ENCARNACION M. SIAYNGCO, ASSISTED BY HER HUSBAND, JULIO SIAYNGCO, PETITIONERS, VS. MARTIN COSTIBOLO AND THE HON. COURT OF APPEALS, RESPONDENTS.

This is a petition for review and setting aside of the Court of Appeal’s decision affirming a decision of the Court of
First Instance of Leyte rendered in favor of private
respondent Martin Costibolo as therein plaintiff
against petitioners, the spouses Encarnacion M. Siayngca and Julio Siayngco as
therein defendants, with prayer that the case be remanded to the trial court to
enable the petitioners to present their evidence.

The
background of the case follows:-

 Respondent Martin Costibolo as plaintiff in the trial court originally sought
the annulment on the ground of extrinsic fraud of a decision of the Justice of
the Peace Court of Dagami, Leyte,
in Civil
Case 46 thereof, wherein the Siayngco spouses had
obtained a money judgment against said Costibolo by
virtue of a confession of judgment entered by Costibolo
in favor of the Siayngco spouses.  According to Costibolo’s
complaint in the trial court, he had con­fessed judgment in favor of the Siayngco spouses in the Justice of the Peace Court case, on the representation, promise and assurance of the latter that they would not ask
for a writ of execution of the judgment within five years from the date of the
judgment.  Costibolo
further alleged in his complaint that as soon as he had confessed judgment in
favor of the Siayngco spouses and had lost the right
to appeal from the judgment or to seek relief therefrom,
the Siayngco spouses had secured from the Justice of
the Peace Court a writ of execution of the judgment, pursuant to which his
properties were attached and advertised for sale.  He further averred that he had filed a
petition for relief from judgment under Rule 38 of the Rules of Court but his
petition was denied because it had been submitted after the reglamentary
six-months period; the case involving this petition for relief, which appears
to have been first erroneously filed as a motion with the Justice of the Peace
Court in Civil Case 46, was appealed to and docket­ed as Civil Case 1935 of the
Court of First Instance which like­wise denied the petition for the same
reason.^[1]  Costibolo finally
asked for the issuance of a writ of preliminary injunction pendente
lite against the execution of the judgment and
sheriff’s sale of his properties, which was granted by the trial court, and for
P5,500.00 by way of actual and moral damages.

In due course, the Siayngco spouses, represented by peti­tioner
Julio Siayngco, a member of the bar, filed an Answer to Costibolo’s
complaint, denying the alleged fraud, pleading res
adjudicata
by virtue of the judgment of the Justice of the Peace Court in Civil Case 46 as
well as the judgment of the Court of First Instance in Civil Case 1935 denying Costibolo’s petition for relief, and praying for counter-damages.

Hearing was conducted by the trial court.  After Costibolo had
submitted his evidence and rested his case, the Siayngco
spouses orally moved for dismissal of the complaint on the ground that since
the supposed fraud was committed in 1955 and the original complaint had been
filed by them against Cos­tibolo in the Justice of
the Peace Court on March 4, 1954 and the judgment of said Court had been
rendered two months later on May 31, 1954, the fraud alleged by Costibolo could not have possbily
influenced the said judgment and make out a case for its annulment.  The Siayngco
spouses expressly reserved their right to present their evidence should their
motion be denied by the Court.  The trial
court however informed them that it could not grant such
reservation and announced that it would reserve its resolution so that it would have time to
peruse and study their motion for dismissal or demurrer to evidence.  The trial court thereafter rendered its
judgment denying the Siayngcos‘ motion to dismiss and
at the same time annulling the judgments of the Justice of the Peace Court of Dagami, Leyte, in Civil Case 46,
and of the Court of First Instance of Leyte in Civil Case No. 1935, in favor of
the Siayngcos; it sentenced the Siayngco
spouses furthermore to pay to Costibolo the amount of
P4,000.00 in actual
and moral damages and attorney’s fees.

