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CHIANG KAI SHEK SCHOOL,petitioner,vs.COURT OF APPEALS and FAUSTINAFRANCO OH,respondents.

SYLLABUS

1.REMEDIAL LAW; PARTIES IN A CIVIL ACTION; FAILURE OF SCHOOL TO INCORPORATE DOES NOT EXEMPT ITFROM SUIT AS A JURIDICAL ENTITY. It is true that Rule 3, Section 1, of the Rules of Court clearly provides that"only natural or juridical persons may be parties in a civil action." It is also not denied that the school has not beenincorporated. However, this omission should not prejudice the private respondent in the assertion of her claimsagainst the school. As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, whichprovided as follows: Unless exempted for special reasons by the Secretary of Public Instruction, any private school orcollege recognized by the government shall be incorporated under the provisions of Act No. 1459 known as theCorporation Law, within 90 days after the date of recognition, and shall file with the Secretary of Public Instruction acopy of its incorporation papers and by-laws. Having been recognized by the government, it was under obligation toincorporate under the Corporation Law within 90 days from such recognition. It appears that it had not done so atthe time the complaint was filed notwithstanding that it had been in existence even earlier than 1932. The petitionercannot now invoke its own non-compliance with the law to immunize it from the private respondent's complaint.

2.ID.; ID.; SCHOOL HAVING REPRESENTED ITSELF AS POSSESSED OF JURIDICAL PERSONALITY ESTOPPED FROMDENYING THE SAME. There is no question that having contracted with the private respondent every year forthirty two years and thus represented itself as possessed of juridical personality to do so, the petitioner Chiang KaiShek School is now estopped from denying such personality to defeat her claim against it. According to Article 1431of the Civil Code, "through estoppel an admission or representation is rendered conclusive upon the person making itand cannot be denied or disproved as against the person relying on it."

3.LABOR LAW; CHARITABLE INSTITUTIONS COVERED THEREIN.

It is clear now that a charitable institution iscovered by the labor laws although the question was still unsettled when this case arose in 1968. At any rate, therewas no law even then exemptingsuch institutions from the operation of the labor laws (although they wereexempted by the Constitution from ad valoremtaxes). Hence, even assuming that the petitioner was a charitableinstitution as it claims, the private respondent was nonetheless still entitled to the protection of the Termination PayLaw, which was then in force.

4.ID.; TERMINATION OF EMPLOYMENT; DISMISSAL OF PERMANENT EMPLOYEE WITHOUT CAUSE AND DUENOTICE NOT PROPER. The Court holds, after considering the particular circumstance of Oh's employment, thatshe had become a permanent employee of the school and entitled to security of tenure at the time of her dismissal.Since no cause was shown and established at an appropriate hearing, and the notice then required by law had notbeen given, such dismissal was invalid. The private respondent's position is no different from that of the rank-and-file employees involved in Gregorio Araneta University Foundation v. NLRC, of whom the Court had the following tosay: Undoubtedly, the private respondents' positions as deans and department heads of the petitioner university arenecessary in its usual business. Moreover, all the private respondents have been serving the university from 18 to 28years. All of them rose from the ranks starting as instructors until they became deans and department heads of the

university. A person who has served the University for 28 years and who occupies a high administrative position inaddition to teaching duties could not possibly be a temporary employee or a casual.

5.ID.; ID.; ILLEGAL DISMISSAL DONE IN WANTON AND OPPRESSIVE MANNER, AWARD OF MORAL ANDEXEMPLARY DAMAGES PROPER. We find that the private respondent was arbitrarily treated by the petitioner,which has shown no cause for her removal nor had it given her the notice required by the Termination Pay Law. Asthe respondent court said, the contention that she did not report one week before the start of classes is a flimsyjustification for replacing her. She had been in its employ for all of thirty-two years. Her record was apparentlyunblemished. There is no showing of any previous strained relations between her and the petitioner. Oh had every

reason to assume, as she had done in previous years, that she would continue teaching as usual. It isimagine the astonishment and hurt she felt when she was flatly and without warning told she was dismissewas not even the amenity of a formal notice of her replacement, with perhaps a graceful expression of thher past services. She was simply informed she was no longer in the teaching staff. To put it bluntly, she wFor the wrongful act of the petitioner, the private respondent is entitled to moral damages. As a proximate her illegal dismissal, she suffered mental anguish, serious anxiety, wounded feelings and even besreputation as an experienced teacher for more than three decades. We also find that the respondent courerr in awarding her exemplary damages because the petitioner acted in a wanton and oppressive manner dismissed her.

D E C I S I O N

CRUZ, J p:

An unpleasant surprise awaited Fausta F. Oh when she reported for work at the Chiang Kai Shek School in Son the first week of July, 1968. She was told she had no assignment for the next semester. Oh was shockhad been teaching in the school since 1932 for a continuous period of almost 33 years. And now, out of tand for no apparent or given reason, this abrupt dismissal.

Oh sued. She demanded separation pay, social security benefits, salary differentials, maternity benefits anand exemplary damages.1The original defendant was the Chiang Kai Shek School but when it filed a mdismiss on the ground that it could not be sued, the complaint was amended. 2Certain officials of the schalso impleaded to make them solidarily liable with the school.

The Court of First Instance of Sorsogon dismissed the complaint.3On appeal, its decision was set asidrespondent court, which held the school suable and liable while absolving the other defendants.4The mreconsideration having been denied,5the school then came to this Court in this petition for review on certio

The issues raised in the petition are:

1.Whether or not a school that has not been incorporated may be sued by reason alone of its long coexistence and recognition by the government.

2.Whether or not a complaint filed against persons associated under a common name will justify a judgmenthe association itself and not its individual members.

3.Whether or not the collection of tuition fees and book rentals will make a school profit-making and not cha

4.Whether or not the Termination Pay Law then in force was available to the private respondent who was eon a year-to-year basis.

5.Whether or not the awards made by the respondent court were warranted.

We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules of Courprovides that "only natural or juridical persons may be parties in a civil action." It is also not denied that the

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has not been incorporated. However, this omission should not prejudice the private respondent in the assertion ofher claims against the school. LLphil

As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which provided as follows:

Unless exempted for special reasons by the Secretary of Public Instruction, any private schoolor college recognized by the government shall be incorporated under the provisions of Act No.1459 known as the Corporation Law, within 90 days after the date of recognition, and shallfile with the Secretary of Public Instruction a copy of its incorporation papers and by-laws.

Having been recognized by the government, it was under obligation to incorporate under the Corporation Law within

90 days from such recognition. It appears that it had not done so at the time the complaint was filednotwithstanding that it had been in existence even earlier than 1932. The petitioner cannot now invoke its own non-compliance with the law to immunize it from the private respondent's complaint.

There should also be no question that having contracted with the private respondent every year for thirty two yearsand thus represented itself as possessed of juridical personality to do so, the petitioner is now estopped fromdenying such personality to defeat her claim against it. According to Article 1431 of the Civil Code, "through estoppelan admission representation is rendered conclusive upon the person making it and cannot be denied or disproved asagainst the person relying on it."

