Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 168979 December 2, 2013

REBECCA PACAÑA-CONTRERAS and ROSALIE PACAÑA, Petitioners,

vs.
ROVILA WATER SUPPLY, INC., EARL U KOKSENG, LILIA TORRES, DALLA P.
ROMANILLOS and MARISSA GABUYA, Respondents.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari1 under Rule 4 of the Rules of Court seeking
the reversal of the decision2 dated January 27, 2005 and the resolution3 dated June 6, 2005 of
the Courts of Appeals (CA) in CA-G.R. SP No. 71551. The CA set aside the orders dated
February 28, 20024 and April 1, 20025 of the Regional Trial Court (RTC), Branch 8, Cebu City,
which denied the motion to dismiss for reconsideration respectively, of respondents Rovila
Water Supply, Inc. (Rovilla, Inc.), Earl U. Kokseng, Lialia Torres, Dalla P. Romanillos and
Marissa Gabuya.

THE FACTUAL ANTECEDENTS

Petitioners Rebecca Pacaña-Contreras and Rosalie Pacaña, children of Lourdes Teves Pacaña
and Luciano Pacaña, filed the present case against Rovila Inc., Earl, Lilia, Dalla and Marisa for
accounting and damages.6

The petitioners claimed that their family has long been known in the community to be engaged
in the water supply business; they operated the "Rovila Water Supply" from their family
residence and were engaged in the distribution of water to customers in Cebu City. The
petitioners alleged that Lilia was a former trusted employee in the family business who hid
business records and burned and ransacked the family files. Lilia also allegedly posted security
guards and barred the members of the Pacaña family from operating their business. She then
claimed ownership over the family business through a corporation named "Rovila Water Supply,
Inc." (Rovila Inc.) Upon inquiry with the Securities and Exchange Commission (SEC), the
petitioners claimed that Rovila Inc. was surreptitiously formed with the respondents as the
majority stockholders. The respondents did so by conspiring with one another and forming the
respondent corporation to takeover and illegally usurp the family business’ registered name.7

In forming the respondent corporation, the respondents allegedly used the name of Lourdes as
one of the incorporators and made it appear in the SEC documents that the family business was
operated in a place other than the Pacaña residence. Thereafter, the respondents used the
Pacaña family’s receipts and the deliveries and sales were made to appear as those of the
respondent Rovila Inc. Using this scheme, the respondents fraudulently appropriated the
collections and payments.8

The petitioners filed the complaint in their own names although Rosalie was authorized by
Lourdes through a sworn declaration and special power of attorney (SPA). The respondents
filed a first motion to dismiss on the ground that the RTC had no jurisdiction over an intra-
corporate controversy.9
The RTC denied the motion. On September 26, 2000, Lourdes died10 and the petitioners
amended their complaint, with leave of court, on October 2, 2000 to reflect this development.11

They still attached to their amended complaint the sworn declaration with SPA, but the caption
of the amended complaint remained the same.12

On October 10, 2000, Luciano also died.13

The respondents filed their Answer on November 16, 2000.14

The petitioners’ sister, Lagrimas Pacaña-Gonzales, filed a motion for leave to intervene and her
answer-in-intervention was granted by the trial court. At the subsequent pre-trial, the
respondents manifested to the RTC that a substitution of the parties was necessary in light of
the deaths of Lourdes and Luciano. They further stated that they would seek the dismissal of
the complaint because the petitioners are not the real parties in interest to prosecute the case.
The pre-trial pushed through as scheduled and the RTC directed the respondents to put into
writing their earlier manifestation. The RTC issued a pre-trial order where one of the issues
submitted was whether the complaint should be dismissed for failure to comply with Section 2,
Rule 3 of the Rules of Court which requires that every action must be prosecuted in the name of
the real party in interest.15

On January 23, 2002,16 the respondents again filed a motion to dismiss on the grounds, among
others, that the petitioners are not the real parties in interest to institute and prosecute the case
and that they have no valid cause of action against the respondents.

THE RTC RULING

The RTC denied the respondents’ motion to dismiss. It ruled that, save for the grounds for
dismissal which may be raised at any stage of the proceedings, a motion to dismiss based on
the grounds invoked by the respondents may only be filed within the time for, but before, the
filing of their answer to the amended complaint. Thus, even granting that the defenses invoked
by the respondents are meritorious, their motion was filed out of time as it was filed only after
the conclusion of the pre-trial conference. Furthermore, the rule on substitution of parties only
applies when the parties to the case die, which is not what happened in the present case.17

The RTC likewise denied the respondents’ motion for reconsideration.18

The respondents filed a petition for certiorari under Rule 65 of the Rules of Court with the CA,
invoking grave abuse of discretion in the denial of their motion to dismiss. They argued that the
deceased spouses Luciano and Lourdes, not the petitioners, were the real parties in interest.
Thus, the petitioners violated Section 16, Rule 3 of the Rules of Court on the substitution of
parties.19

Furthermore, they seasonably moved for the dismissal of the case20 and the RTC never
acquired jurisdiction over the persons of the petitioners as heirs of Lourdes and Luciano.21

THE CA RULING

The CA granted the petition and ruled that the RTC committed grave abuse of discretion as the
petitioners filed the complaint and the amended complaint as attorneys-in-fact of their parents.
As such, they are not the real parties in interest and cannot bring an action in their own names;
thus, the complaint should be dismissed22 pursuant to the Court’s ruling in Casimiro v. Roque
and Gonzales.23
Neither are the petitioners suing as heirs of their deceased parents.1awp++i1 Pursuant to
jurisprudence,24 the petitioners should first be declared as heirs before they can be considered
as the real parties in interest. This cannot be done in the present ordinary civil case but in a
special proceeding for that purpose. The CA agreed with the respondents that they alleged the
following issues as affirmative defenses in their answer: 1) the petitioners are not the real
parties in interest; and 2) that they had no legal right to institute the action in behalf of their
parents.25

That the motion to dismiss was filed after the period to file an answer has lapsed is of no
moment. The RTC judge entertained it and passed upon its merit. He was correct in doing so
because in the pre-trial order, one of the submitted issues was whether the case must be
dismissed for failure to comply with the requirements of the Rules of Court. Furthermore, in
Dabuco v. Court of Appeals,26 the Court held that the ground of lack of cause of action may be
raised in a motion to dismiss at anytime.27

The CA further ruled that, in denying the motion to dismiss, the RTC judge acted contrary to
established rules and jurisprudence which may be questioned via a petition for certiorari. The
phrase "grave abuse of discretion" which was traditionally confined to "capricious and whimsical
exercise of judgment" has been expanded to include any action done "contrary to the
Constitution, the law or jurisprudence[.]"28

THE PARTIES’ ARGUMENTS

The petitioners filed the present petition and argued that, first, in annulling the interlocutory
orders, the CA unjustly allowed the motion to dismiss which did not conform to the rules. 29

Specifically, the motion was not filed within the time for, but before the filing of, the answer to
the amended complaint, nor were the grounds raised in the answer. Citing Section 1, Rule 9 of
the Rules of Court, the respondents are deemed to have waived these grounds, as correctly
held by the RTC.30

Second, even if there is non-joinder and misjoinder of parties or that the suit is not brought in
the name of the real party in interest, the remedy is not outright dismissal of the complaint, but
its amendment to include the real parties in interest.31

Third, the petitioners sued in their own right because they have actual and substantial interest in
the subject matter of the action as heirs or co-owners, pursuant to Section 2, Rule 3 of the
Rules of Court.32

Their declaration as heirs in a special proceeding is not necessary, pursuant to the Court’s
ruling in Marabilles, et al. v. Quito.33

Finally, the sworn declaration is evidentiary in nature which remains to be appreciated after the
trial is completed.34

The respondents reiterated in their comment that the petitioners are not the real parties in
interest.35

They likewise argued that they moved for the dismissal of the case during the pre-trial
conference due to the petitioners’ procedural lapse in refusing to comply with a condition
precedent, which is, to substitute the heirs as plaintiffs. Besides, an administrator of the estates
of Luciano and Lourdes has already been appointed.36
The respondents also argued that the grounds invoked in their motion to dismiss were timely
raised, pursuant to Section 2, paragraphs g and i, Rule 18 of the Rules of Court. Specifically,
the nature and purposes of the pre-trial include, among others, the dismissal of the action,
should a valid ground therefor be found to exist; and such other matters as may aid in the
prompt disposition of the action. Finally, the special civil action of certiorari was the proper
remedy in assailing the order of the RTC.37

THE COURT’S RULING

We find the petition meritorious.

Petition for certiorari under Rule 65 is a proper remedy for a denial of a motion to dismiss
attended by grave abuse of discretion

In Barrazona v. RTC, Branch 61, Baguio City,38 the Court held that while an order denying a
motion to dismiss is interlocutory and non-appealable, certiorari and prohibition are proper
remedies to address an order of denial made without or in excess of jurisdiction. The writ of
certiorari is granted to keep an inferior court within the bounds of its jurisdiction or to prevent it
from committing grave abuse of discretion amounting to lack or excess of jurisdiction.

