1.

Republic of the Philippines However, on 30 September 1981, petitioners filed an Answer With
SUPREME COURT Counterclaim and a Motion to Admit Third-Party Complaint against Worldwide
Manila Insurance Co., Inc. with which they insured against loss or damage the cargo
truck for P180,000.00. The Pasig court granted this motion on 15 October 1981.
THIRD DIVISION
On 15 October 1981, IFC filed its reply to the Answer. On 27 October 1981,
G.R. No. 81239 December 4, 1991 petitioners filed a motion to reconsider the default Order of 25 September 1981,
which the court granted on 30 October 1981.
NELSON L. YOUNG and VIOLETA YOUNG, petitioners,
vs. On 4 December 1981, the Third-Party defendant filed its Answer with
THE HONORABLE COURT OF APPEALS and INDUSTRIAL FINANCE Compulsory Counterclaim.
CORPORATION, respondents.
Then, on 17 December 1981, the Pasig court set the case for pre-trial conference
Nuyda & Associates for petitioners. on 29 March 1982 at 8:00 A.M.
Santos S. Carlos for private respondent.
When the case was called for pre-trial on 28 March 1982, neither petitioners
nor their counsel appeared despite due notice. Upon motion of IFC, the Pasig
court issued an Order declaring petitioners in default, allowing IFC to present its
evidence ex-parte before a Commissioner and dismissing the third-party
complaint without prejudice; however, since petitioners arrived shortly
DAVIDE, JR., J.:
thereafter, the court gave them five (5) days from receipt of the Order within
which to file any motion they may deem necessary.
This is a petition for review on certiorari under Rule 45 of the Rules of Court to
set aside the decision 1 of 24 August 1987 of respondent Court of Appeals in
At 2:35 o'clock in the afternoon of 30 March 1982, IFC presented its evidence
C.A.-G.R. CV No. 07484 2 Which affirmed in toto the decision of Branch 135 of the
before the Commissioner designated by the Pasig court and rested its case.
Regional Trial Court of Makati, Metro Manila of 3 May 1985 in Civil Case No.
1219.
On 7 April 1982, petitioners filed a motion to reconsider the 29 March 1982
Order declaring them in default and dismissing the third-party complaint. They
The factual and procedural antecedents are not disputed.
prayed that the order be lifted and that the case be set for pre-trial conference.
On 20 May 1982, the Pasig court issued the following Order:
On 3 July 1981, herein private respondent (hereinafter referred to as IFC), as
assignee of a deed of sale with chattel mortgage and the accompanying
Finding the motion for reconsideration filed by the defendants dated
promissory note, filed a complaint against the petitioners with the then Court of
April 6, 1982, to be well-taken and in the interest of justice, the Court
First Instance (now Regional Trial Court) of Rizal (at Pasig, Metro Manila) for
grants the same. The Order dated March 29, 1982 declaring defendants
the payment of the total sum of P157,588.39 which became due on the note by
in default and dismissing the third party complaint is hereby
reason of its acceleration clause, the interest thereon, and of attorney's fees. The
reconsidered and set aside. Plaintiff's evidence, however, stands.
note was executed by petitioners in favor of Baroq Motor Sales, Inc. in
(emphasis supplied)
connection with their purchase of a cargo truck on installment basis. The case
was docketed as Civil Case No. 41881 and was assigned to Branch VI of said
court. Upon manifestation of IFC on 21 July 1982, the Pasig court set the case for
hearing on 15 October 1982. In a Notice of Hearing dated 11 October 1982, the
hearing was reset to 21 January 1983. Then, on 14 December 1982, on the
For failure to file their Answer within the reglementary period, the Pasig court,
ground that the presiding judge was on leave, a notice was issued resetting "the
upon motion of IFC, declared petitioners in default in its order of 25 September
case" for 9 March 1983. No hearing took place on the latter date because of the
1981 and allowed IFC to present its evidence  ex-parte on 30 October 1981.
reorganization of the judiciary in January 1983.
The case was subsequently transferred to Branch 135 of the Regional Trial As thus modified, the 25 May 1984 Order was then clearly directed against
Court of Makati, Metro Manila, then presided over by Judge Rafael T. Mendoza, herein petitioners who did not present, ex-parte, their evidence on 8 September
and was docketed therein as Civil Case No. 1219. This Branch (hereinafter 1983.
referred to as the Makati Court) issued on 20 April 1983 a Notice of Hearing
(Pre-Trial Conference setting the hearing of the case for 24 June 1983 at 8:30 On 27 September 1984, IFC filed with the Makati court a manifestation and
A.M.; however, due to the absence of the third-party defendant, the court, upon motion praying that the latter's Order of 2 September 1983 dismissing the
agreement of the parties present, reset the pre-trial conference to 2 September complaint be reconsidered and set aside, the case be submitted for decision
1983. based on the evidence presented by the IFC and that petitioners' right to
present their evidence be considered to have been waived.
On 2 September 1983, IFC, its counsel and the third-party defendant did not
appear thus prompting the Makati court to issue the following Order: Petitioners on the other hand assert that they were not furnished with copies of
the manifestation and motion and of the order of the court of 12 October 1984
For failure of the plaintiff and counsel to appear today, despite due requiring them to comment thereon which was sent to their counsel, but
notice, as well as the third party defendant and counsel, as prayed for returned to the court with the stamped notation "Unclaimed." 4
by the defendant, through counsel, the complaint is hereby dismissed,
and the third party defendant declared as in default and third party On 14 February 1985, IFC filed a manifestation and motion reiterating its prayer that the case be submitted for decision on the basis of the

plaintiff is allowed to present its. evidence ex parte on September 8, evidence it had presented. Reacting, petitioners again claim that neither they nor their counsel received a copy thereof. 5
 Pursuant
1983, at 2:00 P.M. in support of his third party complaint. thereto, the Makati court issued on 25 February 1985 an Order directing the
court stenographer who took down the stenographic notes of the proceedings in
IFC received a copy of this Order on 20 September 1983. the case before the Pasig court to submit the transcripts thereof within ten (10)
days from notice, after which "the instant case will be deemed submitted for
Petitioners did not present their evidence. decision."

On 25 May 1984, the Makati court issued the following Order: On 3 May 1985, the Makati court rendered its decision in Civil Case No. 1219,
the Dispositive portion of which reads:
It appearing that despite the lapse of time plaintiff has failed to take the
necessary steps to prosecute its case, this Court hereby orders the WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
instant case dismissed for lack of interest to prosecute. against the defendants, ordering the latter to pay plaintiff jointly and
severally:
Upon IFC's motion for reconsideration of 13 September 1984, wherein it gave as
reason for its failure to actively prosecute the case its occasional substitution of 1. The amount of P134,472.34 plus penalty charges there on at the rate
counsel and the transfer of the case from Pasig to Makati, 3 the Makati court of 3% per month from the filing of the complaint until fully paid;
issued on 25 September 1984 an Order reading as follows:
2. The sum of P10,000.00 as attorney's fees;
Motu proprio this Court hereby modifies its order dated May 25, 1984
in the sense that between the words "time" and "plaintiff", the words 3. Costs of suit. 6
"third-party" should be inserted. In all other aspect (sic), the aforesaid
order stands. Petitioners appealed from the decision to the Court of Appeals, which docketed the case as C.A.-G.R. CV No. 07484. They asserted therein

that the Makati court erred in setting aside its 2 September 1983 Order dismissing IFC's complaint and thereafter rendering a decision in

the latter's favor, and contended in support thereof that said order had long become final and had the effect of an adjudication on the
Accordingly, the motion of the plaintiff thru counsel dated September
merits pursuant to Section 3, Rule 117 of the Rules of Court. 7
11, 1984 is deemed moot and academic.
The respondent court defined the issue before it in this wise: We then gave the petition due course and required the parties to submit their respective Memoranda, 15
 which petitioners
complied with on 28 October 1988 16 and the IFC only on 17 July 1990. 17

... whether plaintiffs' [IFC's] failure to appear at the hearing set on September 2, 1983—during which for such failure the

Order dismissing the complaint was issued—may be considered a failure to prosecute or a failure to comply with the rules The principal issue in this case is whether or not the Makati court's order of 2 September 1983 dismissing IFC's complaint for failure to

or with an order of the court below on the part of the plaintiff within the contemplation of Rule 17, Section 3, supra. 8 appear on said date had long become final such that it was error for the former to issue its order of 25 February 1985 granting IFC's 27

September 1984 motion (to set aside said order of 2 September 1983 and to decide the case on the basis of the evidence it earlier

Respondent court rejected the petitioners' contention. It held that pre-trial was set by the Pasig court for 29 March 1982. However, presented ex-parte pursuant to the default order of 29 March 1982). The issue in turn revolves on the propriety and validity of the said

petitioners were declared in default; it was at that stage that the requirement of Section 1, Rule 20 of the Rules of Court was deemed to dismissal order. If such order is valid, then certainly it became final upon the lapse of fifteen (15) days from receipt thereof by IFC. Both

have been complied with, and what was subsequently set by the Makati court, first on 24 June 1983 and then on 2 September 1983 upon a IFC and petitioners agree that the former received the order on 20 September 1983. Accordingly, per Section 39 of B.P. Blg. 129, IFC had

so-called "Notice of Hearing/ Pre-Trial Conference," "was and should have been a hearing and not a pre-trial," considering "that at that until 5 October 1983 within which to either file a motion to reconsider the order or to appeal therefrom. Upon the other hand, if the Order

particular stage (on September 2, 1983) all of the pleadings had already been submitted by the parties and plaintiff had already adduced was null and void, as IFC claims, it never became final.

its evidence." Furthermore, it was held in Jalover vs. Ytoriaga 9

 that where the plaintiff had already
As to be expected, petitioners assert that the Order was valid since what was set for 2 September 1983 was the pre-trial of the case; it was
adduced evidence and rested its case before the dismissal of said case, the
a re-setting of the pre-trial scheduled on 24 June 1983. Indeed, the Order of 24 June 1983 reads:
absence of the plaintiff at a subsequent hearing cannot be considered a failure
to prosecute on plaintiffs' part; it can only be construed as a waiver of the right
to cross-examine the witnesses which the opposite party might present at the
hearing and to object to the admissibility of the evidence of the
latter. 10 Moreover, respondent court considered as satisfactory IFC's By agreement, pre-trial is reset to September 2, 1983. 18
explanation for its failure to prosecute the case. Hence, in the decision
promulgated on 24 August 1987, respondent Court of Appeals affirmed in
toto the decision of the Makati court. Their motion for its reconsideration
having been denied in the resolution of 21 December 1987, petitioners came to
Since IFC accepted the notice of pre-trial for 24 June 1983 and agreed to its re-setting, it is now estopped from claiming that the Makati
this Court via this petition for review which they filed on 5 February
1988. 11 They urge Us to set aside respondent court's decision because it erred: court should not have set the case for pre-trial since one had already been had on 29 March 1982. Petitioners then conclude that since IFC

failed to appear for pre-trial on 2 September 1983, the Makati court correctly dismissed the complaint pursuant to Section 2, Rule 20 of

the Rules of Court which provides:

(1) in not passing upon the issue of finality of the order dated
September 2, 1983—dismissing plaintiff-appellee's complaint;
SECTION 2. Failure to appear at pre-trial conference. — A party who fails to appear at a pre-trial conference may be non-

suited or considered as in default.

(2) in not concluding that the order dated September 2,1983 ... being
final and executory, the lower court has lost jurisdiction to set aside the
and that such dismissal amounts to an adjudication on the merits per Section 3, Rule 17 of the Rules of Court, which reads as follows:
same;

SECTION 3. Failure to prosecute.—If plaintiff fails to appear at the time of the trial, or to prosecute his action for an
(3) in misapplying the doctrine enunciated ... in the case of Jalover vs.
unreasonable length of time, or to comply with these rules or any order of the court, the action may be dismissed upon
Ytoriaga, 80 SCRA 100, to the case at bar;
motion of the defendant or upon the court's own motion. This dismissal shall have the effect of an adjudication upon the

merits, unless otherwise provided by court.

(4) in not concluding that after the order dated September 2, 1983 ...
became final and executory, the subsequent proceedings and the
Hence, it was error for the Makati court to set aside this Order in its 25 February 1985 Order on the basis of IFC's 27 September 1984
decision rendered anew by the trial court dated May 3, 1985 are null
and void. 12 manifestation and motion.

We required the respondents to comment on the petition; 13

 IFC complied with the order on 27 July
1988. 14
IFC does not dispute the fact that it neither filed a motion to reconsider or appealed from the order of 2 September 1983. It, however,
Philippine jurisprudence has laid down the legal doctrine that while it
claims that the Makati court erred in dismissing the case on 2 September 1983 since it had already offered its evidence on 30 March 1982
is true that it is mandatory for the parties and their attorneys to appear
pursuant to the default order of 28 March 1982 and that per the Order of 20 May 1982, while the default order was set aside, the court
before the trial court for a pre-trial conference to consider inter alia the
explicitly stated therein that "plaintiffs evidence, however, stands." In short, a party cannot be said "to have failed to prosecute when his
possibility of an amicable settlement, the rule was by no means
evidence is already a part of the records of the case and the court can decide the case based on the evidence already presented."  19
 It intended as an implacable bludgeon but as a tool to assist the trial court
then went on to conclude that the 2 September 1983 Order is null and void and in the orderly and expeditious conduct of trials. The rule is addressed to
a void order is no order at all. Hence, even if it was received by IFC on 20 the sound discretion of the trial court. (Rice and Corn Administration
September 1983, it never became final and did not produce any legal or binding vs. Ong Ante, et al., G.R. No. L-30558, Oct. 4, 1971).
effect. 20
Both client and counsel must appear at the pre-trial. This is mandatory.
Failure of the client to appear is a ground for dismissal. (American Ins.
Co. vs. Republic, 1967D Phil. 63; Hone Ins. Co. vs. United States Lines
Two (2) earlier cases decided eleven (1 1) years apart aid Us in resolving the issue in this case. Co., 1967D Phil. 401, cited in Saulog vs. Custombuilt Manufacturing
Corp., No. L-29612, Nov. 15, 1968; Taroma v. Sayo, L-37296, Oct. 30,
1975 (67 SCRA 508).

In Pioneer Insurance and Surety Corp., et al. vs. Hontanosas et al., 21

In the case of Insurance Co. of North America vs. Republic, et al., G.R. No.
 decided on 31 August 1977, a pre-trial L-26794, Nov. 15, 1967, 21 SCRA 887, the Supreme Court, speaking
was conducts between original plaintiffs and Pioneer on 5 May 1971. The latter thru Justice Bengzon, held that Sec. 1, Rule 20 of the Rules requires the
opposed any amicable settlement; thereupon, plaintiffs marked their pre-trial court to hold a pre-trial before the case is heard and since in this case, a
exhibits, objections to which were re served by Pioneer. The parties then agreed pre-trial has already been had, the fact that an amended complaint was
to set the trial on the merits on 11 June 1971. However, after the complaint was later filed, did not necessitate another pre-trial. It would have been
amended to include an additional party defendant, the court set the case again impractical, useless and time-consuming to call another pre-trial.
for pre-trial on the basis of the amended complaint, and because defendants
failed to appear at such pretrial, it declared them as in default, allowed the
x x x           x x x          x x x
plaintiffs to present their evidence ex-parte and thereafter rendered a decision
in favor of the plaintiffs. This Court set aside the default order and ruled that the
judge issued it with grave and serious abuse of discretion and in excess of The defendant Pioneer Insurance & Surety Corp. having complied with
jurisdiction since: the order of the Court to appear and attend this pre-trial, and had
manifested its opposition to settling the case amicably, said party may
no longer be compelled to attend a second pre-trial hearing, and neither
... there is nothing in the Rules that empowers or authorizes the court to
may it be punished by the court by its order declaring said defendant as
call a second pre-trial hearing after it has called a first pre-trial duly
in default. The mandatory character of a pre-trial and the serious
attended by the parties, and lacking such authority, the court perforce
consequences confronting the parties in the event that each party fails
lacks authority to declare a failure to prosecute on the part of the
to attend the same must impose a strict application of the Rule such
plaintiff for failing to attend such second pre-trial; it also lacks the
that where we find no authority for the Court to call another pre-trial
authority to declare the defendant "as in default " by reason of the
hearing, as in fact there is none in said Rule, the conclusion is
latter's failure to be present at the said second pre-trial.
inescapable that the respondent Judge committed a grave and serious
abuse of discretion and acted in excess of jurisdiction in declaring
The extended disquisition of the Court reads: defendant Pioneer Insurance & Surety Corp. "as in default" for failure to
attend the second pre-trial called by the Judge on February 29, 1972, In
Unquestionably, the present Rules make pre-trial mandatory. And the other words, there is nothing in the Rules that empowers or authorizes
reason for making pre-trial mandatory is that pre-trial conferences the court to call a second pre-trial hearing after it has called a first pre-
bring the parties together, thus making possible an amicable settlement trial duly attended by the parties, and lacking such authority, the court
or doing away with at least the non-essentials of a case from the perforce lacks the authority to declare a failure to prosecute on the part
beginning. (Borja vs. Roxas, 73 Phil. 647). of the plaintiff for failing to attend such second pre-trial; it also lacks
 In the present case, it is quite obvious that the Pasig court had no intention of reverting the case to its pre-trial stage. This is easily borne
the authority to declare the defendant "as in default" by reason of the
out by the fact that its Order of 20 May 1982 is silent as to the prayer in petitioner's motion of 7 April 1982 that "the case be set for pre-
latter's failure to be present at the said second pre-trial.
trial conference with due notice to all parties concerned." Moreover, it subsequently sent a notice of hearing setting the hearing of the case

on 15 October 1982, which was reset to 21 January 1983 in the notice dated 11 October 1982. Yet, while this may be so, the parties herein
It serves no purpose for the court to call again another pre-trial where
and the Makati court failed to fully comprehend the situation, which could have been due to the transfer of the case from the Pasig court
the parties had previously agreed to disagree, where the issues had
and their failure to examine the records.
been joined and where the court itself had been satisfied that a hearing
on the merits is the next step to conduct as in the instant case where
the court, after the pre-trial on May 5, 1971, set the trial of the case on
its merits for June 11, 1971. Indeed, a second pre-trial is impractical,
useless and time-consuming. Thus, it is not clear whether the Makati court initially set the case for pre-trial or for hearing. The heading of its 20 April 1983 Notice is

rather vague, if not misleading. It read; "Notice of Hearing/Pre-Trial Conference." But, as the respondent court noted, its body refers to a

x x x           x x x          x x x setting of the, "hearing of the case" on 24 June 1983. 25

