EFFECT OF FAILURE TO PLEAD

[G.R. No. 161309. February 23, 2005]

DOUGLAS LU YM, petitioner, vs. GERTRUDES NABUA, GEORGE N. LU, ALEX N. LU,
CAYETANO N. LU, JR., JULIETA N. LU AND BERNADITA N. LU, respondents.

DECISION

TINGA, J.:

One of the innovations introduced by the 1997 Rules of Civil Procedure is that the resolution
of a motion to dismiss shall state clearly and distinctly the reasons therefor. In the case at bar, the
Court is provided with the opportunity and task to elucidate on the meaning and application of the
new requirement.

Before us is a Petition for Review on Certiorari [1] dated February 11, 2004 filed by Douglas
Lu Ym assailing the Court of Appeals Decision[2] and Resolution[3] respectively dated August 20,
2003 and December 16, 2003. The questioned Decision dismissed petitioners Petition[4] and
affirmed the trial courts orders dated September 16, 2002[5] and October 16, 2002[6] which
respectively denied petitioners Omnibus Motion to Dismiss the Amended Complaint[7] and Motion
for Reconsideration.[8]

The facts[9] as succinctly summarized by the Court of Appeals are as follows:

The instant petition stemmed from an Amended Complaint filed by the private respondents
against the petitioner, for Accounting with TRO and Injunction, on May 15, 2002.

On August 16, 2002, the petitioner filed an Omnibus Motion to Dismiss the Amended Complaint
based on the following grounds:

A. Plaintiffs claims are barred by a prior judgment or by the statute of limitations

{Rule 16, Sec. 1 (f)}.

B. Plaintiffs have no legal capacity to sue and/or do not have a cause of action
{Rule 16, Sec. 1(d) and/or 1(g)}.

C. Fraud and equity.

D. Docket fees not deemed paid, therefore, a condition precedent for filing the
claim has not been complied with {Rule 16, Sec. 1(j)}.

On August 29, 2002, the private respondents filed their Opposition to the Omnibus Motion to
Dismiss Amended Complaint alleging the following:

1. Plaintiffs claims are not barred by prior judgment nor by statute of limitations;

2. Plaintiffs have the legal capacity to sue and have valid cause of action;

3. Docket fees have been paid by plaintiffs.

After the filing of petitioners Reply to the Opposition to the Motion to Dismiss Amended
Complaint, the incident was submitted for resolution pursuant to the August 30, 2002 Order of the
court a quo.

In resolving the Omnibus Motion to Dismiss the Amended Complaint, the lower court ruled as
follows:

There are justiciable questions raised in the pleadings of the herein parties which are proper
subject of a full blown trial. The Omnibus Motion to Dismiss Amended Complaint is hereby
denied.

SO ORDERED.
The Motion for Reconsideration filed by the petitioner was resolved by the trial court in this wise:

An attempt to discuss on the merit of the case might be interpreted as prejudgment. It is the
better part of discretion, for the Court to deny the Motion Reconsideration of the order denying
the Motion to Dismiss.

WHEREFORE, the Motion for Reconsideration is hereby denied.

SO ORDERED.

Petitioner filed a Petition for Certiorari and Prohibition Under Rule 65 With Prayer for the
Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction, contending that
the trial court committed grave abuse of discretion in denying his motion to dismiss. The appellate
court dismissed the petition holding that the assailed orders may only be reviewed in the ordinary
course of law by an appeal from the judgment after trial. Thus, the proper recourse was for
petitioner to have filed an answer and proceeded to trial since the issues raised in his motion to
dismiss require presentation of evidence aliunde. An exception is when the trial court acts with
grave abuse of discretion in denying the motion to dismiss, in which case a petition
for certiorari under Rule 65 may be proper. This, the trial court did not commit. Moreover, the
Court of Appeals declared that although the assailed orders were briefly phrased, the trial court
complied with the requirements set forth under Rule 16 of the 1997 Rules of Civil Procedure
(Rules) on the resolution of motions to dismiss.

With the denial of his Motion for Reconsideration, petitioner is now before this Court seeking
a review of the appellate courts Decision and Resolution claiming that the denial of his motion to
dismiss was a disguised deferment of the resolution of the said motion and that the trial court
failed to discuss and address each of the grounds cited therein contrary to the express mandate
of Section 3, Rule 16 of the Rules. Petitioner further argues that the trial court committed grave
abuse of discretion in refusing to address his grounds to dismiss and thereby postponing their
proper ventilation until trial. According to him, Section 2 of the Rules provides that all available
evidence on the question of fact involved in the motion to dismiss may be presented including
evidence aliunde. Thus, the grounds for dismissal raised in his motion to dismiss could have been
resolved in a hearing prior to a full-blown trial.

Even assuming that the presentation of evidence aliunde is not allowed, petitioner contends
that the trial court and the Court of Appeals both erred in refusing to rule on the other grounds to
dismiss which do not require presentation of evidence aliunde such as failure of the Amended
Complaint to state a cause of action/the application of the clean hands doctrine, and the trial
courts lack of jurisdiction for failure of the respondents to pay the proper filing and docket fees.

Petitioner also avers that there are other grounds to dismiss the case such as res
judicata, respondents lack of capacity to sue/waiver and prescription, all of which are allegedly
supported by evidence on record. It is petitioners theory that the Amended Complaint is a
collateral attack on the duly probated and fully implemented Last Will and Testament of Cayetano
Ludo.[10] According to petitioner, Cayetano Ludos estate had been distributed by virtue of
a Project of Partition[11] approved by the estate court in its Order[12] dated January 18, 1984 in Sp.
Proc. No. 167-CEB. There are, between the estate case and Civil Case No. 27717, identity of
parties, subject matter and cause of action. Hence, any further issue regarding the recovery of
respondents supposed shares in Mr. Ludos estate through Civil Case No. 27717 is precluded by
the estate courts final and fully executed orders.

Petitioner moreover contends that respondents George, Alex, Cayetano, Jr., Julieta and
Bernadita Lu have lost standing to sue as a result of the document entitled Assignment of Rights
and Interests to the Inheritance from Don Cayetano Ludo [13] by which they supposedly conveyed
their interest to their inheritance to Ludo and Lu Ym Corporation. As regards respondent
Gertrudes Nabua, petitioner alleges that the Amended Complaint fails to plead his actual
contribution to the properties acquired by Mr. Ludo as required by Article 148 of the Family Code.
Hence, she too lacks capacity to sue.

Finally, petitioner claims that the case is already barred by prescription and laches. Petitioner
asserts that nearly 20 years had passed since (i) Mr. Ludo passed away on April 14, 1983; (ii)
petitioner and respondents George, Alex, Cayetano, Jr., Julieta and Bernadita Lu executed
the Project of Partition dated November 25, 1983; (iii) respondents George, Alex, Cayetano, Jr.,
Julieta and Bernadita Lu executed the Assignment of Rights and Interests to the Inheritance from
Don Cayetano Ludo dated February 22, 1984; and (iv) the estate court issued its (a) July 6,
1983 Order[14] admitting Mr. Ludos Will to probate; (b) January 18, 1984 Order[15] approving
the Project of Partition and terminating the estate case; and (c) May 18,
1984 Order[16] discharging petitioner and Silvano Ludo from all their duties, liabilities and
responsibilities as executors of Mr. Ludos estate.

In their Comment[17] dated May 28, 2004, respondents contend that the trial court did not
defer the resolution of petitioners motion to dismiss. On the contrary, the trial court denied the
motion considering that there are justiciable questions raised in the pleadings of the parties which
require a full-blown trial. According to respondents, the appellate court properly considered this a
sufficient disposition of the motion because the Rules do not require courts at all times to cite the
law and the facts upon which a resolution is based, it being sufficient, in case of resolutions that
do not finally dispose of a case such as the denial of a motion to dismiss, to cite the legal basis
therefor.

Moreover, the estate proceedings allegedly do not bar the instant case. Having
hypothetically admitted that Mr. Ludos Will was simulated, respondents contend that petitioner
cannot invoke the finality of the probate proceedings as a shield against the instant case because
the simulation and fraud attendant in the execution of the Will are personal to petitioner. Besides,
the properties included in Mr. Ludos Will are not the same properties sought to be accounted in
the instant case. Allegedly, the properties subject of this case are those which petitioner excluded
from Mr. Ludos Will during the probate proceedings, whose titles and evidence of ownership were
earlier transferred to petitioner for him to hold in trust for respondents.

Respondents contend that the issue as to respondent Gertrudes Nabuas shares in Mr.
Ludos properties as the latters common law wife, raised as a specific allegation in the Amended
Complaint, has been joined by petitioners denial. Hence, a hearing on this matter is necessary.

Moreover, respondents insist that the trial court correctly declared that there are justiciable
questions necessitating trial on the merits because the Assignment of Rights and Interests to the
Inheritance from Don Cayetano Ludo dated February 22, 1984, by which respondents George,
Alex, Cayetano, Jr., Julieta and Bernadita Lu allegedly transferred their interest in Mr. Ludos
estate to Ludo and Lu Ym Corporation, was allegedly not offered and admitted in evidence.
Hence, any conclusion drawn from this document would be unwarranted.

Finally, respondents contend that petitioner never raised the issues of prescription and
laches in his motion to dismiss.

In his Reply[18] dated September 30, 2004, petitioner reiterates his submissions.

At issue is whether the Court of Appeals erred in dismissing the petition for certiorari and in
holding that the trial court did not commit grave abuse of discretion in denying petitioners motion
to dismiss.

An order denying a motion to dismiss is an interlocutory order which neither terminates nor
finally disposes of a case, as it leaves something to be done by the court before the case is finally
decided on the merits. As such, the general rule is that the denial of a motion to dismiss cannot
be questioned in a special civil action for certiorari which is a remedy designed to correct errors of
jurisdiction and not errors of judgment. Neither can a denial of a motion to dismiss be the subject
of an appeal unless and until a final judgment or order is rendered. In order to justify the grant of
the extraordinary remedy of certiorari, the denial of the motion to dismiss must have been tainted
with grave abuse of discretion amounting to lack or excess of jurisdiction. [19]

At the core of the present petition is the question of whether the trial courts denial of
petitioners motion to dismiss on the ground that [T]here are justiciable questions raised in the
pleadings of the herein parties which are proper subject of a full blown trial [20]contravenes Sec. 3,
Rule 16 of the Rules and constitutes grave abuse of discretion on the part of the trial court.

Sec. 3, Rule 16 of the Rules provides:

Sec. 3. Resolution of motion.After the hearing, the court may dismiss the action or claim, deny the
motion or order the amendment of the pleading.

The court shall not defer the resolution of the motion for the reason that the ground relied upon is
not indubitable.

In every case, the resolution shall state clearly and distinctly the reasons therefor.
 Under this provision, there are three (3) courses of action which the trial court may take in
resolving a motion to dismiss, i.e., to grant, to deny, or to allow amendment of the pleading.
Deferment of the resolution of a motion to dismiss if the ground relied upon is not indubitable is
now disallowed in view of the provision [21] requiring presentation of all available arguments and
evidence. Thus, there is no longer any need to defer action until the trial as the evidence
presented, and such additional evidence as the trial court may require, would already enable the
trial court to rule upon the dubitability of the ground alleged. [22]

Further, it is now specifically required that the resolution on the motion shall clearly and
distinctly state the reasons therefor. This proscribes the common practice of perfunctorily
dismissing the motion for lack of merit. Such cavalier dispositions can often pose difficulty and
misunderstanding on the part of the aggrieved party in taking recourse therefrom and likewise on
the higher court called upon to resolve the same, usually on certiorari.[23]

The questioned order of the trial court denying the motion to dismiss with a mere statement
that there are justiciable questions which require a full blown trial falls short of the requirement of
Rule 16 set forth above. Owing to the terseness of its expressed justification, the challenged
order ironically suffers from undefined breadth which is a hallmark of imprecision. With its
unspecific and amorphous thrust, the issuance is inappropriate to the grounds detailed in the
motion to dismiss.

While the requirement to state clearly and distinctly the reasons for the trial courts resolutory
order under Sec. 3, Rule 16 of the Rules does call for a liberal interpretation, especially since
jurisprudence dictates that it is decisions on cases submitted for decision that are subject to the
stringent requirement of specificity of rulings under Sec. 1, Rule 36 [24] of the Rules, the trial courts
order in this case leaves too much to the imagination.

It should be noted that petitioner raised several grounds in his motion to dismiss, i.e., bar by
prior judgment or by the statute of limitations, lack of capacity to sue, lack of cause of action, and
non-payment of docket fees.

Specifically, petitioner sought the dismissal of the complaint, arguing as follows:

A. Plaintiffs claims are barred by a prior judgment or by the statute of limitations (Rule 16, Sec.
1(f))

5. Plaintiffs now raise the issue that Cayetano Ludo, allegedly then in failing health was unduly
influenced by the defendant to execute a simulated will to cheat the government of enormous
amounts of estate and inheritance taxes.

6. Plaintiffs may no longer do so, for, subject to the right to appeal, the allowance of a will
is conclusive as to its due execution, Rule 75, Sec. 1. Due execution settles the extrinsic validity
of the will, i.e., whether the testator, being of sound mind freely executed the will in
accordance with the formalities by law.

7. It was conclusively established by the allowance of the will, which plaintiffs did not appeal, that
the following circumstances were not present:

Rule 76, Sec. 9

(b) the testator was insane, or otherwise mentally incapable to make a will, at the time of its
execution;

(c) (the will) was executed under duress, or the influence of fear, or threats;

(d) (the will) was procured by undue and improper pressure and influence, on the part of the
beneficiary, or of some other person for his benefit;

8. The foregoing are the precise sort of questions and issues plaintiffs Nabua and her children are
illicitly seeking to try by independent action in a different sala. Why are they doing this? Because
the time for them to bring their claims in the probate court has prescribed. The judicial decree of
distribution vests title in the distributees and any objections thereto should be raised in
a seasonable appeal, otherwise it will have binding effect like any other judgment in rem.
....

B. Plaintiffs have no legal capacity to sue and/or do not have a cause of action (Rule 16, Secs.
1(d) and/or 1(g))

12. The following documents reveal that the plaintiff Nabua could never have been the common-
law wife that she claims to be, because Cayetano Ludo was married to someone else:

(a) Petition for Naturalization by Cayetano Ludo filed in 1946, wherein he declares in paragraph
FIFTH that he is married to Uy Ching Gee (ANNEX J);

(b) Order of the Court of First Instance dated June 7, 1949, wherein it is stated that Cayetano
Ludo has established in open court that he is married to Uy Ching Gee, a native of Amoy, China,
who likewise lived with him in the Philippines and that they have three legitimate children born
1937, 1939 and 1942 (ANNEX K);

(c) Identification Certificate No. 5697 issued by the Bureau of Immigration to Liong Cheng on
November 18, 1957, also known as Visitacion Uy Ching Gui, recognizing her as a citizen of the
Philippines being the lawful wife of Cayetano Ludo (ANNEX L);

(d) Death Certificate of Visitacion Uy dated August 7, 1969, wherein it is indicated that her civil
status is married and the surviving spouse is Cayetano Ludo (ANNEX M);

(e) Death Certificate of Cayetano Ludo dated July 16, 1986, wherein it is indicated that his
surviving spouse is Florame delos Reyes Ludo (ANNEX B).

13. Plaintiffs-children of Nabua do not have legal capacity or cause of action because they are
not the real parties in interest.

13. [sic] Their distributive share in the estate of Cayetano Ludo having been assigned to Ludo
and LuYm Corporation (ANNEX G), plaintiffs-children of Nabua are not real parties in
interest; Ludo & LuYm Corp. is. Every action must be prosecuted or defended in the name of
the real party in interest.

....

C. Fraud and Equity

14. The fraud (confused by plaintiffs to mean undue influence) of imposing a stimulated will on
Cayetano Ludo has been conclusively negated by the allowance of the will, as provided in Rule
75, Sec. 1, above discussed.

15. Furthermore, an action for fraud prescribes 4 years from the execution of the fraudulent or
simulated will, which was long ago in this case.

16. But more important than any of the foregoing is that plaintiffs who participated in the probate
proceedings and signed the settlement are precluded by dirty hands from claiming relief.

17. By their own admission (to which they are bound by Rule 130, Sec. 26), plaintiffs were parties
to a settlement pursuant to a fraudulent simulated will which they portrayed as a massive scheme
to defraud the government of estate and inheritance taxes.

. . . . [25](Emphases in the original.)

Having raised substantial grounds for dismissal, the trial court should have, at the very least,
specified which of these grounds require a full-blown trial. This would have enabled the defendant
to determine the errors that should be the subject of his motion for reconsideration or petition
for certiorari, and given the appellate court sufficient basis for determining the propriety of the
denial of the motion to dismiss.

In this regard, judges should be reminded to take pains in crafting their orders, stating
therein clearly and comprehensively the reasons for their issuance, which are necessary for the
full understanding of the action taken.[26]
 Accordingly, considering that the order of the trial court is a patent nullity for failure to comply
with a mandatory provision of the Rules, petitioner was correct in directly assailing the order
on certiorari before the Court of Appeals.

However, while it was error for the appellate court to rule that the trial court did not commit
grave abuse of discretion in denying petitioners motion to dismiss, it does not necessarily follow
that the motion to dismiss should have been granted. The instant petition raises significant factual
questions as regards petitioners claim that the Amended Complaint should have been dismissed
which are properly addressed to the trial court. Moreover, it cannot be gainsaid that the trial court
should be given the opportunity to correct itself by evaluating the evidence, applying the law and
making an appropriate ruling.[27] A remand of the case to the trial court for further proceedings is,
therefore, in order.

WHEREFORE, the petition is GRANTED in part. The Decision of the Court of Appeals dated
August 20, 2003 sustaining the trial courts denial of petitioners motion to dismiss, as well as
its Resolution dated December 16, 2003 denying reconsideration, is REVERSED and SET
ASIDE. The case is REMANDED to the Regional Trial Court of Cebu City for further proceedings
to resolve anew with deliberate dispatch the motion to dismiss in accordance with Section 3, Rule
16 of the 1997 Rules of Civil Procedure as elucidated in this Decision.

SO ORDERED.

JOSE R. MARTINEZ, G. R. No. 160895

Petitioner,

Present:

QUISUMBING,

- versus - Chairperson,

CARPIO,

CARPIO MORALES,

TINGA, and

REPUBLIC OF THE PHILIPPINES, VELASCO, JR., JJ.

Respondents.

Promulgated:

October 30, 2006

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

DECISION

TINGA, J.:
 The central issue presented in this Petition for Review is whether an order of general
default issued by a trial court in a land registration case bars the Republic of the Philippines,
through the Office of the Solicitor General, from interposing an appeal from the trial courts
subsequent decision in favor of the applicant.

The antecedent facts follow.

On 24 February 1999, petitioner Jose R. Martinez (Martinez) filed a petition for the
registration in his name of three (3) parcels of land included in the Cortes, Surigao del Sur
Cadastre. The lots, individually identified as Lot No. 464-A, Lot No. 464-B, and Lot No. 370, Cad
No. 597, collectively comprised around 3,700 square meters. Martinez alleged that he had
purchased lots in 1952 from his uncle, whose predecessors-in-interest were traceable up to the
1870s. It was claimed that Martinezhad remained in continuous possession of the lots; that the
lots had remained unencumbered; and that they became private property through prescription
pursuant to Section 48(b) of Commonwealth Act No. 141. Martinez further claimed that he had
been constrained to initiate the proceedings because the Director of the Land Management
Services had failed to do so despite the completion of the cadastral survey of Cortes, Surigao del
Sur.[1]

The case was docketed as Land Registration Case No. N-30 and raffled to the Regional
Trial Court (RTC) of Surigao del Sur, Branch 27. The Office of the Solicitor General (OSG) was
furnished a copy of the petition. The trial court set the case for hearing and directed the
publication of the corresponding Notice of Hearing in the Official Gazette. On 30 September
1999, the OSG, in behalf of the Republic of the Philippines, opposed the petition on the grounds
that appellees possession was not in accordance with Section 48(b) of Commonwealth Act No.
141; that his muniments of title were insufficient to prove bona-fide acquisition and possession of
the subject parcels; and that the properties formed part of the public domain and thus not
susceptible to private appropriation.[2]
 Despite the opposition filed by the OSG, the RTC issued an order of general default,
even against the Republic of the Philippines, on 29 March 2000. This ensued when during the
hearing of even date, no party appeared before the Court to oppose Martinezs petition.[3]

Afterwards, the trial court proceeded to receive Martinezs oral and documentary evidence
in support of his petition. On 1 August 2000, the RTC rendered a Decision [4] concluding
that Martinez and his predecessors-in-interest had been for over 100 years in possession
characterized as continuous, open, public, and in the concept of an owner. The RTC thus decreed
the registration of the three (3) lots in the name of Martinez.

From this Decision, the OSG filed a Notice of Appeal dated 28 August 2000,[5] which was
approved by the RTC. However, after the records had been transmitted to the Court of Appeals,
the RTC received a letter dated 21 February 2001 [6] from the Land Registration Authority (LRA)
stating that only Lot Nos. 464-A and 464-B were referred to in the Notice of Hearing published in
the Official Gazette; and that Lot No. 370, Cad No. 597 had been deliberately omitted due to the
lack of an approved survey plan for that property. Accordingly, the LRA manifested that this lot
should not have been adjudicated to Martinez for lack of jurisdiction. This letter was referred by
the RTC to the Court of Appeals for appropriate action. [7]

On 10 October 2003, the Court of Appeals promulgated the assailed Decision, [8] reversing
the RTC and instead ordering the dismissal of the petition for registration. In light of the
opposition filed by the OSG, the appellate court found the evidence presented by Martinez as
insufficient to support the registration of the subject lots. The Court of Appeals concluded that the
oral evidence presented by Martinez merely consisted of general declarations of ownership,
without alluding to specific acts of ownership performed by him or his predecessors-in-interest. It
likewise debunked the documentary evidence presented by Martinez, adjudging the same as
either inadmissible or ineffective to establish proof of ownership.