The
findings of fact and the award made by the trial court, simultaneously with its
denial of the Siayngcos‘ dismissal mo­tion or
demurrer to evidence without hearing the Sianyngcos‘
evidence, as reproduced and affirmed by the Court of Appeals in its decision of
October 4, 1963 are hereby spread
for the record:

“x x x
plaintiff Martin Costibolo and his wife Constancia Pasagui obtained on
August 29, 1950, a loan of TWO HUNDRED PESOS (P200. 00) from defendant Encarnacion Siayngco at 14%
interest.  In 1952, they paid fully that
debt including interests, in the total amount of P312.00, the first payment of
P100.00 having been made by the plaintiff Martin Costibolo
himself and his wife Constancia Pasagui.  They asked for a receipt for that payment but
defendant Encarnacion M. Siayngco
told that there was no need for it, as they were relatives and there was
confidence between them.  All what was
done was to write a note on the back of the receipt of the said loan, stating
that P100.00 was paid by the plaintiff and his wife on that occasion.  The next payment was in another amount of
P100.00 handed to defendant Encarnacion M. Siayng­co by the said Constancia Pasagui who was accompanied by her brother Apolonio Pasagui.  Similar note was written on the back of the
aforementioned receipt.  The third
payment was still another P100.00 by the same last two persons.  When the latter insisted in having a receipt
for the said payment, Mrs. Siayng­co repeated that
there was no need because they were relatives and they trusted each other.  So the third payment was again annotated on
the back of the said receipt like the two previous ones.  All the annota­tions were signed by Constancia Pasagui, Apolonio Pasagui saw the
annotations written on the back of the receipt far the first, second and third
payments of P100.00 each.  The last
payment in the amount of P12.00 was made by Isabelo Costibolo, brother of the herein plaintiff All these
payments were made during the year 1952. 
When asked by the Court why did they not require the defendant Encarnacion
M. Siayngco to sign the annotations on the back of
the said receipt, witness Apolonio Pasagui answered that they did not like to press too much
the defendant Encarnacion M. Siayngco,
because she was hold­ing fast to the fact that they were relatives and there
should be no mistrust between them.  As
they res­pect her and her husband, their uncle Atty. Siayngco,
they were ashamed and afraid to insist further.

“Inspite of the payments made, the
defendants filed a complaint for the collection still of the same debt, with
the Justice of the Peace Court of Dagami on March 1,
1954, praying for the payment of the said loan of TWO HUNDRED PESOS (P200.00),
NINETY-EIGHT PESOS (P98.00) as agreed inter­ests
from August 29, 1950 up to March 1, 1954, plus the interests from the latter
dated until it is fully paid, and ONE HUNDRED AND TWENTY PESOS (P120.00), as
damages together with the costs, making a total sum of FOUR HUNDRED EIGHTEEN
PESOS (P418.00), exhibit ‘A’, page 1 of civil case No. 1935.  The plaintiff herein who was defendant in
that case, answered the complaint stating that he had already paid fully the
said loan, exhibit ‘B’, page 2 of civil case no. 1935.  Meantime, plaintiff sent his brother-in-law Apolonio Pasagui to the herein
defendants, who were plaintiffs in that case in the Justice of the Peace Court,
to settle amicably the same.  While he
had already overpaid their debt, but being a teacher and his wife is related to
herein defendant Atty. Julio Siayngco who is their
uncle, he wanted to avoid litigation which would be more costly for them.  Atty. Pasagui
conferred with both defendants and Atty. Siayngco
told him that if his brother-in-law, the herein plaintiff Martin Costibolo, would just confess judgment, he would not ask
for the execution thereof within five years, thereby giving Costibolo
that same period to pay gradually the said amount of FOUR HUNDRED EIGHTEEN
PESOS (P418.00).  Pasagui
returned and informed his brother-in-law Costibolo of
the proposal of the defendants, and Costibolo agreed,
so he submitted a confession of judgment in that case, marked exhibit ‘C’, page
10 of the record civil case No. 1935. 
Consequently, the Justice of the Peace of Dagami rendered a decision for the payment of the said amount of P418.00
by the def­endant, page 11, same expediente.  Meantime Apolonio Pasagai went to Manila he was away and after
the judgment became final, Atty. Siayngco, in violation of
his promise and the agree­ment between the parties in that case, requested the
execution of the judgment, exhibit ‘E’, page 12.  Execution was issued by the Justice of the
Peace on September 21, 1954 exhibits ‘F’ and ‘F-1’, pages 13
and 15.  The Sheriff complied with the
writ of execution, back of page 14 and exhibit ‘G’, page 16.  When the execution was levied by the sheriff,
Martin Costibolo was surprised, so he wrote to his
brother-in-law Apolonio Pasagui
in Manila about the last
development of the case.  After the
latter’s return to Dagami, Leyte, he filed a
motion to set aside judgment which was denied by the Justice of the Peace as
his decision has long become final.  The
case was brought to this Court on Appeal. 
This Court also denied the appeal for lack of jurisdiction as the same
was filed longafter the judgment of the Justice of the
Peace had become final.  As a result, the
present case, civil No. 1993, was filed for the annulment of judgment of the
Justice of the Peace Court of Dagami, Leyte.