 Its personnel in charge of notices may have
used the mimeographed blank forms but forgot to cancel in appropriate words
In Development Bank of the Philippines vs. Court of Appeals, et al., 22 decided on in the heading. In any case, the parties considered the notice as one for pre-trial
26 January 1989, at a first pre-trial conference, the defendants were declared by for, on 24 June 1983, due to the absence of the third-party defendant, IFC and
the trial court to be as in default and the plaintiff Development Bank of the the petitioners agreed to reset the pre-trial to 2 September 1983 and the court
Philippines (DBP) was allowed, as in fact it did, present its evidence ex- issued the corresponding order. In essence, therefore, the parties in this case
parte. But on motion of defendants, the order of default was set aside and the had voluntarily agreed that the case be set anew for pre-trial. And the Makati
case re-scheduled for pre-trial on which occasion, however, DBP was declared court, by its order, yielded, in effect, to the agreement of the parties. This fact
non-suited because the challenge of defendants concerning the "adequacy and brings this case out of the doctrine enunciated in the Pioneer and DBP cases,
efficacy" of the power of attorney granted by DBP to its Assistant Manager to and ingrafts, an exception thereto. No one can question the soundness and
appear for it at pre-trial was sustained by the trial court. The Court of Appeals wisdom of the doctrine that the pre-trial stage is completed after a party had
having sustained the court a quo, this Court ruled that the effect of the following been ordered non-suited or declared as in default, as the case may be, and that
successive incidents therein, to wit: the joinder of the issues, the scheduling of an order lifting it does not revert the action to its pre-trial stage, or authorize,
the pre-trial conference, the failure of defendants to appear at pre-trial, the much less, a second pre-trial. However, neither the Rules nor the doctrine bars
declaration of defendant, and the ex-parte presentation of evidence by the the parties from agreeing, after such lifting, to hold a pre-trial and to effectively
plaintiff was "to terminate the pre-trial stage of the action and to limit the effect accomplish its objectives which could not have been done at the first pre-trial
of the subsequent lifting of the order of default issued against the private because of the absence of the plaintiff, resulting in his non-suit, or the absence
respondents to the restoration of their right to notice of subsequent of the defendant, resulting in his being declared as in default. The necessity for a
proceedings and to take part in the trial. 23 Such lifting, as has also been held by second pre-trial may have been felt by the parties in this case considering that
this Court on another occasion, did not revert the action to the pre-trial stage or defendant had a third-party complaint and the third-party defendant had set up
authorize, much less render mandatory, a second pre-trial. 24 a compulsory counterclaim. At such pre-trial, the parties could consider the
matter of an amicable settlement, the simplification of the issues and the
possibility of obtaining stipulations or admissions of facts and of documents to
avoid unnecessary proof which would, at the very least, shorten the
We went on to say that: proceedings. It must be remembered that the factual milieu surrounding the
default order in this case is entirely different from the Pioneer where the
defaulted party attended the first pre-trial and rejected any amicable settlement
The scheduling of a second pre-trial after DBP had finished presenting its evidence frustrated, rather than advanced, the

primary purpose of pre-trials of abbreviating trial by limitation and simplification of the issues, if not indeed of dispensing
of the case. DBP involved the non-suit at the second pre-trial of a party which
had already adduced its evidence ex-parte at the first pre-trial after defendant
altogether with the necessity of trial. Neither is that purpose served by non-suiting a plaintiff at such a stage of the action.

The correct course would have been to proceed with the trial, in fact already well under way, allowing the defendants
was declared in default and was present at the second pre-trial; DBP was
declared non-suited simply because the authority of its representative was
(private respondents) to cross-examine the plaintiffs (DBP's) witnesses and thereafter to offer their evidence.
challenged.
Elsewise stated, IFC had waived the effect of the lifting of the order of default definite date fixed by law. 29 To allow courts to amend final judgments will result
and had voluntarily agreed to have another pre-trial. in endless litigation. 30

For its failure to appear at the pre-trial on 2 September 1983, IFC could be
validly non-suited and its complaint dismissed. Even if We follow the arguments
of the respondent court and the IFC that the Makati court could not validly set The foregoing discussions are more than sufficient to abort the theory of IFC that the Order of 2 September 1983 was null and void and

the case for pre-trial and that the 2 September 1983 setting was in fact for a never had any binding effect because it had already presented its evidence and, per Jalover vs. Ytoriaga, supra., such a party can not be

hearing—and, therefore, for the cross-examination of the witness for IFC whose considered to have failed to prosecute. Jalover is not applicable in this case.

evidence had been adduced ex-parte on 30 March 1982—the Makati court could

undoubtedly dismiss the complaint under Section 3, Rule 17 of the Rules of The conclusion We have reached may be harsh on IFC. But, it is quite clear from the records that it slept on its rights. It did nothing —
Court because neither IFC nor its counsel appeared and worse, its witness could absolutely nothing — for more than a year after receipt of the dismissal order of 2 September 1983. It slept too long on whatever right it
not be cross-examined. Said section reads: had. Laws come to the assistance of the vigilant, not to those who sleep on their rights. Vigilantibus, non dormientibus, jura subveniunt. If

IFC's counsel neglected his duties, appropriate action under the Code of Professional Responsibility may be taken against him.

SECTION 3. Failure to prosecute.—If plaintiff fails to appear at the time

of the trial, or to prosecute his action for an unreasonable length of It follows then that the Order of the Makati court of 25 February 1985 setting aside its 2 September 1983 order and considering the case
time, or to comply with these rules or any order of the court, the action submitted for decision on the basis of the evidence of IFC, and said court's decision of 3 May 1985 are null and void. Respondent court
may be dismissed upon motion of the defendant or upon the court's then committed a reversible error in affirming such decision.
own motion. This dismissal shall have the effect of an adjudication on
the merits, unless otherwise provided by court. WHEREFORE, the instant petition is GRANTED. The decision of the respondent court in C.A.-G.R. CV No. 07484 promulgated on 24 August

1987, and its resolution of 21 December 1987 in C.A.-G.R. CV No. 07484, and the decision of the Regional Trial Court of Makati, Branch
When cross-examination is not done or completed due to causes attributable to 135, of 3 May 1985 in Civil Case No. 1219 are hereby SET ASIDE.
the party offering the witness, the uncompleted testimony is rendered
incompetent and should be stricken from the record. 26 Costs against private respondent.

In the instant case, the Makati court did not provide in its order of 2 September 1983 that the dismissal of the complaint was without
IT IS SO ORDERED.
prejudice. Hence, it had the effect of an adjudication on the merits. 27
 This Order was received by IFC on 20
September 1983. IFC knew that it was an order issued in connection with the 2
September 1983 pre-trial conference — or hearing on the merits if it forgot the
agreement it entered into with the adverse party on 24 June 1983. Its counsel
knew, or was supposed to know, that it had only fifteen (15) days from receipt
of a copy thereof within which to either move for its reconsideration or appeal
therefrom. Yet, it did nothing until 27 September 1984, when it filed a
manifestation and motion to set aside the order and decide the case on the basis
of the evidence it had presented on 30 March 1982.

Undoubtedly, at the time it filed the manifestation and motion, the 2 September
1983 order had long become final. Neither appeal nor a petition for relief from
judgment was available to IFC. The Makati court had lost jurisdiction over the
case. It had no authority to modify, annul or set aside the final order. Once a
decision becomes final and executory, it is removed from the power and
jurisdiction of the court which rendered it to further alter or amend it, much
less revoke it. 28 This doctrine of finality of judgment is grounded on
fundamental considerations of public policy and sound practice that at the risk
of occasional error, the judgments of the courts must become final at some
 2. TANTUICO v. REPUBLIC Sandiganbayan:

Petitioners: Francisco Tantuico Motion for production and inspection of documents denied

Respondents: REPUBLIC OF THE PHILIPPINES, PRESIDENTIAL COMMISSION Petitioner filed for Bill of Particulars, alleging that as he is being sued as public
ON GOOD GOVERNMENT, MATEO A. T. CAPARAS, AND THE SANDIGANBAYAN officer and private person, he deserves to have been furnished averments by
plaintiff- denied stating that the grounds are evidentiary in nature
December 2, 1991
SC:
Padilla, J.
Certiorari, prohibition, mandamus w/ prayer for issuance of prelim injcunction
and/or restraining order.

Topic: Pleadings, Alleging Cause of Action

ISSUE:
Provisions: Sec. 1, Rule 12
1. WON Sandiganbayan erred in not granting the bill of particulars as prayed for
by the plaintiff (YES)

FACTS: HELD:

July 31, 1987: The Republic filed a case (reconveyance, revision, accounting, 1. YES. Bill of particulars must be granted.
restitution and damages) against Kokoy Romualdez, Ferdinand Marcos and
A complaint is defined as a concise statement of the ultimate facts constituting
Imelda Marcos. Petitioner Tantuico was also included based on a couple of
the plaintiff's cause or causes of action. Like all other pleadings allowed by the
theories
Rules of Court,  the complaint shall contain in a methodical and logical form a
(1) He acted in unlawful concert w/ other defendants in misappropriation plain, concise and direct statement of the ultimate facts on which the plaintiff
of public funds relies for his claim, omitting the statement of mere evidentiary facts. Its office,
purpose or function is to inform the defendant clearly and definitely of the
(2) Acted as dummy by allowing himself to be incorporator, director claims made against him so that he may be prepared to meet the issues at the
among other capacities in companies held by defendants trial. The complaint should inform the defendant of all the material facts on
which the plaintiff relies to support his demand; it should state the theory of a
(3) Acted in flagrant breach of public trust and fiduciary obligations as cause of action which forms the bases of the plaintiff's claim of liability.
public officers
Where the complaint states ultimate facts that constitute the three (3) essential
(4) As COA chair, failed to do his duties elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or omission of the
(5) Dummy as instrument of accumulated ill-gotten wealth through the
defendant in violation of said legal right, the complaint states a cause of action,
corporations
otherwise, the complaint must succumb to a motion to dismiss on that ground
__________________________ of failure to state a cause of action. However, where the allegations of the
complaint are vague, indefinite, or in the form of conclusions, the proper
PROCEDURAL HISTORY: recourse would be, not a motion to dismiss, but a motion for a bill of
particulars. Thus, Section 1, Rule 12 of the Rules of Court provides:
Before responding to a pleading or, if no responsive pleading is permitted by the said position effective 1 July 1960" is a mere conclusion of law unsupported
these rules, within ten (10) days after service of the pleading upon him, a party by factual premises. 
may move for a more definite statement or for a bill of particulars of any matter
which is not averred with sufficient definiteness or particularity to enable him Dispositive:
properly to prepare his responsive pleading or to prepare for trial. Such motion
WHEREFORE, the petition is GRANTED and the resolutions dated 21 April 1989
shall point out the defects complained of and the details desired.
and 29 May 1989 are hereby ANNULLED and SET ASIDE. The respondents are
In this connection, the following allegations have been held as mere hereby ordered to PREPARE and FILE a Bill of Particulars containing the facts
conclusions of law, inferences from facts not alleged or opinion of the pleader: prayed for by petitioner within TWENTY (20) DAYS from notice, and should
they fail to submit the said Bill of Particulars, respondent Sandiganbayan is
(a) the allegations that defendants appellees were "actuated by ulterior motives, ordered TO EXCLUDE the herein petitioner as defendant in Civil Case No. 0035.
contrary to law and morals, with abuse of their advantageous position as
employers, in gross and evident bad faith and without giving plaintiff . . . his due, SO ORDERED.
wilfully, maliciously, unlawfully, and in summary and arbitrary manner", are
Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Bidin, Griño-
conclusions of law, inferences from facts not alleged and expressions of opinion
Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.
unsupported by factual premises;
Romero, J., took no part.
(b) an allegation of duty in terms unaccompanied by a statement of facts
showing the existence of the duty, is a mere conclusion of law, unless there is a Fernan, C.J., is on leave.
relation set forth from which the law raises the duty; 

(c) an averment . . . that an act was "unlawful" or "wrongful" is a mere legal

conclusion or opinion of the pleader; 

(d) the allegation that there was a violation of trust was plainly a conclusion of
law, for "a mere allegation that it was the duty of a party to do this or that, or
that he was guilty of a breach of duty, is a statement of a conclusion, not of a
fact;" 

(e) an allegation that a contract is valid or void, is a mere conclusion of law; 

 (f) the averment in the complaint that "defendant usurped the office of Senator
of the Philippines" is a conclusion of law — not a statement of fact — inasmuch
as the particular facts on which the alleged usurpation is predicated are not set
forth therein;  and

(g) the averment that "with intent of circumventing the constitutional

prohibition that 'no officer or employee in the civil service shall be removed or
suspended except for cause as provided by law', respondents maliciously and
illegally for the purpose of political persecution and political vengeance,
reverted the fund of the salary item . . . and furthermore eliminated or abolished
 3. G.R. No. 81123 February 28, 1989 Upon motion, the Court of Appeals granted the petition on the ground of lack of
jurisdiction ruling that there was no valid service of summons.
CRISOSTOMO REBOLLIDO, FERNANDO VALENCIA and EDWIN REBOLLIDO
vs. ISSUE:
HONORABLE COURT OF APPEALS and PEPSICO, INC.
Whether or not there was valid service of summons through Nanette Sison,
FACTS: allegedly the secretary of the legal department of Pepsi Cola.

The petitioners filed a case for damages against Pepsi Cola Bottling Company of RULING:
the Philippines, Inc. and Alberto Alva.
At the time of the issuance and receipt of the summons, Pepsi Cola was already
The case arose out of a vehicular accident involving a Mazda Minibus used as a dissolved. The Court is of the opinion that service is allowed in such a situation.
schoolbus owned and driven by petitioners Crisostomo Rebollido and Fernando In the American case of Crawford v. Refiners Cooperative Association,
Valencia, respectively and a truck trailer with Plate Number NRH-522 owned at Incorporation it was held that a "defendant corporation is subject to suit and
that time by Pepsi Cola and driven by Alberto Alva. (p. 37, Rollo) service of process even though dissolved."

The sheriff of the lower court served the summons addressed to the defendants. The Rules of Court on service of summons upon a private domestic corporation
It was received by one Nanette Sison who represented herself to be the is applicable to a corporation which is no longer a going concern.
authorized person receiving court processes as she was the secretary of the
legal department of Pepsi Cola.
Section 13, Rule 14 mandates:
Pepsi Cola failed to file an answer and was later declared in default. The lower
Service upon private domestic corporation or partnership. - If
court heard the case ex-parte and adjudged the defendants jointly and severally
the defendant is a corporation organized under the laws of the
liable for damages.
Philippines or a partnership duly registered, service may be
made on the president, manager, secretary , cashier, agent or
When the default judgment became final and executory, the petitioners filed a any of its directors.
motion for execution, a copy of which was received no longer by the defendant
Pepsi Cola but by private respondent PEPSICO, Inc. At that time, the private
The case of Castle's Administrator v. Acrogen Coal Co. (supra), is illustrative of
respondent was already occupying the place of business of Pepsi Cola.. Private
the manner by which service can nevertheless be made despite the death of the
respondent, a foreign corporation held offices here for the purpose, among
entity:
others, of settling Pepsi Cola's debts, liabilities and obligations which it assumed
in a written undertaking, preparatory to the expected dissolution of Pepsi Cola.
[W]hen an action that might have been instituted against a
foreign or domestic corporation while it was a going concern is
Realizing that the judgment of the lower court would eventually be executed
instituted after its dissolution, process in the action may be
against it, respondent PEPSICO, Inc., opposed the motion for execution and
served upon the same person upon whom the process could be
moved to vacate the judgment on the ground of lack of jurisdiction. The private
served before the dissolution.
respondent questioned the validity of the service of summons to a mere clerk. It
invoked Section 13, Rule 14 of the Rules of Court on the manner of service upon
a private domestic corporation and Section 14 of the same rule on service upon This Court has ruled that service on a mere employee or clerk of a corporation is
a private foreign corporation. not sufficient. The persons who should receive the summons should be those
named in the statute; otherwise, those who have charge or control of the
operations of the company or who may be relied upon to deliver the papers
The lower court denied the motion of the private respondent.
served upon them.
The fact that the summons was received through Miss Sison is not disputed by
the parties. For which corporation was she actions. After the dissolution and
during the pendency of the case, private respondent PEPSICO held office at the
same address of Pepsi Cola where Miss Sison was working.