No motion for reconsideration appears to have been filed with the Court of Appeals
by Martinez, who instead directly assailed its Decision before this Court through the present
petition.

We cannot help but observe that the petition, eight (8) pages in all, was apparently
prepared with all deliberate effort to attain nothing more but the perfunctory. The arguments
raised center almost exclusively on the claim that the OSG no longer had personality to oppose
the petition, or appeal its allowance by the RTC, following the order of general default. Starkly
put, the [OSG] has no personality to raise any issue at all under the circumstances pointed out
hereinabove.[9] Otherwise, it is content in alleging that [Martinez] presented sufficient and
persuasive proof to substantiate the fact that his title to Lot Nos. 464-A and 464-B is worth the
confirmation he seeks to be done in this registration case; [10] and that the RTC had since issued a
new Order dated 1 September 2003, confirming Martinezs title over Lot No. 370.

In its Comment dated 24 May 2004, [11] the OSG raises several substantial points,
including the fact that it had duly opposed Martinezs application for registration before the RTC;
that jurisprudence and the Rules of Court acknowledge that a party in default is not precluded
from appealing the unfavorable judgment; that the RTC had no jurisdiction over Lot No. 370 since
its technical description was not published in the Official Gazette; and that as found by the Court
of Appeals the evidence presented by Martinez is insufficient for registering the lots in his name.
[12]
Despite an order from the Court requiring him to file a Reply to the Comment, counsel for
Martinez declined to do so, explaining, among others, that he felt he would only be taxing the
collective patience of this [Court] if he merely repeats x x x what petitioner had succinctly stated x
x x on pages four (4) to seven (7) of his said petition. Counsel for petitioner was accordingly fined
by the Court.[13]

The Courts patience is taxed less by redundant pleadings than by insubstantial

arguments. The inability of Martinez to offer an effective rebuttal to the arguments of the OSG
further debilitates what is an already weak petition.

The central question, as posed by Martinez, is whether the OSG could have still
appealed the RTC decision after it had been declared in default. The OSG argues that a party in
default is not precluded from filing an appeal, citing Metropolitan Bank & Trust Co. v. Court of
Appeals,[14] and asserts that [t]he Rules of Court expressly provides that a party who has been
declared in default may appeal from the judgment rendered against him. [15]

There is error in that latter, unequivocal averment, though one which does not deter from
the ultimate correctness of the general postulate that a party declared in default is allowed to
pose an appeal. Elaboration is in order.

We note at the onset that the OSG does not impute before this Court that the RTC acted
improperly in declaring public respondent in default, even though an opposition had been filed
to Martinezs petition. Under Section 26 of Presidential Decree No. 1529, as amended, the order
of default may be issued [i]f no person appears and answers within the time allowed. The RTC
appears to have issued the order of general default simply on the premise that no oppositor
appeared before it on the hearing of 29 March 2000. But it cannot be denied that the OSG had
already duly filed its Opposition to Martinezs petition long before the said hearing. As we held
in Director of Lands v. Santiago:[16]

[The] opposition or answer, which is based on substantial grounds,

having been formally filed, it was improper for the respondent Judge taking
cognizance of such registration case to declare the oppositor in default simply
because he failed to appear on the day set for the initial healing. The pertinent
provision of law which states: "If no person appears and answers within the time
allowed, the court may at once upon motion of the applicant, no reason to the
contrary appearing, order a general default to be recorded . . . ," cannot be
interpreted to mean that the court can just disregard the answer before it, which
has long been filed, for such an interpretation would be nothing less than illogical,
unwarranted, and unjust. Had the law intended that failure of the oppositor to
appear on the date of the initial hearing would be a ground for default despite his
having filed an answer, it would have been so stated in unmistakable terms,
considering the serious consequences of an order of default. Especially in this
case where the greater public interest is involved as the land sought to be
registered is alleged to be public land, the respondent Judge should have
received the applicant's evidence and set another date for the reception of the
oppositor's evidence. The oppositor in the Court below and petitioner herein
should have been accorded ample opportunity to establish the government's
claim.[17]

Strangely, the OSG did not challenge the propriety of the default order, whether in its
appeal before the Court of Appeals or in its petition before this Court. It would thus be improper
for the Court to make a pronouncement on the validity of the default order since the same has not
been put into issue. Nonetheless, we can, with comfort, proceed from same apparent premise of
the OSG that the default order was proper or regular.

The juridical utility of a declaration of default cannot be disputed. By forgoing the need for
adversarial proceedings, it affords the opportunity for the speedy resolution of cases even as it
penalizes parties who fail to give regard or obedience to the judicial processes.

The extent to which a party in default loses standing in court has been the subject of
considerable jurisprudential debate. Way back in 1920, in Velez v. Ramas,[18] we declared that the
defaulting defendant loses his standing in court, he not being entitled to the service of notices in
the case, nor to appear in the suit in any way. He cannot adduce evidence; nor can he be heard
at the final hearing.[19] These restrictions were controversially expanded in Lim Toco v. Go Fay,
[20]
decided in 1948, where a divided Court pronounced that a defendant in default had no right to
appeal the judgment rendered by the trial court, except where a motion to set aside the order of
default had been filed. This, despite the point raised by Justice Perfecto in dissent that there was
no provision in the then Rules of Court or any law depriving a defaulted defendant of the right to
be heard on appeal.[21]
 The enactment of the 1964 Rules of Court incontestably countermanded the Lim
Toco ruling. Section 2, Rule 41 therein expressly stated that [a] party who has been declared in
default may likewise appeal from the judgment rendered against him as contrary to the evidence
or to the law, even if no petition for relief to set aside the order of default has been presented by
him in accordance with Rule 38. [22] By clearly specifying that the right to appeal was available
even if no petition for relief to set aside the order of default had been filed, the then fresh Rules
clearly rendered the Lim Toco ruling as moot.

Another provision in the 1964 Rules concerning the effect of an order of default
acknowledged that a party declared in default shall not be entitled to notice of subsequent
proceedings, nor to take part in the trial. [23] Though it might be argued that appellate proceedings
fall part of the trial since there is no final termination of the case as of then, the clear intent of the
1964 Rules was to nonetheless allow the defaulted defendant to file an appeal from the trial court
decision. Indeed, jurisprudence applying the 1964 Rules was unhesitant to affirm a defaulted
defendants right to appeal, as guaranteed under Section 2 of Rule 41, even as Lim Toco was not
explicitly abandoned.

In the 1965 case of Antonio, et al. v. Jacinto,[24] the Court acknowledged that the prior
necessity of a ruling setting aside the order of default however, was changed by the Revised
Rules of Court. Under Rule 41, section 2, paragraph 3, a party who has been declared in default
may likewise appeal from the judgment rendered against him as contrary to the evidence or to the
law, even if no petition for relief to set aside the order of default has been presented by him in
accordance with Rule 38.[25] It was further qualified in Matute v. Court of Appeals[26] that the new
availability of a defaulted defendants right to appeal did not preclude a defendant who has been
illegally declared in default from pursuing a more speedy and efficacious remedy, like a petition
for certiorari to have the judgment by default set aside as a nullity.[27]

In Tanhu v. Ramolete,[28] the Court cited with approval the commentaries of Chief Justice
Moran, expressing the reformulated doctrine that following Lim Toco, a defaulted defendant
cannot adduce evidence; nor can he be heard at the final hearing, although

[under Section 2, Rule 41,] he may appeal the judgment rendered against him on the merits. [29]
 Thus, for around thirty-odd years, there was no cause to doubt that a defaulted defendant
had the right to appeal the adverse decision of the trial court even without seeking to set aside
the order of default. Then, in 1997, the Rules of Civil Procedure were amended, providing for a
new Section 2, Rule 41. The new provision reads:

SECTION 1. Subject of appeal.An appeal may be taken from a judgment

or final order that completely disposes of the case, or of a particular matter
therein when declared by these Rules to be appealable.

No appeal may be taken from:

(a) An order denying a motion for new trial or reconsideration;

(b) An order denying a petition for relief or any similar motion seeking
relief from judgment;

(c) An interlocutory order;

(d) An order disallowing or dismissing an appeal;

(e) An order denying a motion to set aside a judgment by consent,

confession or compromise on the ground of fraud, mistake or duress, or any
other ground vitiating consent;

(f) An order of execution;

(g) A judgment or final order for or against or one or more of several

parties or in separate claims, counterclaims, cross-claims and third-party
complaints, while the main case is pending, unless the court allows an appeal
therefrom; and

(h) An order dismissing an action without prejudice.

 In all the above instances where the judgment or final order is not
appealable, the aggrieved party may file an appropriate special civil action under
Rule 65.

Evidently, the prior warrant that a defaulted defendant had the right to appeal was
removed from Section 2, Rule 41. On the other hand, Section 3 of Rule 9 of the 1997 Rules
incorporated the particular effects on the parties of an order of default:

Sec. 3. Default; declaration of.If the defending party fails to answer within
the time allowed therefor, the court shall, upon motion of the claiming party with
notice to the defending party, and proof of such failure, declare the defending
party in default. Thereupon, the court shall proceed to render judgment granting
the claimant such relief as his pleading may warrant, unless the court in its
discretion requires the claimant to submit evidence. Such reception of evidence
may be delegated to the clerk of court.

(a) Effect of order of default.A party in default shall be entitled to notice of

subsequent proceedings but shall not take part in the trial.

(b) Relief from order of default.A party declared in default may any time
after notice thereof and before judgment file a motion under oath to set aside the
order of default upon proper showing that his failure to answer was due to fraud,
accident, mistake or excusable negligence and that he has a meritorious
defense. In such case, the order of default may be set aside on such terms and
conditions as the judge may impose in the interest of justice.

(c) Effect of partial default.When a pleading asserting a claim states a

common cause of action against several defending parties, some of whom
answer and the others fail to do so, the court shall try the case against all upon
the answers thus filed and render judgment upon the evidence presented.

(d) Extent of relief to be awarded.A judgment rendered against a party in

default shall not exceed the amount or be different in kind from that prayed for
nor award unliquidated damages.
 xxx

It cannot be escaped that the old provision expressly guaranteeing the right of a
defendant declared in default to appeal the adverse decision was not replicated in the 1997 Rules
of Civil Procedure. Should this be taken as a sign that under the 1997 Rules a defaulted
defendant no longer has the right to appeal the trial court decision, or that the Lim Toco doctrine
has been reinstated?

If post-1997 jurisprudence and the published commentaries to the 1997 Rules were taken
as an indication, the answer should be in the negative. The right of a defaulted defendant to
appeal remains extant.

By 1997, the doctrinal rule concerning the remedies of a party declared in default had
evolved into a fairly comprehensive restatement as offered in Lina v. Court of Appeals:[30]

a) The defendant in default may, at any time after discovery thereof and
before judgment, file a motion, under oath, to set aside the order of default on the
ground that his failure to answer was due to fraud, accident, mistake or
excusable neglect, and that he has meritorious defenses; (Sec 3, Rule 18)

b) If the judgment has already been rendered when the defendant

discovered the default, but before the same has become final and executory, he
may file a motion for new trial under Section 1(a) of Rule 37;

c) If the defendant discovered the default after the judgment has become
final and executory, he may file a petition for relief under Section 2 of Rule 38;
and

d) He may also appeal from the judgment rendered against him as

contrary to the evidence or to the law, even if no petition to set aside the order of
default has been presented by him. (Sec. 2, Rule 41)[31]

The fourth remedy, that of appeal, is anchored on Section 2, Rule 41 of the 1964 Rules.
Yet even after that provisions deletion under the 1997 Rules, the Court did not hesitate to
expressly rely again on the Lina doctrine, including the pronouncement that a defaulted defendant
may appeal from the judgment rendered against him. This can be seen in the cases
of Indiana Aerospace University v. Commission on Higher Education, [32] Tan v. Dumarpa,
[33]
and Crisologo v. Globe Telecom, Inc.[34]

Annotated textbooks on the 1997 Rules of Civil Procedure similarly acknowledge that
even under the new rules, a defaulted defendant retains the right to appeal as previously
confirmed under the old Section 2, Rule 41. In his textbook on Civil Procedure, Justice Francisco
answers the question What are the remedies available to a defending party in default? with a
reiteration of the Lina doctrine, including the remedy that a defaulted defendant may also appeal
from the judgment rendered against him as contrary to the evidence or to the law, even if no
petition to set aside the order of default has been presented by him. [35] Justice Regalado also
restates the Lina rule in his textbook on Civil Procedure, opining that the remedies enumerated
therein, even if under the former Rules of Procedure, would hold true under the present amended
Rules.[36] Former Court of Appeals Justice Herrerra likewise reiterates the Lina doctrine, though
with the caveat that an appeal from an order denying a petition for relief from judgment was no
longer appealable under Section 1, Rule 41 of the 1997 Rules. [37] Herrera further adds:

Section 2, paragraph [2] of the former Rule 41, which allows an appeal
from a denial of a petition for relief, was deleted from the present Rule, and
confined appeals to cases from a final judgment or final order that completely
disposes of the case, or of a particular matter therein, when declared by these
rules to be appealable. A judgment by default may be considered as one that
completely disposes of the case.[38]

We are hard-pressed to find a published view that the enactment of the 1997 Rules of
Civil Procedure accordingly withdrew the right, previously granted under the 1964 Rules, of a
defaulted defendant to appeal the judgment by default against him. Neither is there any provision
under the 1997 Rules which expressly denies the defaulted defendant such a right. If it is
perplexing why the 1997 Rules deleted the previous authorization under the old Section 2, Rule
41 (on subject of appeal), it is perhaps worth noting that its counterpart provision in the 1997
Rules, now Section 1, Rule 41, is different in orientation even as it also covers subject of appeal.
Unlike in the old provision, the bulk of the new provision is devoted to enumerating the various
rulings from which no appeal may be taken, and nowhere therein is a judgment by default
included. A declaration therein that a defaulted defendant may still appeal the judgment by default
would have seemed out of place.

Yet even if it were to assume the doubtful proposition that this contested right of appeal
finds no anchor in the 1997 Rules, the doctrine still exists, applying the principle of stare decisis.
Jurisprudence applying the 1997 Rules has continued to acknowledge the Lina doctrine which
embodies this right to appeal as among the remedies of a defendant, and no argument in this
petition persuades the Court to rule otherwise.

In Rural Bank of Sta. Catalina v. Land Bank of the Philippines,[39] the Court, through
Justice Callejo, Sr., again provided a comprehensive restatement of the remedies of the
defending party declared in default, which we adopt for purposes of this decision:

It bears stressing that a defending party declared in default loses his

standing in court and his right to adduce evidence and to present his defense.
He, however, has the right to appeal from the judgment by default and assail said
judgment on the ground, inter alia, that the amount of the judgment is excessive
or is different in kind from that prayed for, or that the plaintiff failed to prove the
material allegations of his complaint, or that the decision is contrary to law. Such
party declared in default is proscribed from seeking a modification or reversal of
the assailed decision on the basis of the evidence submitted by him in the Court
of Appeals, for if it were otherwise, he would thereby be allowed to regain his
right to adduce evidence, a right which he lost in the trial court when he was
declared in default, and which he failed to have vacated. In this case, the
petitioner sought the modification of the decision of the trial court based on the
evidence submitted by it only in the Court of Appeals. [40]

If it cannot be made any clearer, we hold that a defendant party declared in default
retains the right to appeal from the judgment by default on the ground that the plaintiff failed to
prove the material allegations of the complaint, or that the decision is contrary to law, even
without need of the prior filing of a motion to set aside the order of default. We reaffirm that
the Lim Toco doctrine, denying such right to appeal unless the order of default has been set
aside, was no longer controlling in this jurisdiction upon the effectivity of the 1964 Rules of Court,
and up to this day.

Turning to the other issues, we affirm the conclusion of the Court of Appeals
that Martinez failed to adduce the evidence needed to secure the registration of the subject lots in
his name.

It should be noted that the OSG, in appealing the case to the Court of Appeals, did not
introduce any new evidence, but simply pointed to the insufficiency of the evidence presented
by Martinez before the trial court. The Court of Appeals was careful to point out that the case
against Martinez was established not by the OSGs evidence, but by petitioners own insufficient
evidence. We adopt with approval the following findings arrived at by the Court of Appeals, thus:
 The burden of proof in land registration cases is incumbent on the
applicant who must show that he is the real and absolute owner in fee simple of
the land applied for. Unless the applicant succeeds in showing by clear and
convincing evidence that the property involved was acquired by him or his
ancestors by any of the means provided for the proper acquisition of public lands,
the rule is settled that the property must be held to be a part of the public
domain. The applicant must, therefore, present competent and persuasive proof
to substantiate his claim. He may not rely on general statements, or mere
conclusions of law other than factual evidence of possession and title.

Considered in the light of the opposition filed by the Office of the Solicitor
General, we find the evidence adduced by appellee, on the whole, insufficient to
support the registration of the subject parcels in his name. To prove the
provenance of the land, for one, all that appellee proffered by way of oral
evidence is the following cursory testimony during his direct examination, viz:

xxxx

Q You mentioned that you are the owner of these three (3) parcels of land. How
did you begin the ownership of the same?

A I bought it from my uncles Julian Martinez and Juan Martinez.

xxxx

Q x x x x Who took possession of these parcels of land from then on?

A I took possession, sir

Q As owner?

A Yes, as owner.

Q Up to the present who is in possession as owner of these parcels of land?

A I took possession.

Q Before Julian Martinez and Juan Martinez sold these parcels of land before
you took possession who were the owners and in possession of these?

A Hilarion Martinez, the father of my predecessors-in-interest and also my

grandfather.

xxxx
Court:

Q Of your own knowledge[,] where [sic] did your grandfather Hilarion Martinez
acquire these lands?

A According to my grandfather he bought that land from a certain Juan Casano in

the year 1870s[,] I think.

xxxx

Q By the way[,] when did your grandfather Hilarion Martinez die?

A Either in 1920 or 1921.

Q Since you said your immediate predecessors-in-interest Julian Martinez and

Juan Martinez inherited the same from your grandfather. Can you say it
the same that your predecessors-in-interest were the owners and
possessors of the same since 1921 up to the time they sold the land to
you in 1952?

A Yes, sir.

xxxx

In the dreary tradition of most land registration cases, appellee has

apparently taken the absence of representation for appellant at the hearing
of his petition as license to be perfunctory in the presentation of his
evidence. Actual possession of land, however, consists in the
manifestation of acts of dominion over it of such a nature as a party would
naturally exercise over his own property. It is not enough for an applicant
to declare himself or his predecessors-in-interest the possessors and
owners of the land for which registration is sought. He must present
specific acts of ownership to substantiate the claim and cannot just offer
general statements which are mere conclusions of law requiring
evidentiary support and substantiation.

The record shows that appellee did not fare any better with the
documentary evidence he adduced before the trial court. The October 20, 1952
Deed of Sale by which appellee claims to have purchased the subject
parcels from his uncle, Julian Martinez, was not translated from the
vernacular in which it was executed and, by said token, was inadmissible in
evidence. Having submitted a white print copy of the survey plan
for Lot Nos. 464-A and 464-B, appellee also submitted the tracing cloth plan
for Lot No. 370 which does not, however, appear to be approved by the
 Director of Lands. In much the same manner that the submission of the original
tracing cloth plan is a mandatory statutory requirement which cannot be waived,
the rule is settled that a survey plan not approved by the Director of Lands is not
admissible in evidence.[41]

These findings of the Court of Appeals, arrived at after a sufficiently extensive evaluation
of the evidence, stand in contrast to that contained in the RTC decision, encapsulated in a one-
paragraph prcis of the factual allegations of Martinez concerning how he acquired possession of
the subject properties. The Court of Appeals, of course, is an appropriate trier of facts, and a
comparison between the findings of fact of the Court of Appeals and that of the RTC clearly
demonstrates that it was the appellate court which reached a more thorough and considered
evaluation of the evidence.

As correctly held by the Court of Appeals, the burden of proof expected of the petitioner
in a land registration case has not been matched in this case.

WHEREFORE, the petition is DISMISSED. Costs against petitioner.

SO ORDERED.

AMENDED AND SUPPLEMENTAL PLEADINGS

RAFAEL BAUTISTA and LIGAYA G.R. No. 148361

ROSEL,

Petitioners,
Present:

PANGANIBAN, J., Chairman,

- versus -
SANDOVAL-GUTIERREZ,

CORONA,

CARPIO MORALES, and

GARCIA, JJ.
 MAYA-MAYA COTTAGES, INC.,

Respondent.

Promulgated:

November 29, 2005

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

RESOLUTION

SANDOVAL GUTIERREZ, J.:

For our resolution is the instant petition for review on certiorari assailing the Decision[1] and

Resolution of the Court of Appeals, dated November 24, 2000 and May 30, 2001, respectively, in

CA-G.R. SP No. 43574.