As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15, under which thepersons joined in an association without any juridical personality may be sued with such association. Besides, it hasbeen shown that the individual members of the board of trustees are not liable, having been appointed only afterthe private respondent's dismissal.6

It is clear now that a charitable institution is covered by the labor laws 7although the question was still unsettled

when this case arose in 1968. At any rate, there was no law even then exempting such institutions from theoperation of the labor laws (although they were exempted by the Constitution from ad valoremtaxes). Hence, evenassuming that the petitioner was a charitable institution as it claims, the private respondent was nonetheless stillentitled to the protection of the Termination Pay Law, which was then in force.

While it may be that the petitioner was engaged in charitable works, it would not necessarily follow that those in itsemploy were as generously motivated. Obviously, most of them would not have the means for such charity. Theprivate respondent herself was only a humble school teacher receiving a meager salary of P180.00 per month.

At that, it has not been established that the petitioner is a charitable institution, considering especially that it chargestuition fees and collects book rentals from its students.8While this alone may not indicate that it is profit-making, itdoes weaken its claim that it is a non-profit entity. llcd

The petitioner says the private respondent had not been illegally dismissed because her teaching contract was on ayearly basis and the school was not required to rehire her in 1968. The argument is that her services wereterminable at the end of each year at the discretion of the school. Significantly explanation was given by thepetitioner, and no advance notice either, of her relief. After teaching year in and year out for all of thirty-two years,the private respondent was simply told she could not teach any more.

The Court holds, after considering the particular circumstance of Oh's employment, that she had become apermanent employee of the school and entitled to security of tenure at the time of her dismissal. Since no cause was

shown and established at an appropriate hearing, and the notice then required by law had not been givdismissal was invalid.

The private respondent's position is no different from that of the rank-and-file employees involved in GAraneta University Foundation v. NLRC,9of whom the Court had the following to say:

Undoubtedly, the private respondents' positions as deans and department heads of thepetitioner university are necessary in its usual business. Moreover, all the private r espondentshave been serving the university from 18 to 28 years. A ll of them rose from the ranks sta rtingas instructors until they became deans and department heads of the university. A person whohas served the University for 28 years and who occupies a high administrative position inaddition to teaching duties could not possibly be a temporary employee or a casual.

The applicable law is the Termination Pay Law, which provided:

SECTION 1.In cases of employment, without a definite period, in a commercial, industrial, oragricultural establishment or enterprise, the employer or the employee may terminate at anytime the employment with just cause; or without just cause in the case of an employee byserving written notice on the employer at least one month in advance, or in the case of anemployer, by serving such notice to the employee at least one month in advance or one-halfmonth for every year of service of the employee, whichever, is longer, a fraction of at leastsix months being considered as one whole year.

The employer, upon whom no such notice was served in case of termination of employmentwithout just cause may hold the employee liable for damages.

The employee, upon whom no such notice was served in case of termination of employment

without just cause shall be entitled to compensation from the date of termination of hisemployment in an amount equivalent to his salaries or wages corresponding to the requiredperiod of notice. . . .

The respondent court erred, however, in awarding her one month pay instead of only one-half month severy year of service. The law is quite clear on this matter. Accordingly, the separation pay should be comP90.00 times 32 months, for a total of P2,880 .00. Cdpr

Parenthetically, R.A. No. 4670, otherwise known as the Magna Carta for Public School Teachers, confers sectenure on the teacher upon appointment as long as he possesses the required qualification.10And upresent policy of the Department of Education, Culture and Sports, a teacher becomes permanent and autoacquires security of tenure upon completion of three years in t he service.11

While admittedly not applicable to the case at bar, these rules nevertheless reflect the attitude of the governthe protection of the worker's security of tenure, which is now guaranteed by no less than the Constitution it

We find that the private respondent was arbitrarily treated by the petitioner, which has shown no causeremoval nor had it given her the notice required by the Termination Pay Law. As the respondent court scontention that she did not report one week before the start of classes is a flimsy justification for reher.13She had been in its employ for all of thirty-two years. Her record was apparently unblemished. Thshowing of any previous strained relations between her and the petitioner. Oh had every reason to assumehad done in previous years, that she would continue teaching as usual.

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It is easy to imagine the astonishment and hurt she felt when she was flatly and without warning told she wasdismissed. There was not even the amenity of a formal notice of her replacement, with perhaps a gracefulexpression of thanks for her past services. She was simply informed she was no longer in the teaching staff. To putit bluntly, she was fired.

For the wrongful act of the petitioner, the private respondent is entitled to moral damages.14As a proximate resultof her illegal dismissal, she suffered mental anguish, serious anxiety, wounded feelings and even besmirchedreputation as an experienced teacher for more than three decades. We also find that the respondent court did noterr in awarding her exemplary damages because the petitioner acted in a wanton and oppressive manner when itdismissed her.15

The Court takes this opportunity to pay a sincere tribute to the grade school teachers, who are always at the

forefront in the battle against illiteracy and ignorance. If only because it is they who open the minds of their pupilsto an unexplored world awash with the magic of letters and numbers, which is an extraordinary feat indeed, thesehumble mentors deserve all our respect and appreciation.

WHEREFORE, the petition is DENIED. The appealed decision is AFFIRMED except for the award of separation pay,which is reduced to P2,880.00. All the other awards are approved. Costs against the petitioner.

This decision is immediately executory.

SO ORDERED.

THE HEIRS OF THE LATE FLORENTINA NUGUID VDA. DEHABERER,petitioner,vs.COURT OF APPEALS,*FEDERICO MARTINEZ, BALDOMEROMANALO, FAUSTINO BAGALAWIS, FEDERICO STA. TERESA, ANGELITO KING,GREGORIO DEL ROSARIO, LEODOVICO TORRES, LEON SORIANO, SANTIAGOTUMANG, LUIS PASTOR and CRISTINO LIBRAMANTE,respondents.

Bausa, Ampiland Suarezfor petitioner.

Felipe C. Navarrofor private respondents.

SYNOPSIS

During her lifetime, Florentina Nuguid Vda. de Haberer appealed from a decision of the trial court dismissing hereleven complaints for recovery of possession of a parcel of land which was registered in her name. Upon her death,her counsel filed three motions respectively on June 28, 1975, September 18, 1975, and November 24, 1975notifying the court of appellant's death and praying either for the suspension of the running of the period for filingappellant's brief pending the appointment of an executor of her estate in the Court of First Instance, or an extensionof sixty days. Acting only on the third motion, the appellate court denied the request for extension and dismissed theappeal on the ground that appellant had already been given a total of 195 days within which to file her brief. Amotion for reconsideration of the order wherein the appellant's brief was also presented for admission was likewisedenied by the court stating that litigants have no right to assume that such extension will be granted as a matter ofright. Hence, is petition.

The Supreme Court held, that upon notice of appellants' death, the Rules of Court calls upon the court to require theappearance of the deceased's legal representative instead of dismissing the appeal; and that the court, in exercising

its discretion to dismiss an appeal on the ground of failure to file appellant's brief, must do so in accordance tenets of justice and fair play, having in mind the circumstances of the case, and without applying the Rurigidity and inflexibility.