Whomsoever Miss Sison was acting for in receiving the summons there is no
question that the notice of the action was promptly delivered either to Pepsi
Cola or PEPSICO with whom she is admittedly connected. We rule that there
was substantial compliance with Section 13, Rule 14 because the purpose of
notice was satisfied..

In view of the above, the valid service of summons upon Pepsi Cola operated as
a sufficient service of summons upon the private respondent.

Go to Rule 14, Section 12 of the Amended Rules!

 4. OPOSA VS FACTORAN, JR. enjoyment of the natural resource treasure that is the country's
224 SCRA 792 virgin tropical forests."
- The same was filed for themselves and others who are equally
Date of Promulgation: July 30, 1993 concerned about the preservation of said resource but are "so
Ponente: Davide, Jr., J. numerous that it is impracticable to bring them all before the
Court."
Keywords: taxpayers’ class suit; intergenerational responsibility; right to
- The minors further asseverate that they "represent their
a balanced and healthful ecology; timber license agreements
generation as well as generations yet unborn."
QuickGuide: Petitioner’s personality to sue in behalf of the succeeding
generations is based on the concept of intergenerational responsibility - It is prayed for that judgment be rendered
insofar as the right to a balanced and healthful environment is ordering defendant, his agents, representatives and other
concerned. persons acting in his behalf to:
(1) Cancel all existing timber license agreements (TLAs) in the
country;
(2) Cease and desist from receiving, accepting, processing,
Facts:
renewing or approving new TLAs.
- The controversy begun as Civil Case No. 90-77 which was filed and
before the RTC of Makati City Branch 66. (3) granting the plaintiffs such other reliefs just and equitable
under the premises.
- The principal petitioners, are all minors duly represented and
joined by their respective parents. Impleaded as an additional - The complaint starts off with the general averments that the
plaintiff is the Philippine Ecological Network, Inc. (PENI), a Philippine archipelago of 7,100 islands has a land area of thirty
domestic, non-stock and non-profit corporation organized for million (30,000,000) hectares and is endowed with rich, lush and
the purpose of, inter alia, engaging in concerted action geared for verdant rainforests in which varied, rare and unique species of
the protection of our environment and natural resources. flora and fauna may be found.

- The original defendant was the Honorable Fulgencio S. Factoran, - These rainforests contain a genetic, biological and chemical pool
Jr., then Secretary of the Department of Environment and Natural which is irreplaceable; they are also the habitat of indigenous
Resources (DENR). His substitution in this petition by the new Philippine cultures which have existed, endured and flourished
Secretary, the Honorable Angel C. Alcala, was subsequently since time immemorial.
ordered upon proper motion by the petitioners.
- Scientific evidence reveals that in order to maintain a balanced
- The complaint was instituted as a taxpayers' class suit and and healthful ecology, the country's land area should be utilized
alleges that the plaintiffs "are all citizens of the Republic of the on the basis of a ratio of fifty-four per cent (54%) for forest cover
Philippines, taxpayers, and entitled to the full benefit, use and and forty-six per cent (46%) for agricultural, residential,
industrial, commercial and other uses.
- The distortion and disturbance of this balance as a consequence o Contend that the complaint clearly and unmistakably
of deforestation have resulted in a host of environmental states a cause of action as it contains sufficient
tragedies. allegations concerning their right to a sound
environment, the right of the people to a balanced and
- Plaintiffs further assert that the adverse and detrimental healthful ecology, the concept of generational genocide
consequences of continued and deforestation are so capable of and the concept of man's inalienable right to self-
unquestionable demonstration that the same may be submitted preservation and self-perpetuation.
as a matter of judicial notice. o Rely on the respondent's correlative obligation per
Section 4 of E.O. No. 192, to safeguard the people's right
- On 22 June 1990, the original defendant, Secretary Factoran, Jr., to a healthful environment.
filed a Motion to Dismiss the complaint based on two (2) o It is further claimed that the issue of the respondent
grounds, namely: (1) the plaintiffs have no cause of action Secretary's alleged grave abuse of discretion in granting
against him and (2) the issue raised by the plaintiffs is a political Timber License Agreements (TLAs) to cover more areas
question which properly pertains to the legislative or executive for logging than what is available involves a judicial
branches of Government. question.
o Non-impairment clause does not apply in this case
- In their 12 July 1990 Opposition to the Motion, the petitioners because TLAs are not contracts.
maintain that (1) the complaint shows a clear and unmistakable o Even if TLAs may be considered protected by the said
cause of action, (2) the motion is dilatory and (3) the action clause, it is well settled that they may still be revoked by
presents a justiciable question as it involves the defendant's the State when the public interest so requires.
abuse of discretion.
- Respondents:
- On 18 July 1991, respondent Judge issued an order granting the o Aver that the petitioners failed to allege in their
aforementioned motion to dismiss. In the said order, not only complaint a specific legal right violated by the
was the defendant's claim — that the complaint states no cause respondent Secretary for which any relief is provided by
of action against him and that it raises a political question — law. They see nothing in the complaint but vague and
sustained, the respondent Judge further ruled that the granting nebulous allegations concerning an "environmental
of the relief prayed for would result in the impairment of right" which supposedly entitles the petitioners to the
contracts which is prohibited by the fundamental law of the land. "protection by the state in its capacity as parens patriae."
Such allegations, according to them, do not reveal a valid
- Plaintiffs thus filed the instant special civil action for certiorari cause of action.
under Rule 65 of the Revised Rules of Court and asked the Court o They then reiterate the theory that the question of
to rescind and set aside the dismissal order on the ground that whether logging should be permitted in the country is a
the respondent Judge gravely abused his discretion in dismissing political question which should be properly addressed to
the action. the executive or legislative branches of Government.
They therefore assert that the petitioners' resources is
- Petitioners:
 not to file an action to court, but to lobby before Congress before the court. The SC likewise declares that the plaintiffs
for the passage of a bill that would ban logging totally. therein are numerous and representative enough to ensure the
o As to the matter of the cancellation of the TLAs, full protection of all concerned interests. Hence, all the requisites
respondents submit that the same cannot be done by the for the filing of a valid class suit under Section 12, Rule 3 of the
State without due process of law. Once issued, a TLA Revised Rules of Court are present both in the said civil case and
remains effective for a certain period of time — usually in the instant petition, the latter being but an incident to the
for twenty-five (25) years. During its effectivity, the same former.
can neither be revised nor cancelled unless the holder
has been found, after due notice and hearing, to have - This case, however, has a special and novel element. Petitioners
violated the terms of the agreement or other forestry minors assert that they represent their generation as well as
laws and regulations. Petitioners' proposition to have all generations yet unborn. The SC finds no difficulty in ruling that
the TLAs indiscriminately cancelled without the requisite they can, for themselves, for others of their generation and for
hearing would be violative of the requirements of due the succeeding generations, file a class suit. Their personality to
process. sue in behalf of the succeeding generations can only be based on
Issue/s: the concept of intergenerational responsibility insofar as the
right to a balanced and healthful ecology is concerned. Such a
- Whether or not the petitioners have a cause of action to prevent right considers the "rhythm and harmony of nature."
the misappropriation or impairment of Philippine rainforests
and arrest the unabated hemorrhage of the country's vital life - Nature means the created world in its entirety. Such rhythm and
support systems and continued rape of Mother Earth. harmony indispensably include, inter alia, the judicious
(YES.) disposition, utilization, management, renewal and conservation
of the country's forest, mineral, land, waters, fisheries, wildlife,
Ruling:
off-shore areas and other natural resources to the end that their
- The instant Petition is granted, and the challenged Order of exploration, development and utilization be equitably accessible
respondent Judge is set aside. The petitioners may therefore to the present as well as future generations. Needless to say,
amend their complaint to implead as defendants the holders or every generation has a responsibility to the next to preserve that
grantees of the questioned timber license agreements. rhythm and harmony for the full enjoyment of a balanced and
healthful ecology.
Ratio:
- The minors' assertion of their right to a sound environment
LOCUS STANDI: constitutes, at the same time, the performance of their obligation
to ensure the protection of that right for the generations to come.
- The said civil case is indeed a class suit. The subject matter of the
complaint is of common and general interest not just to several,
but to all citizens of the Philippines. RIGHT TO A BALANCED AND HEALTHFUL ECOLOGY:

- Consequently, since the parties are so numerous, it, becomes - The complaint focuses on the right to a balanced and healthful
impracticable, if not totally impossible, to bring all of them ecology which, for the first time in our nation's constitutional
 history, is solemnly incorporated in the fundamental law - Without such forests, the ecological or environmental balance
(Section 16, Article II of the 1987 Constitution). would be irreversiby disrupted.

- This right unites with the right to health which is provided for in - Conformably with the enunciated right to a balanced and
the Section 15 of the same article. healthful ecology and the right to health, then President Corazon
C. Aquino promulgated on 10 June 1987 E.O. No. 192, Section 4
- While the right to a balanced and healthful ecology is to be found of which expressly mandates that the Department of
under the Declaration of Principles and State Policies and not Environment and Natural Resources "shall be the primary
under the Bill of Rights, it does not follow that it is less important government agency responsible for the conservation,
than any of the civil and political rights enumerated in the latter. management, development and proper use of the country's
environment and natural resources, specifically forest and
- Such a right belongs to a different category of rights altogether grazing lands, mineral, resources, including those in reservation
for it concerns nothing less than self-preservation and self- and watershed areas, and lands of the public domain, as well as
perpetuation the advancement of which may even be said to the licensing and regulation of all natural resources as may be
predate all governments and constitutions. provided for by law in order to ensure equitable sharing of the
benefits derived therefrom for the welfare of the present and
- As a matter of fact, these basic rights need not even be written in future generations of Filipinos."
the Constitution for they are assumed to exist from the inception
of humankind. - This policy declaration is substantially re-stated it Title XIV, Book
IV of the Administrative Code of 1987. It stresses "the necessity
- If they are now explicitly mentioned in the fundamental charter, of maintaining a sound ecological balance and protecting and
it is because of the well-founded fear of its framers that unless enhancing the quality of the environment." Section 2 of the same
the rights to a balanced and healthful ecology and to health are Title, on the other hand, specifically speaks of the mandate of the
mandated as state policies by the Constitution itself, thereby DENR; however, it makes particular reference to the fact of the
highlighting their continuing importance and imposing upon the agency's being subject to law and higher authority.
state a solemn obligation to preserve the first and protect and
advance the second, the day would not be too far when all else - Both E.O. NO. 192 and the Administrative Code of 1987 have set
would be lost not only for the present generation, but also for the objectives which will serve as the bases for policy
those to come — generations which stand to inherit nothing but formulation, and have defined the powers and functions of the
parched earth incapable of sustaining life. DENR.

- The right to a balanced and healthful ecology carries with it the - On 6 June 1977, P.D. No. 1151 (Philippine Environmental Policy)
correlative duty to refrain from impairing the environment. and P.D. No. 1152 (Philippine Environment Code) were issued.
As its goal, it speaks of the "responsibilities of each generation as
- The said right implies, among many other things, the judicious trustee and guardian of the environment for succeeding
management and conservation of the country's forests. generations." The latter statute, on the other hand, gave flesh to
the said policy.
 - Thus, the right of the petitioners (and all those they represent) to exercise of judicial power or the impenetrable shield that
a balanced and healthful ecology is as clear as the DENR's duty — protects executive and legislative actions from judicial inquiry or
under its mandate and by virtue of its powers and functions review.
under E.O. No. 192 and the Administrative Code of 1987 — to NON-IMPAIRMENT OF CONTRACTS:
protect and advance the said right.
- The last ground invoked by the trial court in dismissing the
- A denial or violation of that right by the other who has the complaint is the non-impairment of contracts clause found in the
correlative duty or obligation to respect or protect the same Constitution.
gives rise to a cause of action.
CAUSE OF ACTION: - The court declared that to cancel all existing timber license
agreements in the country and to cease and desist from
- A cause of action is defined as: receiving, accepting, processing, renewing or approving new
. . . an act or omission of one party in violation of the legal right or timber license agreements amount to impairment of contracts
rights of the other; and its essential elements are legal right of the abhorred by the fundamental law.
plaintiff, correlative obligation of the defendant, and act or
omission of the defendant in violation of said legal right. - The respondent Secretary did not even invoke in his motion to
dismiss the non-impairment clause. If he had done so, he would
- The question submitted to the court for resolution involves the have acted with utmost infidelity to the Government by
sufficiency of the facts alleged in the complaint itself. providing undue and unwarranted benefits and advantages to
the timber license holders because he would have forever bound
- Falsity of the said allegations is beside the point for the truth the Government to strictly respect the said licenses according to
thereof is deemed hypothetically admitted. their terms and conditions regardless of changes in policy and
the demands of public interest and welfare.
- It bears stressing, however, that insofar as the cancellation of the
TLAs is concerned, there is the need to implead, as party - Section 20 of the Forestry Reform Code (P.D. No. 705) which
defendants, the grantees thereof for they are indispensable provides:
parties. . . . Provided, That when the national interest so requires, the
POLITICAL QUESTION: President may amend, modify, replace or rescind any contract,
concession, permit, licenses or any other form of privilege
- The foregoing considered, Civil Case No. 90-777 be said to raise a granted herein . . .
political question. Policy formulation or determination by the
executive or legislative branches of Government is not squarely - Tan vs. Director of Forestry: . . . A timber license is an instrument
put in issue. What is principally involved is the enforcement of a by which the State regulates the utilization and disposition of
right vis-a-vis policies already formulated and expressed in forest resources to the end that public welfare is promoted. A
legislation. timber license is not a contract within the purview of the due
process clause; it is only a license or privilege, which can be validly
- It must, nonetheless, be emphasized that the political question withdrawn whenever dictated by public interest or public welfare
doctrine is no longer, the insurmountable obstacle to the as in this case.
- Since timber licenses are not contracts, the non-impairment
clause cannot be invoked.

- Even if it is to be assumed that the same are contracts, the

instant case does not involve a law or even an executive issuance
declaring the cancellation or modification of existing timber
licenses. Hence, the non-impairment clause cannot as yet be
invoked.

- Abe vs. Foster Wheeler Corp.: The freedom of contract, under our
system of government, is not meant to be absolute. The same is
understood to be subject to reasonable legislative regulation
aimed at the promotion of public health, moral, safety and welfare.
In other words, the constitutional guaranty of non-impairment of
obligations of contract is limited by the exercise of the police
power of the State, in the interest of public health, safety, moral
and general welfare.