The history and development of the ground "fails to state a cause of action" in the 1940, 1964
and the present 1997 Rules of Court Preliminarily, a suit that is not brought in the name of the
real party in interest is dismissible on the ground that the complaint "fails to state a cause of
action."39

Pursuant to jurisprudence,40 this is also the ground invoked when the respondents alleged that
the petitioners are not the real parties in interest because: 1) the petitioners should not have
filed the case in their own names, being merely attorneys-in-fact of their mother; and 2) the
petitioners should first be declared as heirs. A review of the 1940, 1964 and the present 1997
Rules of Court shows that the fundamentals of the ground for dismissal based on "failure to
state a cause of action" have drastically changed over time. A historical background of this
particular ground is in order to preclude any confusion or misapplication of jurisprudence
decided prior to the effectivity of the present Rules of Court. The 1940 Rules of Court provides
under Section 10, Rule 9 that:

Section 10. Waiver of defenses- Defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived; except the defense of failure to state a cause of
action, which may be alleged in a later pleading, if one is permitted, or by motion for judgment
on the pleadings, or at the trial on the merits; but in the last instance, the motion shall be
disposed of as provided in section 5 of Rule 17 in the light of any evidence which may have
been received. Whenever it appears that the court has no jurisdiction over the subject-matter, it
shall dismiss the action. [underscoring supplied]

This provision was essentially reproduced in Section 2, Rule 9 of the 1964 Rules of Court, and
we quote:

Section 2. Defenses and objections not pleaded deemed waived. — Defenses and objections
not pleaded either in a motion to dismiss or in the answer are deemed waived; except the failure
to state a cause of action which may be alleged in a later pleading, if one is permitted, or by
motion for judgment on the pleadings, or at the trial on the merits; but in the last instance, the
motion shall be disposed of as provided in section 5 of Rule 10 in the light of any evidence
which may have been received. Whenever it appears that the court has no jurisdiction over the
subject-matter, it shall dismiss the action. [underscoring supplied]
Under the present Rules of Court, this provision was reflected in Section 1, Rule 9, and we
quote:

Section 1. Defenses and objections not pleaded. — Defenses and objections not pleaded either
in a motion to dismiss or in the answer are deemed waived. However, when it appears from the
pleadings or the evidence on record that the court has no jurisdiction over the subject matter,
that there is another action pending between the same parties for the same cause, or that the
action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim.
[underscoring supplied]

Notably, in the present rules, there was a deletion of the ground of "failure to state a cause of
action" from the list of those which may be waived if not invoked either in a motion to dismiss or
in the answer. Another novelty introduced by the present Rules, which was totally absent in its
two precedents, is the addition of the period of time within which a motion to dismiss should be
filed as provided under Section 1, Rule 16 and we quote:

Section 1. Grounds. — Within the time for but before filing the answer to the complaint or
pleading asserting a claim, a motion to dismiss may be made on any of the following grounds:
xxx [underscoring supplied]

All these considerations point to the legal reality that the new Rules effectively restricted the
dismissal of complaints in general, especially when what is being invoked is the ground of
"failure to state a cause of action." Thus, jurisprudence governed by the 1940 and 1964 Rules of
Court to the effect that the ground for dismissal based on failure to state a cause of action may
be raised anytime during the proceedings, is already inapplicable to cases already governed by
the present Rules of Court which took effect on July 1, 1997. As the rule now stands, the failure
to invoke this ground in a motion to dismiss or in the answer would result in its waiver.
According to Oscar M. Herrera,41 the reason for the deletion is that failure to state a cause of
action may be cured under Section 5, Rule 10 and we quote:

Section 5. Amendment to conform to or authorize presentation of evidence. — When issues not

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

With this clarification, we now proceed to the substantial issues of the petition.1âwphi1

The motion to dismiss in the present case based on failure to state a cause of action was not
timely filed and was thus waived

Applying Rule 16 of the Rules of Court which provides for the grounds for the dismissal of a civil
case, the respondents’ grounds for dismissal fall under Section 1(g) and (j), Rule 16 of the
Rules of Court, particularly, failure to state a cause of action and failure to comply with a
condition precedent (substitution of parties), respectively. The first paragraph of Section 1,42

Rule 16 of the Rules of Court provides for the period within which to file a motion to dismiss
under the grounds enumerated. Specifically, the motion should be filed within the time for, but
before the filing of, the answer to the complaint or pleading asserting a claim. Equally important
to this provision is Section 1,43

Rule 9 of the Rules of Court which states that defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived, except for the following grounds: 1) the
court has no jurisdiction over the subject matter; 2) litis pendencia; 3) res judicata; and 4)
prescription. Therefore, the grounds not falling under these four exceptions may be considered
as waived in the event that they are not timely invoked. As the respondents’ motion to dismiss
was based on the grounds which should be timely invoked, material to the resolution of this
case is the period within which they were raised. Both the RTC and the CA found that the
motion to dismiss was only filed after the filing of the answer and after the pre-trial had been
concluded. Because there was no motion to dismiss before the filing of the answer, the
respondents should then have at least raised these grounds as affirmative defenses in their
answer. The RTC’s assailed orders did not touch on this particular issue but the CA ruled that
the respondents did, while the petitioners insist that the respondents did not. In the present
petition, the petitioners reiterate that there was a blatant non-observance of the rules when the
respondents did not amend their answer to invoke the grounds for dismissal which were raised
only during the pre-trial and, subsequently, in the subject motion to dismiss.44

The divergent findings of the CA and the petitioners’ arguments are essentially factual issues.
Time and again, we have held that the jurisdiction of the Court in a petition for review on
certiorari under Rule 45, such as the present case, is limited only to questions of law, save for
certain exceptions. One of these is attendant herein, which is, when the findings are conclusions
without citation of specific evidence on which they are based.45

In the petition filed with the CA, the respondents made a passing allegation that, as affirmative
defenses in their answer, they raised the issue that the petitioners are not the real parties in
interest.46

On the other hand, the petitioners consistently argued otherwise in their opposition47 to the
motion to dismiss, and in their comment48 and in their memorandum49 on the respondents’
petition before the CA. Our examination of the records shows that the CA had no basis in its
finding that the respondents alleged the grounds as affirmative defenses in their answer. The
respondents merely stated in their petition for certiorari that they alleged the subject grounds in
their answer. However, nowhere in the petition did they support this allegation; they did not even
attach a copy of their answer to the petition. It is basic that the respondents had the duty to
prove by substantial evidence their positive assertions. Considering that the petition for certiorari
is an original and not an appellate action, the CA had no records of the RTC’s proceedings upon
which the CA could refer to in order to validate the respondents’ claim. Clearly, other than the
respondents’ bare allegations, the CA had no basis to rule, without proof, that the respondents
alleged the grounds for dismissal as affirmative defenses in the answer. The respondents, as
the parties with the burden of proving that they timely raised their grounds for dismissal, could
have at least attached a copy of their answer to the petition. This simple task they failed to do.
That the respondents did not allege in their answer the subject grounds is made more apparent
through their argument, both in their motion to dismiss50 and in their comment,51 that it was only
during the pre-trial stage that they verbally manifested and invited the attention of the lower
court on their grounds for dismissal. In order to justify such late invocation, they heavily relied on
Section 2(g) and (i), Rule 1852 of the Rules of Court that the nature and purpose of the pre-trial
include, among others, the propriety of dismissing the action should there be a valid ground
therefor and matters which may aid in the prompt disposition of the action. The respondents are
not correct. The rules are clear and require no interpretation. Pursuant to Section 1, Rule 9 of
the Rules of Court, a motion to dismiss based on the grounds invoked by the respondents may
be waived if not raised in a motion to dismiss or alleged in their answer. On the other hand, "the
pre-trial is primarily intended to make certain that all issues necessary to the disposition of a
case are properly raised. The purpose is to obviate the element of surprise, hence, the parties
are expected to disclose at the pre-trial conference all issues of law and fact which they intend
to raise at the trial, except such as may involve privileged or impeaching matter."53

The issues submitted during the pre-trial are thus the issues that would govern the trial proper.
The dismissal of the case based on the grounds invoked by the respondents are specifically
covered by Rule 16 and Rule 9 of the Rules of Court which set a period when they should be
raised; otherwise, they are deemed waived.

The Dabuco ruling is inapplicable in the present case; the ground for dismissal "failure to state a
cause of action" distinguished from "lack of cause of action"

To justify the belated filing of the motion to dismiss, the CA reasoned out that the ground for
dismissal of "lack of cause of action" may be raised at any time during the proceedings,
pursuant to Dabuco v. Court of Appeals.54

This is an erroneous interpretation and application of Dabuco as will be explained below.

First, in Dabuco, the grounds for dismissal were raised as affirmative defenses in the answer
which is in stark contrast to the present case.

Second, in Dabuco, the Court distinguished between the dismissal of the complaint for "failure
to state a cause of action" and "lack of cause of action." The Court emphasized that in a
dismissal of action for lack of cause of action, "questions of fact are involved, [therefore,] courts
hesitate to declare a plaintiff as lacking in cause of action. Such declaration is postponed until
the insufficiency of cause is apparent from a preponderance of evidence.

Usually, this is done only after the parties have been given the opportunity to present all
relevant evidence on such questions of fact."55

In fact, in Dabuco, the Court held that even the preliminary hearing on the propriety of lifting the
restraining order was declared insufficient for purposes of dismissing the complaint for lack of
cause of action. This is so because the issues of fact had not yet been adequately ventilated at
that preliminary stage. For these reasons, the Court declared in Dabuco that the dismissal by
the trial court of the complaint was premature. In the case of Macaslang v. Zamora,56 the Court
noted that the incorrect appreciation by both the RTC and the CA of the distinction between the
dismissal of an action, based on "failure to state a cause of action" and "lack of cause of action,"
prevented it from properly deciding the case, and we quote:

Failure to state a cause of action and lack of cause of action are really different from each other.
On the one hand, failure to state a cause of action refers to the insufficiency of the pleading, and
is a ground for dismissal under Rule 16 of the Rules of Court. On the other hand, lack of cause
[of] action refers to a situation where the evidence does not prove the cause of action alleged in
the pleading. Justice Regalado, a recognized commentator on remedial law, has explained the
distinction: xxx What is contemplated, therefore, is a failure to state a cause of action which is
provided in Sec. 1(g) of Rule 16. This is a matter of insufficiency of the pleading. Sec. 5 of Rule
10, which was also included as the last mode for raising the issue to the court, refers to the
situation where the evidence does not prove a cause of action. This is, therefore, a matter of
insufficiency of evidence. Failure to state a cause of action is different from failure to prove a
cause of action. The remedy in the first is to move for dismissal of the pleading, while the
remedy in the second is to demur to the evidence, hence reference to Sec. 5 of Rule 10 has
been eliminated in this section. The procedure would consequently be to require the pleading to
state a cause of action, by timely objection to its deficiency; or, at the trial, to file a demurrer to
evidence, if such motion is warranted. [italics supplied]
Based on this discussion, the Court cannot uphold the dismissal of the present case based on
the grounds invoked by the respondents which they have waived for failure to invoke them
within the period prescribed by the Rules. The Court cannot also dismiss the case based on
"lack of cause of action" as this would require at least a preponderance of evidence which is yet
to be appreciated by the trial court. Therefore, the RTC did not commit grave abuse of discretion
in issuing the assailed orders denying the respondents’ motion to dismiss and motion for
reconsideration. The Court shall not resolve the merits of the respondents’ grounds for dismissal
which are considered as waived.