“In his desperation the plaintiff filed the present case.  He even wrote a complaint to the Secretary of
justice against Atty. Julio Siayn­gco for
misconduct.  A copy of that complaint was
marked as exhibit “E”.

“During the
presentation of the evidence by the plaintiff, his attorney demanded the
pro­duction of the receipt for the
aforecited loan by the defendants, but Atty.
Julio Siayngco denied their having it in their possession and its annotations.

“From the facts above related, it is clear that the
misrepresentations proved had induced defendant Martin Costibolo
in civil case no. 1935 of this. 
Court, now plaintiff in the present case, to confess judgment in the
Justice of the
Peace Court of Dagami, Leyte, on the agreed condition that it shall
not be executed within five years so as to afford time to the defendant to pay the amount of P418.00 within
that period.  According to the evidence
that promise was given because Constancia Pasagui, wife of plaintiff Costibolo
is closely related to the def­endants herein, being a niece of defendant Atty.
Julio Siayngco, and because Martin Costibolo is a teacher with a modest salary, he preferred to pay
that amount gradually and avoid litigation which would be more costly,
according to him, although he had already paid fully the original loan
of P200.00 with its interests.  The
payments in the total amount of
P312.00 having been established by the plaintiff and his witness
brother-in-law, Atty. Apolonio Pasagui,
in the absence of evidence disproving them, are facts considered duly proven.

“The plaintiff only came to know the misre­presentations made
by Atty. Siayngco that he would not ask for the
execution of judgment of the Justice of
the Peace Court within five years, when the sheriff levied execution upon the
properties of the plaintiff sometime in 1954 and for that reason his brother-in-law Apolonio Pasagui, who was then already an attorney, filed a
motion to set aside judgment on
April 9, 1955, page 20, record of civil case No. 7935, founded on fraud ‘committed by inducing defendant Martin Costibolo to confess judgment.’  This misrepresentations which has not been disproved
constitute fraud.

“The period within which to file an action based on fraud is four years according
to Art. 1146, No. 1 of the New Civil Code. 
Since the misrepresentations made by the defendant Julio Siayngco,
according to the evidence, was only discovered after he had requested the levy of execution against the defendant Martin Costi­bolo
in 1954 and this case was filed on
August 30, 1955, the action involved herein was presented within the
legal period.  Hence, the motion to dismiss must be, as it hereby is denied.

“From the nature of the transaction as gleaned from the
original complaint, exhibit ‘A’, filed by the defendants in civil case No. 46 of the Justice of the Peace Court of Dagami, civil No. 1935 of this Court, and considering its terms and conditions there must have
neces­sarily been a receipt or memorandum evidencing such loan and the Court
is inclined to believe the evidence of the plaintiffs herein who were
defendants then, that such receipt was really executed and actually existed
with all its mentioned annotations on the back. 
But regardless of the demands made by the plaintiff upon the defendants
to produce the receipt with its annota­tions on its back, the defendants denied
the exis­tence of such receipt nor that they have it in their possession.  For purposes of their own, the def­endants
did not deem it proper to produce the re­ceipt, undoubtedly, in order not to
disclose the annotations
repeatedly mentioned.  But its
non-production merely confirmed the more its execu­tion and existence.  The heavy preponderance of evidence,
therefore, proved that the original loan of P200.00 was already more than fully
paid to the defendants herein.

