THIRD DIVISION 

[G.R. No. 160426, January 31, 2008] 

CAPITOLINA VIVERO NAPERE, Petitioner, vs. AMANDO BARBARONA and GERVACIA MONJAS BARBARONA, Respondents.

RESOLUTION 

NACHURA, J.:

Petitioner Capitolina Vivero Napere interposes this petition for review to assail the Court of Appeals’ Decision[1] dated October 9, 2003, which upheld the validity of the Regional Trial Court’s decision despite failure to formally order the substitution of the heirs of the deceased defendant, petitioner’s husband.

The case stems from the following antecedents:

Respondent Amando Barbarona is the registered owner of Lot No.  3177, situated inBarangay San Sotero (formerly Tambis), Javier, Leyte and covered by Original Certificate of Title (OCT) No.  P-7350.  Lot No.  3176, covered by OCT No.  1110 in the name of Anacleto Napere, adjoins said lot on the northeastern side.  After Anacleto died, his son, Juan Napere, and the latter’s wife, herein petitioner, planted coconut trees on certain portions of the property with the consent of his co-heirs.

In their complaint, respondents alleged that in April 1980, the spouses Napere, their relatives and hired laborers, by means of stealth and strategy, encroached upon and occupied the northeastern portion of Lot No.  3177; that the Naperes harvested the coconut fruits thereon, appropriated the proceeds thereof, and, despite demands, refused to turn over possession of the area; that in April 1992, a relocation survey was conducted which confirmed that the respondents’ property was encroached upon by the Naperes; that on the basis of the relocation survey, the respondents took possession of this encroached portion of the lot and harvested the fruits thereon from April 1993 to December 1993; but that in January 1994, the Naperes repeated their acts by encroaching again on the respondents’ property, harvesting the coconuts and appropriating the proceeds thereof, and refusing to vacate the property on demand.

On November 10, 1995, while the case was pending, Juan Napere died.  Their counsel informed the court of Juan Napere’s death, and submitted the names and addresses of Napere’s heirs.

At the pre-trial, the RTC noted that the Naperes were not contesting the respondents’ right of possession over the disputed portion of the property but were demanding the rights of a planter in good faith under Articles 445 and 455 of the Civil Code.

On October 17, 1996, the RTC rendered a Decision against the estate of Juan Napere, thus:WHEREFORE, this Court finds in favor of the plaintiff and against the defendant, hereby declaring the following:

a) The estate of Juan Napere is liable to pay the amount of ONE HUNDRED SEVENTY-NINE THOUSAND TWO HUNDRED (P179,200.00) PESOS in actual damages;

b) The estate of Juan Napere shall be liable to pay FIVE THOUSAND (P5,000.00) PESOS in litigation expenses, and the

c) Cost[s] of suit.

SO ORDERED.[2]

Petitioner appealed the case to the Court of Appeals (CA), arguing, inter alia, that the judgment of the trial court was void for lack of jurisdiction over the heirs who were not ordered substituted as party-defendants for the deceased.

On October 9, 2003, the CA rendered a Decision affirming the RTC Decision.[3] The appellate court held that failure to substitute the heirs for the deceased defendant will not invalidate the proceedings and the judgment in a case which survives the death of such party.

Thus, this petition for review where the only issue is whether or not the RTC decision is void for lack of jurisdiction over the heirs of Juan Napere.  Petitioner alleges that the trial court did not acquire jurisdiction over the persons of the heirs because of its failure to order their substitution pursuant to Section 17,[4] Rule 3 of the Rule of Court; hence, the proceedings conducted and the decision rendered by the trial court are null and void.

The petition must fail.

When a party to a pending case dies and the claim is not extinguished by such death, the Rules require the substitution of the deceased party by his legal representative or heirs.  In such case, counsel is obliged to inform the court of the death of his client and give the name and address of the latter’s legal representative.

The complaint for recovery of possession, quieting of title and damages is an action that survives the death of the defendant.  Notably, the counsel of Juan Napere complied with his duty to inform the court of his client’s death and the names and addresses of the heirs.  The trial court, however, failed to order the substitution of the heirs.  Nonetheless, despite this oversight, we hold that the proceedings conducted and the judgment rendered by the trial court are valid.

The Court has repeatedly declared that failure of the counsel to comply with his duty to inform the court of the death of his client, such that no substitution is effected, will not invalidate the proceedings and the judgment rendered thereon if the action survives the death of such party.[5] The trial court’s jurisdiction over the case subsists despite the death of the party.

Mere failure to substitute a deceased party is not sufficient ground to nullify a trial court’s decision.  The party alleging nullity must prove that there was an undeniable violation of due process.[6]

Strictly speaking, the rule on substitution by heirs is not a matter of jurisdiction, but a requirement of due process.[7] The rule on substitution was crafted to protect every party’s right to due process.[8] It was designed to ensure that the deceased party would continue to be properly represented in the suit through his heirs or the duly appointed legal representative of his estate.[9] Moreover, non-compliance with the Rules results in the denial of the right to due process for the heirs who, though not duly notified of the proceedings, would be substantially affected by the decision rendered therein.[10] Thus, it is only when there is a denial of due process, as when the deceased is not represented by any legal representative or heir, that the court nullifies the trial proceedings and the resulting judgment therein.[11]

Formal substitution by heirs is not necessary when they themselves voluntarily appear, participate in the case, and present evidence in defense of the deceased.[12]In such case, there is really no violation of the right to due process.  The essence of due process is the reasonable opportunity to be heard and to submit any evidence available in support of one’s defense.[13] When due process is not violated, as when the right of the representative or heir is recognized and protected, noncompliance or belated formal compliance with the Rules cannot affect the validity of a promulgated decision.[14]

In light of these pronouncements, we cannot nullify the proceedings before the trial court and the judgment rendered therein because the petitioner, who was, in fact, a co-defendant of the deceased, actively participated in the case.  The records show that the counsel of Juan Napere and petitioner continued to represent them even after Juan’s death.  Hence, through counsel, petitioner was able to adequately defend herself and the deceased in the proceedings below.  Due process simply demands an opportunity to be heard and this opportunity was not denied petitioner.

Finally, the alleged denial of due process as would nullify the proceedings and the judgment thereon can be invoked only by the heirs whose rights have been violated.  Violation of due process is a personal defense that can only be asserted by the persons whose rights have been allegedly violated.[15] Petitioner, who had every opportunity and who took advantage of such opportunity, through counsel, to participate in the trial court proceedings, cannot claim denial of due process.

WHEREFORE, premises considered, the petition is DENIED DUE COURSE.  The Decision of the Court of Appeals, dated October 9, 2003, in CA-G.R.  CV No.  56457, is AFFIRMED.

SO ORDERED.

Ynares-Santiago,  (Chairperson), Austria-Martinez, Corona, and Reyes, JJ., concur.

* In lieu of Associate Justice Minita V.  Chico-Nazario per Special Order No.  484 dated January 11, 2008.

[1] Penned by Associate Justice Marina L.  Buzon, with Associate Justices Sergio L.  Pestaño and Jose C.  Mendoza, concurring; rollo, pp.  32-41.

[2] Rollo, p.  48.

[3] Id.  at 40.

[4] Now Section 16, Rule 3 of the 1997 Rules of Civil Procedure.

[5] Riviera Filipina, Inc.  v.  Court of Appeals, 430 Phil.  8, 30-31 (2002); Benavidez v.  Court of Appeals, 372 Phil.  615, 623-624 (1999).

[6] De la Cruz v.  Joaquin, G.R.  No.  162788, July 28, 2005, 464 SCRA 576, 586.

[7] Id.  at 585.

[8] Id.  at 584.

[9] Heirs of Bertuldo Hinog v.  Melicor, G.R.  No.  140954, April 12, 2005, 455 SCRA 460, 478.

[10] Vda.  de Salazar v.  Court of Appeals, 320 Phil.  373, 378 (1995).

[11] De la Cruz v.  Joaquin, supra note 6, at 585-586.

[12] Id.  at 585.

[13] Gochan v.  Gochan, 446 Phil.  433, 450 (2003).

[14] De la Cruz v.  Joaquin, supra note 6, at 585-586.

[15] Carandang v.  Heirs of Quirino A.  De Guzman, G.R.  No.  160347, November 29, 2006, 508 SCRA 469, 480.THIRD DIVISION

[G.R. No. 162788.  July 28, 2005]

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

D E C I S I O NPANGANIBAN, J.:

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

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the August 26, 2003 Decision[2] and the March 9, 2004 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 34702.  The challenged Decision disposed as follows:

“WHEREFORE, the foregoing considered, the appeal is DISMISSED and the assailed decision accordingly AFFIRMED in toto.  No costs.”[4]

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

“WHEREFORE, judgment is hereby rendered:

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

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

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

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

“e)    ordering the defendants to pay the plaintiff the amount of P10,000.00 as actual and compensatory damages; the amount ofP5,000[.00] as exemplary damages; the amount of P5,000.00 as expenses of litigation and the amount of P5,000.00 by way of attorney’s fees.”[5]

The Facts

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

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

On April 23, 1990, the RTC issued a Decision in his favor.  The trial court declared that the parties had entered into a sale with a right of repurchase.[10] It further held that respondent had made a valid tender of payment on two separate occasions to exercise his right of repurchase.[11] Accordingly, petitioners were required to reconvey the property upon his payment.[12]

Ruling of the Court of Appeals

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

In the March 9, 2004 Resolution, the CA denied reconsideration and ordered a substitution by legal representatives, in view of respondent’s death on December 24, 1988.[15]

Hence, this Petition.[16]

The Issues

Petitioners assign the following errors for our consideration:

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

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

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

The Court’s Ruling

The Petition has no merit.

First Issue:Jurisdiction

Petitioners assert that the RTC’s Decision was invalid for lack of jurisdiction. [19] They claim that respondent died during the pendency of the case.  There being no substitution by the heirs, the trial court allegedly lacked jurisdiction over the litigation.[20]

Rule on Substitution

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

“Section 16.    Death of a party; duty of counsel. –Whenever a party to a pending action dies, and the claim is not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty (30) days after such death of the fact thereof, and to give the name and address of his legal representative or representatives.  Failure of counsel to comply with this duty shall be a ground for disciplinary action.

“The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court may appoint a guardian ad litem for the minor heirs.

“The court shall forthwith order said legal representative or representatives to appear and be substituted within a period of thirty (30) days from notice.

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

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

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

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

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

Clearly, the present case is not similar, much less identical, to the factual milieu of Chittick.Strictly speaking, the rule on the substitution by heirs is not a matter of jurisdiction, but a requirement of due

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

Substitution inthe Instant Case

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

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

“It is further prayed that henceforth the undersigned counsel[32] for the heirs of Pedro Joaquin be furnished with copies of notices, orders, resolutions and other pleadings at its address below.”

Evidently, the heirs of Pedro Joaquin voluntary appeared and participated in the case.  We stress that the appellate court had ordered[33]his legal representatives to appear and substitute for him.  The substitution even on appeal had been ordered correctly.  In all proceedings, the legal representatives must appear to protect the interests of the deceased.[34] After the rendition of judgment, further proceedings may be held, such as a motion for reconsideration or a new trial, an appeal, or an execution.[35]

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

Second Issue:Forum Shopping

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

Forum Shopping Defined

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

Forum shopping trifles with the courts, abuses their processes, degrades the administration of justice, and congests court dockets.[39]Willful and deliberate violation of the rule against it is a ground for the summary dismissal of the case; it may also constitute direct contempt of court.[40]

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

Applicability of Res Judicata

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

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

Failure to Support Allegation

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

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

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

[1] Rollo, pp. 3-14.[2] Id., pp. 19-27.  Twelfth Division.  Penned by Justice Josefina Guevara-Salonga, with the concurrence of Justices

Romeo A. Brawner (Division chair and now CA presiding justice) and Arturo D. Brion (member).[3] Id., pp. 28-29.[4] CA Decision, p. 8; rollo, p. 26.[5] Rollo, pp. 19-20.[6] Assailed Decision, p. 2; rollo, p. 20.[7] Ibid.[8] Ibid.[9] Id., p. 3; rollo, p. 21.[10] Id., p. 1; rollo, p. 20.[11] Id., p. 7; rollo, p. 25.[12] Id., p. 1; rollo, p. 20.[13] Id., p. 7; rollo, p. 25.[14] Ibid.[15] Assailed Resolution, p. 2; rollo, p. 29.[16] The case was deemed submitted for decision on December 10, 2004, upon this Court’s receipt of the respective

Memoranda of petitioners and respondent.  Petitioners’ Memorandum was signed by Atty. George Erwin M. Garcia; respondent’s Memorandum, by Attys. Nicolas P. Lapeña Jr. and Gilbert F. Ordoña.

[17] Petition, pp. 6-7; rollo, pp. 8-9.  Petitioners erred in phrasing the assignment of errors, since the CA should not be impleaded as a respondent in a Petition for Review on Certiorari.  §4, Rule 45, Rules of Court.

[18] Petition, p. 5; rollo, p. 7.                        This Court will not address the allegations that were not raised in the Petition, but only in

petitioners’ Memorandum.  In the Court’s Resolution dated October 13, 2004, the parties were directed to submit their respective Memoranda without raising new issues.  In their Memorandum, petitioners added paragraphs alleging that respondent had failed to make a valid tender of payment and abandoned their right to the repurchase agreement.  These are factual issues that are not proper in a Petition for Review on Certiorari.  (§1, Rule 45, Rules of Court)  Moreover, it would be against the fundamental right to due process if these allegations are considered without hearing private respondent and the CA on this matter.  A Petition for review essentially charges the lower court with “reversible errors.”  How can there be any such mistakes with respect to a matter not raised and taken up in the assailed Decision?

[19] Petition, p. 8; rollo, p. 10.[20] Ibid.[21] Actions that survive against the decedent’s representatives are as follows:  (1) actions to recover real or

personal property or an interest thereon, (2) actions to enforce liens thereon, (3) actions to recover damages for an injury to a person or a property. §1, Rule 87 of the Rules of Court.  See also Board of Liquidators v. Heirs of M. Kalaw et al., 127 Phil. 399, 414, August 14, 1967.

[22] Riviera Filipina Inc. v. Court of Appeals, 430 Phil. 8, 31, April 5, 2002; Torres Jr. v. Court of Appeals, 344 Phil. 348, 366, September 5, 1997; Vda. de Salazar v. Court of Appeals, 320 Phil. 373, 377, November 23, 1995.

[23] Heirs of Hinog v. Melicor , GR No. 140954 , April 12, 2005; Torres Jr. v. Court of Appeals, ibid.[24] Vda. de Salazar v. Court of Appeals, supra, p. 377; De Mesa et al. v. Mencias et al., 124 Phil. 1187, 1195,

October 29, 1966.[25] Brioso v. Rili-Mariano, 444 Phil. 625, 636, January 31, 2003; Lawas v. Court of Appeals, 230 Phil. 261, 268,

December 12, 1986; The Heirs of the Late F. Nuguid Vda. de Haberer v. Court of Appeals, 192 Phil. 61, 70, May 26, 1981; Vda. de Dela Cruz v. Court of Appeals, 88 SCRA 695, 701, February 28, 1979; Ferreria et al. v. Vda. de Gonzales et al., 104 Phil. 143, 149, July 17, 1958.

[26] Ibid.  See also Heirs of Hinog, supra; Vda. de Salazar v. Court of Appeals, supra.[27] Brioso v. Rili-Mariano, supra, p. 637; Vda. de Salazar v. Court of Appeals, supra, p. 377.[28] 166 SCRA 219, October 4, 1988.[29] Id., p. 226.[30] Id., p. 227.[31] Brioso v. Rili-Mariano, ibid.; Torres Jr. v. Court of Appeals, supra; Vda. de Salazar v. Court of Appeals, id., p. 380.[32] Law Firm of Lapeña & Associates, Rm. 208 Golden Crescent Mansion, 90 Alvero St., Loyola Heights, Quezon City,

signed by Nicolas P. Lapeña Jr., the same counsel in the present case appearing for respondent.[33] March 9, 2004 Resolution, p. 2; rollo, p. 29.[34] Vda. de Dela Cruz v. Court of Appeals, supra, p. 702.[35] Moran, Comments on the Rules of Court (1995), Vol. I, p. 286.[36] Petitioners’ Memorandum, p. 5; rollo, p. 75.[37] R   &   E Transport Inc. v. Latag , 422 SCRA, 698, 710, February 13, 2004; Nordic Asia Limited v. Court of

Appeals, 403 SCRA 390, 401, June 10, 2003; New Sampaguita Builders Constructions, Inc. v. The Estate of Canoso, 397 SCRA 456, 462, February 14, 2003.

[38] R & E Transport Inc. v. Latag, ibid.; Bangko Silangan Development Bank v. Court of Appeals, 412 Phil. 757, 770, June 29, 2001.

[39] Santos v. Commission on Elections, 447 Phil. 760, 771, March 26, 2003; Argel v. Court of Appeals, 374 Phil. 867, 876, October 12, 1999.

[40] §5, Rule 7, Rules of Court.  See also Top Rate Construction   &   General Services Inc. v. Paxton Development Corporation, 410 SCRA 604, 620, September 11, 2003.

[41] Saura v. Saura Jr., 372 Phil. 337, 349, September 1, 1999; Employees’ Compensation Commission v. Court of Appeals, 327 Phil. 510, 516, June 28, 1996; First Philippine International Bank v. Court of Appeals, 322 Phil. 280, 307, January 24, 1996.

[42] Litis pendentia refers to the pendency of another action between the same parties involving the same cause of action. Compania General de Tobacos de Filipinas v. Court of Appeals, 422 Phil. 405, 423, November 29, 2001.

This ground is also referred to as lis pendens or auter action pendant.  Buan v. Lopez, 229 Phil. 65, 68, October 13, 1986.

To be more accurate, petitioners should have alleged, not simply the rule on forum shopping, but also res judicata as a ground to dismiss respondent’s Complaint.   See Employees’ Compensation Commission v. Court of Appeals, supra, p. 518.

[43] Taganas v. Emuslan, 410 SCRA 237, 241, September 2, 2003; Bardillon v. Barangay Masili of Calamba, Laguna, 402 SCRA 440, 446, April 30, 2003; Oropeza Marketing Corp. v. Allied Banking Corp., 441 Phil. 551, 563, December 3, 2002.

[44] Bardillon v. Barangay Masili of Calamba, Laguna, ibid.; Oropeza Marketing Corp. v. Allied Banking Corp., ibid.; Mirpuri v. Court of Appeals, 376 Phil. 628, 649, November 19, 1999.

[45] Taganas v. Emuslan, supra; Bardillon v. Barangay Masili of Calamba, Laguna, ibid.; Mirpuri v. Court of Appeals, id., p. 650; Deang v. Intermediate Appellate Court, 154 SCRA 250, 254, September 24, 1987.

[46] §1, Rule 131, Rules of Court.[47] See also Bank of America NT&SA v. Court of Appeals, 448 Phil. 181, 198, March 31, 2003.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. L-25350 October 4, 1988

WILLIAM A. CHITTICK, petitioner, vs.HONORABLE COURT OF APPEALS and LAURENCE F. DE PRIDA PATRICIA CHITTICK, LANE, WILLIAM A. CHITTICK, JR., DAGMAR CHITTICK GILDERSLEEVE and MARY CHITTICK LYMAN, as alleged substituted parties for MURIEL M. CHITTICK original party plaintiff, respondents.

Gonzalo W. Gonzales & Associates for petitioner.

David Guevarra for respondent Laurence F. de Prida.

 

BIDIN, J.:

This is a petition for review on certiorari of the decision * of respondent Court of Appeals promulgated on July 31, 1965 in CA-G.R. No. 31327-R, affirming in all respect the decision **of the Court of First Instance of Manila, Branch II in Civil Case No. 6405 entitled Muriel M. Chittick vs. William A. Chittick.

The dispositive portion of the decision which was affirmed by respondent Court, reads as follows:

In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant by way of support in arrears for the sum of P21,145.42 or its present equivalent in dollar at the option of the plaintiff, with interest at the legal rate from January 12, 1951; and under the second cause of action for the sum of P9,000.00 with interest at the rate of 6% from April 29, 1940, plus attorney's fees in the amount of P900.00, and the costs of the suit. (R.A. p. 110)

The facts of the case, taken from the decision of the trial court is as follows:

The plaintiff and the defendant, both American citizens, were married in Washington, U.S.A. on February 12, 1923. They came to the Philippines in 1924 and made the City of Manila their permanent residence. Four children were born of the marriage, namely, Patricia, who was born, on September 12, 1924; William, Jr., on January 8, 1926; Dagmar, on October 6, 1931, and Mary, on January 12, 1933. According to the defendant, due to plaintiffs infidelity, their marital relation became strained and they entered into an agreement of separation, Exhibit A, on May 8, 1937. The document, Exhibit A, was drawn by Atty. Benjamin S. Ohmick, an American lawyer, and was duly acknowledged before a notary public. The pertinent stipulations which are the bases of plaintiffs two causes of action are found in paragraphs 2 and 3, and read as follows:

2. The husband agrees that he will pay or cause to be paid to said wife monthly the sum of FIVE HUNDRED FIFTY PESOS (P550.00), Philippine Currency, or its present equivalent in United States Currency, at the election of the wife, for the care, maintainance and support of the said wife and the said minor children. Said payment shall continue until such time as the youngest of said minor children arrives at the age of eighteen (18) years, provided however, that the said wife in the meantime does not remarry. Should such marriage take place, it is understood and agreed that payments aforesaid shall be reduced by twenty percent (20%).

3. It is mutually agreed that the community or conjugal assets of the parties, consisting of share of stock in various corporations, together with cash, have a net realizable value of P22,500.00 which the husband agrees to divide equally with the wife and deliver same to her whenever the said wife secures a final decree of divorce as is contemplated by her it being understood that the husband, at his option, may deliver to the wife the sum of P11,250.00 in full and complete discharge.

The plaintiff thereafter went to Nevada, U.S.A., and alleging desertion on the part of her husband, the defendant herein, the plaintiff obtained a divorce, Exhibit B, on August 30, 1937. Plaintiff stayed in the United States until December 1937, after which she returned to the Philippines. The defendant complied faithfully with the payment of the monthly support of P550.00 until the war broke out in December 1941. With the outbreak of the war, the spouses and their children were interred in the Sto. Tomas University concentration camp by the Japanese from January 1942 to March 3, 1944. Nevertheless, the defendant during the period of interment, paid to the plaintiff a total of P4,716.00 which according to the defendant, was extended as a loan to the plaintiff and which was obtained by borrowing from his friends. After the liberation in March 1945, plaintiff and defendant and their children were among the first to be sent back to the United States for medical treatment, arriving in San Francisco on May 9, 1945. From the arrival of the parties in San Francisco in May 9, 1945 to January 12, 1951 when Mary, the youngest, reached the age of 18, and when according to paragraph 2 of Exhibit A, the payment of support should cease, the defendant paid a total of $8,145.00. The total amount due to the plaintiff by way of support, in accordance with paragraph 2 of Exhibit A, from May 9, 1945 to January 12, 1951 is $18,717.71, thereby, leaving a balance in favor of the plaintiff in the amount of $10,572.7l. (Record on Appeal, pp. 84-88).

