Homework Help

https://www.homeworkping.com/

Research Paper help

https://www.homeworkping.com/

Online Tutoring

https://www.homeworkping.com/Republic of the Philippines

SUPREME COURT

Manila

EN BANC

November 5, 1928

G.R. No. 29155

JOSEFINA RUBIO DE LARENA, plaintiff-appellant, 

vs.

HERMENEGILDO VILLANUEVA, defendant-appellee.

Abad Santos, Camus and Delgado and Jose Montano for appellant. 

Del Rosario and Del Rosario for appellee.

OSTRAND, J.:

The case at bar is a sequel to case G. R. No. 21706, Josefina Rubio de

Larena vs. Hermenegildo Villanueva, decided on March 26, 1924.[[1]] In that

case we affirmed a decision of the Court of First Instance ordering the

rescission of a lease of the Tacgajan Sugar Plantation and the payment by

the defendant-lessee of the unpaid balance of the rent for the agricultural

year 1920-1922 in the sum of P5,949.28 with interest from August 26, 1922,

an for P8,000 in rent for the agricultural year 1921-1923. The decision also

provided that the possession of the leased land be delivered to the plaintiff.

Shortly after the record was returned to the court below, a writ of execution

was issued, but before levy was made the parties came to an agreement,

under which the money judgment was to be satisfied by the payment of

P10,500 in cash and the transfer to the plaintiff of a dwelling house situated

in the municipality of Bais. The agreement was carried out in accordance

with its terms, and on September 30, 1924, the following document was

executed by the plaintiff:

Habiendo llegado a un convenio entre la que subscribe, ejecutante, en la

causa civil No. 67 decidida por la Corte Suprema, y el ejecutado, Don

Hermenegildo Villanueva, por la presente declaro haber recibido del Sheriff

Provincial de Negros Oriental, y mi entera satisfaccion la suma de diez mil

quinientos pesos (P10,500), mas una casa residencial con su solar, situada

en la plaza del Municipio de Bais, Provincia de Negros Oriental, cuyas

descripciones aparecen an un ocumento aparte, por el importnte de la

ejecusacion expidida por el Jusgado de Negros Oriental al 14 de mayo de

1924, en vitud de una decision de la Corte Suprema. Con este queda

definitivamente cumplimentada esta ejecucion.

Y para que asi conste, firmo la presente en el Municipio de Bais, Provincia

de Negros Oriental, I. F., ante el Sheriff Provincial de esta Provincia de

1

Negros Oriental y el Notario Publico Don Francisco Romero, que ratifica este

compromiso.

(Fda.) JOSEFINA RUBIO, Vda. DE LARENA

Firmado en presencia de:

(Fdos.) BRAULIO RUBIO

              FRANCISCO PINERO

(ACKNOWLEDGMENT)

In the meantime, the defendant had harvested the sugarcane crop produced

in the agricultural year 1922-1924, and after having satisfied the aforesaid

money judgment, he also continued in possession of the plantation long

enough to appropriate to himself the following ratoon cane crop.

The present action was brought on April 13, 1925, but the last amended

complaint, setting forth three causes of action, was not filed until June 17,

1927. As her first cause of action the plaintiff, after a preliminary statement of

the origin of the controversy, alleges that while case G. R. No. 21706 was on

appeal to the Supreme Court, the defendant knew positively that the

aforesaid lease was declared rescinded by the Court of First Instance on

September 8, 1923, and that he, the defendant, also knew that he thereafter

was not entitled to the possession of the aforesaid hacienda; that he,

nevertheless, in bad faith continued in such possession during the

agricultural year 1922-1924 and appropriated to himself the cane harvest for

that year, which after deducting the share of the sugar central, produced

1,679.02 piculs for his own benefit, which sugar was sold by him for the sum

of P13 a picul; that the plaintiff has demanded payment to her of the total

value of said 1,679.02 piculs, amounting to P21,827.26, but that the

defendant refuses to pay. The plaintiff, therefore, asks judgment for the sum

of P21,827.26 upon the first cause of action.

For the second cause of action the plaintiff alleges that under the contract of

lease of the Tacgajan Hacienda, one of the obligations assumed by the

defendant was that he would use the care of a good father of the family in

conserving the tools, agricultural implements, draft animals, and other effects

enumerated in an inventory made at the time the defendant entered in

possession under the lease; that he was further obligated to return said

property to the plaintiff, but that he return said property to the plaintiff, but

that he returned only a part that he returned only a part thereof and failed to

returned only a part thereof and failed to return 4 carabaos, 4 vacunos, 1

corn mill, 4 wagons, 106 steel rails, 14 plows, 1 table, 1 scale, an 1

telephone, the total value of the property enumerated being P3,596 for which

amount, plus P500 in damages, the plaintiff asks judgment under her second

cause of action.

As a third cause of action the plaintiff alleges that the harvest of sugar cane

illegally made by the defendant in 1924 left ratoon sugar cane in the fields of

the hacienda, which sugar can was the property of the plaintiff, and that

during the year 1925, the defendant illegally harvested said ratoon cane

together with some recently planted cane, which harvested after deducting

the share of the sugar central, produced 1,613.25 piculs of sugar, which the

defendant sold for his own benefit at the price of P13 per picul, the total

2

amount received by him being P20,962.25 for which the plaintiff demands

judgment.

In his answer to the first and third causes of action, the defendants alleges

that according to the pleadings in case G. R. No. 21706, the two causes of

action were included in that case and, therefore, must be considered res

adjudicata. In regard to the second cause of action the defendant pleads the

general issue and sets up as a special defense that assuming that the

property referred to in said cause of action was missing, it loss was due to its

total extinction by ordinary use, for which the defendant could not be held

responsible. For all three causes of action, the defendant sets up as a

special defense the document executed by the plaintiff on September 30,

1924, acknowledging the satisfaction of the judgment in case G. R. No.

21706.

Upon trial the Court of First Instance sustained the defendant's special

defense and absolved him from the complaint with the cost against the

plaintiff, whereupon the latter appealed to this court.

We do not think that the court below erred in absolving the defendant from

liability upon the second cause of action. It is not without significance that in

her original complaint the plaintiff claimed only 5 plows, 6 carts, 3 carabaos

an 4 vacunos, the total value of which was alleged to be P1,360; in the first

amended complaint filed over two years later, the same claim was made, but

in the last amended complaint a number of other articles were included, thus

increasing the claim to P3,596. The court below found that the weight of the

evidence showed that the missing draft animals died from rinderpest and that

the other personal property was turned over to the provincial sheriff for

delivery to the plaintiff before the writ of execution was returned to the court.

If so, the action would lie against the sheriff rather than against the

defendant.

As to the first cause of action the defendant argues that it was included in the

prayer of an amended complaint filed in case G. R. No. 21706 and that,

although no express determination thereof was made in the decision of the

case, it must, nevertheless, be regarded as res judicata. That such is not the

case is very clear. The Code of Civil Procedure says:

That only is deemed to have been so adjudged in a former judgment which

appears upon its face to have been so adjudged, or which was actually and

necessarily included therein or necessary thereto. (Sec. 307, Code of Civil

Proc.)

But the defendant maintains that the plaintiff having had an opportunity to

ventilate the matter in the former case, she cannot now enforce the same

cause of action in the present case. Properly speaking, this argument does

not involve the doctrine of res judicata but rests on the well-known an, in

American law, firmly established principle that a party will not be permitted to

split up a single cause of action an make it the basis for several suits. But

that is not this case. The rule is well established that when a lease provides

for the payment of the rent in separate installments, each installment is an

independent cause of action, though it has been held and is good law, that in

an action upon such a lease for the recovery of rent, the installments due at

the time the action brought must be included in the complaint an that failure

to o so will constitute a bar to a subsequent action for the payment of that

rent. The aforesaid action, G. R. No. 21706, was brought on August 23,

1922, the plaintiff demanding payment of then sue rent in addition to the

3

rescission of the lease. On July 27, 1923, the plaintiff filed a motion for an

amendment to paragraph 6 of the complaint adding to that paragraph the

following sentence:

Que tambien ha vencido ya el tercer ano el arrendamiento de la finca en

cuestion y que tampoco ha pagado el demandao el canon correspondiente a

icho ano.

The plaintiff also amended the prayer of the complaint by asking judgment for

rent for years subsequent to 1922. The motion was granted, and the case

came up for trial on July 30, 1923, and on September 8, 1923, the trial court

rendered its decision giving judgment for rent up to and including the rent for

the agricultural year ending in 1923. The lease did not provide for payment of

rent in advance or at any definite time, an it appears plainly from the record

that the rent for an agricultural year was not considered due until the end of

the corresponding year. It follows that the rent for the agricultural year 1922-

1924 ha not become sue time of the trial of the case and that consequently

the trial court could not render judgment therefore. The action referred to is,

therefore, no bar to the first cause of action in the present litigation.

The defendant places much weigh upon the document of September 30,

1924, hereinbefore quoted. The document speaks for itself, and it will be

readily seen that it is merely a receipt for the satisfaction of the money

judgment in the case G. R. No. L-21706 and has nothing to with the present

case.

The only question in regard to the first cause of action relates to the amount

of the damages. The plaintiff contends that the defendant was a possessor in

bad faith, and therefore, must pay the value of the fruits of the land in

accordance with article 455 of the Civil Code. Under the circumstances of the

case, we cannot so hold. The defendant held possession under the contract

of lease until said contract was rescinded. The contract contained no special

provision for the procedure in effecting the rescission, and it follows that it

could only be accompanied by a final judgment of the court. The judgment in

case G. R. No. L-210706 did not become final until March 27, 192, when our

decision on appeal was rendered. As that must have been close to the end of

the harvest and milling of the sugar crop for the period to which the first

cause of action refers, we do not think that the defendant should be required

to pay more than the amount of the stipulated rent for the period, i. e., the

sum of P8,000 with interest rent for that period, i. e., the sum of P8,000 with

interest. (Lerma vs. De la Cruz, 7 Phil., 581.)

The action for terminating the lease was brought under article 1124 of the

Civil Code, an it may, perhaps, he said that properly speaking, the subject

matter of the action was a resolution of the contract an not a rescission. That

may be true, but it is a distinction without a difference; in their case a judicial

declaration would be necessary for the cancellation of the contract in the

absence of a special agreement.

Very little need be said in regard to the third cause of action. It relates to a

period subsequent to the complete termination of the lease by final judicial

order. The defendant had then no right whatever to the possession of the

land or to the fruits thereof, and in removing the fruits, he acted in bad faith.

This being the case, he must pay for the fruits received by him, less the

necessary expenses of production. (Arts. 455 and 453 of the Civil Code.) As

his bad faith commence long before the fruits in question were produced, he

4

is not entitled to any part of the net proceeds of the crop. The evidence

shows that the net ratoon crop of the year 1924-1925 was 1,613.25 piculs of

sugar, and according to the defendant's own statement, the market value of

the sugar was in the neighborhood of P11 per picul an the costs of

production about P4.50. The net result is that under the third cause of action,

the defendant must pay to the plaintiff the sum of P10,486.13 with interest.

For the reason stated, the judgment of the court below is affirmed in regard

to the second cause of action. It is reversed as to the first and third causes of

action, and it is hereby ordered that the plaintiff have and recover from the

defendant the sum of P18,486.13 with interest at the rate of 6 per cent per

annum from April 13, 1925, the date of the filing of the complaint. No costs

will be allowed. So ordered.

Avanceña, C. J., Johnson Street, Malcolm, Villamor, Romualdez, an Villa-

Real, JJ., concur.

ORDER AMENDING DECISION

December 10, 1928

OSTRAND, J.:

In the motion filed by the defendant on November 14, 1928 our attention is

called to a mathematical error in that we, in discussing the plaintiff's third

cause of action, failed to take into consideration the fact that one-half of the

gross ratoon crop produced on the land in question in the agricultural year

1924-1925 was ceded to the sugar central as compensation for the milling of

the cane and that the defendant paid the expenses of the production of the

total or gross crop. Page 8 of the aforesaid decision is therefore amended so

as to read as follows:

Very little need be said in regard to the third cause of action. It relates to a

period subsequent to complete termination of the lease by final judicial order.

The defendant had then no right whatever to the possession of the land or to

the fruits thereof, and in removing the fruits, he acted in bad faith. This being

the case, he must pay for the fruits received by him, less the necessary

expenses of production (Arts. 455 and 453 of the Civil Code.) As his bad faith

commenced long before the fruits in question were produced, he is not

entitled to any part of the net proceeds of the crop. The evidence shows that

the gross ratoon crop for the year 1924-1925 was 3,226.50 piculs of sugar,

and according to the defendant's own statement, the market value of the

sugar was in the neighborhood of P11 per picul and the cost of production

about P4.50. The defendant received only one-half of the gross crop, the

other half going to the sugar central as compensation for the milling of the

cane, but the defendant paid the cost of production both of his share of the

sugar and that of the sugar central. The net result is that under the third

cause of action, the defendant must pay to the plaintiff the sum of P3,226.50

with interest.

"For the reasons stated, the judgment of the court below is affirmed in regard

to the second cause of action. It is reversed as to the first an third causes of

action, an it is hereby ordered that the plaintiff have and recover from the

defendant the sum of P11,226.50 with interest at the rate of 6 per cent per

annum from April 13, 1925, the date of the filing of the complaint. No costs

will be allowed." So ordered.

Avanceña, C. J., Johnson, Street, Malcolm, Villamor, Romualdez, and Villa-

Real, JJ., concur.

5

SECOND DIVISION

[G.R. No. 23700. March 18, 1925. ]

BLOSSOM & CO., Petitioner, v. MANILA GAS CORPORATION, RICARDO SUMMERS, sheriff of the City of Manila, and GEORGE R.

HARVEY, Judge of First Instance of Manila,Respondents. 

J. Courtney Hixson for Petitioner. 

Thomas Cary Welch for Respondents. 

SYLLABUS

1. PROHIBITION; PLEADINGS; DEMURRER WHERE ANSWER IS REQUIRED. — When the respondent in prohibition proceedings is required to answer within a certain time and in lieu thereof presents a demurrer to the

petition, such demurrer will be considered as an answer admitting the material allegations of said petition. 

2. FORECLOSURE OF MORTGAGE; APPEAL; TIME FOR EXECUTION OF JUDGMENT OF FORECLOSURE. — An appeal to the Supreme Court

suspends the running of the period prescribed by section 256 of the Code of Civil Procedure within which a judgment ordering the foreclosure of a

mortgage may not be executed and in the even of the affirmation of the judgment said period does not begin to run until the remittitur of the case to

the trial court.

D E C I S I O N

OSTRAND, J. :

Though the petition in this case is styled a "Petition for preliminary injunction," i is in reality a petition for a writ of prohibition. The petitioner alleges, among many other things, more or less immaterial, that on or about October 16, 1923, in the City of Manila, in civil case No. 24267, wherein one of the herein respondents, the Manila Gas Corporation was plaintiff and herein petitioner Blossom & Co. was the defendant, a judgment in mortgage foreclosure proceedings was rendered against the said Blossom & Co. ordering the payment of P7,794.65 to the said Manila Gas Corporation, with interest thereon at the rate of 8 per cent per annum, the judgment also providing that if the defendant Blossom & Co. failed to satisfy the judgment within ninety days from the time of the notification of said judgment, the mortgaged land should be sold by the sheriff at public auction and the proceeds of the sale applied towards the satisfaction of said judgment; that from said judgment Blossom & Co. appealed to this court and on October 18, 1924, the judgment of the Court of First Instance was affirmed; 1 that the decision of this court became final on the 28th of the same month and the record was returned to the court below. 

It is further alleged that on December 31, 1924, the respondent, the Honorable George R. Harvey, Judge of the Court of First Instance of the City of Manila, ordered that a writ of execution be issued against the defendant in said case No. 24267; that on January 6, 1925, the same respondent modified his order of December 31, 1924, by ordering "that the judgment be executed;" that on or about January 9, 1925, the respondent Ricardo Summers, in his capacity as sheriff of the City of Manila had in compliance with the aforesaid orders, advertised in the newspapers of the City of Manila that the mortgaged property would be sold at public auction to the highest bidder in from of the court house in Manila that the mortgaged property would be sold at public auction to the highest bidder in front of the court house in Manila, at 9 o’clock a. m. on February 6, 1925. 

The petitioner further alleges that the execution of the judgment is premature inasmuch as the period of three months from the date of the judgment provided for in section 256 of the Code of Civil Procedure for the execution of a judgment in foreclosure proceedings had not then expired; that the interests of the petitioner will suffer grave injury from the premature execution of the judgment; and that the petitioner has no other plain, speedy, and adequate remedy in the ordinary course of law than to apply to this court for an order enjoining the respondents from proceeding with the aforesaid sale. 

6

Upon being required to answer the petition within five days, the respondents in lieu of an answer filed a demurrer which will be considered as an answer admitting the material allegations of the petition. The case was thereupon set down for hearing on February 17, 1925, at which hearing the parties were represented by counsel and arguments submitted. 

The only question presented for our consideration in whether, in the event a judgment for the plaintiff in a foreclosure proceeding is affirmed on appeal, the three months stay of execution allowed the defendant by section 256 of the Code of Civil Procedure is to be counted from the date of the judgment of the lower court or whether i should be counted from the date of the final determination of the case by the appellate court. 

The respondents maintain that under the second paragraph of section 506 of the Code of Civil Procedure the judgment must, in regard to its execution, be treated as if no appeal had been taken and that three months from the date of the original judgment having expired it might be executed immediately upon the remittitur. We cannot accept this view and do not think that the paragraph o the Code upon which the respondents rely supports their contention. The section in which it is found reads as follows:jgc:chanrobles.com.ph

"Certificate of judgment to be remitted the Court of First Instance. — In all cases heard by the Supreme Court on bills of exception, its judgments shall be remitted to the Courts o First Instance from which the actions respectively came into the Supreme Court; and for this purpose it shall be the duty of the clerk of the Supreme Court, within ten days after the close of any term, to remit to the clerks of Courts of First Instance, notices of all judgments of the Supreme Court in actions brought from the Courts of First Instance respectively. Upon receiving the notice so remitted, the clerk of the Court of First Instance shall enter the same upon his docket and file the notice with the other papers in the action. 

"The judgment so remitted shall be executed by the Court of First Instance, in the same manner as though the action had not been carried to the Supreme Court. but the Supreme Court may, by special order, direct any particular judgment to be remitted to the proper Court of First Instance at any time, without awaiting the end of the term. 

"It shall likewise be the duty of the clerk of the Supreme Court, within ten days after the close of any term, to remit to the clerks of the Courts of First Instance, with the notices of all judgments of the Supreme Court in his section referred to, likewise all the original documents and the record of the actions transmitted by the clerk of the Court of First Instance, to the clerk of the Court of First Instance, in order that the files of the action may remain

together in that court."cralaw virtua1aw library

As will be seen, the paragraph in question relates to the manner of executing the judgment and says nothing about the time. As to the time for the execution, section 144 of the Code of Civil Procedure provides that, except by special order of the court, no execution shall issue upon a final judgment until after the period for perfecting a bill of exceptions has expired and that the filing of a bill of exceptions shall of itself stay execution shall issue upon a final judgment until after the period for perfecting a bill of exceptions has expired and that the filing of a bill of exceptions shall of itself stay execution until the final determination of the action, unless for special reasons stated in the bill of exceptions the court shall order that execution be not stayed. In other words, the filing of the bill tolls the running of time pending the final disposition on appeal and we can see no valid reason why this should no apply to the three months period allowed the judgment debtor by section 256 to satisfy the judgment before execution issues. 

That such is the intent of the statute seems fairly clear. The defendant in a foreclosure proceeding has no right of redemption from the judicial sale of the mortgaged property and the purpose of the three months stay of execution is very evidently to give the judgment debtor time and opportunity to make the necessary arrangements for the payment of the debt after it has been definitely determined that the debt is due and must be paid by him. In the event of an appeal there is no definite determination of the case until it is finally disposed of by him. In the event of an appeal there is no definite determination of the case until it is finally disposed of by the appellate court and if we were to hold that the appeal did not suspend the running of the period mentioned, the result would necessarily be that the defendant would be deprived of the time granted him by the statute to provide funds for the satisfaction of the judgment before its execution. We therefore hold that the running of said period is suspended during the appeal and as the case cannot be said to be finally determined on appeal while the record remains with the appellate court, it logically follows that the period does not begin to run until the remittitur of the record to the court below. In the present case, it is alleged in the petition and admitted by the respondents that the decision of this court in the foreclosure proceedings became final on October 28, 1924, and that the sheriff initiated the execution of the judgment on January 9, 1925, only seventy-three days after it became final. 

It appearing that the execution here in question was begun before the expiration of three months from the final determination of the case, the petition is granted and the respondents are prohibited from proceeding with the execution until after the expiration of the period of three months from October 28, 1924. The respondent, the Manila Gas Corporation, shall pay the costs. So ordered. 

7

Johnson, Malcolm, Villamor, and Romualdez, JJ., concur. 

Separate Opinions

JOHNS, J., specially concurring:chanrob1es virtual 1aw library

This case is presented on a demurrer to the petition, which in legal effect admits all of the material allegations in the petition. Hence, as the majority opinion says:jgc:chanrobles.com.ph

"The only question presented for our consideration is whether, in the event a judgment for the plaintiff in a foreclosure proceeding is affirmed on appeal, the three months stay of execution allowed the defendant by section 256 of the Code of Civil Procedure is to be counted from the date of the judgment of the lower court or whether it should be of the judgment of the lower court or whether it should be counted from the date of the final determination of the case by the appellate court."cralaw virtua1aw library

Based on such admissions, I agree with the majority opinion. 

As it points out, among other things, section 506 of the Code of Civil Procedure says:jgc:chanrobles.com.ph

"The judgment so remitted shall be executed by the Court of First Instance, in the same manner as though the action had not been carried to the Supreme Court."cralaw virtua1aw library

If it be a fact that an appeal is dismissed or that no final judgment is rendered by this court, and that the effect s of the day when it was rendered, and that an execution is issued upon the original judgment as it was rendered in the lower court, another and a different question would be presented. But for the reasons above stated, I concur in the result. 

8

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-32958             November 8, 1930

BLOSSOM AND COMPANY, INC., plaintiff-appellant, vs.MANILA GAS CORPORATION, defendant-appellee.

Harvey and O'Brien for appellant.Ross, Lawrence and Selph and John B. Miller for appellee.

STATEMENT

In its complaint filed March 3, 1927, the plaintiff alleges that on September 10, 1918, it entered into a contract with the defendant in which the plaintiff promised and undertook to purchase and receive from the defendant and the defendant agreed to sell and deliver to the plaintiff, for a period of four years, three tons of water gas tar per month from September to January 1, 1919 and twenty tons per month after January 1, 1919, for the remaining period of the contract; one-half ton of coal gas tar a month from September to January 1, 1919, and six tons per month after January 1, 1919, for the remainder of the contract, delivery to be made at the plant of the defendant in the City of Manila, without

containers and at the price of P65 per ton for each kind of gas tar, it being agreed that this price should prevail only so long as the raw materials — coal and crude oil —used by the defendant in the manufacture of gas should cost the defendant the same price as that prevailing at the time of the contract, and that in the event of an increase or decrease in the cost of raw material there would be a corresponding increase or decrease in the price of the tar. That on January 31, 1919, this contract was amended so that it should continue to remain in force for a period of ten years from January 1, 1919, and it was agreed that the plaintiff should not be obliged to take the qualities of the tars required during the year 1919, but that it might purchase tars in such quantities as it could use to advantage at the stipulated price. That after the year 1919 the plaintiff would take at least the quantities specified in the contract of September 10, 1918, to be taken from and after January 1, 1919, and that at its option it would have the right to take any quantity of water gas tar in excess of the minimum quantity specified in that contract and up to the total amount of output of that tar of defendant's plant and also to take any quantity of coal gas tar in excess of the minimum quantity specified in that contract and up to 50 per cent of defendant's entire output of coal gas tar, and that by giving the defendant ninety days' notice, it would have the right at its option to take the entire output of defendant's coal gas tar, except such as it might need for its own use in and about its plant. That in consideration of this modification of the contract of September 10, 1918, plaintiff agreed to purchase from the defendant of certain piece of land lying adjacent to its plant at the price of P5 per square meter, the proof of which is evidenced by Exhibit C. That pursuant to Exhibit C, defendant sold and conveyed the land to the plaintiff which in turn executed a mortgage thereon to the defendant for P17,140.20, to secure the payment of the balance of the purchase price.