- In short, the non-impairment clause must yield to the police

power of the state.
 5. Republic of the Philippines including interest and damages, against PNCC in the total amount of
SUPREME COURT ₱24,988,597.44. MCS maintained that notwithstanding the fact that the
Manila construction of the gymnasium had been satisfactorily completed as early as
THIRD DIVISION
1999, PNCC still failed to fully satisfy its obligation to pay the price of the
G.R. No. 165433             February 6, 2007 construction project under the Subcontract Agreement despite several written
demands.
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Petitioner,
vs. For its defense, PNCC alleged that the request for arbitration was premature, as
THE HONORABLE COURT OF APPEALS and MCS CONSTRUCTION and MCS had no cause of action against PNCC since the latter is still in the process of
DEVELOPMENT CORPORATION, Respondents. paying its obligation to MCS. Furthermore, PNCC claimed that although its
payments were made in installments, said payments were made regularly,
DECISION contrary to the claim of MCS that said installment payments were irregular and
took a very long period of time.1awphi1.net
CHICO-NAZARIO, J.:
In a preliminary conference held on 4 December 2002, the parties defined the
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of issues to be resolved in the proceedings before the CIAC Arbitral Tribunal as
Civil Procedure, assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. follows:
76198, dated 19 July 2004, which dismissed Philippine National Construction
Corporation’s (PNCC’s) Petition for Review of the Decision2 of the Construction -1. Was the filing of this case before CIAC premature for lack of cause of action?
Industry Arbitration Commission (CIAC) Arbitral Tribunal awarding herein
respondent MCS Construction and Development Corporation (MCS) the amount 1.1 In the event this case is proven to have been prematurely filed, is
of ₱6,352,791.33, with interest at the rate of 6% per annum from 6 June 1999 Respondent entitled to its claim to be compensated for the alleged bad
up to the date of award and an interest rate of 12% per annum as of the date the reputation suffered? If so, how much?
decision becomes final and executory until fully paid.
1.2 If the filing of the case is not premature, is Claimant entitled to its claim for
A contract for the construction of the Philippine Merchant Marine Academy’s the balance of the contract price, damages and interest? If so, how much?
(PMMA’s) Replication Project located in San Marcelino, Zambales, was entered
2. Who between the parties is entitled to attorney’s fees?
into between the PNCC and PMMA. Included in the scope of works for the
Replication Project was the construction of a gymnasium building. The 3. Who between the parties shall shoulder the cost of arbitration? 3
construction of said gymnasium was subcontracted by PNCC to MCS under a
Subcontract Agreement dated 28 September 1998 for a consideration in the On 10 March 2003, the CIAC Arbitral Tribunal rendered a Decision in favor of
amount of ₱19,483,572.65. MCS, the decretal portion of which reads:

In a Certificate of Acceptance dated 6 April 2000, PNCC certified that MCS had PNCC contends that Article IV of the Subcontract Agreement (Exhibit A) shows
satisfactorily completed the construction of the gymnasium building based on that MCS’ cause of action is premature because the corresponding payments
the plans, drawings, and specifications thereof on March 1999. However, from PMMA had not been received. The pertinent portion of Article IV reads as
despite several demands made by MCS, PNCC failed to pay the balance of the follows:
contract price left after deducting the partial payments made by the latter.
Manner of Payment
Hence, on 6 September 2002, MCS filed with the CIAC Arbitral Tribunal a
Request for Adjudication praying for the award of various sums of money,
4.1. The price referred to in Article 111 above shall be paid by PNCC to Aside from the said unpaid balance, to what other amount or amounts is MCS
Subcontractor in the following manner and subject to receipt by PNCC of entitled arising from PNCC’s breach in bad faith?
corresponding payment/s from PMMA:
xxxx
xxxx
xxx MCS is entitled to interest, attorney’s fees and reimbursement of the costs of
PNCC submitted in evidence a summary of the accounts payable to MCS and the arbitration – which (aside from its claims on the deterioration of the value of the
payments made thereunder as of October 10, 2002 (Exhibit 14). Unfortunately Phil. Peso) were all that MCS prayed for.
for PNCC, the same document also listed down the payments it had received
from PMMA on the "gymnasium building" project – the very same building for xxxx
which MCS has been engaged to construct on behalf of PNCC.
It is the ruling of this arbitral tribunal that, there having been unwarranted and
Exhibit 14 clearly showed that PNCC had received a total of P31,249,223.30 baseless delay in the payment required of the respondent PNCC, the claimant is
from PMMA on the "gymnasium building", with a further balance of entitled to interest at the legal rate of 6% p.a. on the amount of P6,352,791.33
P6,972,043.44 still due from PMMA. Parenthetically, PNCC did not submit in adjudicated in its favor, computed from the date of first extrajudicial demand,
evidence in these proceedings any copy of its contract or contracts with PMMA. which was on June 6, 1999 (Exhibit C). However, when the award herein
Other than Exhibit 14, PNCC did not submit any evidence to show that the becomes executory, the amount thereof will then partake of the nature of a
payments made to it by PMMA had reference to other accounts between PMMA forebearance of credit and will thereupon be entitled therefrom to the interest
and PNCC, or that said payments were inadequate to warrant PNCC’s payment rate of 12% p.a. until fully paid (Eastern Shipping Lines, Inc. vs. Court of
in full of the amounts due MCS. Appeals, 234 SCRA 78, 95-97 [1994]); reiterated in Bangko Sentral ng Pilipinas
vs. Santamaria, G.R. No. 139885, Jan. 13, 2003, page 13).
On the contrary, having already received a total of P31,249,233.30 from PMMA
on the "gymnasium building" project, PNCC saw fit to consider the same In respect of the costs of arbitration, Sec. 5, Article XV of the Rules of Procedure
sufficient to justify payment to MCS of only P9,965,465.98 (as adjusted by this Governing Construction Arbitration states:
arbitral tribunal). Since there still appeared a receivable of P6,972,043.44 from
Decision as to Cost of Arbitration. – In the case of non-monetary claims or where
PMMA, PNCC chose to relegate such receivable to the payment of the balance
the parties agreed that the sharing of fees shall be determined by the
due MCS, in the amount of P6,352,791.33. In other words, PNCC opted to reap
Arbitrator(s), the award shall, in addition to dealing with the merits of the case,
and enjoy its margins from the PMMA contract before satisfying its obligations
fix the cost of arbitration, and/or decide which of the parties shall bear the
to its sub-contractor MCS. This, the arbitral tribunal finds to have been done in
cost(s) or in what proportion the cost(s) shall be borne by each.
bad faith on the part of PNCC.
Rule 142 of the Revised Rules of Court of the Philippines governing the
Noteworthy also is the fact that PNCC did not raise this defense in its answer
imposition of costs likewise provides the following:
nor among the special and affirmative defenses included in said answer. PNCC
merely invoked its "financial difficulties" in trying to justify its belated Section 1. Costs Ordinarily follow the result of suit. Unless otherwise provided in
payments due MCS. these rules, costs shall be allowed to the prevailing party as a matter of course,
but the court shall have power for special reasons, to adjudge that either party
The arbitral tribunal therefore holds that MCS’ cause was not prematurely filed,
shall pay the cost of an action, or that the same shall be divided, as may be
and that its claim for payment of the balance of the contract consideration made
equitable.
in these proceedings was proper.
Since the institution of this arbitration case was necessitated by respondent
PNCC’s refusal to pay claimant MCS the amounts due the latter, this tribunal
holds that respondent PNCC should exclusively bear the costs of arbitration. of Appeals, which was dismissed by the appellate court in a Decision dated 19
PNCC had refused to satisfy MCS’ valid and demandable claims; consequently, July 2004. According to the Court of Appeals:
MCS had been compelled to institute the present proceedings to protect its
interests. Furthermore, PNCC was in gross and evident bad faith in delaying the Petitioner PNCC avers that the claims of respondent MCS are not yet ripe for
payment of MCS’ claim. It is, therefore, only just and equitable that respondent court and/or legal action because petitioner PNCC has yet to violate the rights of
PNCC be ordered to pay the costs of arbitration and to refund to MCS all the respondent MCS, since, before the filing of the complaint, petitioner was already
amounts the latter had advanced in instituting and pursuing these arbitration in the process of paying its obligations to respondent MCS. In fact, petitioner
proceedings. PNCC argues that its last installment payment was made in July 2002 while
respondent MCS’ last written demand was in April 2002.
The same aforementioned circumstances warranting the award of arbitration
costs in favor of the claimant likewise constitute justification for an award of We disagree.
attorney’s fees by way of damages, also in favor of claimant (Art. 2208 [5] and
As alleged in the complaint of respondent MCS, in pursuance to the agreement,
[11]. Considering the years of travail which claimant went through in waiting
the latter made billings for various amounts on different dates. However, aside
and following-up the payment of the contract consideration to which claimant
from making its payments irregularly, petitioner also took a long time to make
was lawfully entitled, eventually culminating in these arbitration proceedings,
the payments, so much so, that even after the lapse of more [than] three years
the arbitral tribunal finds that an amount equivalent to ten per cent (10%) of
from the time the gymnasium project was satisfactorily completed in 1999,
the principal claim plus the interests accruing thereon up to the date of payment
petitioner has not been able to fully settle its obligation without lawful ground.
is just; equitable and reasonable in the premises.
It has been held that a cause of action is defined as an act or omission of one
WHREFORE, arbitral award is hereby rendered in favor of claimant MCS
party in violation of the legal rights of the other which causes the latter injury
Construction and Development Corp. and against respondent Philippine
(Rebollido v. Court of Appeals, 170 SCRA 800 [1989]).
National Construction Corporation, ordering the latter to pay the former the
following amounts: In determining whether or not a cause of action exists the following elements
must be present: (1) a right in favor of the plaintiff by whatever means and
(a) The principal claim of P6,352,791.33, with interest thereon at 6% per annum
under whatever law it arises or is created; (2) an obligation on the part of the
computed from June 6, 1999 provided however that said rate shall be increased
defendant to respect or not violate such right; and (3) an act or omission on the
to 12% per annum effective as of the date that the decision herein becomes final
part of such defendant in violation of the right of the plaintiff or constituting a
and executory, until the aforesaid principal amount is paid in full;
breach of the obligation of the defendant to the plaintiff for which the latter may
(b) Attorney’s fees equivalent to ten per cent (10%) of such principal claim and maintain an action for recovery of damages (Relucio v. Lopez, 373 SCRA 578
the interests accruing thereon until all of such principal claim and interests are [2002]).
paid in full; and,
In the instant case, respondent MCS has a right to be paid for its services in
(c) To reimburse the claimant the costs of arbitration paid and/or advanced constructing the gymnasium and petitioner PNCC recognized this right under
thereby. the Subcontractors Agreement. Notwithstanding several written demands made
by the respondent MCS and considering the lapse of a considerable period of
Respondent’s counterclaim is dismissed for lack of basis. 4 time since the project was completed, petitioner PNCC has not complied with its
duty to pay respondent for its services. Petitioner maintains that it was
Asserting that the CIAC Arbitral Tribunal committed error in ruling that the suffering from "financial difficulties" but no evidence was shown to substantiate
claim of MCS is not premature, PNCC filed a Petition for Review before the Court the same.
Well-settled is that rule that the cause of action does not accrue until the party Contrary to petitioner’s argument that the body of the decision of the arbitral
obligated refuses, expressly or impliedly, to comply with his duty (Summit tribunal failed to state legal and factual bases for the award of attorney’s fees,
Guaranty and Insurance Company, Inc. v. De Guzman, 151 SCRA 389 [1987]). the decision stated the following basis to justify the award of attorney’s fees:

Note should be taken on the arbitral tribunal’s finding of the existence of a cause "The same aforementioned circumstances warranting the award of arbitration
of action by respondent MCS. Thus: costs in favor of the claimant likewise constitute justification for an award of
attorney’s fees by way of damages, also in favor of claimant (Art. 2208 [5] and
"Unfortunately for PNCC, the same document also listed down the payments it [11], Civil Code)." (Rollo, p. 126)
had received from PMMA on the "gymnasium building" project – the very same
building for which MCS has been engaged to construct on behalf of PNCC. In administrative or quasi-judicial bodies like the CIAC, a fact may be
established if supported by substantial evidence or that amount of relevant
xxx evidence which a reasonable mind might accept as adequate to justify a
conclusion (MegaWorld Globus Asia, Inc. v. DSM Construction and Development
Exhibit 14 clearly showed that PNCC had received a total of P31,249,223.30
Corporation, et al., G.R. No. 153310, March 2, 2004).
from PMMA on the "gymnasium building", with a further balance of
P6,972,043.44 still due from PMMA. xxx Other than Exhibit 14, PNCC did not xxxx
submit any evidence to show that the payments made to it by PMMA had
reference to other accounts between PMMA and PNCC, or that said payments We are convinced that the CIAC Arbitral Tribunal considered the evidence at
were inadequate to warrant PNCC’s payment in full of the amounts due MCS." hand and the records clearly show that its decision is amply supported by
(Rollo, p. 124) substantial evidence; thus, we find no reason to disturb the same.

Also, it has been held that where a contract is to be performed periodically, as WHEREFORE, premises considered, the petition is DISMISSED. The Decision
by installments, each failure to pay an installment constitutes a cause of action dated March 10, 2003 of the CIAC Arbitral Tribunal is AFFIRMED. The motion
and can be subject of a separate suit as the installment falls due, or can be for reconsideration assailing the October 1, 2003 Resolution of this Court is
included in the pending or supplemental pleading (Larena v. Villanueva, 53 Phil. likewise DENIED.5
923 [1928]).
Aggrieved by the aforequoted Decision, PNCC filed the instant petition raising as
xxxx issues the alleged prematurity of respondent’s action and the impropriety of the
award of attorney’s fees and arbitration fees.
The arbitral tribunal ruled that petitioner PNCC was guilty of gross and evident
bad faith in delaying payment of respondent’s claims, and as such, it was only While petitioner does not dispute the fact that MCS has remaining receivables
just and equitable that petitioner PNCC should bear the costs of arbitration. from PNCC under the Subcontract Agreement, PNCC insists that such obligation
of petitioner to pay respondent the remaining balance of the contract price is
In the instant case, the arbitral tribunal found that because petitioner PNCC had not yet ripe for court or legal action as no cause of action exists, since PNCC has
unjustifiably refused to satisfy MCS’ valid and demandable claims, not yet violated the rights of respondent. PNCC maintains that before the filing
notwithstanding the presence of sufficient funds at its disposal, respondent MCS of the complaint for arbitration, petitioner was in the process of paying its
was compelled to institute the present action in order to protect its interests. obligations with claimant, thus the complaint for arbitration filed by MCS was
xxx premature.

xxxx In its Memorandum, petitioner rationalizes its position that the Request for
Adjudication made by MCS before the CIAC Arbitral Tribunal is premature in
view of the fact that PNCC’s last installment payment to MCS was in July 2002,
after the latter’s last demand for payment in April 2002. Petitioner further the completion of the construction project, PNCC still failed to settle its
highlights its efforts to fulfill its obligations to MCS by stressing the fact that it obligation in full, leaving an unpaid balance of ₱6,352,791.33 as of the time of
had paid MCS a substantial amount under the Subcontract Agreement, inasmuch filing of the instant case.
as out of the contract price of ₱19,483,572.65, only the balance of ₱6,352,791.33
remains unpaid. PNCC argues that it has never refused, expressly nor impliedly, PNCC justifies its failure to completely settle its obligation to MCS by citing its
to comply with its responsibility under the Subcontract Agreement, thus, MCS "financial difficulties." However, apart from failing to present any competent
lacks a cause of action as against petitioner. evidence to substantiate its claim of financial difficulties, it has been found by
the CIAC Arbitral Tribunal that PNCC has already received a total of
Petitioner’s contention is without merit. ₱31,249,233.30 from PMMA on the "gymnasium building" project. Nonetheless,
PNCC only saw it fit to pay MCS ₱9,965,465.98. Evidently, PNCC lacks any
It is unmistakable that PNCC’s obligation to MCS has not been discharged by the reasonable defense for its continued neglect of its obligations to MCS.
amount it has already paid, no matter how substantial it may be. Nevertheless,
PNCC seems to insist that said obligation may not be a subject of a court action This conduct demonstrated by PNCC in refusing to expeditiously settle its
as MCS is yet to attain a cause of action since PNCC still continues to pay part of obligation to MCS, despite the latter’s satisfactory completion of its duties under
its obligation under the Subcontract Agreement. We cannot agree in petitioner’s the Subcontract Agreement, is clearly violative of the Subcontract Agreement.
position as this will imply that PNCC’s obligation to pay may not at all become a Under the pertinent portion of the said contract cited above, PNCC shall pay
proper subject of any court action as long as PNCC continues to tender irregular MCS thru semi-monthly progress billings upon PNCC’s receipt of corresponding
installment payments, regardless of the amount, even to the prejudice of MCS. payments from PMMA. As found by the CIAC Arbitral Tribunal, based on the
evidence presented by PNCC itself, petitioner has already received from PMMA
A careful perusal of the Subcontract Agreement entered into by the parties will a total of ₱31,249,233.30 for the construction of the gymnasium building. This
reveal the clear manner of payment by which PNCC’s obligation to pay MCS for amount is evidently sufficient to pay the whole subcontract price in the amount
the construction of the PMMA gymnasium is to be made. According to Article IV of only ₱19,483,572.65, and still leave PNCC the amount of ₱11,765,660.65 as
of said Subcontract Agreement: margin/profit from the contract.