Other heirs of the spouses Pacaña to be impleaded in the case.

It should be emphasized that insofar as the petitioners are concerned, the respondents have
waived the dismissal of the complaint based on the ground of failure to state a cause of action
because the petitioners are not the real parties in interest. At this juncture, a distinction between
a real party in interest and an indispensable party is in order. In Carandang v. Heirs of de
Guzman, et al.,57 the Court clarified these two concepts and held that "[a] real party in interest is
the party who stands to be benefited or injured by the judgment of the suit, or the party entitled
to the avails of the suit. On the other hand, an indispensable party is a party in interest without
whom no final determination can be had of an action, in contrast to a necessary party, which is
one who is not indispensable but who ought to be joined as a party if complete relief is to be
accorded as to those already parties, or for a complete determination or settlement of the claim
subject of the action. xxx If a suit is not brought in the name of or against the real party in
interest, a motion to dismiss may be filed on the ground that the complaint states no cause of
action. However, the dismissal on this ground entails an examination of whether the parties
presently pleaded are interested in the outcome of the litigation, and not whether all persons
interested in such outcome are actually pleaded. The latter query is relevant in discussions
concerning indispensable and necessary parties, but not in discussions concerning real parties
in interest. Both indispensable and necessary parties are considered as real parties in interest,
since both classes of parties stand to be benefited or injured by the judgment of the suit."

At the inception of the present case, both the spouses Pacaña were not impleaded as parties-
plaintiffs. The Court notes, however, that they are indispensable parties to the case as the
alleged owners of Rovila Water Supply. Without their inclusion as parties, there can be no final
determination of the present case. They possess such an interest in the controversy that a final
decree would necessarily affect their rights, so that the courts cannot proceed without their
presence. Their interest in the subject matter of the suit and in the relief sought is inextricably
intertwined with that of the other parties.58

Jurisprudence on the procedural consequence of the inclusion or non-inclusion of an

indispensable party is divided in our jurisdiction. Due to the non-inclusion of indispensable
parties, the Court dismissed the case in Lucman v. Malawi, et al.59 and Go v. Distinction
Properties Development Construction, Inc.,60 while in Casals, et al. v. Tayud Golf and Country
Club et al.,61 the Court annulled the judgment which was rendered without the inclusion of the
indispensable parties. In Arcelona et al. v. Court of Appeals62 and Bulawan v. Aquende,63 and
Metropolitan Bank & Trust Company v. Alejo et al.64 the Court ruled that the burden to implead
or order the impleading of an indispensable party rests on the plaintiff and on the trial court,
respectively. Thus, the non-inclusion of the indispensable parties, despite notice of this infirmity,
resulted in the annulment of these cases. In Plasabas, et al. v. Court of Appeals, et al.,65 the
Court held that the trial court and the CA committed reversible error when they summarily
dismissed the case, after both parties had rested their cases following a protracted trial, on the
sole ground of failure to implead indispensable parties. Non-joinder of indispensable parties is
not a ground for the dismissal of an action. The remedy is to implead the non-party claimed to
be indispensable. However, in the cases of Quilatan, et al. v. Heirs of Quilatan, et al.66 and
Lagunilla, et al. v. Monis, et al.,67 the Court remanded the case to the RTC for the impleading of
indispensable parties. On the other hand, in Lotte Phil. Co., Inc. v. Dela Cruz,68PepsiCo, Inc. v.
Emerald Pizza, 69 and Valdez Tallorin, v. Heirs of Tarona, et al.,70 the Court directly ordered that
the indispensable parties be impleaded. Mindful of the differing views of the Court as regards
the legal effects of the non-inclusion of indispensable parties, the Court clarified in Republic of
the Philippines v. Sandiganbayan, et al.,71that the failure to implead indispensable parties is a
curable error and the foreign origin of our present rules on indispensable parties permitted this
corrective measure. This cited case held:

Even in those cases where it might reasonably be argued that the failure of the Government to
implead the sequestered corporations as defendants is indeed a procedural aberration xxx,
slight reflection would nevertheless lead to the conclusion that the defect is not fatal, but one
correctible under applicable adjective rules – e.g., Section 10, Rule 5 of the Rules of Court
[specifying the remedy of amendment during trial to authorize or to conform to the evidence];
Section 1, Rule 20 [governing amendments before trial], in relation to the rule respecting
omission of so-called necessary or indispensable parties, set out in Section 11, Rule 3 of the
Rules of Court. It is relevant in this context to advert to the old familiar doctrines that the
omission to implead such parties "is a mere technical defect which can be cured at any stage of
the proceedings even after judgment"; and that, particularly in the case of indispensable parties,
since their presence and participation is essential to the very life of the action, for without them
no judgment may be rendered, amendments of the complaint in order to implead them should
be freely allowed, even on appeal, in fact even after rendition of judgment by this Court, where it
appears that the complaint otherwise indicates their identity and character as such
indispensable parties." Although there are decided cases wherein the non-joinder of
indispensable parties in fact led to the dismissal of the suit or the annulment of judgment, such
cases do not jibe with the matter at hand. The better view is that non-joinder is not a ground to
dismiss the suit or annul the judgment. The rule on joinder of indispensable parties is founded
on equity. And the spirit of the law is reflected in Section 11, Rule 3 of the 1997 Rules of Civil
Procedure. It prohibits the dismissal of a suit on the ground of non-joinder or misjoinder of
parties and allows the amendment of the complaint at any stage of the proceedings, through
motion or on order of the court on its own initiative. Likewise, jurisprudence on the Federal
Rules of Procedure, from which our Section 7, Rule 3 on indispensable parties was copied,
allows the joinder of indispensable parties even after judgment has been entered if such is
needed to afford the moving party full relief. Mere delay in filing the joinder motion does not
necessarily result in the waiver of the right as long as the delay is excusable.

In Galicia, et al. v. Vda. De Mindo, et al.,72 the Court ruled that in line with its policy of promoting
a just and inexpensive disposition of a case, it allowed the intervention of the indispensable
parties instead of dismissing the complaint. Furthermore, in Commissioner Domingo v.
Scheer,73 the Court cited Salvador, et al. v. Court of Appeals, et al.74 and held that the Court has
full powers, apart from that power and authority which are inherent, to amend the processes,
pleadings, proceedings and decisions by substituting as party-plaintiff the real party in interest.
The Court has the power to avoid delay in the disposition of this case, and to order its
amendment in order to implead an indispensable party. With these discussions as premises, the
Court is of the view that the proper remedy in the present case is to implead the indispensable
parties especially when their non-inclusion is merely a technical defect. To do so would serve
proper administration of justice and prevent further delay and multiplicity of suits. Pursuant to
Section 9, Rule 3 of the Rules of Court, parties may be added by order of the court on motion of
the party or on its own initiative at any stage of the action. If the plaintiff refuses to implead an
indispensable party despite the order of the court, then the court may dismiss the complaint for
the plaintiff’s failure to comply with a lawful court order.75

The operative act that would lead to the dismissal of the case would be the refusal to comply
with the directive of the court for the joinder of an indispensable party to the case.76

Obviously, in the present case, the deceased Pacañas can no longer be included in the
complaint as indispensable parties because of their death during the pendency of the case.
Upon their death, however, their ownership and rights over their properties were transmitted to
their heirs, including herein petitioners, pursuant to Article 77477 in relation with Article 77778 of
the Civil Code.

In Orbeta, et al. v. Sendiong,79 the Court acknowledged that the heirs, whose hereditary rights
are to be affected by the case, are deemed indispensable parties who should have been
impleaded by the trial court. Therefore, to obviate further delay in the proceedings of the present
case and given the Court’s authority to order the inclusion of an indispensable party at any
stage of the proceedings, the heirs of the spouses Pacaña, except the petirioners who are
already parties to the case are Lagrimas Pacaña-Gonzalez who intervened in the case, are
hereby ordered impleaded as parties-plaintiffs.

WHEREFORE, the petition is GRANTED. The decision dated January 27, 2005 and the
resolution date June 6, 2005 of the Court of Appeals in CA-G.R. SP No. 71551 are REVERSED
and SET ASIDE. The heirs of the spouses Luciano and Lourdes Pacaña, except herein
petitioner and Lagrimas Pacaña-Gonzalez, are ORDERED IMPLEADED as parties plaintiffs and
the RTC is directed tp proceed with the trial of the case with DISPATCH.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 200134 August 15, 2012

ROBERTO OTERO, Petitioner,

vs.
ROGER TAN, Respondent.

VILLARAMA, JR.,*

RESOLUTION

REYES, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to annul and set aside the Decision1 dated April 29, 2011 rendered by the Court of
Appeals (CA) in CA-G.R. SP No. 02244, which affirmed the Judgment2 dated December 28,
2007 issued by the Regional Trial Court (RTC), Cagayan de Oro City, Branch 23 in Civil Case
No. 2007-90.

The Antecedent Facts

A Complaint3 for collection of sum of money and damages was filed by Roger Tan (Tan) with the
Municipal Trial Court in Cities (MTCC), Cagayan de Oro City on July 28, 2005 against Roberto
Otero (Otero). Tan alleged that on several occasions from February 2000 to May 2001, Otero
purchased on credit petroleum products from his Petron outlet in Valencia City, Bukidnon in the
aggregate amount of ₱ 270,818.01. Tan further claimed that despite several verbal demands,
Otero failed to settle his obligation.
Despite receipt of the summons and a copy of the said complaint, which per the records of the
case below were served through his wife Grace R. Otero on August 31, 2005, Otero failed to file
his answer with the MTCC.