Petition granted. Appellant's brief ordered admitted and the case remanded to the appellate court forproceedings.

SYLLABUS

1.REMEDIAL LAW; CIVIL PROCEDURE; APPEALS; DISMISSAL FOR FAILURE TO FILE APPELLANT'S BRIEF

HER DEATH; NOT PROPER WHERE COURT FAILED TO REQUIRE DECEASED'S SUBSTITUTION; CASE ATSection 17, Rule 3 of the Rules of Court sets the rule on substitution of parties in case of death of any of theUnder the Rules, it is the court that is called upon, after notice of a party's death and the claim is not extingto order upon proper notice the legal representative of the deceased to appear within a period of 30 days time as it may grant. The Rule further provides, that the court should set a period for the substitutiondeceased party with her legal representative or heirs, falling which, the court is called upon to order the oparty to procure the appointment of a legal representative of the deceased at the cost of the deceased's estsuch representative shall then "immediately appear for and on behalf of the interest of the deceased." Thucase at bar where deceased's counsel duly notified the court of their client's death, the court gravely errefollowing the Rules and requiring in appearance of the legal representative of the deceased and instead dthe appeal of the deceased who yet had to be substituted in the pending appeal. Since no administratoestate of the deceased appellant had yet been appointed as the same was still pending determination in theFirst Instance of Quezon City, the motion of the deceased's counsel for the suspension of the running of thwithin which to file appellant's brief was well-taken.

2.ID.; ID.; PARTIES TO AN ACTION; DEATH OF PARTY; ORDER OF SUBSTITUTION REQUIRED BY THEABSENCE THEREOF RENDERS PROCEEDINGS VOID.Where a party dies in an action that survives, and no

issued by the court for the appearance of the legal representative or of the heirs of the deceased in substitthe deceased, and as a matter of fact no such substitution has ever been effected, the trial held by the coursuch legal representatives or heirs and the judgment rendered after such trial are null and void because thacquired no jurisdiction over the persons of the legal representatives or of the heirs upon whom the trial judgment would be binding.

3.ID.; ID.; ID.; ID.; EFFECT THEREOF ON ATTORNEY-CLIENT RELATIONSHIP; CASE AT BAR. It is respondent court to rule that since upon the demise of the party-appellant, the attorney-client relationship her and counsel "was automatically severed and terminated," whatever pleadings filed by said counsel witthe death of said appellant "are mere scraps of paper." If at all, due to said death and severance of the aclient relationship, further proceedings and specifically the running of the original 45-day period for fappellant's brief should be legally deemed as having been automatically suspended, until the proper substithe deceased appellant by her executor or administrator or her heirs shall have been effected within the timrespondent court pursuant to the Rules.

4.ID.; ID.; APPEALS; DISMISSAL; SUPERVENING DEATH OF APPELLANT IN CASE AT BAR DOES NOT

CONTINUANCE OF APPEAL UNNECESSARY.

Respondent court gravely erred in dismissing the appeal belief that the supervening death of the appellant Florentina Nuguid Vda. de Haberer rendered the continthe appeal unnecessary"' on the basis of totally inapplicable citation of a ruling in Velasco vs.Rosenberg,212, 214 that "If pending appeal, an event occurs which renders it impossible for the appellate court to grrelief, the appeal will be dismissed." Manifestly, the appellant's death in no way impedes that the deceasedto recover the parcel of land registered in her name be continued and determined for the benefit of her esheirs.

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5.ID.; ID.; LIBERAL AND RELAXED APPLICATION OF RULES. What should guide judicial action is the principle thata party litigant is to be given the fullest opportunity to establish the merits of his complaint or defense rather thanfor him to lose life, liberty. honor or property on technicalities. A liberal, rather than a strict and inflexible adherenceto the Rules, is justified not only because appellant in this case, her estate and/or heirs should be given everyopportunity to be heard but also because no substantial injury or prejudice can well be caused to the adverse partiesprincipally, since they are in actual possession of the disputed land. The better and certainly the more prudentcourse of action in every judicial proceeding is to hear both sides and decide on the merits rather than dispose of acase on technicalities, especially where no substantial prejudice is caused to the adverse party.

6.ID.; ID.; APPEAL; DISMISSAL ON GROUND OF FAILURE TO FILE APPELLANT'S BRIEF; NOT AUTOMATIC BUTMERELY DISCRETIONARY. The dismissal of an appeal on the appellant's failure to file brief is based on a powergranted to respondent Court of Appeals and not on a specific and mandatory duty imposed upon it by the Rules.

Since the power or authority is not mandatory but merely directory, she exercise thereof requires a great deal ofcircumspection, considering all the attendant circumstances. The failure of an appellant to file his brief within thetime prescribed does not have the effect of dismissing the appeal automatically. Rather, the Court of Appeals hasthe discretion to dismiss or not to dismiss appellant's appeal, which discretion must be a sound one to be exercisedin accordance with the tenets of justice and fair play having in mind the circumstances obtaining in each case. Thus,where a reading of the appellant's brief discloses that petitioners-appellants have aprima facie meritorious case, thesame should be properly determined on the merits and "the element of rigidity should not be affixed to proceduralconcepts and made to cover the matter," for to dismiss the appeal would not serve the ends of justice.

D E C I S I O N

TEEHANKEE, J p:

The Court grants the petition for review by way of appeal from the Resolutions of respondent Court of Appeals datedNovember 24, 1975 and January 15, 1976 dismissing the appeal of the late Florentina Nuguid Vda. de Haberer inCA-G.R. No. 53680-90-R and ordering all pleadings filed in said cases after the death of said appellant stricken offthe records, for having been issued with grave error of law if not with grave abuse of discretion and remands thecase for proper proceedings and determination of the appeal on the merits.

This case originated from the Court of First Instance of Rizal where the late Florentina Nuguid Vda. de Haberer asthe duly registered owner filed in 1964 and 1965 eleven (11) complaints for recovery of possession of the parcel ofland evidenced by Transfer Certificate of Title No. 15043 of the Register of Deeds of Rizal issued in her name,situated at Mandaluyong, Rizal, alleging that private respondents had surreptitiously entered the land and built theirhouses thereon.

The lower court, after trial on the merits, rendered a consolidated decision, dated May 26, 1971, dismissing all thecomplaints. On motion of the late Florentina Nuguid Vda. de Haberer the cases were reopened and retried ongrounds of newly discovered evidence. On September 15, 1972, the lower court issued an order reviving its decisionof May 26, 1971. The decision was thus appealed to the Court of Appeals.

In the Court of Appeals, the cases were erroneously dismissed once before, on the ground that the appeal wasallegedly filed out of time. The issue was brought to this Court in Cases Nos. L-39366 and L-39620-29, entitled"Florentina Nuguid Vda. de Haberer vs. Federico Martinez, et al."1On January 29, 1975, this Court rendered itsjudgment setting aside the appellate court's dismissal of the appeal and ordering the reinstatement of the same forproper disposition on the merits, having found "that contrary to respondent court's erroneous premises andcomputation, petitioner duly and timely perfected her appeal within the reglementary period and in compliance with

the material data rule requiring that the Record on Appeal state such data as will show that the appperfected on time."

