NIF C- 8 ACTIVOS INTANGIBLES

PAGCOR v. LOPEZ

FACTS: PAGCOR entered into an Agreement with FILGAME and BELLE Jai-Alai Corporation (BELLE) for the resumption of the Jai-Alai operations in the country. FILGAME and BELLE jointly agreed to provide funds for pre-operating expenses and working capital while PAGCOR shall manage, operate and control all aspects of the Jai-Alai operations.

However, the Office of the President of the Philippines issued a Memorandum directing PAGCOR to close down all PAGCOR facilities and outlets in Jai-Alai, on-line bingo and internet casino gaming. The DILG, through Secretary Alfredo S. Lim, caused the closure of the Jai-Alai main fronton.

FILGAME and BELLE filed the case for Specific Performance and Injunction with prayer for Damages and Temporary Restraining Order (TRO), and Writ of Preliminary Injunction against PAGCOR, DILG and Secretary Alfredo Lim. Respondent judge issued a writ of temporary restraining order.

Meanwhile, the Supreme Court rendered a decision enjoining PAGCOR, Belle, and Filgame from managing, maintaining and operating jai-alai games, and from enforcing the agreement entered into by them for that purpose.

Consequently, FILGAME and BELLE filed a Motion to Admit Amended Complaint with the trial court where the cause of action was changed, i.e., from Specific Performance to Recovery of Sum of Money. FILGAME and BELLE sought to recover their pre-operating expenses and/or investments including the goodwill money which they allegedly invested with PAGCOR. PAGCOR filed an opposition on the ground that there is a substantial change in the complaint and cause of action. Respondent judge admitted the amended complaint.

PAGCOR filed a motion to dismiss the amended complaint on the ground that the trial court had not acquired jurisdiction over the case for failure of the plaintiffs to pay the prescribed docket fees. It claimed that the amended complaint, which sought recovery of the pre-operating expenses and investments including the goodwill money, should have docket fees of P15,775,903.68. Said Motion to Dismiss was denied by the respondent judge.

FILGAME and BELLE manifested their intention to file a Motion for Summary Judgment which they subsequently filed. PAGCOR filed its opposition thereto.

Respondent judge did not conduct any hearing on the motion for summary judgment. He thereafter rendered his decision by way of Summary Judgment in favor of FILGAME and BELLE.

PAGCOR charges respondent judge for gross ignorance of the law and procedure and filed the present administrative case.

ISSUE and RULING: w/n respondent judge erred in:

(1) admitting the amended complaint of FILGAME and BELLE despite the fact that

(a) the amended complaint is a total change of theory of the case; and

(b) that the required filing fees for the amended complaint were not paid; and

---NO. (Relevant REM issue [Rule 10]) (2) in rendering summary judgment

(a) despite the fact that respondent found the existence of 13 factual issues to be resolved;

(b) without conducting a hearing on the motion for summary judgment;

(c) based on the alleged implied admission rather than on the personal knowledge of witnesses and other affiants; and ---NO.

RATIO:

(1) Respondent judge did not err in admitting the amended complaint of FILGAME and BELLE.

a. The Court finds no gross ignorance of law committed by respondent when he admitted the amended complaint notwithstanding that such amended complaint substantially altered the cause of action of plaintiffs FILGAME and BELLE.

Section 3, Rule 10 of the Rules of Court, provides:

SECTION 3. Amendments by leave of court. Except as provided in the next preceding section, substantial amendments may be made only upon leave of court. But such leave may be refused if it appears to the court that the motion was made with intent to delay. Orders of the court upon the matters provided in this section shall be made upon motion filed in court, and after notice to the adverse party, and an opportunity to be heard.

Section 3, Rule 10 of the 1997 Rules of Civil Procedure amended the former rule in such manner that the phrase "or that the cause of action or defense is substantially altered" was stricken-off and not retained in the new rules. The clear import of such amendment in Section 3, Rule 10 is that under the new rules, "the amendment may (now) substantially alter the cause of action or defense." This should only be true, however, when despite a substantial change or alteration in the cause of action or defense, the amendments sought to be made shall serve the higher interests of substantial justice, and prevent delay and equally promote the laudable objective of the rules which is to secure a

"just, speedy and inexpensive disposition of every action and proceeding.