On November 18, 2005, Tan filed a motion with the MTCC to declare Otero in default for his
failure to file his answer. Otero opposed Tan’s motion, claiming that he did not receive a copy of
the summons and a copy of Tan’s complaint. Hearing on the said motion was set on January
25, 2006, but was later reset to March 8, 2006, Otero manifesting that he only received the
notice therefor on January 23, 2006. The hearing on March 8, 2006 was further reset to April 26,
2006 since the presiding judge was attending a convention. Otero failed to appear at the next
scheduled hearing, and the MTCC issued an order declaring him in default. A copy of the said
order was sent to Otero on May 9, 2006. Tan was then allowed to present his evidence ex
parte.

Tan adduced in evidence the testimonies of Rosemarie Doblado and Zita Sara, his employees
in his Petron outlet who attended Otero when the latter made purchases of petroleum products
now the subject of the action below. He likewise presented various statements of
account4 showing the petroleum products which Otero purchased from his establishment. The
said statements of account were prepared and checked by a certain Lito Betache (Betache),
apparently likewise an employee of Tan.

The MTCC Decision

On February 14, 2007, the MTCC rendered a Decision5 directing Otero to pay Tan his
outstanding obligation in the amount of ₱ 270,818.01, as well as attorney’s fees and litigation
expenses and costs in the amounts of ₱ 15,000.00 and ₱ 3,350.00, respectively. The MTCC
opined that Otero’s failure to file an answer despite notice is a tacit admission of Tan’s claim.

Undeterred, Otero appealed the MTCC Decision dated February 14, 2007 to the RTC, asserting
that the MTCC’s disposition is factually baseless and that he was deprived of due process.

The RTC Decision

On December 28, 2007, the RTC rendered a Judgment6 affirming the MTCC Decision dated
February 14, 2007. The RTC held that the statements of account that were presented by Tan
before the MTCC were overwhelming enough to prove that Otero is indeed indebted to Tan in
the amount of ₱ 270,818.01. Further, brushing aside Otero’s claim of denial of due process, the
RTC pointed out that:

As to the second assignment of error, suffice to say that as borne out by the record of the case,
defendant-appellant was given his day in Court contrary to his claim. His wife, Grace R. Otero
received a copy of the summons together with a copy of the Complaint and its corresponding
annexes on August 31, 2005, per Return of Service made by Angelita N. Bandoy, Process
Server of OCC-MTCC of Davao City. He was furnished with a copy of the Motion to Declare
Defendant in Default on November 18, 2005, per Registry Receipt No. 2248 which was received
by the defendant. Instead of filing his answer or any pleading to set aside the Order of default,
he filed his Comment to the Motion to Declare Defendant in Default of which plaintiff filed his
Rejoinder to Defendant’s Comment.

The case was set for hearing on January 23, 2006, but defendant through counsel sent a
telegram that he only received the notice on the day of the hearing thereby he was unable to
appear due to his previous scheduled hearings. Still, for reasons only known to him, defendant
failed to lift the Order of Default.
The hearing on January 23, 2006 was reset on March 8, 2006 and again reset on April 26, 2006
by agreement of counsels x x x.

It is not therefore correct when defendant said that he was deprived of due process.7

Otero sought reconsideration of the Judgment dated December 28, 2007 but it was denied by
the RTC in its Order8dated February 20, 2008.

Otero then filed a petition for review9 with the CA asserting that both the RTC and the MTCC
erred in giving credence to the pieces of evidence presented by Tan in support of his complaint.
Otero explained that the statements of account, which Tan adduced during the ex parte
presentation of his evidence, were prepared by a certain Betache who was not presented as a
witness by Tan. Otero avers that the genuineness and due execution of the said statements of
account, being private documents, must first be established lest the said documents be
rendered inadmissible in evidence. Thus, Otero asserts, the MTCC and the RTC should not
have admitted in evidence the said statements of account as Tan failed to establish the
genuineness and due execution of the same.

The CA Decision

On April 29, 2011, the CA rendered the assailed Decision10 which denied the petition for review
filed by Otero. In rejecting Otero’s allegation with regard to the genuineness and due execution
of the statements of account presented by Tan, the CA held that any defense which Otero may
have against Tan’s claim is already deemed waived due to Otero’s failure to file his answer.
Thus:

Otero never denied that his wife received the summons and a copy of the complaint. He did not
question the validity of the substituted service. Consequently, he is charged with the knowledge
of Tan’s monetary claim. Section 1, Rule 9 of the Rules of Court explicitly provides that
defenses and objections not pleaded are deemed waived. Moreover, when the defendant is
declared in default, the court shall proceed to render judgment granting the claimant such relief
as his pleading may warrant.

Due to Otero’s failure to file his Answer despite being duly served with summons coupled with
his voluntary appearance in court, he is deemed to have waived whatever defenses he has
against Tan’s claim. Apparently, Otero is employing dilatory moves to defer the payment of his
obligation which he never denied.11 (Citation omitted)

Otero’s Motion for Reconsideration12 was denied by the CA in its Resolution13 dated December
13, 2011.

Hence, the instant petition.

Issues

Essentially, the fundamental issues to be resolved by this Court are the following: first, whether
Otero, having been declared in default by the MTCC, may, in the appellate proceedings, still
raise the failure of Tan to authenticate the statements of account which he adduced in evidence;
and second, whether Tan was able to prove the material allegations of his complaint.

The Court’s Ruling

The petition is denied.

 First Issue: Authentication of the Statements of Account

The CA, in denying the petition for review filed by Otero, held that since he was declared in
default by the MTCC, he is already deemed to have waived whatever defenses he has against
Tan’s claim. He is, thus, already barred from raising the alleged infirmity in the presentation of
the statements of account.

We do not agree.

A defendant who fails to file an

answer loses his standing in court.

The effect of a defendant’s failure to file an answer within the time allowed therefor is primarily
governed by Section 3, Rule 9 of the Rules of Court, viz:

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. x x x (Emphasis ours)

A defendant who fails to file an answer may, upon motion, be declared by the court in default.
Loss of standing in court, the forfeiture of one’s right as a party litigant, contestant or legal
adversary, is the consequence of an order of default. A party in default loses his right to present
his defense, control the proceedings, and examine or cross-examine witnesses. He has no right
to expect that his pleadings would be acted upon by the court nor may be object to or refute
evidence or motions filed against him.14

A defendant who was declared in

default may nevertheless appeal
from the judgment by default,
albeit on limited grounds.

Nonetheless, the fact that a defendant has lost his standing in court for having been declared in
default does not mean that he is left sans any recourse whatsoever. In Lina v. CA, et al.,15 this
Court enumerated the remedies available to party who has been declared in default, to wit:

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)16(Emphasis ours)
Indeed, a defending party declared in default retains the right to appeal from the judgment by
default. However, the grounds that may be raised in such an appeal are restricted to any of the
following: first, the failure of the plaintiff to prove the material allegations of the complaint;
second, the decision is contrary to law; and third, the amount of judgment is excessive or
different in kind from that prayed for.17 In these cases, the appellate tribunal should only
consider the pieces of evidence that were presented by the plaintiff during the ex parte
presentation of his evidence.

A defendant who has been declared in default is precluded from raising any other ground in his
appeal from the judgment by default since, otherwise, he would then be allowed to adduce
evidence in his defense, which right he had lost after he was declared in default.18 Indeed, he is
proscribed in the appellate tribunal from adducing any evidence to bolster his defense against
the plaintiff’s claim. Thus, in Rural Bank of Sta. Catalina, Inc. v. Land Bank of the
Philippines,19 this Court explained that:

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.20 (Citations omitted and emphasis ours)

Here, Otero, in his appeal from the judgment by default, asserted that Tan failed to prove the
material allegations of his complaint. He contends that the lower courts should not have given
credence to the statements of account that were presented by Tan as the same were not
authenticated. He points out that Betache, the person who appears to have prepared the said
statements of account, was not presented by Tan as a witness during the ex parte presentation
of his evidence with the MTCC to identify and authenticate the same. Accordingly, the said
statements of account are mere hearsay and should not have been admitted by the lower
tribunals as evidence.

Thus, essentially, Otero asserts that Tan failed to prove the material allegations of his complaint
since the statements of account which he presented are inadmissible in evidence. While the
RTC and the CA, in resolving Otero’s appeal from the default judgment of the MTCC, were only
required to examine the pieces of evidence that were presented by Tan, the CA erred in
brushing aside Otero’s arguments with respect to the admissibility of the said statements of
account on the ground that the latter had already waived any defense or objection which he may
have against Tan’s claim.

Contrary to the CA’s disquisition, it is not accurate to state that having been declared in default
by the MTCC, Otero is already deemed to have waived any and all defenses which he may
have against Tan’s claim.

While it may be said that by defaulting, the defendant leaves himself at the mercy of the court,
the rules nevertheless see to it that any judgment against him must be in accordance with the
evidence required by law. The evidence of the plaintiff, presented in the defendant’s absence,
cannot be admitted if it is basically incompetent. Although the defendant would not be in a
position to object, elementary justice requires that only legal evidence should be considered
against him. If the same should prove insufficient to justify a judgment for the plaintiff, the
complaint must be dismissed. And if a favorable judgment is justifiable, it cannot exceed in
amount or be different in kind from what is prayed for in the complaint.21

Thus, in SSS v. Hon. Chaves,22 this Court emphasized that:

We must stress, however, that a judgment of default against the petitioner who failed to appear
during pre-trial or, for that matter, any defendant who failed to file an answer, does not imply a
waiver of all of their rights, except their right to be heard and to present evidence to support their
allegations. Otherwise, it would be meaningless to request presentation of evidence every time
the other party is declared in default. If it were so, a decision would then automatically be
rendered in favor of the non-defaulting party and exactly to the tenor of his prayer. The law also
gives the defaulting parties some measure of protection because plaintiffs, despite the default of
defendants, are still required to substantiate their allegations in the complaint.23 (Citations
omitted and emphasis ours)

The statements of account

presented by Tan were merely
hearsay as the genuineness and due
execution of the same were not
established.

Anent the admissibility of the statements of account presented by Tan, this Court rules that the
same should not have been admitted in evidence by the lower tribunals.