The facts are:

Spouses Rafael and Ligaya Bautista, petitioners herein, are the registered owners of a 3,856-

square meter lot located at Natipuan, Nasugbu, Batangas, as evidenced by Original Certificate of

Title (OCT) No. P-1436 issued in their names on January 15, 1989 by the Register of Deeds,

same province.

On May 13, 1996, Maya-Maya Cottages, Inc. (MMCI), respondent, filed with the Regional Trial

Court (RTC) of Nasugbu, Batangas a complaint for cancellation of petitioners title and damages,

with application for a preliminary injunction, docketed as Civil Case No. 371. Respondent

alleged inter alia that without any color of right and through dubious means, petitioners were able

to obtain OCT No. P-1436 in their names.

On May 29, 1996, petitioners filed a motion to dismiss the complaint on the ground that it does

not state a cause of action. They averred that respondent is a private corporation, hence,

disqualified under the Constitution [2] from acquiring public alienable lands except by lease.

Respondent cannot thus be considered a real party in interest.

In its Order dated August 30, 1996, the trial court granted the motion to dismiss, holding that

since the property is an alienable public land, respondent is not qualified to acquire it except by

lease. Thus, it has no cause of action.

Respondent then filed a motion for reconsideration with motion for leave to file an amended

complaint for quieting of title. Respondent alleged that the technical description in petitioners title

does not cover the disputed lot.

Thereupon, petitioners filed their opposition, contending that the amended complaint does not

also state a cause of action and if admitted, respondents theory of the case is substantially

modified.

On November 18, 1996, the trial court issued an Order denying petitioners motion to dismiss,

thus, reversing its Order of August 30, 1996 dismissing the complaint in Civil Case No. 371.

Petitioners then filed with the Court of Appeals a special civil action for certiorari and prohibition,

docketed as CA-G.R. SP No. 43574. They alleged that the amended complaint does not cure the

defect in the original complaint which does not state a cause of action. Clearly, in admitting

respondents amended complaint, the trial court committed grave abuse of discretion amounting

to lack or excess of jurisdiction.

On November 24, 2000, the Court of Appeals rendered a Decision dismissing the petition

for certiorari and prohibition.

Petitioners filed a motion for reconsideration but was denied by the Appellate Court in its

Resolution of May 30, 2001.

Hence, the instant petitioner for review on certiorari.

The sole issue for our resolution is whether the Court of Appeals erred in holding that the trial

court did not commit grave abuse of discretion amounting to lack or excess of jurisdiction in

admitting respondents amended complaint.

Section 2, Rule 10 of the 1997 Rules of Civil Procedure, as amended, provides:

SEC. 2. Amendments as a matter of right. A party may amend his pleading

once as a matter of right at any time before a responsive pleading is
served or, in the case of a reply, at any time within ten (10) days after it is
served.

The above provision clearly shows that before the filing of any responsive pleading, a

party has the absolute right to amend his pleading, regardless of whether a new cause of action

or change in theory is introduced. It is settled that a motion to dismiss is not the responsive

pleading contemplated by the Rule. [3] Records show that petitioners had not yet filed a responsive

pleading to the original complaint in Civil Case No. 371. What they filed was a motion to dismiss.

It follows that respondent, as a plaintiff, may file an amended complaint even after the original

complaint was ordered dismissed, provided that the order of dismissal is not yet final, [4] as in this

case.

Verily, the Court of Appeals correctly held that in issuing the assailed Order admitting the

amended complaint, the trial court did not gravely abuse its discretion. Hence,

neither certiorari nor prohibition would lie.

As to petitioners contention that respondent corporation is barred from acquiring the subject lot,

suffice it to say that this is a matter of defense which can only be properly determined during the

full-blown trial of the instant case.

WHEREFORE, the petition is DENIED. The challenged Decision and Resolution of the Court of

Appeals in CA-G.R. SP No. 43574 are AFFIRMED IN TOTO. Costs against petitioners.

SO ORDERED.

[G.R. No. 133657. May 29, 2002]

REMINGTON INDUSTRIAL SALES CORPORATION, petitioner, vs. THE COURT OF
APPEALS and BRITISH STEEL (ASIA), LTD., respondents.

DECISION

YNARES-SANTIAGO, J.:

Before us is a petition for review under Rule 45 of the Rules of Court assailing the decision
of the Court of Appeals in CA-G.R. SP No. 44529 dated February 24, 1998 [1], which granted the
petition for certiorari filed by respondent British Steel Asia Ltd. (British Steel) and ordered the
dismissal of petitioner Remington Industrial Sales Corporations (Remington) complaint for sum of
money and damages. Also assailed in this petition is the resolution [2] of the Court of Appeals
denying petitioners motion for reconsideration.

The facts of the case, as culled from the records, are as follows:

On August 21, 1996, petitioner filed a complaint [3] for sum of money and damages arising
from breach of contract, docketed as Civil Case No. 96-79674, before the sala of Judge Marino
M. De la Cruz of the Regional Trial Court of Manila, Branch 22. Impleaded as principal defendant
therein was Industrial Steels, Ltd. (ISL), with Ferro Trading GMBH (Ferro) and respondent British
Steel as alternative defendants.

ISL and respondent British Steel separately moved for the dismissal of the complaint on the
ground that it failed to state a cause of action against them. On April 7, 1997, the RTC denied the
motions to dismiss,[4] as well as the ensuing motion for reconsideration. [5] ISL then filed its answer
to the complaint.

On the other hand, respondent British Steel filed a petition for certiorari and prohibition
before the Court of Appeals,[6] docketed as CA-G.R. SP No. 44529. Respondent claimed therein
that the complaint did not contain a single averment that respondent committed any act or is
guilty of any omission in violation of petitioners legal rights. Apart from the allegation in the
complaints Jurisdictional Facts that:

1.05. Defendants British Steel (Asia) Ltd. and Ferro Trading Gmbh, while understood by the
plaintiff as mere suppliers of goods for defendant ISL, are impleaded as party defendants
pursuant to Section 13, Rule 3 of the Revised Rules of Court. [7]

no other reference was made to respondent that would constitute a valid cause of action against
it. Since petitioner failed to plead any cause of action against respondent as alternative defendant
under Section 13, Rule 3, [8] the trial court should have ordered the dismissal of the complaint
insofar as respondent was concerned.

Meanwhile, petitioner sought to amend its complaint by incorporating therein additional

factual allegations constitutive of its cause of action against respondent. Pursuant to Section 2,
Rule 10[9] of the Rules of Court, petitioner maintained that it can amend the complaint as a matter
of right because respondent has not yet filed a responsive pleading thereto. [10]

Subsequently, petitioner filed a Manifestation and Motion [11] in CA-G.R. SP No. 44529 stating
that it had filed a Motion to Admit Amended Complaint together with said Amended Complaint
before the trial court. Hence, petitioner prayed that the proceedings in the special civil action be
suspended.

On January 29, 1998, the trial court ruled on petitioners Motion to Admit Amended Complaint
thus:

WHEREFORE, the Amended Complaint is NOTED and further proceedings thereon and action
on the other incidents as aforementioned are hereby held in abeyance until final resolution by the
Honorable Court of Appeals (Special 6th Division) of the petition for certiorari and prohibition of
petitioner (defendant British) and/or Manifestations and Motions of therein private respondent,
herein plaintiff.

SO ORDERED.[12]

Thereafter, on February 24, 1998, the Court of Appeals rendered the assailed decision in
CA-G.R. SP No. 44529 as follows:
WHEREFORE, this Court grants the writ of certiorari and orders the respondent judge to dismiss
without prejudice the Complaint in Civil Case No. 96-79674 against petitioner British Steel (Asia)
Ltd. Costs against private respondent.

SO ORDERED.[13]

In the same decision, the Court of Appeals addressed petitioners prayer for suspension of
proceedings in this wise:

The incident which transpired after the filing of the instant petition for certiorari and prohibition are
immaterial in the resolution of this petition. What this Court is called upon to resolve is whether
the lower court committed grave abuse of discretion when it denied petitioners motion to dismiss
the complaint against it. The admission or rejection by the lower court of said amended complaint
will not, insofar as this Court is concerned, impinge upon the issue of whether or not said court
gravely abused its discretion in denying petitioners motion to dismiss. [14]

Petitioner filed a motion for reconsideration of the appellate courts decision, which was
denied in a resolution dated April 28, 1998. Hence, this petition, anchored on the following
grounds:

-I-

THE HON. COURT OF APPEALS ERRED IN ORDERING THE DISMISSAL OF THE

COMPLAINT AGAINST THE PRIVATE RESPONDENT FOR LACK OF CAUSE OF ACTION
UNDER THE ORIGINAL COMPLAINT EVEN AS SAID COMPLAINT WAS ALREADY AMENDED
AS A MATTER OF RIGHT AND SUFFICIENT CAUSES OF ACTION ARE AVERRED IN THE
AMENDED COMPLAINT, IN GROSS VIOLATION OF SEC. 2, RULE 10 OF THE 1997 RULES
OF CIVIL PROCEDURE.

-II-

THE HON. COURT OF APPEALS ERRED IN HOLDING THAT IF THE PETITIONER WANTS TO
PURSUE ITS CASE AGAINST THE PRIVATE RESPONDENT, IT HAS TO REFILE THE
COMPLAINT, THUS PRE-EMPTING THE RIGHT OF THE LOWER COURT TO RULE ON THE
AMENDED COMPLAINT AND COMPELLING THE PETITIONER TO LITIGATE ITS CAUSES OF
ACTION AGAINST THE PRIVATE RESPONDENT AS AN ALTERNATIVE DEFENDANT IN A
SEPARATE ACTION, THEREBY ABETTING MULTIPLICITY OF SUITS.[15]

The basic issue in this case is whether or not the Court of Appeals, by granting the
extraordinary writ of certiorari, correctly ordered the dismissal of the complaint for failure to state
a cause of action, despite the fact that petitioner exercised its right to amend the defective
complaint under Section 2, Rule 10 of the Rules of Court. Stated differently, the query posed
before us is: can a complaint still be amended as a matter of right before an answer has been
filed, even if there was a pending proceeding for its dismissal before the higher court?

Section 2, Rule 10[16] of the Revised Rules of Court explicitly states that a pleading may be
amended as a matter of right before a responsive pleading is served. This only means that prior
to the filing of an answer, the plaintiff has the absolute right to amend the complaint whether a
new cause of action or change in theory is introduced. [17] The reason for this rule is implied in the
subsequent Section 3 of Rule 10 [18]. Under this provision, substantial amendment of the complaint
is not allowed without leave of court after an answer has been served, because any material
change in the allegations contained in the complaint could prejudice the rights of the defendant
who has already set up his defense in the answer.

Conversely, it cannot be said that the defendants rights have been violated by changes
made in the complaint if he has yet to file an answer thereto. In such an event, the defendant has
not presented any defense that can be altered [19] or affected by the amendment of the complaint
in accordance with Section 2 of Rule 10. The defendant still retains the unqualified opportunity to
address the allegations against him by properly setting up his defense in the
answer. Considerable leeway is thus given to the plaintiff to amend his complaint once, as a
matter of right, prior to the filing of an answer by the defendant.

The right granted to the plaintiff under procedural law to amend the complaint before an
answer has been served is not precluded by the filing of a motion to dismiss [20] or any other
proceeding contesting its sufficiency. Were we to conclude otherwise, the right to amend a
pleading under Section 2, Rule 10 will be rendered nugatory and ineffectual, since all that a
defendant has to do to foreclose this remedial right is to challenge the adequacy of the complaint
before he files an answer.

Moreover, amendment of pleadings is favored and should be liberally allowed in the

furtherance of justice in order to determine every case as far as possible on its merits without
regard to technicalities. This principle is generally recognized to speed up trial and save party
litigants from incurring unnecessary expense, so that a full hearing on the merits of every case
may be had and multiplicity of suits avoided.[21]

In this case, the remedy espoused by the appellate court in its assailed judgment will
precisely result in multiple suits, involving the same set of facts and to which the defendants
would likely raise the same or, at least, related defenses. Plainly stated, we find no practical
advantage in ordering the dismissal of the complaint against respondent and for petitioner to re-
file the same, when the latter can still clearly amend the complaint as a matter of right. The
amendment of the complaint would not prejudice respondents or delay the action, as this would,
in fact, simplify the case and expedite its disposition.

The fact that the other defendants below has filed their answers to the complaint does not
bar petitioners right to amend the complaint as against respondent. Indeed, where some but not
all the defendants have answered, the plaintiff may still amend its complaint once, as a matter of
right, in respect to claims asserted solely against the non-answering defendant, but not as to
claims asserted against the other defendants.[22]

Furthermore, we do not agree with respondents claim that it will be prejudiced by the
admission of the Amended Complaint because it had spent time, money and effort to file its
petition before the appellate court. [23] We cannot see how the result could be any different for
respondent, if petitioner merely re-filed the complaint instead of being allowed to amend it. As
adverted to earlier, amendment would even work to respondents advantage since it will
undoubtedly speed up the proceedings before the trial court. Consequently, the amendment
should be allowed in the case at bar as a matter of right in accordance with the rules.

WHEREFORE, the petition is GRANTED. The assailed decision and resolution of the Court
of Appeals in CA-G.R. SP No. 44529 dated February 24, 1998 and April 28, 1998, respectively,
are REVERSED and SET ASIDE. The Regional Trial Court of Manila, Branch 22 is further
ordered to ADMIT petitioners Amended Complaint in Civil Case No. 96-79674 and to conduct
further proceedings in said case.

SO ORDERED.

Philippine Export and Foreign Loan Guarantee Corporation, petitioner-appellant,

vs. Philippine Infrastructures, Inc., Philippine British Assurance Co., Inc., The Solid
Guaranty, Inc., B.F. Homes, Inc., Pilar Development Corporation and Tomas F.
Aguirre, respondents-appellees.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court filed
by Philippine Export and Foreign Loan Guarantee Corporation. Petitioner corporation seeks to set
aside the Decision[1] of the Court of Appeals dated August 31, 1994, dismissing CA-G.R. SP No.
31483; the Resolution dated May 18, 1995 denying petitioners motion for reconsideration; the
Order of the Regional Trial Court (Branch 29) of Manila, dated December 7, 1992, dismissing
Civil Case No. 86-38169[2] and the Order dated April 12, 1993 denying the motion for
reconsideration of said dismissal order.

The antecedent facts are as follows:

The case was commenced at the Regional Trial Court on October 30, 1986, upon the filing
by herein petitioner of a complaint for collection of sum of money against herein respondents
Philippine Infrastructures, Inc. (PII for brevity), Philippine British Assurance Co., Inc. (PBAC), The
Solid Guaranty, Inc. (Solid), B.F. Homes, Inc. (BF Homes), Pilar Development Corporation (PDC)
and Tomas B. Aguirre (Aguirre). The complaint alleges that: petitioner issued five separate Letters
of Guarantee in favor of the Philippine National Bank (PNB) as security for various credit
accommodations extended by PNB to respondent PII; respondents PII, BF Homes, PDC and
Aguirre executed a Deed of Undertaking binding themselves, jointly and severally, to pay or
reimburse petitioner upon demand such amount of money or to repair the damages, losses or
penalties which petitioner may pay or suffer on account of its guarantees; as security for prompt
payment by respondent PII, the latter submitted to petitioner, surety and performance bonds
issued by respondents PBAC and Solid; on April 24, 1985, the PNB called on the guarantees of
petitioner, and so, the latter demanded from respondent PII the immediate settlement of P20,959,
529.36, representing the aggregate amount of the guarantees of petitioner called by PNB and the
further sum of P351,517.57 representing various fees and charges; PII refused to settle said
obligations; petitioner likewise demanded payment from respondents Solid and PBAC but they
also refused to pay petitioner; and because of the unjustified refusal of respondents to comply
with their respective obligations, petitioner was constrained to secure the services of counsel and
incur expenses for the purpose of prosecuting its valid claims against the respondents. It is
prayed in the complaint that judgment be rendered ordering respondents PII, BF Homes, PDC
and Aguirre to pay petitioner the amount of P21,311,046.93 plus interest and penalty charges
thereon, ordering respondents Solid and PBAC to pay P5,758,000.00 and P9,596,000.00,
respectively, under their surety and/or performance bonds and ordering respondents to pay
petitioner the sums of P2,000,000.00 as attorneys fees and expenses of litigation and P50,000.00
as exemplary damages.

Respondent BF Homes filed a Motion to Dismiss[3] on the ground that it is undergoing

rehabilitation receivership in the Securities and Exchange Commission (SEC) and pursuant to
P.D. 902-A, the trial court has no jurisdiction to try the case. Respondent PII also filed a Motion to
Dismiss[4] on the ground that the complaint states no cause of action since it does not allege that
petitioner has suffered any damage, loss or penalty because of the guarantees petitioner had
extended for and on behalf of respondent PII.

The other respondents filed their respective responsive pleadings.

On June 10, 1987, Judge Roberto M. Lagman issued an Order [5] suspending the case only
as against respondent BF Homes and denying respondent PIIs motion to dismiss. Thereafter,
hearing on the merits ensued. On January 21, 1992, petitioner presented Rosauro Termulo, the
treasury department manager of petitioner, who testified that the amount of P19,035,256.57 was
paid on July 28, 1990 by petitioner to the PNB through the account of the National Treasury to
cover the principal loan and interests, as guaranteed by petitioner; and, Exhibit LL, a debit memo
issued by the PNB, showing that the latter was paid by the National Treasurer in behalf of
petitioner corporation. Consequently, on February 19, 1992, petitioner filed a Motion to Amend
Complaint to Conform to Evidence [6]pursuant to Section 5, Rule 10 of the Revised Rules of Court,
seeking to amend Paragraph 17 and the pertinent portion of the prayer in the complaint, to read
as follows:

17. Because of the unjustified refusal of the defendants to comply with their respective
obligations, the plaintiff as guarantor has been constrained to pay the Philippine National Bank
thru the account of the National Treasury the amount of Nineteen Million Thirty-five Thousand
Two Hundred Fifty-six and 57/100 (P19,035,256.57) on July 28, 1990 representing payment of
principal loan of P12,790,094.83 and interest of P6,245,111.54 due March 16, 1987 on the
Philippine Infrastructure, Inc./Philguaranty loan under the PNB Expanded Loan Collection
Program; and which amount was deducted from the equity share of the National Government in
Philguarantee. In view of defendants unwarranted failure and refusal to settle their respective
accountabilities plaintiff was likewise constrained to secure the services of counsel and incur
expenses in the process of prosecuting its just and valid claims against the defendants;
accordingly, the defendants should be held liable, jointly and severally, to pay the plaintiff
attorneys fees and expenses of litigation in the amount of P2,000,000.00 or about ten (10%)
percent of the guaranteed obligations.

...

PRAYER

...

(a) Ordering defendant PII, BF Homes, PILAR and AGUIRRE to pay plaintiff, jointly and severally,
the amount of P19,035,256.57 plus P351,517.57 extension guarantee fees and amendment fees,
plus interests and penalty charges thereon;

. . .[7]
 Acting on the motion to amend, the trial court, at that time presided by Judge Joselito J. Dela
Rosa, issued the assailed Order dated December 7, 1992, [8] dismissing the case without
prejudice on the ground of failure of the complaint to state a cause of action, thus in effect,
reversing the Order dated June 10, 1987 issued by Judge Lagman five years earlier. Petitioners
motion for reconsideration of the order of dismissal was denied by Judge de la Rosa per his
Order[9] dated April 12, 1993.

On June 9, 1993, a petition for review on certiorari was filed by petitioner against the
Regional Trial Court with this Court. On June 23, 1993, the Court issued a Resolution [10] which
reads:

Considering that under Section 9 of Batas Pambansa Blg. 129, the Intermediate Appellate Court
(Court of Appeals) now exercises exclusive appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, the Court Resolved to REFER this case to the Court of
Appeals, for disposition.

The Court of Appeals re-docketed the petition as CA-G.R. SP No. 31483.

On August 31, 1994, the Court of Appeals promulgated the assailed Decision, dismissing the
petition on the following grounds:

FIRSTLY, an order of dismissal, whether right or wrong, is a final order. If it is erroneous, the
remedy of the aggrieved party is appeal. Hence, the same cannot be assailed by certiorari, as in
this case (Marahay vs. Malicor, 181 SCRA 811). Considering the Supreme Court Circular No. 2-
90, paragraph 4 regarding an appeal by wrong mode, the order of dismissal in this case was
therefore correctly issued by the respondent court a quo.

SECONDLY, the real purpose of petitioner herein in asking the respondent court a quo for leave
to amend its complaint was not ostensibly to make the complaint conform to the evidence
presented, as petitioner alleges, but to introduce a cause of action then non-existing when the
complaint was filed. The ruling in the leading case of Surigao Mine Exploration Co. vs. Harris (69
Phil. 113) does not allow such amendment.

Hence, the trial court was correct in denying the amendment and instead it dismissed the case.

THIRDLY, in the case at bar, the motion to dismiss was first denied but there is nothing in the
Rules of Court which prohibits the court from later on reversing itself and granting the motion to
dismiss.

This ruling is supported by earlier decisions of the Supreme Court in Lucas vs. Mariano, et al (L-
29157, April 27, 1972) and Vda. De Haberer vs. Martinez, et al. (L-39386, Jan. 29, 1975) where
the trial court dismissed the complaint, then set it aside and finally again ordered it dismissed. [11]

On May 19, 1995, the appellate court issued a Resolution [12] denying petitioners motion for
reconsideration.

Hence, on June 14, 1995, petitioner filed the present petition for review on certiorari,
claiming that the Court of Appeals committed the following errors:

I.