On October 2, 1948, private respondent commenced an action to recover from petitioner support in arrears and her share in the conjugal partnership, in Civil Case No. 6405 of the Court of First Instance of Manila, Branch II,

praying that judgment be rendered in her favor and against defendant, under the first cause of action, for the sum of $3,442.90, United States currency, or P6,885.80, Philippine Currency, and the further sum of $110.00 or P220.00 per month from March 1, 1948, both with legal interest from the date of filing of the complaint until paid and, under the second cause of action, for the sum of P11,250.00, with legal interest from the date of the filing of this complaint, until paid, plus the sum of P1,000.00 for attorney's fees, with costs against defendant. (Record on Appeal, pp. 1-11).

As aforesaid, the trial court rendered a decision in favor of the plaintiff.

On appeal, respondent Court of Appeals on July 31, 1965, affirmed the decision of the trial court in all respects (Rollo, pp. 82-116). August 5, 1965, counsel for plaintiff-appellee, private respondent herein, filed a motion with respondent court for substitution of party plaintiff-appellee, who died in Los Angeles, California, United States of America on April 25, 1964, by her heirs, her surviving spouse, Laurence F. de Prida and the legitimate children of the parties (Rollo, p. 143). The motion was opposed by petitioner herein on the ground that since the relation between attorney and client ceased with the death of plaintiff-appellee, counsel cannot present any motion for and in behalf of the children of the deceased client, unless authorized by the said children and/or heirs. (Rollo, p. 144). On November 3, 1965, the respondent Court issued its resolution granting the motion for substitution (Rollo, p. 209).

A motion for reconsideration of the decision of respondent court dated July 31, 1965 was filed by petitioner on August 20, 1965 (Rollo, pp. 154-199.) It was denied by respondent court in another resolution also dated November 3, 1965 (Rollo, p. 210.)

Hence, this petition filed with this Court on November 26, 1965 (Rollo, p.1.) In a resolution dated January 7, 1966, the Court resolved to dismiss the petition for lack of merit (Rollo, p. 215-A.)

On January 27, 1966, petitioner tiled a motion for reconsideration of the Court's resolution of January 7, 1966 (Rollo, p. 217) in view of which the Court required respondents to answer within ten days from notice, in its resolution of February 17, 1966 (Rollo, p. 242.) Private respondent Laurence F. de Prida filed his answer on April 4,1966 (Rollo, p. 247.)

On April 18, 1966, the Court resolved to give due course to the petition (Rollo, p. 276.) The brief for the petitioner was filed on June 14, 1966 (Reno, p. 279); the brief for the respondent was filed on August 25, 1966 (Rollo, p. 288.) The reply brief was filed on November 3, 1966 (Rollo, p. 308.)

On January 18, 1967, petitioner filed a manifestation that the Court take cognizance of two letters of his son William, Jr. stating that the case will filed by Larry de Prida (his mother's alleged second husband), without his consent and expressing a desire not to be made a party to the case against his father (Rollo, p. 309.). Acting on the manifestation the Court required private respondent to comment thereon, (Rollo, p. 315) which was filed on February 16, 1967 (Rollo, p. 316). A counter manifestation with reference to the comment of private respondent was filed by petitioner on February 2&, 1967 (Rollo, p. 318.)

Petitioner raised several assignments of errors but the principal conflict in this case centers on whether or not the decision of respondent Court was rendered nugatory by the death of plaintiff-appellee Muziel M. Chittick (private respondent herein) more than one year before its issuance and before a substitution of heirs could be effected.

The answer is in the affirmative.

Section 16, Rule 3 of the Rules of Court states:

Duty of attorney upon death, incapacity, or incompetency of party.—Whenever a party to a pending case dies, becomes incapacitated or incompetent, it shall be the duty of his attorney to inform the court promptly of such death, incapacity or incompetency, and to give the name and residence of his executor, administrator, guardian on other legal representative.

Section 17 of the same Rule likewise, states:

Death of a party.—After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. If the legal representative fails to appear within said time, the court may order the opposing party to procure the appointment of a legal representative of the deceased within a time to be specified by the court, and the representative shall immediately appear for and on behalf of the interest of the deceased. The court charges involved in procuring such appointment, if defrayed by the opposing party, may be recovered as costs. The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court may appoint guardian ad litem for the minor heirs.

Private respondent Muriel M. Chittick died in Los Angeles, California, United States of America, on April 25,1964 while the case was pending with respondent Court of Appeals. It was only on August 5, 1965, however, that counsel for private respondent filed a motion for substitution of party plaintiff-appellee (Rollo, p. 143) five days after respondent court promulgated its decision of July 31, 1965, despite Section 16, Rule 3 of the Rules of Court which clearly provides for a prompt notice of such death to be given to the Court by the attorney of the deceased. In fact said counsel himself admitted his lapse in memory, alleging however, that he thought all the while that he had already complied with the aforementioned sections of Rule 3 and that he discovered his neglect when he went over the records of the case upon receipt of the decision promulgated by the Court of Appeals (Rollo, p. 148). There is no question that this duty applies in this case where a party dies after filing of the complaint and during the pendency of the case (Doel v. Teves, 136 SCRA 196 [1985], nor is there any argument against the rule that counsel's inexcusable negligence is binding on his client. (Llantero v. Court of Appeals, 105 SCRA 609 [1981], Pulido v. Court of Appeals, 122 SCRA 63 [1983]).

More than that, apart from the fact that there appears to be no compliance with the procedure laid down in Rule 3, Sections 16 and 17 of the Rules of Court, in order that a valid substitution maybe effected, all of the Chittick children who claim that they have no knowledge of such substitution, expressly and vehemently objected to their being included as plaintiffs against petitioner, their father (Brief for Petitioner, pp. 33-36).

Consequently, it is evident that the motion for substitution filed by the counsel for the deceased and which was subsequently approved by the Court of Appeals is null and void because the party in whose name it was presented was dead, and therefore, the authority of the attorney to represent her had ceased (Moran, Vol. I, p. 218,1979 ed.). Furthermore, the said motion was unauthorized by the plaintiffs in question (private respondents herein) with the exception of Laurence F. de Prida, the alleged second husband of the deceased, whose heirship is however also in question. As correctly stated by petitioner, there should first be a prior determination as to whether or not de Prida is an heir of the deceased before he can be properly substituted as such (Brief for Petitioner, pp. 3640).

Under similar circumstances, this Court ruled as follows:

In the present case, there had been no court order for the legal representative of the deceased to appear, nor had any such legal representative ever appeared in court to be substituted for the deceased; neither had the complainant ever procured the appointment of such legal representative of the deceased, nor had the heirs of the deceased, including appellant, ever asked to be allowed to be substituted for the deceased. As a result, no valid substitution was effected, consequently, the court never acquired jurisdiction over appellant for the purpose of making her a party to the case and making the decision binding upon her, either personally or as legal representative of the estate of her deceased mother. (Ferreria, et al. v. Vda. de Gonzales, et al., 104 Phil. 143).

Going back to the case at bar, it is without question that there was no valid substitution made and as a consequence, the Court of Appeals never acquired jurisdiction over the Chittick children nor over the alleged second husband whose status as heir has still to be determined.

Still further, on November 29, 1977, counsel for petitioner filed with this Court a Notice of Death of the latter on April 13, 1977 in Makati, Metro Manila (Rollo, p. 322). Accordingly, even assuming that there was a valid substitution still this case as a money claim against the defendant petitioner cannot survive under Sec. 5, Rule 86 of the Rules of Court and should have been filed against the decedent's estate which is mandatory (De Bautista v. De Guzman, 125 SCRA 682 [1983]). Nevertheless, since the Chittick children as heirs of respondent-creditor are also the heirs of petitioner-debtor, the obligation sued upon had been extinguished by the merger in their persons of the character of creditor and debtor of the same obligation (Art. 1275, Civil Code).

WHEREFORE, the appealed decision of the Court of Appeals is hereby Reversed and Set Aside and the complaint filed against defendant-petitioner is Dismissed. No costs.

SO ORDERED.

Fernan, C.J., Feliciano and Cortes, JJ., concur.

Gutierrez, Jr., J., is on leave.

 

Footnotes

* Penned by Justice Julio Villamor and concurred by Justices Fred Ruiz Castro and Carmelino Alvendia.

** Penned by Judge Jose N. Leuterio.

Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 140746             March 16, 2005

PANTRANCO NORTH EXPRESS, INC., and ALEXANDER BUNCAN, petitioners, vs.STANDARD INSURANCE COMPANY, INC., and MARTINA GICALE, respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari assailing the Decision1 dated July 23 1999 and Resolution2 dated November 4, 1999 of the Court of Appeals in CA-G.R. CV No. 38453, entitled "Standard Insurance Company, Inc., and Martina Gicale vs. PANTRANCO North Express, Inc., and Alexander Buncan."

In the afternoon of October 28, 1984, Crispin Gicale was driving the passenger jeepney owned by his mother Martina Gicale, respondent herein. It was then raining. While driving north bound along the National Highway in Talavera, Nueva Ecija, a passenger bus, owned by Pantranco North Express, Inc., petitioner, driven by Alexander Buncan, also a petitioner, was trailing behind. When the two vehicles were negotiating a curve along the highway, the passenger bus overtook the jeepney. In so doing, the passenger bus hit the left rear side of the jeepney and sped away.

Crispin reported the incident to the Talavera Police Station and respondent Standard Insurance Co., Inc. (Standard), insurer of the jeepney. The total cost of the repair was P21,415.00, but respondent Standard paid only P8,000.00. Martina Gicale shouldered the balance ofP13,415.00.

Thereafter, Standard and Martina, respondents, demanded reimbursement from petitioners Pantranco and its driver Alexander Buncan, but they refused. This prompted respondents to file with the Regional Trial Court (RTC), Branch 94, Manila, a complaint for sum of money.

In their answer, both petitioners specifically denied the allegations in the complaint and averred that it is the Metropolitan Trial Court, not the RTC, which has jurisdiction over the case.

On June 5, 1992, the trial court rendered a Decision3 in favor of respondents Standard and Martina, thus:

"WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs, Standard Insurance Company and Martina Gicale, and against defendants Pantranco Bus Company and Alexander Buncan, ordering the latter to pay as follows:

(1) to pay plaintiff Standard Insurance the amount of P8,000.00 with interest due thereon from November 27, 1984 until fully paid;

(2) to pay plaintiff Martina Gicale the amount of P13,415.00 with interest due thereon from October 22, 1984 until fully paid;

(3) to pay the sum of P10,000.00 for attorney’s fees;

(4) to pay the expenses of litigation and the cost of suit.

SO ORDERED."

On appeal, the Court of Appeals, in a Decision4 dated July 23, 1999, affirmed the trial court’s ruling, holding that:

"The appellants argue that appellee Gicale’s claim of P13,415.00 and appellee insurance company’s claim of P8,000.00 individually fell under the exclusive original jurisdiction of the municipal trial court. This is not correct because under the Totality Rule provided for under Sec. 19, Batas Pambansa Bilang 129, it is the sum of the two claims that determines the jurisdictional amount.

x x x

In the case at bench, the total of the two claims is definitely more than P20,000.00 which at the time of the incident in question was the jurisdictional amount of the Regional Trial Court.

Appellants contend that there was a misjoinder of parties. Assuming that there was, under the Rules of Court (Sec. 11, Rule 7) as well as under the Rules of Civil Procedure (ditto), the same does not affect the jurisdiction of the court nor is it a ground to dismiss the complaint.

x x x

It does not need perspicacity in logic to see that appellees Gicale’s and insurance company’s individual claims against appellees (sic) arose from the same vehicular accident on October 28, 1984 involving appellant Pantranco’s bus and appellee Gicale’s jeepney. That being the case, there was a question of fact common to all the parties: Whose fault or negligence caused the damage to the jeepney?

Appellants submit that they were denied their day in court because the case was deemed submitted for decision "without even declaring defendants in default or to have waived the presentation of evidence." This is incorrect. Of course, the court did not declare defendants in default because that is done only when the defendant fails to tender an answer within the reglementary period. When the lower court ordered that the case is deemed submitted for decision that meant that the defendants were deemed to have waived their right to present evidence. If they failed to adduce their evidence, they should blame nobody but themselves. They failed to be present during the scheduled hearing for the reception of their evidence despite notice and without any motion or explanation. They did not even file any motion for reconsideration of the order considering the case submitted for decision.

Finally, contrary to the assertion of the defendant-appellants, the evidence preponderantly established their liability for quasi-delict under Article 2176 of the Civil Code."

Petitioners filed a motion for reconsideration but was denied by the Appellate Court in a Resolution dated November 4, 1999.

Hence, this petition for review on certiorari raising the following assignments of error:

"I

WHETHER OR NOT THE TRIAL COURT HAS JURISDICTION OVER THE SUBJECT OF THE ACTION CONSIDERING THAT RESPONDENTS’ RESPECTIVE CAUSE OF ACTION AGAINST PETITIONERS DID NOT ARISE OUT OF THE SAME TRANSACTION NOR ARE THERE QUESTIONS OF LAW AND FACTS COMMON TO BOTH PETITIONERS AND RESPONDENTS.

II

WHETHER OR NOT PETITIONERS ARE LIABLE TO RESPONDENTS CONSIDERING THAT BASED ON THE EVIDENCE ADDUCED AND LAW APPLICABLE IN THE CASE AT BAR, RESPONDENTS HAVE NOT SHOWN ANY RIGHT TO THE RELIEF PRAYED FOR.

III

WHETHER OR NOT PETITIONERS WERE DEPRIVED OF THEIR RIGHT TO DUE PROCESS."

For their part, respondents contend that their individual claims arose out of the same vehicular accident and involve a common question of fact and law. Hence, the RTC has jurisdiction over the case.

I

Petitioners insist that the trial court has no jurisdiction over the case since the cause of action of each respondent did not arise from the same transaction and that there are no common questions of law and fact common to both parties. Section 6, Rule 3 of the Revised Rules of Court,5 provides:

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

Permissive joinder of parties requires that: (a) the right to relief arises out of the same transaction or series of transactions; (b) there is a question of law or fact common to all the plaintiffs or defendants; and (c) such joinder is not otherwise proscribed by the provisions of the Rules on jurisdiction and venue.6

In this case, there is a single transaction common to all, that is, Pantranco’s bus hitting the rear side of the jeepney. There is also a common question of fact, that is, whether petitioners are negligent. There being a single transaction common to both respondents, consequently, they have the same cause of action against petitioners.

To determine identity of cause of action, it must be ascertained whether the same evidence which is necessary to sustain the second cause of action would have been sufficient to authorize a recovery in the first.7 Here, had respondents filed separate suits against petitioners, the same evidence would have been presented to sustain the same cause of action. Thus, the filing by both respondents of the complaint with the court below is in order. Such joinder of parties avoids multiplicity of suit and ensures the convenient, speedy and orderly administration of justice.

Corollarily, Section 5(d), Rule 2 of the same Rules provides:

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

x x x

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

The above provision presupposes that the different causes of action which are joined accrue in favor of the same plaintiff/s and against the same defendant/s and that no misjoinder of parties is involved.8 The issue of whether respondents’ claims shall be lumped together is determined by paragraph (d) of the above provision. This paragraph embodies the "totality rule" as exemplified by Section 33 (1) of B.P. Blg. 1299 which states, among others, that "where there are several claims or causes of action between the same or different parties, embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions."

As previously stated, respondents’ cause of action against petitioners arose out of the same transaction. Thus, the amount of the demand shall be the totality of the claims.

Respondent Standard’s claim is P8,000.00, while that of respondent Martina Gicale is P13,415.00, or a total of P21,415.00. Section 19 of B.P. Blg. 129 provides that the RTC has "exclusive original jurisdiction over all other cases, in which the demand, exclusive of interest and cost or the value of the property in controversy, amounts to more than twenty thousand pesos (P20,000.00)." Clearly, it is the RTC that has jurisdiction over the instant case. It bears emphasis that when the complaint was filed, R.A. 7691 expanding the jurisdiction of the Metropolitan, Municipal and Municipal Circuit Trial Courts had not yet taken effect. It became effective on April 15, 1994.

II

The finding of the trial court, affirmed by the Appellate Court, that petitioners are negligent and thus liable to respondents, is a factual finding which is binding upon us, a rule well-established in our jurisprudence. It has been repeatedly held that the trial court's factual findings, when affirmed by the Appellate Court, are conclusive and binding upon this Court, if they are not tainted with arbitrariness or oversight of some fact or circumstance of significance and influence. Petitioners have not presented sufficient ground to warrant a deviation from this rule.10

III

There is no merit in petitioners’ contention that they were denied due process. Records show that during the hearing, petitioner Pantranco’s counsel filed two motions for resetting of trial which were granted by the trial court. Subsequently, said counsel filed a notice to withdraw. After respondents had presented their evidence, the trial court, upon petitioners’ motion, reset the hearing to another date. On this date, Pantranco failed to appear. Thus, the trial court warned Pantranco that should it fail to appear during the next hearing, the case will be submitted for resolution on the basis of the evidence presented. Subsequently, Pantranco’s new counsel manifested that his client is willing to settle the case amicably and moved for another postponement. The trial court granted the motion. On the date of the hearing, the new counsel manifested that Pantranco’s employees are on strike and moved for another postponement. On the next hearing, said counsel still failed to appear. Hence, the trial court considered the case submitted for decision.

We have consistently held that the essence of due process is simply an opportunity to be heard, or an opportunity to explain one’s side or an opportunity to seek for a reconsideration of the action or ruling complained of.11

Petitioner Pantranco filed an answer and participated during the trial and presentation of respondents’ evidence. It was apprised of the notices of hearing issued by the trial court. Indeed, it was afforded fair and reasonable opportunity to explain its side of the controversy. Clearly, it was not denied of its right to due process. What is frowned upon is the absolute lack of notice and hearing which is not present here.

WHEREFORE, the petition is DENIED. The assailed Decision dated July 23 1999 and Resolution dated November 4, 1999 of the Court of Appeals in CA-G.R. CV No. 38453 are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

Panganiban, (Chairman), Corona, Carpio-Morales, and Garcia, JJ., concur.

Footnotes

1 Penned by Associate Justice Hilarion L. Aquino and concurred in by Associate Justices Ramon U. Mabutas, Jr. and Wenceslao I. Agnir, Jr. (all retired); Rollo at 24-30.

2 Id. at 46-47.

3 CA Records at 34-37.

4 Rollo at 25-30.

5 The complaint was filed prior to the effectivity of the 1997 Rules of Civil Procedure, as amended.

6 Regalado, Remedial Law Compendium, Seventh Revised Edition at 81.

7 Mendoza vs. Court of Appeals , G.R. No. 81909,  September 5, 1991, 201 SCRA 343.

8 Regalado at 71.

9 Judiciary Reorganization Act of 1980.

10 Mirasol, et al. vs. Court of Appeals, G.R. No. 128448, February 1, 2001, 351 SCRA 44.

11 Zacarias vs. National Police Commission, G.R. No. 119847, October 24, 2003.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. Nos. 161166-67             February 03, 2005

MAYOR RHUSTOM L. DAGADAG, petitioner, vs.MICHAEL C. TONGNAWA and ANTONIO GAMMOD, respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari1 assailing the joint Decision2 dated July 31, 2003 and Resolution dated December 10, 2003 of the Court of Appeals in CA-G.R. SP Nos. 54511 and 57315. The dispositive portion of the joint Decision reads:

"WHEREFORE, these consolidated Petitions for Review are hereby GRANTED. The assailed Resolutions dated October 21, 1997 and May 31, 1999 of the Civil Service Commission upholding Respondent’s [now petitioner Mayor Rhustom L. Dagadag] Order of Suspension dated June 29, 1999, and January 24, 2000 upholding Respondent’s

Order of Separation, are hereby REVERSED AND SET ASIDE. Petitioners Michael C. Tongnawa and Antonio B. Gammod are hereby accordingly REINSTATED WITH CORRESPONDING BACKWAGES.

SO ORDERED."3

Petitioner was formerly the mayor of the municipality of Tanudan, Province of Kalinga. Michael Tongnawa and Antonio Gammod, respondents, are the municipal engineer and municipal planning and development coordinator, respectively, of the said municipality.

On July 24, 1995, petitioner, while then the mayor of Tanudan, sent respondents a memorandum ordering them to explain within 72 hours why they should not be administratively sanctioned for acts unbecoming of public servants and failure to perform their duties. Respondents submitted to petitioner their respective explanations.

On August 1, 1995, petitioner issued Executive Order No. 95-002 creating a Municipal Grievance Committee to investigate the charges against respondents. Guilbert Dangpason, then the vice-mayor of Tanudan, was designated Chairman.

After investigation, the Committee found respondents liable for insubordination, non-performance of duties and absences without official leaves (AWOL).

On November 27, 1995, petitioner issued an order suspending respondents from their respective positions for two months or from December 1, 1995 to February 28, 1996.

Respondents then appealed to the Civil Service Commission (CSC) contending that their right to due process has been violated. On May 23, 1996, during the pendency of respondents’ appeal, petitioner issued an order dropping them from the roll of employees effective May 28, 1996 by reason of their unauthorized absences. Again, they appealed to the CSC.

On October 21, 1997, the CSC issued Resolution No. 974229 affirming petitioner’s order suspending respondents from the service for two months. They moved for a reconsideration but was denied by the CSC on May 31, 1999, prompting them to file with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 54511.

Meanwhile, on June 29, 1999, the CSC issued Resolution No. 991136 affirming petitioner’s order dropping respondents from the roll. When their motion for reconsideration was denied by the CSC, respondents filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP 57315.

As mentioned earlier, the Court of Appeals, in its joint Decision in CA-G.R. SP Nos. 54511 and 57315, granted respondents’ petitions for review, reversing the CSC challenged Resolutions and reinstating them to their respective positions and ordering the payment of their corresponding backwages.

In reversing the CSC, the Court of Appeals held:

"As a general rule, findings of the CSC are not disturbed on appeal, but if there are substantial facts which may alter the results of the case, this Court is tasked to evaluate and take them into consideration.

Petitioners (now respondents) ascribed irregularities in the conduct of the Grievance Committee hearing and submitted two Affidavits subscribed by one William Tumbali and by former Vice-Mayor Guilbert Dangpason, then chairman of the said Grievance Committee. Dangpason attested that while it is true that there was a meeting held, no investigation was actually conducted. The Petitioners maintained that they were not given an opportunity to explain their side and prove their defenses. They claimed that the minutes on which the suspension of the Petitioners was solely based do not state the true proceedings, therefore, depriving them of their right to be heard.

None other than the Chairman of the Grievance Committee, assigned to investigate the alleged negligence of the Petitioners, had renounced the contents of the minutes of the supposed investigation. Dangpason who ‘wish(ed) to set the record straight…in fairness to all concerned’ categorically declared that the Petitioners were not given an opportunity to defend themselves since there was no actual investigation conducted and even expressed his willingness ‘to testify and confirm’ his declarations just to ascertain the truth. These declarations of Dangpason and Tumbali were not denied by the Respondent. In the absence therefore of any showing of ill intent or bad faith on the part of Dangpason and Tumbali, their Affidavits are to be afforded great weight and credence.

In the light of this clear and convincing evidence, Petitioners were able to rebut or overcome the presumption of regularity in the conduct of the Grievance Committee hearing. Accordingly, the minutes cannot solely be the basis for Petitioners’ suspension.

x x x

x x x, we find that the suspension of the Petitioners has no factual basis.

x x x

It must be emphasized that, in administrative proceedings, it is not the duty of Petitioners to disperse what the Respondent failed to prove. The Respondent must first affirmatively show rationally adequate evidence that Petitioners’ suspension was for a justifiable cause. Petitioners’ suspension was not justified and, therefore, illegal because Respondent failed to prove the allegations and accusations against the Petitioners.