The cases were remanded to the Court of Appeals where appellant was required to file printed brief within fdays from her receipt of notice. Three days before the period was to expire, or on June 18, 1975, appellant'requested for an extension of time within which to file appellant's brief. Respondent court in a resolution da23, 1975 granted the request and gave appellant a 90-day extension (with warning of no further extensioreceipt on June 27, 1975 or up to September 25, 1975 within which to file the appellant's printed brief. On 1975, private respondent opposed the extension by filing a "Motion to Set Aside Order Granting Extension ofFile Brief. " Appellant was directed by respondent court to comment on the said opposition and appellant's

complied by submitting its comments on July 15, 1975.

In the meantime, appellant Florentina Nuguid Vda. de Haberer had died on May 26, 1975. Appellant'sAttorneys Bausa, Ampil and Suarez accordingly gave respondent court notice of the death of their clientmotion of June 28, 1975 and asked for the suspension of the running of the period within which toappellant's brief pending the appointment of an executor of the estate left by their client in the CourtInstance of Quezon City (Sp. Proc. No. Q-2026) where a petition for the probate of the alleged will of the dhad been filed by another lawyer, Atty. Sergio Amante. Respondents in turn contended that the lawyerdeceased had "no longer any legal standing and her attorneys could no longer act for and in her behalreason that their client-attorney relationship had been automatically terminated or severed" and asked appeal be dismissed "for failure to prosecute."2

Since their motion of June 28, 1975 remained unacted upon and the original extension granted by the rescourt for the deceased appellant to file her printed brief was about to expire, her counsel filed on Septem1975 a manifestation and/or motion asking either for an extension of sixty (60) days and/or resolution susthe running of the period within which to submit appellant's printed brief. Still, respondent court remained si

Not certain whether their services would still be retained by the heirs of the deceased, counsel for the late FNuguid Vda. de Haberer reiterated their request in a motion dated November 14, 1975 either for an extetime to file appellant's brief or for the issuance of a resolution suspending the running of the period for fisame, pending the appointment of an administrator or executor of the estate of the deceased appellant.

Finally, acting on counsel's motion of November 14, 1975, respondent court denied the request for extensiothe same time dismissed the appeal, ruling in its resolution dated November 24, 1975 as follows:

"Upon consideration of the manifestation and/or for another extension to file appellant's briefdated November 14, 1975, filed by counsel for the appellant on the grounds therein stated,and considering that appellant has already been given a total of one hundred ninety-five(195) days within which to file brief, the Court Resolved to deny the motion for anotherextension to file brief and to dismiss the appeal."

Counsel for the deceased appellant forthwith filed their urgent motion for reconsideration of December explaining their predicament that the requests for extension/suspension of period to file brief was dueuncertainty that their services may no longer be retained by the heirs or legal representatives of their dclient but they felt obligated to preserve the right of such heirs/successors to continue the appeal pursuant3, Section 17 of the Rules of Court, pending the settlement of the question of who among them shouldexecutor of the deceased's estate and presented therewith, for admission, the printed "brief for the appellprinting of which they had deferred "for professional ethical considerations," pending respondent court's atheir request for suspension of the period. They further submitted therewith copies of 2 separate oSeptember 3, 1975 and August 26, 1975 issued by the Court of Agrarian Relations and the Court of First

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both at Guimba, Nueva Ecija, respectively, wherein the deceased Florentina Nuguid Vda. de Haberer was party-defendant, granting the deceased's counsel's prayer to hold in abeyance further proceedings therein pending theappointment of an administrator for the estate of the deceased.

Respondent court, however, denied reconsideration, per its Resolution of January 15, 1976 citing the generalprinciple that "litigants have no right to assume that such extensions will be granted as a matter of course." Butrespondent court erred in applying this general principle and summarily denying reconsideration and denyingadmission of the appellant's brief conditioned upon the administrator of the deceased's estate making hisappearance upon his appointment and being granted leave to file his s upplemental brief/memorandum,3in view ofthe intervening event of appellant's death and the interposition of the equally established principle that the relationof attorney and client is terminated by the death of the client, as acknowledged by respondent court itself as well asrespondents. In the absence of a retainer from the heirs or authorized representatives of his deceased client, the

attorney would thereafter have no further power or authority to appear or take any further action in the case, saveto inform the court of the client's death and take the necessary steps to safeguard the deceased's rights in the case.

This is what the deceased's counsel did in the case at bar. They properly informed respondent court of the death ofthe appellant and sought suspension of the proceedings and of the period for filing appellant's brief pending theappointment of the executor of the deceased's estate in the proper probate proceedings filed with the Court of FirstInstance of Quezon City. Section 17, Rule 3 of the Rules of Court4sets the rule on substitution of parties in case ofdeath of any of the parties. Under the Rule, it is the court that is called upon, after notice of a party's death and theclaim is not thereby extinguished, to order upon proper notice the legal representative of the deceased to appearwithin a period of 30 days or such time as it may grant. Since no administrator of the estate of the deceasedappellant had yet been appointed as the same was still pending determination in the Court of First Instance ofQuezon City, the motion of the deceased's counsel for the suspension of the running of the period within which tofile appellant's brief was well-taken. More, under the Rule, it should have set a period for the substitution of thedeceased party with her legal representative or heirs, failing which, the court is called upon to order the opposingparty to procure the appointment of a legal representative of the deceased at the cost of the deceased's estate, andsuch representative shall then "immediately appear for and on behalf of the interest of the deceased."

Respondent court gravely erred in not following the Rule and requiring the appearance of the legal representative ofthe deceased and instead dismissing the appeal of the deceased who yet had to be substituted in the pendingappeal. Thus, it has been held that when a party dies in an action that survives, and no order is issued by the courtfor the appearance of the legal representative or of the heirs of the deceased in substitution of the deceased, and asa matter of fact no such substitution has ever been effected, the trial held by the court without such legalrepresentatives or heirs and the judgment rendered after such trial are null and void because the court acquired nojurisdiction over the persons of the legal representatives or of the heirs upon whom the trial and the judgmentwould be binding.5

Respondent court therefore erred in ruling that since upon the demise of the party-appellant, the attorney-clientrelationship between her and her counsels "was automatically severed and terminated," whatever pleadings filed bysaid counsel with it after the death of said appellant "are mere scraps of paper."6If at all, due to said death on May25, 1975 and severance of the attorney-client relationship, further proceedings and specifically the running of theoriginal 45-day period for filing the appellant's brief should be legally deemed as having been automaticallysuspended, until the proper substitution of the deceased appellant by her executor or administrator or her heirs shallhave been effected within the time set by respondent court pursuant to the cited Rule.