THE HONORABLE COURT OF APPEALS AFFIRMATION OF THE REGIONAL TRIAL COURT

JUDGES ORDER DISMISSING CIVIL CASE NO. 86-38169 MOTU PROPIO ON THE PREMISE
THAT HIS PREDECESSOR JUDGE WAS IN ERROR IN NOT GRANTING THE MOTION TO
DISMISS FILED YEARS BACK, ALLEGEDLY BECAUSE THERE WAS NO CAUSE OF ACTION
AT THE TIME OF THE FILING OF THE COMPLAINT IS CONTRARY TO LAW AND
JURISPRUDENCE.

II.

THE HONORABLE COURT OF APPEALS AFFIRMATION OF THE REGIONAL TRIAL COURT

JUDGES ORDER IN NOT ALLOWING THE AMENDMENT OF THE COMPLAINT TO CONFORM
TO THE EVIDENCE PRESENTED WITHOUT OBJECTIONS, IS CONTRARY TO LAW AND
JURISPRUDENCE.
 III.

THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT THE REAL PURPOSE OF
PETITIONER-APPELLANT IN ASKING FOR LEAVE TO AMEND ITS COMPLAINT WAS NOT TO
MAKE THE COMPLAINT CONFORM TO THE EVIDENCE PRESENTED BUT TO INTRODUCE
A CAUSE OF ACTION THEN NON-EXISTING WHEN THE COMPLAINT WAS FILED.

IV.

THE HONORABLE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO

PETITIONER-APPELLANTS PETITION FOR REVIEW. [13]

Respondents, on the other hand, asseverate that the petitioner went to the Court of Appeals
on a wrong remedy as the proper remedy was for it to appeal from the order of dismissal and not
to file a petition for review on certiorari; and that the Court of Appeals committed no error in
sustaining the lower court as the original complaint below failed to state a cause of action and the
real purpose of the amendment was to introduce a subsequently acquired cause of action.

The Court will first resolve the question whether an order dismissing a petition without
prejudice should be appealed by way of ordinary appeal, petition for review on certiorari or a
petition for certiorari. Indeed, prior to the 1997 Rules of Civil Procedure, an order dismissing an
action may be appealed by ordinary appeal as what happened in Lucas vs. Mariano[14] and Vda.
de Haberer vs. Martinez,[15] cited by the Court of Appeals in its assailed decision. However, in the
advent of the 1997 Rules of Civil Procedure, Section 1(h), Rule 41 thereof expressly provides that
no appeal may be taken from an order dismissing an action without prejudice. It may be subject
of a special civil action for certiorari under Rule 65 of the Rules of Court, as amended by the said
1997 Rules of Civil Procedure.Considering that the assailed decision of the Court of Appeals was
promulgated in 1994, respondent appellate court could not have committed any grave abuse of
discretion in dismissing CA-G.R. SP No. 31483.

Nevertheless, in the higher interest of substantial justice and pursuant to the hornbook
doctrine that procedural laws may be applied retroactively,[16] the Court gives due course to the
present petition and will resolve the issue whether the Court of Appeals erred in affirming the
lower courts order dismissing the complaint on the ground that petitioner failed to state a cause of
action for not alleging loss or actual payment made by it to PNB under its guarantees.

The trial court issued an order of dismissal in stead of granting a motion to amend complaint
to conform to evidence, pursuant to Section 5, Rule 10 of the Revised Rules of Court, to wit:

Sec. 5. Amendment to conform to or authorize presentation of evidence. When issues not raised
by the pleadings are tried by express or implied consent of the parties, they shall be treated in all
respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may
be necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at any time, even after judgment, but failure to amend does not affect
the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is
not within the issues made by the pleadings, the court may allow the pleadings to be amended
and shall do so freely when presentation of the merits of the action will be subserved thereby and
the objecting party fails to satisfy the court that the admission of such evidence would prejudice
him in maintaining his action or defense upon the merits. The court may grant a continuance to
enable the objecting party to meet such evidence.

It should be stressed that amendment was sought after petitioner had already presented
evidence, more specifically, the testimony of petitioners Treasury Department Manager and a
debit memo from the PNB (Exhibit LL) proving that petitioner had paid the PNB in the amount
of P19,035,256.57 pursuant to the guarantees it accorded to respondent PII.

Petitioner avers that respondents did not raise any objection when it presented evidence to
prove payment to PNB. Hence, as provided for in Section 5, Rule 10 of the Revised Rules of
Court, when issues not raised by the pleadings are tried by express or implied consent of the
parties, they shall be treated in all respects, as if they had been raised in the pleadings. A scrutiny
of the pleadings filed by respondents reveal that none of them denied petitioners claim that said
evidence was presented before the trial court without objections having been raised by
respondents. None of them claimed that they raised any objections at the time when petitioner
presented its evidence to prove its payment to PNB. Respondents Pilar and Aguirre admitted the
presentation of the said evidence.
 Respondents contend that since they had already alleged the failure of the complaint to state
a cause of action as an affirmative defense in their answer, there was no further need for them to
raise an objection at the time the evidence was introduced. This is not plausible. In Bernardo, Sr.
vs. Court of Appeals,[17] respondents therein also put up in their answer the affirmative defense of
failure of the complaint to state a cause of action and the parties went on to present their
respective evidence. The Court did not consider the allegation of this affirmative defense in the
answer as an objection to evidence presented by the plaintiffs. Furthermore, the Court ruled that:

The presentation of the contrariant evidence for and against imputations undoubtedly cured,
clarified or expanded, as the case may be, whatever defects in the pleadings or vagueness in the
issues there might have been in the amended complaint. . . .

It is settled that even if the complaint be defective, but the parties go to trial thereon, and the
plaintiff, without objection, introduces sufficient evidence to constitute the particular cause of
action which it intended to allege in the original complaint, and the defendant voluntarily produces
witnesses to meet the cause of action thus established, an issue is joined as fully and as
effectively as if it had been previously joined by the most perfect pleadings. Likewise, when
issues not raised by the pleadings are tried by express or implied consent of the parties, they
shall be treated in all respects as if they had been raised in the pleadings. [18]

Evidently, herein respondents failure to object to the evidence at the time it is presented in
court is fatal to their cause inasmuch as whatever perceived defect the complaint had was cured
by the introduction of petitioners evidence proving actual loss sustained by petitioner due to
payment made by it to PNB.

Thus, the contention of respondents that the amendment would introduce a subsequently
acquired cause of action as there was none at the time the original complaint was filed, is
untenable.

Furthermore, petitioners cause of action against respondents stemmed from the obligation of
respondents PII, BF Homes, PDC and Aguirre under their Deed of Undertaking that was secured
by the surety and performance bonds issued by respondents PBAC and Solid. Said Deed of
Undertaking, which was annexed to and made an integral part of the complaint, provides as
follows:

...

NOW, THEREFORE, for and in consideration of the foregoing premises, the OBLIGOR [PII] and
CO-OBLIGORS [BF HOMES, PILAR, AGUIRRE] hereby promise, undertake and bind
themselves to keep the OBLIGEE [PETITIONER] free and harmless from any damage or liability
which may arise out of the issuance of its guarantee referred to in the first whereas clause. By
these presents, the OBLIGOR and CO-OBLIGORS further bind themselves, jointly and severally,
to pay or reimburse on demand, such amount of money, or repair the damages, losses or
penalties which the OBLIGEE may pay or suffer on account of the aforementioned
guarantees. The OBLIGOR and CO-OBLIGORS further undertake to comply with and be bound
by the aforementioned terms and conditions enumerated in the attached Annex A and to perform
such other acts and deeds which the OBLIGEE may impose for the implementation of the
aforementioned guarantees.

It is a condition of this instrument that failure of the OBLIGOR and CO-OBLIGORS to comply with
this undertaking and to make good the performance of the other obligations herein undertaken
and/or promised, shall be sufficient cause for the OBLIGEE to consider such failure as an event
of default which shall give to the OBLIGEE the right to take such action against the OBLIGOR
and/or CO-OBLIGORS for the protection of the OBLIGEEs interests.

. . .[19]

A reading of the foregoing provisions of the contract, specially the phrase the OBLIGOR and
CO-OBLIGORS hereby promise, undertake and bind themselves to keep the OBLIGEE free and
harmless from any damage or liability which may arise out of the issuance of its
guarantee referred to in the first whereas clause, shows that the Deed of Undertaking is actually
an indemnity against liability. In Cochingyan, Jr. vs. R & B Surety and Insurance Co., Inc.,[20] the
Court held thus:

The petitioners lose sight of the fact that the Indemnity Agreements are contracts of
indemnification not only against actual loss but against liability as well. While in a contract
of indemnity against loss an indemnitor will not be liable until the person to be
indemnified makes payment or sustains loss, in a contract of indemnity against liability, as
in this case, the indemnitors liability arises as soon as the liability of the person to be
indemnified has arisen without regard to whether or not he has suffered actual loss.

...

(3) Petitioners are indemnitors of R & B Surety against both payments to and liability for
payments to the PNB. The present suit is therefore not premature despite the fact that the PNB
has not instituted any action against R & B Surety for the collection of its matured obligation
under the Surety Bond.[21] [Emphasis supplied]

In the present petition, petitioner had become liable to pay the amounts covered by said
guarantees when, as the original complaint alleges, the PNB called upon said
guarantees. Respondents obligation under the Deed of Undertaking to keep petitioner free and
harmless from any damage or liability then became operative as soon as the liability of petitioner
arose and there was no need for petitioner to first sustain actual loss before it could have a cause
of action against respondents. The mere inclusion in petitioners original complaint of the
allegation that the PNB had already called on the guarantees of petitioner is sufficient to
constitute a cause of action against respondents. Clearly therefore, the original complaint, by
itself, stated a valid cause of action.

Verily, it was patently erroneous on the part of the trial court not to have allowed the
amendments as to make the complaint conform to petitioners evidence that was presented
without any objection from respondents. The trial court likewise patently acted with grave abuse
of discretion or in excess of its jurisdiction amounting to lack of jurisdiction when, acting on a
mere motion to amend the complaint, it erroneously dismissed the complaint on the ground of
failure to state a cause of action. Consequently, the Court of Appeals committed a reversible error
in sustaining the trial court.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated
August 31, 1994 and its Resolution dated May 18, 1995 are REVERSED and SET ASIDE; and
the Orders of the Regional Trial Court (Branch 29), Manila, dated December 7, 1992 and April 12,
1993 are NULL and VOID and SET ASIDE.

Let the original records of Civil Case No. 86-38169 be REMANDED to the Regional Trial
Court (Branch 29), Manila, for continuation of the trial on the merits. The presiding judge is
directed to proceed with immediate dispatch upon receipt of the records of the case.

Treble costs against private respondents.

SO ORDERED.

G.R. No. 157745 September 26, 2006

(CA-G.R. SP No. 70610)

GENALYN D. YOUNG, petitioner,

vs.
SPOUSES MANUEL SY and VICTORIA SY, respondents.

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

G.R. No. 157955 September 26, 2006

(CA-G.R. SP No. 65629)

GENALYN D. YOUNG, petitioner,

vs.
SPOUSES MANUEL SY and VICTORIA SY, respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

The Cases
Before this Court are two Petitions for Review on Certiorari under Rule 45 of the Rules of Court.
Since the two cases are interdependent and originate from the same proceeding, and for the
sake of expediency, they have been consolidated by this Court.

The Petition under G.R. No. 157955 (Re: Supplemental Complaint) challenges the Decision
dated November 18, 20021 of the Court of Appeals (CA) in CA-G.R. SP No. 65629 affirming the
Orders dated December 28, 2000 and April 6, 2001 of the Regional Trial Court, San Pablo City,
Branch 32, in Civil Case No. SP-5703 (2000) (RTC) which denied the admission of petitioner's
Supplemental Complaint; and the CA Resolution dated April 2, 2003 2which denied the petitioner's
Motion for Reconsideration.

The Petition under G.R. No. 157745 (Re: Non-Suit) questions the Decision dated November 29,
20023 of the CA in CA-G.R. SP No. 70610 which affirmed the Orders of the RTC dated August 30,
2001, January 4, 2002 and January 16, 2002 (RTC Orders), all of which in effect dismissed the
Complaint for non-suit; and the CA Resolution dated March 21, 2003 4 which denied the
petitioner's Motion for Reconsideration.

Both petitions originated from a Complaint for Nullification of Second Supplemental Extra-judicial
Settlement, Mortgage, Foreclosure Sale and Tax Declaration filed by the petitioner on May 2,
2000 with the RTC. Genalyn D. Young (petitioner), in her Complaint, alleged that the extra-judicial
partition executed by her natural mother, Lilia Dy Young which adjudicated an unregistered parcel
of land solely in favor of the latter, is unenforceable, since at the time of the execution, she
(petitioner) was only 15 years old and no court approval had been procured; that the partition had
been registered with the Register of Deeds; that Lilia Dy obtained a loan from spouses Manuel Sy
and Victoria Sy (respondents) and mortgaged the subject property; that the property was
foreclosed and sold to the highest bidder, respondent Manuel Sy; that a Certificate of Sale for this
purpose had been registered with the Register of Deeds; and that, thereafter, respondents
obtained in their name a tax declaration over the property in question.

The Antecedents

G.R. No. 157955 (Re: Supplemental Complaint)

On July 20, 2000, the petitioner filed with the RTC a Motion to Admit Supplemental Complaint,
attaching the Supplemental Complaint wherein petitioner invoked her right, as co-owner, to
exercise the legal redemption. The RTC denied the Motion in an Order dated December 28,
2000. Petitioner, on July 16, 2001, filed a Petition for Certiorari and Mandamus under Rule 65 of
the Rules of Court, docketed as CA-G.R. SP No. 65629, and raised the following grounds:

THE HONORABLE RESPONDENT COURT ACTED WITHOUT OR IN EXCESS OF

JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION IN ISSUING THE ORDERS DATED
28 DECEMBER 2000 AND 06 APRIL 2001 SINCE:

A.

THE RELIEFS IN THE SUPPLEMENTAL COMPLAINT MERELY DEVELOP OR EXTEND THE

ORIGINAL CAUSES OF ACTION. PLAINTIFF'S CAUSE OF ACTION FOR LEGAL
REDEMPTION ARISES DIRECTLY FROM AND IS A NATURAL EXTENSION OR
CONSEQUENCE OF HER RIGHTS AS CO-OWNER OF THE PROPERTY SUBJECT OF THE
CASE.

B.

THE SUPERVENING EVENT WHICH IS THE CONSOLIDATION OF TITLE TO THE SUBJECT

PROPERTY IN THE NAME OF MANUEL SY, OCCURRED AFTER 21 JUNE 2000; SUCH DATE
IS PLAINLY SUBSEQUENT TO THE FILING OF THE COMPLAINT ON 02 MAY 2000. 5

On November 18, 2002, the CA promulgated its Decision denying the Petition
for Certiorari and Mandamus and held that the cause of action of the petitioner in the
Supplemental Complaint is entirely different from the original complaint; that the Supplemental
Complaint did not merely supply its deficiencies; and that, at any rate, in the event the trial court
issues an adverse ruling, the petitioner can still appeal the same, hence, the petition under Rule
65 is not proper.

Hence, the present Petition for Review on Certiorari under Rule 45, raising the following issues:
 A.

WHETHER OR NOT THE RTC ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR

WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LOSS OF JURISDICTION IN
ISSUING THE ORDERS DATED 28 DECEMBER 2000 AND 06 APRIL 2001.

1.

WHETHER OR NOT THE RELIEFS IN THE SUPPLEMENTAL COMPLAINT MERELY DEVELOP

OR EXTEND THE ORIGINAL CAUSES OF ACTION.

2.

WHETHER OR NOT THE SUPERVENING EVENT WHICH IS THE CONSOLIDATION OF TITLE

TO THE SUBJECT PROPERTY IN THE NAME OF MANUEL SY, OCCURRED AFTER 21 JUNE
2000 OR SUBSEQUENT TO THE FILING OF THE COMPLAINT ON 02 MAY 2000.

B.

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NO

GRAVE ABUSE OF DISCRETION WAS COMMITTED BY THE RTC AND THAT THERE WAS
NO NEED TO FILE A "PETITION" TO EXERCISE THE RIGHT OF LEGAL REDEMPTION.

C.

WHETHER OR NOT THE INSTANT PETITION IS MOOT AND ACADEMIC.

D.

WHETHER OR NOT PETITIONER COMMITTED FORUM-SHOPPING.6

G.R. No. 157745 (Re: Non-Suit)

I. Appeal to the CA

While the Petition for Certiorari and Mandamus (re: Supplemental Complaint) was pending in the
CA, trial in the RTC continued. On August 29, 2001, a day before the hearing slated for August
30, 2001, the petitioner filed a Motion to Cancel Hearing, alleging that she was indisposed. On
the day of the hearing, respondents, through counsel, objected to the postponement and moved
for the dismissal of the case for non-suit. The RTC sustained the objection and issued the
assailed August 30, 2001 Order dismissing the Complaint. This Order reads in full:

ORDER

Atty. Raul S. Sison and his client arrived on time. When the case was called for hearing, the Court
found attached to the records a last minute Motion to Cancel Hearing from Atty. Perpetuo M.
Lotilla, Jr. The Court invited the attention of Atty. Sison on the said motion. Atty. Sison vehemently
objected to the postponement on the following grounds:

1) the motion is in violation of the three-day notice rule;

2) the ground stated in the motion is too shallow to be appreciated because it merely states that a
witness is indisposed without stating the indisposition and there is no Medical Certificate attached
to the motion;

3) the instant motion for postponement is one of the several postponements filed by Atty. Lotilla
and this is confirmed by the records of this case showing that last minute postponements and
other postponements were filed by Atty. Lotilla;

4) that damages are being suffered by defendants in paying the legal services of their counsel
and that defendants are unduly deprived of the possession and enjoyment of the subject property.

The Court is constrained to sustain the objection to the Motion for Postponement by Atty. Sison.
The Court has also been quite liberal with the Motions for Postponement filed by Atty. Lotilla by
granting the same. The Court holds that somehow the practice of filing several postponements
must be discouraged.

Atty. Sison therefore moved for the dismissal of the case for non-suit. The Court finds merit on the
Motion to Dismiss.

WHEREFORE, the Motion to Dismiss is granted and this case is ordered DISMISSED without
costs.

SO ORDERED.7

On January 4, 2002, the RTC denied the petitioner's Motion for Reconsideration. The dispositive
portion of this Order states:

WHEREFORE, the Motion for Reconsideration is DENIED. The resolution on the pending
incident of execution pendente lite is now considered moot and academic.8

On January 16, 2002, the RTC issued an Order correcting the January 4, 2002 Order due to a
typographical error. This Order reads in full:

ORDER

Finding merit on the Motion, the same is granted. The Court is sure that only typographical error
was committed.

The dispositive portion of the Order should therefore read as follows:

"WHEREFORE, the Motion for Reconsideration is DENIED. The resolution on the pending
incident of Motion for Writ of Possession, pendente lite, is now considered moot and academic.

SO ORDERED.9

On January 31, 2002, the petitioner filed a Notice of Appeal questioning the foregoing RTC
Orders. The case was eventually docketed as C.A.-G.R. CV No. 74045. In said appeal, the
petitioner assigned the following errors:

A.

THE TRIAL COURT GRAVELY ERRED IN ISSUING THE ORDERS DATED 30 AUGUST 2001,
04 JANUARY 2002 AND 16 JANUARY 2002, SINCE THERE WAS NO FACTUAL OR LEGAL
BASIS TO DISMISS THE COMPLAINT FOR NON-SUIT.

B.

THE TRIAL COURT GRAVELY ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT HAD
A JUST AND VALID GROUND TO MOVE FOR THE CANCELLATION OF THE HEARING SET
ON 30 AUGUST 2001.10

The CA rendered a Decision dated March 30, 2005 11 in favor of the petitioner, reversing and
setting aside the RTC Orders, the dispositive portion of this Decision reads:

WHEREFORE, premises considered, the Orders, dated August 30, 2001, January 4, 2002 and
January 16, 2002, issued by Branch 32 of the Regional Trial Court of San Pablo City are hereby
REVERSED and SET ASIDE. The record/case is hereby remanded to the court of origin for
further proceedings.

SO ORDERED.12

The respondents filed their Motion for Reconsideration, and based on the records before the
Court, this case is still pending in the CA.

II. Petition for Certiorari filed with the CA

On top of the foregoing appeal, the petitioner, four months after filing her Notice of Appeal to the
CA, or on May 28, 2002, filed with the CA a Petition for Certiorari under Rule 65, docketed as CA-
G.R. SP No. 70610 to annul the same RTC Orders that comprise the subject matter of the
ordinary appeal. Predictably, the petitioner raised essentially the same issues:

THE HONORABLE RESPONDENT COURT ACTED WITHOUT OR IN EXCESS OF

JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LOSS OF
JURISDICTION IN ISSUING THE ORDERS DATED AUGUST 30, 2001, JANUARY 4, 2002, AND
JANUARY 16, 2002, SINCE:

A.

THERE WAS NO FACTUAL OR LEGAL BASIS FOR DISMISSAL OF THE COMPLAINT ON THE
GROUNDS OF NON-SUIT;

B.