The Petitioners likewise assailed the resolution of the CSC affirming Respondent’s Order of Separation as having been done in violation of their right to due process.

x x x

The previous rule required that the absences of an officer or employee before he can be dropped from the roll must be ‘for at least thirty (30) days without approved leave.’ However, the above-quoted rule now provides that the absences without authorized leave must be continuous, which means uninterrupted, or unbroken totaling at least 30 days. Clearly, the amendment is intended to make the requirement on absences ‘continuous’ and not just totaling ‘at least 30 days.’

Considering that statutes prescribing the grounds for the suspension or removal of an officer are penal in nature, the same should be strictly construed. Thus, where the law enumerates the grounds for disciplinary action, no other grounds may be invoked for his suspension or removal. Hence, although the unauthorized absences of Petitioners Tongnawa and Gammod totaled 41 and 43 days, respectively, it is clear from the records that the days when the Petitioners were absent, although more than 30 days, were not continuous as required by the law, but intermittent. Furthermore, there was no evidence, much less allegation, that the gap or break was a special or a regular holiday. Clearly, one of the requirements for the dropping from the rolls is not attendant. Hence, there was no valid termination of Petitioners’ services.

Inescapable then is the conclusion that since the Petitioners were illegally suspended and unjustifiably separated from their work, they are entitled to reinstatement and backwages."

Petitioner filed a joint motion for reconsideration but was denied by the Court of Appeals.

Hence, the instant petition.

Basically, petitioner alleges that his "suspension and dismissal orders against the respondents are supported by substantial evidence."4Moreover, the sworn declarations of William Tumbali and Guilbert Dangpason, the designated Chairman of the Municipal Grievance Committee, that there was actually no investigation conducted on petitioner’s charges, are "devoid of credibility."5

In their joint comment, respondents aver that petitioner has no legal personality to file the instant petition because he had ceased to be the municipal mayor of Tanudan, Kalinga; and that the CSC, being the aggrieved party, is the proper party to file this petition.

The fundamental issue before us is: who may appeal from the Decision of the Court of Appeals?

In resolving the issue, the concept of "real party in interest" becomes relevant.

Section 2, Rule 3 of the 1997 Rules of Civil Procedure, as amended, provides:

"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."

The established rule is that a real party in interest is one who would be benefited or injured by the judgment, or one entitled to the avails of the suit. The word "interest," as contemplated by the Rules, means material interest or an interest in issue and to be affected by the judgment, as distinguished from mere interest in the question involved or a mere incidental interest. Stated differently, the rule refers to a real or present substantial interest as distinguished from a mere expectancy, or a future, contingent, subordinate, or consequential interest. As a general rule, one who has no right or interest to protect cannot invoke the jurisdiction of the court as party-plaintiff in an action.6

We hold that the CSC and the mayor of Tanudan are real parties in interest in this case and, therefore, can contest the assailed joint Decision of the Court of Appeals before us.

The CSC is the party adversely affected by the questioned Decision of the Court of Appeals because it has been mandated by the Constitution to preserve and safeguard the integrity of our civil service system.7 Thus, any transgression by herein respondents of the CSC rules and regulations will adversely affect its integrity. Significantly, it has not challenged the assailed Decision.

As regards the mayor of Tanudan, there are two (2) reasons why he may interpose such appeal. The first is rooted in his power to appointofficials and employees of his municipality.8 Both respondents were appointed by petitioner during his incumbency. In Francisco Abella, Jr. vs. Civil Service Commission,9 the Court En Banc (through Justice Artemio V. Panganiban) held that the municipal mayor, being the appointing authority, is the real party in interest to challenge the CSC’s disapproval of the appointment of his appointee, thus:

"x x x. The power of appointment necessarily entails the exercise of judgment and discretion (Sevilla vs. Parina, 128 Phil. 639, 643, October 30, 1967; Manalang vs. Quitoriano, 94 Phil. 903, 911, April 30, 1954). Luego vs. Civil Service Commission (227 Phil. 303, August 5, 1986) declared:

‘Appointment is an essentially discretionary power and must be performed by the officer in which it is vested according to his best lights, the only condition being that the appointee should possess the qualifications required by law. If he does, then the appointment cannot be faulted on the ground that there are others better qualified who should have been preferred. This is a political question involving considerations of wisdom which only the appointing authority can decide’ (Rimonte vs. Civil Service Commission, 314 Phil. 421, 430, May 29, 1995).

Significantly, ‘the selection of the appointee – taking into account the totality of his qualifications, including those abstract qualities that define his personality – is the prerogative of the appointing authority (Lapinid vs. Civil Service Commission, 274 Phil. 381, 387, May 14, 1991, per Cruz J.; Jimenez vs. Francisco, 127 Phil. 1025, 1032, February 28, 1957; Branganza vs. Commission on Elections, 127 Phil. 442, 447, August 15, 1967). No tribunal, not even this Court (Lapinid vs. Civil Service Commission, supra; Amponin vs. Commission on Elections, 128 Phil. 412, 415, September 29, 1967), may compel the exercise of an appointment for a favored person (Sevilla vs. Patrina, supra; Manalang vs. Quitoriano, supra; Torio vs. Civil Service Commission, 209 SCRA 677, 691, June 9, 1992; Medalla vs. Sto. Tomas, 208 SCRA 351, 357, May 5, 1992).

The CSC’s disapproval of an appointment is a challenge to the exercise of the appointing authority’s discretion. The appointing authority must have the right to contest the disapproval. Thus, Section 2 of Rule VI of CSC Memorandum Circular 40, s. 1998 is justified insofar as it allows the appointing authority to request reconsideration or appeal.

In Central Bank vs. Civil Service Commission (171 SCRA 744, 756, April 10, 1989), this Court has affirmed that the appointing authority stands to be adversely affected when the CSC disapproves an appointment. Thus, the said authority can ‘defend its appointment since it knows the reasons for the same’ (id., p. 757, per Gancayco, J.). It is also the act of the appointing authority that is being questioned when an appointment is disapproved (id.).

x x x." (underscoring ours)

Similarly, where a municipal mayor orders the suspension or dismissal of a municipal employee on grounds he believes to be proper, but his order is reversed or nullified by the CSC or the Court of Appeals (as in this case), he has the right to contest such adverse ruling. His right to appeal flows from the fact that his power to appoint carries with it the power to remove. Being chief executive of the municipality, he possesses this disciplinary power over appointive municipal officials and employees.10 To be sure, whenever his order imposing administrative sanctions upon erring municipal personnel is challenged, he should be allowed to defend his action considering that he is the appointing authority.

The second reason why the municipal mayor of Tanudan has legal personality to challenge the Decision of the Court of Appeals is because the salaries of the respondents, being municipal officials, are drawn from the municipal funds. Obviously, the mayor has real and substantial interest in the outcome of the administrative cases against respondents.

Admittedly, however, petitioner, at the time he filed with this Court the instant petition assailing the Appellate Court Decision, was no longer the mayor of Tanudan.

Section 17, Rule 3 of the 1997 Rules of Civil Procedure, as amended, is relevant, thus:

"Sec. 17. Death or separation of a party who is a public officer. – When a public officer is a party in an action in his official capacity and during its pendency dies, resigns or otherwise ceases to hold office, the action may be continued and maintained by or against his successor if, within thirty (30) days after the successor takes office or such time as may be granted by the court, it is satisfactorily shown to the court by any party that there is a substantial need for continuing or maintaining it and that the successor adopts or continues or threatens to adopt or continue the action of his predecessor. Before a substitution is made, the party or officer to be affected, unless expressly assenting thereto, shall be given reasonable notice of the application therefor and accorded an opportunity to be heard." (underscoring ours)

Interpreting the above rule, in gr_ Miranda vs. Carreon,11 gr_ Heirs of Mayor Nemencio Galvez vs. Court of Appeals,12 and Roque, et al. vs. Delgado, et al.,13 we held that where the petitioner (a public officer) ceases to be mayor, the appeal and/or action he initiated may be continued and maintained by his successor if there is substantial need to do so. If the successor failed to pursue the appeal and/or action, the same should be dismissed.

Records show that upon petitioner’s cessation from public office, his successor did not file any manifestation to the effect that he is continuing and maintaining this appeal.

We thus agree with the respondents that petitioner has lost his legal personality to interpose the instant petition.

WHEREFORE, the instant petition is hereby DENIED. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., Puno, Panganiban, Quisumbing, Ynares-Santiago, Carpio, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario and Garcia, JJ., concur.

Footnotes

1 Filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended.

2 Rollo at 26-37. Penned by Justice Noel G. Tijam and concurred in by Justice Portia Aliño-Hormachuelos and Justice Edgardo P. Cruz.

3 Rollo at 36.

4 Petition, Rollo at 23.

5 Id. at 18.

6 gr_ Francisco Abella, Jr. vs. Civil Service Commission, G.R. No. 152574, November 17, 2004.

7 See gr_ Civil Service Commission vs. Dacoycoy, G. R. No. 135805, April 29, 1999, 306 SCRA 405; cited in Francisco Abella, Jr. vs. Civil Service Commission, supra.

8 Section 444, paragraphs (a), (b) (1) (v), Article I, Chapter III, Title III, Book I of Republic Act No. 7160 (The Local Government Code of 1991) provides:

"SECTION 444. The Chief Executive: Powers, Duties, Functions and Compensation. – (a) The municipal mayor, as the chief executive of the municipal government, shall exercise such powers and perform such duties and functions as provided by this Code and other laws.

(b) For efficient, effective and economical governance the purpose of which is the general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code, the municipal mayor shall:

(1) x x x:

(I) x x x;

(v) Appoint all officials and employees whose salaries and wages are wholly or mainly paid out of municipal funds and whose appointments are not otherwise provided for in this Code, as well as those he may be authorized by law to appoint;

x x x."

9 Supra.

10 Section 87, Title III, Book I of Republic Act No. 7160 provides:

"SECTION 87. Disciplinary Jurisdiction. – Except as otherwise provided by law, the local chief executive may impose the penalty of removal from service, demotion in rank, suspension for not more than one (1) year without pay, fine in an amount not exceeding six (6) months’ salary, or reprimand and otherwise discipline subordinate officials and employees under his jurisdiction. x x x."

Section 444, paragraphs (a), (b) (x), Article I, Chapter III, Title III, Book I of Republic Act No. 7160 also provides that the mayor shall "Ensure that all executive officials and employees of the municipality faithfully discharge their duties and functions as provided by law and this Code, and cause to be instituted administrative or judicial proceedings against any official or employee of the municipality who may have committed an offense in the performance of his official duties."

11 G.R. No. 143540, April 11, 2003.

12 G.R. No. 119193, March 29, 1996, 255 SCRA 672.

13 No. L-6770, August 31, 1954, 95 Phil. 723.

Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 136433             December 6, 2006

ANTONIO B. BALTAZAR, petitioner, vs.HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E. ILAO, JR. and ERNESTO R. SALENGA,respondents.

DECISION

VELASCO, JR., J.:

The Case

Ascribing grave abuse of discretion to respondent Ombudsman, this Petition for Review on Certiorari,1 under Rule 45 pursuant to Section 27 of RA 6770,2 seeks to reverse and set aside the November 26, 1997 Order3 of the Office of the Special Prosecutor (OSP) in OMB-1-94-3425 duly approved by then Ombudsman Aniano Desierto on August 21, 1998, which recommended the dismissal of the Information4 in Criminal Case No. 23661 filed before the Sandiganbayan against respondents Pampanga Provincial Adjudicator Toribio E. Ilao, Jr., Chief Legal Officer Eulogio M. Mariano and Legal Officer Jose D. Jimenez, Jr. (both of the DAR Legal Division in San Fernando, Pampanga), and Ernesto R. Salenga. The petition likewise seeks to set aside the October 30, 1998 Memorandum5 of the OSP duly approved by the Ombudsman on November 27, 1998 which denied petitioner's Motion for Reconsideration.6 Previously, the filing of the Information against said respondents was authorized by the May 10, 1996 Resolution7 and October 3, 1996 Order8 of the Ombudsman which found probable cause that they granted unwarranted benefits, advantage, and preference to respondent Salenga in violation of Section 3 (e) of RA 3019.9

The Facts

Paciencia Regala owns a seven (7)-hectare fishpond located at Sasmuan, Pampanga. Her Attorney-in-Fact Faustino R. Mercado leased the fishpond for PhP 230,000.00 to Eduardo Lapid for a three (3)-year period, that is, from August 7, 1990 to August 7, 1993.10 Lessee Eduardo Lapid in turn sub-leased the fishpond to Rafael Lopez for PhP 50,000.00 during the last seven (7) months of the original lease, that is, from January 10, 1993 to August 7, 1993.11 Respondent Ernesto Salenga was hired by Eduardo Lapid as fishpond watchman (bante-encargado). In the sub-lease, Rafael Lopez rehired respondent Salenga.

Meanwhile, on March 11, 1993, respondent Salenga, through a certain Francis Lagman, sent his January 28, 1993 demand letter12 to Rafael Lopez and Lourdes Lapid for unpaid salaries and non-payment of the 10% share in the harvest.

On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to respondent Salenga informing the latter that for the last two (2) months of the sub-lease, he had given the rights over the fishpond to Mario Palad and Ambit Perez for PhP 20,000.00.13 This prompted respondent Salenga to file a Complaint14 before the Provincial Agrarian Reform Adjudication Board (PARAB), Region III, San Fernando, Pampanga docketed as DARAB Case No. 552-P’93 entitled Ernesto R. Salenga v. Rafael L. Lopez and Lourdes L. Lapid for Maintenance of Peaceful Possession, Collection of Sum of Money and Supervision of Harvest. The Complaint was signed by respondent Jose D. Jimenez, Jr., Legal Officer of the Department of Agrarian Reform (DAR) Region III Office in San Fernando, Pampanga, as

counsel for respondent Salenga; whereas respondent Eulogio M. Mariano was the Chief Legal Officer of DAR Region III. The case was assigned to respondent Toribio E. Ilao, Jr., Provincial Adjudicator of DARAB, Pampanga.

On May 10, 1993, respondent Salenga amended his complaint.15 The amendments included a prayer for the issuance of a temporary restraining order (TRO) and preliminary injunction. However, before the prayer for the issuance of a TRO could be acted upon, on June 16, 1993, respondent Salenga filed a Motion to Maintain Status Quo and to Issue Restraining Order16 which was set for hearing on June 22, 1993. In the hearing, however, only respondent Salenga with his counsel appeared despite notice to the other parties. Consequently, the ex-parte presentation of respondent Salenga’s evidence in support of the prayer for the issuance of a restraining order was allowed, since the motion was unopposed, and on July 21, 1993, respondent Ilao, Jr. issued a TRO.17

Thereafter, respondent Salenga asked for supervision of the harvest, which the board sheriff did. Accordingly, defendants Lopez and Lapid received their respective shares while respondent Salenga was given his share under protest. In the subsequent hearing for the issuance of a preliminary injunction, again, only respondent Salenga appeared and presented his evidence for the issuance of the writ.

Pending resolution of the case, Faustino Mercado, as Attorney-in-Fact of the fishpond owner Paciencia Regala, filed a motion to intervene which was granted by respondent Ilao, Jr. through the November 15, 1993 Order. After the trial, respondent Ilao, Jr. rendered a Decision on May 29, 1995 dismissing the Complaint for lack of merit; but losing plaintiff, respondent Salenga, appealed the decision before the DARAB Appellate Board.

Complaint Before the Ombudsman

On November 24, 1994, pending resolution of the agrarian case, the instant case was instituted by petitioner Antonio Baltazar, an alleged nephew of Faustino Mercado, through a Complaint-Affidavit18 against private respondents before the Office of the Ombudsman which was docketed as OMB-1-94-3425 entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr. and Ernesto Salenga for violation of RA 3019. Petitioner charged private respondents of conspiracy through the issuance of the TRO in allowing respondent Salenga to retain possession of the fishpond, operate it, harvest the produce, and keep the sales under the safekeeping of other private respondents. Moreover, petitioner maintains that respondent Ilao, Jr. had no jurisdiction to hear and act on DARAB Case No. 552-P’93 filed by respondent Salenga as there was no tenancy relation between respondent Salenga and Rafael L. Lopez, and thus, the complaint was dismissible on its face.

Through the December 14, 1994 Order,19 the Ombudsman required private respondents to file their counter-affidavits, affidavits of their witnesses, and other controverting evidence. While the other respondents submitted their counter-affidavits, respondent Ilao, Jr. instead filed his February 9, 1995 motion to dismiss, February 21, 1995 Reply, and March 24, 1995 Rejoinder.

Ombudsman’s Determination of Probable Cause

On May 10, 1996, the Ombudsman issued a Resolution20 finding cause to bring respondents to court, denying the motion to dismiss of respondent Ilao, Jr., and recommending the filing of an Information for violation of Section 3 (e) of RA 3019. Subsequently, respondent Ilao, Jr. filed his September 16, 1996 Motion for Reconsideration and/or Re-investigation21 which was denied through the October 3, 1996 Order.22 Consequently, the March 17, 1997 Information23 was filed against all the private respondents before the Sandiganbayan which was docketed as Criminal Case No. 23661.

Before the graft court, respondent Ilao, Jr. filed his May 19, 1997 Motion for Reconsideration and/or Re-investigation which was granted through the August 29, 1997 Order.24 On September 8, 1997, respondent Ilao, Jr. subsequently filed his Counter-Affidavit25 with attachments while petitioner did not file any reply-affidavit despite notice to him. The OSP of the Ombudsman conducted the re-investigation; and the result of the re-investigation was embodied in the assailed November 26, 1997 Order26 which recommended the dismissal of the complaint in OMB-1-94-3425 against all private respondents. Upon review, the Ombudsman approved the OSP’s recommendation on August 21, 1998.

Petitioner’s Motion for Reconsideration27 was likewise denied by the OSP through the October 30, 1998 Memorandum28 which was approved by the Ombudsman on November 27, 1998. Consequently, the trial prosecutor moved orally before the Sandiganbayan for the dismissal of Criminal Case No. 23661 which was granted through the December 11, 1998 Order.29

Thus, the instant petition is before us.

The Issues

Petitioner raises two assignments of errors, to wit:

THE HONORABLE OMBUDSMAN ERRED IN GIVING DUE COURSE A MISPLACED COUNTER-AFFIDAVIT FILED AFTER THE TERMINATION OF THE PRELIMINARY INVESTIGATION AND/OR THE CASE WAS ALREADY FILED BEFORE THE SANDIGANBAYAN.

ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE ERRED IN REVERSING HIS OWN RESOLUTION WHERE IT WAS RESOLVED THAT ACCUSED AS PROVINCIAL AGRARIAN ADJUDICATOR HAS NO JURISDICTION OVER A COMPLAINT WHERE THERE EXIST [sic] NO TENANCY RELATIONSHIP CONSIDERING [sic] COMPLAINANT IS NOT A TENANT BUT A "BANTE-ENCARGADO" OR WATCHMAN-OVERSEER HIRED FOR A SALARY OF P3,000.00 PER MONTH AS ALLEGED IN HIS OWN COMPLAINT.30

Before delving into the errors raised by petitioner, we first address the preliminary procedural issue of the authority and locus standi of petitioner to pursue the instant petition.

Preliminary Issue: Legal Standing

Locus standi is defined as "a right of appearance in a court of justice x x x on a given question."31 In private suits, standing is governed by the "real-parties-in interest" rule found in Section 2, Rule 3 of the 1997 Rules of Civil Procedure which provides that "every action must be prosecuted or defended in the name of the real party in interest." Accordingly, the "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."32 Succinctly put, the plaintiffs’ standing is based on their own right to the relief sought.

The records show that petitioner is a non-lawyer appearing for himself and conducting litigation in person. Petitioner instituted the instant case before the Ombudsman in his own name. In so far as the Complaint-Affidavit filed before the Office of the Ombudsman is concerned, there is no question on his authority and legal standing. Indeed, the Office of the Ombudsman is mandated to "investigate and prosecute on its own or on complaint by any person, any act or omission of any public officer or employee, office or agency, when such act or omission appears to be illegal, unjust, improper or inefficient (emphasis supplied)."33 The Ombudsman can act on anonymous complaints and motu proprio inquire into alleged improper official acts or omissions from whatever source, e.g., a newspaper.34 Thus, any complainant may be entertained by the Ombudsman for the latter to initiate an inquiry and investigation for alleged irregularities.

However, filing the petition in person before this Court is another matter. The Rules allow a non-lawyer to conduct litigation in person and appear for oneself only when he is a party to a legal controversy. Section 34 of Rule 138 pertinently provides, thus:

SEC. 34. By whom litigation conducted. – In the court of a justice of the peace a party may conduct his litigation in person, with the aid of an agent or friend appointed by him for that purpose, or with the aid of an attorney. In any other court, a party may conduct his litigation personally or by aid of an attorney, and his appearance must be either personal or by a duly authorized member of the bar (emphases supplied).

Petitioner has no legal standing

Is petitioner a party or a real party in interest to have the locus standi to pursue the instant petition? We answer in the negative.

While petitioner may be the complainant in OMB-1-94-3425, he is not a real party in interest. Section 2, Rule 3 of the 1997 Rules of Civil Procedure stipulates, thus:

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.

The same concept is applied in criminal and administrative cases.

In the case at bar which involves a criminal proceeding stemming from a civil (agrarian) case, it is clear that petitioner is not a real party in interest. Except being the complainant, the records show that petitioner is a stranger to the agrarian case. It must be recalled that the undisputed owner of the fishpond is Paciencia Regala, who intervened in DARAB Case No. 552-P’93 through her Attorney-in-Fact Faustino Mercado in order to protect her interest. The motion for intervention filed by Faustino Mercado, as agent of Paciencia Regala, was granted by respondent Provincial Adjudicator Ilao, Jr. through the November 15, 1993 Order in DARAB Case No. 552-P’93.

Agency cannot be further delegated

Petitioner asserts that he is duly authorized by Faustino Mercado to institute the suit and presented a Special Power of Attorney35 (SPA) from Faustino Mercado. However, such SPA is unavailing for petitioner. For one, petitioner’s principal, Faustino Mercado, is an agent himself and as such cannot further delegate his agency to

another. Otherwise put, an agent cannot delegate to another the same agency. The legal maxim potestas delegata non delegare potest; a power once delegated cannot be re-delegated, while applied primarily in political law to the exercise of legislative power, is a principle of agency.36 For another, a re-delegation of the agency would be detrimental to the principal as the second agent has no privity of contract with the former. In the instant case, petitioner has no privity of contract with Paciencia Regala, owner of the fishpond and principal of Faustino Mercado.

Moreover, while the Civil Code under Article 189237 allows the agent to appoint a substitute, such is not the situation in the instant case. The SPA clearly delegates the agency to petitioner to pursue the case and not merely as a substitute. Besides, it is clear in the aforecited Article that what is allowed is a substitute and not a delegation of the agency.

Clearly, petitioner is neither a real party in interest with regard to the agrarian case, nor is he a real party in interest in the criminal proceedings conducted by the Ombudsman as elevated to the Sandiganbayan. He is not a party who will be benefited or injured by the results of both cases.