Section 20, Rule 132 of the Rules of Court provides that the authenticity and due execution of a
private document, before it is received in evidence by the court, must be established. Thus:

Sec. 20. Proof of private document. – Before any private document offered as authentic is
received in evidence, its due execution and authenticity must be proved either:

a) By anyone who saw the document executed or written; or

b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.

A private document is any other writing, deed, or instrument executed by a private person
without the intervention of a notary or other person legally authorized by which some disposition
or agreement is proved or set forth. Lacking the official or sovereign character of a public
document, or the solemnities prescribed by law, a private document requires authentication in
the manner allowed by law or the Rules of Court before its acceptance as evidence in court.
The requirement of authentication of a private document is excused only in four instances,
specifically: (a) when the document is an ancient one within the context of Section 21, Rule 132
of the Rules of Court; (b) when the genuineness and authenticity of an actionable document
have not been specifically denied under oath by the adverse party; (c) when the genuineness
and authenticity of the document have been admitted; or (d) when the document is not being
offered as genuine.24

The statements of account which Tan adduced in evidence before the MTCC indubitably are
private documents. Considering that these documents do not fall among the aforementioned
exceptions, the MTCC could not admit the same as evidence against Otero without the required
authentication thereof pursuant to Section 20, Rule 132 of the Rules of Court. During
authentication in court, a witness positively testifies that a document presented as evidence is
genuine and has been duly executed, or that the document is neither spurious nor counterfeit
nor executed by mistake or under duress.25

Here, Tan, during the ex parte presentation of his evidence, did not present anyone who
testified that the said statements of account were genuine and were duly executed or that the
same were neither spurious or counterfeit or executed by mistake or under duress. Betache, the
one who prepared the said statements of account, was not presented by Tan as a witness
during the ex parte presentation of his evidence with the MTCC.

Considering that Tan failed to authenticate the aforesaid statements of account, the said
documents should not have been admitted in evidence against Otero. It was thus error for the
lower tribunals to have considered the same in assessing the merits of Tan’s Complaint.

Second Issue: The Material Allegations of the Complaint

In view of the inadmissibility of the statements of account presented by Tan, the remaining
question that should be settled is whether the pieces of evidence adduced by Tan during the ex
parte presentation of his evidence, excluding the said statements of account, sufficiently prove
the material allegations of his complaint against Otero.

We rule in the affirmative.

In civil cases, it is a basic rule that the party making allegations has the burden of proving them
by a preponderance of evidence. The parties must rely on the strength of their own evidence
and not upon the weakness of the defense offered by their opponent.26 This rule holds true
especially when the latter has had no opportunity to present evidence because of a default
order. Needless to say, the extent of the relief that may be granted can only be so much as has
been alleged and proved with preponderant evidence required under Section 1 of Rule 133.27

Notwithstanding the inadmissibility of the said statements of account, this Court finds that Tan
was still able to prove by a preponderance of evidence the material allegations of his complaint
against Otero.

First, the statements of account adduced by Tan during the ex parte presentation of his
evidence are just summaries of Otero's unpaid obligations, the absence of which do not
necessarily disprove the latter's liability.

Second, aside from the statements of account, Tan likewise adduced in evidence the
testimonies of his employees in his Petron outlet who testified that Otero, on various occasions,
indeed purchased on credit petroleum products from the former and that he failed to pay for the
same. It bears stressing that the MTCC, the R TC and the CA all gave credence to the said
testimonial evidence presented by Tan and, accordingly, unanimously found that Otero still has
unpaid outstanding obligation in favor of Tan in the amount of ₱ 270,818.01.

Well-established is the principle that factual findings of the trial court, when adopted and
confirmed by the CA, are binding and conclusive on this Court and will generally not be
reviewed on appeal.28 The Court sees no compelling reason to depart from the foregoing finding
of fact of the lower courts.

WHEREFORE, in consideration of the foregoing disquisitions, the petition is DENIED. The

Decision dated April 29, 2011 rendered by the Court of Appeals in CA-G.R. SP No. 02244
is AFFIRMED.

SO ORDERED.
 THIRD DIVISION

[G.R. NO. 181235 : July 22, 2009]

BANCO DE ORO-EPCI, INC. (formerly Equitable PCI Bank),Petitioner, v. JOHN

TANSIPEK, Respondent.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals in
CA-G.R. CV No. 69130 dated 18 August 2006 and the Resolution of the same court dated 9
January 2008.

The facts of the case are as follows:

J. O. Construction, Inc. (JOCI), a domestic corporation engaged in the construction business in

Cebu City, filed a complaint against Philippine Commercial and Industrial Bank (PCIB) in the
Regional Trial Court (RTC) of Makati City docketed as Civil Case No. 97-508. The Complaint
alleges that JOCI entered into a contract with Duty Free Philippines, Inc. for the construction of
a Duty Free Shop in Mandaue City. As actual construction went on, progress billings were
made. Payments were received by JOCI directly or through herein respondent John Tansipek,
its authorized collector. Payments received by respondent Tansipek were initially remitted to
JOCI. However, payment through PNB Check No. 0000302572 in the amount of P4,050,136.51
was not turned over to JOCI. Instead, respondent Tansipek endorsed said check and deposited
the same to his account in PCIB, Wilson Branch, Wilson Street, Greenhills, San Juan, Metro
Manila. PCIB allowed the said deposit, despite the fact that the check was crossed for the
deposit to payee's account only, and despite the alleged lack of authority of respondent
Tansipek to endorse said check. PCIB refused to pay JOCI the full amount of the check despite
demands made by the latter. JOCI prayed for the payment of the amount of the check
(P4,050,136.51), P500,000.00 in attorney's fees, P100,000.00 in expenses, P50,000.00 for
costs of suit, and P500,000.00 in exemplary damages.

PCIB filed a Motion to Dismiss the Complaint on the grounds that (1) an indispensable party
was not impleaded, and (2) therein plaintiff JOCI had no cause of action against PCIB. The RTC
denied PCIB's Motion to Dismiss.

PCIB filed its answer alleging as defenses that (1) JOCI had clothed Tansipek with authority to
act as its agent, and was therefore estopped from denying the same; (2) JOCI had no cause of
action against PCIB; (3) failure to implead Tansipek rendered the proceedings taken after the
filing of the complaint void; (4) PCIB's act of accepting the deposit was fully justified by
established bank practices; (5) JOCI's claim was barred by laches; and (6) the damages alleged
by JOCI were hypothetical and speculative. PCIB incorporated in said Answer its counterclaims
for exemplary damages in the amount of P400,000.00, and litigation expenses and attorney's
fees in the amount of P400,000.00.

PCIB likewise moved for leave for the court to admit the former's third-party complaint against
respondent Tansipek. The third-party complaint alleged that respondent Tansipek was a
depositor at its Wilson Branch, San Juan, Metro Manila, where he maintained Account No.
5703-03538-3 in his name and/or that of his wife, Anita. Respondent Tansipek had presented to
PCIB a signed copy of the Minutes of the meeting of the Board of Directors of JOCI stating the
resolution that -
Checks payable to J.O. Construction, Inc. may be deposited to Account No. 5703-03538-3
under the name of John and/or Anita Tansipek, maintained at PCIB, Wilson Branch.2

Respondent Tansipek had also presented a copy of the Articles of Incorporation of JOCI
showing that he and his wife, Anita, were incorporators of JOCI, with Anita as Treasurer. In the
third-party complaint, PCIB prayed for subrogation and payment of attorney's fees in the sum
of P400,000.00.

PCIB filed a Motion to Admit Amended Third-Party Complaint. The amendment consisted in the
correction of the caption, so that PCIB appeared as Third-Party Plaintiff and Tansipek as Third-
Party Defendant.

Upon Motion, respondent Tansipek was granted time to file his Answer to the Third-Party
Complaint. He was, however, declared in default for failure to do so. The Motion to Reconsider
the Default Order was denied.

Respondent Tansipek filed a Petition for Certiorari with the Court of Appeals assailing the
Default Order and the denial of the Motion for Reconsideration. The Petition was docketed as
CA-G.R. SP No. 47727. On 29 May 1998, the Court of Appeals dismissed the Petition for failure
to attach the assailed Orders. On 28 September 1998, the Court of Appeals denied respondent
Tansipek's Motion for Reconsideration for having been filed out of time.

Pre-trial on the main case ensued, wherein JOCI and PCIB limited the issues as follows:

1. Whether or not the defendant bank erred in allowing the deposit of Check No. 0302572 (Exh.
"A") in the amount of P4,050,136.51 drawn in favor of plaintiff JO Construction, Inc. in John
Tansipek's account when such check was crossed and clearly marked for payee's account only.

2. Whether the alleged board resolution and the articles of Incorporation are genuine and a valid
defense against plaintiff's effort to collect the amount of P4,050,136.51.

On 14 July 2000, the RTC promulgated its Decision in Civil Case No. 97-508, the dispositive
portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff [JOCI] and against the
defendant bank [PCIB] ordering the latter to pay to the plaintiff the sum of P4,050,136.51 with
interest at the rate of twelve percent (12%) per annum from the filing of this complaint until fully
paid plus costs of suit. The other damages claimed by the plaintiff are denied for being
speculative.

On the third party complaint, third-party defendant John Tansipek is ordered to pay the third-
party plaintiff Philippine Commercial and Industrial Bank all amounts said defendant/third-party
plaintiff shall have to pay to the plaintiff on account of this case.3

Respondent Tansipek appealed the Decision to the Court of Appeals. The case was docketed
as CA-G.R. CV No. 69130. Respondent Tansipek assigned the following alleged errors:

a) The trial court's decision upholding the order of default and the consequent ex-parte
reception of appellee's evidence was anchored on erroneous and baseless conclusion that:

1) The original reglementary period to plead has already expired.

2) The ten day extended period to answer has likewise expired.