It is then alleged:

VIII. That about the last part of July, 1920 the defendant herein, the Manila Gas Corporation willfully, and deliberately breached its said contract, Exhibit C, with the plaintiff by ceasing to deliver any coal and water gas tar to it thereunder solely because of the increased price of its tar products and its desire to secure better prices therefor than plaintiff was obliged to pay to it, notwithstanding the frequent and urgent demands made by the plaintiff upon it to comply with its aforesaid contract by continuing to deliver the coal and water gas tar to the plaintiff thereunder, but the said defendant flatly refused to make any deliveries under said contract, and finally on November 23, 1923, the plaintiff was

9

forced to commence action against the defendant herein in the Court of First Instance of Manila, being case No. 25352, of that court entitled 'Blossom & Co., plaintiff, vs. Manila Gas Corporation, defendant,' to recover the damages which it had up to that time suffered by reason of such flagrant violation of said contract on the part of the defendant herein, and to obtain the specific performance of the said contract and after due trial of that action, judgment was entered therein in favor of the plaintiff herein and against the said defendant, the Manila Gas Corporation, for the sum of P26,119.08, as the damages suffered by this plaintiff by the defendant's breach of said contract from July, 1920, up to and including September, 1923, with legal interest thereon from November 23, 1923, and for the costs but the court refused to order the said defendant to resume the delivery of the coal and water gas tar to the plaintiff under said contract, but left the plaintiff with its remedy for damages against said defendant for the subsequent breaches of said contract, which said decision, as shown by the copy attached hereto as Exhibit G, and made a part hereof, was affirmed by our Supreme Court on March 3, 1926;

IX. That after the defendant had willfully and deliberately violated its said contract as herein-before alleged, and the plaintiff suffered great damage by reason thereof, the plaintiff claimed the right to off- set its damages against the balance due from it to said defendant on account of the purchase of said land from the defendant, and immediately thereupon and notwithstanding said defendant was justly indebted to the plaintiff at that time as shown by the judgment of the Court Exhibit G, in more that four times the amount due to it from the plaintiff, the said defendant caused to be presented against the plaintiff a foreclosure action, known as the Manila Gas Corporation versus Blossom & Company, No. 24267, of the Court of First Instance of Manila, and obtained judgment therein ordering that Blossom & Company pay the last installment and interest due on said land or else the land and improvements placed thereon by the plaintiff would be sold as provided by law in such cases to satisfy the same, and the said defendant proceeded with the sale of said property under said judgment and did everything in its power to sell the same for the sole purpose of crushing and destroying the plaintiff's business and thus rendering it impossible for the plaintiff herein to continue with its said contract in the event that said defendant might in the future consider it more profitable to resume performance of the

same, but fortunately the plaintiff was able to redeem its property as well as to comply with its contract and continued demanding that the defendant performed its said contract and deliver to it the coal and water gas tar required thereby.

That the defendant made no deliveries under its contract, Exhibit C, from July, 1920 to March 26, 1926, or until after the Supreme Court affirmed the judgment of the lower court for damages in the sum of P26, 119.08. 1

It is then alleged that:

. . . On March 26, 1926 the said defendant offered to resume delivery to the plaintiff from that date of the minimum monthly quantities of tars stated in its contract ,and the plaintiff believing that the said defendant was at least going to try to act in good faith in the further performance of its said contract, commenced to accept deliveries of said tars from it, and at once ascertained that the said defendant was deliberately charging it prices much higher than the contract price, and while the plaintiff accepted deliveries of the minimum quantities of tars stated in said contract up to and including January, 1927, (although it had demanded deliveries of larger quantities thereunder, as hereinafter alleged) and paid the increased prices demanded by the defendant, in the belief that it was its duty to minimize the damages as much as possible which the defendant would be required to pay to it by reason of its violation of said contract, it has in all cases done so under protest and with the express reservation of the right to demand from the said defendant an adjustment of the prices charged in violation of its contract, and the right to the payment of the losses which it had and would suffer by reason of its refusal to make additional deliveries under said contract, and it also has continuously demanded that the said defendant furnish to it statements supported by its invoices showing the cost prices if its raw materials — coal and crude oil — upon which the contract price of the tars in question is fixed, which is the only way the plaintiff has to calculate the true price of said tars, but said defendant has and still refuses to furnish such information, and will continue to refuse to do so, unless ordered to furnish such information to the plaintiff by the court, and the plaintiff believes from the information which it now has and so alleges that the said defendant has overcharged it on the deliveries of said tars mentioned in the sum of at least P10,000, all in violation of the rights of the plaintiff under its said contract with the defendant.

10

That on January 31, 1926 and pursuant to Exhibit C. plaintiff notified the defendant in writing that commencing with the month of August, 1926 it desired to take delivery of 50 per cent of defendant's coal tar production for that month and that on November 1, 1926, it desired to take the entire output of defendant's coal gas tar, but that the defendant refused and still refuses to make such deliveries unless plaintiff would take all of its water gas tar production with the desired quantity of coal gas tar which refusal was a plain violation of the contract. That on January 29, 1927, and in accord with Exhibit C, plaintiff notified the defendant in writing that within ninety days after the initial delivery to it of its total coal gas tar production or in February, 1927, it would require 50 per cent of its total water gas tar production and that in April 1927, it would require the total output of the defendant of both coal and water gas tars, and that it refused to make either of such deliveries.

It is then alleged:

XIV. That as shown by the foregoing allegations of this complaint, it is apparent that notwithstanding the plaintiff in this case has at all times faithfully performed all the terms and conditions of said contract, Exhibit C, on its part of be performed, and has at all times and is now ready, able and willing to accept and pay for the deliveries of said coal and water gas tars required by said contract and the notices given pursuant thereto, the said defendant, the Manila Gas Corporation, does not intend to comply with its said contract, Exhibit C, and deliver to the plaintiff at the times and under the terms and conditions stated therein the quantities of coal and water gas tars required by said contract, and the several notices given pursuant thereto, and that it is useless for the plaintiff to insist further upon its performance of the said contract, and for that reason he only feasible course for the plaintiff to pursue is to ask the court for the rescission of said contract and for the full damages which the plaintiff has suffered from September, 1923, and will suffer for the remainder of said contract by reason of the defendant's failure and refusal to perform the same, and the plaintiff has so notified the said defendant.

That since September, 1923, by reason of the bad faith of the defendant, the plaintiff has been damaged in the sum of P300,000, for which it prays a corresponding judgment, and that the contract, Exhibit C, be rescinded and declared void and without force and effect.

After the filing and overruling of its demurrer, the defendant filed an answer in the nature of a general and specific denial and on April 10, 1928, and upon stipulation of the parties, the court appointed W. W. Larkin referee, "to take the evidence and, upon completion of the trial, to report his findings of law and fact to the court."

July 18, 1928, the defendant filed an amended answer in which it alleged as an affirmative defense, first, that the complaint does not state facts sufficient to constitute cause of action the reason that a prior adjudication has been had of all the issues involved in this action, and, second, "that on or about the 16th day of June, 1925, in an action brought in the Court of First Instance of the City on Manila, Philippine Islands, before the Honorable Geo. R. Harvey, Judge, by Blossom & Company, plaintiff, vs. Manila Gas Corporation, defendant, being civil case No. 25353, of said court, for the same cause of action as that set fourth in the complaint herein, said plaintiff recovered judgment upon the merits thereof, against said defendant decreeing a breach of the contract sued upon herein, and awarding damages therefor in the sum of P26,119.08 with legal interest from November 23, 1923, and costs of suit, which judgment was upon appeal affirmed by the Supreme Court of the Philippine Islands, in case G. R. No. 24777 of said court, on the 3d day of March, 1926 and reported in volume 48 Philippines Reports at page 848," and it prays that plaintiff's complaint be dismissed with costs.

After the evidence was taken the referee made an exhaustive report of sixty-pages in which he found that the plaintiff was entitled to P56,901.53 damages, with legal interest from the date of the filing on the complaint, to which both parties filed numerous exceptions

In its decision the court says:

Incidental references have been made to the referee's report. It was admirably prepared. Leaving aside the question of damages and the facts upon which the referee assessed them, the facts are not in dispute — at least not in serious dispute. They appear in the documentary evidence and this decision is based upon documents introduced into evidence by plaintiff. If I could have agreed with the referee in respect to the question of law, I should have approved his report in toto. If defendant is liable for the damages accruing from November 23, 1923, the date the first complaint was filed, to April 1st, 1926, the date of resumption of relations; and if defendant, after such resumption of relations,

11

again violated the contract, the damages assessed by the referee, are, to my way of thinking, as fair as could be estimated. He went to tremendous pains in figuring out the details upon which he based his decision. Unfortunately, I cannot agree with his legal conclusions and the report is set aside except wherein specifically approved.

It is unnecessary to resolve specifically the many exceptions made by both partied to the referee's report. It would take much time to do so. Much time has already been spent in preparing this decision. Since both parties have informed me that in case of adverse judgment ,and appeal would be taken, I desire to conclude the case so that delay will be avoided.

Let judgment be entered awarding damages to plaintiff in the sum of P2,219.60, with costs.

From which plaintiff only appealed and assigns twenty-four different errors, of which the following are material to this opinion:

I. The trial court erred in holding that this suit in so far as the damages from November, 1923, to March 31, 1926, are concerned , is res adjudicata.

II. The trial court erred in holding that the defendant repudiated the contract in question as a whole, and that the plaintiff when it brought its first suit to collect damages had already elected and consented to the dissolution of the contract, and its choice once made, being final, it was estopped to claim that the contract was alive when that suit was brought.

x x x           x x x           x x x

VII. The trial court erred in refusing to sustain plaintiff's third exception to the legal interpretation placed on the contract in this case by the referee with reference to quantity of tars and his conclusion with respect to the terms thereof that:

"1. Plaintiff must take and defendant must deliver either the minimum or maximum quantity of water gas tar and not any quantity from the minimum to the maximum and/or

"2. Plaintiff must take either the minimum and any quantity up to fifty per cent of entire output of coal gas tar.

"3. With ninety days' notice by plaintiff to defendant the former must take and the latter must deliver total output of both tars, except such as might be needed by defendant for use in and about its plants and not any quantity from the minimum up to total output of both tars." (See page 47, Referee's report.)

And in holding that the option contained in said contract, taking into consideration the purposes of both parties in entering into the contract, was a claimed by defendant: all the water gas tar and 50 per cent of the coal gas tar upon immediate notice and all tars upon ninety day's notice.

VIII. The trial court erred in refusing to sustain plaintiff's fourth exception to the finding and conclusion of the referee that from the correspondence between the parties it was apparent that plaintiff did not make a right use of its option, and that the letter of June 25, 1926, and the subsequent demands, with exception of the letter of July 31, 1926, were not made in pursuance to the terms of the contract, and that defendant had no liability in refusing to comply therewith, and in allowing plaintiff damages only for the failure of the defendant to deliver quantities shown in Exhibits Ref. 21 and 22. (See pages 51, 52, Referee's report.)

IX. The trial court erred in finding and holding that the demands of plaintiff for additional tars under its contract with the defendant were extravagant and not made in good faith, and that when it wrote to defendant that it desired maximum quantities of coal gas tars and only minimum of water gas tars, but with the reservation of going back to minimum quantities of both at any time it chose, it announced its intention f breaching the contract, and defendant was under no obligation to deliver maximum quantities of either tars, and since this was the efficient cause of the failure of defendant to deliver or plaintiff to accept tars, the blame is attribute to plaintiff, and it cannot recover for a rescission.

x x x           x x x           x x x

XXIII. The trial court erred in refusing to sustain plaintiff's seventeenth exception to the finding and conclusion of the

12

referee that the plaintiff is entitled to recover from the defendant only the following sums:

Water gas tar (Exhibit Ref. 21) P38,134.60

Coal gas tar (Exhibit Ref. 22) 16,547.33

Overcharges on deliveries (Exhibit Ref. 23) 2,219.60

or a total of 56,901.53

with interest, and in not awarding to the plaintiff as damages in this case the sum of P319,253.40, with legal interest thereon from the date of filing the complaint in this case, in the manner and form computed but it, and in awarding damages to the plaintiff for the sum of only P2,219.60. with costs.

x x x           x x x           x x x

 

JOHNS, J.:

In this action plaintiff seeks to recover damages from the defendant which it claims to have sustained after September, 1923, arising from, and growing out of, its original contract of September 10, 1918, as modified on January 1, 1919, to continue for a period of ten years from that date.

In paragraph VIII of its complaint, plaintiff alleges that about the last part of July, 1920, the defendant "willfully and deliberately breached its said contract," and that it "flatly refused to make any deliveries under said contract, and finally on November 23, 1923," it was forced to commence action in the Court of First Instance against the defendant known as case No. 25352, to recover the damages which it had then sustained by reason of such flagrant violation of said contract on the part of the defendant, in which judgment was rendered in favor of the plaintiff and against the defendant for P26,1119.08, as damages suffered by this plaintiff by the defendant's breach of said contract from July 1920, up to and including September, 1923, with legal interest thereon from

November 23, 1923, and for the costs," in which the court refused to order the defendant to resume the delivery of the coal and water gas tar to the plaintiff, in accord with said contract, but left it with its remedy for damages against the defendant for any subsequent breaches of the contract. A copy of that judgment, which was later affirmed by this court, is attached to, marked Exhibit G, and made a part of, the complaint in this action.

In their respective briefs, opposing counsel have much to say about the purpose and intent of the judgment, and it is vigorously asserted that it was never intended that it should be or become a bar to another action by the plaintiff to recover any damages it may have sustained after September, 1923, during the remainder of the ten-year period of that contract. Be that as it may, it must be conceded that the question as to what would be the legal force and effect of that judgment in that case was never presented to, or decided by, the lower court or this court. In the very nature of things, neither court in that case would have the power to pass upon or decided the legal force and effect of its own judgment, for the simple reason that it would be premature and outside of the issues of any pleading, and could not be raised or presented until after the judgment became final and then only by an appropriate plea, as in this case.

Plaintiff specifically alleges that the defendant willfully and deliverately breached the contract and "flatly refused to make any deliveries under said contract," by reason of. which it was forced to and commenced its former action in which it was awarded P26,119.08 damages against the defendant by reason of its breach of the contract from July, 1920, to September, 1923.

In the final analysis, plaintiff in this action seeks to recover damages growing out of, and arising from, other and different breaches of that same contract after November, 1923, for the remainder of the ten-year period, and the question is thus squarely presented as to whether the rendition of the former judgment is a bar to the right of the plaintiff to recover damages from and after September, 1923, arising from, and growing out of, breaches of the original contract of September 10, 1918, as modified on January 1, 1919. That is to say, whether the plaintiff, in a former action, having recovered judgment for the damages which it sustained by reason of a breach of its contract by the defendant up to September, 1923, can now in this action recover damages it may have sustained after September, 1923, arising from, and growing out of, a

13

breach of the same contract, upon and for which it recovered its judgment in the former action.

In the former action in which the judgment was rendered, it is alleged in the compliant:

"7. That about the last part of July or the first part of August, 1920, the Manila Gas Corporation, the defendant herein, without any cause ceased delivering coal and water gas tar to the plaintiff herein; and that from that time up to the present date, the plaintiff corporation, Blossom & Company, has frequently and urgently demanded of the defendant, the Manila Gas Corporation, that it comply with its aforesaid contract Exhibit A by continuing to deliver coal and water gas tar to this plaintiff — but that the said defendant has refused and still refuses, to deliver to the plaintiff any coal and water gas tar whatsoever under the said contract Exhibit A, since the said month of July 1920.

"9. That owing to the bad faith of the said Manila Gas Corporation, defendant herein, in not living up to its said contract Exhibit A, made with this plaintiff, and refusing now to carry out the terms of the same, be delivering to this plaintiff the coal and water gas tar mentioned in the said Exhibit A, has caused to this plaintiff great and irreparable damages amounting to the sum total of one hundred twenty- four thousand eight hundred forty eight pesos and seventy centavos (P124,848,70);and that the said defendant corporation has refused, and still refuses, to pay to this plaintiff the whole or any part of the aforesaid sum.

"10. That the said contract Exhibit A, was to be in force until January 1, 1929, that is to say ten (10) years counted from January 1, 1929; and that unless the defendant again commence to furnish and supply this plaintiff with coal and water gas tar, as provided for in the said contract Exhibit A, the damages already suffered by this plaintiff will continually increase and become larger and larger in the course of years preceding the termination of the said contract on January 1, 1929."

In that action plaintiff prays for judgment against the defendant:

"(a) That upon trial of this this cause judgment be rendered in favor of the plaintiff and against the defendant for the sum of

P124,8484.70), with legal interest thereon from November 23, 1923;

"(b) That the court specifically order the defendant to resume the delivery of the coal and water gas tar to the plaintiff under the terms of the said contract Exhibit A of this complaint."

In the final analysis, plaintiff must stand or fall on its own pleadings, and tested by that rule it must be admitted that the plaintiff's original cause of action, in which it recovered judgment for damages, was founded on the ten-year contract, and that the damages which it then recovered were recovered for a breach of that contract.

Both actions are founded on one and the same contract. By the terms of the original contract of September 10, 1018, the defendant was to sell and the plaintiff was to purchase three tons of water gas tar per month form September to January 1, 1919, and twenty tons of water gas tar per month after January 1, 1919, one-half ton of coal gas tar per month from September to January 1, 1919, and six tons of coal gas tar per month after January 1, 1919. That from and after January 1, 1919, plaintiff would take at least the quantities specified in the contract of September 10, 1918, and that at its option, it would have the right to take the total output of water gas tar of defendant's plant and 50 per cent of the gross output of its coal gas tar, and upon giving ninety days' notice, it would have the right to the entire output of coal gas tar, except such as the defendant might need for its own use. That is to say, the contract provided for the delivery to the plaintiff from month to month of the specified amounts of the different tars as ordered and requested by the plaintiff. In other words, under plaintiff's own theory, the defendant was to make deliveries from month to month of the tars during the period of ten years, and it is alleged in both complaints that the defendant broke its contract, and in bad faith refused to make any more deliveries.

In 34 Corpus Juris, p. 839, it is said:

As a general rule a contract to do several things at several times in its nature, so as to authorize successive actions; and a judgment recovered for a single breach of a continuing contract or covenant is no bar to a suit for a subsequent breach thereof. But where the covenant or contract is entire, and the breach total, there can be only one action, and plaintiff must therein recover all his damages.

14

In the case of Rhoelm vs, Horst, 178 U. U., 1; 44 Law. ed., 953, that court said:

An unqualified and positive refusal to perform a contract, though the performance thereof is not yet due, may, if the renunciation goes to the whole contract, be treated as a complete breach which will entitle the injured party to bring his action at once.

15 Ruling Case Law, 966, 967, sec. 441 says:

Similarly if there is a breach by the vendor of a contract for the sale of goods to be delivered and paid for in installments, and the vendee maintains an action therefor and recovers damages, he cannot maintain a subsequent action to recover for the failure to deliver later installments.

In Pakas vs. Hollingshead, 184 N. Y., 211; 77 N. E., 40; 3 L. R. A. (N. S.), 1024, the syllabus says:

Upon refusal, by the seller, after partial performance, longer to comply with his contract to sell and deliver a quantity of articles in installments the buyer cannot keep the contract in force and maintain actions for breaches as they occur but must recover all his damages in one suit.

And on page 1044 of its opinion, the court say:

The learned counsel for the plaintiff contends that the former judgment did not constitute a bar to the present action but that the plaintiff had the right to elect to waive or disregard the breach, keep the contract in force, and maintain successive actions for time to time as the installments of goods were to be delivered, however numerous these actions might be. It is said that this contention is supported in reason and justice, and has the sanction of authority at least in other jurisdictions. We do not think that the contention can be maintained. There is not as it seems to us any judicial authority in this state that gives it any substantial support. On the contrary, we think that the cases, so far as we have been able to examine them, are all the other way, and are to the effect that, inasmuch as there was a total breach of the contract by the defendant's refusal to deliver, the plaintiff cannot split up his demand and maintain successive actions, but must

either recover all his damages in the first suit or wait until the contract matured or the time for the delivery of all the goods had arrived. In other words, there can be but one action for damages for a total breach of an entire contract to deliver goods, and the fact that they were to be delivered in installment from time to time does not change the general rule.

The case of L. Bucki & Son Lumber Co. vs. Atlantic Lumber Co. (109 Federal, 411), of the United States Circuit Court of Appeals for the Fifth Circuit, is very similar.

The syllabus says:

1. CONTRACTS — CONSTRUCTION —ENTIRE CONTRACT. —A contract was made for the sale of a large quantity of logs to be delivered in monthly installments during a period of eight years, payments to be made also in installments at times having relation tot he deliveries. It contained stipulations as to such payments, and guaranties as to the average size of the logs to be delivered in each installment. Held, that it was an entire contract, and not a number of separate and independent agreements for the sale of the quantity to be delivered and paid for each month, although there might be breaches of the minor stipulations and warranties with reference thereto which would warrant suits without a termination of the contract.

2. JUDGMENTS — MATTERS CONCLUDED —ACTION FOR BREACH OF INDIVISIBLE CONTRACT. — The seller declared the contract terminated for alleged breaches by the purchaser, and brought suit for general and special damages the latter covering payments due for installments of logs delivered. By way of set-off and recoupment against this demand, the purchaser pleaded breaches of the warranty as to the size of the logs delivered during the months for which payment had not been made. Held, that the judgment in such action was conclusive as to all claims or demands or either party against the other growing out of the entire contract, and was a bar to a subsequent suit brought by the purchaser to recover for other breaches of the same warranty in relation to deliveries made in previous months.

On page 415 of the opinion, the court says:

15

When the contract was ended, the claims of each party for alleged breaches and damages therefor constituted an indivisible demand; and when the same, or any part of the same, was pleaded, litigation had, and final judgment rendered, such suit and judgment constitute a bar to subsequent demands which were or might have been litigated (Baird vs. U. S., 96 U. S., 430; 24 L. ed., 703.)

In Watts vs. Weston (238 Federal, 149), Circuit Court of Appeals, Second Circuit, the syllabus says:

1. JUDGMENTS — 593 — JUDGMENT AS BAR — MATTERS CONCLUDED. — Where a continuing contract was terminated by the absolute refusal of the party whose action was necessary to further perform, a claim for damages on account of the breach constituted as indivisible demand, and when the same or any part of the same was pleaded, litigated, and final judgment rendered, such suit and judgment constitute a bar to subsequent demands which were or might have been litigated therein.

And on page 150 of the opinion, the court says:

It is enough to show the lack of merit in the present contention to point out as an inexorable rule of law that, when Kneval's contract was discharged by his total repudiation thereof, Watt's claims for breaches and damages therefor constituted an indivisible demand, and when the same, or any part of the same, was pleaded, litigation had and final judgment rendered, such suit and judgment constitute a bar to subsequent demands which were or might have been litigated." (Bucki, etc., Co. vs. Atlantic, etc., Co., 109 Fed. at page 415; 48 C. C. A., 459; Cf. Landon vs. Bulkley, 95 Fed., 344; 337 C. C. A., 96.)

The rule is usually applied in cases of alleged or supposed successive breaches, and consequently severable demands for damages; but if the contract has been discharged by breach, if suit for damages is all that is left, the rule is applicable, and every demand arising form that contract and possessed by any given plaintiff must be presented (at least as against any given defendant) in one action; what the plaintiff does not advance he foregoes by conclusive presumption.

