Motion to Dismiss. The Petition was docketed as CA-G.R. SP No.
94382.
On September 8, 2006, the Court of Appeals rendered the assailed Decision
dismissing the Petition for Certiorari. The Court of Appeals ruled that since the
denial of a Motion to Dismiss is an interlocutory order, it cannot be the subject of a
Petition for Certiorari, and may only be reviewed in the ordinary course of law by an
appeal from the judgment after trial. On December 12, 2006, the Court of Appeals
rendered the assailed Resolution denying the petitioners Motion for
Reconsideration.
Meanwhile, on December 28, 2006, the trial court issued an Order directing
respondent to answer some of the questions in petitioners Interrogatories to Plaintiff
dated September 7, 2006.
Notwithstanding the foregoing, petitioner filed the present petition assailing
the September 8, 2006 Decision and the December 12, 2006 Resolution of the Court
of Appeals. Arguing against the ruling of the appellate court, petitioner insists that (a)
an order denying a motion to dismiss may be the proper subject of a petition

for certiorari; and (b) the trial court committed grave abuse of discretion in not
finding that it had not validly acquired jurisdiction over petitioner and that the
plaintiff had no cause of action.
Respondent, on the other hand, posits that: (a) the present Petition should be
dismissed for not being filed by a real party in interest and for lack of a proper
verification and certificate of non-forum shopping; (b) the Court of Appeals correctly
ruled that certiorari was not the proper remedy; and (c) the trial court correctly denied
petitioners motion to dismiss.
Our discussion of the issues raised by the parties follows:
Whether petitioner is a real party in
interest

Respondent argues that the present Petition should be dismissed on the ground
that petitioner no longer existed as a corporation at the time said Petition was filed on
February 1, 2007. Respondent points out that as of the date of the filing of the
Petition, there is no such corporation that goes by the name NM Rothschild and Sons
(Australia) Limited. Thus, according to respondent, the present Petition was not filed
by a real party in interest, citing our ruling in Philips Export B.V. v. Court of
Appeals,[10] wherein we held:
A name is peculiarly important as necessary to the very
existence of a corporation (American Steel Foundries vs. Robertson,
269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R.
Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co., 40 W
Va 530, 23 SE 792). Its name is one of its attributes, an element of its
existence, and essential to its identity (6 Fletcher [Perm Ed], pp. 3-4).
The general rule as to corporations is that each corporation must have
a name by which it is to sue and be sued and do all legal acts. The
name of a corporation in this respect designates the corporation in the
same manner as the name of an individual designates the person
(Cincinnati Cooperage Co. vs. Bate, 96 Ky 356, 26 SW 538; Newport
Mechanics Mfg. Co. vs. Starbird, 10 NH 123); and the right to use its
corporate name is as much a part of the corporate franchise as any
other privilege granted (Federal Secur. Co. vs. Federal Secur. Corp.,

129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs. Portuguese

Beneficial Association, 18 RI 165, 26 A 36).[11]
In its Memorandum[12] before this Court, petitioner started to refer to itself
as Investec Australia Limited (formerly NM Rothschild & Sons [Australia]
Limited) and captioned said Memorandum accordingly. Petitioner claims that NM
Rothschild and Sons (Australia) Limited still exists as a corporation under the laws of
Australia under said new name. It presented before us documents evidencing the
process in the Australian Securities & Investment Commission on the change of
petitioners company name from NM Rothschild and Sons (Australia) Limited to
Investec Australia Limited.[13]
We find the submissions of petitioner on the change of its corporate name
satisfactory and resolve not to dismiss the present Petition for Review on the ground
of not being prosecuted under the name of the real party in interest. While we stand
by our pronouncement in Philips Export on the importance of the corporate name to
the very existence of corporations and the significance thereof in the corporations
right to sue, we shall not go so far as to dismiss a case filed by the proper party using
its former name when adequate identification is presented. A real party in interest is
the party who stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit.[14] There is no doubt in our minds that the party
who filed the present Petition, having presented sufficient evidence of its identity and
being represented by the same counsel as that of the defendant in the case sought to be
dismissed, is the entity that will be benefited if this Court grants the dismissal prayed
for.
Since the main objection of respondent to the verification and certification
against forum shopping likewise depends on the supposed inexistence of the
corporation named therein, we give no credit to said objection in light of the foregoing
discussion.
Propriety of the Resort to a Petition
for Certiorari with the Court of
Appeals

We have held time and again that an order denying a Motion to Dismiss is an
interlocutory order which neither terminates nor finally disposes of a case as it leaves

something to be done by the court before the case is finally decided on the
merits. The general rule, therefore, 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.[15] However, we have
likewise held that when the denial of the Motion to Dismiss is tainted with grave
abuse of discretion, the grant of the extraordinary remedy of Certiorari may be
justified. By grave abuse of discretion is meant:
[S]uch 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.[16]

The resolution of the present Petition therefore entails an inquiry into whether
the Court of Appeals correctly ruled that the trial court did not commit grave abuse of
discretion in its denial of petitioners Motion to Dismiss. A mere error in judgment
on the part of the trial court would undeniably be inadequate for us to reverse the
disposition by the Court of Appeals.
Issues more properly
during the trial of the case

ventilated

As previously stated, petitioner seeks the dismissal of Civil Case No. 05-782
on the following grounds: (a) lack of jurisdiction over the person of petitioner due to
the defective and improper service of summons; (b) failure of the Complaint to state a
cause of action and absence of a cause of action; (c) the action is barred by estoppel;
and (d) respondent did not come to court with clean hands.
As correctly ruled by both the trial court and the Court of Appeals, the alleged
absence of a cause of action (as opposed to the failure to state a cause of action), the
alleged estoppel on the part of petitioner, and the argument that respondent is in pari
delicto in the execution of the challenged contracts, are not grounds in a Motion to
Dismiss as enumerated in Section 1, Rule 16[17] of the Rules of Court. Rather, such
defenses raise evidentiary issues closely related to the validity and/or existence of

respondents alleged cause of action and should therefore be threshed out during the
trial.
As regards the allegation of failure to state a cause of action, while the same is
usually available as a ground in a Motion to Dismiss, said ground cannot be ruled
upon in the present Petition without going into the very merits of the main case.
It is basic that [a] cause of action is the act or omission by which a party
violates a right of another.[18] Its elements are the following: (1) a right existing in
favor of the plaintiff, (2) a duty on the part of the defendant to respect the plaintiff's
right, and (3) an act or omission of the defendant in violation of such right.[19] We
have held that to sustain a Motion to Dismiss for lack of cause of action, the
complaint must show that the claim for relief does not exist and not only that the
claim was defectively stated or is ambiguous, indefinite or uncertain.[20]
The trial court held that the Complaint in the case at bar contains all the three
elements of a cause of action, i.e., it alleges that: (1) plaintiff has the right to ask for
the declaration of nullity of the Hedging Contracts for being null and void and
contrary to Article 2018 of the Civil Code of the Philippines; (2) defendant has the
corresponding obligation not to enforce the Hedging Contracts because they are in the
nature of wagering or gambling agreements and therefore the transactions
implementing those contracts are null and void under Philippine laws; and (3)
defendant ignored the advice and intends to enforce the Hedging Contracts by
demanding financial payments due therefrom.[21]
The rule is that in a Motion to Dismiss, a defendant hypothetically admits the
truth of the material allegations of the ultimate facts contained in the plaintiff's
complaint.[22] However, this principle of hypothetical admission admits of
exceptions. Thus, in Tan v. Court of Appeals, [23] we held:
The flaw in this conclusion is that, while conveniently echoing
the general rule that averments in the complaint are deemed
hypothetically admitted upon the filing of a motion to dismiss
grounded on the failure to state a cause of action, it did not take into
account the equally established limitations to such rule, i.e., that a
motion to dismiss does not admit the truth of mere epithets of fraud;
nor allegations of legal conclusions; nor an erroneous statement of
law; nor mere inferences or conclusions from facts not stated;
nor mere conclusions of law; nor allegations of fact the falsity of

which is subject to judicial notice; nor matters of evidence; nor

surplusage and irrelevant matter; nor scandalous matter inserted
merely to insult the opposing party; nor to legally impossible facts; nor
to facts which appear unfounded by a record incorporated in the
pleading, or by a document referred to; and, nor to general averments
contradicted by more specific averments. A more judicious resolution
of a motion to dismiss, therefore, necessitates that the court be not
restricted to the consideration of the facts alleged in the complaint and
inferences fairly deducible therefrom. Courts may consider other facts
within the range of judicial notice as well as relevant laws and
jurisprudence which the courts are bound to take into account,
and they are also fairly entitled to examine records/documents
duly incorporated into the complaint by the pleader himself in
ruling on the demurrer to the complaint.[24] (Emphases supplied.)

In the case at bar, respondent asserts in the Complaint that the Hedging
Contracts are void for being contrary to Article 2018[25] of the Civil
Code. Respondent claims that under the Hedging Contracts, despite the express
stipulation for deliveries of gold, the intention of the parties was allegedly merely to
compel each other to pay the difference between the value of the gold at the forward
price stated in the contract and its market price at the supposed time of delivery.
Whether such an agreement is void is a mere allegation of a conclusion of law,
which therefore cannot be hypothetically admitted. Quite properly, the relevant
portions of the contracts sought to be nullified, as well as a copy of the contract itself,
are incorporated in the Complaint. The determination of whether or not the
Complaint stated a cause of action would therefore involve an inquiry into whether or
not the assailed contracts are void under Philippine laws. This is, precisely, the very
issue to be determined in Civil Case No. 05-782. Indeed, petitioners defense against
the charge of nullity of the Hedging Contracts is the purported intent of the parties
that actual deliveries of gold be made pursuant thereto. Such a defense requires the
presentation of evidence on the merits of the case. An issue that requires the
contravention of the allegations of the complaint, as well as the full ventilation, in
effect, of the main merits of the case, should not be within the province of a mere
Motion to Dismiss.[26] The trial court, therefore, correctly denied the Motion to
Dismiss on this ground.

It is also settled in jurisprudence that allegations of estoppel and bad faith

require proof. Thus, in Paraaque Kings Enterprises, Inc. v. Court of Appeals,[27] we
ruled:
Having come to the conclusion that the complaint states a valid
cause of action for breach of the right of first refusal and that the trial
court should thus not have dismissed the complaint, we find no more
need to pass upon the question of whether the complaint states a cause
of action for damages or whether the complaint is barred by
estoppel or laches. As these matters require presentation and/or
determination of facts, they can be best resolved after trial on the
merits.[28] (Emphases supplied.)

On the proposition in the Motion to Dismiss that respondent has come to court
with unclean hands, suffice it to state that the determination of whether one acted in
bad faith and whether damages may be awarded is evidentiary in nature. Thus, we
have previously held that [a]s a matter of defense, it can be best passed upon after a
full-blown trial on the merits.[29]
Jurisdiction
petitioner

over

the

person

of

Petitioner alleges that the RTC has not acquired jurisdiction over its person on
account of the improper service of summons. Summons was served on petitioner
through the DFA, with respondents counsel personally bringing the summons and
Complaint to the Philippine Consulate General in Sydney, Australia.
In the pleadings filed by the parties before this Court, the parties entered into a
lengthy debate as to whether or not petitioner is doing business in the
Philippines. However, such discussion is completely irrelevant in the case at bar, for
two reasons. Firstly, since the Complaint was filed on August 30, 2005, the
provisions of the 1997 Rules of Civil Procedure govern the service of
summons. Section 12, Rule 14 of said rules provides:
Sec. 12. Service upon foreign private juridical entity. When
the defendant is a foreign private 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 on any of its officers or agents within the Philippines.
(Emphasis supplied.)

This is a significant amendment of the former Section 14 of said rule which

previously provided:
Sec. 14. Service upon private foreign corporations. If the
defendant is a foreign corporation, or a nonresident joint stock
company or association, doing 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 on any of its officers or
agents within the Philippines. (Emphasis supplied.)
The coverage of the present rule is thus broader.[30] Secondly, the service of
summons to petitioner through the DFA by the conveyance of the summons to the
Philippine Consulate General in Sydney, Australia was clearly made not through the
above-quoted Section 12, but pursuant to Section 15 of the same rule which provides:
Sec. 15. Extraterritorial service. When the defendant does
not reside and is not found in the Philippines, and the action affects the
personal status of the plaintiff or relates to, or the subject of which is
property within the Philippines, in which the defendant has or claims a
lien or interest, actual or contingent, or in which the relief demanded
consists, wholly or in part, in excluding the defendant from any
interest therein, or the property of the defendant has been attached
within the Philippines, service may, by leave of court, be effected out
of the Philippines by personal service as under section 6; or by
publication in a newspaper of general circulation in such places and
for such time as the court may order, in which case a copy of the
summons and order of the court shall be sent by registered mail to the
last known address of the defendant, or in any other manner the court
may deem sufficient. Any order granting such leave shall specify a
reasonable time, which shall not be less than sixty (60) days after
notice, within which the defendant must answer.

Respondent argues[31] that extraterritorial service of summons upon foreign

private juridical entities is not proscribed under the Rules of Court, and is in fact
within the authority of the trial court to adopt, in accordance with Section 6, Rule 135:
Sec. 6. Means to carry jurisdiction into effect. When by law
jurisdiction is conferred on a court or judicial officer, all auxiliary
writs, processes and other means necessary to carry it into effect may
be employed by such court or officer; and if the procedure to be
followed in the exercise of such jurisdiction is not specifically pointed
out by law or by these rules, any suitable process or mode of
proceeding may be adopted which appears comformable to the spirit of
said law or rules.

Section 15, Rule 14, however, is the specific provision dealing precisely with
the service of summons on a defendant which does not reside and is not found in the
Philippines, while Rule 135 (which is in Part V of the Rules of Court entitled Legal
Ethics) concerns the general powers and duties of courts and judicial officers.
Breaking down Section 15, Rule 14, it is apparent that there are only four
instances wherein a defendant who is a non-resident and is not found in the country
may be served with summons by extraterritorial service, to wit: (1) when the action
affects the personal status of the plaintiffs; (2) when the action relates to, or the
subject of which is property, within the Philippines, in which the defendant claims a
lien or an interest, actual or contingent; (3) when the relief demanded in such action
consists, wholly or in part, in excluding the defendant from any interest in property
located in the Philippines; and (4) when the defendant non-resident's property has
been attached within the Philippines. In these instances, service of summons may be
effected by (a) personal service out of the country, with leave of court; (b)
publication, also with leave of court; or (c) any other manner the court may deem
sufficient.[32]
Proceeding from this enumeration, we held in Perkin Elmer Singapore Pte
Ltd. v. Dakila Trading Corporation[33] that:
Undoubtedly, extraterritorial service of summons applies
only where the action is in rem or quasi in rem, but not if an action
is in personam.

When the case instituted is an action in rem or quasi in rem,

Philippine courts already have jurisdiction to hear and decide the case
because, in actions in rem and quasi in rem, jurisdiction over the
person of the defendant is not a prerequisite to confer jurisdiction on
the court, provided that the court acquires jurisdiction over
the res. Thus, in such instance, extraterritorial service of summons can
be made upon the defendant. The said extraterritorial service of
summons is not for the purpose of vesting the court with jurisdiction,
but for complying with the requirements of fair play or due process, so
that the defendant will be informed of the pendency of the action
against him and the possibility that property in the Philippines
belonging to him or in which he has an interest may be subjected to a
judgment in favor of the plaintiff, and he can thereby take steps to
protect his interest if he is so minded. On the other hand, when the
defendant or respondent does not reside and is not found in the
Philippines, and the action involved is in personam, Philippine
courts cannot try any case against him because of the impossibility
of acquiring jurisdiction over his person unless he voluntarily
appears in court.[34] (Emphases supplied.)
In Domagas v. Jensen,[35] we held that:
[T]he aim and object of an action determine its character. Whether a
proceeding is in rem, or in personam, or quasi in rem for that matter, is
determined by its nature and purpose, and by these only. A
proceeding in personam is a proceeding to enforce personal rights and
obligations brought against the person and is based on the jurisdiction
of the person, although it may involve his right to, or the exercise of
ownership of, specific property, or seek to compel him to control or
dispose of it in accordance with the mandate of the court. The purpose
of a proceeding in personam is to impose, through the judgment of a
court, some responsibility or liability directly upon the person of the
defendant. Of this character are suits to compel a defendant to
specifically perform some act or actions to fasten a pecuniary liability
on him.[36]

It is likewise settled that [a]n action in personam is lodged against a person based on
personal liability; an action in rem is directed against the thing itself instead of the
person; while an action quasi in rem names a person as defendant, but its object is to
subject that persons interest in a property to a corresponding lien or obligation.[37]
The Complaint in the case at bar is an action to declare the loan and
Hedging Contracts between the parties void with a prayer for damages. It is a
suit in which the plaintiff seeks to be freed from its obligations to the defendant under
a contract and to hold said defendant pecuniarily liable to the plaintiff for entering
into such contract. It is therefore an action in personam, unless and until the plaintiff
attaches a property within the Philippines belonging to the defendant, in which case
the action will be converted to onequasi in rem.
Since the action involved in the case at bar is in personam and since the
defendant, petitioner Rothschild/Investec, does not reside and is not found in the
Philippines, the Philippine courts cannot try any case against it because of the
impossibility of acquiring jurisdiction over its person unless it voluntarily appears in
court.[38]
In this regard, respondent vigorously argues that petitioner should be held to
have voluntarily appeared before the trial court when it prayed for, and was actually
afforded, specific reliefs from the trial court.[39] Respondent points out that while
petitioners Motion to Dismiss was still pending, petitioner prayed for and was able to
avail of modes of discovery against respondent, such as written interrogatories,
requests for admission, deposition, and motions for production of documents.[40]
Petitioner counters that under this Courts ruling in the leading case of La
Naval Drug Corporation v. Court of Appeals,[41] a party may file a Motion to Dismiss
on the ground of lack of jurisdiction over its person, and at the same time raise
affirmative defenses and pray for affirmative relief, without waiving its objection to
the acquisition of jurisdiction over its person.[42]
It appears, however, that petitioner misunderstood our ruling in La Naval. A
close reading of La Naval reveals that the Court intended a distinction between the
raising ofaffirmative defenses in an Answer (which would not amount to acceptance
of the jurisdiction of the court) and the prayer for affirmative reliefs (which would be
considered acquiescence to the jurisdiction of the court):

In the same manner that a plaintiff may assert two or more

causes of action in a court suit, a defendant is likewise expressly
allowed, under Section 2, Rule 8, of the Rules of Court, to put up
his own defenses alternatively or even hypothetically. Indeed, under
Section 2, Rule 9, of the Rules of Court, defenses and objections not
pleaded either in a motion to dismiss or in an answer, except for the
failure to state a cause of action, are deemed waived. We take this to
mean that a defendant may, in fact, feel enjoined to set up, along with
his objection to the court's jurisdiction over his person, all other
possible defenses. It thus appears that it is not the invocation of any of
such defenses, but the failure to so raise them, that can result in waiver
or estoppel. By defenses, of course, we refer to the grounds
provided for in Rule 16 of the Rules of Court that must be asserted
in a motion to dismiss or by way of affirmative defenses in an
answer.
Mindful of the foregoing, in Signetics Corporation vs. Court
of Appeals and Freuhauf Electronics Phils., Inc. (225 SCRA 737,
738), we lately ruled:
This is not to say, however, that the
petitioner's right to question the jurisdiction of the
court over its person is now to be deemed a
foreclosed matter. If it is true, as Signetics claims, that
its only involvement in the Philippines was through a
passive investment in Sigfil, which it even later
disposed of, and that TEAM Pacific is not its agent,
then it cannot really be said to be doing business in the
Philippines. It is a defense, however, that requires the
contravention of the allegations of the complaint, as
well as a full ventilation, in effect, of the main merits of
the case, which should not thus be within the province
of a mere motion to dismiss. So, also, the issue posed
by the petitioner as to whether a foreign corporation
which has done business in the country, but which has
ceased to do business at the time of the filing of a
complaint, can still be made to answer for a cause of
action which accrued while it was doing business, is
another matter that would yet have to await the

reception and admission of evidence. Since these

points have seasonably been raised by the petitioner,
there should be no real cause for what may
understandably be its apprehension, i.e., that by its
participation during the trial on the merits, it
may, absent an invocation of separate or
independent reliefs of its own, be considered to have
voluntarily submitted itself to the court's
jurisdiction.[43] (Emphases supplied.)