3) There is no need to pass upon a second motion to plead much less, any need for a new
motion for extended period to plead.

b) The trial court erred in utterly depriving the appellant of his day in court and in depriving
constitutional, substantive and procedural due process premised solely on pure and simple
technicality which never existed and are imaginary and illusory.

c) The trial court erred in ordering the third-party defendant-appellant John Tansipek to pay the
third party plaintiff-appellee PCIBank all amounts said bank shall have to pay to the plaintiff-
appellee by way of subrogation since appellant if allowed to litigate in the trial court, would have
obtained a favorable judgment as he has good, valid and meritorious defenses.4

On 18 August 2006, the Court of Appeals issued the assailed Decision finding that it was an
error for the trial court to have acted on PCIB's motion to declare respondent Tansipek in
default. The Court of Appeals thus remanded the case to the RTC for further proceedings, to
wit:

WHEREFORE, premises considered, the appeal is GRANTED. The decision relative to the third
party complaint is REVERSED and SET ASIDE. The case is ordered REMANDED to the trial
court for further proceedings on the third party complaint.5

The Court of Appeals denied the Motion for Reconsideration of PCIB in a Resolution dated 9
January 2008.

Petitioner Banco de Oro-EPCI, Inc., as successor-in-interest to PCIB, filed the instant Petition
for Review on Certiorari, assailing the above Decision and Resolution of the Court of Appeals,
and laying down a lone issue for this Court's consideration:

WHETHER OR NOT THE COURT OF APPEALS CAN REVERSE ITS DECISION HANDED
DOWN EIGHT YEARS BEFORE.6

To recapitulate, upon being declared in default, respondent Tansipek filed a Motion for
Reconsideration of the Default Order. Upon denial thereof, Tansipek filed a Petition
for Certiorari with the Court of Appeals, which was dismissed for failure to attach the assailed
Orders. Respondent Tansipek's Motion for Reconsideration with the Court of Appeals was
denied for having been filed out of time. Respondent Tansipek did not appeal said denial to this
Court.

Respondent Tansipek's remedy against the Order of Default was erroneous from the very
beginning. Respondent Tansipek should have filed a Motion to Lift Order of Default, and not a
Motion for Reconsideration, pursuant to Section 3(b), Rule 9 of the Rules of Court:

(b) Relief from order of default.' A party declared in default may at 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.

A Motion to Lift Order of Default is different from an ordinary motion in that the Motion should be
verified; and must show fraud, accident, mistake or excusable neglect, and meritorious
defenses.7 The allegations of (1) fraud, accident, mistake or excusable neglect, and (2) of
meritorious defenses must concur.8
Assuming for the sake of argument, however, that respondent Tansipek's Motion for
Reconsideration may be treated as a Motion to Lift Order of Default, his Petition for Certiorari on
the denial thereof has already been dismissed with finality by the Court of Appeals. Respondent
Tansipek did not appeal said ruling of the Court of Appeals to this Court. The dismissal of the
Petition for Certiorari assailing the denial of respondent Tansipek's Motion constitutes a bar to
the retrial of the same issue of default under the doctrine of the law of the case.

In People v. Pinuila,9 we held that:

"Law of the case" has been defined as the opinion delivered on a former appeal. More
specifically, it means that whatever is once irrevocably established as the controlling legal rule
of decision between the same parties in the same case continues to be the law of the case,
whether correct on general principles or not, so long as the facts on which such decision was
predicated continue to be the facts of the case before the court.

It may be stated as a rule of general application that, where the evidence on a second or
succeeding appeal is substantially the same as that on the first or preceding appeal, all matters,
questions, points, or issues adjudicated on the prior appeal are the law of the case on all
subsequent appeals and will not be considered or readjudicated therein.

x x x

As a general rule a decision on a prior appeal of the same case is held to be the law of the case
whether that decision is right or wrong, the remedy of the party deeming himself aggrieved
being to seek a rehearing.

Questions necessarily involved in the decision on a former appeal will be regarded as the law of
the case on a subsequent appeal, although the questions are not expressly treated in the
opinion of the court, as the presumption is that all the facts in the case bearing on the point
decided have received due consideration whether all or none of them are mentioned in the
opinion. (Emphasis supplied.)

The issue of the propriety of the Order of Default had already been adjudicated in Tansipek's
Petition for Certiorari with the Court of Appeals. As such, this issue cannot be readjudicated in
Tansipek's appeal of the Decision of the RTC on the main case. Once a decision attains finality,
it becomes the law of the case, whether or not said decision is erroneous.10Having been
rendered by a court of competent jurisdiction acting within its authority, the judgment may no
longer be altered even at the risk of legal infirmities and errors it may contain. 11

Respondent Tansipek counters that the doctrine of the law of the case is not applicable,
inasmuch as a Petition for Certiorari is not an appeal. Respondent Tansipek further argues that
the Doctrine of the Law of the Case applies only when the appellate court renders a decision on
the merits, and not when such appeal was denied due to technicalities.

We are not persuaded.

In Buenviaje v. Court of Appeals,12 therein respondent Cottonway Marketing Corporation filed a

Petition for Certiorari with this Court assailing the Decision of the National Labor Relations
Commission (NLRC) ordering, inter alia, the reinstatement of therein petitioners and the
payment of backwages from the time their salaries were withheld up to the time of actual
reinstatement. The Petition for Certiorari was dismissed by this Court. The subsequent Motion
for Reconsideration was likewise denied. However, the Labor Arbiter then issued an Order
limiting the amount of backwages that was due to petitioners. The NLRC reversed this Order,
but the Court of Appeals reinstated the same. This Court, applying the Doctrine of the Law of
the Case, held:

The decision of the NLRC dated March 26, 1996 has become final and executory upon the
dismissal by this Court of Cottonway's petition for certiorari assailing said decision and the
denial of its motion for reconsideration. Said judgment may no longer be disturbed or modified
by any court or tribunal. It is a fundamental rule that when a judgment becomes final and
executory, it becomes immutable and unalterable, and any amendment or alteration which
substantially affects a final and executory judgment is void, including the entire proceedings
held for that purpose. Once a judgment becomes final and executory, the prevailing party can
have it executed as a matter of right, and the issuance of a writ of execution becomes a
ministerial duty of the court. A decision that has attained finality becomes the law of the case
regardless of any claim that it is erroneous. The writ of execution must therefore conform to the
judgment to be executed and adhere strictly to the very essential particulars.13 (Emphases
supplied.)ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Furthermore, there is no substantial distinction between an appeal and a Petition

for Certiorari when it comes to the application of the Doctrine of the Law of the Case. The
doctrine is founded on the policy of ending litigation. The doctrine is necessary to enable the
appellate court to perform its duties satisfactorily and efficiently, which would be impossible if a
question once considered and decided by it were to be litigated anew in the same case upon
any and every subsequent appeal.14

Likewise, to say that the Doctrine of the Law the Case applies only when the appellate court
renders a decision on the merits would be putting a premium on the fault or negligence of the
party losing the previous appeal. In the case at bar, respondent Tansipek would be awarded (1)
for his failure to attach the necessary requirements to his Petition for Certiorari with the Court of
Appeals; (2) for his failure to file a Motion for Reconsideration in time; and (3) for his failure to
appeal the Decision of the Court of Appeals with this Court. The absurdity of such a situation is
clearly apparent.

It is important to note that a party declared in default - respondent Tansipek in this case - is not
barred from appealing from the judgment on the main case, whether or not he had previously
filed a Motion to Set Aside Order of Default, and regardless of the result of the latter and the
appeals therefrom. However, the appeal should be based on the Decision's being contrary to
law or the evidence already presented, and not on the alleged invalidity of the default order.15

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 69130 dated 18 August
2006 and the Resolution of the same court dated 9 January 2008 are hereby REVERSED and
SET ASIDE. The Decision of the Regional Trial Court of Makati City in Civil Case No. 97-508
dated 14 July 2000 is hereby REINSTATED. No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 173559 January 7, 2013

LETICIA DIONA, represented by her Attorney-in-Fact, MARCELINA DIONA, Petitioner,

vs.
ROMEO A. BALANGUE, SONNY A. BALANGUE, REYNALDO A. BALANGUE, and
ESTEBAN A. BALANGUE, JR., Respondents.

DECISION

DEL CASTILLO, J.:

The great of a relief neither sought by the party in whose favor it was given not supported by the
evidence presented violates the opposing party’s right to due process and may be declared void
ab initio in a proper proceeding.

This Petition for Review on Certiorari1 assails the November 24, 2005 Resolution2 of the Court
of Appeals (CA) issued in G.R. SP No. 85541 which granted the Petition for Annulment of
Judgment3 filed by the respondents seeking to nullify that portion of the October 17, 2000
Decision4 of the Regional Trial Court (RTC), Branch 75, Valenzuela City awarding petitioner 5%
monthly interest rate for the principal amount of the loan respondent obtained from her.

This Petition likewise assails the CA’s June 26, 2006 Resolution5 denying petitioner’s Motion for
Reconsideration.

Factual Antecedents

The facts of this case are simple and undisputed.

On March 2, 1991, respondents obtained a loan of ₱45,000.00 from petitioner payable in six
months and secured by a Real Estate Mortgage6 over their 202-square meter property located
in Marulas, Valenzuela and covered by Transfer Certificate of Title (TCT) No. V-12296.7 When
the debt became due, respondents failed to pay notwithstanding demand. Thus, on September
17, 1999, petitioner filed with the RTC a Complaint8 praying that respondents be ordered:

(a) To pay petitioner the principal obligation of ₱45,000.00, with interest thereon at the
rate of 12% per annum, from 02 March 1991 until the full obligation is paid.

(b) To pay petitioner actual damages as may be proven during the trial but shall in no
case be less than ₱10,000.00; ₱25,000.00 by way of attorney’s fee, plus ₱2,000.00 per
hearing as appearance fee.

(c) To issue a decree of foreclosure for the sale at public auction of the aforementioned
parcel of land, and for the disposition of the proceeds thereof in accordance with law,
upon failure of the respondents to fully pay petitioner within the period set by law the
sums set forth in this complaint.

(d) Costs of this suit.