Inn Abbott vs. 76 Land and Water Co. (118 Pac., 425; 161 Cal., 42), at page 428, the court said:

In Fish vs. Folley, 6 Hill (N. Y.), 54, it was held, in accord with the rule we have discussed, that, where the defendant had covenanted that plaintiff should have a continual supply of water for his mill from a dam, and subsequently totally failed to perform for nine years, and plaintiff brought an action for the breach and recovered damages sustained by him to that time, the judgment was a bar to a second action arising from subsequent failure to perform, on the theory that, although he covenant was a continuing one in one sense, it was an entire contract, and a total breach put an end to it, and gave plaintiff the right to sue for an equivalent in damages.

In such a case it is no warrant for a second action that the party may not be able to actually prove in the first action all the items of the demand, or that all the damage may not then have been actually suffered. He is bound to prove in the first action not only such damages as has been actually suffered, but also such prospective damage by reason of the breach as he may be legally entitled to, for the judgment he recovers in such action will be a conclusive adjudication as to the total damage on account of the breach.

It will thus be seen that, where there is a complete and total breach of a continuous contract for a term of years, the recovery of a judgment for damages by reason of the breach is a bar to another action on the same contract for and on account of the continuous breach.

In the final analysis is, there is no real dispute about any material fact, and the important and decisive question is the legal construction of the pleadings in the former case and in this case, and of the contract between the plaintiff and the defendant of January 1, 1920.

The complaint on the former case specifically alleges that the defendant "has refused and still refuses, to deliver to the plaintiff any coal and water gas tar whatsoever under the said contract Exhibit A, since the said month of July, 1920." " That owing to the bad faith of the said Manila Gas Corporation, defendant herein, in not living up to its said contract Exhibit A, made with this plaintiff, and refusing now to carry out the terms of the same." That is a specific allegation not only a breach of the contract since

16

the month of July, 1920, but of the faith of the defendant in its continuous refusal to make deliveries of any coal and water gas tar. That amended complaint was filed on July 11, 1924, or four years after the alleged bad faith in breaking the contract.

Having recovered damages against it, covering a period of four years, upon the theory that the defendant broke the contract, and in bad faith refused to make deliveries of either of the tars, how can the plaintiff now claim and assert that the contract is still in fierce and effect? In the instant case the plaintiff alleges and relies upon the ten year contract on January 11, 1920, which in bad faith was broken by the defendant. If the contract was then broken, how can it be enforced in this action?

It is admitted that the defendant never made any deliveries of any tar from July, 1920, to April, 1936. Also that it made nine deliveries to plaintiff of the minimum quantities of coal and water gas tar from April 7, 1926, to January 5, 1927.

Plaintiff contends that such deliveries were made under and in continuation of the old contract.

March 26, 1926, after the decision of this court affirming the judgment in the original action, plaintiff wrote the defendant:

. . . It is our desire to take deliveries of at least the minimum quantities set forth therein and shall appreciate to have you advise us how soon you will be in a position to make deliveries; . . .

. . . In view of the fact that you have only effected settlement up to November 23, 1923, please inform us what adjustment you are willing to make for the period of time that has since elapsed without your complying with the contract.

In response to which on March 31, 1926, the defendant wrote this letter to the plaintiff:

In reply to your letter of March 26th, 1926, in regard to tar, we beg to advise you that we are prepared to furnish the minimum quantities of coal and water gas tars as per your letter, viz: twenty tons of water gas tar and six tons of coal gas tar. The price figured on present costs of raw materials is P39.01 ) Thirty-nine

and 01/100 Pesos) per ton of water gas and P33.59 (Thirty-three and 59/100 Pesos) per ton of coal tar.

We shall expect you to take delivery and pay for the above amount of tars at our factory on or before April 7th prox.

Thereafter we shall be ready to furnish equal amounts on the first of each month. Kindly make your arrangements accordingly.

On January 29, 1927, the plaintiff wrote the defendant that:

On July 31st last, we made demand upon you, under the terms of our tar contract for 50 per cent of your total coal tar production for that month and also served notice on you that beginning 90 days from August 1st we would require you total output of coal tar monthly; this in addition to the 20 tons of water gas tar provided for in the contract to be taken monthly.

x x x           x x x           x x x

We are here again on your for your total output of coal tar immediately and the regular minimum monthly quantity of water gas tar. In this connection we desire to advise you that within 90 days of your initial delivery to us of your total coal tar output we will require 50 per cent of your total water gas tar output, and, further, that two months thereafter we will require your total output of both tars.

February 2, 1927, the defendant wrote the plaintiff:

Replying to your letter of Jan. 29, we would sat that we have already returned to you the check enclosed there with. As we have repeatedly informed you we disagree with you as to the construction of your contract and insist that you take the whole output of both tars if you wish to secure the whole of the coal tar.

With regard to your threat of further suits we presume that you will act as advised. If you make it necessary we shall do the same.lawphil.net

From an analysis of these letters it clearly appears that the plaintiff then sought to reply upon and enforce the contract of January 1, 1920, and

17

that defendant denied plaintiff's construction of the contract, and insisted "that you take the whole output of both tars if you wish to secure the whole of the coal tar."

February 28, 1927, the plaintiff wrote the defendant:

In view of your numerous violations of and repeated refusal and failure to comply with the terms and provisions of our contract dated January 30-31, 1919, for the delivery to us of water and coal gas tars, etc., we will commence action," which it did.

The record tends to show that tars which the defendant delivered after April 7, 1926, were not delivered under the old contract of January 1, 1920, and that at all times since July 1920, the defendant has consistently refused to make any deliveries of any tars under that contract.

The referee found as a fact that plaintiff was entitled to P2,219.60 for and on account of overcharges which the defendant made for the deliveries of fifty-four tons of coal gas tar, and one hundred eighty tons of water gas tar after April, 1926, and upon that point the lower says:

The fourth charge that plaintiff makes is meritorious. The price was to be fixed on the basis of raw materials. The charge for deliveries during 1926 were too high. In this I agree with entirely with the referee and adopt his findings of fact and calculations. (See Referee's report, p. 83) The referee awarded for overcharge during the period aforesaid, the sum of P2,219.60. The defendant was trying to discharge plaintiff from buying tars and made the price of raw material appear as high as possible.

That finding is sustained upon the theory that the defendant broke its contract which it made with the plaintiff for the sale and delivery of the tars on and after April, 1926.

After careful study of the many important questions presented on this appeal in the exhaustive brief of the appellant, we are clearly of the opinion that, as found by the lower court, the plea of res judicata must be sustained. The judgment of the lower court is affirmed.

It is so ordered, with costs against the appellant.

Johnson, Street, Malcolm, Villamor, Ostrand, Romualdez, and Villa-Real, JJ., concur.

18

FIRST DIVISION

[G.R. No. 161135.  April 8, 2005]

SWAGMAN HOTELS AND TRAVEL, INC., petitioner, vs. HON. COURT OF APPEALS, and NEAL B. CHRISTIAN, respondents.

D E C I S I O N

DAVIDE, JR., C.J.:

May a complaint that lacks a cause of action at the time it was filed be cured by the accrual of a cause of action during the pendency of the case?  This is the basic issue raised in this petition for the Court’s consideration.

Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L. Infante and Rodney David Hegerty, its president and vice-president, respectively, obtained from private respondent Neal B. Christian loans evidenced by three promissory notes dated 7 August 1996, 14 March 1997, and 14 July 1997.  Each of the promissory notes is in the amount of US$50,000 payable after three years from its date with an interest of 15% per annum payable every three months. [1] In a letter dated 16 December 1998, Christian informed the petitioner corporation that he was terminating the loans and demanded from the latter payment in the total

amount of US$150,000 plus unpaid interests in the total amount of US$13,500.[2]

On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City, Branch 59, a complaint for a sum of money and damages against the petitioner corporation, Hegerty, and Atty. Infante.  The complaint alleged as follows:  On 7 August 1996, 14 March 1997, and 14 July 1997, the petitioner, as well as its president and vice-president obtained loans from him in the total amount of US$150,000 payable after three years, with an interest of 15% per annum payable quarterly or every three months.  For a while, they paid an interest of 15% per annum every three months in accordance with the three promissory notes.  However, starting January 1998 until December 1998, they paid him only an interest of 6% per annum, instead of 15% per annum, in violation of the terms of the three promissory notes.  Thus, Christian prayed that the trial court order them to pay him jointly and solidarily the amount of US$150,000 representing the total amount of the loans; US$13,500 representing unpaid interests from January 1998 until December 1998; P100,000 for moral damages; P50,000 for attorney’s fees; and the cost of the suit.[3]

The petitioner corporation, together with its president and vice-president, filed an Answer raising as defenses lack of cause of action and novation of the principal obligations.  According to them, Christian had no cause of action because the three promissory notes were not yet due and demandable.  In December 1997, since the petitioner corporation was experiencing huge losses due to the Asian financial crisis, Christian agreed (a) to waive the interest of 15% per annum, and (b) accept payments of the principal loans in installment basis, the amount and period of which would depend on the state of business of the petitioner corporation.  Thus, the petitioner paid Christian capital repayment in the amount of US$750 per month from January 1998 until the time the complaint was filed in February 1999.  The petitioner and its co-defendants then prayed that the complaint be dismissed and that Christian be ordered to pay P1 million as moral damages;P500,000 as exemplary damages; and P100,000 as attorney’s fees.[4]

In due course and after hearing, the trial court rendered a decision [5] on 5 May 2000 declaring the first two promissory notes dated 7 August 1996 and 14 March 1997 as already due and demandable and that the interest on the loans had been reduced by the parties from 15% to 6% per annum.  It then ordered the petitioner corporation to pay Christian the amount of $100,000 representing the principal obligation covered by the promissory notes dated 7 August 1996 and 14 March 1997, “plus interest of 6% per month thereon until fully paid, with all interest payments already paid by the defendant to the plaintiff to be deducted therefrom.”

The trial court ratiocinated in this wise:

19

(1) There was no novation of defendant’s obligation to the plaintiff. Under Article 1292 of the Civil Code, there is an implied novation only if the old and the new obligation be on every point incompatible with one another.

The test of incompatibility between the two obligations or contracts, according to an imminent author, is whether they can stand together, each one having an independent existence. If they cannot, they are incompatible, and the subsequent obligation novates the first (Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., p. 384). Otherwise, the old obligation will continue to subsist subject to the modifications agreed upon by the parties.  Thus, it has been written that accidental modifications in an existing obligation do not extinguish it by novation. Mere modifications of the debt agreed upon between the parties do not constitute novation. When the changes refer to secondary agreement and not to the object or principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation. Thus, the acceptance of partial payments or a partial remission does not involve novation (id., p. 387). Neither does the reduction of the amount of an obligation amount to a novation because it only means a partial remission or condonation of the same debt.

In the instant case, the Court is of the view that the parties merely intended to change the rate of interest from 15% per annum to 6% per annum when the defendant started paying $750 per month which payments were all accepted by the plaintiff from January 1998 onward. The payment of the principal obligation, however, remains unaffected which means that the defendant should still pay the plaintiff $50,000 on August 9, 1999, March 14, 2000 and July 14, 2000.

(2) When the instant case was filed on February 2, 1999, none of the promissory notes was due and demandable. As of this date however, the first and the second promissory notes have already matured.  Hence, payment is already due.

Under Section 5 of Rule 10 of 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 plaintiff had no cause of action at the time he filed the instant complaint, as defendants’ obligation are not yet due and demandable then, he may nevertheless recover on the first two promissory notes in view of the introduction of evidence showing that the obligations covered by the two promissory notes are now due and demandable.

(3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante can not be held personally liable for the obligations contracted by the defendant

corporation it being clear that they merely acted in representation of the defendant corporation in their capacity as General Manager and President, respectively, when they signed the promissory notes as evidenced by Board Resolution No. 1(94) passed by the Board of Directors of the defendant corporation (Exhibit “4”).[6]

In its decision[7] of 5 September 2003, the Court of Appeals denied petitioner’s appeal and affirmed in toto the decision of the trial court, holding as follows:

In the case at bench, there is no incompatibility because the changes referred to by appellant Swagman consist only in the manner of payment. . . .

Appellant Swagman’s interpretation that the three (3) promissory notes have been novated by reason of appellee Christian’s acceptance of the monthly payments of US$750.00 as capital repayments continuously even after the filing of the instant case is a little bit strained considering the stiff requirements of the law on novation that the intention to novate must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. Under the circumstances, the more reasonable interpretation of the act of the appellee Christian in receiving the monthly payments of US$750.00 is that appellee Christian merely allowed appellant Swagman to pay whatever amount the latter is capable of. This interpretation is supported by the letter of demand dated December 16, 1998 wherein appellee Christian demanded from appellant Swagman to return the principal loan in the amount of US$150,000 plus unpaid interest in the amount of US$13,500.00

. . .

Appellant Swagman, likewise, contends that, at the time of the filing of the complaint, appellee Christian ha[d] no cause of action because none of the promissory notes was due and demandable.

Again, We are not persuaded.

. . .

In the case at bench, while it is true that appellant Swagman raised in its Answer the issue of prematurity in the filing of the complaint, appellant Swagman nonetheless failed to object to appellee Christian’s presentation of evidence to the effect that the promissory notes have become due and demandable.

20

The afore-quoted rule allows a complaint which states no cause of action to be cured either by evidence presented without objection or, in the event of an objection sustained by the court, by an amendment of the complaint with leave of court (Herrera, Remedial Law, Vol. VII, 1997 ed., p. 108).[8]

Its motion for reconsideration having been denied by the Court of Appeals in its Resolution of 4 December 2003,[9] the petitioner came to this Court raising the following issues:

I.        WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO DEFENDANTS HAS BECOME FINAL AND EXECUTORY, MAY THE RESPONDENT COURT OF APPEALS STILL STUBBORNLY CONSIDER THEM AS APPELLANTS WHEN THEY DID NOT APPEAL?

II.       WHERE THERE IS NO CAUSE OF ACTION, IS THE DECISION OF THE LOWER COURT VALID?

III.      MAY THE RESPONDENT COURT OF APPEALS VALIDLY AFFIRM A DECISION OF THE LOWER COURT WHICH IS INVALID DUE TO LACK OF CAUSE OF ACTION?

IV.      WHERE THERE IS A VALID NOVATION, MAY THE ORIGINAL TERMS OF CONTRACT WHICH HAS BEEN NOVATED STILL PREVAIL?[10]

The petitioner harps on the absence of a cause of action at the time the private respondent’s complaint was filed with the trial court.  In connection with this, the petitioner raises the issue of novation by arguing that its obligations under the three promissory notes were novated by the renegotiation that happened in December 1997 wherein the private respondent agreed to waive the interest in each of the three promissory notes and to accept US$750 per month as installment payment for the principal loans in the total amount of US$150,000.  Lastly, the petitioner questions the act of the Court of Appeals in considering Hegerty and Infante as appellants when they no longer appealed because the trial court had already absolved them of the liability of the petitioner corporation.

On the other hand, the private respondent asserts that this petition is “a mere ploy to continue delaying the payment of a just obligation.”  Anent the fact that Hegerty and Atty. Infante were considered by the Court of Appeals as appellants, the private respondent finds it immaterial because they are not affected by the assailed decision anyway.

Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil Procedure, is the act or omission by which a party violates the right of another. Its essential elements are as follows:

1.  A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;

2.  An obligation on the part of the named defendant to respect or not to violate such right; and

3.  Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages or other appropriate relief.[11]

It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the plaintiff the right to maintain an action in court for recovery of damages or other appropriate relief.

It is undisputed that the three promissory 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 (3) the repayment of the principal loans after three years from their respective dates.  However, both the Court of Appeals and the trial court found that a renegotiation of the three promissory notes indeed happened in December 1997 between the private respondent and the petitioner resulting in the reduction – not waiver – of the interest from 15% to 6% per annum, which from then on was payable monthly, instead of quarterly.  The term of the principal loans remained unchanged in that they were still due three years from the respective dates of the promissory notes.  Thus, at the time the complaint was filed with the trial court on 2 February 1999, none of the three promissory notes was due yet; although, two of the promissory notes with the due dates of 7 August 1999 and 14 March 2000 matured during the pendency of the case with the trial court.  Both courts also found that the petitioner had been religiously paying the private respondent US$750 per month from January 1998 and even during the pendency of the case before the trial court and that the private respondent had accepted all these monthly payments.

With these findings of facts, it has become glaringly obvious that when the complaint for a sum of money and damages was filed with the trial court on 2 February 1999, no cause of action has as yet existed because the petitioner had not committed any act in violation of the terms of the three promissory notes as modified by the renegotiation in December 1997.  Without a cause of action, the private respondent had no right to maintain an action in court, and the trial court should have therefore dismissed his complaint.

Despite its finding that the petitioner corporation did not violate the modified terms of the three promissory notes and that the payment of the principal loans were not yet due when the complaint was filed, the trial court did not dismiss the complaint, citing Section 5, Rule 10 of the 1997 Rules of Civil Procedure, which reads:

21

Section 5. Amendment to conform to or authorize presentation of evidence. — When issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made.

According to the trial court, and sustained by the Court of Appeals, this Section allows a complaint that does not state a cause of action to be cured by evidence presented without objection during the trial.  Thus, it ruled that even if the private respondent had no cause of action when he filed the complaint for a sum of money and damages because none of the three promissory notes was due yet, he could nevertheless recover on the first two promissory notes dated 7 August 1996 and 14 March 1997, which became due during the pendency of the case in view of the introduction of evidence of their maturity during the trial.

Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is erroneous.

Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil Procedure in order that the actual merits of a case may be determined in the most expeditious and inexpensive manner without regard to technicalities, and that all other matters included in the case may be determined in a single proceeding, thereby avoiding multiplicity of suits.[12] Section 5 thereof applies to situations wherein evidence not within the issues raised in the pleadings is presented by the parties during the trial, and to conform to such evidence the pleadings are subsequently amended on motion of a party.  Thus, a complaint which fails to state a cause of action may be cured by evidence presented during the trial.

However, the curing effect under Section 5 is applicable only if a cause of action in fact exists at the time the complaint is filed, but the complaint is defective for failure to allege the essential facts. For example, if a complaint failed to allege the fulfillment of a condition precedent upon which the cause of action depends, evidence showing that such condition had already been fulfilled when the complaint was filed may be presented during the trial, and the complaint may accordingly be amended thereafter.[13] Thus, in Roces v. Jalandoni,[14] this Court upheld the trial court in taking cognizance of an otherwise defective complaint which was later cured by the testimony of the

plaintiff during the trial.  In that case, there was in fact a cause of action and the only problem was the insufficiency of the allegations in the complaint. This ruling was reiterated in Pascua v. Court of Appeals.[15]

It thus follows that 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.[16] 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.  As this Court eloquently said in Surigao Mine Exploration Co., Inc. v. Harris:[17]

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. As observed by counsel for appellees, there are reasons of public policy why there should be no needless haste in bringing up litigation, and why people who are in no default and against whom there is yet no cause of action should not be summoned before the public tribunals to answer complaints which are groundless. We say groundless because if the action is immature, it should not be entertained, and an action prematurely brought is a groundless suit.

It is true that an amended complaint and the answer thereto take the place of the originals which are thereby regarded as abandoned (Reynes vs. Compañía General de Tabacos [1912], 21 Phil. 416; Ruyman and Farris vs. Director of Lands [1916], 34 Phil., 428) and that “the complaint and answer having been superseded by the amended complaint and answer thereto, and the answer to the original complaint not having been presented in evidence as an exhibit, the trial court was not authorized to take it into account.” (Bastida vs. Menzi & Co. [1933], 58 Phil., 188.) But in none of these cases or in any other case have we held that if a right of action did not exist when the original complaint was filed, one could be created by filing an amended complaint. In some jurisdictions in the United States what was termed an “imperfect cause of action” could be perfected by suitable amendment (Brown vs. Galena Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is virtually permitted in Banzon and Rosauro vs. Sellner ([1933], 58 Phil., 453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683); and recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however, which is no cause of action whatsoever cannot by amendment or supplemental pleading be converted into a cause of action: Nihil de re accrescit ei qui nihil in re quando jus accresceret habet.

22

We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and subsisting cause of action at the time his action is commenced, the defect cannot be cured or remedied by the acquisition or accrual of one while the action is pending, and a supplemental complaint or an amendment setting up such after-accrued cause of action is not permissible. (Emphasis ours).

Hence, contrary to the holding of the trial court and the Court of Appeals, the defect of lack of cause of action at the commencement of this suit cannot be cured by the accrual of a cause of action during the pendency of this case arising from the alleged maturity of two of the promissory notes on 7 August 1999 and 14 March 2000.

Anent the issue of novation, this Court observes that the petitioner corporation argues the existence of novation based on its own version of what transpired during the renegotiation of the three promissory notes in December 1997.  By using its own version of facts, the petitioner is, in a way, questioning the findings of facts of the trial court and the Court of Appeals.

As a rule, the findings of fact of the trial court and the Court of Appeals are final and conclusive and cannot be reviewed on appeal to the Supreme Court[18] as long as they are borne out by the record or are based on substantial evidence.[19] The Supreme Court is not a trier of facts, its jurisdiction being limited to reviewing only errors of law that may have been committed by the lower courts. Among the exceptions is when the finding of fact of the trial court or the Court of Appeals is not supported by the evidence on record or is based on a misapprehension of facts.  Such exception obtains in the present case.[20]

This Court finds to be contrary to the evidence on record the finding of both the trial court and the Court of Appeals that the renegotiation in December 1997 resulted in the reduction of the interest from 15% to 6% per annum and that the monthly payments of US$750 made by the petitioner were for the reduced interests.

It is worthy to note that the cash voucher dated January 1998 [21] states that the payment of US$750 represents “INVESTMENT PAYMENT.” All the succeeding cash vouchers describe the payments from February 1998 to September 1999 as “CAPITAL REPAYMENT.”[22] All these cash vouchers served as receipts evidencing private respondent’s acknowledgment of the payments made by the petitioner: two of which were signed by the private respondent himself and all the others were signed by his representatives.  The private respondent even identified and confirmed the existence of these receipts during the hearing. [23] Significantly, cognizant of these receipts, the private respondent applied these payments to the three consolidated principal loans in the summary of payments he submitted to the court.[24]

Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall not be deemed to have been made until the interest has been covered.  In this case, the private respondent would not have signed the receipts describing the payments made by the petitioner as “capital repayment” if the obligation to pay the interest was still subsisting.  The receipts, as well as private respondent’s summary of payments, lend credence to petitioner’s claim that the payments were for the principal loans and that the interests on the three consolidated loans were waived by the private respondent during the undisputed renegotiation of the loans on account of the business reverses suffered by the petitioner at the time.

There was therefore a novation of the terms of the three promissory notes in that the interest was waived and the principal was payable in monthly installments of US$750.  Alterations of the terms and conditions of the obligation would generally result only in modificatory novation unless such terms and conditions are considered to be the essence of the obligation itself.[25] The resulting novation in this case was, therefore, of the modificatory type, not the extinctive type, since the obligation to pay a sum of money remains in force.

Thus, since the petitioner did not renege on its obligation to pay the monthly installments conformably with their new agreement and even continued paying during the pendency of the case, the private respondent had no cause of action to file the complaint.  It is only upon petitioner’s default in the payment of the monthly amortizations that a cause of action would arise and give the private respondent a right to maintain an action against the petitioner.

Lastly, the petitioner contends that the Court of Appeals obstinately included its President Infante and Vice-President Hegerty as appellants even if they did not appeal the trial court’s decision since they were found to be not personally liable for the obligation of the petitioner.  Indeed, the Court of Appeals erred in referring to them as defendants-appellants; nevertheless, that error is no cause for alarm because its ruling was clear that the petitioner corporation was the one solely liable for its obligation.  In fact, the Court of Appeals affirmed in toto the decision of the trial court, which means that it also upheld the latter’s ruling that Hegerty and Infante were not personally liable for the pecuniary obligations of the petitioner to the private respondent.

In sum, based on our disquisition on the lack of cause of action when the complaint for sum of money and damages was filed by the private respondent, the petition in the case at bar is impressed with merit.

WHEREFORE, the petition is hereby GRANTED. The Decision of 5 September 2003 of the Court of Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of 5 May 2000 of the Regional Trial Court of Baguio, Branch 59, granting in part private respondent’s complaint for sum of money

23

and damages, and its Resolution of 4 December 2003, which denied petitioner’s motion for reconsideration are hereby REVERSED and SET ASIDE.  The complaint docketed as Civil Case No. 4282-R is hereby DISMISSED for lack of cause of action.