In order to conform to the ruling in La Naval, which was decided by this

Court in 1994, the former Section 23, Rule 14[44] concerning voluntary appearance
was amended to include a second sentence in its equivalent provision in the 1997
Rules of Civil Procedure:
SEC. 20. Voluntary appearance. The defendant's voluntary
appearance in the action shall be equivalent to service of
summons. The inclusion in a motion to dismiss of other grounds
aside from lack of jurisdiction over the person of the defendant
shall not be deemed a voluntary appearance. (Emphasis supplied.)

seeking affirmative relief other than dismissal of the case,

respondents manifested their voluntary submission to the court's
jurisdiction. It is well-settled that the active participation of a party in
the proceedings is tantamount to an invocation of the court's
jurisdiction and a willingness to abide by the resolution of the case,
and will bar said party from later on impugning the court's
jurisdiction.[47] (Emphasis supplied.)

In view of the above, we therefore rule that petitioner, by seeking affirmative

reliefs from the trial court, is deemed to have voluntarily submitted to the jurisdiction
of said court. A party cannot invoke the jurisdiction of a court to secure affirmative
relief against his opponent and after obtaining or failing to obtain such relief,
repudiate or question that same jurisdiction.[48] Consequently, the trial court cannot
be considered to have committed grave abuse of discretion amounting to lack or
excess of jurisdiction in the denial of the Motion to Dismiss on account of failure to
acquire jurisdiction over the person of the defendant.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The
Decision of the Court of Appeals dated September 8, 2006 and its Resolution dated
December 12, 2006 in CA-G.R. SP No. 94382 are hereby AFFIRMED.
No pronouncement as to costs.

The new second sentence, it can be observed, merely mentions other grounds
in a Motion to Dismiss aside from lack of jurisdiction over the person of the
defendant. This clearly refers to affirmative defenses, rather than affirmative reliefs.
Thus, while mindful of our ruling in La Naval and the new Section 20, Rule
20, this Court, in several cases, ruled that seeking affirmative relief in a court is
tantamount to voluntary appearance therein.[45] Thus, in Philippine Commercial
International Bank v. Dy Hong Pi,[46] wherein defendants filed a Motion for
Inhibition without submitting themselves to the jurisdiction of this Honorable Court
subsequent to their filing of a Motion to Dismiss (for Lack of Jurisdiction), we
held:
Besides, any lingering doubts on the issue of voluntary
appearance dissipate when the respondents' motion for inhibition is
considered. This motion seeks a sole relief: inhibition of Judge
Napoleon Inoturan from further hearing the case. Evidently, by

SO ORDERED.
Republic
of
the
Philippines
SUPREME
COURT
Manila
SECOND DIVISION
G.R. No. L-55687 July 30, 1982
JUASING
HARDWARE, petitioner,
vs.
THE HONORABLE RAFAEL T. MENDOZA, Judge of the Court of First
Instance of Cebu, and PILAR DOLLA,respondents.
Luis V. Diones, Paulito Y. Cabrera and Victor C. Laborte for petitioner.
Amadeo D. Seno for respondents.
GUERRERO, J.:

In this special civil action for certiorari, petitioner Juasing Hardware seeks to annul
the Orders of respondent Judge dated September 5, 1980 and October 21, 1980 issued
in Civil Case No. R-18386.
Records show the pertinent factual and procedural antecedents of the instant Petition
to be as follows:
On August 17, 1979, Juasing Hardware, alleging to be a single proprietorship duly
organized and existing under and by virtue of the laws of the Philippines and
represented by its manager Ong Bon Yong, filed a complaint for the collection of a
sum of money against Pilar Dolla. 1 The complaint charged that defendant Dolla
failed and refused to pay, despite repeated demands, the purchase price of items,
materials and merchandise which she bought from the plaintiff.2 In her Answer,
defendant stated, among others, that she "has no knowledge about plaintiff's legal
personality and capacity to sue as alleged in ... the complaint." 3 The case proceeded
to pre-trial and trial. After plaintiff had completed the presentation of its evidence and
rested its case, defendant filed a Motion for Dismissal of Action (Demurrer to
Evidence) 4praying that the action be dismissed for plaintiff's lack of legal capacity to
sue. Defendant in said Motion contended that plaintiff Juasing Hardware is a single
proprietorship, not a corporation or a partnership duly registered in accordance with
law, and therefore is not a juridical person with legal capacity to bring an action in
court. Plaintiff filed an Opposition and moved for the admission of an Amended
Complaint. 5
Resolving the foregoing controversy, respondent Judge issued the Order dated
September 5, 1980 dismissing the case and denying admission of the Amended
Complaint. Pertinent portions of said Order follow:
The Answer of the defendant to the complaint alleged the lack of legal
capacity to sue of the plaintiff as contained in its affirmative defense.
inspite of the allegation that plaintiff has no legal capacity to sue, the
plaintiff insisted in proceeding to trial instead of amending the
Complaint. During the trial, it was found out that the affirmative
defense of defendant of plaintiff's lack of legal capacity to sue is very
evident for plaintiff Juasing Hardware is a single proprietorship which
is neither a partnership nor a corporation. The amendment therefore ' is
now too late it being substantial.
In view of all the foregoing, this case is hereby DISMISSED with
costs de oficio. 6
Plaintiff's Motion for Reconsideration of the above Order was denied in another
Order issued by respondent Judge on October 21, 1980. 7

The sole issue in this case is whether or not the lower court committed a grave abuse
of discretion when it dismissed the case below and refused to admit the Amended
Complaint filed by therein plaintiff, now herein petitioner, Juasing Hardware.
Rule 3 of the Revised Rules of Court provides as follows:
Sec. 1. Who may be parties.-Only natural or juridical persons or
entities authorized by law may be parties in a civil action.
Petitioner is definitely not a natural person; nor is it a juridical person as defined in
the New Civil Code of the Philippines thus:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they have
been constituted according to law;
(3) Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member.
Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in
court. The law merely recognizes the existence of a sole proprietorship as a form of
business organization conducted for profit by a single individual, and requires the
proprietor or owner thereof to secure licenses and permits, register the business name,
and pay taxes to the national government. It does not vest juridical or legal
personality upon the sole proprietorship nor empower it to file or defend an action in
court.
Thus, the complaint in the court below should have been filed in the name of the
owner of Juasing Hardware. The allegations in the body of the complaint would show
that the suit is brought by such person AS proprietor or owner of the business
conducted under the name and style Juasing Hardware". The descriptive words
"doing business as Juasing Hardware' " may be added in the title of the case, as is
customarily done.
Be that as it may, petitioner's contention that respondent Judge erred in not allowing
the amendment of the complaint to correct the designation of the party plaintiff in the
lower court, is impressed with merit. Such an amendment is authorized by Rule 10 of
the Revised Rules of Court which provides thus:
Sec. 4. Formal Amendments. A defect in the designation of the
parties may be summarily correctedat any stage of the action provided
no prejudice is caused thereby to the adverse party. (Emphasis
supplied.)
Contrary to the ruling of respondent Judge, the defect of the complaint in the instant
case is merely formal, not substantial. Substitution of the party plaintiff would not

constitute a change in the Identity of the parties. No unfairness or surprise to private

respondent Dolla, defendant in the court a quo, would result by allowing the
amendment, the purpose of which is merely to conform to procedural rules or to
correct a technical error.
In point is the case of Alonzo vs. Villamor, et al. 8 which applied Sec. 110 of the Code
of Civil Procedure authorizing the court "in furtherance of justice ... (to) allow a party
to amend any pleading or proceeding and at any stage of the action, in either the
Court of First Instance or the Supreme Court, by adding or striking out the name of
any party, either plaintiff or defendant, or by correcting a mistake in the name of a
party ..." In the Alonzo case, Fr. Eladio Alonzo, a priest of the Roman Catholic
Church, brought an action to recover from therein defendants the value of certain
properties taken from the Church. The defendants contended that Fr. Alonzo was not
the real party in interest. This Court, speaking through Justice Moreland, ordered the
substitution of the Roman Catholic Apostolic Church in the place and stead of Eladio
Alonzo as party plaintiff, and aptly held in this wise:
... Defect in form cannot possibly prejudice so long as the substantial
is clearly evident. ...
No one has been misled by the error in the name of the party plaintiff.
If we should by reason of this error send this case back for amendment
and new trial, there would be on the retrial the same complaint, the
same answer, the same defense, the same interests, the same witnesses,
and the same evidence. The name of the plaintiff would constitute the
only difference between the old trial and the new. In our judgment
there is not enough in a name to justify such action.
There is nothing sacred about processes or pleadings, their forms or
contents. Their sole purpose is to facilitate the application of justice to
the rival claims of contending parties. They were created, not to hinder
and delay, but to facilitate and promote, the administration of justice.
They do not constitute the thing itself, which courts are always striving
to secure to litigants. They are designed as the means best adapted to
obtain that thing. In other words, they are a means to an end. When
they lose the character of the one and become the other, the
administration of justice is at fault and courts are correspondingly
remiss in the performance of their obvious duty.
The error in this case is purely technical. To take advantage of it for
other purposes than to cure it, does not appeal to a fair sense of justice.
Its presentation as fatal to the plaintiff's case smacks of skill rather
than right. A litigation is not a game of technicalities in which one,
more deeply schooled and skilled in the subtle art of movement and

position, entraps and destroys the other. It is, rather, a contest in which
each contending party fully and fairly lays before the court the facts in
issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice
be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapier's thrust. Technicality, when it deserts its proper office as an aid
to justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested rights in
technicalities. No litigant should be permitted to challenge a record of
a court ... for defect of form when his substantial rights have not been
prejudiced thereby. 9
We reiterate what this Court had stated in the more recent case of Shaffer vs.
Palma 10 that "(t)he courts should be liberal in allowing amendments to pleadings to
avoid multiplicity of suits and in order that t he real controversies between the parties
are presented and the case decided on the merits without unnecessary delay." 11 This
rule applies with more reason and with greater force when, as in the case at bar, the
amendment sought to be made refers to a mere matter of form and no substantial
rights are prejudiced. 12
WHEREFORE, the Petition is hereby granted. The Orders dated September 5, 1980
and October 21, 1980 are hereby annulled and the lower court is hereby ordered to
admit the Amended Complaint in conformity with the pronouncements in this
Decision. No costs.
SO ORDERED.

Republic
of
the
Philippines
SUPREME
COURT
Manila
SECOND DIVISION
G.R. No. 73722 February 26, 1990
THE
COMMISSIONER
OF
CUSTOMS, petitioner,
vs.
K.M.K. GANI, INDRAPAL & CO., and the HONORABLE COURT OF TAX
APPEALS, respondents.
Armando S. Padilla for private respondent.

SARMIENTO, J.:
This is a review of the decision of the Court of Tax Appeals disposing as follows:
WHEREFORE. the subject ten (10) cartons of articles are hereby
released to the carrying airline for immediate transshipment to the
country of destination under the terms of the contract of carriage. No
costs.
SO ORDERED. 1
The pertinent facts may be summarized thus:
On September 11, 1982, two (2,) containers loaded with 103 cartons of merchandise
covered by eleven (11) airway bills of several supposedly Singapore-based
consignees arrived at the Manila International Airport on board Philippine Air Lines
(PAL) Flight PR 311 from Hongkong. The cargoes were consigned to these different
entities: K.M.K. Gani (hereafter referred to as K.M.K.) and Indrapal and Company
(hereafter referred to as INDRAPAL), the private respondents in the petition before
us; and Sin Hong Lee Trading Co., Ltd., AAR TEE Enterprises, and C. Ratilal all
purportedly based in Singapore.
While the cargoes were at the Manila International Airport, a "reliable source" tipped
off the Bureau of customs that the said cargoes were going to be unloaded in Manila.
Forthwith, the Bureau's agency on such matters, the Suspected Cargo and AntiNarcotics (SCAN), dispatched an agent to verify the information. Upon arriving at the
airport, the SCAN agent saw an empty PAL van parked directly alongside the plane's
belly from which cargoes were being unloaded. When the SCAN agent asked the
van's driver why he was at the site, the driver drove away in his vehicle. The SCAN
agent then sequestered the unloaded cargoes.
The seized cargoes consisted of 103 cartons "containing Mogadon and Mandrax
tablets, Sony T.V. sets 1546R/176R kw, Sony Betamax SL5800, and SL5000,
Cassette Stereos with Headphone (ala walkman), Casio Calculators, Pioneer Car
Stereos, Yamaha Watches, Eyeglass Frames, Sunglasses, Plastic Utility Bags,
Perfumes, etc." These goods were transferred to the International Cargo Terminal
under Warrant of Seizure and Detention and thereafter subjected to Seizure and
Forfeiture proceedings for "technical smuggling."
At the hearing, Atty. Armando S. Padilla entered his appearance for the consignees
K.M.K. and INDRAPAL. The records of the case do not show any appearance of the
consignees in person. Atty. Padilla moved for the transshipment of the cargoes
consigned to his clients. On the other hand, the Solicitor General avers that K.M.K.
and INDRAPAL did not present any testimonial or documentary evidence. The,
collector of Customs at the then Manila International Airport (MIA), now Ninoy
Aquino International Airport (NAIA), ruled for the forfeiture of all the cargoes in the
said containers (Seizure Identification No. 4993-82, dated July 14, 1983).

Consequently, Atty. Padilla, ostensibly on behalf of his two clients, K.M.K. and
INDRAPAL, appealed the order to the Commissioner. of Customs. 2
The Commissioner of Customs affirmed the finding of the Collector of Customs
(Customs Case No. 83-85, January, 1984), of the presence of the intention to import
the said goods in violation of the Dangerous Drugs Act 3and Central Bank Circular
No. 808 in relation to the Tariff and Customs Code. 4
The Commissioner added the following findings of fact: 5
1. There is a direct flight from Hongkong to Singapore, thus making
the transit through Manila more expensive, tedious, and circuitous.
2. The articles were grossly misdeclared, considering that Singapore is
a free port.
3. The television sets and betamax units seized were of the American
standard which is popularly used in Manila, and not of the European
standard which is used in Singapore.
4. One of the shippers is a Filipino national with no business
connection with her alleged consignee in Singapore.
5. The alleged consignee of the prohibited drugs confiscated has no
authority to import Mogadon or Mandrax.
Upon these findings, the Commissioner concluded that there was an "intent to
unlade" in Manila, thus, an attempt to smuggle goods into the country.
Taking exception to these findings, Atty. Armando S. Padilla, again as counsel of the
consignees K.M.K. and Indrapal, appealed to the respondent Court of Tax Appeals
(CTA). He argued in the CTA that K.M.K. and INDRAPAL were "entitled to the
release of their cargoes for transshipment to Singapore so manifested and covered by
the Airway bills as in transit, ... contending that the goods were never intended
importations into the Philippines and the same suffer none of any affiliating breaches
allegedly found attributable to the other shipments under the Customs and related
laws." 6
The CTA reversed the decision of the Commissioner of Customs. Hence this petition.
The petitioner raises the following errors:
1. THE COURT OF TAX APPEALS ERRED IN
ENTERTAINING THE PETITION FOR REVIEW
NOTWITHSTANDING
HEREIN
PRIVATE
RESPONDENTS' FAILURE TO ESTABLISH THEIR
PERSONALITY TO SUE IN A REPRESENTATIVE
CAPACITY.
2. THE COURT OF TAX APPEALS ERRED IN
RULING THAT THE SUBJECT GOODS WERE
IMPORTATIONS NOT INTENDED FOR THE

PHILIPPINES BUT FOR SINGAPORE, THUS, NOT

VIOLATING THE LAW ON TECHNICAL
SMUGGLING UNDER THE TARIFF AND
CUSTOMS CODE.
The issues before us are therefore: (1) whether or not the private respondents failed to
establish their personality to sue in a representative capacity, hence making their
action dismissable, and (2) whether or not the subject goods were importations
intended for the Philippines in violation of the Tariff and Customs Code.
We answer both questions in the affirmative.
The law is clear: "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." 7
However, the Court in a long line of cases has held that a foreign corporation not
engaged in business in the Philippines may not be denied the right to file an action in
the Philippine courts for an isolated transaction. 8
Therefore, the issue on whether or not a foreign corporation which does not have a
license to engage in business in this country can seek redress in Philippine courts
boils down as to whether it is doing business or merely entered into an isolated
transaction in the Philippines.
The fact that a foreign corporation is not doing business in the Philippines must be
disclosed if it desires to sue in Philippine courts under the "isolated transaction rule."
Without this disclosure, the court may choose to deny it the right to sue. 9
In the case at bar, the private respondents K.M.K. and INDRAPAL aver that they are
"suing upon a singular and isolated transaction." But they failed to prove their legal
existence or juridical personality as foreign corporations. Their unverified petition
before the respondent Court of Tax Appeals merely stated:
1. That petitioner "K.M.K. Gani" is a single
proprietorship doing business in accordance with the
laws of Singapore with address at 99 Greenfield Drive,
Singapore, Rep. of Singapore, while Petitioner
INDRAPAL and COMPANY" is a firm doing business
in accordance with the laws of Singapore with office
address at 97 High Street, Singapore 0641, Republic of
Singapore, and summons as well as other Court process
may be served to the undersigned lawyer;