The original complaint filed by the plaintiffs was for specific performance and injunction with prayer for damages and for TRO and writ of preliminary injunction against PAGCOR while the amended complaint was for recovery of sum of money.

Such amendment to the original complaint was filed by plaintiffs FILGAME and BELLE after the Supreme Court decision declared that PAGCOR could not enter into a joint agreement with other corporations to operate the Jai-Alai, and that the Agreement is null and void. However, since plaintiffs had provided funds for PAGCOR’s pre-operating expenses and working capital, plaintiffs had to file an amended complaint which seeks the recovery of their expenses. Although the amended complaint substantially changed the cause of action of plaintiffs, the admission thereof by respondent judge is allowed under Section 3, Rule 10 and jurisprudence.

b. The Court also finds that respondent was not guilty of gross ignorance of the law when he admitted the amended complaint despite the non-payment by plaintiffs FILGAME and BELLE of additional docket fees on the amended complaint.

The court had jurisdiction over the amended complaint as it had acquired jurisdiction over the case when the original complaint was filed and the corresponding docket fee was paid thereon. Plainly, while the payment of the prescribed docket fee is a jurisdictional requirement, even its non-payment at the time of filing does not automatically cause the dismissal of the case, as long as the fee is paid within the applicable prescriptive or reglementary period.

The Supreme Court in the Sun Insurance case had further declared that “any additional filing (docket) fee shall constitute a lien on the judgment and that it shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee provided that the cause of action has not prescribed.” Respondent judge issued another Order that plaintiffs have still to pay the amount of P14,717,171.19 based on the claim in the amended complaint by directing the plaintiffs to pay within 15 days from receipt. These actuations of respondent are in accordance with the Sun Insurance case.

(2) Respondent judge did not err in rendering summary judgment

(a) despite the fact that respondent found the existence of 13 factual issues to be resolved;

Based on evidence, PAGCOR was privy to all the material allegations in the amended complaint

relating to the Jai-Alai operations. It would have been incredulous for PAGCOR to claim ignorance or lack of knowledge of said material allegations. Respondent Judge had sufficient basis to render summary judgment.

(b) without conducting a hearing on the motion for summary judgment;

That there was no hearing conducted on the motion for summary judgment, the same was with the acquiescence of PAGCOR’s counsel. As correctly found by the CA, based on the evidence, the trial type hearing on the motion was dispensable in view of the fact that PAGCOR’s blanket/ineffective denial in its answer to the amended complaint had the effect of an admission, thus, did not raise any genuine issues.

Furthermore, a hearing on the motion for summary judgment was not necessary considering that the evidence necessary for the resolution of the same was already part of the records. It is evident from the records, that PAGCOR was given ample opportunity to be heard and present its evidence in opposition to the motion for summary judgment, but PAGCOR chose not to adduce any such evidence.

(c) based on the alleged implied admission rather than on the personal knowledge of witnesses and other affiants;

It is a recognized rule in summary judgment that the trial court can determine whether there is genuine issue on the basis of the pleadings, admissions, documents, affidavits, and/or counter-affidavits submitted by the parties. On the basis of this rule PAGCOR cannot claim that Respondent Judge was grossly ignorant of the law and procedure when he rendered summary judgment based on implied admissions of the material facts in the amended complaint and not on personal knowledge of witnesses and other affiants.

ASEAN PACIFIC v. CITY OF URDANETA

FACTS: This case stemmed from a Complaint for annulment of contracts with prayer for preliminary prohibitory injunction and temporary restraining order filed by respondent Capalad. Capalad doing business under the name JJEFWA Builders, and petitioners Asean Pacific Planners (APP)

Del Castillo alleged that then Urdaneta City Mayor Rodolfo E. Parayno entered into five contracts for the preliminary design, construction and management of a four-storey twin cinema commercial center and hotel involving a massive expenditure of public funds amounting to P250 million, funded by a loan from the Philippine National Bank (PNB). For minimal work, the contractor was allegedly paid P95 million. Del Castillo also claimed that all the contracts

are void because the object is outside the commerce of men. The object is a piece of land belonging to the public domain and which remains devoted to a public purpose as a public elementary school. Additionally, he claimed that the contracts, from the feasibility study to management and lease of the future building, are also void because they were all awarded solely to the Goco family.