No costs.

SO ORDERED.

Quisumbing, Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 182435               August 13, 2012

LILIA B. ADA, LUZ B. ADANZA, FLORA C. BA YLON, REMO BA YLON, JOSE BA YLON, ERIC BA YLON, FLORENTINO BA YLON, and MA. RUBY BA YLON, Petitioners, vs.FLORANTE BA YLON, Respondent.

VILLARAMA, JR.,*

D E C I S I O N

REYES, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the Decision1 dated October 26, 2007 rendered by the Court of Appeals (CA) in CA-G.R. CV No. 01746. The assailed decision partially reversed and set aside the Decision2 dated October 20, 2005 issued ~y the Regional Trial Court (RTC), Tan jay City, Negros Oriental, Branch 43 in Civil Case No. 11657.

The Antecedent Facts

This case involves the estate of spouses Florentino Baylon and Maximina Elnas Baylon (Spouses Baylon) who died on November 7, 1961 and May 5, 1974, respectively.3 At the time of their death, Spouses Baylon were survived by their legitimate children, namely, Rita Baylon (Rita), Victoria Baylon (Victoria), Dolores Baylon (Dolores), Panfila Gomez (Panfila), Ramon Baylon (Ramon) and herein petitioner Lilia B. Ada (Lilia).

Dolores died intestate and without issue on August 4, 1976. Victoria died on November 11, 1981 and was survived by her daughter, herein petitioner Luz B. Adanza. Ramon died intestate on July 8, 1989 and was survived by herein respondent Florante Baylon (Florante), his child from his first marriage, as well as by petitioner Flora Baylon, his second wife, and their legitimate children, namely, Ramon, Jr. and herein petitioners Remo, Jose, Eric, Florentino and Ma. Ruby, all surnamed Baylon.

On July 3, 1996, the petitioners filed with the RTC a Complaint4 for partition, accounting and damages against Florante, Rita and Panfila. They alleged therein that Spouses Baylon, during their lifetime, owned 43 parcels of land5 all situated in Negros Oriental. After the death of Spouses Baylon, they claimed that Rita took possession of the said parcels of land and appropriated for herself the income from the same. Using the income produced by the said parcels of land, Rita allegedly purchased two parcels of land, Lot No. 47096 and half of Lot No. 4706,7situated in Canda-uay, Dumaguete City. The petitioners averred that Rita refused to effect a partition of the said parcels of land.

In their Answer,8 Florante, Rita and Panfila asserted that they and the petitioners co-owned 229 out of the 43 parcels of land mentioned in the latter’s complaint, whereas Rita actually owned 10 parcels of land10 out of the 43 parcels which the petitioners sought to partition, while the remaining 11 parcels of land are separately owned by Petra Cafino Adanza,11 Florante,12 Meliton Adalia,13 Consorcia Adanza,14 Lilia15 and Santiago Mendez.16Further, they claimed that Lot No. 4709 and half of Lot No. 4706 were acquired by Rita using her own money. They denied that Rita appropriated solely for herself the income of the estate of Spouses Baylon, and expressed no objection to the partition of the estate of Spouses Baylon, but only with respect to the co-owned parcels of land.

During the pendency of the case, Rita, through a Deed of Donation dated July 6, 1997, conveyed Lot No. 4709 and half of Lot No. 4706 to Florante. On July 16, 2000, Rita died intestate and without any issue. Thereafter, learning of the said donation inter vivos in favor of Florante, the petitioners filed a Supplemental Pleading17 dated February 6, 2002, praying that the said donation in favor of the respondent be rescinded in accordance with Article 1381(4) of the Civil Code. They further alleged that Rita was already sick and

24

very weak when the said Deed of Donation was supposedly executed and, thus, could not have validly given her consent thereto.

Florante and Panfila opposed the rescission of the said donation, asserting that Article 1381(4) of the Civil Code applies only when there is already a prior judicial decree on who between the contending parties actually owned the properties under litigation.18

The RTC Decision

On October 20, 2005, the RTC rendered a Decision,19 the decretal portion of which reads:

Wherefore judgment is hereby rendered:

(1) declaring the existence of co-ownership over parcels nos. 1, 2, 3, 5, 7, 10, 13, 14, 16, 17, 18, 26, 29, 30, 33, 34, 35, 36, 40 and 41 described in the complaint;

(2) directing that the above mentioned parcels of land be partitioned among the heirs of Florentino Baylon and Maximina Baylon;

(3) declaring a co-ownership on the properties of Rita Baylon namely parcels no[s]. 6, 11, 12, 20, 24, 27, 31, 32, 39 and 42 and directing that it shall be partitioned among her heirs who are the plaintiffs and defendant in this case;

(4) declaring the donation inter vivos rescinded without prejudice to the share of Florante Baylon to the estate of Rita Baylon and directing that parcels nos. 1 and 2 paragraph V of the complaint be included in the division of the property as of Rita Baylon among her heirs, the parties in this case;

(5) excluding from the co-ownership parcels nos. 20, 21, 22, 9, 43, 4, 8, 19 and 37.

Considering that the parties failed to settle this case amicably and could not agree on the partition, the parties are directed to nominate a representative to act as commissioner to make the partition. He shall immediately take [his] oath of office upon [his] appointment. The commissioner shall make a report of all the proceedings as to the partition within fifteen (15) days from the completion of this partition. The parties are given ten (10) days within which

to object to the report after which the Court shall act on the commissioner report.

SO ORDERED.20 (Emphasis ours)

The RTC held that the death of Rita during the pendency of the case, having died intestate and without any issue, had rendered the issue of ownership insofar as parcels of land which she claims as her own moot since the parties below are the heirs to her estate. Thus, the RTC regarded Rita as the owner of the said 10 parcels of land and, accordingly, directed that the same be partitioned among her heirs. Nevertheless, the RTC rescinded the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. In rescinding the said donation inter vivos, the RTC explained that:

However, with respect to lot nos. 4709 and 4706 which [Rita] had conveyed to Florante Baylon by way of donation inter vivos, the plaintiffs in their supplemental pleadings (sic) assailed the same to be rescissible on the ground that it was entered into by the defendant Rita Baylon without the knowledge and approval of the litigants [or] of competent judicial authority. The subject parcels of lands are involved in the case for which plaintiffs have asked the Court to partition the same among the heirs of Florentino Baylon and Maximina Elnas.

Clearly, the donation inter vivos in favor of Florante Baylon was executed to prejudice the plaintiffs’ right to succeed to the estate of Rita Baylon in case of death considering that as testified by Florante Baylon, Rita Baylon was very weak and he tried to give her vitamins x x x. The donation inter vivos executed by Rita Baylon in favor of Florante Baylon is rescissible for the reason that it refers to the parcels of land in litigation x x x without the knowledge and approval of the plaintiffs or of this Court. However, the rescission shall not affect the share of Florante Baylon to the estate of Rita Baylon.21

Florante sought reconsideration of the Decision dated October 20, 2005 of the RTC insofar as it rescinded the donation of Lot No. 4709 and half of Lot No. 4706 in his favor.22 He asserted that, at the time of Rita’s death on July 16, 2000, Lot No. 4709 and half of Lot No. 4706 were no longer part of her estate as the same had already been conveyed to him through a donation inter vivos three years earlier. Thus, Florante maintained that Lot No. 4709 and half of Lot No. 4706 should not be included in the properties that should be partitioned among the heirs of Rita.

On July 28, 2006, the RTC issued an Order23 which denied the motion for reconsideration filed by Florante.

25

The CA Decision

On appeal, the CA rendered a Decision24 dated October 26, 2007, the dispositive portion of which reads:

WHEREFORE, the Decision dated October 20, 2005 and Order dated July 28, 2006 are REVERSEDand SET ASIDE insofar as they decreed the rescission of the Deed of Donation dated July 6, 1997 and the inclusion of lot no. 4709 and half of lot no. 4706 in the estate of Rita Baylon. The case isREMANDED to the trial court for the determination of ownership of lot no. 4709 and half of lot no. 4706.

SO ORDERED.25

The CA held that before the petitioners may file an action for rescission, they must first obtain a favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged to the estate of Spouses Baylon and not to Rita. Until then, the CA asserted, an action for rescission is premature. Further, the CA ruled that the petitioners’ action for rescission cannot be joined with their action for partition, accounting and damages through a mere supplemental pleading. Thus:

If Lot No. 4709 and half of Lot No. 4706 belonged to the Spouses’ estate, then Rita Baylon’s donation thereof in favor of Florante Baylon, in excess of her undivided share therein as co-heir, is void. Surely, she could not have validly disposed of something she did not own. In such a case, an action for rescission of the donation may, therefore, prosper.

If the lots, however, are found to have belonged exclusively to Rita Baylon, during her lifetime, her donation thereof in favor of Florante Baylon is valid. For then, she merely exercised her ownership right to dispose of what legally belonged to her. Upon her death, the lots no longer form part of her estate as their ownership now pertains to Florante Baylon. On this score, an action for rescission against such donation will not prosper. x x x.

Verily, before plaintiffs-appellees may file an action for rescission, they must first obtain a favorable judicial ruling that lot no. 4709 and half of lot no. 4706 actually belonged to the estate of Spouses Florentino and Maximina Baylon, and not to Rita Baylon during her lifetime. Until then, an action for rescission is premature. For this matter, the applicability of Article 1381, paragraph 4, of the New Civil Code must likewise await the trial court’s resolution of the issue of ownership.

Be that as it may, an action for rescission should be filed by the parties concerned independent of the proceedings below. The first cannot simply be lumped up with the second through a mere supplemental pleading.26 (Citation omitted)

The petitioners sought reconsideration27 of the Decision dated October 26, 2007 but it was denied by the CA in its Resolution28 dated March 6, 2008.

Hence, this petition.

Issue

The lone issue to be resolved by this Court is whether the CA erred in ruling that the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may only be rescinded if there is already a judicial determination that the same actually belonged to the estate of Spouses Baylon.

The Court’s Ruling

The petition is partly meritorious.

Procedural Matters

Before resolving the lone substantive issue in the instant case, this Court deems it proper to address certain procedural matters that need to be threshed out which, by laxity or otherwise, were not raised by the parties herein.

Misjoinder of Causes of Action

The complaint filed by the petitioners with the RTC involves two separate, distinct and independent actions – partition and rescission. First, the petitioners raised the refusal of their co-heirs, Florante, Rita and Panfila, to partition the properties which they inherited from Spouses Baylon. Second, in their supplemental pleading, the petitioners assailed the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 made by Rita in favor of Florante pendente lite.

The actions of partition andrescission cannot be joined in asingle action.

26

By a joinder of actions, or more properly, a joinder of causes of action is meant the uniting of two or more demands or rights of action in one action, the statement of more than one cause of action in a declaration. It is the union of two or more civil causes of action, each of which could be made the basis of a separate suit, in the same complaint, declaration or petition. A plaintiff may under certain circumstances join several distinct demands, controversies or rights of action in one declaration, complaint or petition.29

The objectives of the rule or provision are to avoid a multiplicity of suits where the same parties and subject matter are to be dealt with by effecting in one action a complete determination of all matters in controversy and litigation between the parties involving one subject matter, and to expedite the disposition of litigation at minimum cost. The provision should be construed so as to avoid such multiplicity, where possible, without prejudice to the rights of the litigants.30

Nevertheless, while parties to an action may assert in one pleading, in the alternative or otherwise, as many causes of action as they may have against an opposing party, such joinder of causes of action is subject to the condition, inter alia, that the joinder shall not include special civil actions governed by special rules.31

Here, there was a misjoinder of causes of action. The action for partition filed by the petitioners could not be joined with the action for the rescission of the said donation inter vivos in favor of Florante. Lest it be overlooked, an action for partition is a special civil action governed by Rule 69 of the Rules of Court while an action for rescission is an ordinary civil action governed by the ordinary rules of civil procedure. The variance in the procedure in the special civil action of partition and in the ordinary civil action of rescission precludes their joinder in one complaint or their being tried in a single proceeding to avoid confusion in determining what rules shall govern the conduct of the proceedings as well as in the determination of the presence of requisite elements of each particular cause of action.32

A misjoined cause of action, if notsevered upon motion of a party orby the court sua sponte, may beadjudicated by the court togetherwith the other causes of action.

Nevertheless, misjoinder of causes of action is not a ground for dismissal. Indeed, the courts have the power, acting upon the motion of a party to the case or sua sponte, to order the severance of the misjoined cause of action to be proceeded with separately.33 However, if there is no objection to the

improper joinder or the court did not motu proprio direct a severance, then there exists no bar in the simultaneous adjudication of all the erroneously joined causes of action. On this score, our disquisition in Republic of the Philippines v. Herbieto34 is instructive, viz:

This Court, however, disagrees with petitioner Republic in this regard. This procedural lapse committed by the respondents should not affect the jurisdiction of the MTC to proceed with and hear their application for registration of the Subject Lots.

x x x x

Considering every application for land registration filed in strict accordance with the Property Registration Decree as a single cause of action, then the defect in the joint application for registration filed by the respondents with the MTC constitutes a misjoinder of causes of action and parties. Instead of a single or joint application for registration, respondents Jeremias and David, more appropriately, should have filed separate applications for registration of Lots No. 8422 and 8423, respectively.

Misjoinder of causes of action and parties do not involve a question of jurisdiction of the court to hear and proceed with the case. They are not even accepted grounds for dismissal thereof. Instead, under the Rules of Court, the misjoinder of causes of action and parties involve an implied admission of the court’s jurisdiction. It acknowledges the power of the court, acting upon the motion of a party to the case or on its own initiative, to order the severance of the misjoined cause of action, to be proceeded with separately (in case of misjoinder of causes of action); and/or the dropping of a party and the severance of any claim against said misjoined party, also to be proceeded with separately (in case of misjoinder of parties).35 (Citations omitted)

It should be emphasized that the foregoing rule only applies if the court trying the case has jurisdiction over all of the causes of action therein notwithstanding the misjoinder of the same. If the court trying the case has no jurisdiction over a misjoined cause of action, then such misjoined cause of action has to be severed from the other causes of action, and if not so severed, any adjudication rendered by the court with respect to the same would be a nullity.

Here, Florante posed no objection, and neither did the RTC direct the severance of the petitioners’ action for rescission from their action for partition. While this may be a patent omission on the part of the RTC, this does not constitute a ground to assail the validity and correctness of its

27

decision. The RTC validly adjudicated the issues raised in the actions for partition and rescission filed by the petitioners.

Asserting a New Cause of Action in a Supplemental Pleading

In its Decision dated October 26, 2007, the CA pointed out that the said action for rescission should have been filed by the petitioners independently of the proceedings in the action for partition. It opined that the action for rescission could not be lumped up with the action for partition through a mere supplemental pleading.

We do not agree.

A supplemental pleading may raisea new cause of action as long as ithas some relation to the originalcause of action set forth in theoriginal complaint.

Section 6, Rule 10 of the Rules of Court reads:

Sec. 6. Supplemental Pleadings. – Upon motion of a party the court may, upon reasonable notice and upon such terms as are just, permit him to serve a supplemental pleading setting forth transactions, occurrences or events which have happened since the date of the pleading sought to be supplemented. The adverse party may plead thereto within ten (10) days from notice of the order admitting the supplemental pleading.

In Young v. Spouses Sy,36 this Court had the opportunity to elucidate on the purpose of a supplemental pleading. Thus:

As its very name denotes, a supplemental pleading only serves to bolster or add something to the primary pleading. A supplement exists side by side with the original. It does not replace that which it supplements. Moreover, a supplemental pleading assumes that the original pleading is to stand and that the issues joined with the original pleading remained an issue to be tried in the action. It is but a continuation of the complaint. Its usual office is to set up new facts which justify, enlarge or change the kind of relief with respect to the same subject matter as the controversy referred to in the original complaint.

The purpose of the supplemental pleading is to bring into the records new facts which will enlarge or change the kind of relief to which the plaintiff is

entitled; hence, any supplemental facts which further develop the original right of action, or extend to vary the relief, are available by way of supplemental complaint even though they themselves constitute a right of action.37 (Citations omitted and emphasis ours)

Thus, a supplemental pleading may properly allege transactions, occurrences or events which had transpired after the filing of the pleading sought to be supplemented, even if the said supplemental facts constitute another cause of action.

Admittedly, in Leobrera v. Court of Appeals,38 we held that a supplemental pleading must be based on matters arising subsequent to the original pleading related to the claim or defense presented therein, and founded on the same cause of action. We further stressed therein that a supplemental pleading may not be used to try a new cause of action.

However, in Planters Development Bank v. LZK Holdings and Development Corp.,39 we clarified that, while a matter stated in a supplemental complaint should have some relation to the cause of action set forth in the original pleading, the fact that the supplemental pleading technically states a new cause of action should not be a bar to its allowance but only a matter that may be considered by the court in the exercise of its discretion. In such cases, we stressed that a broad definition of "cause of action" should be applied.

Here, the issue as to the validity of the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 made by Rita in favor of Florante is a new cause of action that occurred after the filing of the original complaint. However, the petitioners’ prayer for the rescission of the said donation inter vivos in their supplemental pleading is germane to, and is in fact, intertwined with the cause of action in the partition case. Lot No. 4709 and half of Lot No. 4706 are included among the properties that were sought to be partitioned.

The petitioners’ supplemental pleading merely amplified the original cause of action, on account of the gratuitous conveyance of Lot No. 4709 and half of Lot No. 4706 after the filing of the original complaint and prayed for additional reliefs, i.e., rescission. Indeed, the petitioners claim that the said lots form part of the estate of Spouses Baylon, but cannot be partitioned unless the gratuitous conveyance of the same is rescinded. Thus, the principal issue raised by the petitioners in their original complaint remained the same.

Main Issue: Propriety of Rescission

28

After having threshed out the procedural matters, we now proceed to adjudicate the substantial issue presented by the instant petition.

The petitioners assert that the CA erred in remanding the case to the RTC for the determination of ownership of Lot No. 4709 and half of Lot No. 4706. They maintain that the RTC aptly rescinded the said donation inter vivos of Lot No. 4709 and half of Lot No. 4706 pursuant to Article 1381(4) of the Civil Code.

In his Comment,40 Florante asserts that before the petitioners may file an action for rescission, they must first obtain a favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged to the estate of Spouses Baylon. Until then, Florante avers that an action for rescission would be premature.

The petitioners’ contentions are well-taken.

The resolution of the instant dispute is fundamentally contingent upon a determination of whether the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may be rescinded pursuant to Article 1381(4) of the Civil Code on the ground that the same was made during the pendency of the action for partition with the RTC.

Rescission is a remedy to addressthe damage or injury caused to thecontracting parties or thirdpersons.

Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if it should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract.41 It is a remedy to make ineffective a contract, validly entered into and therefore obligatory under normal conditions, by reason of external causes resulting in a pecuniary prejudice to one of the contracting parties or their creditors.42

Contracts which are rescissible are valid contracts having all the essential requisites of a contract, but by reason of injury or damage caused to either of the parties therein or to third persons are considered defective and, thus, may be rescinded.

The kinds of rescissible contracts, according to the reason for their susceptibility to rescission, are the following: first, those which are rescissible because of lesion or prejudice;43 second, those which are rescissible on

account of fraud or bad faith;44 and third, those which, by special provisions of law,45 are susceptible to rescission.46

Contracts which refer to thingssubject of litigation is rescissiblepursuant to Article 1381(4) of theCivil Code.

Contracts which are rescissible due to fraud or bad faith include those which involve things under litigation, if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority. Thus, Article 1381(4) of the Civil Code provides:

Art. 1381. The following contracts are rescissible:

x x x x

(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority.

The rescission of a contract under Article 1381(4) of the Civil Code only requires the concurrence of the following: first, the defendant, during the pendency of the case, enters into a contract which refers to the thing subject of litigation; and second, the said contract was entered into without the knowledge and approval of the litigants or of a competent judicial authority. As long as the foregoing requisites concur, it becomes the duty of the court to order the rescission of the said contract.

The reason for this is simple. Article 1381(4) seeks to remedy the presence of bad faith among the parties to a case and/or any fraudulent act which they may commit with respect to the thing subject of litigation.

When a thing is the subject of a judicial controversy, it should ultimately be bound by whatever disposition the court shall render. The parties to the case are therefore expected, in deference to the court’s exercise of jurisdiction over the case, to refrain from doing acts which would dissipate or debase the thing subject of the litigation or otherwise render the impending decision therein ineffectual.

There is, then, a restriction on the disposition by the parties of the thing that is the subject of the litigation. Article 1381(4) of the Civil Code requires that any contract entered into by a defendant in a case which refers to things

29

under litigation should be with the knowledge and approval of the litigants or of a competent judicial authority.

Further, any disposition of the thing subject of litigation or any act which tends to render inutile the court’s impending disposition in such case, sans the knowledge and approval of the litigants or of the court, is unmistakably and irrefutably indicative of bad faith. Such acts undermine the authority of the court to lay down the respective rights of the parties in a case relative to the thing subject of litigation and bind them to such determination.

It should be stressed, though, that the defendant in such a case is not absolutely proscribed from entering into a contract which refer to things under litigation. If, for instance, a defendant enters into a contract which conveys the thing under litigation during the pendency of the case, the conveyance would be valid, there being no definite disposition yet coming from the court with respect to the thing subject of litigation. After all, notwithstanding that the subject thereof is a thing under litigation, such conveyance is but merely an exercise of ownership.

This is true even if the defendant effected the conveyance without the knowledge and approval of the litigants or of a competent judicial authority. The absence of such knowledge or approval would not precipitate the invalidity of an otherwise valid contract. Nevertheless, such contract, though considered valid, may be rescinded at the instance of the other litigants pursuant to Article 1381(4) of the Civil Code.

Here, contrary to the CA’s disposition, the RTC aptly ordered the rescission of the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. The petitioners had sufficiently established the presence of the requisites for the rescission of a contract pursuant to Article 1381(4) of the Civil Code. It is undisputed that, at the time they were gratuitously conveyed by Rita, Lot No. 4709 and half of Lot No. 4706 are among the properties that were the subject of the partition case then pending with the RTC. It is also undisputed that Rita, then one of the defendants in the partition case with the RTC, did not inform nor sought the approval from the petitioners or of the RTC with regard to the donation inter vivos of the said parcels of land to Florante.

Although the gratuitous conveyance of the said parcels of land in favor of Florante was valid, the donation inter vivos of the same being merely an exercise of ownership, Rita’s failure to inform and seek the approval of the petitioners or the RTC regarding the conveyance gave the petitioners the right to have the said donation rescinded pursuant to Article 1381(4) of the Civil Code.

Rescission under Article 1381(4) ofthe Civil Code is not preconditionedupon the judicial determination asto the ownership of the thingsubject of litigation.

In this regard, we also find the assertion that rescission may only be had after the RTC had finally determined that the parcels of land belonged to the estate of Spouses Baylon intrinsically amiss. The petitioners’ right to institute the action for rescission pursuant to Article 1381(4) of the Civil Code is not preconditioned upon the RTC’s determination as to the ownership of the said parcels of land.

It bears stressing that the right to ask for the rescission of a contract under Article 1381(4) of the Civil Code is not contingent upon the final determination of the ownership of the thing subject of litigation. The primordial purpose of Article 1381(4) of the Civil Code is to secure the possible effectivity of the impending judgment by a court with respect to the thing subject of litigation. It seeks to protect the binding effect of a court’s impending adjudication vis-à-vis the thing subject of litigation regardless of which among the contending claims therein would subsequently be upheld. Accordingly, a definitive judicial determination with respect to the thing subject of litigation is not a condition sine qua non before the rescissory action contemplated under Article 1381(4) of the Civil Code may be instituted.