Manner of Payment Petitioner’s contention that its failure to fully pay MCS is because it still has a
receivable of ₱6,972,043.44 from PMMA is untenable. Notwithstanding this fact
4.2. The price referred to in Article 111 above shall be paid by PNCC to
that PNCC still has a receivable in an amount sufficient to fulfill its remaining
Subcontractor in the following manner and subject to receipt by PNCC of
obligation to MCS, it is not adequate a reason to justify the irregular installment
corresponding payment/s from PMMA:
payments PNCC has been making to MCS in light of the CIAC Arbitral Tribunal’s
xxxx finding that PNCC had already received more than a substantial amount from
PMMA to satisfy the whole of its obligation to MCS. As deduced by the CIAC
b. thru semi-monthly progress billings computed based on accomplishment as Arbitral Tribunal, this act of PNCC in opting to reap and enjoy its margins from
approved/accepted by PNCC/Owner and the agreed unit prices;6 the PMMA contract before satisfying its obligations to its Subcontractor MCS is
an illustration of bad faith on the part of PNCC.
From the facts of the case, it is undisputed that the gymnasium building project
subject of the Subcontract Agreement had been satisfactorily completed by MCS Having said all these, it is now apparent that MCS has a cause of action as
as early as March 1999 and correspondingly acknowledged by PNCC in a against PNCC for the full satisfaction of the remaining balance of the contract
Certificate of Acceptance dated 6 April 2000. It is also admitted by both parties price. As stated in the case of Navoa v. Court of Appeals: 7
that in accordance with the provisions of the Subcontract Agreement, MCS had
sent PNCC, on several dates, billings for various amounts which petitioner paid A cause of action is the fact or combination of facts which affords a party a right
on installment basis. However, despite the lapse of more than three years from to judicial interference in his behalf. The requisites for a cause of action are: (a)
a right in favor of the plaintiff by whatever means and under whatever law it While it is true that under the aforementioned provision of law, attorney’s fees
arises or is created, (b) an obligation on the part of the defendant to respect and is not an arbitrable issue, yet, the same also provides that it may be the subject
not to violate such right; and, (c) an act or omission on the part of the defendant of arbitration if the parties agree to submit the same for arbitration. In the case
constituting a violation of the plaintiff’s right or breach of the obligation of the it bar, it must be underscored that under the Terms of Reference agreed to by
defendant to the plaintiff. Briefly stated, it is the reason why the litigation has the parties during the arbitration proceedings, PNCC agreed that one of the
come about, it is the act or omission of defendant resulting in the violation of issues to be determined in the proceedings is who between the parties is
someone’s rights.8 entitled to attorney’s fees. Clearly, petitioner has acquiesced to the submission
of the issue of attorney’s fees to arbitration. What's more, in petitioner’s very
In continuing to delay the full satisfaction of its obligation under the own Answer submitted before the CIAC Arbitral Tribunal, petitioner asked for
Subcontract Agreement despite satisfactory completion by MCS of the attorney’s fees as part of its own compulsory counterclaim. This act of petitioner
gymnasium project almost three years earlier and adequate payment by PMMA, clearly negates its further assertion that it never agreed to submit the issue of
PNCC has clearly breached the provisions of the Subcontract Agreement, attorney’s fees for arbitration.
entitling MCS resort to the courts for protection of its interest.
WHEREFORE, premises considered, the instant petition is hereby DENIED. The
On the issue of the propriety of the award of attorney’s fees and arbitration Decision of the Court of Appeals in CA G.R. SP No. 76198 dated 19 July 2004 is
costs, petitioner maintains that the Decision of the CIAC Arbitral Tribunal failed hereby AFFIRMED. Costs against petitioner.
to state the legal and factual basis for the same. We do not agree. As correctly
stated by the Court of Appeals, the CIAC Arbitral Tribunal Decision amply SO ORDERED.
explained the bases for the awards of attorney’s fees and arbitration cost. As
pointed out by the appellate court, on the basis of its findings that PNCC
exercised gross and evident bad faith in delaying its payment of MCS’ claims and
the law applicable in such cases, the CIAC Arbitral Tribunal adjudged PNCC
liable for attorney’s fees and cost of arbitration. Furthermore, we agree with the
Court of Appeals when it said that that there is no justifiable reason to disturb
the findings of the CIAC Arbitral Tribunal as said quasi-judicial body has
considered the evidence at hand and the records clearly show that its decision is
amply supported by substantial evidence.

Petitioner’s argument that the CIAC Arbitral Tribunal should not have passed
upon the issue of attorney’s fees as said issue is non-arbitrable under Section 2
of Article IV of the Rules Governing Construction Arbitration is rejected. Under
the Section 2, Article IV of the Rules of Procedure Governing Construction
Arbitration:

Section 2. Non-Arbitrable Issues – Pursuant to Section 4 of Executive Order No.

1008, claims for moral damages, exemplary damages, opportunity/business
losses in addition to liquidated damages, and attorney’s fees are not arbitrable
except when the parties acquiesce or mutually agree to submit the same for
arbitration and to abide by the decision of the arbitrator thereon. [Emphasis
ours]
 6. THIRD DIVISION material to the present case.[6] From 1955 to 1975, Respondent John Bordman
Ltd. of Iloilo, Inc. ("John Bordman") purchased bunker oil in drums from Arabay.
[7]
[ G.R. NO. 159831, October 14, 2005 ]  When Arabay ceased its operations in 1975, Pilipinas Shell took over and
directly marketed its products to John Bordman.[8]
PILIPINAS SHELL PETROLEUM CORPORATION, PETITIONER, VS. JOHN
On August 20, 1980, John Bordman filed against Pilipinas Shell a civil case for
BORDMAN LTD. OF ILOILO, INC., RESPONDENT.
specific performance. The former demanded the latter's short deliveries of fuel
oil since 1955; as well as the payment of exemplary damages, attorney's fees
DECISION
and costs of suit.[9] John Bordman alleged that Pilipinas Shell and Arabay had
billed it at 210 liters per drum, while other oil companies operating in Bacolod
PANGANIBAN, J.: had billed their customers at 200 liters per drum. On July 24, 1974, when
Deeply imbedded in our jurisprudence is the doctrine that the factual findings of representatives from John Bordman and Arabay conducted a volumetric test to
the Court of Appeals (CA) affirming those of the trial court are, subject to some determine the quantity of fuel oil actually delivered, the drum used could only
exceptions, binding upon this Court. Otherwise stated, only questions of law, not fill up to 190 liters, instead of 210 liters, or a short delivery rate of 9.5%. [10] After
of facts, may be raised before this Court in petitions for review under Rule 45 of this volumetric test, Arabay reduced its billing rate to 200 (instead of 210) liters
the Rules of Court. Nonetheless, in the interest of substantial justice, the Court per drum, except for 4 deliveries between August 1 and September 9, 1974,
delved into both the factual and the legal issues raised in the present case and when the billing was at 190 liters per drum. [11]
found no reason to overturn the CA's main Decision. Furthermore, under the
peculiar factual circumstances of the instant appeal, this Court holds that the On January 23, 1975, another volumetric test allegedly showed that the drum
period for reckoning the prescription of the present cause of action began only could contain only 187.5 liters.[12] On February 1, 1975, John Bordman
when respondent discovered with certainty the short deliveries made by requested from Pilipinas Shell that 640,000 liters of fuel oil, representing the
petitioner. latter's alleged deficient deliveries, be credited to the former's account. [13] The
volume demanded was adjusted to 780,000 liters, upon a realization that the
The Case billing rate of 210 liters per drum had been effective since 1966.

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing On October 24, 1977 and November 9, 1977, representatives from John
the August 20, 2002 Decision[2] and August 29, 2003 Resolution[3] of the Court of Bordman, the auditor of the Iloilo City Commission on Audit, pump boat
Appeals (CA) in CA-GR CV No. 46974. The challenged Decision disposed as carriers, and truck drivers conducted actual measurements of fuel loaded on
follows: tanker trucks as transferred to dented drums at mouth full. They found that the
drums could contain 180 liters only.[14] In its Complaint, John Bordman prayed
for the appointment of commissioners to ascertain the volume of short
"WHEREFORE, premises considered, the assailed decision dated August 30,
deliveries.[15]
1991 of the RTC, Branch 26, Manila in Civil Case No. 13419 is
hereby AFFIRMED with the MODIFICATION that the award of exemplary
On October 21, 1980, Pilipinas Shell and Arabay filed their Answer with
damages and attorney's fees be both reduced to P100,000.00.
Counterclaim.[16] They specifically denied that fuel oil deliveries had been less
than those billed.[17] Moreover, the drums used in the volumetric tests were
"The order dated December 9, 1991 is likewise AFFIRMED."[4]
allegedly not representative of the ones used in the actual deliveries. [18]
The assailed Resolution denied reconsideration.
By way of affirmative defense, Pilipinas Shell and Arabay countered that John
The Facts Bordman had no cause of action against them.[19] If any existed, it had been
waived or extinguished; or otherwise barred by prescription, laches, and
Petitioner Pilipinas Shell Petroleum Corporation ("Pilipinas Shell") is a estoppel.[20]
corporation engaged in the business of refining and processing petroleum
products.[5] The invoicing of the products was made by Pilipinas Shell, but During the pretrial, the parties agreed to limit the issues to the following: (1)
delivery was effected through Arabay, Inc., its sole distributor at the time
whether the action had prescribed, and (2) whether there had been short
deliveries in the quantities of fuel oil.[21] John Bordman's Motion for Trial by Petitioner states the issues in this wise:
Commissioner was granted by the RTC,[22] and the court-appointed
commissioner submitted her Report on April 20, 1988. [23] "I.

On April 3, 1989, Pilipinas Shell and Arabay filed a Motion for Resolution of Respondent's allegation that the Petition must be summarily dismissed for
their affirmative defense of prescription.[24] Because prescription had not been containing a false, defective and unauthorized verification and certification
established with certainty, the RTC ordered them on November 6, 1989, to against forum shopping is patently unmeritorious, as the requisites for a valid
present evidence in support of their defense.[25] verification and certification against forum shopping have been complied with.

On August 30, 1991, the RTC issued a Decision in favor of respondent. "II.

[26]
 Pilipinas Shell and Arabay were required to deliver to John Bordman
916,487.62 liters of bunker fuel oil, to pay actual damages of The Decisions of the court a quo and of the Honorable Court of Appeals were
P1,000,000; exemplary damages of P500,000; attorney's fees of P500,000; and clearly issued with grave abuse of discretion, based as they are on an
the costs of suit.[27] The basis of the trial court's decision was predicated on the unmistakable misappreciation of facts clearly appearing in the records of the
following pronouncement: case.

"Since [respondent] had fully paid their contract price at 210 liters per drum, A.
then the [petitioner] should deliver to the [respondent] the undelivered volume
of fuel oil from 1955 to 1974, which is 20 liters per drum; and 10 liters per The Honorable Court of Appeals erred giving full faith and credence to the
drum from 1974 to 1977. Per the invoice receipts submitted, the total volume of testimony of respondent's sole witness, who was neither an "expert witness"
fuel oil which [petitioner] have failed to deliver to [respondent] is 916,487.62 nor one with personal knowledge of the material facts.
liters."[28]
Pilipinas Shell appealed to the CA, alleging that John Bordman had failed to
B.
prove the short deliveries; and that the suit had been barred by estoppel, laches,
and prescription.[29]
The Honorable Court of Appeals erred in ruling that the testimony of
respondent's sole witness was not controverted and that the results of his
Ruling of the Court of Appeals volumetric tests were not disproved by petitioner as the records of the court a
quo indubitably show that petitioner disputed the testimony of said witness in
Upholding the trial court, the CA overruled petitioner's objections to the every material respect.
evidence of respondent in relation to the testimonies of the latter's witnesses
and the results of the volumetric tests.[30] The CA noted that deliveries from
C.
1955 to 1977 had been admitted by petitioner; and the fact of deficiency,
established by respondent.[31]
The court a quo and the Honorable Court of Appeals erred when it failed to hold
that the results of the volumetric tests conducted by respondent's sole witness
The appellate court also debunked petitioner's claims of estoppel and laches. It
are not worthy of full faith and credence, considering that drums subjected to
held that the stipulation in the product invoices stating that respondent had
said tests in 1974 and 1975 were not the same with, or otherwise similar
received the products in good order was not controlling.[32] On the issue of
to those used by petitioner in the deliveries made to respondent since 1955.
prescription, the CA ruled that the action had been filed within the period
required by law.[33]
D.
[34]
Hence, this Petition.
The Honorable Court of Appeals erred in holding that petitioner's unilateral
reduction of billing rates constitutes an implied admission of the fact of short
The Issues
deliveries. The reduction was made for no other purpose than as a business
accommodation of a valued client.
"III. Second Issue:
Appreciation of Facts
The court a quo, as well as the Honorable Court of Appeals, gravely erred in not
ruling that respondent's claims of alleged short deliveries for the period 1955 to As a general rule, questions of fact may not be raised in a petition for review.
[41]
1976 were already barred by prescription.  The factual findings of the trial court, especially when affirmed by the
appellate court, are binding and conclusive on the Supreme Court.
[42]
"IV.  Nevertheless, this rule has certain exceptions, [43] which petitioner asserts are
present in this case.[44] The Court reviewed the evidence presented and revisited
The Honorable Court of Appeals and the court a quo erred in not ruling that the applicable pertinent rules. Being intertwined, the issues raised by petitioner
respondent's claims are barred by estoppel and laches considering that relating to the evidence will be discussed together.
respondent failed to assert its claim for about twenty-five (25) years.
Objection to Respondent's Witness
"V.
Petitioner claims that the trial court erred in giving credence to the testimony of
The Honorable Court of Appeals erred in awarding to respondent compensatory respondent's witness, Engineer Jose A. Macarubbo. The testimony had allegedly
damages, exemplary damages, attorney's fees and cost of suit, when petitioner consisted of his personal opinion. Under the Rules of Evidence, the opinion of a
has not otherwise acted in a wanton, fraudulent, reckless, oppressive or witness is not admissible, unless it is given by an expert. [45] Macarubbo was
malevolent manner."[35] allegedly not an expert witness; neither did he have personal knowledge of
The Court's Ruling material facts.[46]