“But the question may be raised that if the original loan of
P200.00 was fully paid, why did
Martin Costibolo agree to the payment of the additional amount of P418.00?  He answered that he wanted to avoid
litigation between relatives which would have been more costly for him because
he is a teacher of meager salary and with a big family to support, and also out
of respect to the defendants who are his elder relatives.  So he preferred paying it gradually or
precisely within five years in order not to destroy their family relationship.

“It may be argued also that if plaintiff Martin Costibolo was willing to pay P418.00 demanded by the
defendants in civil case No. 46 of the Justice of the Peace Court of Dagami, Leyte,
civil case No. 1935 of this Court, is there any ground or necessity to annul
said judgment of the Justice of the Peace for that amount?  As stated above, the payment of the original
loan of P200.00 was already made in 1952 together with the interests amounting
in all to P312.00.  If this amount was
really paid to the defendants, as the evidence showed without any contradiction
nor refutation, then such willingness on the part of the plaintiff to pay the
additional amount of P418.00 would be absurd and illegal and the Court cannot
be made a tool for, and cannot sanction, such illegality.

“On the other hand, it is not correct, as the plaintiffs
herein testified, that the defen­dants were asking high rates of interests on
the original loan of P200.00, because the complaint in the Justice of the Peace
Court praying for the payment of P418.00 or more breaks that amount into P98.00
interests from August 29, 1950 to March 1, 1954, at the rate of 14% interest
yearly.  However, as the original loan of
P200.00 was
fully paid, as proved, with P312.00 including inter­ests, the paid amount of
P418.00 would be a dupli­cation of the payment of the aforecited P200.00 plus
P98.00 as its interest, over and above the original payment of P312.00.  In this sense the complaint in the justice of
the Peace Court of Dagami may be considered as
requiring not only over payment, but also excessive interests.  But since the defendants did not deem it
proper for them to present their proofs in the present case, the Court refrains
from making any pronouncement as regards the amount represent­ing interests or
the rate thereof.

“The plaintiff has proved that he had suffered humiliation and
pan and anguish because of the case filed against him by the herein defendants
who were plaintiffs then and, as a teacher in the public service, he was
ashamed and humiliated, suffering moral damages in the amount of FIVE THOUSAND
PESOS (P5,000.00) and actual damages for expenses incurred in maintaining the
previous case and the present in the amount of FIVE HUNDRED PESOS (P500.00),
plus attorney’s fees of FIVE HUNDRED PESOS (P500.00).  Considering all attending circumstances and
the facts of the case, the Court believes that the plaintiffs are entitled to
THREE THOUSAND PESOS (P3,000.00) moral damages, FIVE HUNDRED PESOS (P500.00)
actual damages and FIVE HUNDRED PESOS (P500.00) attorney’s fees, making a total
of FOUR THOUSAND PESOS (P4,000.00).”^[2]

The Siayngco spouses timely filed their
appeal from the trial court’s judgment to the Court of Appeals which affirmed
it in toto, with costs.

The crucial ruling of the trial court as well as of the Court of
Appeals concerns the legal effects and consequences of the Siayngcos‘
motion to dismiss or demurrer to plaintiff’s evidence.

The trial court ruled that the Siayngcos,
after moving to dismiss the case after the presentation of therein plaintiff Costibolo’s evidence, were understood to have waived their
right to present their evidence, notwithstanding their reservation, and
plaintiff could take judgment according to the evidence already on record, holding that:

“It is, therefore, the considered opinion of this Court that
the herein defendants cannot reserve their
right to present their evidence
after their motion to dismiss is or shall have been denied.”^[3]

On the same specific issue, the Court of Appeals upheld the trial
court’s ruling thus: –

“At the outset we must express our concurrence in the position
taken by the court a quo that the defen­dants could not legally reserve their right
to present evidence in case their last motion to dismiss was denied. 
This last motion to dismiss assumed the correctness of the
evidence adduced for the plaintiff, and
it is the defendant’s stand thereunder
that such evidence does not establish sufficient facts to constitute a valid cause of action.  It has been repeatedly held in this
jurisdiction that a defendant who, after the plaintiff has submitted his
evidence, elects to stand on the insufficiency of the plaintiff’s case, must be under­stood to have
waived his right to present evidence,
and the plaintiff can take
judgment according to the evidence adduced by him.”^[4]