PETITIONER HAD A JUST AND VALID GROUND TO MOVE FOR THE CANCELLATION OF
THE HEARING SET ON AUGUST 30, 2001.13

On November 29, 2002, ahead of the Decision dated March 30, 2005 rendered in the appealed
case, the CA denied14 the Petition for Certiorari and held that the dismissal of the case by the
RTC on the ground of non prosequitur has the effect of an adjudication upon the merits; that an
order of dismissal, whether right or wrong, is a final order that may constitute an error of judgment
correctible by ordinary appeal and not by certiorari; that the petitioner actually chose the mode of
ordinary appeal by filing a Notice of Appeal on January 31, 2000; and that since the remedy of
appeal was available, then the petition for certiorari, being an extraordinary remedy, must fail.

Hence, the present Petition for Review under Rule 45, with the following issues that are likewise
similar to the appealed case in the CA:

A.

WHETHER OR NOT THE REGIONAL TRIAL COURT ACTED WITHOUT OR IN EXCESS OF

JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LOSS OF
JURISDICTION IN ISSUING THE ORDERS DATED AUGUST 30, 2001, JANUARY 4, 2002, AND
JANUARY 16, 2002, DISMISSING THE COMPLAINT.

1.

WHETHER OR NOT THERE WAS FACTUAL OR LEGAL BASIS FOR DISMISSAL OF THE
COMPLAINT ON THE GROUNDS OF NON-SUIT.

2.

WHETHER OR NOT PETITIONER HAD A JUST AND VALID GROUND TO MOVE FOR THE
CANCELLATION OF THE HEARING SET ON AUGUST 30, 2001.

B.

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NO

GRAVE ABUSE OF DISCRETION WAS COMMITTED BY THE RTC AND THAT ORDINARY
APPEAL IS PETITIONER'S REMEDY FROM THE DISMISSAL OF THE COMPLAINT BY THE
RTC.15

The Ruling of the Court

The Petition (re: Supplemental Complaint) is meritorious; but the Petition (re: Non-Suit) must fail.

On the denial of the Motion to Admit Supplemental Complaint:

The courts a quo held that the Supplemental Complaint constituted a substantial amendment of
the original complaint; that the relief prayed for in the former is inconsistent with the latter; and
that the causes of action of both are likewise different. This is incorrect.
Section 6, Rule 10 of the Revised Rules of Court provides:

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

As its very name denotes, a supplemental pleading only serves to bolster or add something to the
primary pleading. A supplement exists side by side with the original. It does not replace that which
it supplements.16Moreover, a supplemental pleading assumes that the original pleading is to
stand and that the issues joined with the original pleading remained an issue to be tried in the
action.17 It is but a continuation of the complaint. Its usual office is to set up new facts which
justify, enlarge or change the kind of relief with respect to the same subject matter as the
controversy referred to in the original complaint.18

The purpose of the supplemental pleading is to bring into the records new facts which will enlarge
or change the kind of relief to which the plaintiff is entitled; hence, any supplemental facts which
further develop the original right of action, or extend to vary the relief, are available by way of
supplemental complaint even though they themselves constitute a right of action. 19

In Leobrera v. Court of Appeals,20 the Court ruled that when the cause of action stated in the
supplemental complaint is different from the causes of action mentioned in the original complaint,
the court should not admit the supplemental complaint; the parties may file supplemental
pleadings only to supply deficiencies in aid of an original pleading, but not to introduce new and
independent causes of action. However, in Planters Development Bank v. LZK Holdings and
Development Co.,21 the Court held that a broad definition of causes of action should be applied:
while a matter stated in a supplemental complaint should have some relation to the cause of
action set forth in the original pleading, the fact that the supplemental pleading technically states
a new cause of action should not be a bar to its allowance but only a factor to be considered by
the court in the exercise of its discretion; and of course, a broad definition of "cause of action"
should be applied here as elsewhere.22

In this case, the consolidation of title over the subject property in the name of respondent Manuel
Sy and the issue as to whether it precluded petitioner as alleged co-owner from exercising the
right of legal redemption, are new matters that occurred after the filing of the original complaint.
The relief prayed for in the Supplemental Complaint, which is the exercise of the right of legal
redemption accorded to co-owners of property, is germane to and intertwined with the cause of
action in the Complaint for the nullification of the "Second Supplemental to the Extrajudicial
Partition" on the ground that it lacked the approval of a guardianship court.

The petitioner's right to redeem the property is dependent on the nullification of the partition which
is the subject of the original complaint. Unless the partition is nullified or declared without any
force or effect, the petitioner will not be considered a co-owner of the property and, consequently,
she will be unable to exercise any right of legal redemption under Article 1620 23 of the Civil Code
granted to co-owners of property.

The right of legal redemption as co-owner is conferred by law and is merely a natural
consequence of co-ownership. Hence, the petitioner's cause of action for legal redemption as
embodied in her Supplemental Complaint stems directly from and is an extension of her rights as
co-owner of the property subject of the Complaint.

Furthermore, the evidence required to prove petitioner's right of legal redemption in the
Supplemental Complaint will be exactly the same evidence required to prove the nullification of
the partition in the Complaint.

If a separate action is filed for the subject covered by the Supplemental Complaint, there will be
multiplicity of suits. Should a separate complaint be filed before the nullification of the partition,
the same would be dismissed for being premature pending the resolution of the Complaint for
nullification.

After all, the respondents have the right to file a supplemental answer to the Supplemental
Complaint, conformably with Section 7, Rule 11 of the Rules of Court which reads:

SEC. 7. Answer to supplemental complaint. - A supplemental complaint may be answered within

ten (10) days from notice of the order admitting the same, unless a different period is fixed by the
court. The answer to the complaint shall serve as the answer to the supplemental complaint if no
new or supplemental answer is filed.

In affirming the RTC's denial of the admission of the Supplemental Complaint, the CA rationalized
that "[i]n the event that the lower court rules in favor of petitioner, then there is no need for her to
file a petition to exercise the right of redemption. On the other hand, should the trial court issue[ ]
an adverse ruling then petitioner can still appeal the same. The petition for certiorari is therefore
not proper."24

This, too, is incorrect.

As the petitioner correctly pointed out, even if the trial court decides in her favor, the redemption
period would have lapsed and would not form a part of the decision since it was not prayed for,
much less alleged in the original complaint. In such a case, the respondents could oppose the
exercise of the right to redeem since it would not have been included in the decision over the
original complaint. And should the trial court issue an adverse ruling, the petitioner can only
appeal what is included in the ruling which is limited to the denial of the prayer for the nullification
of the partition. Naturally, such a decision would not concern any right of redemption.

Besides, as in Planters Development Bank,25 the admission of the petitioner's Supplemental

Complaint will better serve the ends of justice. The Rules of Court were designed to facilitate the
administration of justice to the rival claims of the parties in a just, speedy and inexpensive
manner.

Thus, the courts a quo erred in denying the admission of petitioner's Supplemental Complaint and
the Petition (G.R. No. 157955) should be granted.

On the alleged Forum Shopping:

This Court is now concerned with the question of whether the petitioner has engaged in forum
shopping in appealing the RTC Orders which dismissed her complaint for non-suit and in filing a
Petition for Certiorari under Rule 65 with the CA involving the same RTC Orders.

Forum shopping consists of filing multiple suits involving the same parties for the same cause of
action, either simultaneously or successively, for the purpose of obtaining a favorable judgment. 26

There is forum shopping where there exist: (a) identity of parties, or at least such parties as
represent the same interests in both actions; (b) identity of rights asserted and relief prayed for,
the relief being founded on the same facts; and (c) the identity of the two preceding particulars is
such that any judgment rendered in the pending case, regardless of which party is successful
would amount to res judicata.27

Ineluctably, the petitioner, by filing an ordinary appeal and a petition for certiorari with the CA,
engaged in forum shopping. When the petitioner commenced the appeal, only four months had
elapsed prior to her filing with the CA the Petition for Certiorari under Rule 65 and which
eventually came up to this Court by way of the instant Petition (re: Non-Suit). The elements of litis
pendentia are present between the two suits. As the CA, through its Thirteenth Division, correctly
noted, both suits are founded on exactly the same facts 28 and refer to the same subject matter
the RTC Orders which dismissed Civil Case No. SP-5703 (2000) for failure to prosecute. In both
cases, the petitioner is seeking the reversal of the RTC orders. The parties, the rights asserted,
the issues professed, and the reliefs prayed for, are all the same. It is evident that the judgment of
one forum may amount to res judicata in the other.

But it is the proposition of the petitioner that between these two cases, the one that is "proper" is
the petition for certiorari filed with the CA, since the RTC, according to her, acted with grave
abuse of discretion; and that her appeal in the CA "has proven to be not a speedy remedy" and
had only been instituted as a "precautionary measure." As proof of the averment that the appeal
was not speedy enough, she points out the fact that while the CA had just promulgated a
Decision on March 30, 2005 with respect to the appealed case, that case, however, is still
pending to this day in the CA by virtue of a motion for reconsideration recently filed by the
respondents, whereas, in the proceedings that led to the present Petition (re: Non-Suit), the CA
had rendered a Decision dated November 29, 2000 over four years ahead of its counterpart.
From these premises, she proceeds to cite jurisprudence invoking the exceptional instances
where a party may directly resort to the extraordinary remedy of certiorari, because the appeal, in
those cases, is not speedy enough.29
This is completely unacceptable.

The Court begins with the unassailable premise that the RTC orders dismissing the case for
failure to prosecute are final orders, because such orders of dismissal operate as a judgment on
the merits.30 This principle is now an express provision in Section 3, Rule 17 of the Rules of
Court, to wit:

Section 3. Dismissal due to fault of plaintiff. If, for no justifiable cause, the plaintiff fails to appear
on the date of the presentation of his evidence in chief on the complaint, or to prosecute his
action for an unreasonable length of time, or to comply with these Rules or any order of the court,
the complaint may be dismissed upon motion of the defendant or upon the court's own motion,
without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a
separate action. This dismissal shall have the effect of an adjudication upon the merits,
unless otherwise declared by the court. (emphasis supplied)

It is firmly established, and with very few exceptions, that the remedy against such final order is
appeal and not certiorari.31

The general rule is that a writ of certiorari will not issue where the remedy of appeal is available to
the aggrieved party. The remedies of appeal in the ordinary course of law and that
of certiorari under Rule 65 are mutually exclusive and not alternative or cumulative. 32 Hence, the
special civil action of certiorari under Rule 65 cannot be a substitute for an appeal where the latter
remedy is available.

While indeed there are exceptions to the foregoing rule, and assuming further that the case of the
petitioner falls under any of those exceptions which allows her to elect Rule 65, the jurisprudence
which she calls upon does not sanction the successive or cumulative filing of both an appeal and
a special civil action of certiorari. Quite the opposite, these cases set down the exceptional
circumstances where certiorari can be directly invoked in lieu of appeal.

The remedies of appeal and certiorari under Rule 65 are mutually exclusive and not alternative or
cumulative.33This is a firm judicial policy. The petitioner cannot hedge her case by wagering two
or more appeals, and, in the event that the ordinary appeal lags significantly behind the others,
she cannot post facto validate this circumstance as a demonstration that the ordinary appeal had
not been speedy or adequate enough, in order to justify the recourse to Rule 65. This practice, if
adopted, would sanction the filing of multiple suits in multiple fora, where each one, as the
petitioner couches it, becomes a "precautionary measure" for the rest, thereby increasing the
chances of a favorable decision. This is the very evil that the proscription on forum shopping
seeks to put right. In Guaranteed Hotels, Inc. v. Baltao,34 the Court stated that the grave evil
sought to be avoided by the rule against forum shopping is the rendition by two competent
tribunals of two separate and contradictory decisions. Unscrupulous party litigants, taking
advantage of a variety of competent tribunals, may repeatedly try their luck in several
different fora until a favorable result is reached. To avoid the resultant confusion, the Court
adheres strictly to the rules against forum shopping, and any violation of these rules results in the
dismissal of the case.35

Thus, the CA correctly dismissed the petition for certiorari and the petition for review (G.R. No.
157745) filed with this Court must be denied for lack of merit.

WHEREFORE, the Petition for Review in G.R. No. 157745 is DENIED for lack of merit.

The Petition for Review in G.R. No. 157955 is GRANTED. The Decisions and Resolutions of the
Court of Appeals in CA-G.R. SP No. 65629 are REVERSED AND SET ASIDE. The Regional Trial
Court, San Pablo City, Branch 32, is DIRECTED to ADMIT the petitioner's Supplemental
Complaint dated July 20, 2000.

No costs.

SO ORDERED.