2. That the Petitioner's (sic) are sueing (sic) upon a

singular and isolated transaction. 10
We are cognizant of the fact that under the "isolated transaction rule," only foreign
corporations and not just any business organization or entity can avail themselves of
the privilege of suing before Philippine courts even without a license. Counsel
Armando S. Padilla stated before the respondent Court of Tax Appeals that his clients
are "suing upon a singular and isolated transaction." But there is no proof to show that
K.M.K. and INDRAPAL are indeed what they are represented to be. It has been
simply stated by Attorney Padilla that K.M.K. Gani is "a single proprietorship," while
INDRAPAL is "a firm," and both are "doing business in accordance with the laws of
Singapore ... ," with specified addresses in Singapore. In cases of this nature, these
allegations are not sufficient to clothe a claimant of suspected smuggled goods of
juridical personality and existence. The "isolated transaction rule" refers only to
foreign corporations. Here the petitioners are not foreign corporations. They do not
even pretend to be so. The first paragraph of their petition before the Court,
containing the allegation of their identities, does not even aver their corporate
character. On the contrary, K.M.K. alleges that it is a "single proprietorship" while
INDRAPAL hides under the vague identification as a "firm," although both describe
themselves with the phrase "doing business in accordance with the laws of
Singapore."
Absent such proof that the private respondents are corporations (foreign or not), the
respondent Court of Tax Appeals should have barred their invocation of the right to
sue within Philippine jurisdiction under the "isolated transaction rule" since they do
not qualify for the availment of such right.
As we had stated before:
But merely to say that a foreign corporation not doing business in the
Philippines does not need a license in order to sue in our courts does
not completely resolve the issue in the present case. The proposition as
stated, refers to the right to sue; the question here refers to pleading
and procedure. It should be noted that insofar as the allegations in the
complaint have a bearing on appellant's capacity to sue, all that is
averred is that they are both foreign corporations existing under the
laws of the United States. This averment conjures two alternative
possibilities: either they are engaged in business in the Philippines or
they are not so engaged. If the first, they must have been duly licensed
in order to maintain this suit; if the second, if (sic) the transaction sued
upon is singular and isolated, no such license is required. In either
case, the qualifying circumstance is an essential part of the element of
plaintiffs capacity to sue and must be affirmatively pleaded. 11

In this connection, we note also a fatal defect in the pleadings of the private
respondents. There is no allegation as to who is the duly authorized representative or
resident agent in our jurisdiction. All we have on record are the pleadings filed by
Attorney Armando S. Padilla who represents himself as the counsel for the private
respondents.
xxx xxx xxx
It is incumbent on plaintiff to allege sufficient facts to show that he is
concerned with the cause of action averred, and is the party who has
suffered injury by reason of the acts of defendant; in other words, it is
not enough that he alleges a cause of action existing in favor of
someone, but he must show that it exists in favor of himself. The
burden should not be placed on defendant to show that plaintiff is not
the aggrieved person and that he has sustained no damages. It is also
necessary for plaintiff to allege facts showing that the causes of action
alleged accrued to him in the capacity in which he sues, and for this
purpose it is necessary for someone for one who sues otherwise than in
his individual capacity to allege his authority.
xxx xxx xxx
The plaintiff must show, in his pleading, his right and interest in the
subject matter of the suit; and a complaint which does not show that
plaintiff has the requisite interest to enable him to maintain his action
should be dismissed for insufficiency ... 12
xxx xxx xxx
The appearance of Atty, Armando S. Padilla as counsel for the two claimants would
not suffice. Generally, a "lawyer is presumed to be properly authorized to represent
any cause in which he appears, and no written power of attorney is required to
authorize him to appear in court for his client." 13 Nevertheless, although the authority
of an attorney to appear for and on behalf of a party may be assumed, it can still be
questioned or challenged by the adverse party concerned. 14
The presumption established under the provision of Section 21, Rule 138 of the
Revised Rules of Court is disputable. 15 The requirement for the production of
authority is essential because the client will be bound by his acquiescence resulting
from his knowledge that he was being represented by said attorney. 16
The Solicitor General, representing the petitioner-appellant, not only questions the
authority of Atty. Armando S. Padilla to represent the private respondents but also the
latter's capacity to sue:
... While it is alleged that the summons and court processes may be
served to herein private respondents' counsel who filed the unverified
petition before the Court of Tax Appeals, the allegation would be

insufficient for the purpose of binding foreign corporations as in the

instant case. To be sure, the admitted absence of special power of
attorney in favor of their counsel, the relationship with the latter, if at
all, is merely that of a lawyer-client relationship and definitely not one
of a principal agent. Such being the case, said counsel cannot bind nor
compromise the interest of private respondents as it is possible that the
latter may disown the former's representation to avoid civil or criminal
liability. In this respect, the Court cannot assume jurisdiction over the
person of private respondents, notwithstanding the filing of the
unverified petition in question.
Apart from the foregoing, Section 4, Rule 8, Revised Rules of Court
mandates that facts showing the capacity of a party to sue or be sued;
or the authority of a party to sue or be sued in a representative
capacity; or the legal existence of an organized association of person
(sic) that is made a party, must be averred. In like manner, the rule is
settled that in case where the law denies a foreign corporation to
maintain a suit unless it has previously complied with certain
requirements, then such compliance or exemption therefrom, becomes
a necessary averment in the complaint (Atlantic Mutual Inc. Co. v.
Cebu Stevedoring Co., Inc. 17 SCRA 1037; vide; Sec. 4, Rule 8,
Revised Rules of Court). In the case at bar, apart from merely alleging
that private respondents are foreign corporation (sic) and that
summons may be served to their counsel, their petition in the Court of
Tax Appeals is bereft of any other factual allegation to show their
capacity to sue or be sued in a representative capacity in his
jurisdiction. 17
The representation and the extent of the authority of Atty. Padilla have thus been
expressly challenged. But he ignored such challenge which leads us to the only
conclusion that he has no authority to appear for such clients if they exist, which we
even doubt. In cases like this, it is the duty of the government officials concerned to
require competent proof of the representation and authority of any claimant of any
goods coming from abroad and seized by our customs authorities or otherwise
appearing to be illegally imported. This desired meticulousness, strictness if you may,
should extend to their representatives and counsel. Our government has lost
considerable sums of money due to such dubious claims or claimants.
Apropos the second issue, suffice it to state that we agree with the findings, already
enumerated and discussed at the outset, made by the Collector of Customs in his
decision, dated July 14, 1983, which was affirmed and amplified by the decision of
the Commissioner of Customs, that those constitute sufficient evidence to support the

conclusion that there was an intention to unlade the seized goods in the Philippines
instead of its supposed destination, Singapore. There is no need of belaboring them
anymore.
WHEREFORE, the petition is GRANTED; the decision of the Court of Tax Appeals
is SET ASIDE, and the decision of the petitioner is hereby REINSTATED.
No costs.
SO ORDERED.

Republic
SUPREME
Manila
FIRST DIVISION

of

the

Philippines
COURT

G.R. No. 78646 July 23, 1991

PABLO RALLA, substituted by his wife and co-defendant CARMEN MUOZRALLA, and his legal heirs, HILDA RALLA-ALMINE, BELISTA, RENE
RALLA-BELISTA
and
GERARDO
M.
RALLA, petitioners,
vs.
PEDRO RALLA, substituted by his legal heirs, LEONI, PETER, and
MARINELA all surnamed RALLA, and COURT OF APPEALS, respondents.
Rafael Triunfante and Teodorico C. Almine, Jr. for petitioners.
Ruben R. Basa for private respondents.
CRUZ, J.:p
Rosendo Ralla had two sons, Pablo and Pedro. The father apparently loved the former
but not the latter, Pablo and his family lived with Rosendo, who took care of all the
household expenses. Pablo administered part of the family properties and received a
monthly salary of P250.00 plus part of the produce of the land. Pedro lived with his
mother, Paz Escarella, in another town. He was not on good terms with his father.
Paz Escarella died in 1957 and the two brothers partitioned 63 parcels of land she left
as her paraphernalia property. The partition was sustained by this Court in G.R. Nos.
63253-54 on April 27, 1989. 1 Meanwhile, on December 22, 1958, Rosendo executed
a will disinheriting Pedro and leaving everything he owned to Pablo, to whom he said
he had earlier sold a part of his property for P10,000.00. Rosendo himself filed for the
probate of the will but pendente litedied on October 1, 1960.

On November 3, 1966, the probate judge converted SP 564 into an intestate

proceeding. On February 28, 1978, a creditor of the deceased filed a petition for the
probate of Rosendo's will in SP 1106, which was heard jointly with SP 564. On
August 3, 1979, the order of November 3, 1966, was set aside.
The last will and testament of Rosendo Ralla was allowed on June 7, 1982 2 but on
October 20, 1982, the disinheritance of Pedro was disapproved. 3 This order was
elevated to the Court of Appeals in AC-G.R. Nos. 00472, 00489.
In a decision dated July 25, 1986, the Court of Appeals 4 reversed the trial court and
reinstated the disinheritance clause after finding that the requisites of a valid
disinheritance had been complied with in the will. The appellate court noted that
Pedro had threatened to kill his father, who was afraid of him and had earlier sued
him for slander and grave oral defamation.
The decision was assailed before this Court in G.R. Nos. 76657-58, which was
dismissed in our resolution of August 26, 1987, reading as follows:
. . . Assuming that, as claimed, the petitioners' counsel received a copy
of the questioned decision only on August 15, 1986 (although it should
have been earlier because it was mailed to him at his address of record
on July 28, 1986), they had 15 days, or until August 30, 1986, within
which to move for its reconsideration or appeal therefrom
by certiorari to this Court. Instead, they filed on August 28, 1986, a
motion for extension of time to file a motion for reconsideration,
which was not allowed under our ruling in Habaluyas Enterprises, Inc.
v. Japson, 142 SCRA 208, and so did not interrupt the running of the
reglementary period. Indeed, even if the period were to be counted
from October 7, 1986, when notice of the denial of the motion for
extension was received by the petitioners, the petition would still be 30
days late, having been filed on December 8, 1986. Moreover, the
petitioners have not shown that the questioned decision is tainted with
grave abuse of discretion or that it is not in accord with law and
jurisprudence. For these reasons, the Court Resolved to DISMISS the
petition.
The motion for reconsideration was denied with finality in the following resolution
dated October 26, 1987:
. . . The Court, after deliberation, Resolved to DENY with finality the
motion for reconsideration, wherein the petitioners pray that they be
relieved from the effects of our ruling in Habaluyas Enterprises, Inc. v.
Japson, 142 SCRA 208, under which the petition was denied for
tardiness. Counsel are expected to be abreast of current developments
in law and jurisprudence and cannot plead ignorance thereof as an

excuse for non-compliance with the same. As earlier observed, the

petition was filed extremely late, and, moreover, it was inadequate
even on the merits, same having failed to show that the questioned
decision was tainted with grave abuse of discretion or reversible error.
What is involved in the present petition is the correctness of the decision of the
respondent court annulling the deed of sale executed by Rosendo Ralla in favor of
Pablo over 149 parcels of land. Pedro had filed on May 19, 1972, a complaint to
annul the transaction on the ground that it was simulated. 5 The original decision of
the trial court declared the sale null and void. 6 In the resolution of the motion for
reconsideration, however, Judge Jose F. Madara completely reversed himself and
held the deed of sale to be valid. 7 This order was in turn set aside by the respondent
court, which reinstated the original decision invalidating the deed of sale.
It is indeed intriguing that the trial judge should, in resolving the motion for
reconsideration, make a complete turnabout on the basis of the same evidence and
jurisprudence that he considered in rendering the original decision. It is no less
noteworthy that the respondent court, after studying the two conclusions reached by
him, saw fit to sustain his original findings as the correct appreciation of the evidence
and the applicable law.
But we find that, regardless of these curious resolutions, the petition must
nevertheless be sustained albeit not on the ground that the deed of sale was indeed
valid. The Court is inclined to support the findings of the respondent court. However,
we do not and cannot make any decision on this matter because of one insuperable
obstacle. That obstacle is the proper party personality of Pedro Ralla to question the
transaction.
The decision of the Court of Appeals in AC-G.R. Nos. 00472, 00489 approved the
disinheritance of Pedro Ralla. That decision was appealed to this Court, but the
petition for review was dismissed as above related. The decision has long since
become final. Since then, Pedro Ralla no longer had the legal standing to question the
validity of the sale executed by Rosendo in favor of his other son Pablo.
The real party-in-interest is the party who stands to be benefited or injured by the
judgment or the party entitled to the avails of the suit. "Interest" within the meaning
of the rule means material interest, an interest in issue and to be affected by the
decree, as distinguished from mere interest in the question involved, or a mere
incidental interest. As a general rule, one having no right or interest to protect cannot
invoke the jurisdiction of the court as a party-plaintiff in an action.
As the sole heir, Pablo Ralla had the right to inherit the totality of his father's estate
after payment of all its debts. Even if it be assumed that the deed of sale was indeed
invalid, the subject-matter thereof nevertheless devolved upon Pablo as the universal
successor of his father Rosendo. In his wig, Rosendo claimed the 149 parcels as "part

of my property" as distinguished from the conjugal estate which he had earlier

sold to Pablo. Significantly, Pedro did not deny this description of the property in his
Comment to the present petition, confining himself to assailing the validity of the
sale.
The Court must note the lackadaisical attitude of the heirs of Pedro Ralla, who
substituted him upon his death. They seem to have lost interest in this litigation,
probably because of the approval of their father's disinheritance by the respondent
court. When the parties were required to submit their respective memoranda after we
gave due course to this petition, the petitioners did but not the private respondents.
Although the period to do so had already expired, the Court relaxed its rules to give
the private respondents another opportunity to comply with the requirement. When
the resolution of August 22, 1990, could not be served upon the private respondents'
counsel, we directed that it be served on the private respondents themselves. 9 On
January 18, 1991, the heirs of Pedro Ralla informed the Court that they were retaining
another counsel and asked that they be furnished a copy of the petition and given 30
days within which to file their memorandum. 10 This motion was granted. The records
show that they received a copy of the petition on February 26, 1991, but their
memorandum was never filed. On May 29, 1991, the Court, noting this omission,
finally resolved to dispense with the memorandum and to decide this case on the basis
of the available records.
Our decision is that as a validly disinherited heir, and not claiming to be a creditor of
his deceased father, Pedro Ralla had no legal personality to question the deed of sale
dated November 29, 1957, between Rosendo Ralla and his son Pablo. Legally
speaking, Pedro Ralla was a stranger to the transaction as he did not stand to benefit
from its annulment. His disinheritance had rendered him hors de combat.
WHEREFORE, the decision of the respondent court dated January 23, 1987, is set
aside and another judgment is hereby rendered dismissing Civil Case 194 (originally
Civil Case 4624) in this Regional Trial Court of Ligao, Albay, Branch 5.
SO ORDERED.

Republic
SUPREME
Manila
THIRD DIVISION

of

the

Philippines
COURT

G.R. No. 73765 August 26, 1991

HANG
LUNG
BANK,
LTD., petitioner,
vs.
HON. FELINTRIYE G. SAULOG, Presiding Judge, Regional Trial Court,
National Capital Judicial Region, Branch CXLII, Makati, Metro Manila, and
CORDOVA CHIN SAN, respondents.
Belo, Abiera & Associates for petitioner.
Castelo Law Office for private respondent.
FERNAN, C.J.:p
Challenged in this petition for certiorari which is anchored on grave abuse of
discretion, are two orders of the Regional Trial Court, Branch CXLII of Makati,
Metro Manila dismissing the complaint for collection of a sum of money and denying
the motion for reconsideration of the dismissal order on the ground that petitioner, a
Hongkong-based bank, is barred by the General Banking Act from maintaining a suit
in this jurisdiction.
The records show that on July 18, 1979, petitioner Hang Lung Bank, Ltd., which was
not doing business in the Philippines, entered into two (2) continuing guarantee
agreements with Cordova Chin San in Hongkong whereby the latter agreed to pay on
demand all sums of money which may be due the bank from Worlder Enterprises to
the extent of the total amount of two hundred fifty thousand Hongkong dollars (HK
$250,000). 1
Worlder Enterprises having defaulted in its payment, petitioner filed in the Supreme
Court of Hongkong a collection suit against Worlder Enterprises and Chin San.
Summonses were allegedly served upon Worlder Enterprises and Chin San at their
addresses in Hongkong but they failed to respond thereto. Consequently, the Supreme
Court of Hongkong issued the following:
JUDGMENT
THE 14th DAY OF JUNE, 1984
No notice of intention to defend having been given by the 1st and 2nd
Defendants herein, IT IS THIS DAY ADJUDGED that:
(1) the 1st Defendant (Ko Ching Chong Trading otherwise known as
the Worlder Enterprises) do pay the Plaintiff the sum of
HK$1,117,968.36 together with interest on the respective principal
sums of HK$196,591.38, HK$200,216.29, HK$526,557.63,
HK$49,350.00 and HK$3,965.50 at the rates of 1.7% per month (or
HK$111.40 per day), 18.5% per annum (or HK$101.48 per day),
1.85% per month (or HK$324.71 per day), 1.55% per month (or

HK$25.50 per day) and 1.7% per month (or HK$2.25 per day)
respectively from 4th May 1984 up to the date of payment; and
(2) the 2nd Defendant (Cordova Chin San) do pay the Plaintiff the sum
of HK$279,325.00 together with interest on the principal sum of
HK$250,000.00 at the rate of 1.7% per month (or HK$141.67 per day)
from 4th May 1984 up to the date of payment.
AND IT IS ADJUDGED that the 1st and 2nd Defendants do pay the
Plaintiff the sum of HK$970.00 fixed costs.
N.J.
BARNETT
Registrar
Thereafter, petitioner through counsel sent a demand letter to Chin San at his
Philippine address but again, no response was made thereto. Hence, on October 18,
1984, petitioner instituted in the court below an action seeking "the enforcement of its
just and valid claims against private respondent, who is a local resident, for a sum of
money based on a transaction which was perfected, executed and consummated
abroad." 2
In his answer to the complaint, Chin San raised as affirmative defenses: lack of cause
of action, incapacity to sue and improper venue. 3
Pre-trial of the case was set for June 17, 1985 but it was postponed to July 12, 1985.
However, a day before the latter pre-trial date, Chin San filed a motion to dismiss the
case and to set the same for hearing the next day. The motion to dismiss was based on
the grounds that petitioner had no legal capacity to sue and that venue was improperly
laid.
Acting on said motion to dismiss, on December 20, 1985, the lower court 4 issued the
following order:
On defendant Chin San Cordova's motion to dismiss, dated July 10,
1985; plaintiff's opposition, dated July 12, 1985; defendant's reply,
dated July 22, 1985; plaintiff's supplemental opposition, dated
September 13, 1985, and defendant's rejoinder filed on September 23,
1985, said motion to dismiss is granted.
Section 14, General Banking Act provides:
"No foreign bank or banking corporation formed,
organized or existing under any laws other than those of
the Republic of the Philippines, shall be permitted to
transact business in the Philippines, or maintain by
itself any suit for the recovery of any debt, claims or
demands whatsoever until after it shall have obtained,
upon order of the Monetary Board, a license for that
purpose."