In the main, the Petition has no merit, except in regard to the CA's grant of We clarify. Macarubbo testified that sometime in May 1974, respondent had
exemplary damages. contacted him to review the reception of fuel at its lime plant. He discovered
that Arabay had been billing respondent at 210 liters per drum, while other oil
companies billed their customers at 200 liters per drum. [47] On July 24, 1974, he
First Issue:
and Jerome Juarez, branch manager of Pilipinas Shell, conducted a volumetric
Validity of Verification and Certification
test to determine the amount of fuel that was actually being delivered to
respondent.[48] On January 25, 1975, the test was again conducted in the
Preliminarily, the Court shall tackle respondent's allegation that petitioner's
presence of Macarubbo, Juarez and Manuel Ravina (Arabay's sales supervisor).
verification and certification against forum shopping had not complied with, [49]
and were in fact made in contravention of, Section 4 of Rule 45 of the Rules of
Court.[36] Respondent alleges that Romeo B. Garcia, vice-president of Pilipinas
From the foregoing facts, it is evident that Macarubbo did not testify as an
Shell, had no authority to execute them.[37]
expert witness. The CA correctly noted that he had testified based on his
personal knowledge and involvement in discovering the short deliveries. [50] His
The records, however, show that petitioner's president conferred upon its vice-
testimony as an ordinary witness was aptly allowed by the appellate court
president the power to institute actions. As certified by the assistant board
under the following rule on admissibility:
secretary, the delegation was authorized by petitioner's board of directors.
[38]
 The power to institute actions necessarily included the power to execute the
verification and certification against forum shopping, as required in a petition "Sec. 36. Testimony generally confined to personal knowledge; hearsay
for review before this Court. excluded. - A witness can testify only to those facts which he knows of his
personal knowledge; that is, which are derived from his own perception, except
In any event, the policy of liberal interpretation of procedural rules compels us as otherwise provided in these rules."[51]
to give due course to the Petition.[39] There appears to be no intention to Challenge to Volumetric Tests
circumvent the need for proper verification and certification, which are
intended to assure the truthfulness and correctness of the allegations in the Petitioner disputes the CA's finding that it had failed to disprove the results of
Petition and to discourage forum shopping.[40] the volumetric tests conducted by respondent. The former claims that it was
able to controvert the latter's evidence.[52]
 Third Issue:
During the July 24, 1974 volumetric test, representatives of both petitioner and Prescription
respondent allegedly agreed to conduct two tests using drums independently
chosen by each.[53] Respondent allegedly chose the worst-dented drum that Action Based on Contract
could fill only up to 190 liters. The second drum, which was chosen by
petitioner, was not tested in the presence of Macarubbo because of heavy rain. Petitioner avers that respondent's action -- a claim for damages as a result of
[54]
 It supposedly filled up to 210 liters, however.[55] over-billing -- has already prescribed. Respondent's claim supposedly
constitutes a quasi-delict, which prescribes in four years. [61]
The issue, therefore, relates not to the submission of evidence, but to its weight
and credibility. While petitioner may have submitted evidence, it failed to We do not agree. It is elementary that a quasi-delict, as a source of an obligation,
disprove the short deliveries. The lower courts obviously gave credence to the occurs only when there is no preexisting contractual relation between the
volumetric tests witnessed by both parties as opposed to those done solely by parties.[62] The action of respondent for specific performance was founded on
petitioner. short deliveries, which had arisen from its Contract of Sale with petitioner, and
from which resulted the former's obligation in the present case. Any action to
Petitioner also challenges the reliability of the volumetric tests on the grounds enforce a breach of that Contract prescribes in ten years. [63]
of failure to simulate the position of the drums during filling[56] and the fact that
those tested were not representative of the ones used from 1955 to 1974. Prescriptive Period Counted from
[57]
 These contentions fail to overturn the short deliveries established by the Accrual of the Cause of Action
respondent.
Petitioner avers that the action of respondent, even if based on a Contract, has
The evidence of petitioner challenging the volumetric tests was wanting. It did nevertheless already prescribed, because more than ten years had lapsed since
not present any as regards the correct position of the drums during loading. 1955 to August 20, 1970 -- the period of short deliveries that the latter seeks to
Notably, its representative had witnessed the two tests showing the short recover.[64] Respondent's request for fuel adjustments on October 24, 1974,
deliveries.[58] He therefore had the opportunity to correct the position of the February 1, 1975, April 3, 1975, and September 22, 1975, were not formal
drums, if indeed they had been incorrectly positioned. Further, there was no demands that would interrupt the prescriptive period, says petitioner.
proof that those used in previous years were all good drums with no defects.
Neither was there evidence that its deliveries from 1955 had been properly The Court shall first address the contention that formal demands were not
measured. alleged in the Complaint. This argument was not raised in the courts a quo; thus,
it cannot be brought before this tribunal.[65] Well settled is the rule that issues
From the foregoing observations, it is apparent that the evidence presented by not argued in the lower courts cannot be raised for the first time on appeal. [66] At
both parties preponderates in favor of respondent. The Court agrees with the any rate, it appears from the records that respondent's letters to petitioner
following observations of the CA: dated October 24, 1974 and February 1, 1975 were formal and written
extrajudicial demands that interrupted the prescriptive period. [67] Nevertheless,
"[Petitioner] posits that its fuel deliveries were properly measured and/or the interruption has no bearing on the prescriptive period, as will be shown
calibrated. To the mind of this Court, regardless of what method or manner the presently.
deliveries were made, whether pre-packed drums, by the dip stick method or
through ex-jetty, the fact remains that [petitioner] failed to overcome the Cause of Action Defined
burden of proving that indeed the drums used during the deliveries contain 210
liters. The [petitioner], to support its claim, adduced no evidence. Moreover, it Actions based upon a written contract should be brought within ten years from
failed to disprove the results of the volumetric tests."[59] the time the right of action accrues.[68] This accrual refers to the cause of action,
Having sustained the finding of short deliveries, the Court finds it no longer which is defined as the act or the omission by which a party violates the right of
necessary to address the contention of petitioner that its subsequent reduction another.[69]
of billings constituted merely a business accommodation. [60]
Jurisprudence is replete with the elements of a cause of action: (1) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is
created; (2) an obligation on the part of the named defendant to respect or not employer made a definite denial of the employee's claim. It was deemed that the
to violate the right; and (3) an act or omission on the part of the defendant issues had not yet been joined prior to the definite denial of the claim, because
violative of the right of the plaintiff or constituting a breach of an obligation to the employee could have still been reinstated.[83]
the latter.[70] It is only when the last element occurs that a cause of action arises.
[71]
Naga Telephone Co. v. Court of Appeals[84] involved the reformation of a
Contract. Among others, the grounds for the action filed by the plaintiff included
Applying the foregoing elements, it can readily be determined that a cause of allegations that the contract was too one-sided in favor of the defendant, and
action in a contract arises upon its breach or violation. [72] Therefore, the period that certain events had made the arrangement inequitable. [85] The Court ruled
of prescription commences, not from the date of the execution of the contract, that the cause of action for a reformation would arise only when the contract
but from the occurrence of the breach. appeared disadvantageous.[86]

The cause of action resulting from a breach of contract is dependent on the facts Cause of Action in
of each particular case. The following cases involving prescription illustrate this the Present Case
statement.
The Court of Appeals noted that, in the case before us, respondent had been
Nabus v. Court of Appeals[73] dealt with an action to rescind a Contract of Sale. negotiating with petitioner since 1974. Accordingly, the CA ruled that the cause
The cause of action arose at the time when the last installment was not paid. of action had arisen only in 1979, after a manifestation of petitioner's denial of
Since the case was filed ten years after that date, the action was deemed to have the claims.[87]
prescribed.[74]
The nature of the product in the present factual milieu is a major factor in
In Elido v. Court of Appeals,[75] the overdraft Agreement stipulated that the determining when the cause of action has accrued. The delivery of fuel oil
obligation was payable on demand. Thus, the breach started only when that requires the buyer's dependence upon the seller for the correctness of the
judicial demand was made. This rule was applied recently to China Banking volume. When fuel is delivered in drums, a buyer readily assumes that the
Corporation v. Court of Appeals,[76] which held that the prescriptive period agreed volume can be, and actually is, contained in those drums.
commenced on the date of the demand, not on the maturity of the certificate of
indebtedness. In that case, the certificate had stipulated that payment should be Buyer dependence is common in many ordinary sale transactions, as when
made upon presentation. gasoline is loaded in the gas tanks of motor vehicles, and when beverage is
purchased in bottles and ice cream in bulk containers. In these cases, the buyers
Banco Filipino Savings & Mortgage Bank v. Court of Appeals[77] involved a rely, to a considerable degree, on the sellers' representation that the agreed
Contract of Loan with real estate mortgages, whereby the creditor could volumes are being delivered. They are no longer expected to make a meticulous
unilaterally increase the interest rate. When the debtor failed to pay the loan, measurement of each and every delivery.
the creditor foreclosed on the mortgage. The Court ruled that the cause of action
for the annulment of the foreclosure sale should be counted from the date the To the mind of this Court, the cause of action in the present case arose on July
debtor discovered the increased interest rate. [78] 24, 1974, when respondent discovered the short deliveries with certainty. Prior
to the discovery, the latter had no indication that it was not getting what it was
In Cole v. Gregorio,[79] the agreement to buy and sell was conditioned upon the paying for. There was yet no issue to speak of; thus, it could not have brought an
conduct of a preliminary survey of the land to verify whether it contained the action against petitioner. It was only after the discovery of the short deliveries
area stated in the Tax Declaration. Both the agreement and the survey were that respondent got into a position to bring an action for specific performance.
made in 1963. The Court ruled that the right of action for specific performance Evidently then, that action was brought within the prescriptive period when it
arose only in 1966, when the plaintiff discovered the completion of the survey. was filed on August 20, 1980.
[80]

Fourth Issue:
Serrano v. Court of Appeals[81]dealt with money claims arising from a Contract of Estoppel
Employment, which would prescribe in three years from the time the cause of
action accrued.[82] The Court noted that the cause of action had arisen when the Petitioner alleges, in addition to prescription, that respondent is estopped from
claiming short deliveries.[88] It is argued that, since the initial deliveries had been hidden defects. Thus, it is not estopped from recovering short deliveries.
made way back in 1955, the latter belatedly asserted its right only in 1980, or
after twenty-five years. Moreover, respondent should allegedly be bound by the Doubts in the interpretation of stipulations in contracts of adhesion should be
Certification in the delivery Receipts and Invoices that state as follows: resolved against the party that prepared them. This principle especially holds
true with regard to waivers, which are not presumed, but which must be clearly
"RECEIVED ABOVE PRODUCT(S) IN GOOD CONDITION. I HAVE INSPECTED THE and convincingly shown.[97]
COMPARTMENTS OF THE BULK LORRY, WHEN FULL AND EMPTY, AND FOUND
THEM IN ORDER."[89] Fourth Issue:
Estoppel by Laches Exemplary Damages and Attorney's Fees

Estoppel by laches is the failure or neglect for an unreasonable length of time to In the last error assigned, petitioner challenges the Order for specific
do that which, by the exercise of due diligence, could or should have been done performance and the awards of exemplary damages and attorney's fees in favor
earlier.[90] Otherwise stated, negligence or omission to assert a right within a of respondent.[98] The directive for the delivery of 916,487.62 liters of bunker oil
reasonable time warrants a presumption that the party has abandoned or will no longer be taken up because, as discussed earlier, this fact is borne out by
declined the right.[91] This principle is based on grounds of public policy, which the evidence.
discourages stale claims for the peace of society.[92]
The CA sustained the award of exemplary damages because of petitioner's
Respondent cannot be held guilty of delay in asserting its right during the time wanton refusal to deliver the shortages of fuel oil after the demand was made.
[99]
it did not yet know of the short deliveries. The facts in the present case show  Similarly, attorney's fees were imposed, because respondent had been
that after the discovery of the short deliveries, it immediately sought to recover compelled to litigate to protect its interests.[100] Both awards, however, were
the undelivered fuel from petitioner.[93] Laches refers, inter alia, to the length of each reduced from P500,000 to P100,000.[101]
time in asserting a claim. The Court, therefore, agrees with the lower courts that
respondent's claim was not lost by laches. Exemplary Damages Not Proper

Alleged Certification Not a Bar Exemplary damages are imposed as a corrective measure [102] when the guilty
party has acted in a wanton, fraudulent, reckless, oppressive, or malevolent
It is not disputed that the alleged Certification stating that respondent received manner.[103] These damages are awarded in accordance with the sound
the fuel oil in good condition is in the nature of a contract of adhesion. [94] The discretion of the court.[104]
statement was in fine print at the lower right of petitioner's invoices. [95] It was
made in the form and language prepared by petitioner. The latter's customers, Petitioner argues that its refusal to deliver the shortages of fuel was premised
including respondent, were required to sign the statement upon every delivery. on good faith.[105] Indeed, records reveal that it had reviewed respondent's
The primary purpose of an invoice, however, is merely to evidence delivery and requests for the delivery of shortages before declining them. [106] It likewise
receipt of the goods stated in it. readily granted respondent's requests to conduct volumetric tests. It simply had
the mistaken belief that it was not liable for any shortages. Unfortunately, the
While the Court has sustained the validity of similar stipulations in other evidence showed the contrary.
contracts, it has also recognized that reliance on them cannot be favored when
the facts and circumstances warrant the contrary. [96] Noting the nature of the Absent any showing of bad faith on the part of petitioner, exemplary damages
product in the present factual milieu, as discussed earlier in the claim of cannot be imposed upon it.
prescription, the dependence of the buyer upon the seller makes the stipulation
inapplicable. Attorney's Fees Allowed

Indeed, it would be too cumbersome and impractical for respondent to measure Petitioner claims that the award of attorney's fees was tied up with the award
the fuel oil in each and every drum delivered. Nonetheless, upon delivery by for exemplary damages.[107] Since those damages were not recoverable, then the
petitioner, the former was obliged to sign the Certification in the invoice. In attorney's fees allegedly had no legal basis.
signing it, respondent could not have waived the right to a legitimate claim for
While attorney's fees are recoverable when exemplary damages are awarded,
the former may also be granted when the court deems it just and equitable.
[108]
 The grant of attorney's fees depends on the circumstances of each case and
lies within the discretion of the court. They may be awarded when a party is
compelled to litigate or to incur expenses to protect its interest by reason of an
unjustified act by the other.[109]

The Court agrees that the award of P100,000 as attorney's fees is very
reasonable;[110] in fact, it is almost symbolic, as it will not totally recompense
respondent for the actual fees spent to prosecute its cause. The case has
dragged on unnecessarily despite petitioner's failure to present countervailing
evidence during the trial. Moreover, respondent was compelled to litigate,
notwithstanding its attempt at an amicable settlement from the time it
discovered the shortages in 1974 until the actual filing of the case in 1980. [111]

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and

Resolution are AFFIRMED with the slight MODIFICATION that the award of
exemplary damages is deleted. Costs against petitioner.

SO ORDERED.
 8. Philippine Daily inquirer vs. Almeda, 550 SCRA 199 Issues

Facts Whether or not a complaint which fails to validly and sufficiently state a cause
of action for libel because:
The Philippine Daily Inquirer, in its August 1, 2000 issue, published an article
with the heading “After Bong, who’s next?” The article narrates the death of a. The participation of each defendant (petitioner) in the writing, editing,
Expedito “Bong” Cadez, a photo correspondent of the PDI in Cagayan. In said printing, and publication of the news articles in question is not
article, the family of the deceased correspondent laments the death of their specifically set out in the complaint.
loved one due to the alleged erroneous diagnosis of Dr. Luz Babaran. Later, in its
September 29, 2000 issue, the PDI published another article with the heading b. The material allegations of the complaint are purely legal conclusions
“DOH orders probe of fotog’s death.” In said article, it was reported that the and opinions of private respondent, and not statements of ultimate
regional Department of Health (DOH) in Tuguegarao City has started facts; and
investigating the death of Expedito Caldez following and order from the DOH’s
c. The complaint is violative of petitioners’ constitutional rights to free
Bureau of Licensing and Regulation. Based on the two PDI column articles, Dr.
press and to free speech.
Babaran filed a complaint for Damages. The articles portrayed her as
incompetent and whose alleged diagnosis caused the death of Expedito Caldez,
and, in causing the articles to be published, petitioners acted in bad faith.
Ruling
Petitioners filed their Answer with counterclaims. Petitioners raised the
following defenses: that the complaint states no cause of action against them; As defined in Section 2, Rules of Court, a cause of action is the act or omission by
that the complaints fails and omits to state the factual premises to support a which a party violates the right of another. In relation to a complaint, it is the
conclusion that there was malice on the part of the petitioners; that the case for formal statement of the operative facts that give rise to a remedial right. The
actionable libel with claims for damages has not been adequately stated in the question of whether the complaint states a cause of action is determined by the
complaint; and, that the complaint fails to establish the basis of petitioners’ averments regarding the acts committed by the defendant. Thus, it must contain
liability. a concise statement of the ultimate and essential facts constituting the plaintiff’s
cause of action. As such, the failure to make a sufficient allegation of a cause of
RTC opined that private respondent’s allegations in her complaint, as well as action in the complaint warrants its dismissal. Its essential elements are as
her documentary evidence, show that there is sufficient cause of action. It added follows:
that the documentary evidence discloses facts which are sufficient to enable the
court to go beyond the disclosures in the complaint. Considering that the facts 1. A right in favor of the plaintiff by whatever means and under whatever
alleged in the complaint which make out the principal cause of action and relief law it arises or is created.
are sufficient, the case should not be dismissed. Petitioners filed a Motion for
Reconsideration but it was denied in the order. 2. An obligation on the part of the named defendant to respect or not to
violate such right; and
Aggrieved, petitioners filed a Petition for Certiorari and Prohibition with the CA.
The CA issued a resolution, dismissing the petition for being insufficient in form 3. Act or omission on the part of such defendant in violation of the right of
and substance and for presenting no justiciable issue needing serious the plaintiff or constituting a breach of the obligation of the defendant
consideration by the court. to the plaintiff for which the latter may maintain an action for recovery
of damages or other appropriate relief.
On the three, the most important is the last element. In determining whether an
initiatory pleading states a cause of action, “the test is as follows: admitting the
truth of the facts alleged, can the court render a valid judgment in accordance
with the prayer?” To be taken into account are only the material allegations in
the complaint, extraneous facts and circumstances or other means aliunde are
not considered. The court may however consider, in addition to the complaint,
the appended annexes or documents, other pleadings of the plaintiff, or
admissions in the records.

This Court finds that petitioners raised the threshold question of whether the
complaint sufficiently alleges a cause of action. Hence, the trial court should’ve
granted petitioners’ motion for a preliminary hearing on the affirmative
defenses raised in the answer based on failure to state a cause of action.
Wherefore, petition is granted.
 9. GOODYEAR PHILIPPINES vs. SY & LEE act or omission committed by the 3rd party defendant
which violates a right of the third party complainant. The
FACTS: 3rd party complaint failed to show that the vehicle in question
belongs to a person other than the 3rd party defendant at the
 The subject case involves a motor vehicle (1984 Isuzu JCR 6-Wheeler)
time the said motor vehicle was sold by the third party
originally owned by Goodyear Philippines,Inc. which it purchased from
defendant to the third party plaintiff. On the contrary, the
Industrial and Transport Equipment, Inc. in 1983.
third party defendant has not denied having sold to the
 It had since been in the service of Goodyear until April 30, 1986 when third party plaintiff the said motor vehicle which had been
it was hijacked. This hijacking was reported to the PNP which issued in its possession as owner from 1986 to 1996. The vehicle
out an alert alarm on the said vehicle as a stolen one. It was later was included by the PNP in its alert status when it was hijacked
recovered in 1986. but when the said motor vehicle was recovered, the third party
defendant (Goodyear) informed PNP about the recovery and
 The vehicle was used by Goodyear until 1996, when it sold it to requested that the alert status as stolen vehicle be lifted.
Anthony Sy on Sept. 12, 1996. Sy, in turn, sold it to Jose L. Lee on
January 29, 1997 but the latter filed an action for rescission of contract
with damages against Sy because he could not register the vehicle in his
If the PNP has not removed the said vehicle from its alert status as stolen
name due to the certificate on from the PNP Regional Traffic
vehicle, then it does not make Goodyear not the owner consequently, not guilty
Management Office in Legazpi City that it was a stolen vehicle and the
of any breach resulting from any flaw in the title over the vehicle. This is
alarm covering the same was not lifted. PNP in Legazpi City, instead
confirmed by the allegation of the 3 rd party plaintiff as answering defendant in
impounded the vehicle and charged Lee criminally.
par. 6 of its Answer with Counterclaim and Affirmative Defenses, quoted:
 Upon being informed by Sy if the denial of the registration of the vehicle “6. Defendant specifically denies the allegations contained in paragraph
in Lee’s nam, Goodyear requested on July 10, 1997 the PNP to lift the 9 of plaintiff’s complaint, the truth of the matter is that defendant helped
stolen vehicle alarm status notwithstanding the fact that Goodyear was plaintiff in removing the impediments in the registration and transfer of
impleaded as third-party defendant in the third-party complaint filed ownership and that defendant had no knowledge of any flaw in the title of
by Sy on January 9, 1998. Goodyear Philippines, Inc.”