Respondent court likewise gravely erred in dismissing the appeal on "(its) belief that the supervening death of theappellant Florentina Nuguid Vda. de Haberer rendered the continuance of the appeal unnecessary" on the basis of atotally inapplicable citation of a ruling in Velasco vs. Rosenberg, 29 Phil. 212, 214 that "If pending appeal, an eventoccurs which renders it impossible for the appellate court to grant any relief, the appeal will be dismissed."Manifestly, the appellant's death in no way impedes that the deceased's appeal to recover the parcel of landregistered in her name be continued and determined for the benefit of her estate and heirs.

Prescinding from the foregoing, justice and equity dictate under the circumstances of the case at bar that twhile necessary for the speedy and orderly administration of justice, should not be applied with the rigiinflexibility of respondent court's resolutions.7What should guide judicial action is the principle that a partis to be given the fullest opportunity to establish the merits of his complaint or defense rather than for himlife, liberty, honor or property on technicalities.8A liberal, rather than a strict and inflexible adherence to this justified not only because appellant (in this case, her estate and/or heirs) should be given every opportunheard but also because no substantial injury or prejudice can well be caused to the adverse parties principathey are in actual possession of the disputed land.9The better and certainly the more prudent course of every judicial proceeding is to hear both sides and decide on the merits rather than dispose of a technicalities,10especially where no substantial prejudice is caused to the adverse party.11

The dismissal of an appeal based on the appellant's failure to file brief is based on a power granted to resCourt of Appeals and not on a specific and mandatory duty imposed upon it by the Rules. 12Since the pauthority is not mandatory but merely directory, the exercise thereof requires a great deal of circumsconsidering all the attendant circumstances.13The failure of an appellant to file his brief within the time pdoes not have the effect of dismissing the appeal automatically. 14Rather, the Court of Appeals has the dto dismiss or not to dismiss appellant's appeal, which discretion must be a sound one to be exercised in accwith the tenets of justice and fair play having in mind the circumstances obtaining in each case. 5

Paraphrasing what the Court stressed in the leading case of Berkenkotter vs. Court of Appeals,16a readinappellant's brief discloses that petitioners-appellants have aprima faciemeritorious case which should be determined on the merits and "the element of rigidity should not be affixed to procedural concepts and cover the matter,"17for to dismiss the appeal would not serve the ends of justice.

A final note: On March 19, 1976, counsels submitted with their Manifestation the written authority dated Jan1976 individually signed by instituted heirs and/or legal representatives of the testate estate of the d

Florentina Nuguid Vda. de Haberer granting said counsels full authority to file and prosecute the case and aincidental cases for and in their behalf,18which was duly noted in the Court's Resolution of March 26, 197manifestation and authority may be deemed the formal substitution of the deceased by her heirs, as in fappear as petitioners in the title of the case at bar. Hence, the proper determination of the pending appeal proceed, as herein directed.

ACCORDINGLY, the petition is granted and respondent court's resolutions of November 24, 1975 and Jan1976 are set aside. The appellant's brief filed with respondent court in the pending appeal in CA-G.R. Nos90-R is ordered admitted and the cases are remanded to respondent Court of Appeals for further proceedproper determination of the appeal on the merits. With costs against private respondents.

The Court has noted that upon recommendation of the Solicitor General in Adm. Case No. 2148 entitled "FOrtigas, Jr., et al. vs. Atty. Felipe C. Navarro" that counsel for respondents Felipe C. Navarro be disbarred fmisconduct and/or malpractice," he has been suspended from the practice of law during the pendencyproceedings. The Court, however, directs that copy of this decision be served on said counsel for the sole puapprising private respondents through him of the promulgation of this judgment and to require responden

inform the Court of their new counsel, if any, and to direct him to enter his appearance or (2) if they have nother counsel, to inform the Court of their respective addresses for purposes of service of the Court's prowithin ten (10) days from notice thereof.

FABIANA C. VDA. DE SALAZAR,petitioner,vs.COURT OF APPEALS, PRIMITIVONEPOMUCENO and EMERENCIANA NEPOMUCENO,respondents.

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Proceso M.Nacino for petitioner.

SYLLABUS

1.REMEDIAL LAW; CIVIL PROCEDURE; PARTIES TO CIVIL ACTION; DEATH OF A PARTY; SUBSTITUTION OF HEIRS;BASIS. The need for substitution of heirs is based on the right to due process accruing to every party in anyproceeding. The rationale underlying this requirement in case a party dies during the pendency of proceedings of anature not extinguished by such death, is that "...the exercise of judicial power to hear and determine a causeimplicitly presupposes in the trial court, amongst other essentials, jurisdiction over the persons of the parties. Thatjurisdiction was inevitably impaired upon the death of the protestee pending the proceedings below such that unlessand until a legal representative is for him duly named and within the jurisdiction of the trial court, no adjudication in

the cause could have been accorded any validity or binding effect upon any party, in representation of the deceased,without trenching upon the fundamental right to a day in court which is the very essence of the constitutionallyenshrined guarantee of due process." We are not unaware of several cases where we have ruled that a party havingdied in an action that survives, the trial held by the court without appearance of the deceased's legal representativeor substitution of heirs and the judgment rendered after such trial, are null and void because the court acquired nojurisdiction over the persons of the legal representatives or of the heirs upon whom the trial and the judgmentwould be binding. dctai

2.ID.; ID.; ID.; ID.; ID.; NOT NECESSARY WHEN THE HEIRS THEMSELVES VOLUNTARILY APPEARED,PARTICIPATED IN THE CASE AND PRESENTED EVIDENCE IN DEFENSE OF DECEASED DEFENDANT. Formalsubstitution of heirs is not necessary when the heirs themselves voluntarily appeared, participated in the case andpresented evidence in defense of deceased defendant. Attending the case at bench, after all, are these particularcircumstances which negate petitioner's belated and seemingly ostensible claim of violation of her rights to dueprocess. We should not lose sight of the principle underlying the general rule that formal substitution of heirs mustbe effectuated for them to be bound by a subsequent judgment. Such had been the general rule established notbecause the rule on substitution of heirs and that on appointment of a legal representative are jurisdictional

requirements per sebut because non-compliance therewith results in the undeniable violation of the right to dueprocess of those who, though not duly notified of the proceedings, are substantially affected by the decisionrendered therein. Consequently, we rule that, as in the case at bench, the defendant in an ejectment case havingdied before the rendition by the trial court of its decision therein, its failure to effectuate a formal substitution ofheirs before its rendition of judgment does not invalidate such judgment where the heirs themselves appearedbefore the trial court, participated in the proceedings therein, and presented evidence in defense of deceaseddefendant, it undeniably being evident that the heirs themselves sought their day in court and exercised their rightto due process.

3.ID.;SPECIAL CIVIL ACTIONS; EJECTMENT; NOT EXTINGUISHED BY THE DEFENDANT'S DEATH. Ejectment,being an action involving recovery of real property, is a real action which as such, is not extinguished by thedefendant's death. There is no dispute that an ejectment case survives the death of a party, which death did notextinguish the deceased's civil personality. More significantly, a judgment in an ejectment case is conclusive betweenthe parties and their successors in interest by title subsequent to the commencement of the action. LLjur

D E C I S I O N

HERMOSISIMA, JR., J p:

Where the defendant in an ejectment case dies before the rendition by the trial court of its detherein, does the trial court's failure to effectuate a substitution of heirs before its rendition of judgment such judgment jurisdictionally infirm?