Plaintiff Hang Lung Bank, Ltd. with business and postal address at the
3rd Floor, United Centre, 95 Queensway, Hongkong, does not do
business in the Philippines. The continuing guarantee, Annexes "A"
and "B" appeared to have been transacted in Hongkong. Plaintiff's
Annex "C" shows that it had already obtained judgment from the
Supreme Court of Hongkong against defendant involving the same
claim on June 14, 1984.
The cases of Mentholatum Company, Inc. versus Mangaliman, 72 Phil.
524 and Eastern Seaboard Navigation, Ltd. versus Juan Ysmael &
Company, Inc., 102 Phil. 1-8, relied upon by plaintiff, deal with
isolated transaction in the Philippines of foreign corporation. Such
transaction though isolated is the one that conferred jurisdiction to
Philippine courts, but in the instant case, the transaction occurred in
Hongkong.
Case dismissed. The instant complaint not the proper action.
SO ORDERED. 5
Petitioner filed a motion for the reconsideration of said order but it was denied for
lack of merit. 6 Hence, the instant petition for certiorari seeking the reversal of said
orders "so as to allow petitioner to enforce through the court below its claims against
private respondent as recognized by the Supreme Court of Hongkong." 7
Petitioner asserts that the lower court gravely abused its discretion in: (a) holding that
the complaint was not the proper action for purposes of collecting the amount
guaranteed by Chin San "as recognized and adjudged by the Supreme Court of
Hongkong;" (b) interpreting Section 14 of the General Banking Act as precluding
petitioner from maintaining a suit before Philippine courts because it is a foreign
corporation not licensed to do business in the Philippines despite the fact that it does
not do business here; and (c) impliedly sustaining private respondent's allegation of
improper venue.
We need not detain ourselves on the issue of improper venue. Suffice it to state that
private respondent waived his right to invoke it when he forthwith filed his answer to
the complaint thereby necessarily implying submission to the jurisdiction of the
court. 8
The resolution of this petition hinges on a determination of whether petitioner foreign
banking corporation has the capacity to file the action below.
Private respondent correctly contends that since petitioner is a bank, its capacity to
file an action in this jurisdiction is governed by the General Banking Act (Republic
Act No. 337), particularly Section 14 thereof which provides:
SEC. 14. No foreign bank or banking corporation formed, organized or
existing under any laws other than those of the Republic of the

Philippines shall be permitted to transact business in the Philippines,

or maintain by itself or assignee any suit for the recovery of any debt,
claims, or demand whatsoever, until after it shall have obtained, upon
order of the Monetary Board, a license for that purpose from the
Securities and Exchange Commissioner. Any officer, director or agent
of any such corporation who transacts business in the Philippines
without the said license shall be punished by imprisonment for not less
than one year nor more than ten years and by a fine of not less than
one thousand pesos nor more than ten thousand pesos. (45 O.G. No. 4,
1647, 1649-1650)
In construing this provision, we adhere to the interpretation given by this Court to the
almost identical Section 69 of the old Corporation Law (Act No. 1459) which reads:
SEC. 69. No foreign corporation or corporation formed, organized, or
existing under any laws other than those of the Philippines shall be
permitted to transact business in the Philippines or maintain by itself
or assignee any suit for the recovery of any debt, claim, or demand
whatever, unless it shall have the license prescribed in the section
immediately preceding. Any officer, director or agent of the
corporation or any person transacting business for any foreign
corporation not having the license prescribed shall be punished by
imprisonment for not less than six months nor more than two years or
by a fine of not less than two hundred pesos nor more than one
thousand pesos, or by both such imprisonment and fine, in the
discretion of the Court.
In a long line of cases, this Court has interpreted this last quoted provision as not
altogether prohibiting a foreign corporation not licensed to do business in the
Philippines from suing or maintaining an action in Philippine courts.9 What it seeks to
prevent is a foreign corporation doing business in the Philippines without a license
from gaining access to Philippine courts. As elucidated in Marshall-Wells Co. vs.
Elser & Co., 46 Phil. 70:
The object of the statute was to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. The object
of the statute was not to prevent it from performing single acts but to
prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the
local courts. The implication of the law is that it was never the purpose
of the Legislature to exclude a foreign corporation which happens to
obtain an isolated order for business from the Philippines from
securing redress from Philippine courts, and thus, in effect, to permit

persons to avoid their contract made with such foreign corporation.

The effect of the statute preventing foreign corporations from doing
business and from bringing actions in the local courts, except on
compliance with elaborate requirements, must not be unduly extended
or improperly applied. It should not be construed to extend beyond the
plain meaning of its terms, considered in connection with its object,
and in connection with the spirit of the entire law.
The fairly recent case of Universal Shipping Lines vs. Intermediate Appellate
Court, 10 although dealing with the amended version of Section 69 of the old
Corporation Law, Section 133 of the Corporation Code (Batas Pambansa Blg. 68),
but which is nonetheless apropos, states the rule succinctly: "it is not the lack of the
prescribed license (to do business in the Philippines) but doing business without
license, which bars a foreign corporation from access to our courts."
Thus, we have ruled that a foreign corporation not licensed to do business in the
Philippines may file a suit in this country due to the collision of two vessels at the
harbor of Manila 11 and for the loss of goods bound for Hongkong but erroneously
discharged in Manila. 12
Indeed, the phraseologies of Section 14 of the General Banking Act and its almost
identical counterpart Section 69 of the old Corporation Law are misleading in that
they seem to require a foreign corporation, including a foreign bank or banking
corporation, not licensed to do business and not doing business in the Philippines to
secure a license from the Securities and Exchange Commission before it can bring or
maintain an action in Philippine courts. To avert such misimpression, Section 133 of
the Corporation Code is now more plainly worded thus:
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.
Under this provision, we have ruled that a foreign corporation may sue in this
jurisdiction for infringement of trademark and unfair competition although it is not
doing business in the Philippines 13 because the Philippines was a party to the
Convention of the Union of Paris for the Protection of IndustrialProperty. 14
We even went further to say that a foreign corporation not licensed to do business in
the Philippines may not be denied the right to file an action in our courts for an
isolated transaction in this country. 15
Since petitioner foreign banking corporation was not doing business in the
Philippines, it may not be denied the privilege of pursuing its claims against private
respondent for a contract which was entered into and consummated outside the
Philippines. Otherwise we will be hampering the growth and development of business

relations between Filipino citizens and foreign nationals. Worse, we will be allowing
the law to serve as a protective shield for unscrupulous Filipino citizens who have
business relationships abroad.
In its pleadings before the court, petitioner appears to be in a quandary as to whether
the suit below is one for enforcement or recognition of the Hongkong judgment. Its
complaint states:
COMES NOW Plaintiff, by undersigned counsel, and to this
Honorable Court, most respectfully alleges that:
1. Plaintiff is a corporation duly organized and existing under and by
virtue of the laws of Hongkong with business and postal address at the
3rd Floor, United Centre, 95 Queensway, Hongkong, not doing
business in the Philippines, but is suing for this isolated transaction,
but for purposes of this complaint may be served with summons and
legal processes of this Honorable Court, at the 6th Floor, Cibeles
Building, 6780 Ayala Avenue, Makati, Metro Manila, while defendant
Cordova Chin San, may be served with summons and other legal
processes of this Honorable Court at the Municipality of Moncada,
Province of Tarlac, Philippines;
2. On July 18, 1979 and July 25, 1980, the defendant executed
Continuing Guarantees, in consideration of plaintiff's from time to
time making advances, or coming to liability or discounting bills or
otherwise giving credit or granting banking facilities from time to time
to, or on account of the Wolder Enterprises (sic), photocopies of the
Contract of Continuing Guarantees are hereto attached as Annexes "A"
and "B", respectively, and made parts hereof;
3. In June 1984, a complaint was filed by plaintiff against the Wolder
Enterprises (sic) and defendant Cordova Chin San, in The Supreme
Court of Hongkong, under Case No. 3176, and pursuant to which
complaint, a judgment dated 14th day of July, 1984 was rendered by
The Supreme Court of Hongkong ordering to (sic) defendant Cordova
Chin San to pay the plaintiff the sum of HK$279,325.00 together with
interest on the principal sum of HK$250,000.00 at the rate of
HK$1.7% per month or (HK$141.67) per day from 4th May, 1984 up
to the date the said amount is paid in full, and to pay the sum of
HK$970.00 as fixed cost, a photocopy of the Judgment rendered by
The Supreme Court of Hongkong is hereto attached as Annex "C" and
made an integral part hereof.
4. Plaintiff has made demands upon the defendant in this case to pay
the aforesaid amount the last of which is by letter dated July 16, 1984

sent by undersigned counsel, a photocopy of the letter of demand is

hereto attached as Annex "D" and the Registry Return Card hereto
attached as Annex "E", respectively, and made parts hereof. However,
this notwithstanding, defendant failed and refused and still continue to
fail and refuse to make any payment to plaintiff on the aforesaid
amount of HK$279,325.00 plus interest on the principal sum of
HK$250,000.00 at the rate of (HK$141.67) per day from May 4, 1984
up to the date of payment;
5. In order to protect and safeguard the rights and interests of herein
plaintiff, it has engaged the services of undersigned counsel, to file the
suit at bar, and for whose services it has agreed to pay an amount
equivalent to 25% of the total amount due and owing, as of and by
way of attorney's fees plus costs of suit.
WHEREFORE, premises considered, it is most respectfully prayed of
this Honorable Court that judgment be rendered ordering the
defendant:
a) To pay plaintiff the sum of HK$279,325.00 together with interest on
the principal sum of HK$260,000.00 at the rate of HK$1.7% (sic) per
month (or HK$141.67 per day) from May 4, 1984 until the aforesaid
amount is paid in full;
b) To pay an amount equivalent to 25% of the total amount due and
demandable as of and by way of attorney's fees; and
c) To pay costs of suit, and
Plaintiff prays for such other and further reliefs, to which it may by
law and equity, be entitled. 16
The complaint therefore appears to be one of the enforcement of the Hongkong
judgment because it prays for the grant of the affirmative relief given by said foreign
judgment. 17 Although petitioner asserts that it is merely seeking the recognition of its
claims based on the contract sued upon and not the enforcement of the Hongkong
judgment 18 it should be noted that in the prayer of the complaint, petitioner simply
copied the Hongkong judgment with respect to private respondent's liability.
However, a foreign judgment may not be enforced if it is not recognized in the
jurisdiction where affirmative relief is being sought. Hence, in the interest of justice,
the complaint should be considered as a petition for the recognition of the Hongkong
judgment under Section 50 (b), Rule 39 of the Rules of Court in order that the
defendant, private respondent herein, may present evidence of lack of jurisdiction,
notice, collusion, fraud or clear mistake of fact and law, if applicable.

WHEREFORE, the questioned orders of the lower court are hereby set aside. Civil
Case No. 8762 is reinstated and the lower court is directed to proceed with dispatch in
the disposition of said case. This decision is immediately executory. No costs.
SO ORDERED.

Republic
of
the
Philippines
SUPREME
COURT
Manila
SECOND DIVISION
G.R. No. 97816 July 24, 1992
MERRILL
LYNCH
FUTURES,
INC., petitioner,
vs.
HON. COURT OF APPEALS, and the SPOUSES PEDRO M. LARA and
ELISA G. LARA, respondents.
NARVASA, C.J.:
The capacity of a foreign corporation to maintain an action in the Philippines against
residents thereof, is the principal question in the appellate proceedings at bar. The
issue arises from the undisputed facts now to be briefly narrated.
On November 23, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML
FUTURES) filed a complaint with the Regional Trial Court at Quezon City against
the Spouses Pedro M. Lara and Elisa G. Lara for the recovery of a debt and interest
thereon, damages, and attorney's fees. 1 In its complaint ML FUTURES described
itself as
a) a non-resident foreign corporation, not doing business in the
Philippines, duly organized and existing under and by virtue of the
laws of the state of Delaware, U.S.A.;" as well as
b) a "futures commission merchant" duly licensed to act as such in the
futures markets and exchanges in the United States, . . essentially
functioning as a broker . . (executing) orders to buy and sell futures
contracts received from its customers on U.S. futures exchanges.
It also defined a "futures contract" as a "contractual commitment to buy and sell a
standardized quantity of a particular item at a specified future settlement date and at a
price agreed upon, with the purchase or sale being executed on a regulated futures
exchange."

In its complaint ML FUTURES alleged the following:

1) that on September 28, 1983 it entered into a Futures Customer Agreement with the
defendant spouses (Account No. 138-12161), in virtue of which it agreed to act as the
latter's broker for the purchase and sale of futures contracts in the U.S.;
2) that pursuant to the contract, orders to buy and sell futures contracts were
transmitted to ML FUTURES by the Lara Spouses "through the facilities of Merrill
Lynch Philippines, Inc., a Philippine corporation and a company servicing plaintiffs
customers; 2
3) that from the outset, the Lara Spouses "knew and were duly advised that Merrill
Lynch Philippines, Inc. was not a broker in futures contracts," and that it "did not
have a license from the Securities and Exchange Commission to operate as a
commodity trading advisor (i.e., 'an entity which, not being a broker, furnishes advice
on commodity futures to persons who trade in futures contracts');
4) that in line with the above mentioned agreement and through said Merrill Lynch
Philippines, Inc., the Lara Spouses actively traded in futures contracts, including
"stock index futures" for four years or so, i.e., from 1983 to October, 1987, 3 there
being more or less regular accounting and corresponding remittances of money (or
crediting or debiting) made between the spouses and ML FUTURES;
5) that because of a loss amounting to US$160,749.69 incurred in respect of three (3)
transactions involving "index futures," and after setting this off against an amount of
US$75,913.42 then owing by ML FUTURES to the Lara Spouses, said spouses
became indebted to ML FUTURES for the ensuing balance of US$84,836.27, which
the latter asked them to pay;
6) that the Lara Spouses however refused to pay this balance, "alleging that the
transactions were null and void because Merrill Lynch Philippines, Inc., the
Philippine company servicing accounts of plaintiff, . . had no license to operate as a
'commodity and/or financial futures broker.'"
On the foregoing essential facts, ML FUTURES prayed (1) for a preliminary
attachment against defendant spouses' properties "up to the value of at least
P2,267,139.50," and (2) for judgment, after trial, sentencing the spouses to pay ML
FUTURES:
a) the Philippine peso equivalent of $84,836.27 at the applicable
exchanged rate on date of payment, with legal interest from date of
demand until full payment;
b) exemplary damages in the sum of at least P500,000.00; and
c) attorney's fees and expenses of litigation as may be proven at the
trial.
Preliminary attachment issued ex parte on December 2, 1987, and the defendant
spouses were duly served with summons.

They then filed a motion to dismiss dated December 18, 1987 on the grounds that:
(1) plaintiff ML FUTURES had "no legal capacity to sue" and
(2) its "complaint states no cause of action since . . (it) is not the real
party in interest."
In that motion to dismiss, the defendant spouses averred that:
a) although not licensed to do so, ML FUTURES had been doing business in the
Philippines "at least for the last four (4) years," this being clear from the very
allegations of the complaint; consequently, ML FUTURES is prohibited by law "to
maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines;" and
b) they had never been informed that Merrill Lynch Philippines, Inc. was not licensed
to do business in this country; and contrary to the allegations of the complaint, all
their transactions had actually been with MERRILL LYNCH PIERCE FENNER &
SMITH, INC., and not with ML FUTURES (Merrill Lynch Futures, Inc.), in proof of
which they attached to their motion to dismiss copies of eight (8) agreements, receipts
or reminders, etc., executed on standard printed forms of said Merrill Lynch Pierce
Fenner & Smith Inc. 4
ML FUTURES filed an OPPOSITION to the defendant spouses' motion to dismiss. In
that motion
a) it drew attention to paragraph 4 of its complaint, admitted by defendants, that the
latter "have been actively trading in futures contracts . . . in U.S. futures exchanges
from 1983 to 1987," and ask, "If the trading . . . (was) made in U.S., how could
plaintiff be doing business in the Philippines?"
b) it also drew attention to a printed form of "Merrill Lynch Futures, Inc." filled out
and signed by defendant spouses when they opened an account with ML Futures, in
order to supply information about themselves, including their bank's name
(1) in which appear the following epigraph: "Account
introduced by Merrill Lynch International, Inc.," and
the following statements, to wit:
This Commodity Trading Advisor (Merrill Lynch, Pierce, Fenner &
Smith Philippines, Inc.) is prohibited by the Philippine Securities and
Exchange Commission from accepting funds in the trading advisor's
name from a client of Merrill Lynch Futures, Inc. for trading
commodity interests. All funds in this trading program must be placed
with Merrill Lynch Futures, Inc.;
and
. . . It is agreed between MERRILL LYNCH, PIERCE, FENNER &
SMITH INC., and other account carrying MERRILL LYNCH entities
and their customers that all legal relationships between them will be

governed by applicable laws in countries outside the Philippines where

sale and purchase transactions take place.
c) and it argued that
(1) it is not permitted for defendant spouses to present "evidence" in
connection with a motion to dismiss based on failure of the complaint
to state a cause of action;
(2) even if the documents appended to the motion to dismiss be
considered as admissible "evidence," the same would be immaterial
since the documents refer to a different account number: 13812136,the defendants' account number with ML FUTURES being 13812161;
(3) it is a lie for the defendant spouses to assert that they were never
informed that Merrill Lynch Philippines, Inc. had not been licensed to
do business in the Philippines; and
(4) defendant spouses should not be allowed to "invoke the aid of the
court with unclean hands.
The defendant spouses filed a REPLY reaffirming their lack of awareness that Merrill
Lynch Philippines, Inc.(formerly registered as Merrill Lynch, Pierce, Fenner & Smith
Philippines, Inc.) 5 did not have a license, claiming that they learned of this only from
inquiries with the Securities and Exchange Commission which elicited the
information that it had denied said corporation's application to operate as a
commodity futures trading advisor a denial subsequently affirmed by the Court of
Appeals (Merrill Lynch Philippines, Inc. v. Securities & Exchange Commission, CAG.R. No. 10821-SP, Nov.19, 1987). The spouses also submitted additional documents
(Annexes J to R) involving transactions with Merrill Lynch Pierce Fenner & Smith,
Inc., dating back to 1980, stressing that all but one of the documents "refer to
Account No. 138-12161 which is the very account that is involved in the instant
complaint."
ML FUTURES filed a Rejoinder alleging it had given the spouses a disclosure
statement by which the latter were made aware that the transactions they were
agreeing on would take place outside of the Philippines, and that "all funds in the
trading program must be placed with Merrill Lynch Futures, Inc."
On January 12, 1988, the Trial Court promulgated an Order sustaining the motion to
dismiss, directing the dismissal of the case and discharging the writ of preliminary
attachment. It later denied ML FUTURES's motion for reconsideration, by Order
dated February 29, 1988. ML FUTURES appealed to the Court of Appeals. 6
In its own decision promulgated on November 27, 1990, 7 the Court of Appeals
affirmed the Trial Court's judgment. It declared that the Trial Court had seen "through
the charade in the representation of MLPI and the plaintiff that MLPI is only a trading

advisor and in fact it is a conduit in the plaintiff's business transactions in the