PROCEDURE: Under Rules 16, a motion to dismiss may be made on any of the following
grounds:
 TRIAL COURT:

 Goodyear filed a motion to dismiss on March 24, 1998 on the

twin grounds that the third-party complaint failed to state a “g. That the pleading asserting claim states no cause of action.”
cause of action and even if it did such cause of action was
already extinguished. An opposition was interposed by Sy on
April 17, 1998.
 COURT OF APPEALS:
 The RTC resolved to dismiss the third party complaint and
ratiocinated that the complaint does not expressly show any
  The CA granted the appeal and reasoned that the third-party
complaint had stated a cause of action for two reasons. First,
petitioner did not make good its warranty in the Deed of Sale: FALLO: WHEREFORE, the petition is GRANTED and the assailed decision and
to convey the vehicle to Respondent Anthony Sy free from all resolution are REVERSED. The Order of the RTC is REINSTATED.
liens, encumbrances and legal impediments. The reported
hijacking was a legal impediment that prevented its
subsequent sale. Second, respondent Sy had a right to protect
and a warranty to enforce, while petitioner had the
corresponding obligation to honor that warranty.

ISSUE/S:

Whether or not the complaint states a cause of action

RULING:

No. The Court ruled that the third party complaint filed by Sy is inadequate,
because it did not allege any act or omission that petitioner had committed in
violation of his right to the subject vehicle hence, the third element is missing.
As emphasized by the Court, a cause of action, which is an act or omission by
which a party violates the right of another has the following elements: the legal
right of the plaintiff, the correlative obligation of the defendant to respect that
legal right, and an act or omission of the defendant that violates such right.
The complaint capitalized merely on the fact that the vehicle based on the
records of the PNP, considered a stranger to the case- was “a stolen vehicle”. In
addition, the pleading did not contain “sufficient notice of the cause of action”
against the petitioner. The complaint is insufficient on its face and failed to lay
out the connection between the owner’s sale of the vehicle and the impounding
by the PNP. Additionally, the fact that the police did not lift the alert status did
not make the petitioner less of an owner. The Deed of Sale attached to the third
party complaint filed by Sy against Goodyear stated that the latter was the
absolute owner of the vehicle. It is worth noting that no contrary assertion was
made in the complaint hence, the trial court correctly observed that the
complaint failed to show that at the time of its sale to Respondent Sy, the vehicle
belonged to a person other than petitioner. To reiterate, the Third Party
Complaint absolutely failed to state an act or omission of petitioner that had
proximately caused injury or prejudice to Sy.
 10. CHINA BANKING CORPORATION, petitioner, vs. HON. COURT OF R: Prescription is not apparent in the complaint because the maturity date of the
APPEALS and ARMED FORCES AND POLICE SAVINGS & LOAN Home Notes attached thereto is not the time of accrual of P’s action. Accrued
ASSOCIATION, INC. (AFPSLAI), respondents. only on 20 July 1995 when demand to pay was made on P. Since both RTC and
23 June 2005 | Quisumbing, J.
CA found that prescription is not apparent on the face of the complaint, such
FACTS: R AFPSLAI filed a complaint for sum of money against P China Banking factual finding should be binding on SC.
Corporation with RTC QC Br 216.
SC: CA validly dismissed the petition, there being no GAD committed by RTC in
P admitted being the registered owner of the Home Notes, which are denying P’s MtD on ground of prescription.
instruments of indebtedness issued in favor of Fund Centrum Finance, Inc. and
Since a cause of action requires, as essential elements, not only a legal right of
were sold, transferred and assigned to R. P filed MtD alleging that the real party
the plaintiff and a correlative duty of the defendant but also an act or omission
in interest was FCFI (not joined in the complaint) and P was mere trustee of
of the defendant in violation of said legal right, the cause of action does not
FCFI.
accrue until the party obligated refuses, expressly or impliedly, to comply with
RTC: denied MtD and denied MR. its duty.

CA: denied Petition for Certiorari and Prohibition (1) a right in favor of the plaintiff by whatever means and under whatever law it
arises or is created;
SC: dismissed Petition for Certiorari, under Rule 65 for being an improper
remedy (2) an obligation on the part of the named defendant to respect or not to violate
such right; and
P filed another MtD, invoking prescription.
(3) an act or omission on the part of such defendant violative of the right of the
RTC: denied for lack of merit – not apparent in the complaint W/N prescription plaintiff or constituting a breach of the obligation of the defendant to the
had set in; directed P to present its evidence; denied MR – there are conflicting plaintiff.
claims on the issue of W/N issue has prescribed, full-blown trial in order
It is only when the last element occurs that a cause of action arises. Accordingly,
CA: dismissed the Petition for Certiorari under Rule 65 a cause of action on a written contract accrues only when an actual breach or
violation thereof occurs.

R’s cause of action accrued only on 20 July 1995 when its demand for payment
ISSUE: W/N the date of maturity of the instruments is the date of accrual of of the Home Notes was refused by P. It was only at that time, and not before
cause of action that, when the written contract was breached and private respondent could
properly file an action in court.
P: Upon the face of the complaint, prescription has set in. The Home Notes
annexed to the pleading bearing a uniform maturity date of 2 Dec 1983 indicate The cause of action cannot be said to accrue on the uniform maturity date of the
the date of accrual of the cause of aciton. Hence, Rs filing of the complain on 24 Home Notes as petitioner posits because at that point, the third essential
Sept 1996 is way beyond the prescriptive period of 10 years under NCC 1144. element of a cause of action, namely, an act or omission on the part of petitioner
Soriano v. Ubat: Prescriptive period starts from the time when the creditor may violative of the right of private respondent or constituting a breach of the
file an action, not from the time he wishes to do so. obligation of petitioner to private respondent, had not yet occurred.
The subject Home Notes, in fact, specifically states that payment of the principal
and interest due on the notes shall be made only upon presentation for notation
and/or surrender for cancellation of the notes.1

Thus, the maturity date of the Home Notes is not controlling as far as accrual of
cause of action is concerned. What said date indicates is the time when the
obligation matures, when payment on the Notes would commence, subject to
presentation, notation and/or cancellation of those Notes. The date for
computing when prescription of the action for collection begins to set in is
properly a function related to the date of actual demand by the holder of the
Notes for payment by the obligor, herein petitioner bank.

Since the demand was made only on July 20, 1995, while the civil action for
collection of a sum of money was filed on September 24, 1996, within a period
of not more than ten years, such action was not yet barred by prescription.

1
Payment of the principal amount and interest due on this Note shall be made by the
Company at the principal office of the Trustee herein referred to or at such other
office or agency that the Company may designate for the purpose, in such coin or
currency of the Republic of the Philippines as at the time of payment shall be legal
tender for payment of public and private debts, upon presentation for notation and/or
surrender for cancellation of this Note
11. Swagman Hotels and Travel, Inc. v. CA on Feb. 2, 1999, none of the promissory notes was due and demandable, but the
first and the second promissory notes have already matured during the course
G.R. No. 161135 of the proceeding. Hence, payment is already due. Moreover, both parties
agreed on the 6% and there was technically no novation because an implied
April 8, 2005
novation is created only if the old and the new obligation be on every point
Sec. 2, Rule 2 incompatible with one another. The court also ruled that Infante and Hegerty
cannot be held personally liable.
Aira Marie M. Andal
The CA affirmed the RTC’s decision adding that Infante and Hegerty
failed to object to Christian’s representation of evidence that the PN became due
and demandable.
FACTS:
Thus, this petition.

In 1996 and 1997, Swagman Hotels and Travel, Inc. through its
President Atty. Infante and its Vice President Rodney Hegerty, obtained loans ISSUES:
from Neal Christian evidenced by 3 promissory notes with an amount of $50,
000 each, payable after three years from its date, and with an interest of 15% 1. W/N there is a cause of action
per annum payable every 3 months. The PNs are dated (1) August 7, 1996, (2)
2. W/N a cause of action can be cured by subsequent events
March 14, 1997, and (3) July 14, 1997.

On December 16, 1998, Christian wrote to Infante and Hegerty that he is

terminating the loans and asked Swagman to pay the $150,000 and the unpaid HELD/RATIO:
interest of $13, 500. Christian filed with the Baguio RTC a complaint for sum of
money and damages on February 2, 1999. He averred that starting January 1. NO, at the time the complaint was filed, no PN was yet due.
1998, Swagman only paid 6% interest instead of the 15%. Swagman claimed
Cause of action is the act or omission by which a party violates the right of
that: (1) Christian has no cause of action because the loans are not yet due and
another. Its essential elements are as follows:
demandable when Christian filed the complaint, and (2) there actually was a
novation because both parties agreed on changing the interest rate. Petitioner 1. A right in favor of the plaintiff by whatever means and under whatever law it
relayed that after the Asian financial crisis in December 1997, Christian agreed arises or is created;
to waive the 15% interest and accept the loans in installment basis.
2. An obligation on the part of the named defendant to respect or not to violate
The trial court ruled for Christian holding that under Sec. 5 of Rule 10 of such right; and
the 1997 Rules of Civil Procedure, a complaint which states no cause of action
may be cured by evidence presented without objection. Thus, even if the 3. Act or omission on the part of such defendant in violation of the right of the
plaintiff had no cause of action at the time he filed the instant complaint, as plaintiff or constituting a breach of the obligation of the defendant to the
defendants’ obligation are not yet due and demandable then, he may plaintiff for which the latter may maintain an action for recovery of damages or
nevertheless recover on the first two promissory notes in view of the other appropriate relief.
introduction of evidence showing that the obligations covered by the two
promissory notes are now due and demandable. When the instant case was filed
It is only upon the occurrence of the last element that a cause of action arises, cured or remedied by the acquisition or accrual of one while the action is
giving the plaintiff the right to maintain an action in court for recovery of pending, and a supplemental complaint or an amendment setting up such
damages or other appropriate relief. It is undisputed that the three promissory after-accrued cause of action is not permissible.
notes were for the amount of P50,000 each and uniformly provided for (1) a
term of three years; (2) an interest of 15 % per annum, payable quarterly; and Since Swagman did not renege on its obligation to pay the monthly installments
(3) the repayment of the principal loans after three years from their respective conformably with their new agreement and even continued paying during the
dates. Thus, when the complaint for a sum of money and damages was filed with pendency of the case, the private respondent had no cause of action to file the
the trial court on Feb. 2, 1999, no cause of action has as yet existed because complaint. It is only upon petitioner’s default in the payment of the monthly
Swagman had not committed any act in violation of the terms of the three amortizations that a cause of action would arise and give the private respondent
promissory notes as modified by the renegotiation in Dec. 1997. Without a a right to maintain an action against the petitioner.
cause of action, the private respondent had no right to maintain an action in
WHEREFORE, the petition is GRANTED. The Decision of 5 September 2003 of
court, and the trial court should have therefore dismissed his complaint.
the Court of Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of 5
2. NO, a cause of action which has not yet accrued cannot be cured by May 2000 of the Regional Trial Court of Baguio, Branch 59, granting in part
an amended pleading. private respondent’s complaint for sum of money and damages, and its
Resolution of 4 December 2003, which denied petitioner’s motion for
Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil reconsideration are hereby REVERSED and SET ASIDE. The complaint docketed
Procedure in order that the actual merits of a case may be determined in the as Civil Case No. 4282-R is hereby DISMISSED for lack of cause of action.
most expeditious and inexpensive manner without regard to technicalities, and
that all other matters included in the case may be determined in a single On the issue of novation (in case he asks): There was a novation of the terms of
proceeding, thereby avoiding multiplicity of suits. Sec. 5 thereof applies to the three promissory notes in that the interest was waived and the principal
situations wherein evidence not within the issues raised in the pleadings is was payable in monthly installments of US$750. Alterations of the terms and
presented by the parties during the trial, and to conform to such evidence the conditions of the obligation would generally result only in modificatory
pleadings are subsequently amended on motion of a party. Thus, a complaint novation unless such terms and conditions are considered to be the essence of
which fails to state a cause of action may be cured by evidence presented during the obligation itself.The resulting novation in this case was, therefore, of the
the trial. HOWEVER, the curing effect under Sec. 5 is applicable only if a cause of modificatory type, not the extinctive type, since the obligation to pay a sum of
action in fact exists at the time the complaint is filed, but the complaint is money remains in force.
defective for failure to allege the essential facts.

A complaint whose cause of action has not yet accrued cannot be cured or
remedied by an amended or supplemental pleading alleging the existence or
accrual of a cause of action while the case is pending. Such an action is
prematurely brought and is, therefore, a groundless suit, which should be
dismissed by the court upon proper motion seasonably filed by the defendant.
The underlying reason for this rule is that a person should not be summoned
before the public tribunals to answer for complaints which are immature.

It is a rule of law to which there is, perhaps, no exception, either at law or in

equity, that to recover at all there must be some cause of action at the
commencement of the suit. Unless the plaintiff has a valid and subsisting
cause of action at the time his action is commenced, the defect cannot be
 12. Nabus vs CA (Mariano Lim) - Lim on August 8, 1986, filed a motion to dismiss on the ground that the same
was barred by prior judgment or res judicata and that the action had already
193 SCRA 732 prescribed. The lower court ordered the dismissal on the two grounds.

Regalado; February 7, 1991 - The appeal to the CA was denied and the oder to dismiss was sustained. The
CA said:

“It is within the power of the trial court to dismiss the appellant's
NATURE
complaint in Civil Case No. 2159(24) for failure to comply with its order to
Petition for certiorari to review CA decision deposit the repurchase price of the parcel of land in question. And such
dismissal, rightly or wrongly, has the effect of an adjudication upon the
merits, it not having been provided otherwise (Section 3, Rule 17. Revised
Rules of Court). Dismissal on a technicality is no different in effect and
FACTS consequences from a dismissal on the merits under the cited provision of
the Rules (General Offset Press, Inc. vs. Anatalio, 17 SCRA 688, 691). So too
- Albert Nabus, the petitioner/plaintiff, sold a parcel of land covered and
is the order of dismissal, with prejudice, res judicata upon finality under
embrace in OCT No. P-136 (Free Patent No. V48737) to Mariano Lim on June
Section 49, Rule 39, of the Revised Rules of Court, . . .” .
23, 1965 as evidenced by a deed of absolute sale. The total purchase price was
Pesos 258,000.00 which was to be amortized. There was however an unpaid - Hence the petition to the SC.
balance of Pesos 75,000.00

- That on June 8, 1970 (or 4 years, 11 months and 15 days from June 23, 1965);
plaintiff through counsel offered to repurchase the above-described parcel of ISSUE
land, pursuant to Sec. 119 of the Public Land Law (C.A. No. 141, as amended), as
evidenced by a letter of the undersigned counsel to defendant, . . .; and which WON (1) the complaint for rescission and damages is barred by the order of
was confirmed by the plaintiff in his letter to defendant, dated June 12, 1970 dismissal of petitioner's action for reconveyance under the principle of res
judicata; (2) petitioner's action for rescission has prescribed.
- The defendant moved to dismiss the action on the ground that there was no
tender of the repurchase price and of prescription. On February 5, 1980 the trial
court issued an order for Nabus to deposit the repurchase price. As plaintiff
HELD
failed to obey the court order, Lim moved to dismiss the case. While there was a
motion filed for the extension of time within which to file an opposition to the 1. No. The doctrine of res judicata2 will not apply. The cause of action asserted
motion to dismiss, the same was never filed due to the death of the counsel of by petitioner in the former suit was anchored upon his right to repurchase the
Nabus. Hence the case was dismissed with prejudice.
2
The principle of res judicata actually embraces two different concepts: (1) bar by former judgment and (2)
- Nabus filed another civil case for the annulment of the order above on the conclusiveness of judgment. There is "bar by former judgment" when, between the first case where the judgment was
rendered, and the second case where such judgment is invoked, there is identity of parties, subject matter and cause
ground that he was deprived due process and that the denial of his subsequent of action. When the three identities are present, the judgment on the merits rendered in the first constitutes an
motion for reconsideration constituted grave abuse of discretion tantamount to absolute bar to the subsequent action. It is final as to the claim or demand in controversy, including the parties and
those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or
lack of jurisdiction on the part of the trial court. This Complaint was amended to demand, but as to any other admissible matter which might have been offered for that purpose. But where between
allege grounds for rescission and damages as additional causes of action. the first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is identity
of parties, but there is no identity of cause of action, the judgment is conclusive in the second case, only as to those
matters actually and directly controverted and determined, and not as to matters merely involved therein. This is what
is termed conclusiveness of the judgment.
subject lot. The cause of action sought to be enforced in the present action is In the second case, proof of the unpaid installments is the only evidence
predicated upon the failure of private respondent to pay the last three necessary to sustain the action for rescission. It is thus apparent that a different
installments of the purchase price. It is a cause of action which is wholly set of evidence is necessary to sustain and establish the variant causes of action
independent of, and entirely separate and discrete from, the alleged cause of in the two cases.
action asserted by petitioner in the former suit. Since petitioner seeks relief in
the instant case upon a cause of action different from the one asserted by him in In addition, causes of action which are distinct and independent, although
the former suit, the judgment in the former suit is conclusive only as to such arising out of the same contract, transaction, or state of facts, may be sued on
points or questions as were actually in issue or adjudicated therein. And this separately, recovery on one being no bar to subsequent actions on others. 19
brings us to the rule on conclusiveness of judgment. Also, the mere fact that the same relief is sought in the subsequent action will
not render the judgment in the prior action operative as res judicata, 20 such as
In determining whether causes of action are identical so as to warrant where the two actions are brought on different statutes, 21 as in the case at bar.
application of the rule of res judicata, the test most commonly stated is to
ascertain whether the same evidence which is necessary to sustain the second 2. Yes. We, however, find and so hold that in the controversy now before us the
action would have been sufficient to authorize a recovery in the first, even if the action for rescission has prescribed and should consequently be dismissed on
forms or nature of the two actions be different. If the same facts or evidence said ground. There can be no dispute that actions based on written contracts
would sustain both, the two actions are considered the same within the rule that prescribe after ten years from the time the right of the action accrues. 26 It is
the judgment in the former is a bar to the subsequent action; otherwise it is not. elementary that the computation of the period of prescription of any cause of
It has been said that this method is the best and most accurate test as to action, which is the same as saying prescription of the action, should start from
whether a former judgment is a bar in subsequent proceedings between the the date when the cause of action accrues or from the day the right of the
same parties, and it has even been designated as infallible. plaintiff is violated. This is as it should be.