Petitioner: a stranger and not an injured private complainant

Petitioner only surfaced in November 1994 as complainant before the Ombudsman. Aside from that, not being an agent of the parties in the agrarian case, he has no locus standi to pursue this petition. He cannot be likened to an injured private complainant in a criminal complaint who has direct interest in the outcome of the criminal case.

More so, we note that the petition is not pursued as a public suit with petitioner asserting a "public right" in assailing an allegedly illegal official action, and doing so as a representative of the general public. He is pursuing the instant case as an agent of an ineffective agency.

Petitioner has not shown entitlement to judicial protection

Even if we consider the instant petition as a public suit, where we may consider petitioner suing as a "stranger," or in the category of a "citizen," or "taxpayer," still petitioner has not adequately shown that he is entitled to seek judicial protection. In other words, petitioner has not made out a sufficient interest in the vindication of the public order and the securing of relief as a "citizen" or "taxpayer"; more so when there is no showing that he was injured by the dismissal of the criminal complaint before the Sandiganbayan.

Based on the foregoing discussion, petitioner indubitably does not have locus standi to pursue this action and the instant petition must be forthwith dismissed on that score. Even granting arguendo that he has locus standi, nonetheless, petitioner fails to show grave abuse of discretion of respondent Ombudsman to warrant a reversal of the assailed November 26, 1997 Order and the October 30, 1998 Memorandum.

First Issue: Submission of Counter-Affidavit

The Sandiganbayan, not the Ombudsman, ordered re-investigation

On the substantive aspect, in the first assignment of error, petitioner imputes grave abuse of discretion on public respondent Ombudsman for allowing respondent Ilao, Jr. to submit his Counter-Affidavit when the preliminary investigation was already concluded and an Information filed with the Sandiganbayan which assumed jurisdiction over the criminal case. This contention is utterly erroneous.

The facts clearly show that it was not the Ombudsman through the OSP who allowed respondent Ilao, Jr. to submit his Counter-Affidavit. It was the Sandiganbayan who granted the prayed for re-investigation and ordered the OSP to conduct the re-investigation through its August 29, 1997 Order, as follows:

Considering the manifestation of Prosecutor Cicero Jurado, Jr. that accused Toribio E. Ilao, Jr. was not able to file his counter-affidavit in the preliminary investigation, there appears to be some basis for granting the motion of said accused for reinvestigation.

WHEREFORE, accused Toribio E. Ilao, Jr. may file his counter-affidavit, with documentary evidence attached, if any, with the Office of the Special Prosecutor within then (10) days from today. The prosecution is ordered to conduct a reinvestigation within a period of thirty (30) days.38 (Emphases supplied.)

As it is, public respondent Ombudsman through the OSP did not exercise any discretion in allowing respondent Ilao, Jr. to submit his Counter-Affidavit. The OSP simply followed the graft court’s directive to conduct the re-investigation after the Counter-Affidavit of respondent Ilao, Jr. was filed. Indeed, petitioner did not contest nor question the August 29, 1997 Order of the graft court. Moreover, petitioner did not file any reply-affidavit in the re-investigation despite notice.

Re-investigation upon sound discretion of graft court

Furthermore, neither can we fault the graft court in granting the prayed for re-investigation as it can readily be seen from the antecedent facts that respondent Ilao, Jr. was not given the opportunity to file his Counter-Affidavit. Respondent Ilao, Jr. filed a motion to dismiss with the Ombudsman but such was not resolved before the Resolution—finding cause to bring respondents to trial—was issued. In fact, respondent Ilao, Jr.’s motion to dismiss was resolved only through the May 10, 1996 Resolution which recommended the filing of an Information. Respondent Ilao, Jr.’s Motion for Reconsideration and/or Re-investigation was denied and the Information was filed with the graft court.

Verily, courts are given wide latitude to accord the accused ample opportunity to present controverting evidence even before trial as demanded by due process. Thus, we held in Villaflor v. Vivar that "[a] component part of due process in criminal justice, preliminary investigation is a statutory and substantive right accorded to the accused before trial. To deny their claim to a preliminary investigation would be to deprive them of the full measure of their right to due process."39

Second Issue: Agrarian Dispute

Anent the second assignment of error, petitioner contends that DARAB Case No. 552-P’93 is not an agrarian dispute and therefore outside the jurisdiction of the DARAB. He maintains that respondent Salenga is not an agricultural tenant but a mere watchman of the fishpond owned by Paciencia Regala. Moreover, petitioner further argues that Rafael Lopez and Lourdes Lapid, the respondents in the DARAB case, are not the owners of the fishpond.

Nature of the case determined by allegations in the complaint

This argument is likewise bereft of merit. Indeed, as aptly pointed out by respondents and as borne out by the antecedent facts, respondent Ilao, Jr. could not have acted otherwise. It is a settled rule that jurisdiction over the subject matter is determined by the allegations of the complaint.40 The nature of an action is determined by the material averments in the complaint and the character of the relief sought,41 not by the defenses asserted in the answer or motion to dismiss.42 Given that respondent Salenga’s complaint and its attachment clearly spells out the jurisdictional allegations that he is an agricultural tenant in possession of the fishpond and is about to be ejected from it, clearly, respondent Ilao, Jr. could not be faulted in assuming jurisdiction as said allegations characterize an agricultural dispute. Besides, whatever defense asserted in an answer or motion to dismiss is not to be considered in resolving the issue on jurisdiction as it cannot be made dependent upon the allegations of the defendant.

Issuance of TRO upon the sound discretion of hearing officer

As regards the issuance of the TRO, considering the proper assumption of jurisdiction by respondent Ilao, Jr., it can be readily culled from the antecedent facts that his issuance of the TRO was a proper exercise of discretion. Firstly, the averments with evidence as to the existence of the need for the issuance of the restraining order were manifest in respondent Salenga’s Motion to Maintain Status Quo and to Issue Restraining Order,43 the attached Police Investigation Report,44 and Medical Certificate.45 Secondly, only respondent Salenga attended the June 22, 1993 hearing despite notice to parties. Hence, Salenga’s motion was not only unopposed but his evidence adducedex-parte also adequately supported the issuance of the restraining order.

Premises considered, respondent Ilao, Jr. has correctly assumed jurisdiction and properly exercised his discretion in issuing the TRO—as respondent Ilao, Jr. aptly maintained that giving due course to the complaint and issuing the TRO do not reflect the final determination of the merits of the case. Indeed, after hearing the case, respondent Ilao, Jr. rendered a Decision on May 29, 1995 dismissing DARAB Case No. 552-P’93 for lack of merit.

Court will not review prosecutor’s determination of probable cause

Finally, we will not delve into the merits of the Ombudsman’s reversal of its initial finding of probable cause or cause to bring respondents to trial. Firstly, petitioner has not shown that the Ombudsman committed grave abuse of discretion in rendering such reversal. Secondly, it is clear from the records that the initial finding embodied in the May 10, 1996 Resolution was arrived at before the filing of respondent Ilao, Jr.’s Counter-Affidavit. Thirdly, it is the responsibility of the public prosecutor, in this case the Ombudsman, to uphold the law, to prosecute the guilty, and to protect the innocent. Lastly, the function of determining the existence of probable cause is proper for the Ombudsman in this case and we will not tread on the realm of this executive function to examine and assess evidence supplied by the parties, which is supposed to be exercised at the start of criminal proceedings. In Perez v. Hagonoy Rural Bank, Inc.,46 as cited in Longos Rural Waterworks and Sanitation Association, Inc. v. Hon. Desierto,47 we had occasion to rule that we cannot pass upon the sufficiency or insufficiency of evidence to determine the existence of probable cause.48

WHEREFORE, the instant petition is DENIED for lack of merit, and the November 26, 1997 Order and the October 30, 1998 Memorandum of the Office of the Special Prosecutor in Criminal Case No. 23661 (OMB-1-94-3425) are hereby AFFIRMED IN TOTO, with costs against petitioner.

SO ORDERED.

Quisumbing, J., Chairperson, Carpio, Carpio Morales, and Tinga, JJ., concur.

Footnotes

1 Rollo, pp. 7-24.

2 An Act Providing for the Functional and Structural Organization of the Office of the Ombudsman and for Other Purposes.

3 Rollo, pp. 59-64. Prepared by Special Prosecution Officer II Cicero D. Jurado, Jr., recommended by Deputy Special Prosecutor Robert E. Kallos, concurred in by the Special Prosecutor Leonardo P. Tamayo, and approved by Ombudsman Aniano A. Desierto on August 21, 1998.

4 Id. at 47-48.

5 Id. at 71-76. Prepared by Special Prosecution Officer I Lolita S. Rodas, recommended by Deputy Special Prosecutor Robert E. Kallos, concurred in by the Special Prosecutor Leonardo P. Tamayo, and approved by Ombudsman Aniano A. Desierto on November 27, 1998.

6 Id. at 65-67.

7 Id. at 36-43.

8 Id. at 44-46.

9 Anti-Graft and Corrupt Practices Act was approved on August 17, 1960. Section 3 (e) of this Act provides:

SEC. 3. Corrupt practices of public officers. — x x x

(e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence. This provision shall apply to officers and employees of offices or government corporations charged with the grant of licenses or permits or other concessions.

10 Acknowledgement Receipt dated April 2, 1991, rollo, p. 28.

11 Acknowledgement Receipt dated January 10, 1993, id. at 29.

12 Id. at 33.

13 Id. at 209.

14 Id. at 30-32.

15 Id. at 200-203.

16 Id. at 204-206.

17 Id. at 34-35.

18 Id. at 25-27.

19 Id. at 147.

20 Supra note 7.

21 Rollo, pp. 148-164.

22 Supra note 8.

23 Supra note 4.

24 Rollo, p. 211.

25 Id. at 49-58.

26 Supra note 3.

27 Supra note 6.

28 Supra note 5.

29 Rollo, pp. 118-119.

30 Id. at 12.

31 H. Black, et al., Black’s Law Dictionary 941 (6th ed., 1991).

32 Salonga v. Warner Barnes & Co., G.R. No. L-2246, January 31, 1951, 88 Phil. 125.

33 RA 6770, supra note 2, at Sec. 15 (1).

34 Id. at Sec. 26.

35 Dated September 2, 1998, rollo, pp. 69-70.

36 See People v. Vera, G.R. No. 45685, November 16, 1937, 65 Phil. 56. The origin of the legal maxim, its development and application, was sufficiently discussed.

37 Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent.

All acts of the substitute appointed against the prohibition of the principal shall be void.

38 Supra note 24.

39 G.R. No. 134744, January 16, 2001, 349 SCRA 194, 201.

40 Sta. Clara Homeowners’ Association v. Gaston, G.R. No. 141961, January 23, 2002, 374 SCRA 396, 409.

41 Sarne v. Maquiling, G.R. No. 138839, May 9, 2002, 382 SCRA 85, 92; Alemar’s (Sibal & Sons), Inc. v. CA, G.R. No. 94996, January 26, 2001, 350 SCRA 333, 339; Saura v. Saura, Jr., G.R. No. 136159, September 1, 1999, 313 SCRA 465, 472; Salva v. CA, G.R. No. 132250, March 11, 1999, 304 SCRA 632, 652; Unilongo v. CA, G.R. No. 123910, April 5, 1999, 305 SCRA 561, 569; and Spouses Abrin v. Campos, G.R. No. 52740, November 12, 1991, 203 SCRA 420, 423.

42 Gochan v. Young, G.R. No. 131889, March 12, 2001, 354 SCRA 207, 211 & 216; Saura v. Saura, Jr., supra note 41; and Spouses Abrin v. Campos, supra note 41.

43 Supra note 16.

44 Rollo, p. 207.

45 Id. at 208.

46 G.R. No. 126210, March 9, 2000, 327 SCRA 588, 604.

47 G.R. No. 135496, July 30, 2002, 385 SCRA 392, 397-398.

48 See also Roberts v. Court of Appeals, G.R. No. 113930, March 5, 1996, 254 SCRA 307. The Supreme Court refrained from passing over the propriety of finding probable cause against petitioners as this function is proper to the public prosecutor. Moreover, as to the question whether the public prosecutor has discharged this executive function correctly, the trial court may not be compelled to pass upon such query as there is no provision of law authorizing an aggrieved party to petition for such determination.

Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 150711 August 10, 2006

CALTEX (PHILIPPINES), INC., Petitioner, vs.PNOC SHIPPING AND TRANSPORT CORPORATION, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

Before the Court is a petition for review1 assailing the 31 May 2001 Decision2 and 9 November 2001 Resolution3 of the Court of Appeals in CA-G.R. CV No. 46097. The Court of Appeals reversed the 1 June 1994 Decision4 of the Regional Trial Court of Manila, Branch 51 ("trial court"), and dismissed the complaint filed by Caltex (Philippines), Inc. ("Caltex") against PNOC Shipping and Transport Corporation (PSTC).

The Antecedent Facts

On 6 July 1979, PSTC and Luzon Stevedoring Corporation ("LUSTEVECO") entered into an Agreement of Assumption of Obligations ("Agreement"). The Agreement provides that PSTC shall assume all the obligations of LUSTEVECO with respect to the claims enumerated in Annexes "A" and "B" ("Annexes") of the Agreement. The Agreement also provides that PSTC shall control the conduct of any litigation pending or which may be filed with respect to the claims in the Annexes. The Agreement further provides that LUSTEVECO shall deliver to PSTC all papers and records of the claims in the Annexes. Finally, the Agreement provides that LUSTEVECO appoints and constitutes PSTC as its attorney-in-fact to demand and receive any claim out of the countersuits and counterclaims arising from the claims in the Annexes.

Among the actions enumerated in the Annexes is Caltex (Phils.), Inc. v. Luzon Stevedoring Corporation docketed as AC-G.R. CV No. 62613 which at that time was pending before the then Intermediate Appellate Court (IAC). The case was an appeal from the Decision by the then Court of First Instance of Manila (CFI) directing LUSTEVECO to pay Caltex P103,659.44 with legal interest from the filing of the action until full payment. In its 12 November 1985 Decision,5 the IAC affirmed with modification the Decision of the CFI. The dispositive portion of the Decision reads:

WHEREFORE, the decision appealed from is hereby MODIFIED and judgment is rendered ordering the defendant [LUSTEVECO] to pay plaintiff [Caltex]:

(a) P126,771.22 under the first cause of action, with legal interest until fully paid;

(b) P103,659.44 under the second cause of action with legal interest until fully paid;

(c) 10% of the sums due as and for attorney’s fees;

(d) costs of the suit.

SO ORDERED.6

The Decision of the IAC became final and executory.

The Regional Trial Court of Manila, Branch 12, issued a writ of execution in favor of Caltex. However, the judgment was not satisfied because of the prior foreclosure of LUSTEVECO’s properties. The Manila Bank Intramuros Branch and the Traders Royal Bank Aduana Branch did not respond to the notices of garnishment.

Caltex subsequently learned of the Agreement between PSTC and LUSTEVECO. Caltex sent successive demands to PSTC asking for the satisfaction of the judgment rendered by the CFI. PSTC requested for the copy of the records of AC-G.R. CV No. 62613. Later, PSTC informed Caltex that it was not a party to AC-G.R. CV No. 62613 and thus, PSTC would not pay LUSTEVECO’s judgment debt. PSTC advised Caltex to demand satisfaction of the judgment directly from LUSTEVECO.

Caltex continued to send several demand letters to PSTC. On 5 February 1992, Caltex filed a complaint for sum of money against PSTC. The case was docketed as Civil Case No. 91-59512.

On 1 June 1994, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff, ordering defendant to pay plaintiff the sums due the latter in the decision rendered by the Court of Appeals in CA-G.R. No. 62613, CALTEX vs. LUSTEVECO, or to pay plaintiff (Exhibit "C"):

(a) P126,771.22 under the first cause of action, with legal interest from the date of the promulgation of the decision on November 12, 1985 until fully paid;

(b) P103,659.44 under the second cause of action with legal interest from the date of the promulgation of the decision on November 12, 1985 until fully paid;

(c) 10% of the sums due as and for attorney’s fees; and

(d) Costs of suit.

SO ORDERED.7

PSTC appealed the trial court’s Decision.

The Ruling of the Court of Appeals

In its 31 May 2001 Decision, the Court of Appeals found the appeal meritorious. The Court of Appeals ruled that Caltex has no personality to sue PSTC. The Court of Appeals held that non-compliance with the Agreement could only be questioned by the signatories to the contract, namely, LUSTEVECO and PSTC. The Court of Appeals stated that LUSTEVECO and PSTC are the only parties who can file an action to enforce the Agreement. The Court of Appeals considered fatal the omission of LUSTEVECO, the real party in interest, as a party defendant in the case. The Court of Appeals further ruled that Caltex is not a beneficiary of a stipulation pour autrui because there is no stipulation in the Agreement which clearly and deliberately favors Caltex.

The dispositive portion of the Decision of the Court of Appeals reads:

WHEREFORE, premises considered, the appealed Decision dated June 1, 1994, rendered by the Regional Trial Court of Manila, Branch 51, is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the complaint filed by appellee [Caltex], against appellant [PSTC], for want of cause of action.

SO ORDERED.8

Caltex filed a motion for reconsideration of the 31 May 2001 Decision. In a Resolution promulgated on 9 November 2001, the Court of Appeals denied the motion for lack of merit.

Hence, this petition before this Court.

The Issues

The issues in this case are:

1. Whether PSTC is bound by the Agreement when it assumed all

the obligations of LUSTEVECO; and

2. Whether Caltex is a real party in interest to file an action to recover from PSTC the judgment debt against LUSTEVECO.

The Ruling of this Court

The petition is meritorious.

Caltex May Recover from PSTC Under the Terms of the Agreement

Caltex may recover the judgment debt from PSTC not because of a stipulation in Caltex’s favor but because the Agreement provides that PSTC shall assume all the obligations of LUSTEVECO.

In this case, LUSTEVECO transferred, conveyed and assigned to PSTC all of LUSTEVECO’s business, properties and assets pertaining to its tanker and bulk business "together with all the obligations relating to the said business, properties and assets." The Agreement, reproduced here in full, provides:

AGREEMENT OF ASSUMPTION

OF OBLIGATIONS

KNOW ALL MEN BY THESE PRESENTS:

This Agreement of Assumption of Obligations made and executed this 6th day of July 1979, in the City of Manila, by and between:

LUZON STEVEDORING CORPORATION, a corporation duly organized and existing under and by virtue of Philippine Laws, with offices at Tacoma and Second Streets, Port Area, Manila, represented by GERONIMO Z. VELASCO, in his capacity as Chairman of the Board, hereinafter referred to as ASSIGNOR,

- and -

PNOC SHIPPING AND TRANSPORT CORPORATION, a corporation duly organized and existing under and by virtue of Philippine Laws, with offices at Makati Avenue, Makati, Metro Manila, represented by MARIO V. TIAOQUI, in his capacity as Vice-President, hereinafter referred to as ASSIGNEE,

WITNESSETH : T h a t -

WHEREAS, on April 1, 1979, ASSIGNOR, for valuable consideration, executed an Agreement of Transfer with ASSIGNEE wherebyASSIGNOR transferred, conveyed and assigned unto ASSIGNEE all of ASSIGNOR’s business, properties and assets appertaining to its tanker and bulk all (sic) departments, together with all the obligations relating to said business, properties and assets;

WHEREAS, relative to the conduct, operation and management of the business, properties and assets transferred, conveyed and assigned by ASSIGNOR to ASSIGNEE certain actions and claims particularly described in Annex "A" consisting of four (4) pages and Annex "B", consisting of one (1) page, attached hereto and made integral parts hereof, have been filed, either with ASSIGNOR or with appropriate courts and administrative tribunals.

WHEREAS, under the terms and conditions hereinafter mentioned, ASSIGNEE agree[s] to assume the obligations incident and relative to the actions and claims enumerated and described in Annexes "A" and "B" hereof.

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereto have agreed as follows:

1. ASSIGNEE shall assume, as it hereby assumes all the obligations of ASSIGNOR in respect to the actions and claims and described in Annexes "A" and "B";

2. ASSIGNEE shall have complete control in the conduct of any and all litigations now pending or may be filed with respect to the actions and claims enumerated and described in Annexes "A" and "B";

3. ASSIGNOR shall deliver and convey unto ASSIGNEE all papers, documents, files and any other records appertaining to the actions and claims enumerated and described in Annexes "A" and "B";

4. ASSIGNOR hereby constitutes and appoints ASSIGNEE, its successors and assigns, the true and lawful attorney of ASSIGNOR, with full power of substitution, for it and in its name, place and stead or otherwise, but on behalf and for the benefit of ASSIGNEE, its successors and assigns, to demand and receive any and all claim[s] out of countersuits or counterclaims arising from the actions and claims enumerated and described in Annexes "A" and "B".9 (Emphasis supplied)

When PSTC assumed all the properties, business and assets of LUSTEVECO pertaining to LUSTEVECO’s tanker and bulk business, PSTC also assumed all of LUSTEVECO’s obligations pertaining to such business. The assumption of obligations was stipulated not only in the Agreement of Assumption of Obligations but also in the Agreement of Transfer. The Agreement specifically mentions the case between LUSTEVECO and Caltex, docketed as

AC-G.R. CV No. 62613, then pending before the IAC. The Agreement provides that PSTC may demand and receive any claim out of counter-suits or counterclaims arising from the actions enumerated in the Annexes.

PSTC is bound by the Agreement. PSTC cannot accept the benefits without assuming the obligations under the same Agreement. PSTC cannot repudiate its commitment to assume the obligations after taking over the assets for that will amount to defrauding the creditors of LUSTEVECO. It will also result in failure of consideration since the assumption of obligations is part of the consideration for the transfer of the assets from LUSTEVECO to PSTC. Failure of consideration will revert the assets to LUSTEVECO for the benefit of the creditors of LUSTEVECO. Thus, PSTC cannot escape from its undertaking to assume the obligations of LUSTEVECO as stated in the Agreement.

Disposition of Assets should not Prejudice Creditors

Even without the Agreement, PSTC is still liable to Caltex.

The disposition of all or substantially all of the assets of a corporation is allowed under Section 40 of Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the Philippines ("Corporation Code"). Section 40 provides:

SEC. 40. Sale or other disposition of assets. ─ Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors, or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholders’ or members’ meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code.

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets, if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purposes for which it was incorporated.

x x x x

While the Corporation Code allows the transfer of all or substantially all the properties and assets of a corporation, the transfer should not prejudice the creditors of the assignor. The only way the transfer can proceed without prejudice to the creditors is to hold the assignee liable for the obligations of the assignor. The acquisition by the assignee of all or substantially all of the assets of the assignor necessarily includes the assumption of the assignor’s liabilities,10 unless the creditors who did not consent to the transfer choose to rescind the transfer on the ground of fraud.11 To allow an assignor to transfer all its business, properties and assets without the consent of its creditors and without requiring the assignee to assume the assignor’s obligations will defraud the creditors. The assignment will place the assignor’s assets beyond the reach of its creditors.

Here, Caltex could not enforce the judgment debt against LUSTEVECO. The writ of execution could not be satisfied because LUSTEVECO’s remaining properties had been foreclosed by lienholders. In addition, all of LUSTEVECO’s business, properties and assets pertaining to its tanker and bulk business had been assigned to PSTC without the knowledge of its creditors. Caltex now has no other means of enforcing the judgment debt except against PSTC.