Philippines as a basis for invoking the provisions of Section 133 of the Corporation
Code," 8 viz.:
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 in
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.
It also declared that the evidence established that plaintiff had in fact been
"doing business" in this country in legal contemplation, adverting
to Mentholatum v. Mangaliman, 72 Phil. 524, 528-530, and Section 1 of
Republic Act No. 5455 reading as follows: 9
Sec. 1. Definition and scope of this ACT . (1) As used in this Act, the
term "investment" shall mean equity participation in any enterprise
formed, organized, or existing under the laws of the Philippines; 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 FUNCTIONS NORMALLY INCIDENT TO,
AND IN PROGRESSIVE PROSECUTION OF COMMERCIAL
GAIN OR OF THE PURPOSE AND OBJECT OF THE BUSINESS
ORGANIZATION.
As regards the claim that it was error for the Trial Court to place reliance on the
decision of the Court of Appeals in CA-G.R. No. 10821-SP sustaining the finding
of the Securities & Exchange Commission that ML FUTURES was doing business in
the Philippines since that judgment was not yet final and ML FUTURES was not a
party to that proceeding, the Court of Appeals ruled that there was no need to belabor
the point considering that there was, in any event, "adequate proof of the activities of
MLPI . . . which manifestly show that the plaintiff (ML FUTURES) performed a

series of business acts, consummated contracts and undertook transactions for the
period from 1983 to October 1987," "and because ML FUTURES had done so
without license, it consequently had "no legal personality to bring suit in Philippine
courts."
Its motion for reconsideration having been denied, 10 ML FUTURES has appealed to
this Court on certiorari. Here, it submits the following issues for resolution:
(a) Whether or not the annexes appended by the Laras to their Motion
to Dismiss and Reply filed with the Regional Trial Court, but never
authenticated or offered, constitute admissible evidence.
(b) Whether or not in the proceedings below, ML FUTURES has been
accorded procedural due process.
(c) Whether or not the annexes, assuming them to be admissible,
established that ML FUTURES was doing business in the Philippines
without a license.
As just stated, the Lara Spouse's motion to dismiss was founded on two (2) grounds:
(a) that the plaintiff has no legal capacity to sue, and (b) that the complaint states no
cause of action (Sec. 1 [d], and [g], Rule 16, Rules of Court).
As regards the second ground, i.e., that the complaint states no cause of action, the
settled doctrine of course is that said ground must appear on the face of the complaint,
and its existence may be determined only by the allegations of the complaint,
consideration of other facts being proscribed, and any attempt to prove extraneous
circumstances not being allowed. 11 The test of the sufficiency of the facts alleged in a
complaint as constituting a cause of action is whether or not, admitting the facts
alleged, the court might render a valid judgment upon the same in accordance with
the prayer of the complaint. 12 Indeed, it is error for a judge to conduct a preliminary
hearing and receive evidence on the affirmative defense of failure of the complaint to
state a cause of action. 13
The other ground for dismissal relied upon, i.e., that the plaintiff has no legal capacity
to sue may be understood in two senses: one, that the plaintiff is prohibited or
otherwise incapacitated by law to institute suit in Philippine Courts, 14 or two,
although not otherwise incapacitated in the sense just stated, that it is not a real party
in interest. 15 Now, the Lara Spouses contend that ML Futures has no capacity to sue
them because the transactions subject of the complaint were had by them, not with the
plaintiff ML FUTURES, but with Merrill Lynch Pierce Fenner & Smith, Inc.
Evidence is quite obviously needed in this situation, for it is not to be expected that
said ground, or any facts from which its existence may be inferred, will be found in
the averments of the complaint. When such a ground is asserted in a motion to
dismiss, the general rule governing evidence on motions applies. The rule is
embodied in Section 7, Rule 133 of the Rules of Court.

Sec. 7. Evidence on motion. When a motion is based on facts not

appearing of record the court may hear the matter on affidavits or
depositions presented by the respective parties, but the court may
direct that the matter be heard wholly or partly on oral testimony or
depositions.
There was, to be sure, no affidavit or deposition attached to the Lara Spouses' motion
to dismiss or thereafter proffered in proof of the averments of their motion. The
motion itself was not verified. What the spouses did do was to refer in their motion to
documents which purported to establish that it was not with ML FUTURES that they
had theretofore been dealing, but another, distinct entity, Merrill Lynch, Pierce,
Fenner & Smith, Inc., copies of which documents were attached to the motion. It is
significant that ML FUTURES raised no issue relative to the authenticity of the
documents thus annexed to the Laras' motion. In fact, its arguments subsumed the
genuineness thereof and even adverted to one or two of them. Its objection was
centered on the propriety of taking account of those documents as evidence,
considering the established principle that no evidence should be received in the
resolution of a motion to dismiss based on an alleged failure of the complaint to state
a cause of action.
There being otherwise no question respecting the genuineness of the documents, nor
of their relevance to at least one of the grounds for dismissal i.e., the prohibition
on suits in Philippine Courts by foreign corporations doing business in the country
without license it would have been a superfluity for the Court to require prior
proof of their authenticity, and no error may be ascribed to the Trial Court in taking
account of them in the determination of the motion on the ground, not that the
complaint fails to state a cause of action as regards which evidence is improper
and impermissible but that the plaintiff has no legal capacity to sue respecting
which proof may and should be presented.
Neither may ML FUTURES argue with any degree of tenability that it had been
denied due process in the premises. As just pointed out, it was very clear from the
outset that the claim of lack of its capacity to sue was being made to rest squarely on
the documents annexed thereto, and ML FUTURES had more than ample opportunity
to impugn those documents and require their authentication, but did not do so. To
sustain its theory that there should have been identification and authentication, and
formal offer, of those documents in the Trial Court pursuant to the rules of evidence
would be to give unwarranted importance to technicality and make it prevail over the
substance of the issue.
The first question then, is, as ML FUTURES formulates it, whether or not the
annexes, assuming them to be admissible, establish that (a) ML FUTURES is
prohibited from suing in Philippine Courts because doing business in the country

without a license, and that (b) it is not a real party in interest since the Lara Spouses
had not been doing business with it, but with another corporation, Merrill Lynch,
Pierce, Fenner & Smith, Inc.
The Court is satisfied that the facts on record adequately establish that ML
FUTURES, operating in the United States, had indeed done business with the Lara
Spouses in the Philippines over several years, had done so at all times through Merrill
Lynch Philippines, Inc. (MLPI), a corporation organized in this country, and had
executed all these transactions without ML FUTURES being licensed to so transact
business here, and without MLPI being authorized to operate as a commodity futures
trading advisor. These are the factual findings of both the Trial Court and the Court of
Appeals. These, too, are the conclusions of the Securities & Exchange Commission
which denied MLPI's application to operate as a commodity futures trading advisor, a
denial subsequently affirmed by the Court of Appeals. Prescinding from the
proposition that factual findings of the Court of Appeals are generally conclusive this
Court has been cited to no circumstance of substance to warrant reversal of said
Appellate Court's findings or conclusions in this case.
The Court is satisfied, too, that the Laras did transact business with ML FUTURES
through its agent corporation organized in the Philippines, it being unnecessary to
determine whether this domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or
Merrill Lynch Pierce Fenner & Smith (MLPI's alleged predecessor). The fact is that
ML FUTURES did deal with futures contracts in exchanges in the United States in
behalf and for the account of the Lara Spouses, and that on several occasions the
latter received account documents and money in connection with those transactions.
Given these facts, if indeed the last transaction executed by ML FUTURES in the
Laras's behalf had resulted in a loss amounting to US $160,749.69; that in relation to
this loss, ML FUTURES had credited the Laras with the amount of US$75,913.42
which it (ML FUTURES) then admittedly owed the spouses and thereafter sought
to collect the balance, US$84,836.27, but the Laras had refused to pay (for the
reasons already above stated), the crucial question is whether or not ML FUTURES
may sue in Philippine Courts to establish and enforce its rights against said spouses,
in light of the undeniable fact that it had transacted business in this country without
being licensed to do so. In other words, if it be true that during all the time that they
were transacting with ML FUTURES, the Laras were fully aware of its lack of
license to do business in the Philippines, and in relation to those transactions had
made payments to, and received money from it for several years, the question is
whether or not the Lara Spouses are now estopped to impugn ML FUTURES'
capacity to sue them in the courts of the forum.
The rule is that a party is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract with it. 16 And the

"doctrine of estoppel to deny corporate existence applies to foreign as well as to

domestic corporations;" 17 "one who has dealt with a corporation of foreign origin as
a corporate entity is estopped to deny its corporate existence and capacity." 18 The
principle "will be applied to prevent a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the contract (Sherwood v. Alvis, 83
Ala 115, 3 So 307, limited and distinguished in Dudley v. Collier, 87 Ala 431, 6 So
304; Spinney v. Miller, 114 Iowa 210, 86 NW 317), where such person has acted as
agent for the corporation and has violated his fiduciary obligations as such, and where
the statute does not provide that the contract shall be void, but merely fixes a special
penalty for violation of the statute. . . ." 19
The doctrine was adopted by this Court as early as 1924 in Asia Banking Corporation
v. Standard Products Co.,20 in which the following pronouncement was made: 21
The general rule that in the absence of fraud of person who has
contracted or otherwise dealt with an association in such a way as to
recognize and in effect admit its legal existence as a corporate body is
thereby estopped to deny its corporate existence in any action leading
out of or involving such contract or dealing, unless its existence is
attacked for causes which have arisen since making the contract or
other dealing relied on as an estoppel and this applies to foreign as
well as domestic corporations. (14 C.J .7; Chinese Chamber of
Commerce vs. Pua Te Ching, 14 Phil. 222).
There would seem to be no question that the Laras received benefits generated by
their business relations with ML FUTURES. Those business relations, according to
the Laras themselves, spanned a period of seven (7) years; and they evidently found
those relations to be of such profitability as warranted their maintaining them for that
not insignificant period of time; otherwise, it is reasonably certain that they would
have terminated their dealings with ML FUTURES much, much earlier. In fact, even
as regards their last transaction, in which the Laras allegedly suffered a loss in the
sum of US$160,749.69, the Laras nonetheless still received some monetary
advantage, for ML FUTURES credited them with the amount of US$75,913.42 then
due to them, thus reducing their debt to US$84,836.27. Given these facts, and
assuming that the Lara Spouses were aware from the outset that ML FUTURES had
no license to do business in this country and MLPI, no authority to act as broker for
it, it would appear quite inequitable for the Laras to evade payment of an otherwise
legitimate indebtedness due and owing to ML FUTURES upon the plea that it should
not have done business in this country in the first place, or that its agent in this
country, MLPI, had no license either to operate as a "commodity and/or financial
futures broker."

Considerations of equity dictate that, at the very least, the issue of whether the Laras
are in truth liable to ML FUTURES and if so in what amount, and whether they were
so far aware of the absence of the requisite licenses on the part of ML FUTURES and
its Philippine correspondent, MLPI, as to be estopped from alleging that fact as
defense to such liability, should be ventilated and adjudicated on the merits by the
proper trial court.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 16478
dated November 27, 1990 and its Resolution of March 7, 1991 are REVERSED and
SET ASIDE, and the Regional Trial Court at Quezon City, Branch 84, is ORDERED
to reinstate Civil Case No. Q-52360 and forthwith conduct a hearing to adjudicate the
issues set out in the preceding paragraph on the merits.
SO ORDERED.

SECOND DIVISION

[G.R. No. 102223. August 22, 1996]

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTITRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.) and
FRANCISCO S. AGUIRRE, petitioners, vs. THE COURT OF APPEALS,
ITEC INTERNATIONAL, INC., and ITEC, INC., respondents.
DECISION
TORRES, JR., J.:
Business Corporations, according to Lord Coke, have no souls. They do
business peddling goods, wares or even services across national boundaries in
soulless forms in quest for profits albeit at times, unwelcomed in these strange
lands venturing into uncertain markets and, the risk of dealing with wily competitors.
This is one of the issues in the case at bar.
Contested in this petition for review on Certiorari is the Decision of the Court of
Appeals on June 7, 1991, sustaining the RTC Order dated February 22, 1991, denying

the petitioners Motion to Dismiss, and directing the issuance of a writ of preliminary
injunction, and its companion Resolution of October 9, 1991, denying the petitioners
Motion for Reconsideration.
Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI,
for brevity) and ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both
domestic corporations, while petitioner Francisco S. Aguirre is their President and
majority stockholder. Private Respondents ITEC, INC. and/or ITEC,
INTERNATIONAL, INC. (ITEC, for brevity) are corporations duly organized and
existing under the laws of the State of Alabama, United States of America. There is
no dispute that ITEC is a foreign corporation not licensed to do business in the
Philippines.
On August 14, 1987, ITEC entered into a contract with petitioner ASPAC
referred to as Representative Agreement.[1] Pursuant to the contract, ITEC engaged
ASPAC as its exclusive representative in the Philippines for the sale of ITECs
products, in consideration of which, ASPAC was paid a stipulated commission. The
agreement was signed by G.A. Clark and Francisco S. Aguirre, presidents of ITEC
and ASPAC respectively, for and in behalf of their companies.[2] The said agreement
was initially for a term of twenty-four months. After the lapse of the agreed period,
the agreement was renewed for another twenty-four months.
Through a License Agreement[3] entered into by the same parties on November
10, 1988, ASPAC was able to incorporate and use the name ITEC in its own
name. Thus, ASPAC Multi-Trade, Inc. became legally and publicly known as
ASPAC-ITEC (Philippines).
By virtue of said contracts, ASPAC sold electronic products, exported by ITEC,
to their sole customer, the Philippine Long Distance Telephone Company, (PLDT, for
brevity).
To facilitate their transactions, ASPAC, dealing under its new appellation, and
PLDT executed a document entitled PLDT-ASPAC/ITEC PROTOCOL[4] which
defined the project details for the supply of ITECs Interface Equipment in
connection with the Fifth Expansion Program of PLDT.
One year into the second term of the parties Representative Agreement, ITEC
decided to terminate the same, because petitioner ASPAC allegedly violated its
contractual commitment as stipulated in their agreements.[5]
ITEC charges the petitioners and another Philippine Corporation, DIGITAL
BASE COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of which
is likewise petitioner Aguirre, of using knowledge and information of ITECs
products specifications to develop their own line of equipment and product support,
which are similar, if not identical to ITECs own, and offering them to ITECs former
customer.

On January 31, 1991, the complaint[6] in Civil Case No. 91-294, was filed with
the Regional Trial Court of Makati, Branch 134 by ITEC, INC. Plaintiff sought to
enjoin, first, preliminarily and then, after trial, permanently; (1) defendants
DIGITAL, CMDI, and Francisco Aguirre and their agents and business associates, to
cease and desist from selling or attempting to sell to PLDT and to any other party,
products which have been copied or manufactured in like manner, similar or
identical to the products, wares and equipment of plaintiff, and (2) defendant
ASPAC, to cease and desist from using in its corporate name, letter heads, envelopes,
sign boards and business dealings, plaintiffs trademark, internationally known as
ITEC; and the recovery from defendants in solidum, damages of at least P500,000.00,
attorneys fees and litigation expenses.
In due time, defendants filed a motion to dismiss[7] the complaint on the
following grounds: (1) That plaintiff has no legal capacity to sue as it is a foreign
corporation doing business in the Philippines without the required BOI authority and
SEC license, and (2) that plaintiff is simply engaged in forum shopping which
justifies the application against it of the principle of forum non conveniens.
On February 8, 1991, the complaint was amended by virtue of which ITEC
INTERNATIONAL, INC. was substituted as plaintiff instead of ITEC, INC.[8]
In their Supplemental Motion to Dismiss,[9] defendants took note of the
amendment of the complaint and asked the court to consider in toto their motion to
dismiss and their supplemental motion as their answer to the amended complaint.
After conducting hearings on the prayer for preliminary injunction, the court a
quo on February 22, 1991, issued its Order:[10] (1) denying the motion to dismiss for
being devoid of legal merit with a rejection of both grounds relied upon by the
defendants in their motion to dismiss, and (2) directing the issuance of a writ of
preliminary injunction on the same day.
From the foregoing order, petitioners elevated the case to the respondent Court of
Appeals on a Petition for Certiorari and Prohibition[11] under Rule 65 of the Revised
Rules of Court, assailing and seeking the nullification and the setting aside of the
Order and the Writ of Preliminary Injunction issued by the Regional Trial Court.
The respondent appellate court stated, thus:
We find no reason whether in law or from the facts of record, to disagree with the
(lower courts) ruling. We therefore are unable to find in respondent Judges issuance
of said writ the grave abuse of discretion ascribed thereto by the petitioners.
In fine, We find that the petition prima facie does not show that Certiorari lies in the
present case and therefore, the petition does not deserve to be given due course.
WHEREFORE, the present petition should be, as it is hereby, denied due course and
accordingly, is hereby dismissed. Costs against the petitioners.