Petitioners in their petition at bar complain that they have been
thus deprived of their day in court and invoke in their favor two principal
grounds: first, that upon denial of their mo­tion to dismiss or demurrer
to plaintiff’s evidence, they should have been granted the right to present
their evidence in accord­ance with their express reservation; and second,
that in actions for relief under Rule 38 of the Rules of Court as well as in
act­ions to annul judgment on the ground of fraud, the procedure established by
the Rules of Court and by this Court’s jurispru­dence^[5]
is that two hearings should be conducted by the trial court, (1) a hearing to
determine whether the judgment or order complained of was rendered through
fraud and should therefore be set aside; and (2) if the decision thereon is in
the affirmative, a second hearing on the merits of the principal case.

We find merit in the
petition.

1. This Court in the case of Director of Lands vs. Hon.
Patricio V. Ceniza, G. R. No. L-18527, June 29,
1963, already had occasion,
in an analogous case, to restate the rule governing judgments on demurrers to
evidence, by way of collation and cla­rification of the doctrines
enunciated in earlier cases, as now em­bodied
in Rule 35 of the new Rules of Court,
which provides in its sole section, as follows:

“Rule 35

“Judgment on Demurrer
to Evidence

‘Section 1. Effect of judgment on demurrer to evidence. —
After the plaintiff has completed the presentation of his evi­dence, the
defendant without waiving his right to offer evidence in the event the motion is not
granted, may move for a dismissal on the ground that upon the facts and the law
the plaintiff has shown no right to relief. 
However, if the motion is granted and the order of dismissal is reversed
on appeal, the movant loses his right to present
evidence in his behalf.”

In the cited case, applying the rule on
demurrer to evidence as thus restated, this Court held that the trial court
after denying the motion to dismiss for insufficiency of plaintiff’s evidence
or demurrer to the evidence, should permit the defendant to
present his own evidence and give him his day in court, regardless of whether or not the defendant has made a reservation of his
right to present his evidence in the event
of denial of his motion or demurrer.^[6]  We reaffirm the
doctrine then stated by this Court, in the light of the general pro­vision in Rule 144 that the new Rules of Court, which took effect on January 1, 1964 “shall govern all cases brought after they take effect and also all further proceedings in
cases then pending”, as follows:

“At the time the present controversy was being ventilated, the
rule governing the subject-matter, which was a clarification of the doctrines
on earlier cases (Arroyo v. Azur, 76 Phil. 495, April 13, 1946; Guido v. Castelo, G.R. No. L-1613, May 24, 1948, 81 Phil. 81; Ocum
et al. v. Nunez, et al.; G.R. No. L-8018, Oct. 26, 1955; Montelibano, et
al. v. Bacolod Murcia,
etc., G.R. No. L-15092, Sept. 29, 1962),
was –

‘After the plaintiff has completed the pre­sentation of his evidence,
the defendant without waiving his right to offer evidence in the event the
motion is not granted, may move for a dismissal on the ground that upon the
facts and the law the plaintiff has shown no right to relief, however, if the motion is
granted and the order of dismissal is reversed on appeal, the movant loses his right to present evidence in his behalf.’

This rule is now embodied in the
Revised Rules of Court, section 1, Rule 35, captioned Judgment and Demurrer to
Evidence, which will take effect on Jan­uary
1, 1964.  It is, therefore,
evident that the res­pondent court, in the case at bar, after denying the
motion to dismiss, for insufficiency of evidence, (demurrer to the evidence),
should have permitted the petitioner-defendant to present his own evidence,
notwithstanding its failure or omission to make a reservation to that effect;
more so, as in this parti­cular case, when the petitioner-defendant had asked
to be given a day in court, in order to defend the government’s title to a 78
hectare parcel of land.”