Moreover, conceding that the right to bring the rescissory action pursuant to Article 1381(4) of the Civil Code is preconditioned upon a judicial determination with regard to the thing subject litigation, this would only bring about the very predicament that the said provision of law seeks to obviate. Assuming arguendo that a rescissory action under Article 1381(4) of the Civil Code could only be instituted after the dispute with respect to the thing subject of litigation is judicially determined, there is the possibility that the same may had already been conveyed to third persons acting in good faith, rendering any judicial determination with regard to the thing subject of litigation illusory. Surely, this paradoxical eventuality is not what the law had envisioned.

Even if the donation inter vivos isvalidly rescinded, a determinationas to the ownership of the subjectparcels of land is still necessary.

30

Having established that the RTC had aptly ordered the rescission of the said donation inter vivos in favor of Florante, the issue that has to be resolved by this Court is whether there is still a need to determine the ownership of Lot No. 4709 and half of Lot No. 4706.

In opting not to make a determination as to the ownership of Lot No. 4709 and half of Lot No. 4706, the RTC reasoned that the parties in the proceedings before it constitute not only the surviving heirs of Spouses Baylon but the surviving heirs of Rita as well. As intimated earlier, Rita died intestate during the pendency of the proceedings with the RTC without any issue, leaving the parties in the proceedings before the RTC as her surviving heirs. Thus, the RTC insinuated, a definitive determination as to the ownership of the said parcels of land is unnecessary since, in any case, the said parcels of land would ultimately be adjudicated to the parties in the proceedings before it.

We do not agree.

Admittedly, whoever may be adjudicated as the owner of Lot No. 4709 and half of Lot No. 4706, be it Rita or Spouses Baylon, the same would ultimately be transmitted to the parties in the proceedings before the RTC as they are the only surviving heirs of both Spouses Baylon and Rita. However, the RTC failed to realize that a definitive adjudication as to the ownership of Lot No. 4709 and half of Lot No. 4706 is essential in this case as it affects the authority of the RTC to direct the partition of the said parcels of land. Simply put, the RTC cannot properly direct the partition of Lot No. 4709 and half of Lot No. 4706 until and unless it determines that the said parcels of land indeed form part of the estate of Spouses Baylon.

It should be stressed that the partition proceedings before the RTC only covers the properties co-owned by the parties therein in their respective capacity as the surviving heirs of Spouses Baylon. Hence, the authority of the RTC to issue an order of partition in the proceedings before it only affects those properties which actually belonged to the estate of Spouses Baylon.

In this regard, if Lot No. 4709 and half of Lot No. 4706, as unwaveringly claimed by Florante, are indeed exclusively owned by Rita, then the said parcels of land may not be partitioned simultaneously with the other properties subject of the partition case before the RTC. In such case, although the parties in the case before the RTC are still co-owners of the said parcels of land, the RTC would not have the authority to direct the partition of the said parcels of land as the proceedings before it is only concerned with the estate of Spouses Baylon.

WHEREFORE, in consideration of the foregoing disquisitions, the petition is PARTIALLY GRANTED. The Decision dated October 26, 2007 issued by the Court of Appeals in CA-G.R. CV No. 01746 is MODIFIED in that the Decision dated October 20, 2005 issued by the Regional Trial Court, Tanjay City, Negros Oriental, Branch 43 in Civil Case No. 11657, insofar as it decreed the rescission of the Deed of Donation dated July 6, 1997 is herebyREINSTATED. The case is REMANDED to the trial court for the determination of the ownership of Lot No. 4709 and half of Lot No. 4706 in accordance with this Decision.

SO ORDERED.

BIENVENIDO L. REYESAssociate Justice

31

Republic of the PhilippinesSUPREME COURT

Baguio City

EN BANC

G.R. No. 166620               April 20, 2010

ATTY. SYLVIA BANDA, CONSORICIA O. PENSON, RADITO V. PADRIGANO, JEAN R. DE MESA, LEAH P. DELA CRUZ, ANDY V. MACASAQUIT, SENEN B. CORDOBA, ALBERT BRILLANTES, GLORIA BISDA, JOVITA V. CONCEPCION, TERESITA G. CARVAJAL, ROSANNA T. MALIWANAG, RICHARD ODERON, CECILIA ESTERNON, BENEDICTO CABRAL, MA. VICTORIA E. LAROCO, CESAR ANDRA, FELICISIMO GALACIO, ELSA R. CALMA, FILOMENA A. GALANG, JEAN PAUL MELEGRITO, CLARO G. SANTIAGO, JR., EDUARDO FRIAS, REYNALDO O. ANDAL, NEPHTALIE IMPERIO, RUEL BALAGTAS, VICTOR R. ORTIZ, FRANCISCO P. REYES, JR., ELISEO M. BALAGOT, JR., JOSE C. MONSALVE, JR., ARTURO ADSUARA, F.C. LADRERO, JR., NELSON PADUA, MARCELA C. SAYAO, ANGELITO MALAKAS, GLORIA RAMENTO, JULIANA SUPLEO, MANUEL MENDRIQUE, E. TAYLAN, CARMELA BOBIS, DANILO VARGAS, ROY-LEO C. PABLO, ALLAN VILLANUEVA, VICENTE R. VELASCO, JR., IMELDA ERENO, FLORIZA M. CATIIS, RANIEL R. BASCO, E. JALIJALI, MARIO C. CARAAN, DOLORES M. AVIADO, MICHAEL P. LAPLANA, GUILLERMO G.

SORIANO, ALICE E. SOJO, ARTHUR G. NARNE, LETICIA SORIANO, FEDERICO RAMOS, JR., PETERSON CAAMPUED, RODELIO L. GOMEZ, ANTONIO D. GARCIA, JR., ANTONIO GALO, A. SANCHEZ, SOL E. TAMAYO, JOSEPHINE A.M. COCJIN, DAMIAN QUINTO, JR., EDLYN MARIANO, M.A. MALANUM, ALFREDO S. ESTRELLA, and JESUS MEL SAYO,Petitioners, vs.EDUARDO R. ERMITA, in his capacity as Executive Secretary, The Director General of the Philippine Information Agency and The National Treasurer, Respondents.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

The present controversy arose from a Petition for Certiorari and prohibition challenging the constitutionality of Executive Order No. 378 dated October 25, 2004, issued by President Gloria Macapagal Arroyo (President Arroyo). Petitioners characterize their action as a class suit filed on their own behalf

and on behalf of all their co-employees at the National Printing Office (NPO).

The NPO was formed on July 25, 1987, during the term of former President Corazon C. Aquino (President Aquino), by virtue of Executive Order No. 2851 which provided, among others, the creation of the NPO from the merger of the Government Printing Office and the relevant printing units of the Philippine Information Agency (PIA). Section 6 of Executive Order No. 285 reads:

SECTION 6. Creation of the National Printing Office. – There is hereby created a National Printing Office out of the merger of the Government Printing Office and the relevant printing units of the Philippine Information Agency. The Office shall have exclusive printing jurisdiction over the following:

a. Printing, binding and distribution of all standard and accountable forms of national, provincial, city and municipal governments, including government corporations;

b. Printing of officials ballots;

c. Printing of public documents such as the Official Gazette, General Appropriations Act, Philippine Reports, and development information materials of the Philippine Information Agency.

32

The Office may also accept other government printing jobs, including government publications, aside from those enumerated above, but not in an exclusive basis.

The details of the organization, powers, functions, authorities, and related management aspects of the Office shall be provided in the implementing details which shall be prepared and promulgated in accordance with Section II of this Executive Order.

The Office shall be attached to the Philippine Information Agency.

On October 25, 2004, President Arroyo issued the herein assailed Executive Order No. 378, amending Section 6 of Executive Order No. 285 by, inter alia, removing the exclusive jurisdiction of the NPO over the printing services requirements of government agencies and instrumentalities. The pertinent portions of Executive Order No. 378, in turn, provide:

SECTION 1. The NPO shall continue to provide printing services to government agencies and instrumentalities as mandated by law. However, it shall no longer enjoy exclusive jurisdiction over the printing services requirements of the government over standard and accountable forms. It shall have to compete with the private sector, except in the printing of election paraphernalia which could be shared with the Bangko Sentral ng Pilipinas, upon the discretion of the Commission on Elections consistent with the provisions of the Election Code of 1987.

SECTION 2. Government agencies/instrumentalities may source printing services outside NPO provided that:

2.1 The printing services to be provided by the private sector is superior in quality and at a lower cost than what is offered by the NPO; and

2.2 The private printing provider is flexible in terms of meeting the target completion time of the government agency.

SECTION 3. In the exercise of its functions, the amount to be appropriated for the programs, projects and activities of the NPO in the General Appropriations Act (GAA) shall be limited to its income without additional financial support from the government. (Emphases and underscoring supplied.)

Pursuant to Executive Order No. 378, government agencies and instrumentalities are allowed to source their printing services from the private sector through competitive bidding, subject to the condition that the services offered by the private supplier be of superior quality and lower in cost compared to what was offered by the NPO. Executive Order No. 378 also limited NPO’s appropriation in the General Appropriations Act to its income.

Perceiving Executive Order No. 378 as a threat to their security of tenure as employees of the NPO, petitioners now challenge its constitutionality, contending that: (1) it is beyond the executive powers of President Arroyo to amend or repeal Executive Order No. 285 issued by former President Aquino when the latter still exercised legislative powers; and (2) Executive Order No. 378 violates petitioners’ security of tenure, because it paves the way for the gradual abolition of the NPO.

We dismiss the petition.

Before proceeding to resolve the substantive issues, the Court must first delve into a procedural matter. Since petitioners instituted this case as a class suit, the Court, thus, must first determine if the petition indeed qualifies as one. In Board of Optometry v. Colet,2 we held that "[c]ourts must exercise utmost caution before allowing a class suit, which is the exception to the requirement of joinder of all indispensable parties. For while no difficulty may arise if the decision secured is favorable to the plaintiffs, a quandary would result if the decision were otherwise as those who were deemed impleaded by their self-appointed representatives would certainly claim denial of due process."

Section 12, Rule 3 of the Rules of Court defines a class suit, as follows:

Sec. 12. Class suit. – When the subject matter of the controversy is one of common or general interest to many persons so numerous that it is impracticable to join all as parties, a number of them which the court finds to be sufficiently numerous and representative as to fully protect the interests of all concerned may sue or defend for the benefit of all. Any party in interest shall have the right to intervene to protect his individual interest.

From the foregoing definition, the requisites of a class suit are: 1) the subject matter of controversy is one of common or general interest to many persons; 2) the parties affected are so numerous that it is impracticable to bring them all to court; and 3) the parties bringing the class suit are sufficiently numerous or representative of the class and can fully protect the interests of all concerned.

33

In Mathay v. The Consolidated Bank and Trust Company,3 the Court held that:

An action does not become a class suit merely because it is designated as such in the pleadings. Whether the suit is or is not a class suit depends upon the attending facts, and the complaint, or other pleading initiating the class action should allege the existence of the necessary facts, to wit, the existence of a subject matter of common interest, and the existence of a class and the number of persons in the alleged class, in order that the court might be enabled to determine whether the members of the class are so numerous as to make it impracticable to bring them all before the court, to contrast the number appearing on the record with the number in the class and to determine whether claimants on record adequately represent the class and the subject matter of general or common interest. (Emphases ours.)

Here, the petition failed to state the number of NPO employees who would be affected by the assailed Executive Order and who were allegedly represented by petitioners. It was the Solicitor General, as counsel for respondents, who pointed out that there were about 549 employees in the NPO.4 The 67 petitioners undeniably comprised a small fraction of the NPO employees whom they claimed to represent. Subsequently, 32 of the original petitioners executed an Affidavit of Desistance, while one signed a letter denying ever signing the petition,5 ostensibly reducing the number of petitioners to 34. We note that counsel for the petitioners challenged the validity of the desistance or withdrawal of some of the petitioners and insinuated that such desistance was due to pressure from people "close to the seat of power."6 Still, even if we were to disregard the affidavit of desistance filed by some of the petitioners, it is highly doubtful that a sufficient, representative number of NPO employees have instituted this purported class suit. A perusal of the petition itself would show that of the 67 petitioners who signed the Verification/Certification of Non-Forum Shopping, only 20 petitioners were in fact mentioned in the jurat as having duly subscribed the petition before the notary public. In other words, only 20 petitioners effectively instituted the present case.

Indeed, in MVRS Publications, Inc. v. Islamic Da’wah Council of the Philippines, Inc.,7 we observed that an element of a class suit or representative suit is the adequacy of representation. In determining the question of fair and adequate representation of members of a class, the court must consider (a) whether the interest of the named party is coextensive with the interest of the other members of the class; (b) the proportion of those made a party, as it so bears, to the total membership of the class; and (c) any other factor bearing on the ability of the named party to speak for the rest of the class.

Previously, we held in Ibañes v. Roman Catholic Church8 that where the interests of the plaintiffs and the other members of the class they seek to represent are diametrically opposed, the class suit will not prosper.

It is worth mentioning that a Manifestation of Desistance,9 to which the previously mentioned Affidavit of Desistance10 was attached, was filed by the President of the National Printing Office Workers Association (NAPOWA). The said manifestation expressed NAPOWA’s opposition to the filing of the instant petition in any court. Even if we take into account the contention of petitioners’ counsel that the NAPOWA President had no legal standing to file such manifestation, the said pleading is a clear indication that there is a divergence of opinions and views among the members of the class sought to be represented, and not all are in favor of filing the present suit. There is here an apparent conflict between petitioners’ interests and those of the persons whom they claim to represent. Since it cannot be said that petitioners sufficiently represent the interests of the entire class, the instant case cannot be properly treated as a class suit.

As to the merits of the case, the petition raises two main grounds to assail the constitutionality of Executive Order No. 378:

First, it is contended that President Arroyo cannot amend or repeal Executive Order No. 285 by the mere issuance of another executive order (Executive Order No. 378). Petitioners maintain that former President Aquino’s Executive Order No. 285 is a legislative enactment, as the same was issued while President Aquino still had legislative powers under the Freedom Constitution;11 thus, only Congress through legislation can validly amend Executive Order No. 285.

Second, petitioners maintain that the issuance of Executive Order No. 378 would lead to the eventual abolition of the NPO and would violate the security of tenure of NPO employees.

Anent the first ground raised in the petition, we find the same patently without merit.

It is a well-settled principle in jurisprudence that the President has the power to reorganize the offices and agencies in the executive department in line with the President’s constitutionally granted power of control over executive offices and by virtue of previous delegation of the legislative power to reorganize executive offices under existing statutes.

In Buklod ng Kawaning EIIB v. Zamora,12 the Court pointed out that Executive Order No. 292 or the Administrative Code of 1987 gives the

34

President continuing authority to reorganize and redefine the functions of the Office of the President. Section 31, Chapter 10, Title III, Book III of the said Code, is explicit:

Sec. 31. Continuing Authority of the President to Reorganize his Office. – The President, subject to the policy in the Executive Office and in order to achieve simplicity, economy and efficiency, shall have continuing authority to reorganize the administrative structure of the Office of the President. For this purpose, he may take any of the following actions:

(1) Restructure the internal organization of the Office of the President Proper, including the immediate Offices, the President Special Assistants/Advisers System and the Common Staff Support System, by abolishing, consolidating or merging units thereof or transferring functions from one unit to another;

(2) Transfer any function under the Office of the President to any other Department or Agency as well as transfer functions to the Office of the President from other Departments and Agencies; and

(3) Transfer any agency under the Office of the President to any other department or agency as well as transfer agencies to the Office of the President from other Departments or agencies. (Emphases ours.)

Interpreting the foregoing provision, we held in Buklod ng Kawaning EIIB, thus:

But of course, the list of legal basis authorizing the President to reorganize any department or agency in the executive branch does not have to end here. We must not lose sight of the very source of the power – that which constitutes an express grant of power. Under Section 31, Book III of Executive Order No. 292 (otherwise known as the Administrative Code of 1987), "the President, subject to the policy in the Executive Office and in order to achieve simplicity, economy and efficiency, shall have the continuing authority to reorganize the administrative structure of the Office of the President." For this purpose, he may transfer the functions of other Departments or Agencies to the Office of the President. In Canonizado v. Aguirre [323 SCRA 312 (2000)], we ruled that reorganization "involves the reduction of personnel, consolidation of offices, or abolition thereof by reason of economy or redundancy of functions." It takes place when there is an alteration of the existing structure of government offices or units therein, including the lines of control, authority and responsibility between them. The EIIB is a bureau attached to the Department of Finance. It falls under the

Office of the President. Hence, it is subject to the President’s continuing authority to reorganize.13 (Emphasis ours.)

It is undisputed that the NPO, as an agency that is part of the Office of the Press Secretary (which in various times has been an agency directly attached to the Office of the Press Secretary or as an agency under the Philippine Information Agency), is part of the Office of the President.14

Pertinent to the case at bar, Section 31 of the Administrative Code of 1987 quoted above authorizes the President (a) to restructure the internal organization of the Office of the President Proper, including the immediate Offices, the President Special Assistants/Advisers System and the Common Staff Support System, by abolishing, consolidating or merging units thereof or transferring functions from one unit to another, and (b) to transfer functions or offices from the Office of the President to any other Department or Agency in the Executive Branch, and vice versa.

Concomitant to such power to abolish, merge or consolidate offices in the Office of the President Proper and to transfer functions/offices not only among the offices in the Office of President Proper but also the rest of the Office of the President and the Executive Branch, the President implicitly has the power to effect less radical or less substantive changes to the functional and internal structure of the Office of the President, including the modification of functions of such executive agencies as the exigencies of the service may require.

In the case at bar, there was neither an abolition of the NPO nor a removal of any of its functions to be transferred to another agency. Under the assailed Executive Order No. 378, the NPO remains the main printing arm of the government for all kinds of government forms and publications but in the interest of greater economy and encouraging efficiency and profitability, it must now compete with the private sector for certain government printing jobs, with the exception of election paraphernalia which remains the exclusive responsibility of the NPO, together with the Bangko Sentral ng Pilipinas, as the Commission on Elections may determine. At most, there was a mere alteration of the main function of the NPO by limiting the exclusivity of its printing responsibility to election forms.15

There is a view that the reorganization actions that the President may take with respect to agencies in the Office of the President are strictly limited to transfer of functions and offices as seemingly provided in Section 31 of the Administrative Code of 1987.

35

However, Section 20, Chapter 7, Title I, Book III of the same Code significantly provides:

Sec. 20. Residual Powers. – Unless Congress provides otherwise, the President shall exercise such other powers and functions vested in the President which are provided for under the laws and which are not specifically enumerated above, or which are not delegated by the President in accordance with law. (Emphasis ours.)

Pursuant to Section 20, the power of the President to reorganize the Executive Branch under Section 31 includes such powers and functions that may be provided for under other laws. To be sure, an inclusive and broad interpretation of the President’s power to reorganize executive offices has been consistently supported by specific provisions in general appropriations laws.

In the oft-cited Larin v. Executive Secretary,16 the Court likewise adverted to certain provisions of Republic Act No. 7645, the general appropriations law for 1993, as among the statutory bases for the President’s power to reorganize executive agencies, to wit:

Section 48 of R.A. 7645 provides that:

"Sec. 48. Scaling Down and Phase Out of Activities of Agencies Within the Executive Branch. — The heads of departments, bureaus and offices and agencies are hereby directed to identify their respective activities which are no longer essential in the delivery of public services and which may be scaled down, phased out or abolished, subject to civil [service] rules and regulations. x x x. Actual scaling down, phasing out or abolition of the activities shall be effected pursuant to Circulars or Orders issued for the purpose by the Office of the President."

Said provision clearly mentions the acts of "scaling down, phasing out and abolition" of offices only and does not cover the creation of offices or transfer of functions. Nevertheless, the act of creating and decentralizing is included in the subsequent provision of Section 62, which provides that:

"Sec. 62. Unauthorized organizational changes. — Unless otherwise created by law or directed by the President of the Philippines, no organizational unit or changes in key positions in any department or agency shall be authorized in their respective organization structures and be funded from appropriations by this Act."

The foregoing provision evidently shows that the President is authorized to effect organizational changes including the creation of offices in the department or agency concerned.

The contention of petitioner that the two provisions are riders deserves scant consideration. Well settled is the rule that every law has in its favor the presumption of constitutionality. Unless and until a specific provision of the law is declared invalid and unconstitutional, the same is valid and binding for all intents and purposes.17 (Emphases ours)

Buklod ng Kawaning EIIB v. Zamora,18 where the Court upheld as valid then President Joseph Estrada’s Executive Order No. 191 "deactivating" the Economic Intelligence and Investigation Bureau (EIIB) of the Department of Finance, hewed closely to the reasoning in Larin. The Court, among others, also traced from the General Appropriations Act19 the President’s authority to effect organizational changes in the department or agency under the executive structure, thus:

We adhere to the precedent or ruling in Larin that this provision recognizes the authority of the President to effect organizational changes in the department or agency under the executive structure. Such a ruling further finds support in Section 78 of Republic Act No. 8760. Under this law, the heads of departments, bureaus, offices and agencies and other entities in the Executive Branch are directed (a) to conduct a comprehensive review of their respective mandates, missions, objectives, functions, programs, projects, activities and systems and procedures; (b) identify activities which are no longer essential in the delivery of public services and which may be scaled down, phased-out or abolished; and (c) adopt measures that will result in the streamlined organization and improved overall performance of their respective agencies. Section 78 ends up with the mandate that the actual streamlining and productivity improvement in agency organization and operation shall be effected pursuant to Circulars or Orders issued for the purpose by the Office of the President. x x x.20 (Emphasis ours)

Notably, in the present case, the 2003 General Appropriations Act, which was reenacted in 2004 (the year of the issuance of Executive Order No. 378), likewise gave the President the authority to effect a wide variety of organizational changes in any department or agency in the Executive Branch. Sections 77 and 78 of said Act provides:

Section 77. Organized Changes. – Unless otherwise provided by law or directed by the President of the Philippines, no changes in key positions or organizational units in any department or agency shall be authorized in their

36

respective organizational structures and funded from appropriations provided by this Act.

Section 78. Institutional Strengthening and Productivity Improvement in Agency Organization and Operations and Implementation of Organization/Reorganization Mandated by Law. The Government shall adopt institutional strengthening and productivity improvement measures to improve service delivery and enhance productivity in the government, as directed by the President of the Philippines. The heads of departments, bureaus, offices, agencies, and other entities of the Executive Branch shall accordingly conduct a comprehensive review of their respective mandates, missions, objectives, functions, programs, projects, activities and systems and procedures; identify areas where improvements are necessary; and implement corresponding structural, functional and operational adjustments that will result in streamlined organization and operations and improved performance and productivity: PROVIDED, That actual streamlining and productivity improvements in agency organization and operations, as authorized by the President of the Philippines for the purpose, including the utilization of savings generated from such activities, shall be in accordance with the rules and regulations to be issued by the DBM, upon consultation with the Presidential Committee on Effective Governance: PROVIDED, FURTHER, That in the implementation of organizations/reorganizations, or specific changes in agency structure, functions and operations as a result of institutional strengthening or as mandated by law, the appropriation, including the functions, projects, purposes and activities of agencies concerned may be realigned as may be necessary: PROVIDED, FINALLY, That any unexpended balances or savings in appropriations may be made available for payment of retirement gratuities and separation benefits to affected personnel, as authorized under existing laws. (Emphases and underscoring ours.)

Implicitly, the aforequoted provisions in the appropriations law recognize the power of the President to reorganize even executive offices already funded by the said appropriations act, including the power to implement structural, functional, and operational adjustments in the executive bureaucracy and, in so doing, modify or realign appropriations of funds as may be necessary under such reorganization. Thus, insofar as petitioners protest the limitation of the NPO’s appropriations to its own income under Executive Order No. 378, the same is statutorily authorized by the above provisions.