If PSTC refuses to honor its written commitment to assume the obligations of LUSTEVECO, there will be fraud on the creditors of LUSTEVECO. PSTC agreed to take over, and in fact took over, all the assets of LUSTEVECO upon its express written commitment to pay all obligations of LUSTEVECO pertaining to those assets, including specifically the claim of Caltex. LUSTEVECO no longer informed its creditors of the transfer of all of its assets presumably because PSTC committed to pay all such creditors. Such transfer, leaving the claims of creditors unenforceable against the debtor, is fraudulent and rescissible.12 To allow PSTC now to welsh on its commitment is to sanction a fraud on LUSTEVECO’s creditors.13

In Oria v. McMicking, the Court enumerated the badges of fraud as follows:

1. The fact that the consideration of the conveyance is fictitious or is inadequate.

2. A transfer made by a debtor after suit has been begun and while it is pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially.

6. The fact that the transfer is made between father and son, when there are present other of the above circumstances.

7. The failure of the vendee to take exclusive possession of all the property.14 (Emphasis supplied)

In Pepsi-Cola Bottling Co. v. NLRC,15 which involved the illegal dismissal of the employees of Pepsi-Cola Distributors of the Philippines (PCD), the Court has ruled that Pepsi-Cola Products Philippines, Inc. (PCPPI) which acquired the franchise of PCD is liable for the reinstatement of PCD’s employees. The Court rejected PCPPI’s argument that it is a company separate and distinct from PCD. The Court ruled that the complaint was filed when PCD was still in existence. Further, there was no evidence that PCPPI, as the new entity or purchasing company, was free from any liabilities incurred by PCD.

In this case, PSTC was aware of the pendency of the case between Caltex and LUSTEVECO. PSTC assumed LUSTEVECO’s obligations, including specifically any obligation that might arise from Caltex’s suit against LUSTEVECO. The Agreement transferred the unencumbered assets of LUSTEVECO to PSTC, making any money judgment in favor of Caltex unenforceable against LUSTEVECO. To allow PSTC to renege on its obligation under the Agreement will allow PSTC to defraud Caltex. This militates against the statutory policy of protecting creditors from fraudulent contracts.

Article 1313 of the Civil Code provides that "[c]reditors are protected in cases of contracts intended to defraud them." Further, Article 1381 of the Civil Code provides that contracts entered into in fraud of creditors may be rescinded when the creditors cannot in any manner collect the claims due them.16 Article 1381 applies to contracts where the creditors are not parties, for such contracts are usually made without their knowledge. Thus, a creditor who is not a party to a contract can sue to rescind the contract to prevent fraud upon him. Or, the same creditor can instead choose to enforce the contract if a specific provision in the contract allows him to collect his claim, and thus protect him from fraud.

If PSTC does not assume the obligations of LUSTEVECO as PSTC had committed under the Agreement, the creditors of LUSTEVECO could no longer collect the debts of LUSTEVECO. The assignment becomes a fraud on the part of PSTC, because PSTC would then have inveigled LUSTEVECO to transfer the assets on the promise to pay LUSTEVECO’s creditors. However, after taking over the assets, PSTC would now turn around and renege on its promise.

The Agreement, under Article 1291 of the Civil Code,17 is also a novation of LUSTEVECO’s obligations by substituting the person of the debtor. Under Article 1293 of the Civil Code, a novation which consists in substituting a new debtor in place of the original debtor cannot be made without the consent of the creditor.18 Here, since the Agreement novated the debt without the knowledge and consent of Caltex, the Agreement cannot prejudice Caltex. Thus, the assets that LUSTEVECO transferred to PSTC in consideration, among others, of the novation, or the value of such assets, remain even in the hands of PSTC subject to execution to satisfy the judgment claim of Caltex.

Caltex is a Real Party in Interest

Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides:

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.

Ordinarily, one who is not a privy to a contract may not bring an action to enforce it. However, this case falls under the exception. In Oco v. Limbaring, we ruled:

The parties to a contract are the real parties in interest in an action upon it, as consistently held by the Court. Only the contracting parties are bound by the stipulation in the contract; they are the ones who would benefit from and could violate it. Thus, one who is not a party to a contract, and for whose benefit it was not expressly made, cannot maintain an action on it. One cannot do so, even if the contract performed by the contracting parties would incidentally inure to one’s benefit.

As an exception, parties who have not taken part in a contract may show that they have a real interest affected by its performance or annulment. In other words, those who are not principally or subsidiarily obligated in a contract, in which they had no intervention, may show their detriment that could result from it. x x x19 (Emphasis supplied)

Caltex may enforce its cause of action against PSTC because PSTC expressly assumed all the obligations of LUSVETECO pertaining to its tanker and bulk business and specifically, those relating to AC-G.R. CV No. 62613.

While Caltex is not a party to the Agreement, it has a real interest in the performance of PSTC’s obligations under the Agreement because the non-performance of PSTC’s obligations will defraud Caltex.

Even if PSTC did not expressly assume to pay the creditors of LUSTEVECO, PSTC would still be liable to Caltex up to the value of the assets transferred. The transfer of all or substantially all of the unencumbered assets of LUSTEVECO to PSTC cannot work to defraud the creditors of LUSTEVECO. A creditor has a real interest to go after any person to whom the debtor fraudulently transferred its assets.

WHEREFORE, we REVERSE and SET ASIDE the 31 May 2001 Decision and 9 November 2001 Resolution of the Court of Appeals in CA-G.R. CV No. 46097. We AFFIRM the 1 June 1994 Decision of the Regional Trial Court of Manila, Branch 51, in Civil Case No. 91-59512. Costs against respondent.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBINGAssociate JusticeChairperson

CONCHITA CARPIO MORALES DANTE O. TINGA

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR.Associate Justice

A T T E S T A T I O N

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

LEONARDO A. QUISUMBING

Associate JusticeChairperson

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

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

ARTEMIO V. PANGANIBAN

Chief Justice

Footnotes

1 Under Rule 45 of the 1997 Rules of Civil Procedure.

2 Penned by Associate Justice Juan Q. Enriquez, Jr. with Associate Justices Presbitero J. Velasco, Jr. and Bienvenido L. Reyes, concurring. Rollo, pp. 41-47.

3 Penned by Associate Justice Juan Q. Enriquez, Jr. with Associate Justices Wenceslao I. Agnir, Jr. and Bienvenido L. Reyes, concurring. Rollo, p. 49.

4 Penned by Judge Rustico V. Panganiban. Rollo, pp. 66-72.

5 Penned by Associate Justice Jose C. Campos, Jr. with Associate Justices Crisolito Pascual, Serafin E. Camilon and Desiderio P. Jurado, concurring. Records, pp. 14-21.

6 Id. at 20-21.

7 Rollo, pp. 71-72.

8 Id. at 46.

9 Id. at 50-52.

10 See Rivera v. Litam & Company, Inc., L-16954, 25 April 1962, 4 SCRA 1072.

11 See note 16 infra.

12 Article 1381(3), Civil Code.

13 See China Banking Corp. v. Court of Appeals, 384 Phil. 116 (2000).

14 21 Phil. 243, 250-251 (1912).

15 G.R. No. 101900, 23 June 1992, 210 SCRA 277. See also Pepsi-Cola Distributors of the Phil., Inc. v. NLRC, 317 Phil. 461 (1995) and Corral v. National Labor Relations Commission, G.R. No. 96795, 12 July 1996, 258 SCRA 704.

16 Article 1381 of the Civil Code provides:

Art. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

(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;

(5) All other contracts specially declared by law to be subject to rescission. (Emphasis supplied)

17 Article 1291 provides:

Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor.

18 Article 1293 provides:

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment made by the new debtor gives him the rights mentioned in Articles 1236 and 1237.

19 G.R. No. 161298, 31 January 2006, 481 SCRA 348, 358-359.

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. 153468 August 17, 2006

PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN, JUDITH TAN, ERNESTO TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH SCHOOL, Petitioners, vs.PAUL SYCIP and MERRITTO LIM, Respondents.

 

D E C I S I O N

PANGANIBAN, CJ.:

For stock corporations, the "quorum" referred to in Section 52 of the Corporation Code is based on the number of outstanding voting stocks. For nonstock corporations, only those who are actual, living members with voting rights shall be counted in determining the existence of a quorum during members’ meetings. Dead members shall not be counted.

The Case

The present Petition for Review on Certiorari [1] under Rule 45 of the Rules of Court seeks the reversal of the January 23 2 and May 7, 2002, 3 Resolutions of the Court of Appeals (CA) in CA-GR SP No. 68202. The first assailed Resolution dismissed the appeal filed by petitioners with the CA. Allegedly, without the proper authorization of the other petitioners, the Verification and Certification of Non-Forum Shopping were signed by only one of them -- Atty. Sabino Padilla Jr. The second Resolution denied reconsideration.

The Facts

Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen (15) regular members, who also constitute the board of trustees. [4] During the annual members’ meeting held on April 6, 1998, there were only eleven (11) [5] living member-trustees, as four (4) had already died. Out of the eleven, seven (7) 6 attended the meeting through their respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. 7 In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four deceased member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained that the deceased member-trustees should not be counted in the computation of the quorum because, upon their death, members automatically lost all their rights (including the right to vote) and interests in the corporation.

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum. She held that the basis for determining the quorum in a meeting of members should be their number as specified in the articles of incorporation, not simply the number of living members. 8 She explained that the qualifying phrase "entitled to vote" in Section 24 9 of the Corporation Code, which provided the basis for determining a quorum for the election of directors or trustees, should be read together with Section 89. 10

The hearing officer also opined that Article III (2) 11 of the By-Laws of GCHS, insofar as it prescribed the mode of filling vacancies in the board of trustees, must be interpreted in conjunction with Section 29 12 of the Corporation Code. The SEC en banc denied the appeal of petitioners and affirmed the Decision of the hearing officer in toto. 13 It found to be untenable their contention that the word "members," as used in Section 52 14 of the Corporation Code, referred only to the living members of a nonstock corporation. 15

As earlier stated, the CA dismissed the appeal of petitioners, because the Verification and Certification of Non-Forum Shopping had been signed only by Atty. Sabino Padilla Jr. No Special Power of Attorney had been attached to show his authority to sign for the rest of the petitioners.

Hence, this Petition. 16

Issues

Petitioners state the issues as follows:

"Petitioners principally pray for the resolution of the legal question of whether or not in NON-STOCK corporations, dead members should still be counted in determination of quorum for purposed of conducting the Annual Members’ Meeting.

"Petitioners have maintained before the courts below that the DEAD members should no longer be counted in computing quorum primarily on the ground that members’ rights are ‘personal and non-transferable’ as provided in Sections 90 and 91 of the Corporation Code of the Philippines.

"The SEC ruled against the petitioners solely on the basis of a 1989 SEC Opinion that did not even involve a non-stock corporation as petitioner GCHS.

"The Honorable Court of Appeals on the other hand simply refused to resolve this question and instead dismissed the petition for review on a technicality – the failure to timely submit an SPA from the petitioners authorizing their co-petitioner Padilla, their counsel and also a petitioner before the Court of Appeals, to sign the petition on behalf of the rest of the petitioners.

"Petitioners humbly submit that the action of both the SEC and the Court of Appeals are not in accord with law particularly the pronouncements of this Honorable Court in Escorpizo v. University of Baguio (306 SCRA 497), Robern Development Corporation v. Quitain(315 SCRA 150,) and MC Engineering, Inc. v. NLRC, (360 SCRA 183). Due course should have been given the petition below and the merits of the case decided in petitioners’ favor." 17

In sum, the issues may be stated simply in this wise: 1) whether the CA erred in denying the Petition below, on the basis of a defective Verification and Certification; and 2) whether dead members should still be counted in the determination of the quorum, for purposes of conducting the annual members’ meeting.

The Court’s Ruling

The present Petition is partly meritorious.

Procedural Issue:

Verification and Certification of Non-Forum Shopping

The Petition before the CA was initially flawed, because the Verification and Certification of Non-Forum Shopping were signed by only one, not by all, of the petitioners; further, it failed to show proof that the signatory was authorized to sign on behalf of all of them. Subsequently, however, petitioners submitted a Special Power of Attorney, attesting that Atty. Padilla was authorized to file the action on their behalf. 18

In the interest of substantial justice, this initial procedural lapse may be excused. 19 There appears to be no intention to circumvent the need for proper verification and certification, which are aimed at assuring the truthfulness and correctness of the allegations in the Petition for Review and at discouraging forum shopping. 20 More important, the substantial merits of petitioners’ case and the purely legal question involved in the Petition should be considered special circumstances 21 or compelling reasons that justify an exception to the strict requirements of the verification and the certification of non-forum shopping. 22

Main Issue:

Basis for Quorum

Generally, stockholders’ or members’ meetings are called for the purpose of electing directors or trustees 23 and transacting some other business calling for or requiring the action or consent of the shareholders or members, 24 such as the amendment of the articles of incorporation and bylaws, sale or disposition of all or substantially all corporate assets, consolidation and merger and the like, or any other business that may properly come before the meeting.

Under the Corporation Code, stockholders or members periodically elect the board of directors or trustees, who are charged with the management of the corporation. 25 The board, in turn, periodically elects officers to carry out management functions on a day-to-day basis. As owners, though, the stockholders or members have residual powers over fundamental and major corporate changes.

While stockholders and members (in some instances) are entitled to receive profits, the management and direction of the corporation are lodged with their representatives and agents -- the board of directors or trustees. 26 In other words, acts of management pertain to the board; and those of ownership, to the stockholders or members. In the latter case, the board cannot act alone, but must seek approval of the stockholders or members. 27

Conformably with the foregoing principles, one of the most important rights of a qualified shareholder or member is the right to vote -- either personally or by proxy -- for the directors or trustees who are to manage the corporate affairs. 28 The right to choose the persons who will direct, manage and operate the corporation is significant, because it is the main way in which a stockholder can have a voice in the management of corporate affairs, or in which a member in a nonstock corporation can have a say on how the purposes and goals of the corporation may be achieved. 29 Once the directors or trustees are elected, the stockholders or members relinquish corporate powers to the board in accordance with law.

In the absence of an express charter or statutory provision to the contrary, the general rule is that every member of a nonstock corporation, and every legal owner of shares in a stock corporation, has a right to be present and to vote in all corporate meetings. Conversely, those who are not stockholders or members have no right to vote. 30 Voting may be expressed personally, or through proxies who vote in their representative capacities. 31 Generally, the right to be present and to vote in a meeting is determined by the time in which the meeting is held. 32

Section 52 of the Corporation Code states:

"Section 52. Quorum in Meetings. – Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations."

In stock corporations, the presence of a quorum is ascertained and counted on the basis of the outstanding capital stock, as defined by the Code thus:

"SECTION 137. Outstanding capital stock defined. – The term ‘outstanding capital stock’ as used in this Code, means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares." (Underscoring supplied)

The Right to Vote in

Stock Corporations

The right to vote is inherent in and incidental to the ownership of corporate stocks. 33 It is settled that unissued stocks may not be voted or considered in determining whether a quorum is present in a stockholders’ meeting, or whether a requisite proportion of the stock of the corporation is voted to adopt a certain measure or act. Only stock actually issued and outstanding may be voted. 34 Under Section 6 of the Corporation Code, each share of stock is entitled to vote, unless otherwise provided in the articles of incorporation or declared delinquent 35under Section 67 of the Code.

Neither the stockholders nor the corporation can vote or represent shares that have never passed to the ownership of stockholders; or, having so passed, have again been purchased by the corporation. 36 These shares are not to be taken into consideration in determining majorities. When the law speaks of a given proportion of the stock, it must be construed to mean the shares that have passed from the corporation, and that may be voted. 37

Section 6 of the Corporation Code, in part, provides:

"Section 6. Classification of shares. – The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided, further, that there shall always be a class or series of shares which have complete voting rights.

x x x x x x x x x

"Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporation property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

"Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights."

Taken in conjunction with Section 137, the last paragraph of Section 6 shows that the intention of the lawmakers was to base the quorum mentioned in Section 52 on the number of outstanding voting stocks. 38

The Right to Vote in

Nonstock Corporations

In nonstock corporations, the voting rights attach to membership. 39 Members vote as persons, in accordance with the law and the bylaws of the corporation. Each member shall be entitled to one vote unless so limited, broadened, or denied in the articles of incorporation or bylaws.40 We hold that when the principle for determining the quorum for stock corporations is applied by analogy to nonstock corporations, only those who are actual members with voting rights should be counted.

Under Section 52 of the Corporation Code, the majority of the members representing the actual number of voting rights, not the number or numerical constant that may originally be specified in the articles of incorporation, constitutes the quorum. 41

The March 3, 1986 SEC Opinion 42 cited by the hearing officer uses the phrase "majority vote of the members"; likewise Section 48 of the Corporation Code refers to 50 percent of 94 (the number of registered members of the association mentioned therein) plus one. The best evidence of who are the present members of the corporation is the "membership book"; in the case of stock corporations, it is the stock and transfer book. 43

Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles of incorporation, shall constitute a quorum for the transaction of corporate business (unless the articles of incorporation or the bylaws provide for a greater majority). If the intention of the lawmakers was to base the quorum in the meetings of stockholders or members on their absolute number as fixed in the articles of incorporation, it would have expressly specified so. Otherwise, the only logical conclusion is that the legislature did not have that intention.

Effect of the Death

of a Member or Shareholder

Having thus determined that the quorum in a members’ meeting is to be reckoned as the actual number of members of the corporation, the next question to resolve is what happens in the event of the death of one of them.

In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor. 44

On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. 45 In other words, the determination of whether or not "dead members" are entitled to exercise their voting rights (through their executor or administrator), depends on those articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the member. 46 Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a member of the corporation, unless otherwise provided in the articles of incorporation or the bylaws.

Applying Section 91 to the present case, we hold that dead members who are dropped from the membership roster in the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite vote in corporate matters or the requisite quorum for the annual members’ meeting. With 11 remaining members, the quorum in the present case should be 6. Therefore, there being a quorum, the annual members’ meeting, conducted with six 47 members present, was valid.

Vacancy in the

Board of Trustees

As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation Code provides:

"SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office."

Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still constitute a quorum. The phrase "may be filled" in Section 29 shows that the filling of vacancies in the board by the remaining directors or trustees constituting a quorum is merely permissive, not mandatory. 48 Corporations, therefore, may choose how vacancies in their respective boards may be filled up -- either by the remaining directors constituting a quorum, or by the stockholders or members in a regular or special meeting called for the purpose. 49

The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of directors; that is, by a majority vote of the remaining members of the board. 50

While a majority of the remaining corporate members were present, however, the "election" of the four trustees cannot be legally upheld for the obvious reason that it was held in an annual meeting of the members, not of the board of trustees. We are not unmindful of the fact that the members of GCHS themselves also constitute the trustees, but we cannot ignore the GCHS bylaw provision, which specifically prescribes that vacancies in the board must be filled up by the remaining trustees. In other words, these remaining member-trustees must sit as a boardin order to validly elect the new ones.

Indeed, there is a well-defined distinction between a corporate act to be done by the board and that by the constituent members of the corporation. The board of trustees must act, not individually or separately, but as a body in a lawful meeting. On the other hand, in their annual meeting, the members may be represented by their respective proxies, as in the contested annual members’ meeting of GCHS.

WHEREFORE, the Petition is partly GRANTED. The assailed Resolutions of the Court of Appeals are hereby REVERSED AND SET ASIDE. The remaining members of the board of trustees of Grace Christian High School (GCHS) may convene and fill up the vacancies in the board, in accordance with this Decision. No pronouncement as to costs in this instance.

SO ORDERED.

ARTEMIO V. PANGANIBAN

Chief JusticeChairperson, First Division

W E C O N C U R:

CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice Associate Justice

ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

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

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

ARTEMIO V. PANGANIBAN

Chief Justice

Footnotes

1 Dated June 25, 2002; rollo, pp. 10-24.

2 Annex "A" of the Petition; rollo, p. 35. Penned by Justice B.A. Adefuin-de la Cruz (Division chair) and concurred in by Justices Wenceslao I. Agnir Jr. and Josefina Guevara-Salonga.

3 Annex "B" of the Petition; rollo, p. 37.

4 Art. II (1), Amended By-Laws of GCHS, provides:

"1. Number – The regular members of the Corporation shall be fifteen (15) in number and they shall constitute the Board of Trustees. Associate, non-voting members may be admitted upon such terms as the Board of Trustees may determine." (Memorandum for petitioners, p. 2; rollo, p. 92.)

5 Petitioners James Tan, Paul Lee Tan, Andrew Liuson, Esther Wong, Stephen Co; Respondents Paul Sycip and Merritto Lim and four others not parties in this Petition – John Tan, Claro Ben Lim, Wang Ta Peng and Anita So. (Memorandum for petitioners, p. 2; rollo, p. 92.)

6 Wang Ta Peng, Esther Wong, Stephen Co and James L. Tan, represented by Atty. Sabino Padilla; Paul Lee Tan and Andrew Liuson, represented by Atty. Eduardo P. Lizares; and Anita So, represented by Atty. Antonio C. Pacis. (Id.; id. at 92-93)

7 See Decision dated June 21, 2000, SEC Case No. 08-98-6065, p. 2; rollo, p. 40.

8 Id. at 4-6; id. at 42-43.

9 "Section 24. Election of directors or trustees. – At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. x x x. Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not sine die or indefinitely if, for any reason, no election is held, or if there are not present or represented by proxy, at the meeting, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the member entitled to vote." (Underscoring supplied)

10 "Section 89. Right to vote. – The right of the members of any class or classes to vote may be limited, broadened or denied to the extent specified in the articles of incorporation or the by-laws. Unless so limited, broadened or denied, each member, regardless of class, shall be entitled to one vote."

"Unless otherwise provided in the articles of incorporation or the by-laws, a member may vote by proxy in accordance with the provisions of this Code.

"Voting by mail or other similar means by members of non-stock corporations may be authorized by the by-laws of non-stock corporations with the approval of, and under such conditions which may be prescribed by, the Securities and Exchange Commission."

11 "Article III (2). Vacancies – Any vacancy in the Board of Trustees shall be filled by a majority vote of the remaining members of the Board." (Cited in Decision, SEC Case No. 08-98-6065, p. 6; rollo, p. 43.)

12 "Section 29. Vacancies in the office of director or trustee. – Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. x x x." (Underscoring supplied)

13 See SEC Order dated July 6, 2001, Annex "D" of Petition; rollo, pp. 46-51.

14 "Section 52. Quorum in meetings. – Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations." (Underscoring supplied)

15 SEC Order dated July 6, 2001, p. 3; rollo, p. 48.

16 To resolve old cases, the Court created the Committee on Zero Backlog of Cases on January 26, 2006. Consequently, the Court resolved to prioritize the adjudication of long-pending cases by redistributing

them among all the justices. This case was recently re-raffled and assigned to the undersigned ponente for study and report.

17 Petitioner’s Memorandum, pp. 6-7; rollo, pp. 96-97.

18 Ateneo De Naga University v. Manalo, 458 SCRA 325, May 9, 2005; Vicar International Construction, Inc. v. FEB Leasing and Finance Corporation, 456 SCRA 588, April 22, 2005; Alternative Center for Organizational Reforms and Development, Inc. (ACORD) v. Zamora, 459 SCRA 578, June 8, 2005.