2. The rationale behind the rule and doctrine is simple and
logical.  The defendant is permitted, without waiving his right
to offer evidence in the event that his motion is not granted, to move for a
dismissal (i. e. demur to the plaintiff’s evidence)
on the ground that upon the facts as thus established and the applicable law,
the plaintiff has shown no right to relief. 
If the trial court denies the dismissal motion, i. e., finds that plaintiff’s evidence is sufficient for an
award of judgment in the absence of contrary evidence, the case still remains
before the trial court which should then proceed to hear and receive the
defendant’s evidence so that all the facts and evidence of the contending
parties may be properly placed before it for judication as well as before
the appellate courts, in case of appeal.  Nothing is lost.  This doctrine is but in line with the
established procedural precepts in the conduct of trials that the trial court
liberally receive all proffered evidence at the trial to enable it to render
its decision with all possibly relevant proofs in the record, thus assuring
that the appellate courts upon appeal have all the material before them
necessary to make a correct judg­ment, and avoiding the need of remanding the
case for retrial or reception of improperly excluded evidence, with the possibi­lity
thereafter of still another appeal, with all the concommitant
delays.  The rule, however, imposes the
condition by the same token that if his demurrer is granted by the trial
court, and the order of dismissal is reversed on appeal, the movant loses his right to present evidence in his behalf
and he shall have been deemed to have elected to stand on the insufficiency of
plaintiff’s case and evidence.  In such
event, the appellate court which reverses the order of dismissal shall proceed to render judgment on the merits on
the basis of plaintiff’s evidence.

Simply restated, a defendant who presents a demurrer to
plaintiff’s evidence retains the
right to present his own evidence, if
the trial court disagree with
him; but if the trial court agrees with
him, and on appeal, the
appellate court disagrees with both of them and reverses the dismissal
order, he has lost the right to present his own evidence.

3. The case before the trial court was one for annulment of judgment on the ground of fraud.  As earlier
stated, private respondent Costibolo as
defendant in the original case filed by the Siayngcos
before the Justice of the Peace Court of Dagami, Leyte, where he entered a confession of
judgment had unsuccess­fully
tried to secure relief from said judgment
under Rule 38 of the Rules of Court. 
Sections 6 and 7 of Rule 38 govern the pro­ceedings for setting aside or
annulment of judgments on the grounds of fraud, accident, mistake or excusable
negligence, as follows:

“SEC. 6. Proceedings after answer is filed — Once the answer is filed, or the time for its filing has expired, the court
shall hear the petition and if after such hearing, the court finds that the
allegations thereof are not true, the petition shall be dismissed; but if it
finds said allegations to be true, it shall order the judgment, order or other
proceedings complained of to be set aside, upon such terms as may be just, and
thereafter the case shall stand as if the judgment, order or other proceeding
set aside had never been issued or taken. “

“SEC. 7. Procedure where a judgment is set aside. — ­Where
the judgment set aside is that of a Court of First Instance, such court shall
proceed to hear and determine the case as if timely motion for a new trial had
been granted therein.  Where the judgment
set aside is that of an inferior court, the case shall be tried in the Court of
First Instance as if the same had been regularly brought up by appeal, and the
judge of the inferior court may be required by the Court of First Instance to
attend and produce at the trial all the papers in the original case. “

Here while the
complaint filed by Costibolo for the annulment of the
Justice of the Peace Court judgment against him on the basis of extrinsic fraud
was a separate action independent of Rule 38 for relief from judgment, still we
hold that the above quoted provisions of Rule 38 should govern the procedure to
be followed by the trial court in such
separate action for annul­ment of the judgment of an inferior court.  The Court of First Instance would be
exercising its appellate jurisdiction, as con­templated in Rule 38, section 7,
which expressly provides that where the judgment set aside is that of an
inferior court, the case shall be tried in the Court of First instance as if
the same has been regularly brought up by appeal. “

This Court, speaking through the now Chief Justice, has already
laid down in Villanueva v. Alcoba,^[7]
the procedure to be followed in such proceedings, which contemplates two hear­ings:
first, a hearing to determine whether the
judgment or order complained of should be set aside, for as provided in Rule
38, section 6, if the court finds that the allegations of fraud are not true,
the petition shall be dismissed and the en­tire proceedings terminate; and second,
if the court finds the allegations to be true, however, then the same rule
provides that it shall set aside the judgment complained of and shall proceed
to hear and determine the case on its merits, for the case will then stand as
if the judgment set aside had never been issued.  Thus, this Court pointed out in the cited
case: –

“It is clear from these provisions
that in pro­ceedings for relief from judgment under said Rule 38, there may
be two (2) hearings, namely: (1) a hearing to determine whether the
judgment or order complained of should be set aside, and (2) if the decision
thereon is in the affirmative, a hearing on the merits of the Principal case.