In the 2003 case of Bagaoisan v. National Tobacco Administration,21 we upheld the "streamlining" of the National Tobacco Administration through a reduction of its personnel and deemed the same as included in the power of the President to reorganize executive offices granted under the laws, notwithstanding that such streamlining neither involved an abolition nor a

transfer of functions of an office. To quote the relevant portion of that decision:

In the recent case of Rosa Ligaya C. Domingo, et al. vs. Hon. Ronaldo D. Zamora, in his capacity as the Executive Secretary, et al., this Court has had occasion to also delve on the President’s power to reorganize the Office of the President under Section 31(2) and (3) of Executive Order No. 292 and the power to reorganize the Office of the President Proper. x x x

x x x x

The first sentence of the law is an express grant to the President of a continuing authority to reorganize the administrative structure of the Office of the President. The succeeding numbered paragraphs are not in the nature of provisos that unduly limit the aim and scope of the grant to the President of the power to reorganize but are to be viewed in consonance therewith. Section 31(1) of Executive Order No. 292 specifically refers to the President’s power to restructure the internal organization of the Office of the President Proper, by abolishing, consolidating or merging units hereof or transferring functions from one unit to another, while Section 31(2) and (3) concern executive offices outside the Office of the President Proper allowing the President to transfer any function under the Office of the President to any other Department or Agency and vice-versa, and the transfer of any agency under the Office of the President to any other department or agency and vice-versa.

In the present instance, involving neither an abolition nor transfer of offices, the assailed action is a mere reorganization under the general provisions of the law consisting mainly of streamlining the NTA in the interest of simplicity, economy and efficiency. It is an act well within the authority of the President motivated and carried out, according to the findings of the appellate court, in good faith, a factual assessment that this Court could only but accept.22 (Emphases and underscoring supplied.)

In the more recent case of Tondo Medical Center Employees Association v. Court of Appeals,23 which involved a structural and functional reorganization of the Department of Health under an executive order, we reiterated the principle that the power of the President to reorganize agencies under the executive department by executive or administrative order is constitutionally and statutorily recognized. We held in that case:

This Court has already ruled in a number of cases that the President may, by executive or administrative order, direct the reorganization of government

37

entities under the Executive Department. This is also sanctioned under the Constitution, as well as other statutes.

Section 17, Article VII of the 1987 Constitution, clearly states: "[T]he president shall have control of all executive departments, bureaus and offices." Section 31, Book III, Chapter 10 of Executive Order No. 292, also known as the Administrative Code of 1987 reads:

SEC. 31. Continuing Authority of the President to Reorganize his Office - The President, subject to the policy in the Executive Office and in order to achieve simplicity, economy and efficiency, shall have continuing authority to reorganize the administrative structure of the Office of the President. For this purpose, he may take any of the following actions:

x x x x

In Domingo v. Zamora [445 Phil. 7 (2003)], this Court explained the rationale behind the President’s continuing authority under the Administrative Code to reorganize the administrative structure of the Office of the President. The law grants the President the power to reorganize the Office of the President in recognition of the recurring need of every President to reorganize his or her office "to achieve simplicity, economy and efficiency." To remain effective and efficient, it must be capable of being shaped and reshaped by the President in the manner the Chief Executive deems fit to carry out presidential directives and policies.

The Administrative Code provides that the Office of the President consists of the Office of the President Proper and the agencies under it. The agencies under the Office of the President are identified in Section 23, Chapter 8, Title II of the Administrative Code:

Sec. 23. The Agencies under the Office of the President.—The agencies under the Office of the President refer to those offices placed under the chairmanship of the President, those under the supervision and control of the President, those under the administrative supervision of the Office of the President, those attached to it for policy and program coordination, and those that are not placed by law or order creating them under any specific department.

x x x x

The power of the President to reorganize the executive department is likewise recognized in general appropriations laws. x x x.

x x x x

Clearly, Executive Order No. 102 is well within the constitutional power of the President to issue. The President did not usurp any legislative prerogative in issuing Executive Order No. 102. It is an exercise of the President’s constitutional power of control over the executive department, supported by the provisions of the Administrative Code, recognized by other statutes, and consistently affirmed by this Court.24 (Emphases supplied.)

Subsequently, we ruled in Anak Mindanao Party-List Group v. Executive Secretary25 that:

The Constitution’s express grant of the power of control in the President justifies an executive action to carry out reorganization measures under a broad authority of law.

In enacting a statute, the legislature is presumed to have deliberated with full knowledge of all existing laws and jurisprudence on the subject. It is thus reasonable to conclude that in passing a statute which places an agency under the Office of the President, it was in accordance with existing laws and jurisprudence on the President’s power to reorganize.

In establishing an executive department, bureau or office, the legislature necessarily ordains an executive agency’s position in the scheme of administrative structure. Such determination is primary, but subject to the President’s continuing authority to reorganize the administrative structure. As far as bureaus, agencies or offices in the executive department are concerned, the power of control may justify the President to deactivate the functions of a particular office. Or a law may expressly grant the President the broad authority to carry out reorganization measures. The Administrative Code of 1987 is one such law.26

The issuance of Executive Order No. 378 by President Arroyo is an exercise of a delegated legislative power granted by the aforementioned Section 31, Chapter 10, Title III, Book III of the Administrative Code of 1987, which provides for the continuing authority of the President to reorganize the Office of the President, "in order to achieve simplicity, economy and efficiency." This is a matter already well-entrenched in jurisprudence. The reorganization of such an office through executive or administrative order is also recognized in the Administrative Code of 1987. Sections 2 and 3, Chapter 2, Title I, Book III of the said Code provide:

38

Sec. 2. Executive Orders. - Acts of the President providing for rules of a general or permanent character in implementation or execution of constitutional or statutory powers shall be promulgated in executive orders.

Sec. 3. Administrative Orders. - Acts of the President which relate to particular aspects of governmental operations in pursuance of his duties as administrative head shall be promulgated in administrative orders. (Emphases supplied.)

To reiterate, we find nothing objectionable in the provision in Executive Order No. 378 limiting the appropriation of the NPO to its own income. Beginning with Larin and in subsequent cases, the Court has noted certain provisions in the general appropriations laws as likewise reflecting the power of the President to reorganize executive offices or agencies even to the extent of modifying and realigning appropriations for that purpose.

Petitioners’ contention that the issuance of Executive Order No. 378 is an invalid exercise of legislative power on the part of the President has no legal leg to stand on.

In all, Executive Order No. 378, which purports to institute necessary reforms in government in order to improve and upgrade efficiency in the delivery of public services by redefining the functions of the NPO and limiting its funding to its own income and to transform it into a self-reliant agency able to compete with the private sector, is well within the prerogative of President Arroyo under her continuing delegated legislative power to reorganize her own office. As pointed out in the separate concurring opinion of our learned colleague, Associate Justice Antonio T. Carpio, the objective behind Executive Order No. 378 is wholly consistent with the state policy contained in Republic Act No. 9184 or the Government Procurement Reform Act to encourage competitiveness by extending equal opportunity to private contracting parties who are eligible and qualified.27

To be very clear, this delegated legislative power to reorganize pertains only to the Office of the President and the departments, offices and agencies of the executive branch and does not include the Judiciary, the Legislature or the constitutionally-created or mandated bodies. Moreover, it must be stressed that the exercise by the President of the power to reorganize the executive department must be in accordance with the Constitution, relevant laws and prevailing jurisprudence.

In this regard, we are mindful of the previous pronouncement of this Court in Dario v. Mison28 that:

Reorganizations in this jurisdiction have been regarded as valid provided they are pursued in good faith. As a general rule, a reorganization is carried out in "good faith" if it is for the purpose of economy or to make bureaucracy more efficient. In that event, no dismissal (in case of a dismissal) or separation actually occurs because the position itself ceases to exist. And in that case, security of tenure would not be a Chinese wall. Be that as it may, if the "abolition," which is nothing else but a separation or removal, is done for political reasons or purposely to defeat security of tenure, or otherwise not in good faith, no valid "abolition" takes place and whatever "abolition" is done, is void ab initio. There is an invalid "abolition" as where there is merely a change of nomenclature of positions, or where claims of economy are belied by the existence of ample funds. (Emphasis ours.)

Stated alternatively, the presidential power to reorganize agencies and offices in the executive branch of government is subject to the condition that such reorganization is carried out in good faith.

If the reorganization is done in good faith, the abolition of positions, which results in loss of security of tenure of affected government employees, would be valid. In Buklod ng Kawaning EIIB v. Zamora,29 we even observed that there was no such thing as an absolute right to hold office. Except those who hold constitutional offices, which provide for special immunity as regards salary and tenure, no one can be said to have any vested right to an office or salary.30

This brings us to the second ground raised in the petition – that Executive Order No. 378, in allowing government agencies to secure their printing requirements from the private sector and in limiting the budget of the NPO to its income, will purportedly lead to the gradual abolition of the NPO and the loss of security of tenure of its present employees. In other words, petitioners avow that the reorganization of the NPO under Executive Order No. 378 is tainted with bad faith. The basic evidentiary rule is that he who asserts a fact or the affirmative of an issue has the burden of proving it.31

A careful review of the records will show that petitioners utterly failed to substantiate their claim. They failed to allege, much less prove, sufficient facts to show that the limitation of the NPO’s budget to its own income would indeed lead to the abolition of the position, or removal from office, of any employee. Neither did petitioners present any shred of proof of their assertion that the changes in the functions of the NPO were for political considerations that had nothing to do with improving the efficiency of, or encouraging operational economy in, the said agency.

39

In sum, the Court finds that the petition failed to show any constitutional infirmity or grave abuse of discretion amounting to lack or excess of jurisdiction in President Arroyo’s issuance of Executive Order No. 378.

WHEREFORE, the petition is hereby DISMISSED and the prayer for a Temporary Restraining Order and/or a Writ of Preliminary Injunction is hereby DENIED. No costs.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTROAssociate Justice

WE CONCUR:

REYNATO S. PUNOChief Justice

Republic of the PhilippinesSUPREME COURT

Manila

G.R. No. 153788               November 27, 2009

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

D E C I S I O N

BRION, J.:

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

BACKGROUND FACTS

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

The first complaint stated:

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

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

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

Make/Type FUSO WITH MOUNTED CRANE

Serial No. FK416K-51680Motor No. 6D15-338735Plate No. GHK-378

as evidenced by a LEASE AGREEMENT WITH OPTION TO PURCHASE entered into by and between KARGO ENTERPRISES, then represented by its Manager, the aforementioned GLENN O. GO, and defendant ROGER

40

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

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

xxx

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

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

Make/Type FUSO WITH MOUNTED CRANESerial No. FK416K-510528Motor No. 6D14-423403

The second complaint also alleged that Navarro delivered three post-dated checks, each for the amount ofP100,000.00, to Karen Go in payment of the agreed rentals; however, the third check was dishonored when presented for payment.8

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

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

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

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

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

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

41

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

THE PETITION

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

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

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

Navarro likewise faults the lower court for setting the trial of the case in the same order that required Karen Go to amend her complaints, claiming that by issuing this order, the trial court violated Rule 10 of the Rules.

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

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

Karen Go, on the other hand, claims that it is misleading for Navarro to state that she has no real interest in the subject of the complaint, even if the lease agreements were signed only by her husband, Glenn Go; she is the owner of

Kargo Enterprises and Glenn Go signed the lease agreements merely as the manager of Kargo Enterprises. Moreover, Karen Go maintains that Navarro’s insistence that Kargo Enterprises is Karen Go’s paraphernal property is without basis. Based on the law and jurisprudence on the matter, all property acquired during the marriage is presumed to be conjugal property. Finally, Karen Go insists that her complaints sufficiently established a cause of action against Navarro. Thus, when the RTC ordered her to include her husband as co-plaintiff, this was merely to comply with the rule that spouses should sue jointly, and was not meant to cure the complaints’ lack of cause of action.

THE COURT’S RULING

We find the petition devoid of merit.

Karen Go is the real party-in-interest

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

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

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

We do not find Navarro’s arguments persuasive.

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

42

transaction between the plaintiff and the defendant. Again, the name KARGO ENTERPRISES entered the picture as this Lease Agreement provides:

This agreement, made and entered into by and between:

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

xxx

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

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

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

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

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

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

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

Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in court. The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual,

and requires the proprietor or owner thereof to secure licenses and permits, register the business name, and pay taxes to the national government. It does not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an action in court.

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

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

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

As the registered owner of Kargo Enterprises, Karen Go is the party who will directly benefit from or be injured by a judgment in this case. Thus, contrary to Navarro’s contention, Karen Go is the real party-in-interest, and it is legally incorrect to say that her Complaint does not state a cause of action because her name did not appear in the Lease Agreement that her husband signed in behalf of Kargo Enterprises. Whether Glenn Go can legally sign the Lease Agreement in his capacity as a manager of Kargo Enterprises, a sole proprietorship, is a question we do not decide, as this is a matter for the trial court to consider in a trial on the merits.

Glenn Go’s Role in the Case

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

43

name. On the other hand, Karen Go contends that while the business is registered in her name, it is in fact part of their conjugal property.

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

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

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

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

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

xxx

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

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

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

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

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

The incidents of this co-ownership are such that:

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

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

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

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

44

Article 108 of the Family Code provides:

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

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

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

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

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

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

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

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

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

Non-joinder of indispensable parties not ground to dismiss action

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

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

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

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

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

45

Demand not required priorto filing of replevin action

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

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

Sec. 2. Affidavit and bond.

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

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

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

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

(d) The actual market value of the property.

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

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

More importantly, Navarro is no longer in the position to claim that a prior demand is necessary, as he has already admitted in his Answers that he had received the letters that Karen Go sent him, demanding that he either pay his

unpaid obligations or return the leased motor vehicles. Navarro’s position that a demand is necessary and has not been made is therefore totally unmeritorious.

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

SO ORDERED.

ARTURO D. BRIONAssociate Justice

WE CONCUR:

ANTONIO T. CARPIOAssociate Justice

Chairperson

46

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 173192             April 14, 2008

ROSENDO BACALSO, RODRIGO BACALSO, MARCILIANA B. DOBLAS, TEROLIO BACALSO, ALIPIO BACALSO, JR., MARIO BACALSO, WILLIAM BACALSO, ALIPIO BACALSO III and CRISTITA B. BAÑES,petitioners, vs.MAXIMO PADIGOS, FLAVIANO MABUYO, GAUDENCIO PADIGOS, DOMINGO PADIGOS, VICTORIA P. ABARQUEZ, LILIA P. GABISON, TIMOTEO PADIGOS, PERFECTO PADIGOS, PRISCA SALARDA, FLORA GUINTO, BENITA TEMPLA, SOTERO PADIGOS, ANDRES PADIGOS, EMILIO PADIGOS, DEMETRIO PADIGOS, JR.,

WENCESLAO PADIGOS, NELLY PADIGOS, EXPEDITO PADIGOS, HENRY PADIGOS and ENRIQUE P. MALAZARTE, respondents.

D E C I S I O N

CARPIO MORALES, J.:

The case at bar involves a parcel of land identified as Lot No. 3781 (the lot) located in Inayawan, Cebu, covered by Original Certificate of Title No. RO-2649 (0-9092)1 in the name of the following 13 co-owners, their respective shares of which are indicated opposite their names:

Fortunata Padigos (Fortunata) 1/8Felix Padigos (Felix) 1/8Wenceslao Padigos (Wenceslao) 1/8Maximiano Padigos (Maximiano) 1/8Geronimo Padigos (Geronimo) 1/8Macaria Padigos 1/8Simplicio Padigos (Simplicio) 1/8Ignacio Padigos (Ignacio) 1/48Matilde Padigos 1/48Marcelo Padigos 1/48Rustica Padigos 1/48Raymunda Padigos 1/48Antonino Padigos 1/48

Maximo Padigos (Maximo), Flaviano Mabuyo (Flaviano), Gaudencio Padigos (Gaudencio), Domingo Padigos (Domingo), and Victoria P. Abarquez (Victoria), who are among the herein respondents, filed on April 17, 1995, before the Regional Trial Court (RTC) of Cebu City, a Complaint,2 docketed as Civil Case No. CEB-17326, against Rosendo Bacalso (Rosendo) and Rodrigo Bacalso (Rodrigo) who are among the herein petitioners, for quieting of title, declaration of nullity of documents, recovery of possession, and damages.

The therein plaintiffs-herein respondents Maximo and Flaviano claimed that they are children of the deceased co-owner Simplicio; that

47

respondents Gaudencio and Domingo are children of the deceased co-owner Ignacio; and that respondent Victoria and respondent Lilia P. Gabison (Lilia) are grandchildren of the late co-owner Fortunata.3

Respondents also alleged that the therein defendants-petitioners Rosendo and Rodrigo are heirs of Alipio Bacalso, Sr. (Alipio, Sr.) who, during his lifetime, secured Tax Declaration Nos. L-078-02223 and L-078-02224 covering the lot without any legal basis; that Rosendo and Rodrigo have been leasing portions of the lot to persons who built houses thereon, and Rosendo has been living in a house built on a portion of the lot;4 and that demands to vacate and efforts at conciliation proved futile,5 prompting them to file the complaint at the RTC.

In their Answer6 to the complaint, petitioners Rosendo and Rodrigo claimed that their father Alipio, Sr. purchased via deeds of sale the shares in the lot of Fortunata, Simplicio, Wenceslao, Geronimo, and Felix from their respective heirs, and that Alipio, Sr. acquired the shares of the other co-owners of the lot by extraordinary acquisitive prescription through continuous, open, peaceful, and adverse possession thereof in the concept of an owner since 1949.7

By way of Reply and Answer to the Defendants' Counterclaim,8 herein respondents Gaudencio, Maximo, Flaviano, Domingo, and Victoria alleged that the deeds of sale on which Rosendo and Rodrigo base their claim of ownership of portions of the lot are spurious, but assuming that they are not, laches had set in against Alipio, Sr.; and that the shares of the other co-owners of the lot cannot be acquired through laches or prescription.

Gaudencio, Maximo, Flaviano, Domingo, and Victoria, with leave of court,9 filed an Amended Complaint10impleading as additional defendants Alipio, Sr.'s other heirs, namely, petitioners Marceliana11 Doblas, Terolio Bacalso, Alipio Bacalso, Jr., Mario Bacalso, William Bacalso, Alipio Bacalso III, and Christine B. Bañes.12 Still later, Gaudencio et al. filed a Second Amended Complaint13 with leave of court,14 impleading as additional plaintiffs the other heirs of registered co-owner Maximiano, namely, herein respondents Timoteo Padigos, Perfecto Padigos, Frisca15 Salarda, Flora Quinto (sometimes rendered as "Guinto"), Benita Templa, Sotero Padigos, Andres Padigos, and Emilio Padigos.16

In their Answer to the Second Amended Complaint,17 petitioners contended that the Second Amended Complaint should be dismissed in

view of the failure to implead other heirs of the other registered owners of the lot who are indispensable parties.18

A Third Amended Complaint19 was thereafter filed with leave of court20 impleading as additional plaintiffs the heirs of Wenceslao, namely, herein respondents Demetrio Padigos, Jr., Wenceslao Padigos, and Nelly Padigos, and the heirs of Felix, namely, herein respondents Expedito Padigos (Expedito), Henry Padigos, and Enrique P. Malazarte.21

After trial, Branch 16 of the Cebu City RTC decided22 in favor in the therein plaintiffs-herein respondents, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants.

1. Declaring the plaintiffs to be entitled to the ownership and possession of the lot in litigation;

2. Declaring as null and void the Deeds of Absolute Sale in question;

3. Ordering the defendants to pay plaintiffs the sum of P50,000.00 as actual and compensatory damages[,] the sum of P20,000.00 as attorney's fees, and P10,000.00 as litigation expenses.

4. Ordering the defendants to pay the costs of suit.

SO ORDERED.23 (Emphasis in the original; underscoring supplied)

The defendants-herein petitioners Bacalsos appealed.24 Meanwhile, the trial court, on respondents' Motion for Execution Pending Appeal,25 issued a writ of execution which was implemented by, among other things, demolishing the houses constructed on the lot.26

By Decision27 of September 6, 2005, the Court of Appeals affirmed the trial court's decision. Their Motion for Reconsideration28 having been denied,29 petitioners filed the present Petition for Review on Certiorari,30 faulting the Court of Appeals:

48

. . . when it ruled that the Second Amended Complaint is valid and legal, even if not all indispensable parties are impleaded or joined . . .

. . . when [it] wittingly overlooked the most potent, unescapable and indubitable fact or circumstance which proved the continuous possession of Lot No. 3781 by the defendants and their predecessors in interest, Alipio Bacalso [Sr.] and/or when it sanctioned impliedly the glaring arbitrary RTC order of the demolition of the over 40 years old houses, situated on Lot No. 3781 Cebu Cad., belonging to the old lessees, long allowed to lease or stay thereat for many years, by Alipio Bacalso [Sr.], father and [predecessor] in interest of the defendants, now the herein Petitioners. The said lessees were not even joined as parties in this case, much less were they given a chance to air their side before their houses were demolished, in gross violation of the due process clause provided for in Sec. 1[,] Art. III of the Constitution . . .

. . . in upholding as gospel truth the report and conclusion of Nimrod Vaño, the supposed handwriting expert[,] that signatures and thumb marks appearing on all documents of sale presented by the defendants are forgeries, and not mindful that Nimrod Vaño was not cross-examined thoroughly by the defense counsel as he was prevented from doing so by the trial judge, in violation of the law more particularly Sec. 6, Rule 132, Rules of Court and/or the accepted and usual course of judicial proceedings and is therefore not admissible in evidence.

. . . [when it] . . . wittingly or unwittingly, again overlooked the vital facts, the circumstances, the laws and rulings of the Supreme Court, which are of much weight, substance and influence which, if considered carefully, undoubtedly uphold that the defendants and their predecessors in interests, have long been in continuous, open, peaceful and adverse, and notorious possession against the whole world of Lot No. 3781, Cebu Cad., in concept of absolute owners for 46 years, a period more than sufficient to sustain or uphold the defense of prescription, provided for in Art. 1137 of the Civil Code even without good faith.31 (Emphasis and underscoring in the original; italics supplied)

Respondents admit that Teodulfo Padigos (Teodulfo), an heir of Simplicio, was not impleaded.32 They contend, however, that the omission did not deprive the trial court of jurisdiction because Article 487 of the Civil Code states that "[a]ny of the co-owners may bring an action in ejectment."33

Respondents' contention does not lie. The action is for quieting of title, declaration of nullity of documents, recovery of possession and ownership, and damages. Arcelona v. Court of Appeals34 defines indispensable parties under Section 7 of Rule 3, Rules of Court as follows:

[P]arties-in-interest without whom there can be no final determination of an action. As such, they must be joined either as plaintiffs or as defendants. The general rule with reference to the making of parties in a civil action requires, of course, the joinder of all necessary parties where possible, and the joinder of all indispensable parties under any and all conditions, their presence being a sine qua non for the exercise of judicial power. It is precisely "when an indispensable party is not before the court (that) the action should be dismissed." The absence of an indispensable party renders all subsequent actions of the court null and voidfor want of authority to act, not only as to the absent parties but even as to those present.