SO ORDERED."[12]
Petitioners filed a motion for reconsideration[13] on June 7, 1991, which was
likewise denied by the respondent court.
WHEREFORE, the present motion for reconsideration should be, as it is hereby,
denied for lack of merit. For the same reason, the motion to have the motion for
reconsideration set for oral argument likewise should be and is hereby denied.
SO ORDERED."[14]
Petitioners are now before us via Petition for Review on Certiorari[15] under Rule
45 of the Revised Rules of Court.
It is the petitioners submission that private respondents are foreign corporations
actually doing business in the Philippines without the requisite authority and license
from the Board of Investments and the Securities and Exchange Commission, and
thus, disqualified from instituting the present action in our courts. It is their
contention that the provisions of the Representative Agreement, petitioner ASPAC
executed with private respondent ITEC, are similarly highly restrictive in nature as
those found in the agreements which confronted the Court in the case of Top-Weld
Manufacturing, Inc. vs. ECED S.A. et al.,[16] as to reduce petitioner ASPAC to a mere
conduit or extension of private respondents in the Philippines.
In that case, we ruled that respondent foreign corporations are doing business in
the Philippines because when the respondents entered into the disputed contracts with
the petitioner, they were carrying out the purposes for which they were created, i.e.,
to manufacture and market welding products and equipment. The terms and
conditions of the contracts as well as the respondents conduct indicate that they
established within our country a continuous business, and not merely one of a
temporary character. The respondents could be exempted from the requirements of
Republic Act 5455 if the petitioner is an independent entity which buys and
distributes products not only of the petitioner, but also of other manufacturers or
transacts business in its name and for its account and not in the name or for the
account of the foreign principal. A reading of the agreements between the petitioner
and the respondents shows that they are highly restrictive in nature, thus making the
petitioner a mere conduit or extension of the respondents.
It is alleged that certain provisions of the Representative Agreement executed
by the parties are similar to those found in the License Agreement of the parties in the
Top-Weld case which were considered as highly restrictive by this Court. The
provisions in point are:

2.0 Terms and Conditions of Sales.

2.1 Sale of ITEC products shall be at the purchase price set by ITEC from time to
time. Unless otherwise expressly agreed to in writing by ITEC the purchase price is
net to ITEC and does not include any transportation charges, import charges or taxes
into or within the Territory. All orders from customers are subject to formal
acceptance by ITEC at its Huntsville, Alabama U.S.A. facility.
xxx

xxx

xxx

3.0 Duties of Representative

3.1. REPRESENTATIVE SHALL:
3.1.1. Not represent or offer for sale within the Territory any product which competes
with an existing ITEC product or any product which ITEC has under active
development.
3.1.2. Actively solicit all potential customers within the Territory in a systematic and
businesslike manner.
3.1.3. Inform ITEC of all request for proposals, requests for bids, invitations to bid
and the like within the Territory.
3.1.4. Attain the Annual Sales Goal for the Territory established by ITEC. The Sales
Goals for the first 24 months is set forth on Attachment two (2) hereto. The Sales
Goal for additional twelve month periods, if any, shall be sent to the Sales Agent by
ITEC at the beginning of each period. These Sales Goals shall be incorporated into
this Agreement and made a part hereof.
xxx

xxx

xxx

6.0. Representative as Independent Contractor

xxx

xxx

xxx

6.2. When acting under this Agreement REPRESENTATIVE is authorized to solicit

sales within the Territory on ITECs behalf but is authorized to bind ITEC only in its
capacity as Representative and no other, and then only to specific customers and on
terms and conditions expressly authorized by ITEC in writing.[17]

Aside from the abovestated provisions, petitioners point out the following
matters of record, which allegedly witness to the respondents' activities within the
Philippines in pursuit of their business dealings:
a. While petitioner ASPAC was the authorized exclusive representative for three (3)
years, it solicited from and closed several sales for and on behalf of private
respondents as to their products only and no other, to PLDT, worth no less than US
$15 Million (p. 20, tsn, Feb. 18, 1991);
b. Contract No. 1 (Exhibit for Petitioners) which covered these sales and identified by
private respondents sole witness, Mr. Clarence Long, is not in the name of petitioner
ASPAC as such representative, but in the name of private respondent ITEC, INC. (p.
20, tsn, Feb. 18, 1991);
c. The document denominated as PLDT-ASPAC/ITEC PROTOCOL (Annex C of
the original and amended complaints) which defined the responsibilities of the parties
thereto as to the supply, installation and maintenance of the ITEC equipment sold
under said Contract No. 1 is, as its very title indicates, in the names jointly of the
petitioner ASPAC and private respondents;
d. To evidence receipt of the purchase price of US $15 Million, private respondent
ITEC, Inc. issued in its letter head, a Confirmation of payment dated November 13,
1989 and its Invoice dated November 22, 1989 (Annexes 1 and 2 of the Motion to
Dismiss and marked as Exhibits 2 and 3 for the petitioners), both of which were
identified by private respondents sole witness, Mr. Clarence Long (pp. 25-27, tsn,
Feb. 18, 1991).[18]
Petitioners contend that the above acts or activities belie the supposed
independence of petitioner ASPAC from private respondents. The unrebutted
evidence on record below for the petitioners likewise reveal the continuous character
of doing business in the Philippines by private respondents based on the standards
laid down by this Court in Wang Laboratories, Inc. vs. Hon. Rafael T. Mendoza, et
al.[19] and again in TOP-WELD. (supra) It thus appears that as the respondent Court
of Appeals and the trial courts failure to give credence on the grounds relied upon in
support of their Motion to Dismiss that petitioners ascribe grave abuse of discretion
amounting to an excess of jurisdiction of said courts.
Petitioners likewise argue that since private respondents have no capacity to
bring suit here, the Philippines is not the most convenient forum because the trial
court is devoid of any power to enforce its orders issued or decisions rendered in a
case that could not have been commenced to begin with, such that in insisting to
assume and exercise jurisdiction over the case below, the trial court had gravely
abused its discretion and even actually exceeded its jurisdiction.

As against petitioners insistence that private respondent is doing business in

the Philippines, the latter maintains that it is not.
We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the Rules and
Regulations Implementing the Omnibus Investments Code of 1987, the following:
(1) A foreign firm is deemed not engaged in business in the Philippines if it transacts
business through middlemen, acting in their own names, such as indebtors,
commercial bookers or commercial merchants.
(2) A foreign corporation is deemed not doing business if its representative
domiciled in the Philippines has an independent status in that it transacts business in
its name and for its account.[20]
Private respondent argues that a scrutiny of its Representative Agreement with
the Petitioners will show that although ASPAC was named as representative of
ITEC., ASPAC actually acted in its own name and for its own account. The
following provisions are particularly mentioned:
3.1.7.1. In the event that REPRESENTATIVE imports directly from ITEC,
REPRESENTATIVE will pay for its own account; all customs duties and import fees
imposed on any ITEC products; all import expediting or handling charges and
expenses imposed on ITEC products; and any stamp tax fees imposed on ITEC.
xxx xxx

xxx

4.1. As complete consideration and payment for acting as representative under this
Agreement, REPRESENTATIVE shall receive a sales commission equivalent to a
percentum of the FOB value of all ITEC equipment sold to customers within the
territory as a direct result of REPRESENTATIVEs sales efforts.[21]
More importantly, private respondents charge ASPAC of admitting its
independence from ITEC by entering and ascribing to provision No. 6 of the
Representative Agreement.
6.0. Representative as Independent Contractor
6.1. When performing any of its duties under this Agreement, REPRESENTATIVE
shall act as an independent contractor and not as an employee, worker, laborer,
partner, joint venturer of ITEC as these terms are defined by the laws, regulations,
decrees or the like of any jurisdiction, including the jurisdiction of the United States,
the state of Alabama and the Territory.[22]

Although it admits that the Representative Agreement contains provisions which

both support and belie the independence of ASPAC, private respondents echoes the
respondent courts finding that the lower court did not commit grave abuse of
discretion nor acted in excess of jurisdiction when it found that the ground relied
upon by the petitioners in their motion to dismiss does not appear to be
indubitable.[23]
The issues before us now are whether or not private respondent ITEC is an
unlicensed corporation doing business in the Philippines, and if it is, whether or not
this fact bars it from invoking the injunctive authority of our courts.
Considering the above, it is necessary to state what is meant by doing business
in the Philippines. Section 133 of the Corporation Code, provides that 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.[24]
Generally, a foreign corporation has no legal existence within the state in
which it is foreign. This proceeds from the principle that juridical existence of a
corporation is confined within the territory of the state under whose laws it was
incorporated and organized, and it has no legal status beyond such territory. Such
foreign corporation may be excluded by any other state from doing business within its
limits, or conditions may be imposed on the exercise of such privileges.[25] Before a
foreign corporation can transact business in this country, it must first obtain a license
to transact business in the Philippines, and a certificate from the appropriate
government agency. If it transacts business in the Philippines without such a license,
it shall not be permitted to maintain or intervene in any action, suit, or proceeding in
any court or administrative agency of the Philippines, but it may be sued on any valid
cause of action recognized under Philippine laws.[26]
In a long line of decisions, this Court has not altogether prohibited a foreign
corporation not licensed to do business in the Philippines from suing or maintaining
an action in Philippine Courts. What it seeks to prevent is a foreign corporation doing
business in the Philippines without a license from gaining access to Philippine
Courts.[27]
The purpose of the law in requiring that foreign corporations doing business in
the Philippines be licensed to do so and that they appoint an agent for service of
process is to subject the foreign corporation doing business in the Philippines to the
jurisdiction of its courts. The object is not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring a domicile for the purpose of

business without taking steps necessary to render it amenable to suit in the local
courts.[28] The implication of the law is that it was never the purpose of the legislature
to exclude a foreign corporation which happens to obtain an isolated order for
business from the Philippines, and thus, in effect, to permit persons to avoid their
contracts made with such foreign corporations.[29]
There is no exact rule or governing principle as to what constitutes doing or
engaging or transacting business. Indeed, such case must be judged in the light
of its peculiar circumstances, upon its peculiar facts and upon the language of the
statute applicable. The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or enterprise for
which it was organized.[30]
Article 44 of the Omnibus Investments Code of 1987 defines the phrase 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 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 or
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.
Thus, a foreign corporation with a settling agent in the Philippines which issued
twelve marine policies covering different shipments to the Philippines[31]and a foreign
corporation which had been collecting premiums on outstanding policies[32] were
regarded as doing business here.
The same rule was observed relating to a foreign corporation with an exclusive
distributing agent in the Philippines, and which has been selling its products here
since 1929,[33] and a foreign corporation engaged in the business of manufacturing
and selling computers worldwide, and had installed at least 26 different products in
several corporations in the Philippines, and allowed its registered logo and trademark
to be used and made it known that there exists a designated distributor in the
Philippines.[34]
In Georg Grotjahn GMBH and Co. vs. Isnani,[35] it was held that the
uninterrupted performance by a foreign corporation of acts pursuant to its primary

purposes and functions as a regional area headquarters for its home office, qualifies
such corporation as one doing business in the country.
These foregoing instances should be distinguished from a single or isolated
transaction or occasional, incidental, or casual transactions, which do not come within
the meaning of the law,[36]for in such case, the foreign corporation is deemed not
engaged in business in the Philippines.
Where a single act or transaction, however, is not merely incidental or casual but
indicates the foreign corporations intention to do other business in the Philippines,
said single act or transaction constitutes doing or engaging in or transacting
business in the Philippines.[37]
In determining whether a corporation does business in the Philippines or not,
aside from their activities within the forum, reference may be made to the contractual
agreements entered into by it with other entities in the country. Thus, in the Top-Weld
case (supra), the foreign corporations LICENSE AND TECHNICAL AGREEMENT
and DISTRIBUTOR AGREEMENT with their local contacts were made the basis of
their being regarded by this Tribunal as corporations doing business in the country.
Likewise, in Merill Lynch Futures, Inc. vs. Court of Appeals, etc.[38] the FUTURES
CONTRACT entered into by the petitioner foreign corporation weighed heavily in
the courts ruling.
With the abovestated precedents in mind, we are persuaded to conclude that
private respondent had been engaged in or doing business in the Philippines for
some time now. This is the inevitable result after a scrutiny of the different contracts
and agreements entered into by ITEC with its various business contacts in the
country, particularly ASPAC and Telephone Equipment Sales and Services, Inc.
(TESSI, for brevity). The latter is a local electronics firm engaged by ITEC to be its
local technical representative, and to create a service center for ITEC products sold
locally. Its arrangements, with these entities indicate convincingly ITECs purpose to
bring about the situation among its customers and the general public that they are
dealing directly with ITEC, and that ITEC is actively engaging in business in the
country.
In its Master Service Agreement[39] with TESSI, private respondents required its
local technical representative to provide the employees of the technical and service
center with ITEC identification cards and business cards, and to correspond only on
ITEC, Inc., letterhead. TESSI personnel are instructed to answer the telephone with
ITEC Technical Assistance Center., such telephone being listed in the telephone
book under the heading of ITEC Technical Assistance Center, and all calls being
recorded and forwarded to ITEC on a weekly basis.
What is more, TESSI was obliged to provide ITEC with a monthly report
detailing the failure and repair of ITEC products, and to requisition monthly the

materials and components needed to replace stock consumed in the warranty repairs
of the prior month.
A perusal of the agreements between petitioner ASPAC and the respondents
shows that there are provisions which are highly restrictive in nature, such as to
reduce petitioner ASPAC to a mere extension or instrument of the private respondent.
The No Competing Product provision of the Representative Agreement
between ITEC and ASPAC provides: The Representative shall not represent or offer
for sale within the Territory any product which competes with an existing ITEC
product or any product which ITEC has under active development. Likewise
pertinent is the following provision: When acting under this Agreement,
REPRESENTATIVE is authorized to solicit sales within the Territory on ITECs
behalf but is authorized to bind ITEC only in its capacity as Representative and no
other, and then only to specific customers and on terms and conditions expressly
authorized by ITEC in writing.
When ITEC entered into the disputed contracts with ASPAC and TESSI, they
were carrying out the purposes for which it was created, i.e., to market electronics and
communications products. The terms and conditions of the contracts as well as
ITECs conduct indicate that they established within our country a continuous
business, and not merely one of a temporary character.[40]
Notwithstanding such finding that ITEC is doing business in the country,
petitioner is nonetheless estopped from raising this fact to bar ITEC from instituting
this injunction case against it.
A foreign corporation doing business in the Philippines may sue in Philippine
Courts although not authorized to do business here against a Philippine citizen or
entity who had contracted with and benefited by said corporation.[41] To put it in
another way, a party is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract with it. And the doctrine
of estoppel to deny corporate existence applies to a foreign as well as to domestic
corporations.[42] One who has dealt with a corporation of foreign origin as a corporate
entity is estopped to deny its corporate existence and capacity. The principle will be
applied to prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes chiefly in cases where such person
has received the benefits of the contract.[43]
The rule is deeply rooted in the time-honored axiom of Commodum ex injuria
sua non habere debet - no person ought to derive any advantage of his own
wrong. This is as it should be for as mandated by law, 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.[44]

Concededly, corporations act through agents like directors and officers.

Corporate dealings must be characterized by utmost good faith and fairness.
Corporations cannot just feign ignorance of the legal rules as in most cases, they are
manned by sophisticated officers with tried management skills and legal experts with
practiced eye on legal problems. Each party to a corporate transaction is expected to
act with utmost candor and fairness and, thereby allow a reasonable proportion
between benefits and expected burdens. This is a norm which should be observed
where one or the other is a foreign entity venturing in a global market.
As observed by this Court in TOP-WELD (supra), viz:
The parties are charged with knowledge of the existing law at the time they enter
into a contract and at the time it is to become operative. (Twiehaus v. Rosner, 245 SW
2d 107; Hall v. Bucher, 227 SW 2d 98). Moreover, a person is presumed to be more
knowledgeable about his own state law than his alien or foreign contemporary. In
this case, the record shows that, at least, petitioner had actual knowledge of the
applicability of R.A. No. 5455 at the time the contract was executed and at all times
thereafter. This conclusion is compelled by the fact that the same statute is now being
propounded by the petitioner to bolster its claim. We, therefore sustain the appellate
courts view that it was incumbent upon TOP-WELD to know whether or not IRTI
and ECED were properly authorized to engage in business in the Philippines when
they entered into the licensing and distributorship agreements. The very purpose of
the law was circumvented and evaded when the petitioner entered into said
agreements despite the prohibition of R.A. No. 5455. The parties in this case being
equally guilty of violating R.A. No. 5455, they are in pari delicto, in which case it
follows as a consequence that petitioner is not entitled to the relief prayed for in this
case.
The doctrine of lack of capacity to sue based on the failure to acquire a local
license is based on considerations of sound public policy. The license requirement
was imposed to subject the foreign corporation doing business in the Philippines to
the jurisdiction of its courts. It was never intended to favor domestic corporations
who enter into solitary transactions with unwary foreign firms and then repudiate
their obligations simply because the latter are not licensed to do business in this
country.[45]
In Antam Consolidated Inc. vs. Court of Appeals, et al.[46] we expressed our
chagrin over this commonly used scheme of defaulting local companies which are
being sued by unlicensed foreign companies not engaged in business in the
Philippines to invoke the lack of capacity to sue of such foreign
companies. Obviously, the same ploy is resorted to by ASPAC to prevent the
injunctive action filed by ITEC to enjoin petitioner from using knowledge possibly
acquired in violation of fiduciary arrangements between the parties.

By entering into the Representative Agreement with ITEC, Petitioner is

charged with knowledge that ITEC was not licensed to engage in business activities
in the country, and is thus estopped from raising in defense such incapacity of ITEC,
having chosen to ignore or even presumptively take advantage of the same.
In Top-Weld, we ruled that a foreign corporation may be exempted from the
license requirement in order to institute an action in our courts if its representative in
the country maintained an independent status during the existence of the disputed
contract. Petitioner is deemed to have acceded to such independent character when it
entered into the Representative Agreement with ITEC, particularly, provision 6.2
(supra).
Petitioners insistence on the dismissal of this action due to the application, or
non application, of the private international law rule of forum non conveniens defies
well-settled rules of fair play. According to petitioner, the Philippine Court has no
venue to apply its discretion whether to give cognizance or not to the present action,
because it has not acquired jurisdiction over the person of the plaintiff in the case, the
latter allegedly having no personality to sue before Philippine Courts. This argument
is misplaced because the court has already acquired jurisdiction over the plaintiff in
the suit, by virtue of his filing the original complaint. And as we have already
observed, petitioner are not at liberty to question plaintiffs standing to sue, having
already acceded to the same by virtue of its entry into the Representative Agreement
referred to earlier.
Thus, having acquired jurisdiction, it is now for the Philippine Court, based on
the facts of the case, whether to give due course to the suit or dismiss it, on the
principle of forum non conveniens.[47] Hence, the Philippine Court may refuse to
assume jurisdiction in spite of its having acquired jurisdiction. Conversely, the court
may assume jurisdiction over the case if it chooses to do so; provided, that the
following requisites are met: 1) That the Philippine Court is one to which the parties
may conveniently resort to; 2) That the Philippine Court is in a position to make an
intelligent decision as to the law and the facts; and, 3) That the Philippine Court has
or is likely to have power to enforce its decision.[48]
The aforesaid requirements having been met, and in view of the courts
disposition to give due course to the questioned action, the matter of the present
forum not being the most convenient as a ground for the suits dismissal, deserves
scant consideration.
IN VIEW OF THE FOREGOING PREMISES, the instant Petition is hereby
DISMISSED. The decision of the Court of Appeals dated June 7, 1991, upholding
the RTC Order dated February 22, 1991, denying the petitioners Motion to Dismiss,
and ordering the issuance of the Writ of Preliminary Injunction is hereby affirmed in
toto.

SO ORDERED.