19 Estares v. Court of Appeals, 459 SCRA 604, June 8, 2005; Torres v. Specialized Packaging Development Corporation, 433 SCRA 455, July 6, 2004; National Steel Corp. v. CA, 436 Phil. 656, August 29, 2002; Sy Chin v. Court of Appeals, 399 Phil. 442, November 23, 2000.

20 Pilipinas Shell Petroleum Corporation v. John Bordman Ltd. of Iloilo, Inc., GR No. 159831, October 14, 2005.

21 In certain exceptional circumstances, the Court has allowed the relaxation of the rule requiring verification and certification of non-forum shopping. LDP Marketing, Inc., v. Monter, GR No. 159653, January 25, 2006 citing Uy v. Land Bank of the Philippines, 336 SCRA 419, July 24, 2000, Roadway Express, Inc. v. Court of Appeals, et al., 264 SCRA 696, November 21, 1996, and Loyola v. Court of Appeals, et al., 245 SCRA 477, June 29, 1995; Ateneo De Naga University v. Manalo, 458 SCRA 325, May 9, 2005.

22 Uy v. Land Bank of the Philippines, supra.

23 Corporation Code, Sec. 24.

24 See Corporation Code, Secs. 6, 16, 24, 28-30, 32, 34, 38, 40, 42-44, 46, 48, 77, 118-120.

25 Corporation Code, Sec. 23.

"Sec. 23. The board of directors or trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation x x x."

26 J. Campos, Jr. and M.C. Campos, The Corporation Code 341, Vol. I (1990); see also Ramirez v. Orientalist Co., 38 Phil. 634 (1918).

27 J. Campos, Jr. and M.C. Campos, supra at 490.

28 5 Fletcher Cyclopedia of the Law of Private Corporations 116 (1976).

29 J. Campos, Jr. and M.C. Campos, supra note 26 at 436.

30 5 Fletcher Cyclopedia of the Law of Private Corporations 127 (1976).

31 Id.

32 Id.

33 R. Lopez, The Corporation Code of the Phils. 396, Vol. I (1994).

34 5 Fletcher Cyclopedia of the Law of Private Corporations 77 (1976).

35 "Section 71. Effect of delinquency. – No delinquent stock shall be voted for or be entitled to vote or to representation at any stockholders’ meeting. x x x."

36 "Section 9. Treasury shares. – Treasury shares are shares of stock which have been issued and fully paid for but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. x x x."

"Section 57. Voting right for treasury shares. – Treasury shares shall have no voting right as long as such stock remains in the Treasury."

37 90 ALR 316.

38 J. Campos, Jr. and M.C. Campos, supra note 26 at 423.

39 R. Lopez, supra note 33 at 965.

40 Corporation Code, Sec. 89.

41 In Noremac, Inc. v. Centre Hill Court, Inc., (178 SE 877, March 14, 1935) the management and control of the corporation were vested in lot owners who were members of the corporation, by virtue of their ownership; and the bylaws provided that a quorum should consist of members representing a majority of the lots, numbered from 1 to 30, inclusive; but the number of lots was later reduced to 29 so the Court said that the majority of members representing actual number of lots was a quorum.

The landmark case Avelino v. Cuenca (83 Phil. 17, March 4, 1949) can be used by analogy. In that case, the Supreme Court said that "[t]here is a difference between a majority of "all the members of the House" and a majority of "the House," which requires less number than the first.

In this case, the law refers to the "majority of the members" and not the "majority of all the members." Thus, we can use the same reasoning that the "majority of the members" requires a lesser number than the "majority of all the members."

42 See the Decision dated June 21, 2000, SEC Case No. 08-98-6065, pp. 3-4; rollo, pp. 41-42.

43 R. Lopez, supra note 33 at 973.

44 SEC Letter-Opinion to Ms. Rosevelinda E. Calingasan, et al., (R. Lopez) May 14, 1993; Corporation Code, Sec. 55.

45 Corporation Code, Sec. 90.

46 See Petition, p. 11 (citing Art. III, Amended By-Laws of GCHS on Termination of Membership); rollo, p. 20.

47 Excluding Atty. Antonio C. Pacis (proxy for Anita So), who left the meeting in protest of the alleged lack of quorum.

48 SEC Letter-Opinion to Mr. Noe S. Andaya (R. Lopez) September 20, 1990.

49 J. Campos, Jr. and M.C. Campos, supra note 26 at 465.

50 Article III (2), By-laws of GCHS (cited in the Decision dated June 21, 2000, SEC Case No. 08-98-6065, p. 6); rollo, p. 43.

Republic of the PhilippinesSUPREME COURTManila

SECOND DIVISION

A.C. No. 7298             June 25, 2007[Formerly CBD Case No. 05-1565]

FERNANDO MARTIN O. PENA, complainant, vs.ATTY. LOLITO G. APARICIO, respondent.

R E S O L U T I O N

TINGA, J.:

In this administrative complaint, a lawyer is charged with violation of Rule 19.01 of Canon 19 of the Code of Professional Responsibility for writing a demand letter the contents of which threatened complainant with the filing of criminal cases for tax evasion and falsification of documents.

Atty. Lolito G. Aparicio (respondent) appeared as legal counsel for Grace C. Hufana in an illegal dismissal case before the National Labor Relations Commission (NLRC). Sometime in August 2005, complainant Fernando Martin O. Pena, as President of MOF Company, Inc. (Subic), received a notice from the Conciliation and Mediation Center

of the NLRC for a mediation/conciliation conference. In the conference, respondent, in behalf of his client, submitted a claim for separation pay arising from her alleged illegal dismissal. Complainant rejected the claim as being baseless. Complainant thereafter sent notices to Hufana for the latter to explain her absences and to return to work. In reply to this return to work notice, respondent wrote a letter to complainant reiterating his client's claim for separation pay. The letter also contained the following threat to the company:

BUT if these are not paid on August 10, 2005, we will be constrained to file and claim bigger amounts including moral damages to the tune of millions under established precedence of cases and laws. In addition to other multiple charges like:

1. Tax evasion by the millions of pesos of income not reported to the government.

2. Criminal Charges for Tax Evasion

3. Criminal Charges for Falsification of Documents

4. Cancellation of business license to operate due to violations of laws.

These are reserved for future actions in case of failure to pay the above amounts as settlements in the National Labor Relations Commission (NLRC).1

Believing that the contents of the letter deviated from accepted ethical standards, complainant filed an administrative complaint2 with the Commission on Bar Discipline of the Integrated Bar of the Philippines (IBP). Respondent filed an Answer with Impleader (Motion to Dismiss and Counterclaims)3 claiming that Atty. Emmanuel A. Jocson, complainant's legal counsel, also played an important part in imputing the malicious, defamatory, and fabricated charges against him. Respondent also pointed out that the complaint had no certification against forum shopping and was motivated only to confuse the issues then pending before the Labor Arbiter. By way of counterclaim, respondent asked for damages and for the disbarment of Atty. Jocson. Respondent also asked the IBP to endorse the prosecution of Atty. Jocson for Usurpation of Public Functions4 and for violation of the Notarial Law.5

A mandatory conference was held on 6 December 2005 but respondent failed to appear.6 Both parties were thereafter required to submit their position papers.

The Report and Recommendation7 of Investigating Commissioner Milagros V. San Juan found that complainant, failed to file his position paper and to comply with Administrative Circular No. 04-94 requiring a certificate against forum shopping and, accordingly, recommended the dismissal of the complaint against respondent. On 26 May 2006, the IBP Board of Governors adopted and approved the Report and Recommendation of the Investigating Commissioner.8 On 10 July 2006, the IBP Commission on Bar Discipline transmitted to the Supreme Court the notice of said Resolution and the records of the case.9 Thereafter, on 18 August 2006, respondent filed with the IBP a Motion for Reconsideration (for Modification of Decision)10 reiterating his claim of damages against complainant in the amount of four hundred million pesos (P400,000,000.00), or its equivalent in dollars, for filing the "false, malicious, defamers [sic], fraudulent, illegal fabricators [sic], malevolent[,] oppressive, evasive filing [of] a groundless and false suit."11

Complainant thereafter filed this Petition for Review (of the Resolution of the IBP Commission on Bar Discipline)12 alleging that he personally submitted and filed with the IBP his position paper, after serving a copy thereof on respondent by registered mail. He further alleges that he was deprived of his right to due process when the IBP dismissed his complaint without considering his position paper and without ruling on the merits thereof.

Complainant accordingly prays for the reversal and setting aside of the 26 May 2006 Resolution13 of the IBP Board of Governors and the remand of the case to the IBP Commission on Bar Discipline for proper adjudication and disposition on the merits.

Based on the records, there is truth to complainant's assertion that he filed his position paper on 21 December 2005, after serving a copy of the same to respondent. The IBP stamp on the front page of said document shows that it was received by the IBP on 21 December 2005. The registry receipt attached to the same document also shows that it was sent by registered mail to respondent on the same date. 14

Complainant, however, omitted to offer any explanation in his petition before this Court for his failure to attach a certification against forum shopping in his complaint against respondent.

The requirement of a certification against forum shopping was originally required by Circular No. 28-91, dated 8 February 1994, issued by this Court for every petition filed with the Court or the Court of Appeals. Administrative Circular No. 04-94, made effective on 1 April 1994, expanded the certification requirement to include cases filed in courts and quasi-judicial agencies below this Court and the Court of Appeals. Ultimately, the Court adopted paragraphs (1) and (2) of Administrative Circular No. 04-94 to become Section 5, Rule 7 of the

1997 Rules of Civil Procedure.15 Said rule states that a violation thereof would constitute contempt of court and be cause for the summary dismissal of both petitions without prejudice to the taking of appropriate action against the counsel of the party concerned.16

The Investigating Commissioner and the IBP Board of Governors took against complainant his failure to attach the certification against forum shopping to his complaint and consequently dismissed his complaint. This Court, however, disagrees and, accordingly, grants the petition. However, a remand of the case to the IBP would unduly prolong its adjudication.

The Court's determination is anchored on the sui generis nature of disbarment proceedings, the reasons for the certification against forum shopping requirement, complainant's subsequent compliance with the requirement, and the merit of complainant's complaint against respondent.

The Court, in the case of In re Almacen,17 dwelt on the sui generis character of disciplinary proceedings against lawyers, thus:

Disciplinary proceedings against lawyers are sui generis. Neither purely civil nor purely criminal, they do not involve a trial of an action or a suit, but is rather an investigation by the Court into the conduct of one of its officers. Not being intended to inflict punishment, it is in no sense a criminal prosecution. Accordingly, there is neither a plaintiff nor a prosecutor therein. It may be initiated by the Court motu proprio. Public interest is its primary objective, and the real question for determination is whether or not the attorney is still a fit person to be allowed the privileges as such. Hence, in the exercise of its disciplinary powers, the Court merely calls upon a member of the Bar to account for his actuations as an officer of the Court with the end in view of preserving the purity of the legal profession and the proper and honest administration of justice by purging the profession of members who by their misconduct have proved themselves no longer worthy to be entrusted with the duties and responsibilities pertaining to the office of an attorney. In such posture, there can thus be no occasion to speak of a complainant or a prosecutor.18 [Emphasis supplied]

In view of the nature of disbarment proceedings, the certification against forum shopping to be attached to the complaint, if one is required at all in such proceedings, must refer to another administrative case for disciplinary proceedings against the same respondent, because such other proceedings or "action" is one that necessarily involves "the same issues" as the one posed in the disbarment complaint to which the certification is supposedly to be attached.

Further, the rationale for the requirement of a certification against forum shopping is to apprise the Court of the pendency of another action or claim involving the same issues in another court, tribunal or quasi-judicial agency, and thereby precisely avoid the forum shopping situation. Filing multiple petitions or complaints constitutes abuse of court processes,19 which tends to degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets of the courts.20 Furthermore, the rule proscribing forum shopping seeks to promote candor and transparency among lawyers and their clients in the pursuit of their cases before the courts to promote the orderly administration of justice, prevent undue inconvenience upon the other party, and save the precious time of the courts. It also aims to prevent the embarrassing situation of two or more courts or agencies rendering conflicting resolutions or decisions upon the same issue.21

It is in this light that we take a further look at the necessity of attaching a certification against forum shopping to a disbarment complaint. It would seem that the scenario sought to be avoided, i.e., the filing of multiple suits and the possibility of conflicting decisions, rarely happens in disbarment complaints considering that said proceedings are either "taken by the Supreme Court motu proprio, or by the Integrated Bar of the Philippines (IBP) upon the verified complaint of any person."22 Thus, if the complainant in a disbarment case fails to attach a certification against forum shopping, the pendency of another disciplinary action against the same respondent may still be ascertained with ease. We have previously held that the rule requiring a certification of forum shopping to accompany every initiatory pleading, "should not be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective or the goal of all rules of procedure—which is to achieve substantial justice as expeditiously as possible."23

At any rate, complainant's subsequent compliance with the requirement cured the supposed defect in the original complaint. The records show that complainant submitted the required certification against forum shopping on 6 December 2006 when he filed his Comment/Opposition to respondent's Motion to Dismiss the present petition.

Finally, the intrinsic merit of complainant's case against respondent justifies the grant of the present petition. Respondent does not deny authorship of the threatening letter to complainant, even spiritedly contesting the charge that the letter is unethical.

Canon 19 of the Code of Professional Responsibility states that "a lawyer shall represent his client with zeal within the bounds of the law," reminding legal practitioners that a lawyer's duty is not to his client but to the administration of justice; to that end, his client's success is wholly subordinate; and his conduct ought to and must

always be scrupulously observant of law and ethics.24 In particular, Rule 19.01 commands that a "lawyer shall employ only fair and honest means to attain the lawful objectives of his client and shall not present, participate in presenting or threaten to present unfounded criminal charges to obtain an improper advantage in any case or proceeding." Under this Rule, a lawyer should not file or threaten to file any unfounded or baseless criminal case or cases against the adversaries of his client designed to secure a leverage to compel the adversaries to yield or withdraw their own cases against the lawyer's client.25

In the case at bar, respondent did exactly what Canon 19 and its Rule proscribe. Through his letter, he threatened complainant that should the latter fail to pay the amounts they propose as settlement, he would file and claim bigger amounts including moral damages, as well as multiple charges such as tax evasion, falsification of documents, and cancellation of business license to operate due to violations of laws. The threats are not only unethical for violating Canon 19, but they also amount to blackmail.

Blackmail is "the extortion of money from a person by threats of accusation or exposure or opposition in the public prints,…obtaining of value from a person as a condition of refraining from making an accusation against him, or disclosing some secret calculated to operate to his prejudice." In common parlance and in general acceptation, it is equivalent to and synonymous with extortion, the exaction of money either for the performance of a duty, the prevention of an injury, or the exercise of an influence. Not infrequently, it is extorted by threats, or by operating on the fears or the credulity, or by promises to conceal or offers to expose the weaknesses, the follies, or the crime of the victim.26

In Sps. Boyboy v. Atty. Yabut, Jr. , 27  we held that "[a]n accusation for blackmail and extortion is a very serious one which, if properly substantiated, would entail not only respondent's disbarment from the practice of law, but also a possible criminal prosecution."28 While the respondent in Boyboy was exonerated for lack of evidence, the same may not be said of respondent in the present case for he admits to writing the offensive letter.

In fact, respondent does not find anything wrong with what he wrote, dismissing the same as merely an act of pointing out massive violations of the law by the other party, and, with boldness, asserting that "a lawyer is under obligation to tell the truth, to report to the government commission of offenses punishable by the State."29 He further asserts that the writing of demand letters is a standard practice and tradition and that our laws allow and encourage the settlement of disputes.

Respondent's assertions, however, are misleading, for it is quite obvious that respondent's threat to file the cases against complainant was designed to secure some leverage to compel the latter to give in to his client's demands. It was not respondent's intention to point out complainant's violations of the law as he so gallantly claims. Far from it, the letter even contains an implied promise to "keep silent" about the said violations if payment of the claim is made on the date indicated.

Indeed, the writing of demand letters is a standard practice and tradition in this jurisdiction. It is usually done by a lawyer pursuant to the principal-agent relationship that he has with his client, the principal. Thus, in the performance of his role as agent, the lawyer may be tasked to enforce his client's claim and to take all the steps necessary to collect it, such as writing a letter of demand requiring payment within a specified period. However, the letter in this case contains more than just a simple demand to pay. It even contains a threat to file retaliatory charges against complainant which have nothing to do with his client's claim for separation pay. The letter was obviously designed to secure leverage to compel complainant to yield to their claims. Indeed, letters of this nature are definitely proscribed by the Code of Professional Responsibility.

Respondent cannot claim the sanctuary provided by the privileged communication rule under which a private communication executed in the performance of a legal duty is not actionable. The privileged nature of the letter was removed when respondent used it to blackmail complainant and extort from the latter compliance with the demands of his client.

However, while the writing of the letter went beyond ethical standards, we hold that disbarment is too severe a penalty to be imposed on respondent, considering that he wrote the same out of his overzealousness to protect his client's interests. Accordingly, the more appropriate penalty is reprimand.

WHEREFORE, premises considered, the petition is granted. The 26 May 2006 Resolution of the IBP Board of Governors is hereby REVERSED and SET ASIDE. Respondent Atty. Lolito G. Aparicio is hereby found liable for violation of Rule 19.01 of Canon 19 of the Code of Professional Responsibility, and is accordingly meted out the penalty of REPRIMAND, with the STERN WARNING that a repetition of the same or similar act will be dealt with more severely.

SO ORDERED.

Carpio, Acting Chairperson, Carpio-Morales, Velasco, Jr., JJ., concur.Quisumbing, J., on official leave.

Footnotes

1 Rollo, pp. 10-11.

2 Id. at 1-5.

3 Id. at 21-27.

4 Respondent claims that Atty. Jocson signed the administrative complaint against him without indicating his Roll of Attorney Number.

5 Respondent claims that Atty. Jocson notarized the complaint despite the expiration of his notarial commission.

6 Rollo, p. 49.

7 Id. at 103-105.

8 Id. at 102. See Resolution No. XVII-2006-291.

9 Id. at 101-105.

10 Id. at 170-177.

11 Id. at 175.

12 Id. at 106-115.

13 Id. at 102.

14 Id. at 76-88.

15 Said provision states:

Sec. 5. Certification against forum shopping. ― The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice unless otherwise provided, upon motion and hearing. The submission of a false certification or non-compliance with any of the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct contempt as well as a cause for administrative sanctions.

16 Land Car, Inc. v. Dev't Bachelor Express, Inc., 462 Phil. 796, 801 (2003), citing Administrative Circular No. 04-94, April 1, 1994; Fil-Estate Golf and Development, Inc. v. Court of Appeals ,  265 SCRA 614; Prubankers Association v. Prudential Bank & Trust Company , 302 SCRA 74.

17 No. L-27654, 18 February 1970, 31 SCRA 562.

18 Id. at 600-601.

19 Wee v. Galvez ,  G.R. No. 147394, 11 August 2004, 436 SCRA 96, 108-109, citing Zebra Security Agency v. NLRC, Phil. 200, 209.

20 Id. at 109, citing Nacuray v. NLRC, 336 Phil. 749, 756.

21 Id., citing Solid Homes, Inc. v. Court of Appeals, 337 Phil. 605, 616.

22 Rules of Court, Rule 139-B, Sec. 1.

23 Supra note 19, at 110, citing Dar v. Alonzo-Legasto ,  G.R. No. 143016, 30 August 2000, 339 SCRA 306, 309 citing Gabionza v. Court of Appeals, G.R. No. 112547, 18 July 1994, 234 SCRA 192, 198.

24 See E.L. Pineda, Legal and Judicial Ethics (1995 Ed.), p. 210, citing Maglasang v. People, 190 SCRA 306.

25 Id. at 213.

26 See Am. Jur. 2d, Vol. 5, citing Hess v. Sparks, 24 P. 979, 980, 44 Kan. 465, 21 Am.St.Rep. 300.

27 449 Phil. 664 (2003).

28 Id. at 674-675.

29 Rollo, p. 132.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 166704             December 20, 2006

AGRIFINA AQUINTEY, petitioner, vs.SPOUSES FELICIDAD AND RICO TIBONG, respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision1 of the Court of Appeals in CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial Court (RTC), Branch 61, Baguio City, and the Resolution3of the appellate court denying reconsideration thereof.

The Antecedents

On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. The complaint contained the following prayer:

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice and hearing, to render judgment ordering defendants to pay plaintiff the following:

a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the principal obligation of the defendants with the stipulated interests of six (6%) percent per month from May 11, 1999 to date and or those that are stipulated on the contracts as mentioned from paragraph two (2) of the complaint.

b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's fees.

c). Actual expenses representing the filing fee and other charges and expenses to be incurred during the prosecution of this case.

Further prays for such other relief and remedies just and equitable under the premises.4

Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as well as copies of the promissory notes and acknowledgment receipts executed by Felicidad covering the loaned amounts.5

In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of their loans had been extinguished.

The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they did not state the total amount of their loans, they declared that they did not receive anything from Agrifina without any written receipt.7 They prayed for that the complaint be dismissed.

In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without the benefit of a written document.8

On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined:

Whether or not plaintiff is entitled to her claim of P773,000.00;

Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and

Whether or not the parties are entitled to their claim for damages.9

The Case for Petitioner

Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened to be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According to Felicidad, Agrifina would be earning interests higher than those given by the bank for her money. Felicidad told Agrifina that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use the money to buy bonnels and thread.10 Thus, Agrifina lent a total sum of P773,000.00 to Felicidad, and each loan transaction was covered by either a promissory note or an acknowledgment receipt.11 Agrifina stated that she had lost the receipts signed by Felicidad for the following amounts: P100,000.00, P34,000.00 and P2,000.00.12 The particulars of the transactions are as follows:

Amount Date Obtained Interest Per Mo.