Petitioners are co-owners of a fishpond . . . The fishpond is undivided; it is impossible to pinpoint which specific portion of the property is owned by Olanday, et. al. and which portion belongs to petitioners. x x x Indeed, petitioners should have been properly impleaded as indispensable parties. x x x

x x x x35 (Underscoring supplied)

The absence then of an indispensable party renders all subsequent actions of a court null and void for want of authority to act, not only as to the absent party but even as to those present.36

Failure to implead indispensable parties aside, the resolution of the case hinges on a determination of the authenticity of the documents on which petitioners in part anchor their claim to ownership of the lot. The questioned documents are:

49

1. Exhibit "3" – a notarized Deed of Sale executed by Gaudencio, Domingo, a certain Hermenegilda Padigos, and the heirs of Fortunata, in favor of Alipio, Sr. on June 8, 1959;

2. Exhibit "4" – a notarized Deed of Sale executed on September 9, 1957 by Gavino Padigos (Gavino), alleged son of Felix, in favor of Alipio Gadiano;

3. Exhibit "5" – a private deed of sale executed in June 1957 by Macaria Bongalan, Marciano Padigos, and Dominga Padigos, supposed heirs of Wenceslao, in favor of Alipio, Sr.;

4. Exhibit "6" – a notarized deed of sale executed on September 9, 1957 by Gavino and Rodulfo Padigos, heirs of Geronimo, in favor of Alipio Gadiano;

5. Exhibit "7" – a notarized deed of sale executed on March 19, 1949 by Irenea Mabuyo, Teodulfo and Maximo, heirs of Simplicio;

6. Exhibit "8" – a private deed of sale executed on May 3, 1950 by Candido Padigos, one of Simplicio's children, in favor of Alipio, Sr.; and

7. Exhibit "9" – a notarized deed of sale executed on May 17, 1957 by Alipio Gadiano in favor of Alipio, Sr.

Exhibits "3," "4," "6," "7," and "8," which are notarized documents, have in their favor the presumption of regularity.37

Forgery, as any other mechanism of fraud, must be proved clearly and convincingly, and the burden of proof lies on the party alleging forgery.38

The trial court and the Court of Appeals relied on the findings of Nimrod Bernabe Vaño (Vaño), expert witness for respondents, that Gaudencio's signature on Exhibit "3" (Deed of Absolute Sale covering Fortunata's share in the lot) and Maximo's thumbprint on Exhibit "7" (Deed of Sale covering Simplicio's share in the lot) are spurious.39Vaño's findings were presented by respondents to rebut those of Wilfredo Espina (Espina), expert witness for petitioners, that Gaudencio's signature and Maximo's thumbprint are genuine.40

Expert opinions are not ordinarily conclusive. They are generally regarded as purely advisory in character.41 The courts may place whatever weight they choose upon and may reject them, if they find them inconsistent with the facts in the case or otherwise unreasonable.42 When faced with conflicting expert opinions, courts give more weight and credence to that which is more complete, thorough, and scientific.43

The Court observes that in examining the questioned signatures of respondent Gaudencio, petitioners' expert witness Espina used as standards 15 specimen signatures which have been established to be Gaudencio's,44 and that after identifying similarities between the questioned signatures and the standard signatures, he concluded that the questioned signatures are genuine. On the other hand, respondents' expert witness Vaño used, as standards, the questioned signatures themselves.45 He identified characteristics of the signatures indicating that they may have been forged. Vaño's statement of the purpose of the examination is revealing:

x x x [t]o x x x discover, classify and determine the authenticity of every document that for any reason requires examination be [sic] scrutinized in every particular that may possibly throw any light upon its origin, its age or upon quality element or condition that may have a bearing upons [sic] its genuineness or spuriousness.46 (Emphasis supplied)

The Court also notes that Vaño also analyzed the signatures of the witnesses to the questioned documents, the absence of standard specimens with which those signatures could be compared notwithstanding.47 On the other hand, Espina refrained from making conclusions on signatures which could not be compared with established genuine specimens.48

Specifically with respect to Vaño's finding that Maximo's thumbprint on Exhibit "7" is spurious, the Court is not persuaded, no comparison having been made of such thumbprint with a genuine thumbprint established to be Maximo's.49

Vaño's testimony should be received with caution, the trial court having abruptly cut short his cross-examination conducted by petitioners' counsel,50 thus:

COURT:

50

You are just delaying the proceedings in this case if you are going to ask him about the documents one by one. Just leave it to the Court to determine whether or not he is a qualified expert witness. The Court will just go over the Report of the witness. You do not have to ask the witness one by one on the document,51

thereby depriving this Court of the opportunity to determine his credibility. Espina, on the other hand, withstood thorough cross-examination, re-direct and re-cross examination.52

The value of the opinion of a handwriting expert depends not upon his mere statements of whether a writing is genuine or false, but upon the assistance he may afford in pointing out distinguishing marks, characteristics and discrepancies in and between genuine and false specimens of writing which would ordinarily escape notice or detection from an unpracticed observer.53 While differences exist between Gaudencio's signatures appearing on Exhibits "3"-"3-D" and his signatures appearing on the affidavits accompanying the pleadings in this case,54 the gap of more than 30 years from the time he affixed his signatures on the questioned document to the time he affixed his signatures on the pleadings in the case could explain the difference. Thus Espina observed:

x x x x

4. Both questioned and standard signatures exhibited the same style and form of the movement impulses in its execution;

5. Personal habits of the writer were established in both questioned and standard signatures such as misalignment of the whole structure of the signature, heavy penpressure [sic] of strokes from initial to the terminal, formation of the loops and ovals, poor line quality and spacing between letters are all repeated;

6. Both questioned and standard signatures [show] no radical change in the strokes and letter formation in spite o[f] their wide difference in dates of execution considering the early writing maturity of the writer;

7. Variations in both writings questioned and standards were considered and properly evaluated.

x x x x

Fundamental similarities are observed in the following characteristics to wit:

x x x x

SIGNATURES

1. Ovals of "a" either rounded or angular at the base;

2. Ovals of "d" either narrow, rounded, or angular at the base;

3. Loop stems of "d" consistently tall and retraced in both specimens questioned and standards;

4. Base alignment of "e" and "i" are repeated with sameness;

5. Top of "c" either with a retrace, angular formation or an eyelet;

6. Terminal ending of "o" heavy with a short tapering formation;

7. Loop stem of "P" with wide space and angular;

8. Oval of "P" either rounded or multi-angular;

9. Base loop of "g" consistently short either a retrace, a blind loop or narrow space disproportionate to the top oval;

10. Angular top of "s" are repeated with sameness;

11. Terminal ending of "s" short and heavy with blind loop or retrace at the base. 55

And Espina concluded

x x x x

51

[t]hat the four (4) questioned signatures over and above the typewritten name and word GAUDENCIO PADIGOS Vendor on four copies of a DEED OF ABSOLUTE SALE (original and carbon) dated June 8, 1959 were written, signed, and prepared by the hand who wrote the standard specimens Exh. "G" and other specimen materials collected from the records of this case that were submitted or comparison; a product of one Mind and Brain hence GENUINE and AUTHENTIC.56 (Emphasis in the original; underscoring supplied)

Respondents brand Maximo's thumbmark on Exhibit "7" as spurious because, so they claim, Maximo did not affix his signature thru a thumbmark, he knowing how to write.57 Such conclusion is a non sequitur, however, for a person who knows how to write is not precluded from signing by thumbmark.

In affirming the nullification by the trial court of Exhibits "3," "4," "5," "6," "7," and "8," the Court of Appeals held:

x x x x

First of all, facts about pedigree of the registered owners and their lawful heirs were convincingly testified to by plaintiff-appellant Gaudencio Padigos and his testimony remained uncontroverted.

x x x x

Giving due weight to his testimony, we find that x x x the vendors in the aforesaid Deeds of Sale x x x were not the legal heirs of the registered owners of the disputed land. x x x

x x x x

As for Exhibit "4," the vendor Gavino Padigos is not a legal heir of the registered owner Felix Padigos. The latter's heirs are plaintiff-appellants Expedito Padigos, Henry Padigos and Enrique P. Malazarte. Accordingly, Exhibit "4" is a patent nullity and did not vest title of Felix Padigos' share of Lot 3781 to Alipio [Gadiano].

As for Exhibit "6," the vendors Gavino and Rodulfo Padigos are not the legal heirs of the registered ownerGeronimo Padigos.

Therefore, these fictitious heirs could not validly convey ownership in favor of Alipio [Gadiano].

x x x x

As for Exhibit "8," the vendor Candido Padigos is not a legal heir of Simplicio Padigos. Therefore, the former could not vest title of the land to Alipio Bacalso.

As for Exhibit "3," the vendors Gaudencio Padigos, Hermenegilda Padigos and Domingo Padigos are not the legal heirs of registered owner   Fortunata Padigos. Hermenegilda Padigos is not a known heir of any of the other registered owners of the property.

On the other hand, plaintiffs-appellants Gaudencio and Domingo Padigos are only some of the collateral grandchildren of Fortunata Padigos. They could not by themselves dispose of the share of Fortunata Padigos.

x x x x

As for Exhibit "5," the vendors in   Exhibit   " 5 " are not the legal heirs of Wenceslao Padigos. The children of registered owner Wenceslao Padigos are: Wenceslao Padigos, Demetrio Padigos and Nelly Padigos. Therefore, Exhibit "5" is null and void and could not convey the shares of the registered owner Wenceslao Padigos in favor of Alipio Bacalso.

As for Exhibit "9," the Deed of Sale executed by Alipio [Gadiano] in favor of Alipio Bacalso is also void because the shares of the registered owners Felix and Geronimo Padigos were not validly conveyed to Alipio [Gadiano] because   Exhibit   " 4 "   and "6"   were void contracts. Thus, Exhibit "9" is also null and void.58(Italics in the original; underscoring supplied)

The evidence regarding the "facts of pedigree of the registered owners and their heirs" does not, however, satisfy this Court. Not only is Gaudencio's self-serving testimony uncorroborated; it contradicts itself on material points. For instance, on direct examination, he testified that Ignacio is his father and Fortunata is his grandmother.59 On cross-examination, however, he declared that his father Ignacio is the brother

52

of Fortunata.60 On direct examination, he testified that his co-plaintiffs Victoria and Lilia are already dead.61 On cross-examination, however, he denied knowledge whether the two are already dead.62 Also on direct examination, he identified Expedito, Henry, and Enrique as the children of Felix.63 Expedito himself testified, however, that he is the son of a certain Mamerto Padigos, the son of a certain Apolonio Padigos who is in turn the son of Felix.64

At all events, respondents are guilty of laches – the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it has either abandoned it or declined to assert it.65While, by express provision of law, no title to registered land in derogation of that of the registered owner shall be acquired by prescription or adverse possession, it is an enshrined rule that even a registered owner may be barred from recovering possession of property by virtue of laches.66

Respondents insist, however, that they only learned of the deeds of sale in 1994, the year that Alipio, Sr. allegedly commenced possession of the property.67 The record shows, however, that although petitioners started renting out the land in 1994, they have been tilling it since the 1950s,68 and Rosendo's house was constructed in about 1985.69 These acts of possession could not have escaped respondents' notice given the following unassailed considerations, inter alia: Gaudencio testified that he lived on the lot from childhood until 1985, after which he moved to a place three kilometers away, and after he moved, a certain Vicente Debelos lived on the lot with his permission.70 Petitioners' witness Marina Alcoseba, their employee,71 testified that Gaudencio and Domingo used to cut kumpay planted by petitioners' tenant on the lot.72 The tax declarations in Alipio, Sr.'s name for the years 1967-1980 covering a portion of the lot indicate Fortunata's share to be the north and east boundaries of Alipio, Sr.'s;73 hence, respondents could not have been unaware of the acts of possession that petitioners exercised over the lot.

Upon the other hand, petitioners have been vigilant in protecting their rights over the lot, which their predecessor-in-interest Alipio, Sr. had declared in his name for tax purposes as early as 1960, and for which he had been paying taxes until his death in 1994, by continuing to pay the taxes thereon.74

Respondents having failed to establish their claim by preponderance of evidence, their action for quieting of title, declaration of nullity of documents, recovery of possession, and damages must fail.

A final word. While petitioners' attribution of error to the appellate court's "implied sanction" of the trial court's order for the demolition pending appeal of the houses of their lessees is well taken, the Court may not consider any grant of relief to them, they not being parties to the case.

WHEREFORE, the petition is GRANTED. The September 6, 2005 decision of the Court of Appeals is REVERSEDand SET ASIDE. Civil Case No. CEB-17326 of Branch 16 of the Regional Trial Court of Cebu City is DISMISSED.

SO ORDERED.

Quisumbing,Chairperson, Tinga, Velasco, Jr., Brion, JJ., concur.

53

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 177429               November 24, 2009

ANICIA VALDEZ-TALLORIN, Petitioner, vs.HEIRS OF JUANITO TARONA, Represented by CARLOS TARONA, ROGELIO TARONA and LOURDES TARONA, Respondents.

D E C I S I O N

ABAD, J.:

This case is about a court’s annulment of a tax declaration in the names of three persons, two of whom had not been impleaded in the case, for the reason that the document was illegally issued to them.

The Facts and the Case

On February 9, 1998 respondents Carlos, Rogelio, and Lourdes Tarona (the Taronas) filed an action before the Regional Trial Court (RTC) of Balanga, Bataan,1 against petitioner Anicia Valdez-Tallorin (Tallorin) for the cancellation of her and two other women’s tax declaration over a parcel of land.

The Taronas alleged in their complaint that, unknown to them, in 1981, the Assessor’s Office of Morong in Bataan cancelled Tax Declaration 463 in the name of their father, Juanito Tarona (Juanito), covering 6,186 square meters of land in Morong, Bataan. The cancellation was said to be based on an unsigned though notarized affidavit that Juanito allegedly executed in favor of petitioner Tallorin and two others, namely, Margarita Pastelero Vda. de Valdez and Dolores Valdez, who were not impleaded in the action. In place of the cancelled one, the Assessor’s Office issued Tax Declaration 6164 in the names of the latter three persons. The old man Tarona’s affidavit had been missing and no copy could be found among the records of the Assessor’s Office.2

The Taronas further alleged that, without their father’s affidavit on file, it followed that his tax declaration had been illegally cancelled and a new one illegally issued in favor of Tallorin and the others with her. The unexplained disappearance of the affidavit from official files, the Taronas concluded, covered-up the falsification or forgery that caused the substitution.3 The Taronas asked the RTC to annul Tax Declaration 6164, reinstate Tax Declaration 463, and issue a new one in the name of Juanito’s heirs.

54

On March 6, 1998 the Taronas filed a motion to declare petitioner Tallorin in default for failing to answer their complaint within the allowed time.4 But, before the RTC could act on the motion, Tallorin filed a belated answer, alleging among others that she held a copy of the supposedly missing affidavit of Juanito who was merely an agricultural tenant of the land covered by Tax Declaration 463. He surrendered and waived in that affidavit his occupation and tenancy rights to Tallorin and the others in consideration of P29,240.00. Tallorin also put up the affirmative defenses of non-compliance with the requirement of conciliation proceedings and prescription.

On March 12, 1998 the RTC set Tallorin’s affirmative defenses for hearing5 but the Taronas sought reconsideration, pointing out that the trial court should have instead declared Tallorin in default based on their earlier motion.6 On June 2, 1998 the RTC denied the Taronas’ motion for reconsideration7 for the reasons that it received Tallorin’s answer before it could issue a default order and that the Taronas failed to show proof that Tallorin was notified of the motion three days before the scheduled hearing. Although the presiding judge inhibited himself from the case on motion of the Taronas, the new judge to whom the case was re-raffled stood by his predecessor’s previous orders.

By a special civil action for certiorari before the Court of Appeals (CA),8 however, the Taronas succeeded in getting the latter court to annul the RTC’s March 12 and June 2, 1998 orders.9 The CA ruled that the RTC gravely abused its discretion in admitting Tallorin’s late answer in the absence of a motion to admit it. Even if petitioner Tallorin had already filed her late answer, said the CA, the RTC should have heard the Taronas’ motion to declare Tallorin in default.

Upon remand of the case, the RTC heard the Taronas’ motion to declare Tallorin in default,10 granted the same, and directed the Taronas to present evidence ex parte.11

On January 30, 2002 the RTC rendered judgment, a) annulling the tax declaration in the names of Tallorin, Margarita Pastelero Vda. de Valdez, and Dolores Valdez; b) reinstating the tax declaration in the name of Juanito; and c) ordering the issuance in its place of a new tax declaration in the names of Juanito’s heirs. The trial court also ruled that Juanito’s affidavit authorizing the transfer of the tax declaration had no binding force since he did not sign it.1avvphi1

Tallorin appealed the above decision to the CA,12 pointing out 1) that the land covered by the tax declaration in question was titled in her name and in those of her two co-owners; 2) that Juanito’s affidavit only dealt with the surrender of his tenancy rights and did not serve as basis for canceling Tax Declaration 463 in his name; 3) that, although Juanito did not sign the affidavit, he thumbmarked and acknowledged the same before a notary public; and 4) that the trial court erred in not dismissing the complaint for failure to implead Margarita Pastelero Vda. de Valdez and Dolores Valdez who were indispensable parties in the action to annul Juanito’s affidavit and the tax declaration in their favor.13

On May 22, 2006 the CA rendered judgment, affirming the trial court’s decision.14 The CA rejected all of Tallorin’s arguments. Since she did not assign as error the order declaring her in default and since she took no part at the trial, the CA pointed out that her claims were in effect mere conjectures, not based on evidence of record.15Notably, the CA did not address the issue Tallorin raised regarding the Taronas’ failure to implead Margarita Pastelero Vda. de Valdez and Dolores Valdez as indispensable party-defendants, their interest in the cancelled tax declarations having been affected by the RTC judgment.

Questions Presented

The petition presents the following questions for resolution by this Court:

1. Whether or not the CA erred in failing to dismiss the Taronas’ complaint for not impleading Margarita Pastelero Vda. de Valdez and Dolores Valdez in whose names, like their co-owner Tallorin, the annulled tax declaration had been issued;

2. Whether or not the CA erred in not ruling that the Taronas’ complaint was barred by prescription; and

3. Whether or not the CA erred in affirming the RTC’s finding that Juanito’s affidavit had no legal effect because it was unsigned; when at the hearing of the motion to declare Tallorin in default, it was shown that the affidavit bore Juanito’s thumbmark.

The Court’s Rulings

The first question, whether or not the CA erred in failing to dismiss the Taronas’ complaint for not impleading Margarita Pastelero Vda. de

55

Valdez and Dolores Valdez in whose names, like their co-owner Tallorin, the annulled tax declaration had been issued, is a telling question.

The rules mandate the joinder of indispensable parties. Thus:

Sec. 7. Compulsory joinder of indispensable parties. – Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs and defendants.16

Indispensable parties are those with such an interest in the controversy that a final decree would necessarily affect their rights, so that the courts cannot proceed without their presence.17 Joining indispensable parties into an action is mandatory, being a requirement of due process. Without their presence, the judgment of the court cannot attain real finality.

Judgments do not bind strangers to the suit. The absence of an indispensable party renders all subsequent actions of the court null and void. Indeed, it would have no authority to act, not only as to the absent party, but as to those present as well. And where does the responsibility for impleading all indispensable parties lie? It lies in the plaintiff.18

Here, the Taronas sought the annulment of the tax declaration in the names of defendant Tallorin and two others, namely, Margarita Pastelero Vda. de Valdez and Dolores Valdez and, in its place, the reinstatement of the previous declaration in their father Juanito’s name. Further, the Taronas sought to strike down as void the affidavit in which Juanito renounced his tenancy right in favor of the same three persons. It is inevitable that any decision granting what the Taronas wanted would necessarily affect the rights of such persons to the property covered by the tax declaration.

The Court cannot discount the importance of tax declarations to the persons in whose names they are issued. Their cancellation adversely affects the rights and interests of such persons over the properties that the documents cover. The reason is simple: a tax declaration is a primary evidence, if not the source, of the right to claim title of ownership over real property, a right enforceable against another person. The Court held in Uriarte v. People19 that, although not conclusive, a tax declaration is a telling evidence of the declarant’s possession which could ripen into ownership.

In Director of Lands v. Court of Appeals,20 the Court said that no one in his right mind would pay taxes for a property that he did not have in his possession. This honest sense of obligation proves that the holder claims title over the property against the State and other persons, putting them on notice that he would eventually seek the issuance of a certificate of title in his name. Further, the tax declaration expresses his intent to contribute needed revenues to the Government, a circumstance that strengthens his bona fide claim to ownership.21

Here, the RTC and the CA annulled Tax Declaration 6164 that belonged not only to defendant Tallorin but also to Margarita Pastelero Vda. de Valdez and Dolores Valdez, which two persons had no opportunity to be heard as they were never impleaded. The RTC and the CA had no authority to annul that tax declaration without seeing to it that all three persons were impleaded in the case.

But the Taronas’ action cannot be dismissed outright. As the Court held in Plasabas v. Court of Appeals,22 the non-joinder of indispensable parties is not a ground for dismissal. Section 11, Rule 3 of the 1997 Rules of Civil Procedure prohibits the dismissal of a suit on the ground of non-joinder or misjoinder of parties and allows the amendment of the complaint at any stage of the proceedings, through motion or on order of the court on its own initiative. Only if plaintiff refuses to implead an indispensable party, despite the order of the court, may it dismiss the action.

There is a need, therefore, to remand the case to the RTC with an order to implead Margarita Pastelero Vda. de Valdez and Dolores Valdez as defendants so they may, if they so desire, be heard.

In view of the Court’s resolution of the first question, it would serve no purpose to consider the other questions that the petition presents. The resolution of those questions seems to depend on the complete evidence in the case. This will not yet happen until all the indispensable party-defendants are impleaded and heard on their evidence.

WHEREFORE, the Court GRANTS the petition and SETS ASIDE the decision of the Regional Trial Court of Balanga, Bataan in Civil Case 6739 dated January 30, 2002 and the decision of the Court of Appeals in CA-G.R. CV 74762 dated May 22, 2006. The Court REMANDS the case to the Regional Trial Court of Balanga, Bataan which is DIRECTED to have Margarita Pastelero Vda. de Valdez and Dolores Valdez impleaded

56

by the plaintiffs as party-defendants and, afterwards, to hear the case in the manner prescribed by the rules.

SO ORDERED.

ROBERTO A. ABADAssociate Justice

WE CONCUR:

ANTONIO T. CARPIOAssociate Justice

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 191336               January 25, 2012

CRISANTA ALCARAZ MIGUEL, Petitioner, vs.JERRY D. MONTANEZ, Respondent.

D E C I S I O N

REYES, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner Crisanta Alcaraz Miguel (Miguel) seeks the reversal and setting aside of the September 17, 2009 Decision1 and February 11, 2010 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 100544, entitled "Jerry D. Montanez v. Crisanta Alcaraz Miguel."

Antecedent Facts

On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred Forty-Three Thousand Eight Hundred Sixty-Four Pesos (P143,864.00), payable in one (1) year, or until February 1, 2002, from the petitioner. The respondent gave as collateral therefor his house and lot located at Block 39 Lot 39 Phase 3, Palmera Spring, Bagumbong, Caloocan City.

Due to the respondent’s failure to pay the loan, the petitioner filed a complaint against the respondent before the Lupong Tagapamayapa of Barangay San Jose, Rodriguez, Rizal. The parties entered into a Kasunduang Pag-aayos wherein the respondent agreed to pay his loan in installments in the amount of Two Thousand Pesos (P2,000.00) per month, and in the event the house and lot given as collateral is sold, the respondent would settle the balance of the loan in full. However, the respondent still failed to pay, and on December 13, 2004, the Lupong Tagapamayapa issued a certification to file action in court in favor of the petitioner.

On April 7, 2005, the petitioner filed before the Metropolitan Trial Court (MeTC) of Makati City, Branch 66, a complaint for Collection of Sum of Money. In his Answer with Counterclaim,3 the respondent raised the defense of improper venue considering that the petitioner was a resident of Bagumbong, Caloocan City while he lived in San Mateo, Rizal.

After trial, on August 16, 2006, the MeTC rendered a Decision,4 which disposes as follows:

57

WHEREFORE, premises considered[,] judgment is hereby rendered ordering defendant Jerry D. Montanez to pay plaintiff the following:

1. The amount of [Php147,893.00] representing the obligation with legal rate of interest from February 1, 2002 which was the date of the loan maturity until the account is fully paid;

2. The amount of Php10,000.00 as and by way of attorney’s fees; and the costs.

SO ORDERED. 5

On appeal to the Regional Trial Court (RTC) of Makati City, Branch 146, the respondent raised the same issues cited in his Answer. In its March 14, 2007 Decision,6 the RTC affirmed the MeTC Decision, disposing as follows:

WHEREFORE, finding no cogent reason to disturb the findings of the court a quo, the appeal is hereby DISMISSED, and the DECISION appealed from is hereby AFFIRMED in its entirety for being in accordance with law and evidence.

SO ORDERED.7

Dissatisfied, the respondent appealed to the CA raising two issues, namely, (1) whether or not venue was improperly laid, and (2) whether or not the Kasunduang Pag-aayos effectively novated the loan agreement. On September 17, 2009, the CA rendered the assailed Decision, disposing as follows:

WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed Decision dated March 14, 2007 of the Regional Trial Court (RTC) of Makati City, Branch 146, is REVERSED and SET ASIDE. A new judgment is entered dismissing respondent’s complaint for collection of sum of money, without prejudice to her right to file the necessary action to enforce the Kasunduang Pag-aayos.