Other reliefs and remedies just and equitable under the premises are likewise prayed
for.9 (Emphasis supplied)

Respondents were served with summons thru respondent Sonny A. Balangue (Sonny). On
October 15, 1999, with the assistance of Atty. Arthur C. Coroza (Atty. Coroza) of the Public
Attorney’s Office, they filed a Motion to Extend Period to Answer. Despite the requested
extension, however, respondents failed to file any responsive pleadings. Thus, upon motion of
the petitioner, the RTC declared them in default and allowed petitioner to present her evidence
ex parte.10
Ruling of the RTC sought to be annulled.

In a Decision11 dated October 17, 2000, the RTC granted petitioner’s Complaint. The dispositive
portion of said Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioner, ordering the respondents
to pay the petitioner as follows:

a) the sum of FORTY FIVE THOUSAND (₱45,000.00) PESOS, representing the unpaid
principal loan obligation plus interest at 5% per month [sic] reckoned from March 2,
1991, until the same is fully paid;

b) ₱20,000.00 as attorney’s fees plus cost of suit;

c) in the event the [respondents] fail to satisfy the aforesaid obligation, an order of
foreclosure shall be issued accordingly for the sale at public auction of the subject
property covered by Transfer Certificate of Title No. V-12296 and the improvements
thereon for the satisfaction of the petitioner’s claim.

SO ORDERED.12 (Emphasis supplied)

Subsequently, petitioner filed a Motion for Execution,13 alleging that respondents did not
interpose a timely appeal despite receipt by their former counsel of the RTC’s Decision on
November 13, 2000. Before it could be resolved, however, respondents filed a Motion to Set
Aside Judgment14 dated January 26, 2001, claiming that not all of them were duly served with
summons. According to the other respondents, they had no knowledge of the case because
their co-respondent Sonny did not inform them about it. They prayed that the RTC’s October 17,
2000 Decision be set aside and a new trial be conducted.

But on March 16, 2001, the RTC ordered15 the issuance of a Writ of Execution to implement its
October 17, 2000 Decision. However, since the writ could not be satisfied, petitioner moved for
the public auction of the mortgaged property,16 which the RTC granted.17 In an auction sale
conducted on November 7, 2001, petitioner was the only bidder in the amount of ₱420,000.00.
Thus, a Certificate of Sale18 was issued in her favor and accordingly annotated at the back of
TCT No. V-12296.

Respondents then filed a Motion to Correct/Amend Judgment and To Set Aside Execution
Sale19 dated December 17, 2001, claiming that the parties did not agree in writing on any rate of
interest and that petitioner merely sought for a 12% per annum interest in her Complaint.
Surprisingly, the RTC awarded 5% monthly interest (or 60% per annum) from March 2, 1991
until full payment. Resultantly, their indebtedness inclusive of the exorbitant interest from March
2, 1991 to May 22, 2001 ballooned from ₱124,400.00 to ₱652,000.00.

In an Order20 dated May 7, 2002, the RTC granted respondents’ motion and accordingly
modified the interest rate awarded from 5% monthly to 12% per annum. Then on August 2,
2002, respondents filed a Motion for Leave To Deposit/Consign Judgment Obligation21 in the
total amount of ₱126,650.00.22

Displeased with the RTC’s May 7, 2002 Order, petitioner elevated the matter to the CA via a
Petition for Certiorari23under Rule 65 of the Rules of Court. On August 5, 2003, the CA rendered
a Decision24 declaring that the RTC exceeded its jurisdiction in awarding the 5% monthly
interest but at the same time pronouncing that the RTC gravely abused its discretion in
subsequently reducing the rate of interest to 12% per annum. In so ruling, the CA ratiocinated:
Indeed, We are convinced that the Trial Court exceeded its jurisdiction when it granted 5%
monthly interest instead of the 12% per annum prayed for in the complaint. However, the proper
remedy is not to amend the judgment but to declare that portion as a nullity. Void judgment for
want of jurisdiction is no judgment at all. It cannot be the source of any right nor the creator of
any obligation (Leonor vs. CA, 256 SCRA 69). No legal rights can emanate from a resolution
that is null and void (Fortich vs. Corona, 312 SCRA 751).

From the foregoing, the remedy of the respondents is to have the Court declare the portion of
the judgment providing for a higher interest than that prayed for as null and void for want of or in
excess of jurisdiction. A void judgment never acquire[s] finality and any action to declare its
nullity does not prescribe (Heirs of Mayor Nemencio Galvez vs. CA, 255 SCRA 672).

WHEREFORE, foregoing premises considered, the Petition having merit, is hereby GIVEN DUE
COURSE. Resultantly, the challenged May 7, 2002 and September 5, 2000 orders of Public
Respondent Court are hereby ANNULLED and SET ASIDE for having been issued with grave
abuse of discretion amounting to lack or in excess of jurisdiction. No costs.

SO ORDERED.25 (Emphases in the original; italics supplied.)

Proceedings before the Court of Appeals

Taking their cue from the Decision of the CA in the special civil action for certiorari, respondents
filed with the same court a Petition for Annulment of Judgment and Execution Sale with
Damages.26 They contended that the portion of the RTC Decision granting petitioner 5%
monthly interest rate is in gross violation of Section 3(d) of Rule 9 of the Rules of Court and of
their right to due process. According to respondents, the loan did not carry any interest as it was
the verbal agreement of the parties that in lieu thereof petitioner’s family can continue occupying
respondents’ residential building located in Marulas, Valenzuela for free until said loan is fully
paid.

Ruling of the Court of Appeals

Initially, the CA denied due course to the Petition.27 Upon respondents’ motion, however, it
reinstated and granted the Petition. In setting aside portions of the RTC’s October 17, 2000
Decision, the CA ruled that aside from being unconscionably excessive, the monthly interest
rate of 5% was not agreed upon by the parties and that petitioner’s Complaint clearly sought
only the legal rate of 12% per annum. Following the mandate of Section 3(d) of Rule 9 of the
Rules of Court, the CA concluded that the awarded rate of interest is void for being in excess of
the relief sought in the Complaint. It ruled thus:

WHEREFORE, respondents’ motion for reconsideration is GRANTED and our resolution dated
October 13, 2004 is, accordingly, REVERSED and SET ASIDE. In lieu thereof, another is
entered ordering the ANNULMENT OF:

(a) public respondent’s impugned October 17, 2000 judgment, insofar as it awarded 5%
monthly interest in favor of petitioner; and

(b) all proceedings relative to the sale at public auction of the property titled in
respondents’ names under Transfer Certificate of Title No. V-12296 of the Valenzuela
registry.

The judgment debt adjudicated in public respondent’s impugned October 17, 2000 judgment is,
likewise, ordered RECOMPUTED at the rate of 12% per annum from March 2, 1991. No costs.
SO ORDERED.28 (Emphases in the original.)

Petitioner sought reconsideration, which was denied by the CA in its June 26, 2006
Resolution.29

Issues

Hence, this Petition anchored on the following grounds:

I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS

ERROR OF LAW WHEN IT GRANTED RESPONDENTS’ PETITION FOR
ANNULMENT OF JUDGMENT AS A SUBSTITUTE OR ALTERNATIVE REMEDY OF A
LOST APPEAL.

II. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS

ERROR AND MISAPPREHENSION OF LAW AND THE FACTS WHEN IT GRANTED
RESPONDENTS’ PETITION FOR ANNULMENT OF JUDGMENT OF THE DECISION
OF THE REGIONAL TRIAL COURT OF VALENZUELA, BRANCH 75 DATED
OCTOBER 17, 2000 IN CIVIL CASE NO. 241-V-99, DESPITE THE FACT THAT SAID
DECISION HAS BECOME FINAL AND ALREADY EXECUTED CONTRARY TO THE
DOCTRINE OF IMMUTABILITY OF JUDGMENT.30

Petitioner’s Arguments

Petitioner claims that the CA erred in partially annulling the RTC’s October 17, 2000 Decision.
She contends that a Petition for Annulment of Judgment may be availed of only when the
ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies are no
longer available through no fault of the claimant. In the present case, however, respondents had
all the opportunity to question the October 17, 2000 Decision of the RTC, but because of their
own inaction or negligence they failed to avail of the remedies sanctioned by the rules. Instead,
they contented themselves with the filing of a Motion to Set Aside Judgment and then a Motion
to Correct/Amend Judgment and to Set Aside Execution Sale.

Petitioner likewise argues that for a Rule 47 petition to prosper, the same must either be based
on extrinsic fraud or lack of jurisdiction. However, the allegations in respondents’ Rule 47
petition do not constitute extrinsic fraud because they simply pass the blame to the negligence
of their former counsel. In addition, it is too late for respondents to pass the buck to their
erstwhile counsel considering that when they filed their Motion to Correct/Amend Judgment and
To Set Aside Execution Sale they were already assisted by their new lawyer, Atty. Reynaldo A.
Ruiz, who did not also avail of the remedies of new trial, appeal, etc. As to the ground of lack of
jurisdiction, petitioner posits that there is no reason to doubt that the RTC had jurisdiction over
the subject matter of the case and over the persons of the respondents.

While conceding that the RTC patently made a mistake in awarding 5% monthly interest,
petitioner nonetheless invokes the doctrine of immutability of final judgment and contends that
the RTC Decision can no longer be corrected or modified since it had long become final and
executory. She likewise points out that respondents received a copy of said Decision on
November 13, 2000 but did nothing to correct the same. They did not even question the award
of 5% monthly interest when they filed their Motion to Set Aside Judgment which they anchored
on the sole ground of the RTC’s lack of jurisdiction over the persons of some of the
respondents.

Respondents’ Arguments
Respondents do not contest the existence of their obligation and the principal amount thereof.
They only seek quittance from the 5% monthly interest or 60% per annum imposed by the RTC.
Respondents contend that Section (3)d of Rule 9 of the Rules of Court is clear that when the
defendant is declared in default, the court cannot grant a relief more than what is being prayed
for in the Complaint. A judgment which transgresses said rule, according to the respondents, is
void for having been issued without jurisdiction and for being violative of due process of law.