LILIA B. ADA, LUZ B. ADANZA, FLORA C. BA YLON, REMO BA YLON, JOSE BA YLON, ERIC
BA YLON, FLORENTINO BA YLON, and MA. RUBY BA YLON, Petitioners, -versusFLORANTE
BA YLON, Respondent. G .R. No. 182435 Present: CARPIO, J, Chairperson, BRION,
VILLARAMA, JR., PEREZ, and REYES, JJ. Promulgated: AUG 1 3 2012 *
X----------------------------------------------------------------------------------------X DECISION REYES, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking
to annul and set aside the Decision 1 dated October 26, 2007 rendered by the Court of Appeals
(CA) in CA-G.R. CV No. 01746. The assailed decision partially reversed and set aside the
Decision2 dated October 20, 2005 issued ~y the Regional Trial Court (RTC), Tan jay City, Negros
Oriental, Branch 43 in Civil Case No. 11657. Additional member per Special Order No. 1274
dated July 30, 2012 vice Associate Justice Maria Lourdes P.A. Sereno. 1 Penned by Associate
Justice Amy C. Lazaro-Javier, with Associate Justices Pampio A. Abarintos and Francisco P.
Acosta, concurring; rolla, pp. 17-24. 2 Under the sal a of Judge Winston M. Villegas; id. at 68-
77. ... J Decision 2 G.R. No. 182435 The Antecedent Facts This case involves the estate of
spouses Florentino Baylon and Maximina Elnas Baylon (Spouses Baylon) who died on November
7, 1961 and May 5, 1974, respectively.3 At the time of their death, Spouses Baylon were survived
by their legitimate children, namely, Rita Baylon (Rita), Victoria Baylon (Victoria), Dolores Baylon
(Dolores), Panfila Gomez (Panfila), Ramon Baylon (Ramon) and herein petitioner Lilia B. Ada
(Lilia). Dolores died intestate and without issue on August 4, 1976. Victoria died on November 11,
1981 and was survived by her daughter, herein petitioner Luz B. Adanza. Ramon died intestate
on July 8, 1989 and was survived by herein respondent Florante Baylon (Florante), his child from
his first marriage, as well as by petitioner Flora Baylon, his second wife, and their legitimate
children, namely, Ramon, Jr. and herein petitioners Remo, Jose, Eric, Florentino and Ma. Ruby,
all surnamed Baylon. On July 3, 1996, the petitioners filed with the RTC a Complaint4 for
partition, accounting and damages against Florante, Rita and Panfila. They alleged therein that
Spouses Baylon, during their lifetime, owned 43 parcels of land5 all situated in Negros Oriental.
After the death of Spouses Baylon, they claimed that Rita took possession of the said parcels of
land and appropriated for herself the income from the same. Using the income produced by the
said parcels of land, Rita allegedly purchased two parcels of land, Lot No. 47096 and half of Lot
No. 4706,7 situated in Canda-uay, Dumaguete City. The petitioners averred that Rita refused to
effect a partition of the said parcels of land. 3 Id. at 59. 4 Id. at 36-51. 5 Covered by Original
Certificate of Title (OCT) Nos. FV-17761, FV-17763, FV-17753, FV-17775, FV-29781, FV-17757,
FV-17754, FV-17776, FV-17778, FV-17760, FV-17758, FV-17762, FV-17764, FV- 17766, FV-
17767, FV-17769 and FV-27756 and Tax Declaration Nos. 85-11-071, 85-04-019, 85-11-013, 85-
06-047, 85-06-048, 85-07-069, 88-06-109-A, 94-25-0021-A, 94-25-0020-A, 94-25-0056-A, 94-25-
0057-A, 94-25-0286-A, 94-25-0285-A, 85-13-086, 85-06-007, 85-13-148, 85-09-010-A, 85-13-
047, 85-09- 076-A, 85-09-054-A, 93-001-10-270R, 85-09-044-A, 85-08-035, 85-08-058, 85-09-
134 and 85-11-068. 6 Covered by Transfer Certificate of Title (TCT) No. 2775. 7 Covered by TCT
No. 2973. Decision 3 G.R. No. 182435 In their Answer,8 Florante, Rita and Panfila asserted that
they and the petitioners co-owned 229 out of the 43 parcels of land mentioned in the latters
complaint, whereas Rita actually owned 10 parcels of land10 out of the 43 parcels which the
petitioners sought to partition, while the remaining 11 parcels of land are separately owned by
Petra Cafino Adanza,11 Florante,12 Meliton Adalia,13 Consorcia Adanza,14 Lilia15 and Santiago
Mendez.16 Further, they claimed that Lot No. 4709 and half of Lot No. 4706 were acquired by
Rita using her own money. They denied that Rita appropriated solely for herself the income of the
estate of Spouses Baylon, and expressed no objection to the partition of the estate of Spouses
Baylon, but only with respect to the co-owned parcels of land. During the pendency of the case,
Rita, through a Deed of Donation dated July 6, 1997, conveyed Lot No. 4709 and half of Lot No.
4706 to Florante. On July 16, 2000, Rita died intestate and without any issue. Thereafter, learning
of the said donation inter vivos in favor of Florante, the petitioners filed a Supplemental
Pleading17 dated February 6, 2002, praying that the said donation in favor of the respondent be
rescinded in accordance with Article 1381(4) of the Civil Code. They further alleged that Rita was
already sick and very weak when the said Deed of Donation was supposedly executed and, thus,
could not have validly given her consent thereto. 8 Rollo, pp. 53-55. 9 OCT Nos. FV-17761, FV-
17763, FV-17753, FV-29781, FV-17754, FV-17760, FV-17764, FV- 17767 and FV-17769 and Tax
Declaration Nos. 85-11-071, 85-11-013, 85-06-047, 85-06-048, 94-25-0285- A, 85-06-007, 85-13-
148, 85-09-010-A, 85-09-054-A, 93-001-10-270R, 85-09-044-A, 85-08-035 and 85- 09-134. 10
OCT Nos. FV-17757, FV-17758, FV-17762, FV-17766 and FV-27756 and Tax Declaration Nos.
88-06-109-A, 94-25-0057-A, 85-13-086, 85-13-047 and 85-09-076-A. 11 OCT No. FV-17778 and
Tax Declaration No. 85-11-068. 12 OCT Nos. FV-17775 and FV-17776 and Tax Declaration Nos.
85-07-069, 94-25-0056-A and 85- 08-058. 13 Tax Declaration No. 85-04-019. 14 Tax Declaration
No. 94-25-0021-A. 15 Tax Declaration No. 94-25-0020-A. 16 Tax Declaration No. 94-25-0286-A.
17 Rollo, pp. 57-58. Decision 4 G.R. No. 182435 Florante and Panfila opposed the rescission of
the said donation, asserting that Article 1381(4) of the Civil Code applies only when there is
already a prior judicial decree on who between the contending parties actually owned the
properties under litigation.18 The RTC Decision On October 20, 2005, the RTC rendered a
Decision,19 the decretal portion of which reads: Wherefore judgment is hereby rendered: (1)
declaring the existence of co-ownership over parcels nos. 1, 2, 3, 5, 7, 10, 13, 14, 16, 17, 18, 26,
29, 30, 33, 34, 35, 36, 40 and 41 described in the complaint; (2) directing that the above
mentioned parcels of land be partitioned among the heirs of Florentino Baylon and Maximina
Baylon; (3) declaring a co-ownership on the properties of Rita Baylon namely parcels no[s]. 6, 11,
12, 20, 24, 27, 31, 32, 39 and 42 and directing that it shall be partitioned among her heirs who are
the plaintiffs and defendant in this case; (4) declaring the donation inter vivos rescinded without
prejudice to the share of Florante Baylon to the estate of Rita Baylon and directing that parcels
nos. 1 and 2 paragraph V of the complaint be included in the division of the property as of Rita
Baylon among her heirs, the parties in this case; (5) excluding from the co-ownership parcels nos.
20, 21, 22, 9, 43, 4, 8, 19 and 37. Considering that the parties failed to settle this case amicably
and could not agree on the partition, the parties are directed to nominate a representative to act
as commissioner to make the partition. He shall immediately take [his] oath of office upon [his]
appointment. The commissioner shall make a report of all the proceedings as to the partition
within fifteen (15) days from the completion of this partition. The parties are given ten (10) days
within which to object to the report after which the Court shall act on the commissioner report. SO
ORDERED.20 (Emphasis ours) 18 Id. at 20. 19 Id. at 68-77. 20 Id. at 77. Decision 5 G.R. No.
182435 The RTC held that the death of Rita during the pendency of the case, having died
intestate and without any issue, had rendered the issue of ownership insofar as parcels of land
which she claims as her own moot since the parties below are the heirs to her estate. Thus, the
RTC regarded Rita as the owner of the said 10 parcels of land and, accordingly, directed that the
same be partitioned among her heirs. Nevertheless, the RTC rescinded the donation inter vivos
of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. In rescinding the said donation inter
vivos, the RTC explained that: However[,] with respect to lot [nos.] 4709 and 4706 which [Rita]
had conveyed to Florante Baylon by way of donation inter vivos, the plaintiffs in their
supplemental pleadings (sic) assailed the same to be rescissible on the ground that it was
entered into by the defendant Rita Baylon without the knowledge and approval of the litigants [or]
of competent judicial authority. The subject parcels of lands are involved in the case for which
plaintiffs have ask[ed] the Court to partition the same among the heirs of Florentino Baylon and
Maximina Elnas. Clearly, the donation inter vivos in favor of Florante Baylon was executed to
prejudice the plaintiffs[] right to succeed to the estate of Rita Baylon in case of death considering
that as testified by Florante Baylon, Rita Baylon was very weak and he tried to give her vitamins x
x x. The donation inter vivos executed by Rita Baylon in favor of Florante Baylon is rescissible for
the reason that it refers to the parcels of land in litigation x x x without the knowledge and
approval of the plaintiffs or of this Court. However[,] the rescission shall not affect the share of
Florante Baylon to the estate of Rita Baylon.21 Florante sought reconsideration of the Decision
dated October 20, 2005 of the RTC insofar as it rescinded the donation of Lot No. 4709 and half
of Lot No. 4706 in his favor.22 He asserted that, at the time of Ritas death on July 16, 2000, Lot
No. 4709 and half of Lot No. 4706 were no longer part of her estate as the same had already
been conveyed to him through a donation inter vivos three years earlier. Thus, Florante
maintained that Lot No. 4709 and half of Lot No. 4706 should not be included in the properties
that should be partitioned among the heirs of Rita. 21 Id. at 76-77. 22 Id. at 78-79. Decision 6
G.R. No. 182435 On July 28, 2006, the RTC issued an Order23 which denied the motion for
reconsideration filed by Florante. The CA Decision On appeal, the CA rendered a Decision24
dated October 26, 2007, the dispositive portion of which reads: WHEREFORE, the Decision
dated October 20, 2005 and Order dated July 28, 2006 are REVERSED and SET ASIDE insofar
as they decreed the rescission of the Deed of Donation dated July 6, 1997 and the inclusion of lot
no. 4709 and half of lot no. 4706 in the estate of Rita Baylon. The case is REMANDED to the trial
court for the determination of ownership of lot no. 4709 and half of lot no. 4706. SO
ORDERED.25 The CA held that before the petitioners may file an action for rescission, they must
first obtain a favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged
to the estate of Spouses Baylon and not to Rita. Until then, the CA asserted, an action for
rescission is premature. Further, the CA ruled that the petitioners action for rescission cannot be
joined with their action for partition, accounting and damages through a mere supplemental
pleading. Thus: If [Lot No. 4709 and half of Lot No. 4706] belonged to the Spouses estate, then
Rita Baylons donation thereof in favor of Florante Baylon, in excess of her undivided share
therein as co-heir, is void. Surely, she could not have validly disposed of something she did not
own. In such a case, an action for rescission of the donation may, therefore, prosper. If the lots,
however, are found to have belonged exclusively to Rita Baylon, during her lifetime, her donation
thereof in favor of Florante Baylon is valid. For then, she merely exercised her ownership right to
dispose of what legally belonged to her. Upon her death, the lots no longer form part of her estate
as their ownership now pertains to Florante Baylon. On this score, an action for rescission against
such donation will not prosper. x x x. 23 Id. at 80-81. 24 Id. at 17-24. 25 Id. at 23. Decision 7 G.R.
No. 182435 Verily, before plaintiffs-appellees may file an action for rescission, they must first
obtain a favorable judicial ruling that lot no. 4709 and half of lot no. 4706 actually belonged to the
estate of Spouses Florentino and Maximina Baylon, and not to Rita Baylon during her lifetime.
Until then, an action for rescission is premature. For this matter, the applicability of Article 1381,
paragraph 4, of the New Civil Code must likewise await the trial courts resolution of the issue of
ownership. Be that as it may, an action for rescission should be filed by the parties concerned
independent of the proceedings below. The first cannot simply be lumped up with the second
through a mere supplemental pleading.26 (Citation omitted) The petitioners sought
reconsideration27 of the Decision dated October 26, 2007 but it was denied by the CA in its
Resolution28 dated March 6, 2008. Hence, this petition. Issue The lone issue to be resolved by
this Court is whether the CA erred in ruling that the donation inter vivos of Lot No. 4709 and half
of Lot No. 4706 in favor of Florante may only be rescinded if there is already a judicial
determination that the same actually belonged to the estate of Spouses Baylon. The Courts
Ruling The petition is partly meritorious. Procedural Matters Before resolving the lone substantive
issue in the instant case, this Court deems it proper to address certain procedural matters that
need to be 26 Id. at 22-23. 27 Id. at 25-28. 28 Id. at 31. Decision 8 G.R. No. 182435 threshed out
which, by laxity or otherwise, were not raised by the parties herein. Misjoinder of Causes of Action
The complaint filed by the petitioners with the RTC involves two separate, distinct and
independent actions partition and rescission. First, the petitioners raised the refusal of their co-
heirs, Florante, Rita and Panfila, to partition the properties which they inherited from Spouses
Baylon. Second, in their supplemental pleading, the petitioners assailed the donation inter vivos
of Lot No. 4709 and half of Lot No. 4706 made by Rita in favor of Florante pendente lite. The
actions of partition and rescission cannot be joined in a single action. By a joinder of actions, or
more properly, a joinder of causes of action is meant the uniting of two or more demands or rights
of action in one action, the statement of more than one cause of action in a declaration. It is the
union of two or more civil causes of action, each of which could be made the basis of a separate
suit, in the same complaint, declaration or petition. A plaintiff may under certain circumstances
join several distinct demands, controversies or rights of action in one declaration, complaint or
petition.29 The objectives of the rule or provision are to avoid a multiplicity of suits where the
same parties and subject matter are to be dealt with by effecting in one action a complete
determination of all matters in controversy and litigation between the parties involving one subject
matter, and to expedite the disposition of litigation at minimum cost. The provision 29 Republic v.
Hernandez, 323 Phil. 606, 624-625 (1996). Decision 9 G.R. No. 182435 should be construed so
as to avoid such multiplicity, where possible, without prejudice to the rights of the litigants.30
Nevertheless, while parties to an action may assert in one pleading, in the alternative or
otherwise, as many causes of action as they may have against an opposing party, such joinder of
causes of action is subject to the condition, inter alia, that the joinder shall not include special civil
actions governed by special rules.31 Here, there was a misjoinder of causes of action. The action
for partition filed by the petitioners could not be joined with the action for the rescission of the said
donation inter vivos in favor of Florante. Lest it be overlooked, an action for partition is a special
civil action governed by Rule 69 of the Rules of Court while an action for rescission is an ordinary
civil action governed by the ordinary rules of civil procedure. The variance in the procedure in the
special civil action of partition and in the ordinary civil action of rescission precludes their joinder
in one complaint or their being tried in a single proceeding to avoid confusion in determining what
rules shall govern the conduct of the proceedings as well as in the determination of the presence
of requisite elements of each particular cause of action.32 A misjoined cause of action, if not
severed upon motion of a party or by the court sua sponte, may be adjudicated by the court
together with the other causes of action. Nevertheless, misjoinder of causes of action is not a
ground for dismissal. Indeed, the courts have the power, acting upon the motion of a party to the
case or sua sponte, to order the severance of the misjoined cause of action to be proceeded with
separately.33 However, if there is no 30 Id. at 625. 31 THE RULES OF COURT, Rule 2, Section
5. 32 See Francisco, Remedial Law Compendium, Vol. 1, 9th Rev. Ed., p. 77. 33 THE RULES OF
COURT, Rule 2, Section 6. Decision 10 G.R. No. 182435 objection to the improper joinder or the
court did not motu proprio direct a severance, then there exists no bar in the simultaneous
adjudication of all the erroneously joined causes of action. On this score, our disquisition in
Republic of the Philippines v. Herbieto34 is instructive, viz: This Court, however, disagrees with
petitioner Republic in this regard. This procedural lapse committed by the respondents should not
affect the jurisdiction of the MTC to proceed with and hear their application for registration of the
Subject Lots. x x x x Considering every application for land registration filed in strict accordance
with the Property Registration Decree as a single cause of action, then the defect in the joint
application for registration filed by the respondents with the MTC constitutes a misjoinder of
causes of action and parties. Instead of a single or joint application for registration, respondents
Jeremias and David, more appropriately, should have filed separate applications for registration
of Lots No. 8422 and 8423, respectively. Misjoinder of causes of action and parties do not involve
a question of jurisdiction of the court to hear and proceed with the case. They are not even
accepted grounds for dismissal thereof. Instead, under the Rules of Court, the misjoinder of
causes of action and parties involve an implied admission of the courts jurisdiction. It
acknowledges the power of the court, acting upon the motion of a party to the case or on its own
initiative, to order the severance of the misjoined cause of action, to be proceeded with separately
(in case of misjoinder of causes of action); and/or the dropping of a party and the severance of
any claim against said misjoined party, also to be proceeded with separately (in case of
misjoinder of parties).35 (Citations omitted) It should be emphasized that the foregoing rule only
applies if the court trying the case has jurisdiction over all of the causes of action therein
notwithstanding the misjoinder of the same. If the court trying the case has no jurisdiction over a
misjoined cause of action, then such misjoined cause of action has to be severed from the other
causes of action, and if not so severed, any adjudication rendered by the court with respect to the
same would be a nullity. 34 498 Phil. 227 (2005). 35 Id. at 237-239. Decision 11 G.R. No. 182435
Here, Florante posed no objection, and neither did the RTC direct the severance of the
petitioners action for rescission from their action for partition. While this may be a patent omission
on the part of the RTC, this does not constitute a ground to assail the validity and correctness of
its decision. The RTC validly adjudicated the issues raised in the actions for partition and
rescission filed by the petitioners. Asserting a New Cause of Action in a Supplemental Pleading In
its Decision dated October 26, 2007, the CA pointed out that the said action for rescission should
have been filed by the petitioners independently of the proceedings in the action for partition. It
opined that the action for rescission could not be lumped up with the action for partition through a
mere supplemental pleading. We do not agree. A supplemental pleading may raise a new cause
of action as long as it has some relation to the original cause of action set forth in the original
complaint. Section 6, Rule 10 of the Rules of Court reads: Sec. 6. Supplemental Pleadings.
Upon motion of a party the court may, upon reasonable notice and upon such terms as are just,
permit him to serve a supplemental pleading setting forth transactions, occurrences or events
which have happened since the date of the pleading sought to be supplemented. The adverse
party may plead thereto within ten (10) days from notice of the order admitting the supplemental
pleading. In Young v. Spouses Sy,36 this Court had the opportunity to elucidate on the purpose of
a supplemental pleading. Thus: 36 534 Phil. 246 (2006). Decision 12 G.R. No. 182435 As its very
name denotes, a supplemental pleading only serves to bolster or add something to the primary
pleading. A supplement exists side by side with the original. It does not replace that which it
supplements. Moreover, a supplemental pleading assumes that the original pleading is to stand
and that the issues joined with the original pleading remained an issue to be tried in the action. It
is but a continuation of the complaint. Its usual office is to set up new facts which justify, enlarge
or change the kind of relief with respect to the same subject matter as the controversy referred to
in the original complaint. The purpose of the supplemental pleading is to bring into the records
new facts which will enlarge or change the kind of relief to which the plaintiff is entitled; hence,
any supplemental facts which further develop the original right of action, or extend to vary the
relief, are available by way of supplemental complaint even though they themselves constitute a
right of action.37 (Citations omitted and emphasis ours) Thus, a supplemental pleading may
properly allege transactions, occurrences or events which had transpired after the filing of the
pleading sought to be supplemented, even if the said supplemental facts constitute another cause
of action. Admittedly, in Leobrera v. Court of Appeals, 38 we held that a supplemental pleading
must be based on matters arising subsequent to the original pleading related to the claim or
defense presented therein, and founded on the same cause of action. We further stressed therein
that a supplemental pleading may not be used to try a new cause of action. However, in Planters
Development Bank v. LZK Holdings and Development Corp., 39 we clarified that, while a matter
stated in a supplemental complaint should have some relation to the cause of action set forth in
the original pleading, the fact that the supplemental pleading technically states a new cause of
action should not be a bar to its allowance but only a matter that may be considered by the court
in the exercise of its 37 Id. at 260. 38 252 Phil. 737 (1989). 39 496 Phil. 263 (2005). Decision 13
G.R. No. 182435 discretion. In such cases, we stressed that a broad definition of cause of
action should be applied. Here, the issue as to the validity of the donation inter vivos of Lot No.
4709 and half of Lot No. 4706 made by Rita in favor of Florante is a new cause of action that
occurred after the filing of the original complaint. However, the petitioners prayer for the
rescission of the said donation inter vivos in their supplemental pleading is germane to, and is in
fact, intertwined with the cause of action in the partition case. Lot No. 4709 and half of Lot No.
4706 are included among the properties that were sought to be partitioned. The petitioners
supplemental pleading merely amplified the original cause of action, on account of the gratuitous
conveyance of Lot No. 4709 and half of Lot No. 4706 after the filing of the original complaint and
prayed for additional reliefs, i.e., rescission. Indeed, the petitioners claim that the said lots form
part of the estate of Spouses Baylon, but cannot be partitioned unless the gratuitous conveyance
of the same is rescinded. Thus, the principal issue raised by the petitioners in their original
complaint remained the same. Main Issue: Propriety of Rescission After having threshed out the
procedural matters, we now proceed to adjudicate the substantial issue presented by the instant
petition. The petitioners assert that the CA erred in remanding the case to the RTC for the
determination of ownership of Lot No. 4709 and half of Lot No. 4706. They maintain that the RTC
aptly rescinded the said donation inter vivos of Lot No. 4709 and half of Lot No. 4706 pursuant to
Article 1381(4) of the Civil Code. Decision 14 G.R. No. 182435 In his Comment,40 Florante
asserts that before the petitioners may file an action for rescission, they must first obtain a
favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged to the estate
of Spouses Baylon. Until then, Florante avers that an action for rescission would be premature.
The petitioners contentions are well-taken. The resolution of the instant dispute is fundamentally
contingent upon a determination of whether the donation inter vivos of Lot No. 4709 and half of
Lot No. 4706 in favor of Florante may be rescinded pursuant to Article 1381(4) of the Civil Code
on the ground that the same was made during the pendency of the action for partition with the
RTC. Rescission is a remedy to address the damage or injury caused to the contracting parties or
third persons. Rescission is a remedy granted by law to the contracting parties and even to third
persons, to secure the reparation of damages caused to them by a contract, even if it should be
valid, by means of the restoration of things to their condition at the moment prior to the
celebration of said contract.41 It is a remedy to make ineffective a contract, validly entered into
and therefore obligatory under normal conditions, by reason of external causes resulting in a
pecuniary prejudice to one of the contracting parties or their creditors.42 Contracts which are
rescissible are valid contracts having all the essential requisites of a contract, but by reason of
injury or damage caused to either of the parties therein or to third persons are considered
defective and, thus, may be rescinded. 40 Rollo, pp. 96-99. 41 Tolentino, COMMENTARIES AND
JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991 ed., p. 570. 42
Caguioa, Comments and Cases on Civil Law, Vol. IV, 1968 ed., pp. 443-444. Decision 15 G.R.
No. 182435 The kinds of rescissible contracts, according to the reason for their susceptibility to
rescission, are the following: first, those which are rescissible because of lesion or prejudice;43
second, those which are rescissible on account of fraud or bad faith;44 and third, those which, by
special provisions of law,45 are susceptible to rescission.46 Contracts which refer to things
subject of litigation is rescissible pursuant to Article 1381(4) of the Civil Code. Contracts which are
rescissible due to fraud or bad faith include those which involve things under litigation, if they
have been entered into by the defendant without the knowledge and approval of the litigants or of
competent judicial authority. Thus, Article 1381(4) of the Civil Code provides: Art. 1381. The
following contracts are rescissible: x x x x (4) Those which refer to things under litigation if they
have been entered into by the defendant without the knowledge and approval of the litigants or of
competent judicial authority[.] The rescission of a contract under Article 1381(4) of the Civil Code
only requires the concurrence of the following: first, the defendant, during the pendency of the
case, enters into a contract which refers to the thing subject of litigation; and second, the said
contract was entered into without the knowledge and approval of the litigants or of a competent
judicial authority. As long as the foregoing requisites concur, it becomes the duty of the court to
order the rescission of the said contract. 43 See CIVIL CODE OF THE PHILIPPINES, Articles
1381(1) and (2) and 1098. 44 See CIVIL CODE OF THE PHILIPPINES, Articles 1381(3) and (4)
and 1382. 45 See CIVIL CODE OF THE PHILIPPINES, Articles 1189, 1191, 1526, 1534, 1538,
1539, 1542, 1556, 1560, 1567 and 1659. 46 Supra note 42, at 446; Reyes and Puno, An Outline
of Philippine Civil Law, Vol. IV, 1957 ed., pp. 233-235. Decision 16 G.R. No. 182435 The reason
for this is simple. Article 1381(4) seeks to remedy the presence of bad faith among the parties to
a case and/or any fraudulent act which they may commit with respect to the thing subject of
litigation. When a thing is the subject of a judicial controversy, it should ultimately be bound by
whatever disposition the court shall render. The parties to the case are therefore expected, in
deference to the courts exercise of jurisdiction over the case, to refrain from doing acts which
would dissipate or debase the thing subject of the litigation or otherwise render the impending
decision therein ineffectual. There is, then, a restriction on the disposition by the parties of the
thing that is the subject of the litigation. Article 1381(4) of the Civil Code requires that any contract
entered into by a defendant in a case which refers to things under litigation should be with the
knowledge and approval of the litigants or of a competent judicial authority. Further, any
disposition of the thing subject of litigation or any act which tends to render inutile the courts
impending disposition in such case, sans the knowledge and approval of the litigants or of the
court, is unmistakably and irrefutably indicative of bad faith. Such acts undermine the authority of
the court to lay down the respective rights of the parties in a case relative to the thing subject of
litigation and bind them to such determination. It should be stressed, though, that the defendant in
such a case is not absolutely proscribed from entering into a contract which refer to things under
litigation. If, for instance, a defendant enters into a contract which conveys the thing under
litigation during the pendency of the case, the conveyance would be valid, there being no definite
disposition yet coming from the court with respect to the thing subject of litigation. After all,
Decision 17 G.R. No. 182435 notwithstanding that the subject thereof is a thing under litigation,
such conveyance is but merely an exercise of ownership. This is true even if the defendant
effected the conveyance without the knowledge and approval of the litigants or of a competent
judicial authority. The absence of such knowledge or approval would not precipitate the invalidity
of an otherwise valid contract. Nevertheless, such contract, though considered valid, may be
rescinded at the instance of the other litigants pursuant to Article 1381(4) of the Civil Code. Here,
contrary to the CAs disposition, the RTC aptly ordered the rescission of the donation inter vivos
of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. The petitioners had sufficiently
established the presence of the requisites for the rescission of a contract pursuant to Article
1381(4) of the Civil Code. It is undisputed that, at the time they were gratuitously conveyed by
Rita, Lot No. 4709 and half of Lot No. 4706 are among the properties that were the subject of the
partition case then pending with the RTC. It is also undisputed that Rita, then one of the
defendants in the partition case with the RTC, did not inform nor sought the approval from the
petitioners or of the RTC with regard to the donation inter vivos of the said parcels of land to
Florante. Although the gratuitous conveyance of the said parcels of land in favor of Florante was
valid, the donation inter vivos of the same being merely an exercise of ownership, Ritas failure to
inform and seek the approval of the petitioners or the RTC regarding the conveyance gave the
petitioners the right to have the said donation rescinded pursuant to Article 1381(4) of the Civil
Code. Rescission under Article 1381(4) of the Civil Code is not preconditioned upon the judicial
determination as to the ownership of the thing subject of litigation. Decision 18 G.R. No. 182435
In this regard, we also find the assertion that rescission may only be had after the RTC had finally
determined that the parcels of land belonged to the estate of Spouses Baylon intrinsically amiss.
The petitioners right to institute the action for rescission pursuant to Article 1381(4) of the Civil
Code is not preconditioned upon the RTCs determination as to the ownership of the said parcels
of land. It bears stressing that the right to ask for the rescission of a contract under Article 1381(4)
of the Civil Code is not contingent upon the final determination of the ownership of the thing
subject of litigation. The primordial purpose of Article 1381(4) of the Civil Code is to secure the
possible effectivity of the impending judgment by a court with respect to the thing subject of
litigation. It seeks to protect the binding effect of a courts impending adjudication vis--vis the
thing subject of litigation regardless of which among the contending claims therein would
subsequently be upheld. Accordingly, a definitive judicial determination with respect to the thing
subject of litigation is not a condition sine qua non before the rescissory action contemplated
under Article 1381(4) of the Civil Code may be instituted. Moreover, conceding that the right to
bring the rescissory action pursuant to Article 1381(4) of the Civil Code is preconditioned upon a
judicial determination with regard to the thing subject litigation, this would only bring about the
very predicament that the said provision of law seeks to obviate. Assuming arguendo that a
rescissory action under Article 1381(4) of the Civil Code could only be instituted after the dispute
with respect to the thing subject of litigation is judicially determined, there is the possibility that the
same may had already been conveyed to third persons acting in good faith, rendering any judicial
determination with regard to the thing subject of litigation illusory. Surely, this paradoxical
eventuality is not what the law had envisioned. Decision 19 G.R. No. 182435 Even if the donation
inter vivos is validly rescinded, a determination as to the ownership of the subject parcels of land
is still necessary. Having established that the RTC had aptly ordered the rescission of the said
donation inter vivos in favor of Florante, the issue that has to be resolved by this Court is whether
there is still a need to determine the ownership of Lot No. 4709 and half of Lot No. 4706. In opting
not to make a determination as to the ownership of Lot No. 4709 and half of Lot No. 4706, the
RTC reasoned that the parties in the proceedings before it constitute not only the surviving heirs
of Spouses Baylon but the surviving heirs of Rita as well. As intimated earlier, Rita died intestate
during the pendency of the proceedings with the RTC without any issue, leaving the parties in the
proceedings before the RTC as her surviving heirs. Thus, the RTC insinuated, a definitive
determination as to the ownership of the said parcels of land is unnecessary since, in any case,
the said parcels of land would ultimately be adjudicated to the parties in the proceedings before it.
We do not agree. Admittedly, whoever may be adjudicated as the owner of Lot No. 4709 and half
of Lot No. 4706, be it Rita or Spouses Baylon, the same would ultimately be transmitted to the
parties in the proceedings before the RTC as they are the only surviving heirs of both Spouses
Baylon and Rita. However, the RTC failed to realize that a definitive adjudication as to the
ownership of Lot No. 4709 and half of Lot No. 4706 is essential in this case as it affects the
authority of the RTC to direct the partition of the said parcels of land. Simply put, the RTC cannot
properly direct the partition of Lot No. Decision 20 G.R. No. 182435 4709 and half of Lot No. 4706
until and unless it determines that the said parcels of land indeed form part of the estate of
Spouses Baylon. It should be stressed that the partition proceedings before the RTC only covers
the properties co-owned by the parties therein in their respective capacity as the surviving heirs of
Spouses Baylon. Hence, the authority of the RTC to issue an order of partition in the proceedings
before it only affects those properties which actually belonged to the estate of Spouses Baylon. In
this regard, if Lot No. 4709 and half of Lot No. 4706, as unwaveringly claimed by Florante, are
indeed exclusively owned by Rita, then the said parcels of land may not be partitioned
simultaneously with the other properties subject of the partition case before the RTC. In such
case, although the parties in the case before the RTC are still co-owners of the said parcels of
land, the RTC would not have the authority to direct the partition of the said parcels of land as the
proceedings before it is only concerned with the estate of Spouses Baylon. WHEREFORE, in
consideration of the foregoing disquisitions, the petition is PARTIALLY GRANTED. The Decision
dated October 26, 2007 issued by the Court of Appeals in CA-G.R. CV No. 01746 is MODIFIED
in that the Decision dated October 20, 2005 issued by the Regional Trial Court, Tanjay City,
Negros Oriental, Branch 43 in Civil Case No. 11657, insofar as it decreed the rescission of the
Deed of Donation dated July 6, 1997 is hereby REINSTATED. The case is REMANDED to the
trial court for the determination of the ownership of Lot No. 4709 and half of Lot No. 4706 in
accordance with this Decision.