SECOND DIVISION

[G.R. No. 113074. January 22, 1997]

ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE

MOTOREN WERKE AKTIENGESELLSCHAFT (BMW), respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision[1] of the Court of Appeals dismissing
a complaint for specific performance which petitioner had filed against private
respondent on the ground that the Regional Trial Court of Quezon City did not
acquire jurisdiction over private respondent, a nonresident foreign corporation, and of
the appellate court's order denying petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style
"Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke
Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the
laws of the former Federal Republic of Germany, with principal office at Munich,
Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of
Assignment with Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark
and device in the Philippines which ASSIGNOR uses and has been using on the
products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized
exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced by

certificate of registration issued by the Director of Patents on 12 December 1963 and

is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said
transfer of the said BMW trademark and device in favor of the ASSIGNEE herein
with the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the stipulations
hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in
favor of the ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines, for such purpose,
the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or
infringement of the said trademark which comes to his knowledge and upon such
information the ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and responsibility to prosecute
unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and
for purposes hereof the ASSIGNOR is hereby named and constituted as ASSIGNEE's
Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively be
the responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has
been usual in the past without a formal contract, and for that purpose, the dealership
of ASSIGNOR shall cover the ASSIGNEE's complete production program with the
only limitation that, for the present, in view of ASSIGNEE's limited production, the
latter shall not be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual in
the past without a formal contract." But on February 16, 1993, in a meeting with a
BMW representative and the president of Columbia Motors Corporation (CMC), Jose
Alvarez, petitioner was informed that BMW was arranging to grant the exclusive
dealership of BMW cars and products to CMC, which had expressed interest in
acquiring the same. On February 24, 1993, petitioner received confirmation of the
information from BMW which, in a letter, expressed dissatisfaction with various
aspects of petitioner's business, mentioning among other things, decline in sales,
deteriorating services, and inadequate showroom and warehouse facilities, and
petitioner's alleged failure to comply with the standards for an exclusive BMW
dealer.[2] Nonetheless, BMW expressed willingness to continue business relations
with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it
said, if this was not acceptable to petitioner, BMW would have no alternative but to
terminate petitioner's exclusive dealership effective June 30, 1993.

Petitioner protested, claiming that the termination of his exclusive dealership

would be a breach of the Deed of Assignment.[3] Hahn insisted that as long as the
assignment of its trademark and device subsisted, he remained BMW's exclusive
dealer in the Philippines because the assignment was made in consideration of the
exclusive dealership. In the same letter petitioner explained that the decline in sales
was due to lower prices offered for BMW cars in the United States and the fact that
few customers returned for repairs and servicing because of the durability of BMW
parts and the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW withdrew on
March 26, 1993 its offer of a "standard importer contract" and terminated the
exclusive dealer relationship effective June 30, 1993.[4] At a conference of BMW
Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to find
Alvarez among those invited from the Asian region. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint
for specific performance and damages against BMW to compel it to continue the
exclusive dealership. Later he filed an amended complaint to include an application
for temporary restraining order and for writs of preliminary, mandatory and
prohibitory injunction to enjoin BMW from terminating his exclusive dealership.
Hahn's amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines with
principal offices at Munich, Germany. It may be served with summons and other
court processes through the Secretary of the Department of Trade and Industry of the
Philippines. . . .
....
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of
Assignment with Special Power of Attorney covering the trademark and in
consideration thereof, under its first whereas clause, Plaintiff was duly acknowledged
as the "exclusive Dealer of the Assignee in the Philippines" . . . .
....
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
and without any monetary contribution from defendant BMW, established BMW's
goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has
invested a lot of money and resources in order to single-handedly compete against
other motorcycle and car companies .... Moreover, Plaintiff has built buildings and
other infrastructures such as service centers and showrooms to maintain and promote
the car and products of defendant BMW.

....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was
willing to maintain with Plaintiff a relationship but only "on the basis of a standard
BMW importer contract as adjusted to reflect the particular situation in the
Philippines" subject to certain conditions, otherwise, defendant BMW would
terminate Plaintiff's exclusive dealership and any relationship for cause effective June
30, 1993. . . .
....
15. The actuations of defendant BMW are in breach of the assignment agreement
between itself and plaintiff since the consideration for the assignment of the BMW
trademark is the continuance of the exclusive dealership agreement. It thus, follows
that the exclusive dealership should continue for so long as defendant BMW enjoys
the use and ownership of the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104
of the Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary
restraining order. Summons and copies of the complaint and amended complaint were
thereafter served on the private respondent through the Department of Trade and
Industry, pursuant to Rule 14, 14 of the Rules of Court. The order, summons and
copies of the complaint and amended complaint were later sent by the DTI to BMW
via registered mail on June 15, 1993[5] and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte, with petitioner
Hahn testifying. On June 30, 1993, the trial court issued an order granting the writ of
preliminary injunction upon the filing of a bond of P100,000.00. On July 13, 1993,
following the posting of the required bond, a writ of preliminary injunction was
issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court
did not acquire jurisdiction over it through the service of summons on the Department
of Trade and Industry, because it (BMW) was a foreign corporation and it was not
doing business in the Philippines. It contended that the execution of the Deed of
Assignment was an isolated transaction; that Hahn was not its agent because the latter
undertook to assemble and sell BMW cars and products without the participation of
BMW and sold other products; and that Hahn was an indentor or middleman
transacting business in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing
business in the Philippines through him as its agent, as shown by the fact that BMW
invoices and order forms were used to document his transactions; that he gave
warranties as exclusive BMW dealer; that BMW officials periodically inspected

standards of service rendered by him; and that he was described in service booklets
and international publications of BMW as a "BMW Importer" or "BMW Trading
Company" in the Philippines.
The trial court[6] deferred resolution of the Motion to dismiss until after trial on
the merits for the reason that the grounds advanced by BMW in its motion did not
seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a
petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR
OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD
THE ISSUANCE OF THE WRIT OF PRELIMINARY INJUNCTION, AND
IN PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING
RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF
LACK OF JURISDICTION, AND THEREBY FAILING TO
IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order and, after
hearing, for a writ of preliminary injunction, to enjoin the trial court from proceeding
further in Civil Case No. Q-93-15933. Private respondent pointed out that, unless the
trial court's order was set aside, it would be forced to submit to the jurisdiction of the
court by filing its answer or to accept judgment in default, when the very question
was whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint.
On December 20, 1993, it rendered judgment finding the trial court guilty of grave
abuse of discretion in deferring resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out
with its questioned order of July 26, 1993, we rule and so hold that petitioner's
(BMW) motion to dismiss could be resolved then and there, and that the respondent
judge's deferment of his action thereon until after trial on the merit constitutes, to our
mind, grave abuse of discretion.
....
. . . [T]here is not much appreciable disagreement as regards the factual matters
relating, to the motion to dismiss. What truly divide (sic) the parties and to which
they greatly differ is the legal conclusions they respectively draw from such facts,
(sic) with Hahn maintaining that on the basis thereof, BMW is doing business in the
Philippines while the latter asserts that it is not.

Then, after stating that any ruling which the trial court might make on the motion
to dismiss would anyway be elevated to it on appeal, the Court of Appeals itself
resolved the motion. It ruled that BMW was not doing business in the country and,
therefore, jurisdiction over it could not be acquired through service of summons on
the DTI pursuant to Rule 14, Section 14. The court upheld private respondent's
contention that Hahn acted in his own name and for his own account and
independently of BMW, based on Alfred Hahn's allegations that he had invested his
own money and resources in establishing BMW's goodwill in the Philippines and on
BMW's claim that Hahn sold products other than those of BMW. It held that
petitioner was a mere indentor or broker and not an agent through whom private
respondent BMW transacted business in the Philippines. Consequently, the Court of
Appeals dismissed petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in
finding that the trial court gravely abused its discretion in deferring action on the
motion to dismiss and (2) in finding that private respondent BMW is not doing
business in the Philippines and, for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon foreign corporations. If the defendant is a foreign corporation,
or a nonresident joint stock company or association, doing 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 on any of its officers or agents within the
Philippines. (Emphasis added)
What acts are considered "doing business in the Philippines" are enumerated in
3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows:[7]
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 Philippinesor who in any
calendar year stay in the country for a period or periods totalling 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. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the
Philippines" but not when the representative or distributor "transacts business in its
name and for its own account." In addition, Section 1(f)(1) of the Rules and
Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No.
226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44
of the Code. In particular, "doing business" includes:
(1).... A foreign firm which does business through 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.
The question is whether petitioner Alfred Hahn is the agent or distributor in the
Philippines of private respondent BMW. If he is, BMW may be considered doing
business in the Philippines and the trial court acquired jurisdiction over it (BMW) by
virtue of the service of summons on the Department of Trade and Industry.
Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of
BMW cars and products, BMW, a foreign corporation, is not considered doing
business in the Philippines within the meaning of the Foreign Investments Act of
1991 and the IRR, and the trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and
for his own account and not as agent or distributor in the Philippines of BMW on the
ground that "he alone had contacts with individuals or entities interested in acquiring
BMW vehicles. Independence characterizes Hahn's undertakings, for which reason he
is to be considered, under governing statutes, as doing business." (p. 13) In support of
this conclusion, the appellate court cited the following allegations in Hahn's amended
complaint:

8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
and without any monetary contributions from defendant BMW; established BMW's
goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff invested a
lot of money and resources in order to single-handedly compete against other
motorcycle and car companies.... Moreover, Plaintiff has built buildings and other
infrastructures such as service centers and showrooms to maintain and promote the
car and products of defendant BMW.
As the above quoted allegations of the amended complaint show, however, there
is nothing to support the appellate court's finding that Hahn solicited orders alone and
for his own account and without "interference from, let alone direction of, BMW." (p.
13) To the contrary, Hahn claimed he took orders for BMW cars and transmitted
them to BMW. Upon receipt of the orders, BMW fixed the down payment and pricing
charges, notified Hahn of the scheduled production month for the orders, and
reconfirmed the orders by signing and returning to Hahn the acceptance sheets.
Payment was made by the buyer directly to BMW. Title to cars purchased passed
directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in
the Philippines. Hahn was credited with a commission equal to 14% of the purchase
price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing
that the vehicles had been registered in the Philippines and serviced by him, Hahn
received an additional 3% of the full purchase price. Hahn performed after-sale
services, including, warranty services, for which he received reimbursement from
BMW. All orders were on invoices and forms of BMW.[8]
These allegations were substantially admitted by BMW which, in its petition
for certiorari before the Court of Appeals, stated:[9]
9.4. As soon as the vehicles are fully manufactured and full payment of the purchase
prices are made, the vehicles are shipped to the Philippines. (The payments may be
made by the purchasers or third-persons or even by Hahn.) The bills of lading are
made up in the name of the purchasers, but Hahn-Manila is therein indicated as the
person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the
purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a
commission of fourteen percent (14%) of the full purchase price thereof, and as soon
as he confirms in writing, that the vehicles have been registered in the Philippines and

have been serviced by him, he will receive an additional three percent (3%) of the full
purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an agency.
An agent receives a commission upon the successful conclusion of a sale. On the
other hand, a broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his own
expense, Hahn said that he had to follow BMW specifications as exclusive dealer of
BMW in the Philippines. According to Hahn, BMW periodically inspected the
service centers to see to it that BMW standards were maintained. Indeed, it would
seem from BMW's letter to Hahn that it was for Hahn's alleged failure to maintain
BMW standards that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not an agent of BMW. For as already
noted, there are facts in the record which suggest that BMW exercised control over
Hahn's activities as a dealer and made regular inspections of Hahn's premises to
enforce compliance with BMW standards and specifications.[10] For example, in its
letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters that
we have to tackle the Philippine market more professionally and that we are
through your present activities not adequately prepared to cope with the
forthcoming challenges.[11]
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of
Appeals,[12] in which the foreign corporation entered into a "Representative
Agreement" and a "Licensing Agreement" with a domestic corporation, by virtue of
which the latter was appointed "exclusive representative" in the Philippines for a
stipulated commission. Pursuant to these contracts, the domestic corporation sold
products exported by the foreign corporation and put up a service center for the
products sold locally. This Court held that these acts constituted doing business in the
Philippines. The arrangement showed that the foreign corporation's purpose was to
penetrate the Philippine market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in
the Philippines, even as it announced in the Asian region that Hahn was the "official
BMW agent" in the Philippines.[13]

The Court of Appeals also found that petitioner Alfred Hahn dealt in other
products, and not exclusively in BMW products, and, on this basis, ruled that Hahn
was not an agent of BMW. (p. 14) This finding is based entirely on allegations of
BMW in its motion to dismiss filed in the trial court and in its petition
for certiorari before the Court of Appeals.[14] But this allegation was denied by
Hahn[15] and therefore the Court of Appeals should not have cited it as if it were the
fact.
Indeed this is not the only factual issue raised, which should have indicated to the
Court of Appeals the necessity of affirming the trial court's order deferring resolution
of BMW's motion to dismiss. Petitioner alleged that whether or not he is considered
an agent of BMW, the fact is that BMW did business in the Philippines because it
sold cars directly to Philippine buyers. [16] This was denied by BMW, which claimed
that Hahn was not its agent and that, while it was true that it had sold cars to
Philippine buyers, this was done without solicitation on its part.[17]
It is not true then that the question whether BMW is doing business could have
been resolved simply by considering the parties' pleadings. There are genuine issues
of facts which can only be determined on the basis of evidence duly presented. BMW
cannot short circuit the process on the plea that to compel it to go to trial would be to
deny its right not to submit to the jurisdiction of the trial court which precisely it
denies. Rule 16, 3 authorizes courts to defer the resolution of a motion to dismiss
until after the trial if the ground on which the motion is based does not appear to be
indubitable. Here the record of the case bristles with factual issues and it is not at all
clear whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the
summons it would be waiving its objection to the trial court's jurisdiction. It is now
settled that. for purposes of having summons served on a foreign corporation in
accordance with Rule 14, 14, it is sufficient that it be alleged in the complaint that
the foreign corporation is doing business in the Philippines. The court need not go
beyond the allegations of the complaint in order to determine whether it has
jurisdiction.[18] A determination that the foreign corporation is doing business is only
tentative and is made only for the purpose of enabling the local court to acquire
jurisdiction over the foreign corporation through service of summons pursuant to
Rule 14, 14. Such determination does not foreclose a contrary finding should
evidence later show that it is not transacting business in the country. As this Court has
explained:

investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its
agent, then it cannot really be said to be doing business in the Philippines. It is a
defense, however, that requires the contravention of the allegations of the complaint,
as well as a full ventilation, in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So, also, the issue posed by
the petitioner as to whether a foreign corporation which has done business in the
country, but which has ceased to do business at the time of the filing, of a complaint,
can still be made to answer for a cause of action which accrued while it was doing,
business, is another matter that would yet have to await the reception and admission
of evidence. Since these points have seasonably been raised by the petitioner, there
should be no real cause for what may understandably be its apprehension, i.e., that by
its participation during the trial on the merits, it may, absent an invocation of separate
or independent reliefs of its own, be considered to have voluntarily submitted itself to
the court's jurisdiction.[19]

This is not to say, however, that the petitioner's right to question the jurisdiction of
the court over its person is now to be deemed a foreclosed matter. If it is true, as
Signetics claims, that its only involvement in the Philippines was through a passive

[G.R. No. 143723. June 28, 2001]

Far from committing an abuse of discretion, the trial court properly deferred
resolution of the motion to dismiss and thus avoided prematurely deciding a question
which requires a factual basis, with the same result if it had denied the motion and
conditionally assumed jurisdiction. It is the Court of Appeals which, by ruling that
BMW is not doing business on the basis merely of uncertain allegations in the
pleadings, disposed of the whole case with finality and thereby deprived petitioner of
his right to be heard on his cause of action. Nor was there justification for nullifying
the writ of preliminary injunction issued by the trial court. Although the injunction
was issued ex parte, the fact is that BMW was subsequently heard on its defense by
filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the
case is REMANDED to the trial court for further proceedings.
SO ORDERED.

THIRD DIVISION

LITONJUA GROUP OF COMPANIES, EDDIE LITONJUA and DANILO

LITONJUA, petitioners, vs. TERESITA VIGAN, respondent.
DECISION
GONZAGA-REYES, J.:
In this petition for review on certiorari, petitioners seek to annul and set aside the
(1) decision[1] of the respondent Court of Appeals dated March 20, 2000 which
reversed and set aside the decision of the National Labor Relations Commission
finding respondent guilty of abandonment and (2) resolution[2] dated June 19, 2000
denying petitioners motion for reconsideration.
The factual backdrop as found by the respondent Court of Appeals is as
follows:[3]
As to the factual milieu, the contending parties have diametrically opposed
versions. Vigan tells it this way; She was hired by the Litonjua Group of Companies
on February 2, 1979 as telex operator. Later, she was assigned as accounting and
payroll clerk under the supervision of Danilo Litonjua. She had been performing well
until 1995, when Danilo Litonjua who was already naturally a (sic) very ill-tempered,
ill-mouthed and violent employer, became more so due to business problems. In fact,
a complaint letter (Annex I, p. 85, rollo) was sent by the Litonjua Employees to the
father and his junior regarding the boorishness of their kin Danilo Litonjua but
apparently the management just glossed over this.
Danilo Litonjua became particularly angry with Vigan and threw a stapler at her
when she refused to give him money upon the instructions of Eddie Litonjua. From
then on, Danilo Litonjua had been rabid towards her berated and bad-mouthed her,
calling her a mental case psycho, sira ulo, etc. and even threatened to hit her
for some petty matters. Danilo Litonjua even went so far as to lock her up in the
comfort room and preventing others to help her out. Not contented, Danilo Litonjua
would order the security guards to forcibly eject her or prevent her entry in the office
premises whenever he was angry. This occurred twice in July of 1995, first on the
5th then on the 7th. The incidents prompted Vigan to write Danilo Litonjua letters
asking why she was treated so and what was her fault (Annexes F, G & K, pp.
82, 83 & 87, rollo). She suspected that Danilo Litonjua wanted her out for he would
not let her inside the office such that even while abroad he would order the guards by
phone to bar her. She pleaded for forgiveness or at least for explanation but it fell on
deaf ears.