On July 23, 1970, both private respondents Primitivo Nepomuceno and Emerenciana Nepomfiled separate complaints 1 with the then Court of Agrarian Relations of Malolos, Bulacan, for ejectment oground of personal cultivation and conversion of land for useful non-agricultural purposes against petitideceased husband, Benjamin Salazar. After protracted proceedings in the agrarian court and then the ReTrial Court 2spanning from 1970 to 1993, the trial court rendered its joint decision 3 in favor o f prespondents. An appeal 4therefrom was interposed in the name of petitioner's deceased husband oground that private respondents herein failed to satisfy the requirements pertaining to personal cultivatioconversion of the landholding into non-agricultural uses. The Court of Appeals rejected such contention finding that the record was replete with evidence justifying private respondent's assertion of their rig

cultivation and conversion of their landholdings. 5Almost a year after the termination of that appeal, the same trial court decision subject there

once again assailed before the Court of Appeals through a petition 6 for annulment of judgment. Hpetitioner assailed the same trial court decision as having been rendered by a court that did not jurisdiction over her and the other heirs of her deceased husband because notwithstanding the fact thhusband had already died on October 3, 1991, the trial court still proceeded to render its decision on A23, 1993 without effecting the substitution of heirs in accordance wit h Section 17, Rule 3, of the Rules ofthereby depriving her of her day in court.

Petitioner, not having asserted the matter of fraud or collusion in her petition for annulmjudgment, the Court of Appeals decided the same on the basis of the sole issue of non-jurisdiction resfrom the alleged deprivation of petitioner's right to due process and ruled in favor of the validity ochallenged decision. 7Petitioner filed a motion for reconsideration of the decision of the appellatereiterating the trial court's lack of jurisdiction over the heirs of petitioner's deceased husband as a conseqof the failure of the trial court to effectuate a valid substitution of heirs. Said motion was denied in a resopromulgated on August 14, 1995. Hence this petition.

The petition is bereft of merit.

The need for substitution of heirs is based on the right to due process accruing to every party proceeding. 8 The rationale underlying this requirement in case a party dies during the pendenproceedings of a nature not extinguished by such death, is that

". . . the exercise of judicial power to hear and determine a cause implicitly presupposes inthe trial court, amongst other essentials, jurisdiction over the persons of the parties. Thatjurisdiction was inevitably impaired upon the death of the protestee pending the proceedingsbelow such that unless and until a legal representative is for him duly named and within thejurisdiction of the trial court, no adjudication in the cause could have been accorded anyvalidity or binding effect upon any party, in representation of the deceased, without trenchingupon the fundamental right to a day in court which is the very essence of the constitutionallyenshrined guarantee of due process." 9

We are not unaware of several cases 10 where we have ruled that a party having died in an a ctiosurvives, the trial held by the court without appearance of the deceased's legal representative or substituheirs and the judgment rendered after such trial, are null and void because the court acquired no jurisdover the persons of the legal representatives or of the heirs upon whom the trial and the judgment wou

binding. This general rule notwithstanding, in denying petitioner's motion for reconsideration, the CoAppeals correctly ruled that formal substitution of heirs is not necessary when the heirs themselves voluappeared, participated in the case and presented evidence in defense of deceased defendant. Attendincase at bench, after all, are these particular circumstances which negate petitioner's belated and seemostensible claim of violation of her rights to due process. We should not lose sight of the principle undethe general rule that formal substitution of heirs must be effectuated for them to be bound by a subsejudgment. Such had been the general rule established not because the rule on substitution of heirs and tappointment of a legal representative are jurisdictional requirements per sebut because non-comptherewith results in the undeniable violation of the right to due process of those who, though not duly no

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of the proceedings, are substantially affected by the decision rendered therein. Viewing the rule on substitutionof heirs in this light, the Court of Appeals, in the resolution denying petitioner's motion for reconsideration, thusexpounded:

"Although the jurisprudential rule is that failure to make the substitution is a jurisdictionaldefect, it should be noted that the purpose of this procedural rule is to comply with dueprocess requirements. The original party having died, he could not continue to defend himselfin court despite the fact that the action survived him. For the case to continue, the real partyin interest must be substituted for the deceased. The real party in interest is the one whowould be affected by the judgment. It could be the administrator or executor or t he heirs. Inthe instant case, the heirs are the proper substitutes. Substitution gives them the opportunityto continue the defense for the deceased. Substitution is important because such opportunityto defend is a requirement to comply with due process. Such substitution consists of makingthe proper changes in the caption of the case which may be called the formal aspect of it.Such substitution also includes the process of letting the substitutes know that they shall bebound by any judgment in the case and that they should therefore actively participate in thedefense of the deceased. This part may be called the substantive aspect. This is the heart ofthe procedural rule because this substantive aspect is the one that truly embodies and giveseffect to the purpose of the rule. It is this court's view that compliance with the substantiveaspect of the rule despite failure to comply with the formal aspect may be consideredsubstantial compliance. Such is the situation in the case at bench because the only inferencethat could be deduced from the following facts was that there was active participation of theheirs in the defense of the deceased after his death:

1.The original lawyer did not stop representing the deceased. It would be absurd to thinkthat the lawyer would continue to represent somebody if nobody is paying him his fees. Thelawyer continued to represent him in the litigation before the trial court which lasted for abouttwo more years. A dead party cannot pay him any fee. With or without payment of fees, thefact remains that the said counsel was allowed by the petitioner who was well aware of theinstant litigation to continue appearing as counsel until August 23, 1993 when the challengeddecision was rendered;

2.After the death of the defendant, his wife, who is the petitioner in the instant case, eventestified in the court and declared that her husband is already deceased. She knew thereforethat there was a litigation against her husband and that somehow her interest and those ofher children were involved;

3.This petition for annulment of judgment was filed only after the appeal was decided againstthe defendant on April 3, 1995, more than one and a half year (sic) after the decision wasrendered (even if we were to give credence to petitioner's manifestation that she was notaware that an appeal had been made);

4.The Supreme Court has already established that there is such a thing as jurisdiction byestoppel. This principle was established even in cases where jurisdiction over the subjectmatter was being questioned. In the instant case, only jurisdiction over the person of theheirs is in issue. Jurisdiction over the person may be acquired by the court more easily thanjurisdiction over the subject matter. Jurisdiction over the person may be acquired by thesimple appearance of the person in court as did herein petitioner appear;

5.The case cited by the herein petitioner (Ferreria et al. vs. Manuela Ibarra vda. deGonzales, et al.) cannot be availed of to support the said petitioner's contention relative tonon-acquisition of jurisdiction by the court. In that case, Manolita Gonzales was not servednotice and, more importantly, she never appeared in court, unlike herein petitioner whoappeared and even testified regarding the death of her husband."11

Consequently, we rule that, as in the case at bench, the defendant in an ejectment case having died beforendition by the trial court of its decision therein, its failure to effectuate a formal substitution of heirs befrendition of judgment, does not invalidate such judgment where the heirs themselves appeared before thcourt, participated in the proceedings therein, and presented evidence in defense of deceased defendundeniably being evident that the heirs themselves sought their day in court and exercised their right toprocess.