Due Date

P 100,000.00 May 11, 1989 6% August 11, 19894,000.00 June 8, 1989 - -50,000.00 June 13, 1989 6% On demand60,000.00 Aug. 16, 1989 7% January 1990205,000.00 Oct. 13, 1989 7% January 1990128,000.00 Oct. 19, 1989 7% January 19902,000.00 Nov. 12, 1989 6% April 28, 199010,000.00 June 13, 1990 - -80,000.00 Jan. 4, 1990 - -34,000.00 - 6% October 19, 1989100,000.00 July 14, 1989 5% October 198913

According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.14

In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25, 1990 in the amount of P50,000.00 as partial payment.15 However, the check was dishonored for having been drawn against insufficient funds.16 Agrifina then filed a criminal case against Felicidad in the Office of the City

Prosecutor. An Information for violation of Batas Pambansa Bilang 22 was filed against Felicidad, docketed as Criminal Case No. 11181-R. After trial, the court ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of the check.17

In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers.18 Agrifina sought the assistance of Atty. Torres G. A-ayo who advised her to require Felicidad to execute deeds of assignment over Felicidad's debtors. The lawyer also suggested that Felicidad's debtors execute promissory notes in Agrifina's favor, to "turn over" their loans from Felicidad. This arrangement would facilitate collection of Felicidad's account. Agrifina agreed to the proposal.19 Agrifina, Felicidad, and the latter's debtors had a conference20where Atty. A-ayo explained that Agrifina could apply her collections as payments of Felicidad's account.21

From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits (obligations)22 duly notarized by Atty. A-ayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due from her debtors.23 In the said deeds, Felicidad confirmed that her debtors were no longer indebted to her for their respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada and Corazon Dalisay.24 She was furnished copies of the deeds as well as the promissory notes.25

The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to Agrifina:

Debtors Account Date of Instrument Date PayableJuliet & Tommy Tibong P50,000.00 August 7, 1990 November 4, 1990 and February 4,

1991Corazon Dalisay 8,000.00 August 7, 1990 No dateRita Chomacog 4,480.00 August 8, 1990 September 23, 1990Antoinette Manuel 12,000.00 October 19, 1990 March 30, 1991Rosemarie Bandas 8,000.00 August 8, 1990 February 3, 1991Fely Cirilo 63,600.00 September 13, 1990 No dateVirginia Morada 62,379.00 August 9, 1990 February 9, 1991Carmelita Casuga 59,000.00 August 28, 1990 February 28, 1991Merlinda Gelacio 17,200.00 August 29, 1990 November 29, 199026

T o t a l P284,659.00

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them. One of the debtors, Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment of Credit which Felicidad executed in favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and in behalf of her sister, Fely Cirilo.28 Edna Papat-iw was not able to affix her signature on the deed of assignment nor sign the promissory note because she was in Taipei, Taiwan.29

Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total amount of P301,000.00 from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's account, but the latter told her to wait until her debtors had money.31 When Felicidad reneged on her promise, Agrifina filed a complaint in the Office of the Barangay Captain for the collection ofP773,000.00. However, no settlement was arrived at.32

The Case for Respondents

Felicidad testified that she and her friend Agrifina had been engaged in the money-lending business.33 Agrifina would lend her money with monthly interest,34 and she, in turn, would re-lend the money to borrowers at a higher interest rate. Their business relationship turned sour when Agrifina started complaining that she (Felicidad) was actually earning more than Agrifina.35 Before the respective maturity dates of her debtors' loans, Agrifina asked her to pay her account since Agrifina needed money to buy a house and lot in Manila. However, she told Agrifina that she could not pay yet, as her debtors' loan payments were not yet due.36 Agrifina then came to her store every afternoon to collect from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested that she indorse the accounts of her debtors to Agrifina so that the latter would be the one to collect from her debtors and she would no longer have any obligation to Agrifina.38 She then executed deeds of assignment in favor of Agrifina covering the sums of money due from her debtors. She signed the deeds prepared by Atty. A-ayo in the presence of Agrifina.39 Some of the debtors signed the promissory notes which were likewise prepared by the lawyer. Thereafter, Agrifina personally collected from Felicidad's debtors.40 Felicidad further narrated that she received P250,000.00 from one of her debtors, Rey Rivera, and remitted the payment to Agrifina.41

Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad. When she

asked Felicidad to consolidate her loans in one document, the latter told her to seek the assistance of Atty. A-ayo.42 The lawyer suggested that Felicidad assign her credits in order to help her collect her loans.43 She agreed to the deeds of assignment to help Felicidad collect from the debtors.44

On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to pay the plaintiffs (sic) the following amounts:

1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the said obligation is fully paid. However, the amount of P50,000 shall be deducted from the total accumulated interest for the same was already paid by the defendant as admitted by the plaintiff in her complaint,

2. P25,000 as attorney's fees,

3. [T]o pay the costs.

SO ORDERED.46

The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory notes executed by Felicidad's borrowers. It explained that the documents did not contain any express agreement to novate and extinguish Felicidad's obligation. It declared that the deeds and notes were separate contracts which could stand alone from the original indebtedness of Felicidad. Considering, however, Agrifina's admission that she was able to collect from Felicidad's debtors the total amount of P301,000.00, this should be deducted from the latter's accountability.47 Hence, the balance, exclusive of interests, amounted to P472,000.00.

On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory notes and acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total principal amount of only P637,000.00, notP773,000.00 as declared by the trial court. The CA found that, other than Agrifina's bare testimony that she had lost the promissory notes and acknowledgment receipts, she failed to present competent documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the amounts of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account, P585,659.00 was covered by the deeds of assignment and promissory notes; hence, the balance of Felicidad's account amounted to only P51,341.00. The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil Case No. 4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay the balance of the total indebtedness in the amount of P51,341.00 plus the stipulated interest of 6% per month from May 11, 1999 until the finality of this decision.

SO ORDERED.48

The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by the deeds of assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a new creditor in lieu of Felicidad, Felicidad's obligation to Agrifina under the loan transaction remained; there was no intention on their part to novate the original obligation. Nonetheless, the appellate court held that the legal effects of the deeds of assignment could not be totally disregarded. The assignments of credits were onerous, hence, had the effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never repudiated or rescinded such assignments only shows that she had accepted and conformed to it. Consequently, she cannot collect both from Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory notes.

The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the nature of a sale, the assignors remained liable for the warranties as they are responsible for the existence and legality of the credit at the time of the assignment.

Both parties moved to have the decision reconsidered,49 but the appellate court denied both motions on December 21, 2004.50

Agrifina, now petitioner, filed the instant petition, contending that

1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the effect of payment of the original obligation even as it ruled out that the original obligation and the assigned credit are distinct and separate and can stand independently from each other;

2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and

3. The Honorable Court of Appeals erred in resolving fact not in issue.51

Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to only P637,000.00 (instead ofP773,000.00) simply because she lost the promissory notes/receipts which evidenced the loans executed by respondent Felicidad Tibong. She insists that the issue of whether Felicidad owed her less than P773,000.00 was not raised by respondents during pre-trial and in their appellate brief; the appellate court was thus proscribed from taking cognizance of the issue.

Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00 loan; hence, respondents are deemed to have admitted the allegation in the complaint that the loans secured by respondent from her amounted to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is whether or not she should be made to pay this amount.

Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00 covered by the deeds of assignment executed by Felicidad and the promissory notes executed by the latter's debtors, and that the balance of respondents' account was only P51,341.00. Moreover, the appellate court's ruling that there was no novation runs counter to its holding that the primary recourse was against Felicidad's debtors. Petitioner avers that of the 11 deeds of assignment and promissory notes, only two bore her signature.52 She insists that she is not bound by the deeds which she did not sign. By assigning the obligation to pay petitioner their loan accounts, Felicidad's debtors merely assumed the latter's obligation and became co-debtors to petitioner. Respondents were not released from their obligation under their loan transactions, and she had the option to demand payment from them or their debtors. Citing the ruling of this Court inMagdalena Estates, Inc. v. Rodriguez,53 petitioner insists that the first debtor is not released from responsibility upon reaching an agreement with the creditor. The payment by a third person of the first debtor's obligation does not constitute novation, and the creditor can still enforce the obligation against the original debtor. Petitioner also cites the ruling of this Court in Guerrero v. Court of Appeals.54

In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's execution of the deeds of assignment, and the original debtors' execution of the promissory notes (along with their conformity to the deeds of assignment with petitioner's consent), their loan accounts with petitioner amounting to P585,659.00 had been effectively extinguished. Respondents point out that this is in accordance with Article 1291, paragraph 2, of the Civil Code. Thus, the original debtors of respondents had been substituted as petitioner's new debtors.

Respondents counter that petitioner had been subrogated to their right to collect the loan accounts of their debtors. In fact, petitioner, as the new creditor of respondents' former debtors had been able to collect the latter's loan accounts which amounted to P301,000.00. The sums received by respondents' debtors were the same loans which they obliged to pay to petitioner under the promissory notes executed in petitioner's favor.

Respondents aver that their obligation to petitioner cannot stand or exist separately from the original debtors' obligation to petitioner as the new creditor. If allowed to collect from them as well as from their original debtors, petitioner would be enriching herself at the expense of respondents. Thus, despite the fact that petitioner had collected P172,600.00 from respondents and P301,000.00 from the original debtors, petitioner still sought to collect P773,000.00 from them in the RTC. Under the deeds of assignment executed by Felicidad and the original debtors' promissory notes, the original debtors' accounts were assigned to petitioner who would be the new creditor. In fine, respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests. Respondents also insist that petitioner failed to prove that she (petitioner) was merely authorized to collect the accounts of the original debtors so as to to facilitate the payment of respondents' loan obligation.

The Issues

The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from petitioner; and (2) whether the obligation of respondents to pay the balance of their loans, including interest, was partially extinguished by the execution of the deeds of assignment in favor of petitioner,

relative to the loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in the total amount ofP371,000.00.

The Ruling of the Court

We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised the issue of whether they received P773,000.00 by way of loans from petitioner. They averred that, as gleaned from the documentary evidence of petitioner in the RTC, the total amount they borrowed was only P673,000.00. They asserted that petitioner failed to adduce concrete evidence that they received P773,000.00 from her.55

We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because petitioner failed to present any document or receipt signed by Felicidad.

Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact the truth of which he does not admit and, whenever practicable, x x x set forth the substance of the matters upon which he relies to support his denial.56

Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed admitted.57

The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to support the denial. The parties are compelled to lay their cards on the table.58

A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become specific by the use of the word "specifically." When matters of whether the defendant alleges having no knowledge or information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged "ignorance or lack of information" will not be considered as a specific denial. Section 11, Rule 8 of the Rules also provides that material averments in the complaint other than those as to the amount of unliquidated damages shall be deemed admitted when not specifically denied.59 Thus, the answer should be so definite and certain in its allegations that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what is covered by denials of knowledge as sufficient to form a belief.60

In the present case, petitioner alleged the following in her complaint:

2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) Philippine Currency with a stipulated interest which are broken down as follows. The said principal amounts was admitted by the defendants in their counter-affidavit submitted before the court. Such affidavit is hereby attached as Annex "A;"61

x x x x

H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per month and payable on October 19, 1989, however[,] the receipt for the meantime cannot be recovered as it was misplaced by the plaintiff but the letter of defendant FELICIDAD TIBONG is hereby attached as Annex "H" for the appreciation of the Honorable court;

I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per month, obtained on July 14, 1989 and payable on October 14, 1989. Such receipt was lost but admitted by the defendants in their counter-affidavit as attached [to] this complaint and marked as Annex "A" mentioned in paragraph one (1); x x x62

In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in paragraph 2 of the complaint were specifically denied, respondents merely averred that petitioner and respondent Felicidad entered into an agreement for the lending of money to interested borrowers at a higher interest rate. Respondents failed to declare the exact amount of the loans they had secured from petitioner. They also failed to deny the allegation in paragraph 2 of the complaint that respondent Felicidad signed and submitted a counter-affidavit in I.S. No. 93-334 where she admitted having secured loans from petitioner in the amount of P773,000.00. Respondents, likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had secured a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced. Although respondents specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely alleged that "they have not received sums of money

from the plaintiff without any receipt therefor."

Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured a P100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced by a receipt which petitioner claimed to have lost. Neither did respondents deny the allegation that respondents admitted their loan of P100,000.00 in the counter-affidavit of respondent Felicidad, which was appended to the complaint as Annex "A." In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner.

We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount of P301,000.00, which includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot again collect the same amount from respondents; otherwise, she would be enriching herself at their expense. Neither can petitioner collect from respondents more than P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis, Fernandez and Ramirez.

There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the balance of their loan account to petitioner was partially extinguished by the promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner, she was able to collect the amounts under the notes from said debtors and applied them to respondents' accounts.

Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are extinguished. Obligations may be modified by changing their object or principal creditor or by substituting the person of the debtor.63 The burden to prove the defense that an obligation has been extinguished by novation falls on the debtor.64 The nature of novation was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr.,65 as follows:

Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconciliable, the subsequent obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.66 (Citations Omitted)

Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent of those three persons is necessary.67 In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation.68 Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly.69

In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of novation, the rule is the same as in other contracts. The consideration need not be pecuniary or even beneficial to the person promising. It is sufficient if it be a loss of an inconvenience, such as the relinquishment of a right or the discharge of a debt, the postponement of a remedy, the discontinuance of a suit, or forbearance to sue.

In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is that the new debtor contracts with the old debtor that he will pay the debt, and also to the same effect with the creditor, while the latter agrees to accept the new debtor

for the old. A novation is not made by showing that the substituted debtor agreed to pay the debt; it must appear that he agreed with the creditor to do so. Moreover, the agreement must be based on the consideration of the creditor's agreement to look to the new debtor instead of the old. It is not essential that acceptance of the terms of the novation and release of the debtor be shown by express agreement. Facts and circumstances surrounding the transaction and the subsequent conduct of the parties may show acceptance as clearly as an express agreement, albeit implied.72

We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale,dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.73 It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person.74

In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's obligation. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.76

The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) there must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.77

All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent Felicidad assigned to petitioner her credits "to make good" the balance of her obligation. Felicidad testified that she executed the deeds to enable her to make partial payments of her account, since she could not comply with petitioner's frenetic demands to pay the account in cash. Petitioner and respondent Felicidad agreed to relieve the latter of her obligation to pay the balance of her account, and for petitioner to collect the same from respondent's debtors.

Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In an assignment of credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment that might have been made. The assignment binds the debtor upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor78 necessary in order that assignment may fully produce legal effects. Thus, the duty to pay does not depend on the consent of the debtor. The purpose of the notice is only to inform that debtor from the date of the assignment. Payment should be made to the assignee and not to the original creditor.

The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is acquired by the assignee79 who steps into the shoes of the original creditor as subrogee of the latter80 from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it. If the document of assignment is public, it is evidence even against a third person of the facts which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or assignment of the credit.81

As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other

debtors, petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that Cabang and Cirilo no longer had any obligation to her.

Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer attempted to collect from respondents the balance of their accounts. It was only in 1999, or after nine (9) years had elapsed that petitioner attempted to collect from respondents. In the meantime, petitioner had collected from respondents' debtors the amount of P301,000.00.

While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts, and for the latter to pay the same directly, it cannot thereby be considered that respondent merely authorized petitioner to collect the accounts of respondents' debtors and for her to apply her collections in partial payments of their accounts. It bears stressing that petitioner, as assignee, acquired all the rights and remedies passed by Felicidad, as assignee, at the time of the assignment.82 Such rights and remedies include the right to collect her debtors' obligations to her.

Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere fact that novation does not follow as a matter of course when the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation when there is no agreement that the first debtor would be released from responsibility. Thus, the creditor can still enforce the obligation against the original debtor.

In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors were intended to "make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be interpreted or construed in accordance with the rules of construction governing contracts generally, the primary object being always to ascertain and carry out the intention of the parties. This intention is to be derived from a consideration of the whole instrument, all parts of which should be given effect, and is to be sought in the words and language employed.83

Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words should be construed according to their ordinary meaning, unless something in the assignment indicates that they are being used in a special sense. So, if the words are free from ambiguity and expressed plainly the purpose of the instrument, there is no occasion for interpretation; but where necessary, words must be interpreted in the light of the particular subject matter.84 And surrounding circumstances may be considered in order to understand more perfectly the intention of the parties. Thus, the object to be accomplished through the assignment, and the relations and conduct of the parties may be considered in construing the document.

Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the assignor, the general rule is that any ambiguity or uncertainty in the meaning of an assignment will be resolved against the party who prepared it; hence, if the assignment was prepared by the assignee, it will be construed most strictly against him or her.85 One who chooses the words by which a right is given ought to be held to the strict interpretation of them, rather than the other who only accepts them.86

Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the principal amount ofP33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of respondents' other debtors amounting toP103,500.00, and the P50,000.00 payment made by respondents.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals are AFFIRMED withMODIFICATION in that the balance of the principal account of the respondents to the petitioner is P33,841.00. No costs.

SO ORDERED.

Austria-Martinez, and Chico-Nazario, JJ., concur.Panganiban, C.J., retired as of December 7, 2006.Ynares-Santiago, J., working Chairperson.

Footnotes

1 Penned by Associate Justice Remedios A. Salazar-Fernando, with Presiding Justice (now Supreme Court Associate Justice) Cancio C. Garcia and Associate Justice Hakim S. Abdulwahid concurring; rollo,

pp. 131-143.

2 Penned by Judge Antonio C. Reyes; rollo, pp. 96-97.

3 Rollo, pp. 148-154.

4 Records, pp. 5-6.

5 Annexes "A" to "H"; id. at 8-14.

6 Records, pp. 24-27.

7 Id. at 26.

8 Id. at 51.

9 Id. at 72.

10 TSN, January 31, 2001, p. 6.

11 TSN, January 10, 2001, p. 6.

12 Id. at 5.

13 Exhibits "B," "C," "D," "E," "F," "G," & "H"; records, pp. 151-157.

14 TSN, January 31, 2001, p. 11.

15 Exhibit "13"; records, p. 250.

16 TSN, January 10, 2001, p. 14.

17 Records, p. 4.

18 TSN, February 1, 2001, p. 3.

19 TSN, February 22, 2001, p. 9.

20 TSN, February 1, 2001, pp. 4-5.

21 TSN, February 22, 2001, p. 10.

22 Exhibits "1" to "11"; records, pp. 237-247.

23 Spouses Juliet and Tommy Tibong, Corazon Dalisay, Rita Chomacog, Rosemarie Bandas, Virginia Morada, Helen Cabang, Edna Papat-iw, Carmelita Casuga, Merlinda Gelacio, Antoinette Manuel, Fely Cirilo and Lourdes Nimo.

24 Records, pp. 238 & 241.

25 TSN, February 1, 2001, p. 6.

26 Records, pp. 237-247.

27 Id. at 242.

28 Id. at 247.

29 Exhibit "7," id. at 243.

30 TSN, February 22, 2001, pp. 10-11.

31 Id. at 11.

32 Exhibit "I," records, p. 159.

33 TSN, September 13, 2001, p. 3.

34 Id. at. 4.

35 Id. at 5.

36 Id. at 6.

37 Id. at 6-7.

38 Id. at 8.

39 Id. at 9.

40 Id. at 11-12.

41 TSN, September 27, 2001, pp. 34-35.

42 TSN, June 24, 2002, p. 8.

43 Id. at 9.

44 Id. at 10-11.

45 Rollo, pp. 96-97; id. at 10-11.

46 Id. at 97; Id. at 319.

47 Id. at 318-319.

48 Rollo, p. 142.

49 CA rollo, pp. 81-95.

50 Id. at 148-154.

51 Rollo, p. 19.

52 Records, pp. 238 & 242.

53 No. L-18411, December 17, 1966, 18 SCRA 967.

54 No. L-22366, October 30, 1969, 29 SCRA 791.

55 Appellants' Brief, p. 15.

56 The provision reads in full:

SEC. 10. Specific denial. – A defendant must specify each material allegation of fact the truth of which he does not admit and, whenever practicable, shall set forth the substance of the matters upon which he relies to support his denial. Where a defendant desires to deny only a part of an averment, he shall specify so much of it as is true and material and shall deny only the remainder. Where a defendant is without knowledge or information sufficient to form a belief as to the truth of a material averment made in the complaint, he shall so state, and this shall have the effect of a denial.

57 SEC. 11. Allegations not specifically denied deemed admitted. – Material averment in the complaint,

other than those as to the amount of unliquidated damages, shall be deemed admitted when not specifically denied. Allegations of usury in a complaint to recover usurious interest are deemed admitted if not denied under oath.

58 Philippine National Bank v. Court of Appeals, G.R. No. 126153, January 14, 2004, 419 SCRA 281, 287.

59 Id. at 286-287.

60 Kirchmam v. Eschman, 127 N.E. 328.

61 Records, p. 1.

62 Id. at 4.

63 Civil Code, Article 1291.

64 Rules of COURT, Rule 131, Section 5.

65 452 Phil. 82 (2003).

66 Id. at 89-90.

67 Garcia v. Llamas, G.R. No. 154127, December 8, 2003, 417 SCRA 292, 300.

68 Lopez v. Court of Appeals, L-33157, June 29, 1982, 114 SCRA 671, 688.

69 Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV, p. 360.

70 177 S.W. 2d 697.

71 52 F.2d 870.

72 Babst v. Court of Appeals, 403 Phil. 244, 259-260 (2001).

73 Lo v. KJS Eco-Formwork System Phil., Inc., 459 Phil. 538-539 (2003); South City Homes, Inc. v. BA Finance Corporation, 432 Phil. 84, 95 (2001); Far East Bank & Trust Co. v. Diaz Realty, Inc., 416 Phil. 147, 161 (2001); Casabuena v. Court of Appeals, 350 Phil. 237, 243-244 (1998); and Manila Banking Corporation v. Teodoro, Jr., G.R. No. 53955, January 13, 1989, 169 SCRA 95, 102.

74 Manila Banking Corporation v. Teodoro, Jr., G.R. No. 53955, January 13, 1989, 169 SCRA 95, 102. See also Lo v. KJS Eco-Formwork System Phil., Inc., 459 Phil. 532, 539 (2003); Project Builders, Inc. v. Court of Appeals, 411 Phil. 264, 273 (2001); Rodriguez v. Court of Appeals, G.R. No. 84220, March 25, 1992, 207 SCRA 553, 558; and Nyco Sales Corp. v. BA Finance Corp., G.R. No. 71694, August 16, 1991, 200 SCRA 637, 641.

75 439 Phil. 192 (2002).

76 Id. at 210.

77 Lo v. KJS Eco-Formwork System Phil., Inc., 459 Phil. 532, 539, (2003).

78 National Investment and Development Co. v. De Los Angeles, No. L-30150, August 31, 1971, 40 SCRA 487, 496 (1971).

79 Project Builders, Inc. v. Court of Appeals, 411 Phil. 264, 274 (2001).

80 South City Homes, Inc. v. BA Finance Corporation, 423 Phil. 84, 95 (2001).

81 Tolentino, Civil Code of the Philippines, Vol. V, 1959 ed., pp. 168-1969.

82 Federal Insurance Co. v. Summers, 403 F.2d. 971.

83 GA C.J.S. Assignments, p. 709.

84 Genard v. Hosmer, 189 N.E. 46.

85 In Re: Davis' Estate, 263 N.Y.S. 482; 147 Misc. 96.

86 Shiro v. Drew, 174 F. Supp. 495.

SECOND DIVISION 

THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK),          P e t i t i o n e r,             - versus –

   

DEL MONTE MOTOR WORKS, INC., NARCISO G. MORALES,[1] AND SPOUSE,          R e s p o n d e n t s.

  G.R. No.  143338  Present:      PUNO,         Chairman,     AUSTRIA-MARTINEZ,     CALLEJO, SR.,     TINGA, and     CHICO-NAZARIO, JJ. Promulgated: July 29, 2005

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

D E C I S I O N  CHICO-NAZARIO, J.:

 

          This is a petition for review on certiorari of the Decision[2] of the Court of Appeals in CA-G.R. CV No. 16886

entitled, “The Consolidated Bank & Trust Corporation (SOLIDBANK) v. Del Monte Motor Works, Inc., Narciso O.

Morales and Spouse” promulgated on 25 November 1999 and of the Resolution of the appellate court dated 11

May 2000 denying petitioner’s motion for reconsideration. Said decision and resolution affirmed the order dated 28

December 1987 of the Regional Trial Court (RTC), Branch 27, Manila.