In their Answer, APP and APPCDC claimed that the contracts are valid. Urdaneta City asserted that the contracts were properly executed by then Mayor Parayno with prior authority from the Sangguniang Panlungsod. Mayor Perez also stated that Del Castillo has no legal capacity to sue and that the complaint states no cause of action.

After pre-trial, the Lazaro Law Firm entered its appearance as counsel for Urdaneta City and filed an Omnibus Motion7 with prayer to (1) withdraw Urdaneta City's Answer; (2) drop Urdaneta City as defendant and be joined as plaintiff; (3) admit Urdaneta City's complaint; and (4) conduct a new pre-trial. Urdaneta City allegedly wanted to rectify its position and claimed that inadequate legal representation caused its inability to file the necessary pleadings in representation of its interests.

In its Order dated September 11, 2002, the Regional Trial Court (RTC) of Urdaneta City, Pangasinan, Branch 45, admitted the entry of appearance of the Lazaro Law Firm and granted the withdrawal of appearance of the City Prosecutor. It also granted the prayer to drop the city as defendant and admitted its complaint for consolidation with Del Castillo's complaint, and directed the defendants to answer the city's complaint.

In its February 14, 2003 Order,9 the RTC denied reconsideration of the September 11, 2002 Order. It also granted Capalad's motion to expunge all pleadings filed by Atty. Sahagun in his behalf. Capalad was dropped as defendant, and his complaint filed by Atty. Jorito C. Peralta was admitted and consolidated with the complaints of Del Castillo and Urdaneta City.

The RTC also directed APP and APPCDC to answer Capalad's complaint.

Aggrieved, APP and APPCDC filed a petition for certiorari before the Court of Appeals. the Court of Appeals dismissed the petition.

Hence, this petition, which we treat as one for review on certiorari under Rule 45, the proper remedy to assail the resolutions of the Court of Appeals.

ISSUE: Did the RTC err and commit grave abuse of discretion in (a) entertaining the taxpayers' suits; (b) allowing a private law firm to represent Urdaneta City;

(c) allowing respondents Capalad and Urdaneta City to switch from being defendants to becoming complainants; and (d) allowing Capalad's change of attorneys?

RULING and RATIO:

A. In the case of taxpayers' suits, the party suing as a taxpayer must prove that he has sufficient interest in

preventing the illegal expenditure of money raised by taxation. Thus, taxpayers have been allowed to sue where there is a claim that public funds are illegally disbursed or that public money is being deflected to any improper purpose, or that public funds are wasted through the enforcement of an invalid or unconstitutional law.

x x x x

Petitioners' allegations in their Amended Complaint that the loan contracts entered into by the Republic and NPC are serviced or paid through a disbursement of public funds are not disputed by respondents, hence, they are invested with personality to institute the same.

Here, the allegation of taxpayers Del Castillo, Del Prado, Ordono and Maguisa that P95 million of the P250 million PNB loan had already been paid for minimal work is sufficient allegation of overpayment, of illegal disbursement, that invests them with personality to sue. Petitioners do not dispute the allegation as they merely insist, albeit erroneously, that public funds are not involved. Under Article 195325 of the Civil Code, the city acquired ownership of the money loaned from PNB, making the money public fund. The city will have to pay the loan by revenues raised from local taxation or by its internal revenue allotment.

In addition, APP and APPCDC's lack of objection in their Answer on the personality to sue of the four complainants constitutes waiver to raise the objection under Section 1, Rule 9 of the Rules of Court.

B. Petitioner contend that only the City Prosecutor can represent Urdaneta City and that law and jurisprudence prohibit the appearance of the Lazaro Law Firm as the city's counsel.

Its appearance as Urdaneta City's counsel is against the law as it provides expressly who should represent it. The City Prosecutor should continue to represent the city.

C. Petitioners claim that Urdaneta City is estopped to reverse admissions in its Answer that the contracts are valid and, in its pre-trial brief, that the execution of the contracts was in good faith.

We disagree. The court may allow amendment of pleadings.