Respondent Court of Appeals also correctly ruled that ejectment, being an action involving rec

of real property, is a real action which as such, is not extinguished by the defendant's death.

". . . The question as to whether an action survives or not depends on the nature ofthe action and the damage sued for. In the causes of action which survive, the wrongcomplained affects primarily and principally property and property rights, the injuries to theperson being merely incidental, while in the causes of action which do not survive, the injurycomplained of is to the person, the property and rights of property affected beingincidental."12

There is no dispute that an ejectment case survives the death of a party, which death did not extinguideceased's civil personality. 13 More significantly, a judgment in an ejectment case is conclusive betweeparties and their successors in interest by title subsequent to the commencement of the action. 14 Thuhave held that:

". . . In such a case and considering that the supervening death of appellant did notextinguish her civil personality, the appellate court was well within its jurisdiction to proceedas it did with the case. There is no showing that the appellate court's proceedings in the casewere tainted with irregularities.

It appears that petitioners are heirs of Adela Salindon. In fact, it was because ofthis relationship that the petitioners were able to transfer the title of Adela Salindon over thesubject lot to their names. . . .Considering all this, the appellate decision is binding andenforceable against the petitioners as successors-in-interest by title subsequent to thecommencement of the action (Section 49 [b] Rule 39, Rules of Court). Furthermore,. ..judgment in an ejectment case may be enforced not only against defendants therein but alsoagainst the members of their family, their relatives, or privies who derive their right ofpossession from the defendants (Ariem v. De los Angeles, 49 SCRA 343).Under thecircumstances of this case, the s ame rule should apply to the successors-in-interest . . ."15

While it is true that a decision in an action for ejectment is enforceable not only againsdefendant himself but also against members of his family, his relatives, and his privies who derived theiof possession from the defendant and his successors-in-interest, 16 it had been established that petitioneby her own acts, submitted to the jurisdiction of the trial court. She is now estopped to deny that she hadheard in defense of her deceased husband in the proceedings therein. As such, this petition evidently hleg to stand on.

WHEREFORE, the instant petition is dismissed for lack of merit. Costs against petitioner.

SO ORDERED.

VIRGINIA O. GOCHAN, FELIX Y. GOCHAN III, MAE GOCHAN-EFANN, LOUISE Y.GOCHAN, ESTEBAN Y. GOCHAN JR., DOMINIC Y. GOCHAN, FELIX O. GOCHAN III,MERCEDES R. GOCHAN, ALFREDO R. GOCHAN, ANGELINA R. GOCHAN-HERNAEZ,

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MARIA MERCED R. GOCHAN, CRISPO R. GOCHAN JR., MARION R. GOCHAN,MACTAN REALTY DEVELOPMENT CORPORATION and FELIX GOCHAN & SONSREALTY CORPORATION,petitioners, vs. RICHARD G. YOUNG, DAVID G. YOUNG,JANE G. YOUNG-LLABAN, JOHN D. YOUNG JR., MARY G. YOUNG-HSU andALEXANDER THOMAS G. YOUNG as heirs of Alice Gochan; the INTESTATE ESTATEOF JOHN D. YOUNG SR.; and CECILIA GOCHAN-UY and MIGUEL C. UY, forthemselves and on behalf and for the benefit of FELIX GOCHAN & SONS REALTYCORPORATION,respondents.

D E C I S I O N

PANGANIBAN,J p:

A court or tribunal's jurisdiction over the subject matter is determined by the allegations in the complaint. The factthat certain persons are not registered as stockholders in the books of the corporation will not bar them from filing aderivative suit, if it is evident from the allegations in the complaint that they are bona fide stockholders. In view ofRA 8799, intra-corporate controversies are now within the jurisdiction of courts of general jurisdiction, no longer ofthe Securities and Exchange Commission.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Petition assails the February28, 1996 Decision1 of the Court of Appeals (CA), as well as its December 18, 1997 Resolution denying petitioner'sMotion for Reconsideration. The dispositive part of the CA Decision reads as follows:

"WHEREFORE, the petition as far as the heirs of Alice Gochan, is DISMISSED, withoutprejudice to filing the same in the regular courts.

SO ORDERED."2

In dismissing the Complaint before the SEC regarding only Alice Gochan's heirs but not the other complainants, theCA effectively modified the December 9, 1994 Order of the hearing officer3 of the Securities and ExchangeCommission (SEC). The Order, which was affirmed in full by the SEC en banc, dismissed the entire case.

The Facts

The undisputed facts are summarized by the Court of Appeals as follows:

"Felix Gochan and Sons Realty Corporation (Gochan Realty, for brevity) was registered withthe SEC on June, 1951, with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan,Tomasa Gochan, Esteban Gochan and Crispo Gochan as its incorporators.

"Felix Gochan Sr.'s daughter, Alice, mother of [herein respondents], inherited 50 shares ofstock in Gochan Realty from the former.

"Alice died in 1955, leaving the 50 shares to her husband, John Young, Sr.

"In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of these shares to her children,herein [respondents] Richard Young, David Young, Jane Young Llaban, John Young Jr., MaryYoung Hsu and Alexander Thomas Young.

"Having earned dividends, these stocks numbered 179 by 20 September 1979.

"Five days later (25 September), at which time all the children had reached the age ofmajority, their father John Sr., requested Gochan Realty to partition the shares of his late wifeby cancelling the stock certificates in his name and issuing in lieu thereof, new stockcertificates in the names of [herein respondents].

"On 17 October 1979, respondent Gochan Realty refused, citing as reason, the right of first

refusal granted to the remaining stockholders by the Articles of Incorporation.

"On 21, 1990, [sic] John, Sr. died, leaving the shares to the [respondents].

"On 8 February 1994, [respondents] Cecilia Gochan Uy and Miguel Uy filed a complaint withthe SEC for issuance of shares of stock to the rightful owners, nullification of shares of stock,reconveyance of property impressed with trust, accounting, removal of officers and directorsand damages against respondents. A Notice of Lis Pendens was annotated as [sic] realproperties of the corporation.

"On 16 March 1994, [herein petitioners] moved to dismiss the complaint alleging that: (1) theSEC ha[d] no jurisdiction over the nature of the action; (2) the [respondents] [were] not thereal parties-in-interest and ha[d] no capacity to sue; and (3) [respondents'] causes of action[were] barred by the Statute of Limitations.

"The motion was opposed by herein [respondents].

"On 29 March 1994, [petitioners] filed a Motion for cancellation of Notice of Lis Pendens.[Respondents] opposed the said motion.