SO ORDERED.8

Anent the issue of whether or not there is novation of the loan contract, the CA ruled in the negative. It ratiocinated as follows:

Judging from the terms of the Kasunduang Pag-aayos, it is clear that no novation of the old obligation has taken place. 1âwphi1 Contrary to petitioner’s assertion, there was no reduction of the term or period originally stipulated. The original period in the first agreement is one (1) year to be counted from February 1, 2001, or until January 31, 2002. When the complaint was filed before the barangay on February 2003, the period of the original agreement had long expired without compliance on the part of petitioner. Hence, there was nothing to reduce or extend. There was only a change in the terms of payment which is not incompatible with the old agreement. In other words, the Kasunduang Pag-aayos merely supplemented the old agreement.9

The CA went on saying that since the parties entered into a Kasunduang Pag-aayos before the Lupon ng Barangay, such settlement has the force and effect of a court judgment, which may be enforced by execution within six (6) months from the date of settlement by the Lupon ng Barangay, or by court action after the lapse of such time.10 Considering that more than six (6) months had elapsed from the date of settlement, the CA ruled that the remedy of the petitioner was to file an action for the execution of the Kasunduang Pag-aayos in court and not for collection of sum of money.11 Consequently, the CA deemed it unnecessary to resolve the issue on venue.12

The petitioner now comes to this Court.

Issues

(1) Whether or not a complaint for sum of money is the proper remedy for the petitioner, notwithstanding the Kasunduang Pag-aayos;13 and

(2) Whether or not the CA should have decided the case on the merits rather than remand the case for the enforcement of the Kasunduang Pag-aayos.14

Our Ruling

Because the respondent failed to comply with the terms of the Kasunduang Pag-aayos, said agreement is deemed rescinded pursuant to Article 2041 of the New Civil Code and the petitioner can insist on his original demand. Perforce, the complaint for collection of sum of money is the proper remedy.

58

The petitioner contends that the CA erred in ruling that she should have followed the procedure for enforcement of the amicable settlement as provided in the Revised Katarungang Pambarangay Law, instead of filing a collection case. The petitioner points out that the cause of action did not arise from the Kasunduang Pag-aayos but on the respondent’s breach of the original loan agreement.15

This Court agrees with the petitioner.

It is true that an amicable settlement reached at the barangay conciliation proceedings, like the Kasunduang Pag-aayos in this case, is binding between the contracting parties and, upon its perfection, is immediately executory insofar as it is not contrary to law, good morals, good customs, public order and public policy.16 This is in accord with the broad precept of Article 2037 of the Civil Code, viz:

A compromise has upon the parties the effect and authority of res judicata; but there shall be no execution except in compliance with a judicial compromise.

Being a by-product of mutual concessions and good faith of the parties, an amicable settlement has the force and effect of res judicata even if not judicially approved.17 It transcends being a mere contract binding only upon the parties thereto, and is akin to a judgment that is subject to execution in accordance with the Rules.18 Thus, under Section 417 of the Local Government Code,19 such amicable settlement or arbitration award may be enforced by execution by the Barangay Lupon within six (6) months from the date of settlement, or by filing an action to enforce such settlement in the appropriate city or municipal court, if beyond the six-month period.

Under the first remedy, the proceedings are covered by the Local Government Code and the Katarungang Pambarangay Implementing Rules and Regulations. The Punong Barangay is called upon during the hearing to determine solely the fact of non-compliance of the terms of the settlement and to give the defaulting party another chance at voluntarily complying with his obligation under the settlement. Under the second remedy, the proceedings are governed by the Rules of Court, as amended. The cause of action is the amicable settlement itself, which, by operation of law, has the force and effect of a final judgment.20

It must be emphasized, however, that enforcement by execution of the amicable settlement, either under the first or the second remedy, is only applicable if the contracting parties have not repudiated such settlement within ten (10) days from the date thereof in accordance with Section 416 of the Local Government Code. If the amicable settlement is repudiated by one party, either expressly or impliedly, the other party has two options, namely, to enforce the compromise in accordance with the Local Government Code or Rules of Court as the case may be, or to consider it rescinded and insist upon his original demand. This is in accord with Article 2041 of the Civil Code, which qualifies the broad application of Article 2037, viz:

If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the compromise or regard it as rescinded and insist upon his original demand.

In the case of Leonor v. Sycip,21 the Supreme Court (SC) had the occasion to explain this provision of law. It ruled that Article 2041 does not require an action for rescission, and the aggrieved party, by the breach of compromise agreement, may just consider it already rescinded, to wit:

It is worthy of notice, in this connection, that, unlike Article 2039 of the same Code, which speaks of "a cause of annulment or rescission of the compromise" and provides that "the compromise may be annulled or rescinded" for the cause therein specified, thus suggesting an action for annulment or rescission, said Article 2041 confers upon the party concerned, not a "cause" for rescission, or the right to "demand" the rescission of a compromise, but the authority, not only to "regard it as rescinded", but, also, to "insist upon his original demand". The language of this Article 2041, particularly when contrasted with that of Article 2039, denotes that no action for rescission is required in said Article 2041, and that the party aggrieved by the breach of a compromise agreement may, if he chooses, bring the suit contemplated or involved in his original demand, as if there had never been any compromise agreement, without bringing an action for rescission thereof. He need not seek a judicial declaration of rescission, for he may "regard" the compromise agreement already "rescinded".22 (emphasis supplied)

As so well stated in the case of Chavez v. Court of Appeals,23 a party's non-compliance with the amicable settlement paved the way for the application of Article 2041 under which the other party may either enforce

59

the compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or consider it as rescinded and insist upon his original demand. To quote:

In the case at bar, the Revised Katarungang Pambarangay Law provides for a two-tiered mode of enforcement of an amicable settlement, to wit: (a) by execution by the Punong Barangay which is quasi-judicial and summary in nature on mere motion of the party entitled thereto; and (b) an action in regular form, which remedy is judicial. However, the mode of enforcement does not rule out the right of rescission under Art. 2041 of the Civil Code. The availability of the right of rescission is apparent from the wording of Sec. 417 itself which provides that the amicable settlement "may" be enforced by execution by the lupon within six (6) months from its date or by action in the appropriate city or municipal court, if beyond that period. The use of the word "may" clearly makes the procedure provided in the Revised Katarungang Pambarangay Law directory or merely optional in nature.

Thus, although the "Kasunduan" executed by petitioner and respondent before the Office of the Barangay Captain had the force and effect of a final judgment of a court, petitioner's non-compliance paved the way for the application of Art. 2041 under which respondent may either enforce the compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or regard it as rescinded and insist upon his original demand. Respondent chose the latter option when he instituted Civil Case No. 5139-V-97 for recovery of unrealized profits and reimbursement of advance rentals, moral and exemplary damages, and attorney's fees. Respondent was not limited to claiming P150,000.00 because although he agreed to the amount in the "Kasunduan," it is axiomatic that a compromise settlement is not an admission of liability but merely a recognition that there is a dispute and an impending litigation which the parties hope to prevent by making reciprocal concessions, adjusting their respective positions in the hope of gaining balanced by the danger of losing. Under the "Kasunduan," respondent was only required to execute a waiver of all possible claims arising from the lease contract if petitioner fully complies with his obligations thereunder. It is undisputed that herein petitioner did not.24 (emphasis supplied and citations omitted)

In the instant case, the respondent did not comply with the terms and conditions of the Kasunduang Pag-aayos. Such non-compliance may be construed as repudiation because it denotes that the respondent did not intend to be bound by the terms thereof, thereby negating the very purpose for which it was executed. Perforce, the petitioner has the option

either to enforce the Kasunduang Pag-aayos, or to regard it as rescinded and insist upon his original demand, in accordance with the provision of Article 2041 of the Civil Code. Having instituted an action for collection of sum of money, the petitioner obviously chose to rescind the Kasunduang Pag-aayos. As such, it is error on the part of the CA to rule that enforcement by execution of said agreement is the appropriate remedy under the circumstances.

Considering that the Kasunduang Pag-aayos is deemed rescinded by the non-compliance of the respondent of the terms thereof, remanding the case to the trial court for the enforcement of said agreement is clearly unwarranted.

The petitioner avers that the CA erred in remanding the case to the trial court for the enforcement of the Kasunduang Pag-aayos as it prolonged the process, "thereby putting off the case in an indefinite pendency."25Thus, the petitioner insists that she should be allowed to ventilate her rights before this Court and not to repeat the same proceedings just to comply with the enforcement of the Kasunduang Pag-aayos, in order to finally enforce her right to payment.26

The CA took off on the wrong premise that enforcement of the Kasunduang Pag-aayos is the proper remedy, and therefore erred in its conclusion that the case should be remanded to the trial court. The fact that the petitioner opted to rescind the Kasunduang Pag-aayos means that she is insisting upon the undertaking of the respondent under the original loan contract. Thus, the CA should have decided the case on the merits, as an appeal before it, and not prolong the determination of the issues by remanding it to the trial court. Pertinently, evidence abounds that the respondent has failed to comply with his loan obligation. In fact, the Kasunduang Pag-aayos is the well nigh incontrovertible proof of the respondent’s indebtedness with the petitioner as it was executed precisely to give the respondent a second chance to make good on his undertaking. And since the respondent still reneged in paying his indebtedness, justice demands that he must be held answerable therefor.

WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET ASIDE and the Decision of the Regional Trial Court, Branch 146, Makati City, dated March 14, 2007 is REINSTATED.

SO ORDERED.

60

BIENVENIDO L. REYESAssociate Justice

WE CONCUR:

ANTONIO T. CARPIOAssociate Justice

Republic of the PhilippinesSUPREME COURT

Manila

G.R. No. 164205               September 3, 2009

OLDARICO S. TRAVEÑO, ROVEL A. GENELSA, RUEL U. VILLARMENTE, ALFREDO A. PANILAGAO, CARMEN P. DANILA,

ELIZABETH B. MACALINO, RAMIL P. ALBITO, REYNALDO A. LADRILLO, LUCAS G. TAMAYO, DIOSDADO A. AMORIN, RODINO C. VASQUEZ, GLORIA A. FELICANO, NOLE E. FERMILAN, JOSELITO B. RENDON, CRISTETA D. CAÑA, EVELYN D. ARCENAL and JEORGE M. NONO, Petitioners, vs.BOBONGON BANANA GROWERS MULTI-PURPOSE COOPERATIVE, TIMOG AGRICULTURAL CORPORATION, DIAMOND FARMS, INC., and DOLE ASIA PHILIPPINES, Respondents.

D E C I S I O N

CARPIO MORALES, J.:

By the account of petitioner Oldarico Traveño and his 16 co-petitioners, in 1992, respondent Timog Agricultural Corporation (TACOR) and respondent Diamond Farms, Inc. (DFI) hired them to work at a banana plantation at Bobongon, Santo Tomas, Davao Del Norte which covered lands previously planted with rice and corn but whose owners had agreed to convert into a banana plantation upon being convinced that TACOR and DFI could provide the needed capital, expertise, and equipment. Petitioners helped prepare the lands for the planting of banana suckers and eventually carried out the planting as well.1

Petitioners asseverated that while they worked under the direct control of supervisors assigned by TACOR and DFI, these companies used different schemes to make it appear that petitioners were hired through independent contractors, including individuals, unregistered associations, and cooperatives; that the successive changes in the names of their employers notwithstanding, they continued to perform the same work under the direct control of TACOR and DFI supervisors; and that under the last scheme adopted by these companies, the nominal individual contractors were required to, as they did, join a cooperative and thus became members of respondent Bobongon Banana Growers Multi-purpose Cooperative (the Cooperative).2

Continued petitioners: Sometime in 2000, above-named respondents began utilizing harassment tactics to ease them out of their jobs. Without first seeking the approval of the Department of Labor and Employment (DOLE), they changed their compensation package from being based on a daily rate to a pakyawan rate that depended on the combined

61

productivity of the "gangs" they had been grouped into. Soon thereafter, they stopped paying their salaries, prompting them to stop working.3

One after another, three separate complaints for illegal dismissal were filed by petitioners, individually and collectively, with the National Labor Relations Commission (NLRC) against said respondents including respondent Dole Asia Philippines as it then supposedly owned TACOR,4 for unpaid salaries, overtime pay, 13th month pay, service incentive leave pay, damages, and attorney’s fees.5

DFI answered for itself and TACOR, which it claimed had been merged with it and ceased to exist as a corporation. Denying that it had engaged the services of petitioners,6 DFI alleged that during the corporate lifetime of TACOR, it had an arrangement with several landowners in Santo Tomas, Davao Del Norte whereby TACOR was to extend financial and technical assistance to them for the development of their lands into a banana plantation on the condition that the bananas produced therein would be sold exclusively to TACOR; that the landowners worked on their own farms and hired laborers to assist them; that the landowners themselves decided to form a cooperative in order to better attain their business objectives; and that it was not in a position to state whether petitioners were working on the banana plantation of the landowners who had contracted with TACOR.7

a1f

The Cooperative failed to file a position paper despite due notice, prompting the Labor Arbiter to consider it to have waived its right to adduce evidence in its defense.

Nothing was heard from respondent Dole Asia Philippines.

By consolidated Decision dated October 30, 2002,8 the Labor Arbiter, found respondent Cooperative guilty of illegal dismissal. It dropped the complaints against DFI, TACOR and Dole Asia Philippines. Thus it disposed:

WHEREFORE, judgment is hereby rendered:

1. Declaring respondent Bobongon Banana Growers Multi-purpose Cooperative guilty of illegal dismissal;

2. Ordering respondent Bobongon Banana Growers Multi-purpose Cooperative to pay complainants full backwages from

the time of their illegal dismissal up to this promulgation, to be determined during the execution stage;

3. Ordering respondent Bobongon Banana Growers Multi-purpose Cooperative to reinstate complainants to their former positions without loss of seniority rights and if not possible, to pay them separation pay equivalent to 1/2 month pay for every year of service;

4. Ordering respondent Bobongon Banana Grower Cooperative [sic] to pay 10% of the total award as Attorney’s fees;

5. All other respondents are hereby dropped as party-respondents for lack of merit. (Underscoring supplied)

In finding for petitioners, the Labor Arbiter relied heavily on the following Orders submitted by DFI which were issued in an earlier case filed with the DOLE, viz: (1) Order dated July 11, 1995 of the Director of DOLE Regional Office No. XI declaring the Cooperative as the employer of the 341 workers in the farms of its several members; (2) Order dated December 17, 1997 of the DOLE Secretary affirming the Order dated July 11, 1995 of the Director of DOLE Regional Office No. XI; and (3) Order dated June 23, 1998 of the DOLE Secretary denying the Cooperative’s Motion for Reconsideration.

On partial appeal to the NLRC, petitioners questioned the Labor Arbiter’s denial of their money claims and the dropping of their complaints against TACOR, DFI, and Dole Asia Philippines.

By Resolution dated July 30, 2003,9 the NLRC sustained the Labor Arbiter’s ruling that the employer of petitioners is the Cooperative, there being no showing that the earlier mentioned Orders of the DOLE Secretary had been set aside by a court of competent jurisdiction. It partially granted petitioners’ appeal, however, by ordering the Cooperative to pay them their unpaid wages, wage differentials, service incentive leave pay, and 13th month pay. It thus remanded the case to the Labor Arbiter for computation of those awards.

Their Motion for Reconsideration having been denied by Resolution of September 30, 2003,10 petitioners appealed to the Court of Appeals via certiorari.11

62

By Resolution dated February 20, 2004,12 the appellate court dismissed petitioners’ petition for certiorari on the ground that the accompanying verification and certification against forum shopping was defective, it having been signed by only 19 of the 22 therein named petitioners. Their Motion for Reconsideration having been denied by Resolution of May 13, 2004,13 petitioners lodged the present Petition for Review on Certiorari.

Petitioners posit that the appellate court erred in dismissing their petition on a mere technicality as it should have, at most, dismissed the petition only with respect to the non-signing petitioners.

Dwelling on the merits of the case, petitioners posit that the Labor Arbiter and the NLRC disregarded evidence on record showing that while the Cooperative was their employer on paper, the other respondents exercised control and supervision over them; that the Cooperative was a labor-only contractor; and that the Orders of the DOLE Secretary relied upon by the Labor Arbiter and the NLRC are not applicable to them as the same pertained to a certification election case involving different parties and issues.14

DFI, commenting for itself and TACOR, maintains that, among other things, it was not the employer of petitioners; and that it cannot comment on their money claims because no evidence was submitted in support thereof.15

It appears that respondent Cooperative had been dissolved.16

As respondent Dole Asia Philippines failed to file a comment, the Court, by Resolution of November 29, 2006,17required it to (1) show cause why it should not be held in contempt for its failure to heed the Court’s directive, and (2) file the required comment, within 10 days from notice.

Dole Philippines, Inc. (DPI) promptly filed an Urgent Manifestation18 stating that, among other things, while its division located in Davao City received the Court’s Resolution directing Dole Asia Philippines to file a comment on the present petition, DPI did not file a comment as the directive was addressed to "Dole Asia Philippines", an entity which is not registered at the Securities and Exchange Commission.

Commenting on DPI’s Urgent Manifestation, petitioners contend that DPI cannot be allowed to take advantage of their lack of knowledge as to its

exact corporate name, DPI having raised the matter for the first time before this Court notwithstanding its receipt of all pleadings and court processes from the inception of this case.19

Upon review of the records, the Court finds that DPI never ever participated in the proceedings despite due notice. Its posturing, therefore, that the court processes it received were addressed to "Dole Asia Philippines," a non-existent entity, does not lie. That DPI is the intended respondent, there is no doubt.

Respecting the appellate court’s dismissal of petitioners’ appeal due to the failure of some of them to sign the therein accompanying verification and certification against forum-shopping, the Court’s guidelines for the bench and bar in Altres v. Empleo,20 which were culled "from jurisprudential pronouncements," are instructive:

For the guidance of the bench and bar, the Court restates in capsule form the jurisprudential pronouncements already reflected above respecting non-compliance with the requirements on, or submission of defective, verification and certification against forum shopping:

1) A distinction must be made between non-compliance with the requirement on or submission of defective verification, and non-compliance with the requirement on or submission of defective certification against forum shopping.

2) As to verification, non-compliance therewith or a defect therein does not necessarily render the pleading fatally defective. The court may order its submission or correction or act on the pleading if the attending circumstances are such that strict compliance with the Rule may be dispensed with in order that the ends of justice may be served thereby.

3) Verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations in the complaint or petition signs the verification, and when matters alleged in the petition have been made in good faith or are true and correct.

4) As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in verification, is generally not curable by its subsequent submission or correction thereof,

63

unless there is a need to relax the Rule on the ground of "substantial compliance" or presence of "special circumstances or compelling reasons."

5) The certification against forum shopping must be signed by all the plaintiffs or petitioners in a case; otherwise, those who did not sign will be dropped as parties to the case. Under reasonable or justifiable circumstances, however, as when all the plaintiffs or petitioners share a common interest and invoke a common cause of action or defense, the signature of only one of them in the certification against forum shopping substantially complies with the Rule.

6) Finally, the certification against forum shopping must be executed by the party-pleader, not by his counsel. If, however, for reasonable or justifiable reasons, the party-pleader is unable to sign, he must execute a Special Power of Attorney designating his counsel of record to sign on his behalf. (Emphasis and underscoring supplied)

The foregoing restated pronouncements were lost in the challenged Resolutions of the appellate court. Petitioners’ contention that the appellate court should have dismissed the petition only as to the non-signing petitioners or merely dropped them as parties to the case is thus in order.

Instead of remanding the case to the appellate court, however, the Court deems it more practical to decide the substantive issue raised in this petition so as not to further delay the disposition of this case.21 And it thus resolves to deviate as well from the general rule that factual questions are not entertained in petitions for review on certiorari of the appellate court’s decisions in order to write finis to this protracted litigation.

The sole issue is whether DFI (with which TACOR had been merged) and DPI should be held solidarily liable with the Cooperative for petitioners’ illegal dismissal and money claims.

The Labor Code and its Implementing Rules empower the Labor Arbiter to be the trier of facts in labor cases.22Much reliance is thus placed on the Arbiter’s findings of fact, having had the opportunity to discuss with the parties and their witnesses the factual matters of the case during the conciliation phase.23 Just the same, a review of the records of the present

case does not warrant a conclusion different from the Arbiter’s, as affirmed by the NLRC, that the Cooperative is the employer of petitioners.

To be sure, the matter of whether the Cooperative is an independent contractor or a labor-only contractor may not be used to predicate a ruling in this case. Job contracting or subcontracting refers to an arrangement whereby a principal agrees to farm out with a contractor or subcontractor the performance of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal.24 The present case does not involve such an arrangement.

DFI did not farm out to the Cooperative the performance of a specific job, work, or service. Instead, it entered into a Banana Production and Purchase Agreement25 (Contract) with the Cooperative, under which the Cooperative would handle and fund the production of bananas and operation of the plantation covering lands owned by its members in consideration of DFI’s commitment to provide financial and technical assistance as needed, including the supply of information and equipment in growing, packing, and shipping bananas. The Cooperative would hire its own workers and pay their wages and benefits, and sell exclusively to DFI all export quality bananas produced that meet the specifications agreed upon.

To the Court, the Contract between the Cooperative and DFI, far from being a job contracting arrangement, is in essence a business partnership that partakes of the nature of a joint venture.26 The rules on job contracting are, therefore, inapposite. The Court may not alter the intention of the contracting parties as gleaned from their stipulations without violating the autonomy of contracts principle under Article 1306 of the Civil Code which gives the contracting parties the utmost liberality and freedom to establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good custom, public order or public policy.

Petitioners’ claim of employment relationship with the Cooperative’s herein co-respondents must be assessed on the basis of four standards, viz: (a) the manner of their selection and engagement; (b) the mode of payment of their wages; (c) the presence or absence of the power of dismissal; and (d) the presence or absence of control over their conduct. Most determinative among these factors is the so-called "control test."27

64

There is nothing in the records which indicates the presence of any of the foregoing elements of an employer-employee relationship.

The absence of the first requisite, which refers to selection and engagement, is shown by DFI’s total lack of knowledge on who actually were engaged by the Cooperative to work in the banana plantation. This is borne out by the Contract between the Cooperative and DFI, under which the Cooperative was to hire its own workers. As TACOR had been merged with DFI, and DPI is merely alleged to have previously owned TACOR, this applies to them as well. Petitioners failed to prove the contrary. No employment contract whatsoever was submitted to substantiate how petitioners were hired and by whom.

On the second requisite, which refers to the payment of wages, it was likewise the Cooperative that paid the same. As reflected earlier, under the Contract, the Cooperative was to handle and fund the production of bananas and operation of the plantation.28 The Cooperative was also to be responsible for the proper conduct, safety, benefits, and general welfare of its members and workers in the plantation.29

As to the third requisite, which refers to the power of dismissal, and the fourth requisite, which refers to the power of control, both were retained by the Cooperative. Again, the Contract stipulated that the Cooperative was to be responsible for the proper conduct and general welfare of its members and workers in the plantation.

The crucial element of control refers to the authority of the employer to control the employee not only with regard to the result of the work to be done, but also to the means and methods by which the work is to be accomplished.30 While it suffices that the power of control exists, albeit not actually exercised, there must be someevidence of such power. In the present case, petitioners did not present any.

There being no employer-employee relationship between petitioners and the Cooperative’s co-respondents, the latter are not solidarily liable with the Cooperative for petitioners’ illegal dismissal and money claims.

While the Court commiserates with petitioners on their loss of employment, especially now that the Cooperative is no longer a going concern, it cannot simply, by default, hold the Cooperative’s co-respondents liable for their claims without any factual and legal

justification therefor. The social justice policy of labor laws and the Constitution is not meant to be oppressive of capital.

En passant, petitioners are not precluded from pursuing any available remedies against the former members of the defunct Cooperative as their individual circumstances may warrant.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

CONCHITA CARPIO MORALESAssociate Justice

WE CONCUR:

LEONARDO A. QUISUMBINGAssociate Justice

Chairperson

65