It will be observed that Civil Case No. 2159(24) is based on petitioner's light to A cause of action has three elements, namely: (1) a right in favor of the plaintiff
repurchase the subject property under Section 119 of the Public Land Act, while by whatever means and under whatever law it arises or is created: (2) an
Civil Case No. 4293 involves the rescission of the contract of sale by reason of obligation on the part of the named defendant to respect or not to violate such
the failure of private respondent to pay in full the value of the property, right; and, (3) an act or omission on the part of such defendant violative of the
pursuant to Article 1191 of the Civil Code. The former, in order to prosper, right of the plaintiff or constituting a breach of the obligation of the defendant to
requires proof that the land was granted under a free patent, that the land was the plaintiff. It is only when the last element occurs or takes place that it can be
sold within five years from the grant thereof, and that the action for said in law that a cause of action has arisen. Translated in terms of a
reconveyance was filed within five years from the execution of the deed of sale. hypothetical situation regarding a written contract, no cause of action arises
until there is a breach or violation thereof by either party. 27 Conversely, upon
A case is said to be barred by a former judgment when the following requisites concur: (1) the presence of a final
former judgment; (2) the former judgment was rendered by a court having jurisdiction over the subject matter and the the occurrence of a breach, a cause of action exists and the concomitant right of
parties; (3) the former judgment is a judgment on the merits; and, (4) there is, between the first and the second action may then be enforced.
actions, identity of parties, subject matter, and causes of action.There is no dispute as to the existence of and
compliance with the first two elements of res judicata in the case at bar. In issue are the alleged absence of a
judgment on the merits in the first case and the identity of causes of action in both cases. In the present case, petitioner's position is that the last three installments which
1. Elemental is the rule that in order that a judgment may operate as a bar to a subsequent suit on the same cause of he claims were not paid by private respondent, allegedly fell due on July 1, 1968,
action it must have been based on the merits of the case. And a judgment is on the merits when it determines the
rights and liabilities of the parties based on the disclosed facts, irrespective of formal, technical, or dilatory objections. July 1, 1969, and July 1,1970, respectively. 28 Indulging petitioner in his own
It is not necessary, however, that there should have been a trial. If the judgment is general, and not based on any submissions, therefore, the breach committed by private respondent occurred,
technical defect or objection, and the parties had a full legal opportunity to be heard on their respective claims and
contentions, it is on the merits although there was no actual hearing or arguments on the facts of the case. Such is at the earliest, on July 1, 1968 or, at the latest, on July 1, 1970.
one of the situations contemplated in Section 3, Rule 17 of the Rules of Court, where a complaint is dismissed for
failure of the plaintiff to comply with a lawful order of the court which dismissal, as correctly argued by private Now, even taking the non-payment of the last installment as the basis, an
respondent, has the effect of an adjudication upon the merits.
actionable breach of the contract was already committed on said date, hence, as
of that time there arose and existed a cause of action for petitioner to file a case
for rescission. This remedy could already have been availed of by petitioner for,
as earlier discussed, there has been no legal obstacle thereto. Since the ten-year
period had started to run on July 2, 1970, petitioner should have filed the action
before July 2, 1980 when the prescriptive period expired. Considering that the
amended complaint in Civil Case No. 4293, invoking petitioner's right to rescind
the contract, was filed only on May 3, 1985, the action therefor has obviously
and ineluctably prescribed.

Disposition Petition DENIED.

13. COLE V VDA. DE GREGORIO

The prescriptive period cannot be counted from the date of execution of the
deed of promise to buy and sell where it was stipulated that the balance of the
FACTS: price shall be paid after the results of the land survey. According to the deed of
promise to buy and sell, the balance of P5,000 of the purchase price of subject
In August 1963, parents of plaintiffs (William Cole Sr. and Angelina Cole)
property was to be “paid in full after the preliminary survey of the land by a
entered into an agreement to buy and sell a parcel of land with spouses Angel
private surveyor, for the purpose of verifying whether or not said parcel of land
Gregorio and Potenciana Casuga. Said lot was priced at P6,000 but P1,000 was
contains the same area as declared in the Tax declaration. Because of this
paid in advance by Cole and the balance of P5,000 was to be paid in full after the
stipulation, it cannot be said that the prescriptive period of the petitioner’s
preliminary survey of the land by a private surveyor for the purpose of
action begins on the date of they entered into the agreement.
ascertaining the exact size of the lot.

In the same month, Salanga, a land surveyor, was hired. He conducted a survey
of the land on September 24 and October 7, 1963 and submitted his survey
plans to the Bureau of Lands on June 22, 1964. Salanga left for the US. He
received the approval only on June 29, 1965.

Cole Sr. wrote two demand letters to Salanga to speed up the process (October
20, 1964 and April 1, 1965). Plaintiffs Cole found out that their parents had an
unpaid balance on the subject property; they tried to pay off the balance but
discovered that the property was transferred to Gregorio’s daughter, Josefina
Hufano. When Cole discovered that the lot only contained an area of 23,408
square meters instead of 32,976 as stated in the Tax Declaration, Cole rescinded
the contract and Gregorio returned the P1,000 advanced payments. Cole never
took possession of the land nor registered it under their names.

ISSUE: Whether or not the rescission is valid

RULING:

NO. In the instant case, the Agreement to Buy and Sell constitutes a conditional
obligation (Art. 1181) since it clearly stipulates that the balance will be paid
AFTER a surveyor has ascertained the exact size of the subject property. The
accomplishment, then, of said survey gives rise to the acquisition of rights by
the contracting party (Cole) and the acquisition of said rights depends upon the
results of the survey. (SUSPENSIVE OBLIGATION)

If the contract was really rescinded and the P1,000 returned to Cole a few days
after the surveyor was hired, William Cole would not have written demand
letters to Salanga to finish the survey. Furthermore, no receipt was presented
by Potenciana proving their allegations.
14. Dolores Macaslang vs Renato and Melba Zamora 1. Initial possession by defendant was by contract or tolerance

Gr 156375 2. Eventually possession became illegal upon notice regarding

termination
Facts:
3. Defendant still remained in possession and deprived plaintiff of its
Zamora filed an unlawful detainer with MTCC alleging among others: enjoyment

a. Macaslang sold to them a residential lot in Sabang, Davao City including 4. Complaint was instituted within one year from last demand to vacate.
a residential house, where Macaslang was then living.
The TEST for sufficiency of complaint is “whether or not the court can render a
b. After the sale, Macaslang requested to be allowed to live in the house. valid judgment based on facts alleged in complaint.
Zamora granted the request on the reliance of Macaslang’s promise to
vacate as soon as she would be able to find a new residence. According to the Supreme Court, complaint sufficiently stated a COA. The
complaint complied with 1-4. But fail to state and lack of COA are different.
c. After 1year, Zamora’s demanded upon the defendant to vacate but she
failed and refused. Ejectment was not proper due to defense of ownership. Zamora’s COA is based
on the right to possess resulting from ownership but exhibits show that the real
d. Zamora sought the help of the Lupon, but no settlement was reached as transaction is one of equitable mortgage not sale. The land was sold for 100k,
shown by certification to file. when the demand letter was for a sum of 1.6M and the price is inadequate. Then
the vendor remained in possession of the property. Deed of sale was
Despite the due service of summons, Macaslang did not file an answer. Hence
executed as a result or by reason of loan.
MTCC declared her in default. The MTCC ordered Macaslang to vacate, pay the
Attorney’s fee and rental until they shall have vacated the properties in In this case, the MTCC committed a procedural lapses.
question.
MTC granted Motion to Declare Macaslang in default for failure to file an
Macaslang appealed to the RTC alleging that there is extrinsic fraud. The RTC answer.
ruled in favor of Macaslang and dismissed Zamora’s complaint for failure to
state a COA. The CA reversed the decision of RTC for having no basis in fact and a. What MTC should have done was provided for in Rule 70: to simply
law. MTCC decision reinstated. render judgment as maybe warranted by the facts alleged in the
complaint and limited to what is prayed for therein.

b. Failure to file an answer under Rule 70, result only to a judgment by

Issues: default not a declaration of default.

Whether or not in an action for unlawful detainer, where there was no prior c. This motion is expressly prohibited under Rule70
demand to vacate and comply with the condition of the lease, a valid COA exixts.
MTC’s reception of oral testimony is also a procedural lapse. Rule 70 envisions
Whether or not there was a violation of the Rules on Summary Procedure. the submission only of affidavits of the witnesses and other proofs of the factual
issues defined in the order issued within five days from the termination of the
Held:
preliminary conference; and has permitted the trial court, should it find the
A complaint has sufficient COA for unlawful detainer of it states the following: need to clarify material facts, to thereafter issue an order during the 30-day
period from submission of the affidavits and other proofs specifying the matters
to be clarified, and requiring the parties to submit affidavits or other evidence
upon such matters within ten days from receipt of the order.

The procedural lapses committed in this case are beyond comprehension. The
MTCC judge could not have been unfamiliar with the prevailing procedure,
considering that the revised version of Rule 70, although taking effect only on
July 1, 1997, was derived from the 1991 Revised Rule on Summary Procedure,
in effect since November 15, 1991. It was not likely, therefore, that the MTCC
judge committed the lapses out of his unfamiliarity with the relevant rule.

It is timely, therefore, to remind all MTC judges to display full and enthusiastic
compliance with all the rules of procedure, especially those intended for
expediting proceedings.
Test of the sufficiency of a cause of action abuse of discretion on the part of Judge Olalia in the issuance of the two
aforesaid orders.
15. MISAMIS OCCIDENTAL II COOPERATIVE, INC. vs DAVID G.R. No.
129928, August 25, 2005 Court of Appeals dismissed MOELCI II’s petition holding that the
allegations in David’s complaint constitute a cause of action. With regard
Facts: Private respondent David, a supplier of electrical hardware, filed a to MOELCI II’s contention that David’s Amended Complaint is
case for specific performance and damages against MOELCI II, a rural dismissible as the document, attached thereto as Annex "A," upon which
electric cooperative in Misamis Occidental. The said case, which was David’s claim is based is not a contract of sale but rather a quotation
essentially a collection suit, pending before Judge Felixberto Olalia letter, the Court of Appeals ruled that the interpretation of the document
(hereinafter, Judge Olalia) of the RTC Manila, was predicated on a requires evidence aliunde which is not allowed in determining whether
document and that according to David is the contract pursuant to which or not the complaint states a cause of action.
he sold to MOELCI II one (1) unit of 10 MVA Transformer.
The appellate court further declared that when the trial court is
MOELCI II filed its Answer to Amended Complaint which pleaded, among confronted with a motion to dismiss on the ground of lack of cause of
others, affirmative defenses which also constitute grounds for dismissal action, it is mandated to confine its examination for the resolution
of the complaint. These grounds were lack of cause of action, there being thereof to the allegations of the complaint and is specifically enjoined
allegedly no enforceable contract between David and MOELCI II under from receiving evidence for that purpose. With the denial of its Motion
the Statute of Frauds pursuant to Section 1 (g) and (i), Rule 16 of the for Reconsideration, petitioner is now before this Court seeking a review
Rules of Court, and improper venue. MOELCI II filed with the trial court a of the appellate court’s pronouncements.
Motion (For Preliminary Hearing of Affirmative Defenses and Deferment
of PreTrial Conference) (hereinafter referred to as Motion) arguing that MOELCI II asserts that the Court of Appeals committed serious error in:
the document attached as Annex "A" to the Amended Complaint was (1) ruling that the resolution of its motion to dismiss on the ground of
only a quotation letter and not a contract as alleged by David. Thus, it lack of cause of action necessitated hearings by the trial court with the
contends that David’s Amended Complaint is dismissible for failure to end in view of determining whether or not the document attached as
state a cause of action. David contended in the main that because a Annex "A" to the Amended Complaint is a contract as alleged in the body
motion to dismiss on the ground of failure to state a cause of action is of said pleading; and (2) not ordering the trial court to dismiss the
required to be based only on the allegations of the complaint, the Amended Complaint on the ground of lack of cause of action. Anent the
"quotation etter," being merely an attachment to the complaint and not first ground, MOELCI II further claims that with the denial of its Petition,
part of its allegations, cannot be inquired into. MOELCI II filed a the appellate court in effect exhorted the trial court to defer the
rejoinder to the opposition in which it asserted that a complaint cannot resolution of its motion to dismiss until after the hearing of the case on
be separated from its annexes; hence, the trial court in resolving a the merits contrary to Rule 16 of the Rules of Court and well settled
motion to dismiss on the ground of failure to state a cause of action must jurisprudence.
consider the complaint’s annexes. Judge Olalia issued an order denying
MOELCI II’s motion for preliminary hearing of affirmative defenses. Issue: Whether or not the Court of Appeals erred in dismissing the
MOELCI II’s motion for reconsideration of the said order was likewise petition for certiorari and in holding that the trial court did not commit
denied in another order. MOELCI II elevated this incident to the Court of grave abuse of discretion in denying petitioner’s Motion.
Appeals by way of a special civil action for certiorari, alleging grave
Held: No. To determine the existence of a cause of action, only the
statements in the complaint may be properly considered. It is error for
the court to take cognizance of external facts or hold preliminary
hearings to determine their existence. If the allegations in a complaint
furnish sufficient basis by which the complaint can be maintained, the
same should not be dismissed regardless of the defenses that may be
averred by the defendants. The test of sufficiency of facts alleged in the
complaint as constituting a cause of action is whether or not admitting
the facts alleged, the court could render a valid verdict in accordance
with the prayer of said complaint. It has been hypothetically admitted
that the parties had entered into a contract sale David bound himself to
supply MOELCI II (1) unit 10 MVA Power transformer with accessories
for a total price of P5,200,000.00 plus 69 KV Line Accessories for a total
price of P2,169,500.00; that despite written and verbal demands,
MOELCI II has failed to pay the price thereof plus the custom duties and
incidental expenses of P272,722.27; and that apart from the previously
stated contract of sale, David regularly delivered various electrical
hardware to MOELCI II which, despite demands, has an outstanding
balance of P281,939.76. The court believed all the foregoing sufficiently
lay out a cause of action. Even extending our scrutiny to Annex "A,"
which is after all deemed a part of the Amended Complaint, will not
result to a change in our conclusion. The interpretation of a document
requires introduction of evidence which is precisely disallowed in
determining whether or not a complaint states a cause of action. The
Court of Appeals therefore correctly dismissed MOELCI II’s petition and
upheld the trial court’s ruling.