"On 9 December 1994, the SEC, through its Hearing Officer, granted the motion to dismissand ordered the cancellation of the notice of lis pendens annotated upon the titles of thecorporate lands. In its order, the SEC opined:

'In the instant case, the complaint admits that complainants Richard G. Young,David G. Young, Jane G. Young Llaban, John D. Young, Jr., Mary G. Young Hsu andAlexander Thomas G. Young, who a re the children of the late Alice T. Gochan andthe late John D. Young, Sr. are suing in their own right and as heirs of and/or asthe beneficial owners of the shares in the capital stock of FGSRC held in trust forthem during his lifetime by the late John D. Young. Moreover, it has been shownthat said complainants ha[d] never been . . . stockholder[s] of record of FGSRC toconfer them with the legal capacity to bring and maintain their action. Conformably,the case cannot be considered as an intra-corporate controversy within thejurisdiction of this Commission. cDAISC

'The complainant heirs base what they perceived to be their stockholders' rightsupon the fact of their succession to all the rights, property and interest of theirfather, John D. Young, Sr. While their heirship is not disputed, their right to compel

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the corporation to register John D. Young's Sr. shares of stock in their namescannot go unchallenged because the devolution of property to the heirs byoperation of law in succession is subject to just obligations of the deceased beforesuch property passes to the heirs. Conformably, until therefore the estate is settledand the payment of the debts of the deceased is accomplished, the heirs cannot asa matter of right compel the delivery of the shares of stock to them and registersuch transfer in the books of the corporation to recognize them as stockholders.The complainant heirs succeed to the estate of [the] deceased John D. Young, Sr.but they do not thereby become stockholders of the corporation.

'Moreover, John D. [Young Sr.'s] shares of stocks form part of his estate which isthe subject of Special Proceedings No. 3694-CEB in the Regional Trial Court ofCebu, Branch VIII, [par. 4 of the complaint]. As complainants clearly claim[,] theIntestate Estate of John D. Young, Sr. has an interest in the subject matter of theinstant case. However, actions for the recovery or protection of the property [suchas the shares of stock in question] may be brought or defended not by the heirsbut by the executor or administrator thereof.

'Complainants further contend that the alleged wrongful acts of the corporation andits directors constitute fraudulent devices or schemes which may be detrimental tothe stockholders. Again, the injury [is] perceived[,] as is alleged[,] to have beensuffered by complainants as stockholders, which they are not. Admittedly, the SEChas no jurisdiction over a controversy wherein one of the parties involved is not ornot yet a stockholder of the corporation. [SEC vs. CA, 201 SCRA 134].

'Further, by the express allegation of the complaint, herein complainants bring thisaction as [a] derivative suit on their own behalf and on behalf of respondentFGSRC.

'Section 5, Rule III of the Revised Rules of Procedure in the Securities andExchange Commission provides:

'Section 5.Derivative Suit. No action shall be brought by stockholder inthe right of a corporation unless the complainant was a stockholder atthe time the questioned transaction occurred as well as at the time theaction was filed and remains a stockholder during the pendency of theaction. . . .'

'The rule is in accord with well settled jurisprudence holding that a stockholderbringing a derivative action must have been [so] at the time the transaction or actcomplained of [took] place. (Pascual vs. Orozco, 19 Phil. 82; Republic vs. Cuaderno,19 SCRA 671; San Miguel Corporation vs. Khan, 176 SCRA 462-463) The languageof the rule is mandatory, strict compliance with the terms thereof thus being acondition precedent, a jurisdictional requirement to the filing of the instant action.

'Otherwise stated, proof of compliance with the requirement must be sufficientlyestablished for the action to be given due course by this Commission. The failure tocomply with this jurisdictional requirement on derivative action must necessarilyresult in the dismissal of the instant complaint.' (pp. 77-79, Rollo)

"[Respondents] moved for a reconsideration but the same was denied for being pro-forma.

"[Respondents] appealed to the SEC en banc, contending, among others, that the SEC ha[d]jurisdiction over the case.

"[Petitioners], on the other hand, contend that the appeal was 97 days late, beyond the 30-day period for appeals.

"On 3 March 1995, the SEC en banc ruled for the [petitioners,] holding that the[respondents'] motion for reconsideration did not interrupt the 30-day period for appealbecause said motion was pro-forma."4

Aggrieved, herein respondents then filed a Petition for Review with the Court of Appeals.

Ruling of the Court of Appeals

The Court of Appeals ruled that the SEC had no jurisdiction over the case as far as the heirs of Alice Gochaconcerned, because they were not yet stockholders of the corporation. On the other hand, it upheld the caRespondents Cecilia Gochan Uy and her spouse Miguel Uy. It also held that the Intestate Estate of John Ywas an indispensable party.

The appellate court further ruled that the cancellation of the notice of lis pendens on the titles of the corpoestate was not justified. Moreover, it declared that respondents' Motion for Reconsideration before the SECpro forma; thus, its filing tolled the appeal period.

Hence, this Petition.5

The Issues

These are the issues presented before us:

"A.Whether or not the Spouses Uy have the personality to file an action before the SECagainst Gochan Realty Corporation.

"B.Whether or not the Spouses Uy could properly bring a derivative suit in the name ofGochan Realty to redress wrongs allegedly committed against it for which thedirectors refused to sue.

"C.Whether or not the intestate estate of John D. Young Sr. is an indispensable party in theSEC case considering that the individual heirs' shares are still in the decedentstockholder's name.

"D.Whether or not the cancellation of [the] notice of lis pendens was justified considering thatthe suit did not involve real properties owned by Gochan Realty."6

In addition, the Court will determine the effect of Republic Act No. 87997on this case.

The Court's Ruling

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The Petition has no merit. In view of the effectivity of RA 8799, however, the case should be remanded to theproper regional trial court, not to the Securities and Exchange Commission.

First Issue:

Personality of the Spouses Uy to File a Suit Before the SEC

Petitioners argue that Spouses Cecilia and Miguel Uy had no capacity or legal standing to bring the suit before theSEC on February 8, 1994, because the latter were no longer stockholders at the time. Allegedly, the stocks hadalready been purchased by the corporation. Petitioners further assert that, being allegedly a simple contract of salecognizable by the regular courts, the purchase by Gochan Realty of Cecilia Gochan Uy's 210 shares does not comewithin the purview of an intra-corporate controversy.

As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations inthe complaint.8 For purposes of resolving a motion to dismiss, Cecilia Uy's averment in the Complaint that thepurchase of her stocks by the corporation was null and void ab initio is deemed admitted. It is elementary that avoid contract produces no effect either against or in favor of anyone; it cannot create, modify or extinguish thejuridical relation to which it refers.9 Thus, Cecilia remains a stockholder of the corporation in view of the nullity ofthe Contract of Sale. Although she was no longer registered as a stockholder in thecorporate records as of the filingof the case before the SEC, the admitted allegations in the Complaint made her still a bona fide stockholder of FelixGochan & Sons Realty Corporation (FGSRC), as between said parties.

In any event, the present controversy, whether intra-corporate or not, is no longer cognizable by the SEC, in view ofRA 8799, which transferred to regional trial courts the former's jurisdiction over cases involving intra-corporatedisputes.

Action Has Not Prescribed

Petitioners contend that the statute of limitations already bars the Uy spouses' action, be it one for annulment of avoidable contract or one based upon a written contract. The Complaint, however, contains respondents' a