Section 5,41 Rule 10 of the Rules of Court pertinently provides that if evidence is objected to at the trial on the ground that it is not within the issues raised 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. Objections need not even arise in this case since the Pre-trial Order dated April 1, 2002 already defined as an issue whether the contracts are valid. Thus, what is needed is presentation of the parties' evidence on the issue. Any evidence of the city for or

against the validity of the contracts will be relevant and admissible. Note also that under Section 5, Rule 10, necessary amendments to pleadings may be made to cause them to conform to the evidence.

In addition, despite Urdaneta City's judicial admissions, the trial court is still given leeway to consider other evidence to be presented for said admissions may not necessarily prevail over documentary evidence, e.g., the contracts assailed. A party's testimony in open court may also override admissions in the Answer.

As regards the RTC's order admitting Capalad's complaint and dropping him as defendant, we find the same in order. Capalad insists that Atty. Sahagun has no authority to represent him. Atty. Sahagun claims otherwise. We note, however, that Atty. Sahagun represents petitioners who claim that the contracts are valid. On the other hand, Capalad filed a complaint for annulment of the contracts. Certainly, Atty. Sahagun cannot represent totally conflicting interests. Thus, we should expunge all pleadings filed by Atty. Sahagun in behalf of Capalad.

D. Relatedly, we affirm the order of the RTC in allowing Capalad's change of attorneys, if we can properly call it as such, considering Capalad's claim that Atty.

Sahagun was never his attorney.

WHEREFORE, we (1) GRANT the petition; (2) SET ASIDE the Resolutions dated April 15, 2003 and February 4, 2004 of the Court of Appeals in CA-G.R. SP No. 76170; (3) DENY the entry of appearance of the Lazaro Law Firm in Civil Case No. U-7388 and EXPUNGE all pleadings it filed as counsel of Urdaneta City; (4) ORDER the City Prosecutor to represent Urdaneta City in Civil Case No. U-7388; (5) AFFIRM the RTC in admitting the complaint of Capalad; and (6) PROHIBIT Atty. Oscar C. Sahagun from representing Capalad and EXPUNGE all pleadings that he filed in behalf of Capalad.

Let the records be remanded to the trial court for further proceedings.

TIU v. PBCOM

FACTS: Asian Water Resources, Inc. (AWRI), represented by herein petitioners Henry Tiu, Christopher Go, and George Co, applied for a real estate loan with the Philippine Bank of Communications (PBCOM). The first loan was secured by a piece of land as collateral. Subsequently, a bigger loan was applied for by AWRI but without an additional real estate collateral. Instead, the members of the Board of Directors of AWRI were required to become sureties under a Surety Agreement. AWRI defaulted on its obligation and offered all its properties to be applied in a dacion en pago arrangement. PBCOM, however, rejected this offer and sued for collection. In the Answer of petitioners, they claimed that the Surety Agreement attached to the complaint were falsified, considering that when they signed the same, the

words "In his personal capacity" did not yet appear in the document and were merely intercalated thereon without their knowledge and consent. PBCOM realized this mistake and explained that the insertion was ordered by the bank auditor since standard procedures warranted that the words “in his personal capacity” be indicated under the name of each surety. It was alleged to have been made to reflect the parties’ true intentions. PBCOM then filed a Reply and Answer to Counterclaim with Motion for Leave of Court to Substitute Annex "A" of the Complaint,¹⁶ wherein it attached the duplicate original copy retrieved from the file of the notary public. This version did not anymore include the alleged intercalated words. PBCOm urged the trail court to treat its motion as a motion for leave of court to amend and admit the amended complaint pursuant to Section 3, Rule 10 of the Rules of Court.

Petitioners meanwhile maintain that PBCOM’s cause of action was solely and principally founded on the alleged falsified document originally marked as the Annex. Thus, the withdrawal of the document results in the automatic withdrawal of the whole complaint on the ground that there is no more cause of action to be maintained or enforced by plaintiff against petitioners.

Also, petitioners argue that if the substitution will be allowed, their defenses that were anchored on the alleged falsified copy of the Agreement would be

Also, petitioners argue that if the substitution will be allowed, their defenses that were anchored on the alleged falsified copy of the Agreement would be