 

          The facts of the case are as follows:

 

          On 13 June 1984, petitioner filed before the RTC of Manila a complaint [3] for recovery of sum of money

against respondents, impleading the spouse of respondent Narciso O. Morales (respondent Morales) in order to

bind their conjugal partnership of gains.  Petitioner, a domestic banking and trust corporation, alleges therein that

on 23 April 1982, it extended in favor of respondents a loan in the amount of One Million Pesos (P1,000,000.00) as

evidenced by a promissory note executed by respondents on the same date.  Under the promissory note,

respondents Del Monte Motor Works, Inc. (respondent corporation) and Morales bound themselves jointly and

severally to pay petitioner the full amount of the loan through twenty-five monthly installments of P40,000.00 a

month with interest pegged at 23% per annum.  The note was to be paid in full by 23 May 1984.  As respondents

defaulted on their monthly installments, the full amount of the loan became due and demandable pursuant to the

terms of the promissory note. Petitioner likewise alleges that it made oral and written demands upon respondents

to settle their obligation but notwithstanding these demands, respondents still failed to pay their indebtedness

which, as of 09 March 1984, stood at P1,332,474.55.  Petitioner attached to its complaint as Annexes “A,” “B,” and

“C,” respectively, a photocopy of the promissory note supposedly executed by respondents, a copy of the demand

letter it sent respondents dated 20 January 1983, and statement of account pertaining to respondents’ loan.

 

          On 31 October 1984, petitioner filed an Ex-Parte Motion to Declare the Defendants in Default which was

opposed by the defendants upon the ground that they were never served with copies of the summons and of

petitioner’s complaint. 

 

          On 23 November 1984, respondent corporation filed before the trial court a manifestation attaching thereto

its answer to petitioner’s complaint which states the following:

 2-        That it denies generally and specifically the allegations contained in paragraphs 3, 4, 5, 6, 7 and 8 thereof for lack of knowledge and information sufficient to form a belief as to the truth of the matters therein alleged, the truth being those alleged in the Special and Affirmative Defenses hereinbelow contained; 3-        ANSWERING FURTHER, and by way of a first special and affirmative defense, defendant herein states that the promissory note in question is void for want of valid consideration and/or there was no valuable consideration involved as defendant herein did not receive any consideration at all; 4-        ANSWERING FURTHER, and by way of a second special affirmative defense, defendant herein alleges that no demand has ever been sent to nor received by herein defendant and if ever demands were made, denies any liability as averred therein. 5-        ANSWERING FURTHER, and by way of a third special and affirmative defense, defendant herein avers that the complaint states no cause of action and has no basis either in fact or in law; …

 

VERIFICATION            I, JEANETTE D. TOLENTINO, of legal age, after having been duly sworn to in accordance with law, depose and state:             That I am the Controller of Del Monte Motor Works, Inc., one of the defendants in this case.             That for and in behalf of the defendant corporation, I caused the preparation of the above-narrated answer.             That I have read the contents thereof and they are true of my own knowledge.                                                      (SGD) JEANNETTE D. TOLENTINO[4]

   

            On 06 December 1984, respondent Morales filed his manifestation together with his answer wherein he

likewise renounced any liability on the promissory note, thus:

 1.         He ADMIT[S] paragraphs 1, 2, and 3 of the complaint with a qualification in paragraph 3 thereof that he has long been separated from his wife and the system governing their property relations is that of complete separation of property and not that of conjugal partnership of gain[s]; 2.         He [DENIES], generally and specifically, the allegations contained in paragraphs 4, 5, 6, 7, and 8 thereof, for lack of knowledge and information sufficient to form a belief and as to the truth of the matter therein averred, the truth being those alleged in the Special And Affirmative Defenses hereinbelow pleaded; … 

            SPECIAL AND AFFIRMATIVE DEFENSES 4.         He has never signed the promissory note attached to the complaint in his personal and/or individual capacity as such; 5.         That the said promissory note is ineffective, unenforceable and void for lack of valid consideration; 6.         That even admitting, argumenti gratia, the validity and execution of the questioned promissory note, still, defendant herein cannot be bound personally and individually to the said obligations as banking procedures requires, it being a standard operating procedure of all known banking institution, that to hold a borrower jointly and severally liable in his official as well as personal capacity, the borrower must sign a Suretyship Agreement or at least, a continuing guarranty with that of the corporation he represent(s) but which in this case is wanting; 7.         That transaction/obligation in question did not, in any way, redound/inure to the benefit of the conjugal partnership of gain, as there is no conjugal partnership of gain to speak with, defendant having long been separated from his wife and their property relation is governed by the system of complete separation of property, and more importantly, he has never signed the said promissory note in his personal and individual capacity as such; … 

VERIFICATION 

            That I, NARCISO MORALES, after having been duly sworn to in accordance with law, hereby depose and declare that:             I am one of the named defendant[s] in the above-entitled case;             I have cause[d] the preparation of the foregoing Answer upon facts and figures supplied by me to my retained counsel; have read each and every allegations contained therein and hereby certify that the same are true and correct of my own knowledge and information.                                              (SGD) NARCISO MORALES

                                                                              Affiant[5]

 

 

          On 26 December 1984, the trial court denied petitioner’s motion to declare respondents in default and

admitted their respective answers.[6]

 

          During the trial on the merits of this case, petitioner presented as its sole witness, Liberato A. Lavarino

(Lavarino), then the manager of its Collection Department.  Substantially, Lavarino stated that respondents

obtained the loan, subject of this case, from petitioner and due to respondents’ failure to pay a single monthly

installment on this loan, petitioner was constrained to send a demand letter to respondents; that as a result of this

demand letter, Jeannette Tolentino (Tolentino), respondent corporation’s controller, wrote a letter to petitioner

requesting for some consideration because of the unfavorable business atmosphere then buffeting their business

operation; that Tolentino enclosed to said letter a check with a face value of P220,020.00 to be discounted by

petitioner with the proceeds being applied as partial payment to their company’s obligation to petitioner; that after

receipt of this partial payment, respondents’ obligation again became stagnant prompting petitioner to serve

respondents with another demand letter which, unfortunately, was unheeded by respondents.  Lavarino also

identified the following exhibits for petitioner: photocopy of the duplicate original of the promissory note attached

to the complaint as Exhibit “A;”[7] petitioner’s 20 January 1983 demand letter marked as Exhibit “B;”[8] Tolentino’s

letter to petitioner dated 10 February 1983 and marked as Exhibit “C;”[9] and the 09 March 1984 statement of

account sent to respondents marked as Exhibit “D.”[10]

 

On 26 September 1985, petitioner made its formal offer of evidence.  However, as the original copy of

Exhibit “A” could no longer be found, petitioner instead sought the admission of the duplicate original of the

promissory note which was identified and marked as Exhibit “E.”  

            The trial court initially admitted into evidence Exhibit “E” and granted respondents’ motion that they be

allowed to amend their respective answers to conform with this new evidence.[11]

 

          On 30 September 1985, respondent corporation filed a manifestation and motion for reconsideration [12] of

the trial court’s order admitting into evidence petitioner’s Exhibit “E.”  Respondent corporation claims that Exhibit

“E” should not have been admitted as it was immaterial, irrelevant, was not properly identified and hearsay

evidence.  Respondent corporation insists that Exhibit “E” was not properly identified by Lavarino who testified

that he had nothing to do in the preparation and execution of petitioner’s exhibits, one of which was Exhibit “E.”  

Further, as there were markings in Exhibit “A” which were not contained in Exhibit “E,” the latter could not possibly

be considered an original copy of Exhibit “A.”  Lastly, respondent corporation claims that the exhibit in question

had no bearing on the complaint as Lavarino admitted that Exhibit “E” was not the original of Exhibit “A” which

was the foundation of the complaint and upon which respondent corporation based its own answer.

 

          Respondent Morales similarly filed a manifestation with motion to reconsider order admitting as evidence

Exhibit “E”[13]which, other than insisting that the due execution and genuineness of the promissory note were not

established as far as he was concerned, essentially raised the same arguments contained in respondent

corporation’s manifestation with motion for reconsideration referred to above. 

 

          On 06 December 1985, the trial court granted respondents’ motions for reconsideration. [14]  Petitioner moved

for the reconsideration of this order which was denied by the court a quo on 20 December 1985.[15]

 

          On 26 December 1985, respondents separately filed their motions to dismiss on the similar ground that with

the exclusion of Exhibits “A” and “E,” petitioner no longer possessed any proof of respondents’ alleged

indebtedness.[16]

 

          On 08 April 1986, petitioner filed a motion [17] praying that the presiding judge, Judge Ricardo D. Diaz, of the

court a quoinhibit himself from this case maintaining that the latter rushed into resolving its motion for

reconsideration of the trial court’s order of 06 December 1985 thereby depriving it the opportunity of presenting

proof that the original of Exhibit “A” was delivered to respondents as early as 02 April 1983.  Such haste on the

part of the presiding judge, according to petitioner, cast doubt on his objectivity and fairness.   This motion to

inhibit was denied by the trial court on 06 August 1987.[18]

 

          In an order dated 28 December 1987,[19] the case before the trial court was dismissed, the dispositive portion

of which reads:

           WHEREFORE, the instant case against defendants Del Monte Motor Works, Inc. and Narciso O. Morales and spouse, is hereby DISMISSED, with costs against the plaintiff.   

          The trial court’s finding was affirmed by the Court of Appeals in the assailed decision now before us.  The

dispositive portion of the appellate court’s decision reads:

             WHEREFORE, PREMISES CONSIDERED, the decision of the Regional Trial Court, Manila, Branch 27, dated December 28, 1987 dismissing plaintiff-appellant['s] complaint is hereby AFFIRMED.  Cost against the plaintiff-appellant.[20]

   

          Petitioner thereafter filed a motion for reconsideration dated 14 December 1999 which was denied for lack of

merit in a resolution of the Court of Appeals promulgated on 11 May 2000.[21]

 

          Aggrieved by the appellate court’s ruling, petitioner now seeks redress from this Court imputing the following

errors on the Court of Appeals:

 I 

THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND THAT PRIVATE RESPONDENTS DENIED THE MATERIAL ALLEGATIONS OF PETITIONER SOLIDBANK’S COMPLAINT, DESPITE THE PRESENCE OF INDUBITABLE FACTS CLEARLY POINTING TO THE FACT THAT SAID PRIVATE RESPONDENTS ADMITTED THE GENUINENESS AND DUE EXECUTION  OF THE SUBJECT PROMISSORY NOTE. 

II 

THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT UPHELD THE EXCLUSION OF EXHIBIT ‘E’, THE SECOND ORIGINAL OF THE PROMISSORY NOTE, DESPITE THE FACT THAT THE ORIGINAL OF EXHIBIT ‘A’ (XEROX COPY OF THE DUPLICATE ORIGINAL OF THE PROMISSORY NOTE) WAS ACTUALLY IN THE POSSESSION OF PRIVATE RESPONDENTS, THUS WARRANTING THE ADMISSION OF SECONDARY EVIDENCE. 

III 

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE TRIAL JUDGE SHOULD HAVE INHIBITED HIMSELF FROM TAKING COGNIZANCE OF AND FROM TRYING AND DECIDING THE INSTANT CASE CONSIDERING HIS PERCEIVED AND MANIFEST BIAS AND PARTIALITY IN FAVOR OF THE PRIVATE RESPONDENTS TO THE GRAVE PREJUDICE OF PETITIONER SOLIDBANK.[22]

   

          The petition is meritorious.

 

          In resolving the case against petitioner, the appellate court held that contrary to petitioner’s stance,

respondents were able to generally and specifically deny under oath the genuineness and due execution of the

promissory note, thus:

             There can be no dispute to the fact that the allegations in the answer (Record, p. 20, 26-27), of both defendants, they denied generally and specifically under oath the genuineness and due execution of the promissory note and by way of special and affirmative defenses herein states that he (MORALES) never signed the promissory note attached to the complaint (Exh. A) in his personal  and/or individual capacity.  Moreover, what appears in the record (Record, p. 20) was an admission of paragraphs 1 & 2 but they deny generally and specifically the rest of the allegations.   It would be considered that there is a sufficient compliance of the requirement of the law for specific denial.[23]

   

          We hold otherwise.

 

          The pertinent portion of the Rules of Court on the matter provides:

             SEC. 8. How to contest such documents. – When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts; but the requirement of an oath does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused.[24]

 

          In the case of Permanent Savings and Loan Bank v. Mariano Velarde,[25] this Court held that –

             . . . Respondent also denied any liability on the promissory note as he allegedly did not receive the amount stated therein, and the loan documents do not express the true intention of the parties.  Respondent reiterated these allegations in his “denial under oath,” stating that the “promissory note sued upon, assuming that it exists and bears the genuine signature of herein defendant, the same does not bind him and that it did not truly express the real intention of the parties as stated in the defenses…             Respondent’s denials do not constitute an effective specific denial as contemplated by law.  In the early case of Songco vs. Sellner,[26] the Court expounded on how to deny the genuineness and due execution of an actionable document, viz.:

             . . . This means that the defendant must declare under oath that he did not sign the document or that it is otherwise false or fabricated.  Neither does the statement of the answer to the effect that the instrument was procured by fraudulent representation raise any issue as to its genuineness or due execution.  On the contrary such a plea is an admission both of the genuineness and due execution thereof, since it seeks to avoid the instrument upon a ground not affecting either.[27]

   

          In this case, both the court a quo and the Court of Appeals erred in ruling that respondents were able to

specifically deny the allegations in petitioner’s complaint in the manner specifically required by the rules.  In effect,

respondents had, to all intents and purposes, admitted the genuineness and due execution of the subject

promissory note and recognized their obligation to petitioner. 

 

          The appellate court likewise sustained the ruling of the trial court that     the “best evidence rule or primary

evidence must be applied as the purpose of the proof is to establish the terms of the writing – meaning the alleged

promissory note as it is the basis of the recovery of the money allegedly loaned to the defendants (respondents

herein).”[28]

 

          The “best evidence rule” is encapsulated in Rule 130, Section 3, of the Revised Rules of Civil Procedure

which provides:

             Sec. 3. Original document must be produced; exceptions. – When the subject of inquiry is the contents of a document, no evidence shall be admissible other than the original document itself, except in the following cases:             (a)       When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of the offeror;             (b)       When the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to produce it after reasonable notice;             (c)       When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established from them is only the general result of the whole; and             (d)       When the original is a public record in the custody of a public officer or is recorded in a public office.   

The “best evidence rule,” according to Professor Thayer, first appeared in the year 1699-1700 when in one

case involving a goldsmith, Holt, C. J., was quoted as stating that they should take into consideration the usages of

trade and that “the best proof that the nature of the thing will afford is only required.” [29]  Over the years, the

phrase was used to describe rules which were already existing such as the rule that the terms of a document must

be proved by the production of the document itself, in preference to evidence about the document; it was also

utilized to designate the hearsay rule or the rule excluding assertions made out of court and not subject to the

rigors of cross-examination; and the phrase was likewise used to designate the group of rules by which testimony

of particular classes of witnesses was preferred to that of others.[30]

 

According to McCormick, an authority on the rules of evidence, “the only actual rule that the ‘best

evidence’ phrase denotes today is the rule requiring the production of the original writing”[31] the rationale being:

             (1)       that precision in presenting to the court the exact words of the writing is of more than average importance, particularly as respects operative or dispositive instruments, such as deeds, wills and contracts, since a slight variation in words may mean a great difference in rights, (2) that there is a substantial hazard of inaccuracy in the human process of making a copy by handwriting or typewriting, and (3) as respects oral testimony purporting to give from memory the terms of a writing, there is a special risk of error, greater than in the case of attempts at describing other situations generally.  In the light of these dangers of mistransmission, accompanying the use of written copies or of recollection, largely avoided through proving the terms by presenting the writing itself, the preference for the original writing is justified.[32]

   

          Bearing in mind that the risk of mistransmission of the contents of a writing is the justification for the “best

evidence rule,” we declare that this rule finds no application to this case.  It should be noted that respondents

never disputed the terms and conditions of the promissory note thus leaving us to conclude that as far as the

parties herein are concerned, the wording or content of said note is clear enough and leaves no room for

disagreement.   In their responsive pleadings, respondents’ principal defense rests on the alleged lack of

consideration of the promissory note.  In addition, respondent Morales also claims that he did not sign the note in

his personal capacity.  These contentions clearly do not question the “precise wording”[33] of the promissory note

which should have paved the way for the application of the “best evidence rule.” It was, therefore, an error for the

Court of Appeals to sustain the decision of the trial court on this point.

 

          Besides, the “best evidence rule” as stated in our Revised Rules of Civil Procedure is not absolute.   As

quoted earlier, the rule accepts of exceptions one of which is when the original of the subject document is in the

possession of the adverse party.  As pointed out by petitioner in its motion to inhibit, had it been given the

opportunity by the court a quo, it would have sufficiently established that the original of Exhibit “A” was in the

possession of respondents which would have called into application one of the exceptions to the “best evidence

rule.”

 

          Significantly, and as discussed earlier, respondents failed to deny specifically the execution of the

promissory note. This being the case, there was no need for petitioner to present the original of the promissory

note in question.  Their judicial admission with respect to the genuineness and execution of the promissory note

sufficiently established their liability to petitioner regardless of the fact that petitioner failed to present the original

of said note.[34] 

 

          Indeed, when the defendant fails to deny specifically and under oath the due execution and genuineness of a

document copied in a complaint, the plaintiff need not prove that fact as it is considered admitted by the

defendant.[35]  In the case of Asia Banking Corporation v. Walter E. Olsen & Co.,[36]  this Court held that –

             Another error assigned by the appellant is the fact that the lower court took into consideration the documents attached to the complaint as a part thereof, without having been expressly introduced in evidence.  This was no error.  In the answer of the defendants there was no denial under oath of the authenticity of these documents.  Under Section 103 of the Code of Civil Procedure, the authenticity and due execution of these documents must, in that case, be deemed admitted.  The effect of this is to relieve the plaintiff from the duty of expressly presenting such documents as evidence.  The court, for the proper decision of the case, may and should consider, without the introduction of evidence, the facts admitted by the parties.[37]

   

          Anent petitioner’s allegation that the presiding judge of the court a quo should have inhibited himself from

this case, we resolve this issue against petitioner. 

 

          In order for this Court to sustain a charge of partiality and prejudice brought against a judge, there must be

convincing proof to show that he or she is, indeed, biased and partial. Bare allegations are not enough.   Bias and

prejudice are serious charges which cannot be presumed particularly if weighed against a judge’s sacred obligation

under his oath of office to administer justice without respect to person and do equal right to the poor and the rich.

[38]  There must be a showing of bias and prejudice stemming from an extrajudicial source resulting in an opinion in

the merits on some basis other than what the judge learned from his participation in the case.[39]

         

          In this case, as petitioner failed to proffer any evidence indicating that Judge Diaz was guilty of bias and

prejudice, we affirm the Court of Appeals’ holding that there was no cogent reason for him to disqualify himself

from this case.

 

          Finally, Rule 33, Section 1, of the Revised Rules of Civil Procedure states the rule on the effect of judgment

on demurrer to evidence. It reads: 

            SECTION 1. Demurrer to evidence.- After the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief.  If his motion is denied, he shall have the right to present evidence.  If the motion is granted but on appeal the order of dismissal is reversed he shall be deemed to have waived the right to present evidence.   

          A demurrer to evidence abbreviates judicial proceedings, it being an instrument for the expeditious

termination of an action.  Caution, however, must be exercised by the party seeking the dismissal of a case upon

this ground as under the rules, if the movant’s plea for the dismissal on demurrer to evidence is granted and the

order of dismissal is reversed on appeal, he loses his right to adduce evidence.  If the defendant’s motion for

judgment on demurrer to evidence is granted and the order is subsequently reversed on appeal, judgment is

rendered in favor of the adverse party because the movant loses his right to present evidence. [40]  The reviewing

court cannot remand the case for further proceedings; rather, it should render judgment on the basis of the

evidence presented by the plaintiff.[41]

 

            Under the promissory note executed by respondents in this case, they are obligated to petitioner in the

amount of One Million Pesos, this being the amount of loan they obtained on 23 April 1982.   In addition, they also

bound themselves to pay the 23% interestper annum on the loan; and a penalty charge of 3% per annum on the

amount due until fully paid.  Respondents likewise agreed to pay attorney’s fees equivalent to 10% of the total

amount due, but in no case less than P200.00, plus costs of suit with both these amounts bearing a 1% interest per

month until paid.  Costs against respondents.

                       

             WHEREFORE, premises considered, the Court of Appeals’ decision dated 25 November 1999 as well as its

Resolution of 11 May 2000, affirming the order of the Regional Trial Court, Manila, Branch 27, dated 28 December

1987, are hereby REVERSEDand SET ASIDE.  Respondents are ordered to pay One Million Pesos (P1,000,000.00)

plus 23% interest per annum, penalty charge of 3% interest per annum, and 10% of the amount due as attorney’s

fees together with a 1% interest per month until fully paid.  The sum of P220,020.00  which  was  the value of the

postdated check given

 

 

by respondents to petitioner as partial payment should be deducted from the amount due from respondents.

 

          SO ORDERED.

   MINITA V. CHICO-NAZARIO

Associate Justice  [1]               “Narciso O. Morales” in the Decision of the Court of Appeals.[2]               Penned by Associate Justice Mercedes Gozo-Dadole with Associate Justices Ramon A. Barcelona and

Demetrio G. Demetria concurring; Rollo, pp. 9-26.[3]               Records, pp. 1-6.[4]               Records, pp. 20-21.[5]               Records, pp. 26-27.[6]               Records, p. 34.[7]               Records, p. 72.[8]               Records, p. 73.[9]               Records, p. 75.[10]             Records, p. 76.[11]             Records, p. 79.[12]             Records, pp. 80-83.[13]             Records, pp. 84-90.[14]             Records, p. 118.[15]             Records, p. 148.[16]             Records, pp. 150-165.[17]             Records, pp. 195-200.[18]             Records, pp. 233-238.[19]             Records, pp. 244-252.[20]             Rollo, p. 25.[21]             Rollo, p. 28.[22]             Rollo, p. 42.[23]             Rollo, p. 18.[24]             Rule 8, Section 8, Revised Rules of Civil Procedure.[25]             G.R. No. 140608, 23 September 2004, 439 SCRA 1.[26]             G.R. No. 11513, 04 December 1917, 37 Phil. 254.[27]             Supra, note 25, pp. 8-9.[28]             Records, p. 250.[29]             IV Evidence in Trials at Common Law, John Henry Wigmore, p. 399 (1972 Ed.).[30]             Id. at 400.[31]             Handbook of the Law of Evidence, Charles T. McCormick, p. 409 (1954 Ed.).[32]             Id. at 410.[33]             Evidence, Edward W. Cleary, p. 416 (4th Ed.).

[34]          Supra, note 25 at 10; Hornales v. The National Labor Relations Commission, et al., G.R. No. 118943, 10 September 2001, 364 SCRA 778; SCC Chemicals Corporation v. The Honorable Court of Appeals, et al., G.R. No. 128538, 28 February 2001, 353 SCRA 70.

[35]             VII The Revised Rules of Court in the Philippines (Evidence), Vicente J. Francisco, p. 9 (1997 Ed.)[36]             G.R. No. 24488, 28 December 1925, 48 Phil. 529.[37]             Id. at 532.[38]             People of the Philippines v. Court of Appeals, et al., G.R. No. 129120, 02 July 1999, 309 SCRA 705.[39]             Soriano v. Angeles, G.R. No. 109920, 31 August 2000, 339 SCRA 366.[40]             Quebral v. Court of Appeals, G.R. No. 101941, 25 January 1996, 252 SCRA 353.[41]             Radiowealth Finance Company v. Del Rosario, G.R. No. 138739, 06 July 2000, 335 SCRA 288.