THIRD DIVISION

LISAM ENTERPRISES, INC. G.R. No. 143264

represented by LOLITA A. SORIANO,
and LOLITA A. SORIANO,

Petitioners,
 Present:

- versus -

VELASCO, JR., J., Chairperson,

PERALTA,

BANCO DE ORO UNIBANK, INC. ABAD,

(formerly PHILIPPINE COMMERCIAL
INTERNATIONAL BANK),* LILIAN S. MENDOZA, and
SORIANO, ESTATE OF LEANDRO A.
SORIANO, JR., REGISTER OF DEEDS PERLAS-BERNABE, JJ.
OF LEGASPI CITY, and JESUS L.
SARTE,

Respondents.

Promulgated:

April 23, 2012

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

DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying
that the Resolution[1] of the Regional Trial Court of Legaspi City (RTC), dated November 11, 1999,
dismissing petitioners complaint, and its Order [2]dated May 15, 2000, denying herein petitioners
Motion for Reconsideration and Motion to Admit Amended Complaint, be reversed and set aside.

The records reveal the following antecedent facts.

On August 13, 1999, petitioners filed a Complaint against respondents for Annulment of Mortgage
with Prayer for Temporary Restraining Order & Preliminary Injunction with Damages with the RTC
of Legaspi City. Petitioner Lolita A. Soriano alleged that she is a stockholder of petitioner Lisam
Enterprises, Inc. (LEI) and a member of its Board of Directors, designated as its Corporate
Secretary. The Complaint also alleged the following:

4. Sometime in 1993, plaintiff LEI, in the course of its business

operation, acquired by purchase a parcel of residential land with improvement
situated at Legaspi City, covered by Transfer Certificate of Title No. 37866, copy
attached as Annex A, which property is more particularly described as follows:

xxxx

5. On or about 28 March 1996, defendant Lilian S. Soriano and the

late Leandro A. Soriano, Jr., as husband and wife (hereafter Spouses Soriano), in
their personal capacity and for their own use and benefit, obtained a loan from
defendant PCIB (Legaspi Branch) (now known as Banco de Oro Unibank, Inc.) in
the total amount of P20 Million;

6. That as security for the payment of the aforesaid credit

accommodation, the late Leandro A. Soriano, Jr. and defendant Lilian S. Soriano,
as president and treasurer, respectively of plaintiff LEI, but without authority and
consent of the board of said plaintiff and with the use of a falsified board
resolution, executed a real estate mortgage on 28 March 1996, over the above-
described property of plaintiff LEI in favor of defendant PCIB, and had the same
registered with the Office of the Registry of Deeds, Legaspi City, copy of the Real
Estate Mortgage is hereto attached and marked as Annex B, and made part
hereof, to the prejudice of plaintiffs;

7. That specifically, the Spouses Soriano, with intent to defraud and

prejudice plaintiff LEI and its stockholders, falsified the signatures of plaintiff
Lolita A. Soriano as corporate secretary and director of plaintiff LEI, in a
document denominated as board resolution purportedly issued by the board of
plaintiff LEI on 6 November 1995, making it appear that plaintiff LEI's Board met
and passed a board resolution on said date authorizing the Spouses Soriano to
mortgage or encumber all or substantially all of the properties of plaintiff LEI,
when in fact and in truth, no resolution of that nature was ever issued by the
board of plaintiff LEI, nor a meeting was called to that effect, copy of the
resolution in question is hereto attached and marked as Annex C, and made part
hereof;

8. That plaintiff Lolita A. Soriano as Corporate Secretary of plaintiff

LEI, had never signed a board resolution nor issued a Secretary's Certificate to
the effect that on 6 November 1995 a resolution was passed and approved by
plaintiff LEI authorizing the Spouses Soriano as president and treasurer,
respectively, to mortgage the above-described property of plaintiff LEI, neither did
she appear personally before a notary public on 28 March 1996 to acknowledge
or attest to the issuance of a supposed board resolution issued by plaintiff LEI on
6 November 1995;

9. That defendant PCIB, knowing fully well that the property being
mortgaged by the Spouses Soriano belongs to plaintiff LEI, a corporation,
negligently and miserably failed to exercise due care and prudence required of a
banking institution. Specifically, defendant PCIB failed to investigate and to delve
into the propriety of the issuance of or due execution of subject board resolution,
which is the very foundation of the validity of subject real estate
mortgage. Further, it failed to verify the genuineness of the signatures appearing
in said board resolution nor to confirm the fact of its issuance with plaintiff Lolita
A. Soriano, as the corporate secretary of plaintiff LEI. Furthermore, the height of
its negligence was displayed when it disregarded or failed to notice that the
questioned board resolution with a Secretary's Certificate was notarized only
on 28 March 1996 or after the lapse of more than four (4) months from its
purported date of issue on 6 November 1995. That these circumstances should
have put defendant PCIB on notice of the flaws and infirmities of the questioned
board resolution. Unfortunately, it negligently failed to exercise due care and
prudence expected of a banking institution;

10. That having been executed without authority of the board of plaintiff
LEI said real estate mortgage dated 28 March 1996 executed by the Spouses
Soriano, as officers of plaintiff LEI in favor of defendant PCIB, is the null and void
and has no legal effect upon said plaintiff. Consequently, said mortgage deed
cannot be used nor resorted to by defendant PCIB against subject property of
plaintiff LEI as no right or rights whatsoever were created nor granted thereunder
by reason of its nullity;

11. Worst, sometime in August 1998, in order to remedy the defects in

the mortgage transaction entered by the Spouses Soriano and defendant PCIB,
the former, with the unlawful instigation of the latter, signed a document
denominated as Deed of Assumption of Loans and Mortgage Obligations and
Amendment of Mortgage; wherein in said document, plaintiff LEI was made to
assume the P20 Million personal indebtedness of the Spouses Soriano with
defendant PCIB, when in fact and in truth it never so assumed the same as no
board resolution duly certified to by plaintiff Lolita A. Soriano as corporate
secretary was ever issued to that effect, copy of said Deed is hereto attached
and marked as Annex D, and made part hereof;

12. Moreover, to make it appear that plaintiff LEI had consented to the
execution of said deed of assumption of mortgage, the Spouses Soriano again,
through the unlawful instigation and connivance of defendant PCIB, falsified the
signature of plaintiff Lolita A. Soriano as corporate secretary of plaintiff LEI in a
document denominated as Corporate Resolution to Borrow, to make it appear
that plaintiff LEI so authorized the Spouses Soriano to perform said acts for the
corporation, when in fact and in truth no such authority or resolution was ever
issued nor granted by plaintiff LEI, nor a meeting called and held for said purpose
in accordance with its By-laws; copy of which is hereto attached and marked as
Annex E and made part hereof;

13. That said irregular transactions of defendant Lilian S. Soriano and

her husband Leandro A. Soriano, Jr., on one hand, and defendant PCIB, on the
other, were discovered by plaintiff Lolita A. Soriano sometime in April 1999. That
immediately upon discovery, said plaintiff, for herself and on behalf and for the
benefit of plaintiff LEI, made demands upon defendants Lilian S. Soriano and the
Estate of Leandro A. Soriano, Jr., to free subject property of plaintiff LEI from
such mortgage lien, by paying in full their personal indebtedness to defendant
PCIB in the principal sum of P20 Million. However, said defendants, for reason
only known to them, continued and still continue to ignore said demands, to the
damage and prejudice of plaintiffs;
 14. Hence, on 25 June 1999, plaintiffs commenced a derivative suit
against defendants Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr.,
before the Securities and Exchange Commission, docketed as SEC Case No.
06-99-6339 for Fraudulent Scheme and Unlawful Machination with Damages in
order to protect and preserve the rights of plaintiffs, copy of said complaint is
hereto attached as AnnexF;

15. That plaintiffs, in order to seek complete relief from the unauthorized
mortgage transaction between the Spouses Soriano and defendant PCIB, were
further compelled to institute this instant case to seek the nullification of the real
estate mortgage dated 28 March 1999.Consequently, plaintiffs were forced to
retain the services of a lawyer with whom they contracted to pay P100,000.00 as
and for attorney's fee;

16. That unfortunately, the plaintiffs learned that on 30 July 1999,

defendant Sarte, in his capacity as Notary Public of Daraga, Albay and upon
application of defendant PCIB, issued a notice of Auction/Foreclosure Sale of the
property subject of the mortgage in question and has set the auction sale on 7
September 1999 x x x;

17. That by reason of the fraudulent and surreptitious schemes

perpetrated by defendant Lilian S. Soriano and her husband, the late Leandro A.
Soriano, Jr., in unlawful connivance and through the gross negligence of
defendant PCIB, plaintiff Lolita A. Soriano, as stockholder, suffered sleepless
nights, moral shock, wounded feeling, hurt pride and similar injuries, hence,
should be awarded moral damages in the amount of P200,000.00.

After service of summons on all defendants, the RTC issued a temporary restraining order on
August 25, 1990 and, after hearing, went on to issue a writ of preliminary injunction enjoining
respondent PCIB (now known as Banco de Oro Unibank, Inc.) from proceeding with the auction
sale of the subject property.

Respondents Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr. filed an Answer
dated September 25, 1999, stating that the Spouses Lilian and Leandro Soriano, Jr. were duly
authorized by LEI to mortgage the subject property; that proceeds of the loan from respondent
PCIB were for the use and benefit of LEI; that all notarized documents submitted to PCIB by the
Spouses Soriano bore the genuine signature of Lolita Soriano; and that although the Spouses
Soriano indeed received demands from petitioner Lolita Soriano for them to pay the loan, they
gave satisfactory explanations to the latter why her demands could not be honored. It was,
likewise, alleged in said Answer that it was respondent Lilian Soriano who should be entitled to
moral damages and attorney's fees.

On September 28, 1999, respondent PCIB filed a Motion to Dismiss the Complaint on grounds of
lack of legal capacity to sue, failure to state cause of action, and litis pendencia. Petitioners filed
an Opposition thereto, while PCIB's co-defendants filed a Motion to Suspend Action.
On November 11, 1999, the RTC issued the first assailed Resolution dismissing petitioners'
Complaint. Petitioners then filed a Motion for Reconsideration of said Resolution. While awaiting
resolution of the motion for reconsideration, petitioners also filed, on January 4, 2000, a Motion to
Admit Amended Complaint, amending paragraph 13 of the original complaint to read as follows:

13. That said irregular transactions of defendant Lilian S. Soriano and her
husband Leandro A. Soriano, Jr., on one hand, and defendant PCIB, on the
other, were discovered by plaintiff Lolita A. Soriano sometime in April 1999. That
immediately upon discovery, said plaintiff, for herself and on behalf and for the
benefit of plaintiff LEI, made demands upon defendant Lilian S. Soriano and the
Estate of Leandro A. Soriano, Jr., to free subject property of plaintiff LEI from
such mortgage lien, by paying in full their personal indebtedness to defendant
PCIB in the principal sum of P20 Million. However, said defendants, for reason
only known to them, continued and still continue to ignore said demands, to the
damage and prejudice of plaintiffs; that plaintiff Lolita A. Soriano likewise made
demands upon the Board of Directors of Lisam Enterprises, Inc., to make legal
steps to protect the interest of the corporation from said fraudulent transaction,
but unfortunately, until now, no such legal step was ever taken by the Board,
hence, this action for the benefit and in behalf of the corporation;

On May 15, 2000, the trial court issued the questioned Order denying both the Motion for
Reconsideration and the Motion to Admit Amended Complaint. The trial court held that no new
argument had been raised by petitioners in their motion for reconsideration to address the fact of
plaintiffs' failure to allege in the complaint that petitioner Lolita A. Soriano made demands upon
the Board of Directors of Lisam Enterprises, Inc. to take steps to protect the interest of the
corporation against the fraudulent acts of the Spouses Soriano and PCIB. The trial court further
ruled that the Amended Complaint can no longer be admitted, because the same absolutely
changed petitioners' cause of action.

Petitioners filed the present petition with this Court, alleging that what are involved are pure
questions of law, to wit:

FIRST, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE ERROR

WHEN IT DISMISSED THE ACTION ON THE GROUND THAT PETITIONER
LOLITA A. SORIANO HAS NO LEGAL CAPACITY TO SUE AS SHE IS NOT A
REAL PARTY-IN-INTEREST;

SECOND, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE

ERROR WHEN IT DISMISSED THE ACTION ON THE GROUND THAT THERE IS
ANOTHER ACTION PENDING BETWEEN THE SAME PARTIES FOR THE SAME
CAUSE;
 THIRD, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE ERROR
WHEN IT DISMISSED THE ACTION ON THE GROUND THAT THE COMPLAINT
STATES NO CAUSE OF ACTION;

FOURTH, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE

ERROR WHEN IT DENIED THE ADMISSION OF PETITIONERS' AMENDED
COMPLAINT FILED AS A MATTER OF RIGHT, AFTER THE ORDER OF
DISMISSAL WAS ISSUED BUT BEFORE ITS FINALITY.

FIFTH, WHETHER OR NOT THE COURT ERRED IN DISMISSING THE ACTION,

INSTEAD OF MERELY SUSPENDING THE SAME FOLLOWING THE DOCTRINE
LAID DOWN IN UNION GLASS. [3]

The petition is impressed with merit.

The Court shall first delve into the matter of the propriety of the denial of the motion to admit
amended complaint. Pertinent provisions of Rule 10 of the Rules of Court provide as follows:

Sec. 2. Amendments as a matter of right. A party may amend his pleadings

once as a matter of right at any time before a responsive pleading is served x x x.

Sec. 3. Amendments by leave of court. Except as provided in the next

preceding section, substantial amendments may be made only upon leave of
court. But such leave may be refused if it appears to the court that the motion
was made with intent to delay. x x x

It should be noted that respondents Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr.
already filed their Answer, to petitioners' complaint, and the claims being asserted were made
against said parties. A responsive pleading having been filed, amendments to the complaint may,
therefore, be made only by leave of court and no longer as a matter of right. However, in Tiu v.
Philippine Bank of Communications,[4] the Court discussed this rule at length, to wit:

x x x [A]fter petitioners have filed their answer, Section 3, Rule 10 of the Rules of
Court specifically allows amendment by leave of court. The said Section states:
 SECTION 3. Amendments by leave of court. - Except as
provided in the next preceding section, substantial amendments
may be made only upon leave of court. But such leave may be
refused if it appears to the court that the motion was made with
intent to delay. Orders of the court upon the matters provided in
this section shall be made upon motion filed in court, and after
notice to the adverse party, and an opportunity to be heard.

This Court has emphasized the import of Section 3, Rule 10 of the 1997 Rules of
Civil Procedure in Valenzuela v. Court of Appeals, thus:

Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil

Procedure amended the former rule in such manner that the
phrase "or that the cause of action or defense is substantially
altered" was stricken-off and not retained in the new rules. The
clear import of such amendment in Section 3, Rule 10 is that
under the new rules, "the amendment may (now) substantially
alter the cause of action or defense." This should only be true,
however, when despite a substantial change or alteration in the
cause of action or defense, the amendments sought to be made
shall serve the higher interests of substantial justice, and prevent
delay and equally promote the laudable objective of the rules
which is to secure a "just, speedy and inexpensive disposition of
every action and proceeding.

The granting of leave to file amended pleading is a matter particularly addressed

to the sound discretion of the trial court; and that discretion is broad, subject only
to the limitations that the amendments should not substantially change the cause
of action or alter the theory of the case, or that it was not made to delay the
action. Nevertheless, as enunciated in Valenzuela, even if the amendment
substantially alters the cause of action or defense, such amendment could still be
allowed when it is sought to serve the higher interest of substantial justice,
prevent delay, and secure a just, speedy and inexpensive disposition of actions
and proceedings.

The courts should be liberal in allowing amendments to pleadings to avoid

a multiplicity of suits and in order that the real controversies between the
parties are presented, their rights determined, and the case decided on the
merits without unnecessary delay. This liberality is greatest in the early
stages of a lawsuit, especially in this case where the amendment was made
before the trial of the case, thereby giving the petitioners all the time
allowed by law to answer and to prepare for trial.

Furthermore, amendments to pleadings are generally favored and should be

liberally allowed in furtherance of justice in order that every case, may so far as
possible, be determined on its real facts and in order to speed up the trial of the
case or prevent the circuitry of action and unnecessary expense. That is, unless
there are circumstances such as inexcusable delay or the taking of the adverse
party by surprise or the like, which might justify a refusal of permission to amend.
[5]

Since, as explained above, amendments are generally favored, it would have been more fitting
for the trial court to extend such liberality towards petitioners by admitting the amended complaint
which was filed before the order dismissing the original complaint became final and executory. It
is quite apparent that since trial proper had not yet even begun, allowing the amendment would
not have caused any delay. Moreover, doing

so would have served the higher interest of justice as this would provide the best opportunity for
the issues among all parties to be thoroughly threshed out and the rights of all parties finally
determined. Hence, the Court overrules the trial court's denial of the motion to admit the
amended complaint, and orders the admission of the same.

With the amendment stating that plaintiff Lolita A. Soriano likewise made demands upon the
Board of Directors of Lisam Enterprises, Inc., to make legal steps to protect the interest of the
corporation from said fraudulent transaction, but unfortunately, until now, no such legal step was
ever taken by the Board, hence, this action for the benefit and in behalf of the corporation, does
the amended complaint now sufficiently state a cause of action? In Hi-Yield Realty, Incorporated
v. Court of Appeals,[6]the Court enumerated the requisites for filing a derivative suit, as follows:

a) the party bringing the suit should be a shareholder as of the time of the act or
transaction complained of, the number of his shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on

the board of directors for the appropriate relief but the latter has failed or refused
to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or

harm having been, or being caused to the corporation and not to the particular
stockholder bringing the suit.[7]

A reading of the amended complaint will reveal that all the foregoing requisites had been alleged
therein. Hence, the amended complaint remedied the defect in the original complaint and now
sufficiently states a cause of action.

Respondent PCIB should not complain that admitting the amended complaint after they pointed
out a defect in the original complaint would be unfair to them. They should have been well aware
that due to the changes made by the 1997 Rules of Civil Procedure, amendments may now
substantially alter the cause of action or defense. It should not have been a surprise to them that
petitioners would redress the defect in the original complaint by substantially amending the same,
which course of action is now allowed under the new rules.
The next question then is, upon admission of the amended complaint, would it still be proper for
the trial court to dismiss the complaint? The Court answers in the negative.