Respondents maintain that it was through no fault of their own, but through the gross negligence
of their former counsel, Atty. Coroza, that the remedies of new trial, appeal or petition for relief
from judgment were lost. They allege that after filing a Motion to Extend Period to Answer, Atty.
Coroza did not file any pleading resulting to their being declared in default. While the said
lawyer filed on their behalf a Motion to Set Aside Judgment dated January 26, 2001, he
however took no steps to appeal from the Decision of the RTC, thereby allowing said judgment
to lapse into finality. Citing Legarda v. Court of Appeals,31 respondents aver that clients are not
always bound by the actions of their counsel, as in the present case where the clients are to
lose their property due to the gross negligence of their counsel.

With regard to petitioner’s invocation of immutability of judgment, respondents argue that said
doctrine applies only to valid and not to void judgments.

Our Ruling

The petition must fail.

We agree with respondents that the award of 5% monthly interest violated their right to due
process and, hence, the same may be set aside in a Petition for Annulment of Judgment filed
under Rule 47 of the Rules of Court.

Annulment of judgment under Rule 47; an exception to the final judgment rule; grounds therefor.

A Petition for Annulment of Judgment under Rule 47 of the Rules of Court is a remedy granted
only under exceptional circumstances where a party, without fault on his part, has failed to avail
of the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies.
Said rule explicitly provides that it is not available as a substitute for a remedy which was lost
due to the party’s own neglect in promptly availing of the same. "The underlying reason is
traceable to the notion that annulling final judgments goes against the grain of finality of
judgment. Litigation must end and terminate sometime and somewhere, and it is essential to an
effective administration of justice that once a judgment has become final, the issue or cause
involved therein should be laid to rest."32

While under Section 2, Rule 4733 of the Rules of Court a Petition for Annulment of Judgment
may be based only on the grounds of extrinsic fraud and lack of jurisdiction, jurisprudence
recognizes lack of due process as additional ground to annul a judgment.34 In Arcelona v. Court
of Appeals,35 this Court declared that a final and executory judgment may still be set aside if,
upon mere inspection thereof, its patent nullity can be shown for having been issued without
jurisdiction or for lack of due process of law.

Grant of 5% monthly interest is way beyond the 12% per annum interest sought in the
Complaint and smacks of violation of due process.

It is settled that courts cannot grant a relief not prayed for in the pleadings or in excess of what
is being sought by the party. They cannot also grant a relief without first ascertaining the
evidence presented in support thereof. Due process considerations require that judgments must
conform to and be supported by the pleadings and evidence presented in court. In Development
Bank of the Philippines v. Teston,36 this Court expounded that:

Due process considerations justify this requirement. It is improper to enter an order which
exceeds the scope of relief sought by the pleadings, absent notice which affords the opposing
party an opportunity to be heard with respect to the proposed relief. The fundamental purpose of
the requirement that allegations of a complaint must provide the measure of recovery is to
prevent surprise to the defendant.

Notably, the Rules is even more strict in safeguarding the right to due process of a defendant
who was declared in default than of a defendant who participated in trial. For instance,
amendment to conform to the evidence presented during trial is allowed the parties under the
Rules.37 But the same is not feasible when the defendant is declared in default because Section
3(d), Rule 9 of the Rules of Court comes into play and limits the relief that may be granted by
the courts to what has been prayed for in the Complaint. It provides:

(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.

The raison d’être in limiting the extent of relief that may be granted is that it cannot be presumed
that the defendant would not file an Answer and allow himself to be declared in default had he
known that the plaintiff will be accorded a relief greater than or different in kind from that sought
in the Complaint.38 No doubt, the reason behind Section 3(d), Rule 9 of the Rules of Court is to
safeguard defendant’s right to due process against unforeseen and arbitrarily issued judgment.
This, to the mind of this Court, is akin to the very essence of due process. It embodies "the
sporting idea of fair play"39 and forbids the grant of relief on matters where the defendant was
not given the opportunity to be heard thereon.

In the case at bench, the award of 5% monthly interest rate is not supported both by the
allegations in the pleadings and the evidence on record. The Real Estate Mortgage40 executed
by the parties does not include any provision on interest. When petitioner filed her Complaint
before the RTC, she alleged that respondents borrowed from her "the sum of FORTY-FIVE
THOUSAND PESOS (₱45,000.00), with interest thereon at the rate of 12% per annum"41 and
sought payment thereof. She did not allege or pray for the disputed 5% monthly interest. Neither
did she present evidence nor testified thereon. Clearly, the RTC’s award of 5% monthly interest
or 60% per annum lacks basis and disregards due process. It violated the due process
requirement because respondents were not informed of the possibility that the RTC may award
5% monthly interest. They were deprived of reasonable opportunity to refute and present
controverting evidence as they were made to believe that the complainant petitioner was
seeking for what she merely stated in her Complaint.

Neither can the grant of the 5% monthly interest be considered subsumed by petitioner’s
general prayer for "other reliefs and remedies just and equitable under the premises x x x." 42 To
repeat, the court’s grant of relief is limited only to what has been prayed for in the Complaint or
related thereto, supported by evidence, and covered by the party’s cause of action.43 Besides,
even assuming that the awarded 5% monthly or 60% per annum interest was properly alleged
and proven during trial, the same remains unconscionably excessive and ought to be equitably
reduced in accordance with applicable jurisprudence. In Bulos, Jr. v. Yasuma,44 this Court held:

In the case of Ruiz v. Court of Appeals, citing the cases of Medel v. Court of Appeals, Garcia v.
Court of Appeals, Spouses Bautista v. Pilar Development Corporation and the recent case of
Spouses Solangon v. Salazar, this Court considered the 3% interest per month or 36% interest
per annum as excessive and unconscionable. Thereby, the Court, in the said case, equitably
reduced the rate of interest to 1% interest per month or 12% interest per annum. (Citations
omitted)
It is understandable for the respondents not to contest the default order for, as alleged in their
Comment, "it is not their intention to impugn or run away from their just and valid
obligation."45 Nonetheless, their waiver to present evidence should never be construed as
waiver to contest patently erroneous award which already transgresses their right to due
process, as well as applicable jurisprudence.

Respondents’ former counsel was grossly negligent in handling the case of his clients;
respondents did not lose ordinary remedies of new trial, petition for relief, etc. through their own
fault.

Ordinarily, the mistake, negligence or lack of competence of counsel binds the

client.1âwphi1 This is based on the rule that any act performed by a counsel within the scope of
his general or implied authority is regarded as an act of his client. A recognized exception to the
rule is when the lawyers were grossly negligent in their duty to maintain their client’s cause and
such amounted to a deprivation of their client’s property without due process of law.46 In which
case, the courts must step in and accord relief to a client who suffered thereby.47

The manifest indifference of respondents’ former counsel in handling the cause of his client was
already present even from the beginning. It should be recalled that after filing in behalf of his
clients a Motion to Extend Period to Answer, said counsel allowed the requested extension to
pass without filing an Answer, which resulted to respondents being declared in default. His
negligence was aggravated by the fact that he did not question the awarded 5% monthly
interest despite receipt of the RTC Decision on November 13, 2000.48 A simple reading of the
dispositive portion of the RTC Decision readily reveals that it awarded exorbitant and
unconscionable rate of interest. Its difference from what is being prayed for by the petitioner in
her Complaint is so blatant and very patent. It also defies elementary jurisprudence on legal rate
of interests. Had the counsel carefully read the judgment it would have caught his attention and
compelled him to take the necessary steps to protect the interest of his client. But he did not.
Instead, he filed in behalf of his clients a Motion to Set Aside Judgment49 dated January 26,
2001 based on the sole ground of lack of jurisdiction, oblivious to the fact that the erroneous
award of 5% monthly interest would result to his clients’ deprivation of property without due
process of law. Worse, he even allowed the RTC Decision to become final by not perfecting an
appeal. Neither did he file a petition for relief therefrom. It was only a year later that the patently
erroneous award of 5% monthly interest was brought to the attention of the RTC when
respondents, thru their new counsel, filed a Motion to Correct/Amend Judgment and To Set
Aside Execution Sale. Even the RTC candidly admitted that it "made a glaring mistake in
directing the defendants to pay interest on the principal loan at 5% per month which is very
different from what was prayed for by the plaintiff."50

"A lawyer owes entire devotion to the interest of his client, warmth and zeal in the maintenance
and defense of his rights and the exertion of his utmost learning and ability, to the end that
nothing can be taken or withheld from his client except in accordance with the law."51 Judging
from how respondents’ former counsel handled the cause of his clients, there is no doubt that
he was grossly negligent in protecting their rights, to the extent that they were deprived of their
property without due process of law.

In fine, respondents did not lose the remedies of new trial, appeal, petition for relief and other
remedies through their own fault. It can only be attributed to the gross negligence of their
erstwhile counsel which prevented them from pursuing such remedies. We cannot also blame
respondents for relying too much on their former counsel. Clients have reasonable expectations
that their lawyer would amply protect their interest during the trial of the case.52 Here,

"respondents are plain and ordinary people x x x who are totally ignorant of the intricacies and
technicalities of law and legal procedures. Being so, they completely relied upon and trusted
their former counsel to appropriately act as their interest may lawfully warrant and require."53
As a final word, it is worth noting that respondents’ principal obligation was only ₱45,000.00.
Due to their former counsel’s gross negligence in handling their cause, coupled with the RTC’s
erroneous, baseless, and illegal award of 5% monthly interest, they now stand to lose their
property and still owe petitioner a large amount of money. As aptly observed by the CA:

x x x If the impugned judgment is not, therefore, rightfully nullified, petitioners will not only end
up losing their property but will additionally owe private respondent the sum of ₱232,000.00 plus
the legal interest said balance had, in the meantime, earned. As a court of justice and equity, we
cannot, in good conscience, allow this unconscionable situation to prevail.54

Indeed, this Court is appalled by petitioner’s invocation of the doctrine of immutability of

judgment. Petitioner does not contest as she even admits that the RTC made a glaring mistake
in awarding 5% monthly interest.55 Amazingly, she wants to benefit from such erroneous award.
This Court cannot allow this injustice to happen.

WHEREFORE, the instant Petition is hereby DENIED and the assailed November 24, 2005 and
June 26, 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 85541 are AFFIRMED.

SO ORDERED.