“Referring to the present case, it is obvious that, at the
hearing held on August 8, 1953,
the court was not supposed to receive evidence on the truth of petitioners’
allegations relative to the alleged debts of respondents herein.  This matter affects al­ready the merits of
the principal case, which is not to be inquired into until the Court has
decided, after the first hearing, to set aside the judgment or order
complained of.  Otherwise, the second
hearing above referred to would be useless.” 
(at p. 285)

The procedure thus laid down is but national.  As petitioners correctly contend in their
brief, the trial court in allowing res­pondent Costibolo
to present simultaneously at the first hearing his evidence relating to the
merits of the principal case, subject of the judgment which was yet to be
annulled, in effect already prejudged or erroneously assumed that the alleged
fraud which was the very basis of
Costibolo’s action for annulment of judg­ment was
already duly proven and that said judgment had been set aside.  As pointed out by this Court in the
Villanueva case, supra, the merits of the principal case, subject of the
judgment sought to be annulled, should not be inquired into until the court has
decided, after the first hearing, to set aside the judgment complained
of.

So it is that even if we were to apply in the case at bar the
rule in earlier doctrines already discarded that a defendant who moves to
dismiss or presents a demurrer to plaintiff’s evidence must be deemed to have waived his right to submit his own evi­dence in
the went of the court’s denial of his motion or demurrer, the outcome here would not be affected.  For this case is one to set aside a judgment
on the ground of fraud, which involves two hearings, as already
stated.  Such waiver would properly apply
only to the first hearing, i. e., the hearing to
determine whether the judgment complained of should be set aside on the ground
of fraud.  But petitioners could not be deemed to have
also waived the right to present their evidence at the second hearing on the merits
of the case, after the Court shall have denied their mo­tion to dismiss and therefore shall have accordingly set aside the judgment sought
to be annulled; for it is only then
that the second hearing on the merits of the case would be called and held for
the reception of plaintiff’s evidence as well as of defen­dant’s
evidence.

But under the rule of demurrer to evidence now formally
incorporated in Rule 35, supra, since the trial court denied the
petitioners’ motion to dismiss or demurrer, petitioners could not be held to
have waived their right to present their own evi­dence, to refute respondent Costibolo’s evidence, both on issue of the alleged fraud as well as on the merits of the principal
case.

WHEREFORE, the decision appealed from is hereby reversed and another one is hereby
entered, directing the remand of the case to the Court of First Instance
of Leyte for further proceed­ings in accordance with
this decision.  With costs against the
private respondent.

Concepcion, C.J., Reyes, Dizon, Makalintal, Zaldivar, Feernado, and Barredo, JJ., concur.

Sanchez, J., did not take part.

Ruiz Castro, and
Capistrano, JJ., took no part.

^[1]  Rec. on Appeal, p. 52.

^[2]
Court of Appeals decision, pp. 3-9; Rollo pp. 12-18.

^[3]
Rec. on Appeal, p. 48

^[4]
Court of Appeals decision, pp. 2-3,
Rollo, pp. 11-12

^[5]
Villanueva vs. Alcoba,
101 Phil. 277.

^[6]
In Nicolas de los Santos
vs. Court of Appeals G. R. No. L-18682, June 30, 1965, this Court
upheld the lower court’s judgment of December 27, 2958 and ruled that “a
defendant who filed a demurrer to the plaintiff’s evidence without
reservation in effect submitted the case for decision and if the result be
adverse to him he could not claim, as a mat­ter of right, that the decision be
vacated so that he might adduce his own evidence.” This Court in said
decision, expressly noted that “by way of advertence to the bench and the
bar, it need only be added that similar questions arising after the
promulgation of the revised Rules of Court are expressly governed by Rule 35,
Section 1” thereof. Said case is easily differentiated from the case at
bar in that here, the petitioners, as defendants in the trial court, expressly
reserved the right to submit their evidence in the event of the denial of their
demurrer to plaintiff’s evidence.

^[7]
101 Phil. 277.