Saura v. Saura, Jr.[8] is closely analogous to the present case. In Saura,[9] the petitioners therein,
stockholders of a corporation, sold a disputed real property owned by the corporation, despite the
existence of a case in the Securities and Exchange Commission (SEC) between stockholders for
annulment of subscription, recovery of corporate assets and funds, etc. The sale was done
without the knowledge of the other stockholders, thus, said stockholders filed a separate case for
annulment of sale, declaration of nullity of deed of exchange, recovery of possession, etc.,
against the stockholders who took part in the sale, and the buyer of the property, filing said case
with the regular court (RTC). Petitioners therein also filed a motion to dismiss the complaint for
annulment of sale filed with the RTC, on the ground of forum shopping, lack of jurisdiction, lack of
cause of action, and litis pendentia among others. The Court held that the complaint for
annulment of sale was properly filed with the regular court, because the buyer of the property had
no intra-corporate relationship with the stockholders, hence, the buyer could not be joined as
party-defendant in the SEC case. To include said buyer as a party-defendant in the case pending
with the SEC would violate the then existing rule on jurisdiction over intra-corporate disputes. The
Court also struck down the argument that there was forum shopping, ruling that the issue of
recovery of corporate assets and funds pending with the SEC is a totally different issue from the
issue of the validity of the sale, so a decision in the SEC case would not amount to res judicata in
the case before the regular court. Thus, the Court merely ordered the suspension of the
proceedings before the RTC until the final outcome of the SEC case.

The foregoing pronouncements of the Court are exactly in point with the issues in the present
case. Here, the complaint is for annulment of mortgage with the mortgagee bank as one of the
defendants, thus, as held in Saura,[10] jurisdiction over said complaint is lodged with the regular
courts because the mortgagee bank has no intra-corporate relationship with the
stockholders. There can also be no forum shopping, because there is no identity of issues. The
issue being threshed out in the SEC case is the due execution, authenticity or validity of board
resolutions and other documents used to facilitate the execution of the mortgage, while the issue
in the case filed by petitioners with the RTC is the validity of the mortgage itself executed
between the bank and the corporation, purportedly represented by the spouses Leandro and
Lilian Soriano, the President and Treasurer of petitioner LEI, respectively. Thus, there is no
reason to dismiss the complaint in this case.

IN VIEW OF THE FOREGOING, the Resolution of the Regional Trial Court of Legaspi City,
Branch 4, dated November 11, 1999, dismissing petitioners complaint in Civil Case No. 9729, and
its Order dated May 15, 2000, denying herein petitioners Motion for Reconsideration and Motion
to Admit Amended Complaint, are hereby REVERSED and SET
ASIDE. The Regional Trial Court of Legaspi City, Branch 4, is hereby DIRECTED to ADMIT the
Amended Complaint.

Considering further, that this case has been pending for some time and, under R.A. No. 8799, it is
now the regular courts which have jurisdiction over intra-
corporate disputes, the Regional Trial Court of Legaspi City, Branch 4 is
hereby DIRECTED to PROCEED with dispatch in trying Civil Case No. 9729.

SO ORDERED.

HENRY CHING TIU, CHRISTOPHER HALIN G.R. No. 151932

GO, and GEORGE CO,

Petitioners,
Present:

CARPIO MORALES, J.,*

CHICO-NAZARIO,
- versus -
Acting Chairperson,**

VELASCO, JR.,

NACHURA, and

PERALTA, JJ.
PHILIPPINE BANK OF COMMUNICATIONS,

Respondent.
Promulgated:

August 19, 2009

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

DECISION

PERALTA, J.:
 This is a petition for review on certiorari, under Rule 45 of the Rules of Court, seeking to

annul and set aside the Decision[1] dated September 28, 2001, rendered by the Court of Appeals

(CA) in CA-G.R. SP No. 57732, dismissing the petition and affirming the assailed Orders of the

Regional Trial Court (RTC) of Cagayan de Oro City, Branch 21 in Civil Case No. 99-352, dated

December 14, 1999 and January 11, 2000.

The factual and procedural antecedents are as follows:

In June 1993, Asian Water Resources, Inc. (AWRI), represented by herein petitioners,

applied for a real estate loan with the Philippine Bank of Communications (PBCOM) to fund its

purified water distribution business. In support of the loan application, petitioners submitted a

Board Resolution[2] dated June 7, 1993. The loan was guaranteed by collateral over the property

covered by Transfer Certificate of Title No. T-13020.[3] The loan was eventually approved.[4]

In August 1996, AWRI applied for a bigger loan from PBCOM for additional capitalization

using the same Board Resolution, but without any additional real estate collateral. Considering

that the proposed additional loan was unsecured, PBCOM required all the members of the Board

of Directors of AWRI to become sureties. Thus, on August 16, 1996, a Surety Agreement [5] was

executed by its Directors and acknowledged by a notary public on the same date. All copies of

the Surety Agreement, except two, were kept by PBCOM. Of the two copies kept by the notary

public, one copy was retained for his notarial file and the other was sent to the Records

Management and Archives Office, through the Office of the RTC Clerk of Court. [6]

Thereafter, on December 16, 1998, AWRI informed the bank of its desire to surrender

and/or assign in its favor, all the present properties of the former to apply as dacion en pago for

AWRIs existing loan obligation to the bank. [7] On January 11, 1999, PBCOM sent a reply denying

the request. On May 12, 1999, PBCOM sent a letter to petitioners demanding full payment of its

obligation to the bank.[8]

Its demands having remained unheeded, PBCOM instructed its counsel to file a

complaint for collection against petitioners. The case was docketed as Civil Case No. 99-352.
 On July 3, 1999, petitioners filed their Answer. It alleged, among other things, that they

were not personally liable on the promissory notes, because they signed the Surety Agreement in

their capacities as officers of AWRI. They claimed that the Surety Agreement attached to the

complaint as Annexes A to A-2[9] were falsified, considering that when they signed the same, the

words In his personal capacity did not yet appear in the document and were merely intercalated

thereon without their knowledge and consent. [10]

In support of their allegations, petitioners attached to their Answer a certified photocopy

of the Surety Agreement issued on March 25, 1999 by the Records Management and Archives

Office in Davao City,[11] showing that the words In his personal capacity were not found at the foot

of page two of the document where their signatures appeared. [12]

Because of this development, PBCOMs counsel searched for and retrieved the file copy

of the Surety Agreement. The notarial copy showed that the words In his personal capacity did

not appear on page two of the Surety Agreement.[13]

Petitioners counsel then asked PBCOM to explain the alteration appearing on the

agreement. PBCOM subsequently discovered that the insertion was ordered by the bank

auditor. It alleged that when the Surety Agreement was inspected by the bank auditor, he called

the attention of the loans clerk, Kenneth Cabahug, as to why the words In his personal capacity

were not indicated under the signature of each surety, in accordance with bank standard

operating procedures. The auditor then ordered Mr. Cabahug to type the words In his personal

capacity below the second signatures of petitioners. However, the notary public was never

informed of the insertion.[14] Mr. Cabahug subsequently executed an affidavit [15] attesting to the

circumstances why the insertion was made.

PBCOM then filed a Reply and Answer to Counterclaim with Motion for Leave of Court to

Substitute Annex A of the Complaint,[16] wherein it attached the duplicate original copy retrieved

from the file of the notary public. PBCOM also admitted its mistake in making the insertion and

explained that it was made without the knowledge and consent of the notary public. PBCOM
maintained that the insertion was not a falsification, but was made only to speak the truth of the

parties intentions. PBCOM also contended that petitioners were already primarily liable on the

Surety Agreement whether or not the insertion was made, having admitted in their pleadings that

they voluntarily executed and signed the Surety Agreement in the original form. PBCOM, invoking

a liberal application of the Rules, emphasized that the motion incorporated in the pleading can be

treated as a motion for leave of court to amend and admit the amended complaint pursuant to

Section 3, Rule 10 of the Rules of Court.

On December 14, 1999, the RTC issued an Order [17] allowing the substitution of the

altered document with the original Surety Agreement, the pertinent portion of which reads:

August 16, 1996 attached as Annexes A to A-2 of the reply and

answer Resolving the Motion to Substitute Annexes A to A-2 of the complaint and
the opposition thereto by the defendant, this Court, in the interest of justice,
hereby allows the substitution of said Annexes A to A-2 of the complaint with the
duplicate original of notarial copy of the Agreement dated to counter-claim.

SO ORDERED.

Petitioners filed a motion for reconsideration, [18] but it was denied in the Order[19] dated

January 11, 2000, to wit:

Resolving the motion for reconsideration and the opposition thereto, the
Court finds the motion substantially a reiteration of the opposition to plaintiffs
motion.

Additionally, the instant motion for reconsideration treats on evidentiary

matter which can be properly ventilated in the trial proper, hence, there is no
cogent reason to disturb the Courts order of December 14, 1999.

SO ORDERED.

Aggrieved, petitioners sought recourse before the CA via a petition for certiorari under

Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 57732.

 Petitioners claimed that the RTC acted without or in excess of jurisdiction, or with grave

abuse of discretion amounting to lack or excess of jurisdiction in denying their motion for

reconsideration and in allowing PBCOM to substitute the altered copy of the Surety Agreement

with the duplicate original notarial copy thereof considering that the latters cause of action was

solely and principally founded on the falsified document marked as Annexes A to A-2. [20]

On September 28, 2001, the CA rendered a Decision dismissing the petition for lack of

merit, the decretal portion of which reads:

WHEREFORE, foregoing considered, the instant petition is hereby DENIED

DUE COURSE and, accordingly, DISMISSED for lack of merit. The assailed
Orders dated December 14, 1999 and January 11, 2000 of the Regional Trial
Court of Cagayan de Oro City, Branch 21, are hereby AFFIRMED in toto.

SO ORDERED.[21]

Hence, the petition assigning the following errors:

THE COURT COMMITTED A REVERSIBLE ERROR IN AFFIRMING IN TOTO

THE ORDER OF THE LOWER COURT ALLOWING THE SUBSTITUTION OF
THE FALSIFIED DOCUMENT BY RELYING ON THE PROVISION OF SECTION
3, RULE 10 OF THE RULES OF COURT.

II

ACTING AS THE COURT ON THE PETITION FOR CERTIORARI, THE COURT

COMMITTED A REVERSIBLE ERROR HAVING NO JURISDICTION TO RULE
ON THE OBLIGATION OF THE PETITIONERS BASED ON THE FALSIFIED
DOCUMENT

III

THE COURT ERRED IN GIVING CREDENCE TO THE ALLEGATION OF

RESPONDENT BANK THAT FROM AUGUST 15 TO DECEMBER 9, 1997
ASIAN WATER RESOURCES INC. OBTAINED SEVERAL AVAILMENTS
OF NEW BIGGER AND ADDITIONAL LOANS
 TOTALLING P2,030,000.00 EVIDENCED BY 4 PROMISSORY NOTES
MARKED AS ANNEXES B, B-1, B-2 AND B-3.

IV

THE COURT FAILED TO CONSIDER THE MISAPPLICATION OF THE

PRINCIPLE OF EQUITY COMMITTED BY THE LOWER COURT IN ORDERING
THE SUBSTITUTION OF THE FALSIFIED DOCUMENT.[22]

Petitioners argue that the CA committed a reversible error in affirming the Order of the

RTC allowing the substitution of the document by relying on Section 3, Rule 10 of the Rules of

Court. Petitioners assert that the Rules do not allow the withdrawal and substitution of a falsified

document once discovered by the opposing party.

Petitioners maintain that PBCOMs cause of action was solely and principally founded on

the alleged falsified document originally marked as

Annexes A to A-2. Thus, the withdrawal of the document results in the automatic withdrawal of the

whole complaint on the ground that there is no more cause of action to be maintained or enforced

by plaintiff against petitioners. Also, petitioners argue that if the substitution will be allowed, their

defenses that were anchored on Annexes A to A-2 would be gravely affected. Moreover,

considering that the said document was already removed, withdrawn, and disregarded by the

RTC, the withdrawal and substitution of the document would prevent petitioners from introducing

the falsified documents during the trial as part of their evidence. [23]

Petitioners submit that the RTC misapplied the principle of equity when it allowed

PBCOM to substitute the document with the original agreement. Petitioners also claim that the

remedy of appeal after the termination of the case in the RTC would become ineffective and

inadequate if the Order of the RTC allowing the withdrawal and substitution of the document

would not be nullified, because the falsified document would no longer be found in the records of

the case during the appeal.[24]

 Petitioners contend that the CA went beyond the issue raised before it when it interpreted

the provisions of the Surety Agreement, particularly paragraph 4 thereof, and then ruled on the

obligations of the parties based on

the document. Petitioners posit that the CA prematurely ruled on petitioners obligations,

considering that their obligations should be determined during trial on the merits, after the parties

have been given the opportunity to present their evidence in support of their respective

claims. Petitioners stress that the CA went into the merit of the case when it gave credence to the

statement of fact of PBCOM that From August 15 to December 9, 1997, Asian Water Resources,

Inc. obtained several availments on its additional loans totalling P2,030,000.00 as evidenced by 4

promissory notes marked as Annexes B, B-1, B-2, and B-3. Thus, the conclusion of the CA in

declaring the petitioners liable as sureties violated their right to due process. [25]

For its part, PBCOM argues that since the complaint is based on an actionable

document, i.e., the surety agreement, the original or a copy thereof should be attached to the

pleading as an exhibit, which shall be deemed part of the pleading.Considering that the surety

agreement is annexed to the complaint, it is an integral part thereof and its substitution with

another copy is in the nature of a substantial amendment, which is allowed by the Rules, but with

prior leave of court.

Moreover, PBCOM alleges that since the Rules provides that substantial amendments

may be made upon leave of court, the authority of the RTC to allow the amendment is

discretionary. Thus, the CA correctly held that the act of granting the said substitution was within

the clear and proper discretion of the RTC.

The petition is without merit.

As to the substitution of the earlier surety agreement that was annexed to the complaint

with the original thereof, this Court finds that the RTC did not err in allowing the substitution.

The pertinent rule on actionable documents is found in Section 7, Rule 8 of the Rules of

Court, which provides that when the cause of action is anchored on a document, its substance
must be set forth, and the original or a copy thereof shall be attached to the pleading as an exhibit

and deemed a part thereof, to wit:

Section 7. Action or defense based on document. Whenever an action or

defense is based upon a written instrument or document, the substance of such
instrument or document shall be set forth in the pleading, and the original or a
copy thereof shall be attached to the pleading as an exhibit, which shall be
deemed to be a part of the pleading, or said copy may with like effect be set forth
in the pleading.

With respect to PBCOMs right to amend its complaint, including the documents annexed

thereto, after petitioners have filed their answer, Section 3, Rule 10 of the Rules of Court

specifically allows amendment by leave of court. The said Section states:

SECTION 3. Amendments by leave of court. Except as provided in the next

preceding section, substantial amendments may be made only upon leave of
court. But such leave may be refused if it appears to the court that the motion
was made with intent to delay. Orders of the court upon the matters provided in
this section shall be made upon motion filed in court, and after notice to the
adverse party, and an opportunity to be heard.

This Court has emphasized the import of Section 3, Rule 10 of the 1997 Rules of Civil Procedure

in Valenzuela v. Court of Appeals,[26] thus:

Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil Procedure

amended the former rule in such manner that the phrase or that the cause of
action or defense is substantially altered was stricken-off and not retained in the
new rules. The clear import of such amendment in Section 3, Rule 10 is that
under the new rules, the amendment may (now) substantially alter the cause of
action or defense. This should only be true, however, when despite a substantial
change or alteration in the cause of action or defense, the amendments sought to
be made shall serve the higher interests of substantial justice, and prevent delay
and equally promote the laudable objective of the rules which is to secure a just,
speedy and inexpensive disposition of every action and proceeding. [27]

The granting of leave to file amended pleading is a matter particularly addressed to the

sound discretion of the trial court; and that discretion is broad, subject only to the limitations that

the amendments should not substantially change the cause of action or alter the theory of the

case, or that it was not made to delay the action. [28] Nevertheless, as enunciated in Valenzuela,

even if the amendment substantially alters the cause of action or defense, such amendment
could still be allowed when it is sought to serve the higher interest of substantial justice; prevent

delay; and secure a just, speedy and inexpensive disposition of actions and proceedings.

The courts should be liberal in allowing amendments to pleadings to avoid a multiplicity of

suits and in order that the real controversies between the parties are presented, their rights

determined, and the case decided on the merits without unnecessary delay. This liberality is

greatest in the early stages of a lawsuit, especially in this case where the amendment was made

before the trial of the case, thereby giving the petitioners all the time allowed by law to answer

and to prepare for trial.[29]

Furthermore, amendments to pleadings are generally favored and should be liberally

allowed in furtherance of justice in order that every case, may so far as possible, be determined

on its real facts and in order to speed up the trial of the case or prevent the circuity of action and

unnecessary expense. That is, unless there are circumstances such as inexcusable delay or the

taking of the adverse party by surprise or the like, which might justify a refusal of permission to

amend.[30]

In the present case, there was no fraudulent intent on the part of PBCOM in submitting

the altered surety agreement. In fact, the bank admitted that it was a mistake on their part to have

submitted it in the first place instead of the original agreement. It also admitted that, through

inadvertence, the copy that was attached to the complaint was the copy wherein the words IN

HIS PERSONAL CAPACITY were inserted to conform to the banks standard practice. This

alteration was made without the knowledge of the notary public. PBCOMs counsel had no idea

that what it submitted was the altered document, thereby necessitating the substitution of the

surety agreement with the original thereof, in order that the case would be judiciously resolved.

Verily, it is a cardinal rule of evidence, not just one of technicality but of substance, that

the written document is the best evidence of its own contents. It is also a matter of both principle

and policy that when the written contract is established as the repository of the parties

stipulations, any other evidence is excluded, and the same cannot be used to substitute for such

contract, or even to alter or contradict the latter.[31] The original surety agreement is the best

evidence that could establish the parties respective rights and obligations. In effect, the RTC
merely allowed the amendment of the complaint, which consequently included the substitution of

the altered surety agreement with a copy of the original.

It is well to remember at this point that rules of procedure are but mere tools designed to

facilitate the attainment of justice. Their strict and rigid application that would result in

technicalities that tend to frustrate rather than promote substantial justice must always be

avoided.[32] Applied to the instant case, this not only assures that it would be resolved based on

real facts, but would also aid in the speedy disposition of the case by utilizing the best evidence

possible to determine the rights and obligations of the party- litigants.

Moreover, contrary to petitioners contention, they could not be prejudiced by the

substitution since they can still present the substituted documents, Annexes A to A-2, as part of

the evidence of their affirmative defenses. The substitution did not prejudice petitioners or delay

the action. On the contrary, it tended to expedite the determination of the controversy. Besides,

the petitioners are not precluded from filing the appropriate criminal action against PBCOM for

attaching the altered copy of the surety agreement to the complaint. The substitution of the

documents would not, in any way, erase the existence of falsification, if any. The case before the

RTC is civil in nature, while the alleged falsification is criminal, which is separate and distinct from

another. Thus, the RTC committed no reversible error when it allowed the substitution of the

altered surety agreement with that of the original.

A Petition for Certiorari under Rule 65 of the Rules of Court is intended for the correction

of errors of jurisdiction only or grave abuse of discretion amounting to lack or excess of

jurisdiction. Its principal office is only to keep the inferior court within the parameters of its

jurisdiction or to prevent it from committing such a grave abuse of discretion amounting to lack or

excess of jurisdiction.[33]

For a petition for certiorari to prosper, the essential requisites that have to concur are: (1)

the writ is directed against a tribunal, a board or any officer exercising judicial or quasi-judicial

functions; (2) such tribunal, board or officer has acted without or in excess of jurisdiction, or with

grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or

any plain, speedy and adequate remedy in the ordinary course of law. [34]
 The phrase without jurisdiction means that the court acted with absolute lack of

authority or want of legal power, right or authority to hear and determine a cause or causes,

considered either in general or with reference to a particular matter. It means lack of power to

exercise authority. Excess of jurisdiction occurs when the court transcends its power or acts

without any statutory authority; or results when an act, though within the general power of a

tribunal, board or officer (to do) is not authorized, and is invalid with respect to the particular

proceeding, because the conditions which alone authorize the exercise of the general power in

respect of it are wanting. Grave abuse of discretion implies such capricious and whimsical

exercise of judgment as to be equivalent to lack or excess of jurisdiction; simply put, power is

exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal hostility;

and such exercise is so patent or so gross as to amount to an evasion of a positive duty or to a

virtual refusal either to perform the duty enjoined or to act at all in contemplation of law. [35]

The present case failed to comply with the above-stated requisites. In the instant case,

the soundness of the RTCs Order allowing the substitution of the document involves a matter of

judgment and discretion, which cannot be the proper subject of a petition for certiorari under Rule

65. This rule is only intended to correct defects of jurisdiction and not to correct errors of

procedure or matters in the trial courts findings or conclusions.

However, this Court agrees with the petitioners contention that the CA should not have

made determinations as regards the parties respective rights based on the surety

agreement. The CA went beyond the issues brought before it and effectively preempted the RTC

in making its own determinations. It is to be noted that the present case is still pending

determination by the RTC. The CA should have been more cautious and not have gone beyond

the issues submitted before it in the petition for certiorari; instead, it should have squarely

addressed whether or not there was grave abuse of discretion on the part of the RTC in issuing

the Orders dated December 14, 1999 and January 11, 2000.

WHEREFORE, premises considered, the petition is DENIED. Subject to the above

disquisitions, the Decision of the Court of Appeals in CA-G.R. SP No. 57732, dated September

28, 2001, and the Orders of the Regional Trial Court of Cagayan de Oro City, Branch 21, in Civil

Case No. 99-352, dated December 14, 1999 and January 11, 2000, are AFFIRMED.
SO ORDERED.