Later, Danilo Litonjua changed tack and charged that Vigan had been hysterical,
emotional and created scenes at the office. He even required her to secure psychiatric
assistance. (Annexes L to N, pp. 88-90, rollo) But despite proof that she was not
suffering from psychosis or organic brain syndrome as certified to by a Psychiatrist of
Danilo Litonjuas choice (Annex H, p. 84, rollo), still she was denied by the guards
entry to her work upon instructions again of Danilo Litonjua. Left with no
alternative, Vigan filed this case for illegal dismissal, alleging she was receiving a
monthly salary of P8,000.00 at the time she was unlawfully terminated.
The Litonjuas have a different version. They negate the existence of the Litonjua
Group of Companies and the connection of Eduardo Litonjua thereto. They contend
that Vigan was employed by ACT Theater, Inc., where Danilo Litonjua is a
Director. They dispute the charge of illegal dismissal for it was Vigan who ceased to
report for work despite notices and likewise contest the P8,000.00 monthly salary
alleged by Vigan, claiming it was merely P6,850.00.
They claim that Vigan was a habitual absentee specially on Tuesdays that fell within
three days before and after the 15th day and 30th day of every month. Her
performance had been satisfactory, but then starting March 15, 1996 she had become
emotional, hysterical, uncontrollable and created disturbances at the office with her
crying and shouting for no reason at all. The incident was repeated on April 3, 1996,
May 24, 1996 and on June 4, 1996. Thus alarmed, on July 24, 1996 Vigan was
required by management to undergo medical and psychological examination at the
companys expense and naming three doctors to attend to her. Dr. Baltazar Reyes
and Dr. Tony Perlas of the Philippine General Hospital and Dr. Lourdes Ignacio of
the Medical Center Manila. But they claim that Vigan refused to comply.
On August 2, 1996, Vigan again had another breakdown, hysterical, shouting and
crying as usual for about an hour, and then she just left the premises without a
word. The next day, August 3, 1996, Saturday, she came to the office and explained
she was not feeling well the day before. After that Vigan went AWOL and did not
heed telegram notices from her employer made on August 26, 1996 and on September
9, 1996 (Annexes 1 & 2, pp. 108 to 109, rollo). She instead filed the instant suit
for illegal dismissal.
On June 10, 1997, Labor Arbiter Ernesto S. Dinopol rendered his
decision[4] finding Vigan diseased and unfit for work under Article 284 of the Labor
Code[5]5 and awarded the corresponding separation pay as follows:[6]
WHEREFORE, judgment is hereby rendered ordering respondents LITONJUA
GROUP OF COMPANIES, EDDIE K. LITONJUA and DANILO LITONJUA to
jointly and severally pay complainant TERESITA Y. VIGAN, the following amounts:

Separation pay (P4,000 x 18) years.= P72,000.00

Proportionate 13th month pay
(P8,000 x 8 months over 12)
= 4,666.66
TOTAL AWARD. P76,666.66
All other causes of action are DISMISSED for lack of merit.
Vigan appealed the decision to the National Labor Relations Commission which
modified[7] the arbiters decision by ruling that Art. 284 of the Labor Code is
inapplicable in the instant case but affirmed the legality of the termination of the
complainant based on her having effectively abandoned her job; the rest of the
decision was affirmed. Vigan moved for a partial reconsideration which was denied
in a resolution dated August 7, 1998.
Dissatisfied, Vigan filed a petition for certiorari with the respondent Court of
Appeals which rendered its assailed decision dated March 20, 2000 reversing the
NLRC Resolution. The dispositive portion of the decision reads:[8]
WHEREFORE, premises considered, the assailed NLRC Decision and Resolution
are hereby REVERSED and SET ASIDE. In its stead judgment is rendered ordering
the respondents LITONJUA GROUP OF COMPANIES, EDDIE K. LITONJUA and
DANILO LITONJUA jointly and severally to:
(a) Reinstate complainant TERESITA Y. VIGAN if she so desires;
or
(b) pay her separation compensation in the sum of P8,000.00 multiplied by
her years of service counted from February 2, 1979 up to the time this
Decision becomes final; and in either case to pay Vigan;
(c) full back wages from the time she was illegally dismissed up to the date
of the finality of this Decision;
(d) moral damages in the amount of P40,000.00;
(e) exemplary damages in the amount of P15,000.00; and
(f) attorneys fees of P10,000.00.
SO ORDERED.
Litonjuas filed their motion for reconsideration which was denied in a resolution
dated June 19, 2000.
Petitioners Litonjuas filed the instant petition for review on certiorari alleging the
following grounds:

I
WHETHER OR NOT LITONJUA GROUP OF COMPANIES, WHICH HAS NO
JURIDICAL PERSONALITY, BUT ONLY A GENERIC NAME TO DESCRIBE
THE VARIOUS COMPANIES WHICH THE LITONJUA FAMILY HAS
INTERESTS, CAN BE LEGALLY CONSTRUED AS RESPONDENTS
EMPLOYER.
II
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED AS A
MATTER OF LAW IN HOLDING THAT RESPONDENT WAS ILLEGALLY
DISMISSED FROM HER EMPLOYMENT, INSTEAD OF AFFIRMING THE
DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION THAT
SHE HAD ABANDONED HER JOB OR THAT OF LABOR ARBITER ERNESTO
DINOPOL HOLDING THAT SHE SHOULD BE SEPARATED ON THE
GROUND OF DISEASE UNDER ARTICLE 284 OF THE LABOR CODE,
CONSIDERING THAT SHE HAS EXHIBITED A PATTERN OF
PSYCHOLOGICAL AND MENTAL DISTURBANCE WHICH ADMITTEDLY
NO LONGER MADE HER PHYSICALLY FIT TO WORK.
III
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED AS A
MATTER OF LAW IN DIRECTING RESPONDENTS REINSTATEMENT AT
HER OWN CHOICE OR PAYMENT OF SEPARATION PAY OF ONE MONTH
SALARY FOR EVERY YEAR OF SERVICE AND BACKWAGES.
IV
THE COURT OF APPEALS SERIOUSLY ERRED AS A MATTER OF LAW IN
HOLDING PETITIONERS LIABLE FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES.
Anent the first assigned error, petitioners allege that the Litonjua group of
companies cannot be a party to this suit for it is not a legal entity with juridical
personality but is merely a generic name used to describe collectively the various
companies in which the Litonjua family has business interest; that the real employer
of respondent Vigan was the ACT theater Incorporated where Danilo Litonjua is a

member of the Board of Directors while Eddie Litonjua was not connected in any
capacity.
Petitioners argument is meritorious. Only natural or juridical persons or entities
authorized by law may be parties to a civil action and every action must be
prosecuted and defended in the name of the real parties in interest.[9] Petitioners
claim that Litonjua Group of Companies is not a legal entity with juridical personality
hence cannot be a party to this suit deserves consideration since respondent failed to
prove otherwise. In fact, respondent Vigans own allegation in her Memorandum
supported petitioners claim that Litonjua group of companies does not exist when
she stated therein that instead of naming each and every corporation of the Litonjua
family where she had rendered accounting and payroll works, she simply referred to
these corporations as the Litonjua group of companies, thus, respondent merely used
such generic name to describe collectively the various corporations in which the
Litonjua family has business interest. Considering the non-existence of the Litonjua
group of companies as a juridical entity and petitioner Eddie Litonjuas denial of his
connection in any capacity with the ACT Theater, the supposed company where
Vigan was employed, petitioner Eddie Litonjuas should also be excluded as a party in
this case since respondent Vigan failed to prove Eddie Litonjuas participation in the
instant case. It is respondent Vigan, being the party asserting a fact, who has the
burden of proof as to such fact[10] which however, she failed to discharge.
Next, petitioners claim that the complaint for illegal dismissal was prematurely
filed since Vigan was not dismissed, actual or constructive, from her employment as
the records show that despite being absent without official leave since August 5, 1996
and her receipt of two telegram notices sent to her by petitioners on August 26, and
September 9, 1996 for her to report for work, she failed to do so and yet petitioners
had not done any act to dismiss her. Petitioners deny Vigans claim that she had been
physically barred from entering the work premises.
Petitioners thus contend that since respondent Vigan was not illegally dismissed
from employment, the respondent courts order reinstating the latter, awarding her
separation pay equivalent to one month salary per year of service as well as
backwages, damages and attorneys fees have no factual and legal basis.
We are not persuaded.
The above arguments relate mainly to the correctness of the factual findings of
the Court of Appeals and the award of damages. This Court has consistently affirmed
that the findings of fact of the Court of Appeals are as a rule binding upon it, subject
to certain exceptions, one of which is when the factual findings of the Court of
Appeals are contrary to those of the trial court (or administrative body, as the case
may be).[11] However, it bears emphasizing that mere disagreement between the Court
of Appeals and the trial court as to the facts of a case does not of itself warrant this

Court's review of the same. It has been held that the doctrine that the findings of fact
made by the Court of Appeals, being conclusive in nature, are binding on this Court,
applies even if the Court of Appeals was in disagreement with the lower court as to
the weight of evidence with a consequent reversal of its findings of fact, so long as
the findings of the Court of Appeals are borne out by the record or based on
substantial evidence.[12]
We have gone over the records of this case and found no cogent reason to
disagree with the respondent courts findings that respondent Vigan did not abandon
her job but was illegally dismissed. Petitioners claim that despite two (2) telegram
notices dated August 26 and September 9, 1996 respectively sent to respondent Vigan
to report for work, the latter did not heed the demands and absented herself since
August 5, 1996 was belied by the respondents evidence, as it was upon instructions
of petitioner Danilo Litonjua to the guards on duty that she could not enter the
premises of her workplace. In fact, in her letter dated August 30, 1996 addressed to
petitioner Danilo Litonjua, respondent Vigan had complained of petitioner Danilos
inhumane treatment in barring her from entering her workplace, to wit:
Sukdulan na po ang pang-aaping dinaranas ko sa inyo, sir. Since August 5 etc. I was
always approached by your guard Batutay and harassed by your men to vacate my
cubicle as per your strict order. Only this August 7 that you succeeded as you order
the door locked for me only. As per our agreement Aug. 27 at Jollibee (sic) gave me
assurance that I willingly undergo psychiatric test I could freely report for work
without intimidating me, you wont anymore charge me of insubordination. You
wont disturb my family anymore, so why do you advice to try to go back Aug. 30
but as always to be barred by guard Batutay? Sir, with my 18 years of loyal service,
all I need is a little respect. Tao ako sir, hindi hayop. Malaki ang nawawala sa akin."
Notwithstanding the fact the she was refused entrance to her workplace,
respondent Vigan, to show her earnest desire to report for work, would sneak her way
into the premises and punched her time card but she could not resume work as the
guards in the company gate would prevent her per petitioner Danilo Litonjuas
instructions. It appears also that respondent Vigan wrote petitioner Danilo a letter
dated September 9, 1996 notifying him that per his instructions, she had made an
appointment for a psychiatric test on September 11, 1996 and requested him to make
a check payable to Dr. Lourdes Ladrido-Ignacio in the amount of P800.00
consultation fee as they agreed upon. She underwent a psychiatric examination as a
result of which Dr. Ignacio issued a medical certificate as follows:[13]

This is to certify that MISS TERESITA VIGAN has come for psychiatric evaluation
on September 11 and 17, 1996. The psychiatric interview and mental status
examination did not reveal any symptoms of psychosis or organic brain
syndrome. She showed anxiety but this was deemed a realistic reaction to her present
job difficulties.
Respondents actuations militate against petitioners claim that she did not heed
the notices to return to work and abandoned her job. She had been going to her
workplace to report for work but was prevented from resuming her work upon the
instructions of petitioner Danilo Litonjua. It would be the height of injustice to allow
an employee to claim as a ground for abandonment a situation which he himself had
brought about.[14]
We fully agree with the respondent courts ratiocination on the illegality of
Vigans dismissal, to wit:[15]
The basic issue is whether Vigans employment was terminated by illegal dismissal
or by abandonment of work, and We hold that this was a case of illegal dismissal.
Shopworn is the rule on abandonment that the immediate filing of a case for illegal
dismissal negates the same. Mark that Vigan promptly filed this suit for illegal
dismissal when her attempts to enter the premises of her workplace became futile and
the efforts to bar and eject her became unmistakable. In the more recent case of
Rizada vs. NLRC (G.R. No. 96982, September 21, 1999), the Supreme Court
reiterated anew the hoary rule that:
To constitute abandonment two elements must concur (1) the failure to report for
work or absence without valid or justifiable reason, and (2) a clear intention to sever
the employer-employee relationship, with the second element as the more
determinative factor and being manifested by some overt acts. Abandoning ones job
means the deliberate, unjustified refusal of the employee to resume his employment
and the burden of proof is on the employer to show a clear and deliberate intent on
the part of the employee to discontinue employment.
Abandonment is a matter of intention and cannot be lightly inferred, much less legally
presumed from certain equivocal acts. (Shin Industrial v. National Labor Relations
Commission, 164 SCRA 8).
An employee who forthwith took steps to protest his dismissal cannot be said to have
abandoned his work. (Toogue v. National Labor Relations Commission, 238 SCRA
241), as where the employee immediately filed a complaint for illegal dismissal to
seek reinstatement (Tolong Aqua Culture Corp., et al. V. National Labor Relations
Commission, G.R. 122268, November 12, 1996) (emphasis supplied).

Note that in the instant case Vigan was even pleading to be allowed to work but she
was prevented by the guards thereat upon the orders of Danilo Litonjua. These
are disclosed by her letters (Annexes F, G, K, Q, R and U, pp. 82, 83,
87, 93, 94 & 97, rollo), the entries in her time cards (Annexes P, S, W and X,
pp. 92, 95, 99 & 100, rollo) and her compliance when required to see a psychiatrist
(Annex H, p. 84, rollo). On the other hand there is complete silence from the
Litonjuas on these matters, including on the collective manifesto of several
employees against Danilo Litonjua and his highhanded ways (Annex I, p. 85). They
chose to ignore material and telling points. They even alleged that Vigan refused to
comply with their request for her to have medical examination (Comment, pp. 164171, rollo and Memorandum for the Respondents, pp. 215-222, rollo), an unmitigated
falsity in the face of clear proofs that she complied with their directive and was given
a clean bill of mental health by a reputable psychiatrist of their choice.
For emphasis, We shall quote with seeming triteness the dictum laid down in
Mendoza vs. NLRC (supra) regarding the unflinching rule in illegal dismissal cases:
that the employer bears the burden of proof. To establish a case of abandonment,
the employer must prove the employees deliberate and unjustified refusal to resume
employment without any intention of returning. . .
mere absence from work, especially where the employee has been verbally told not to
report, cannot by itself constitute abandonment. To repeat, the employer has the
burden of proving overt acts on the employees part which demonstrate a desire or
intention to abandon her work
The NLRC had erred in shifting the onus probandi to Vigan in the charge of
abandonment against her, while the Litonjuas failed to discharge their burden.
Though they may not have verbally told Vigan not to report for work but the act of
ordering the guards not to let her in was just as clear a notice. Vigans plight was
akin to that of the truck helper in the case of Masagana Concrete Products, et al. vs.
NLRC (G.R. No. 106916, September 3, 1999) who was likewise prevented from
coming to work.
While there was no formal termination of his services, Marias, was constructively
dismissed when he was accused of tampering the vale sheet and prevented from
returning to work. Constructive dismissal does not always involve forthright
dismissal or diminution in rank, compensation, benefit and privileges. For an act of
clear discrimination insensibility or disdain by an employer may become so
unbearable on the part of the employee that it could foreclose any choice by him
except to forego his continued employment. In this case, Marias had to resign from

his job because he was prevented from returning back to work unless he admitted his
mistake in writing and he was not given any opportunity to contest the charge against
him. It is a rule often repeated that unsubstantiated accusation without anything more
are not synonymous with guilt and unless a clear, valid, just or authorized ground for
dismissing an employee is established by the employer the dismissal shall be
considered unfounded.
Similarly, Vigan was accused of having mental, emotional and physical disorders
(Annex M, p. 89, rollo), but per medical examination it was proven that hers was
pure anxiety as a realistic reaction to her present job difficulties. She was charged of
habitual absenteeism on Tuesdays that fell within three days before and after the
15th day and 30th day of every month (Litonjuas Position Paper, pp. 101-107,
rollo). This is preposterous for how many Tuesdays in a year would fall within three
days before and after the 15th day and 30th day of every month? By no
extrapolation can this be habitual absenteeism.
Since respondent Vigan was illegally dismissed from her employment, she is
entitled to: (1) either reinstatement, if viable, or separation pay if reinstatement is no
longer viable, and (2) backwages.[16] As correctly disposed by the respondent
Court:[17]
Thus finding that Vigan was illegally dismissed, she is entitled to the following:
1) Either reinstatement, if viable, or separation pay if reinstatement is no longer
viable; and 2) Backwages, Backwages and separation pay are distinct relief given to
alleviate the economic damage by an illegally dismissed employee. Hence, an award
of separation pay in lieu of reinstatement does not bar an award of backwages,
computed from the time of illegal dismissal up to the date of the finality of the
Decision... without qualification or deduction. Separation pay, equivalent to one
months salary for every year of service, is awarded as an alternative to reinstatement
when the latter is no longer an option. Separation pay is computed from the
commencement of employment up to the time of termination, including the imputed
service for which the employee is entitled to backwages, with the salary rate
prevailing at the end of the period of putative service being the basis for computation
(Masagana Concrete Products, et al. vs. NLRC, supra). In case of a fraction of at
least six (6) months in the length of service, the same shall be considered as one year
in computing the separation pay. With regard to backwages, it meant literal full
backwages that is inclusive of allowances and other benefits or their monetary
equivalent computed from the time her compensation was withheld from her up to the
time of her actual reinstatement, if it is still viable or up to the time the Decision in

her favor becomes final without deducting from back wages the earning derived
elsewhere, if there is any, by Vigan during the period of her illegal dismissal. (Lopez
vs. NLRC, 297 SCRA 508).
In other words, Vigan is entitled to reinstatement, which perhaps is no longer viable
due to the strained relations between the parties, or separation pay of P8,000.00 for
every year of service and backwages of another P8,000 per month reckoned from the
time she last received salary from the Litonjuas up to the date of the finality of this
Decision. Mark again that We allowed the P8,000.00 claim of Vigan as her last
salary received for again the Litonjuas failed to validly refute the same.
We likewise affirm respondent courts award of moral and exemplary damages to
the respondent. As a rule, moral damages are recoverable only where the dismissal of
the employee was attended by bad faith or fraud or constituted an act oppressive to
labor, or was done in a manner contrary to morals, good customs or public
policy. We find that bad faith attended respondents dismissal from her
employment. Bad faith involves a state of mind dominated by ill will or motive. It
implies a conscious and intentional design to do a wrongful act for a dishonest
purpose or some moral obliquity.[18] Petitioner Danilo Litonjua showed ill will in
treating respondent Vigan in a very unfair and cruel manner which made her suffer
anxieties by reason of such job difficulties. The report to work notices sent by
petitioners to respondent Vigan was just part of the ploy to make it appear that the
latter abandoned her work but in reality, Vigan was barred from entering her work
premises. We fully subscribe to respondents position that petitioners action was for
the purpose of removing her from her employment. Respondent Vigan is also entitled
to exemplary damages as her dismissal was effected in an oppressive and malevolent
manner.[19]
We also find that there is a basis for the award of attorneys fees. It is settled that
in actions for recovery of wages or where an employee was forced to litigate and
incur expenses to protect his rights and interest, he is entitled to an award of
attorneys fees.[20]
WHEREFORE, premises considered, the decision of the respondent Court of
Appeals dated March 20, 2000 is hereby AFFIRMED with the MODIFICATION that
Litonjua Group of Companies and Eddie Litonjua are dropped as parties in the instant
case.
SO ORDERED.