G.R. No. 158895 . February 16, 2006.
SPS. THELMA and GREGORIO ABRAJANO, SPS. VIRGINIA and RODEL LAVA and OSCAR DACILLO, Petitioners, vs. HEIRS OF AUGUSTO F. SALAS, JR., namely: TERESITA D. SALAS, FABRICE CYBILL D. SALAS, MA. CRISTINA S. LESACA and KARINA D. SALAS, and COURT OF APPEALS, Respondents.

FACTS

Augusto L. Salas, Jr. was the registered owner of land in Lipa City. He entered into an Owner-Contractor Agreement with Laperal Realty Development Corporation for the development and sale of the properties. After Salas was declared presumptively dead, the Heirs of Salas filed a Complaint for declaration of nullity of sale, conveyance, cancellation of contract, accounting and damages against various buyers, including petitioners (the Abrajanos, Lavas, and Dacillo), to whom Laperal had sold subdivided portions. The case was raffled to Judge Avelino G. Demetria. Defendants, including petitioners, filed answers raising affirmative defenses such as lack of capacity to sue, prescription, and being buyers in good faith. Laperal filed a Motion to Dismiss based on an arbitration clause. Judge Demetria granted the motion to dismiss, but the Supreme Court reversed this order and remanded the case for hearing. Upon remand, some defendants filed a Motion for Leave to Conduct Preliminary Hearing on their Affirmative Defenses. Judge Demetria granted the motion, and preliminary hearings were conducted. Subsequently, the Heirs of Salas filed a motion to inhibit Judge Demetria, alleging they had become uneasy and doubtful about obtaining impartial judgment due to his previous dismissal order and his granting of the preliminary hearing. Judge Demetria denied the motion, stating his prior dismissal was merely a legal interpretation. The Heirs of Salas filed a petition for certiorari with the Court of Appeals. The appellate court, while finding no actual bias, ordered Judge Demetria to inhibit himself because the plaintiffs had lost faith in his impartiality. It also ruled that a preliminary hearing on affirmative defenses was improper under Sec. 6, Rule 16 of the Rules of Court because a motion to dismiss had already been filed and denied (by virtue of the Supreme Court’s reversal). Petitioners filed the present Petition for Review. Respondents argued the case was moot because Judge Demetria had already issued an order inhibiting himself following the Court of Appeals decision.

ISSUE

Whether the Court of Appeals correctly ordered the inhibition of Judge Demetria and ruled on the propriety of the preliminary hearing on affirmative defenses.

RULING

The Supreme Court granted the petition. The case was not moot. While Judge Demetria had inhibited himself, a ruling on the validity of the preliminary hearings he conducted was necessary, as the evidence presented therein could affect the proceedings before the new judge. On the merits, the Court of Appeals erred. First, its interpretation of Sec. 6, Rule 16 was incorrect. The provision allows a defendant to set up affirmative defenses in their answer and move for a preliminary hearing thereon. The rule that “if a motion to dismiss is denied or if determination thereof is deferred, the defendant shall file his answer” does not preclude a subsequent preliminary hearing on affirmative defenses raised in that answer. The Supreme Court’s reversal of the initial dismissal order did not constitute a “denial” of the affirmative defenses themselves; it merely reversed the grant of the motion to dismiss based on one specific ground (arbitration). The affirmative defenses in the answers remained unresolved. Therefore, Judge Demetria did not commit grave abuse of discretion in granting the motion for a preliminary hearing. Second, on the issue of inhibition, the Court of Appeals correctly found no indication of bias or partiality by Judge Demetria. Mere suspicion of bias is insufficient; there must be clear and convincing evidence of partiality. The judge’s legal rulings (dismissal and later granting a preliminary hearing) do not prove bias, especially when the first ruling was reversed by a higher court. However, the Supreme Court noted that while loss of trust alone is not a valid ground for mandatory inhibition under Rule 137, the judge’s voluntary inhibition after the appellate court’s decision rendered the specific directive for inhibition no longer actionable. The Supreme Court set aside the Court of Appeals’ decision insofar as it invalidated the preliminary hearing on affirmative defenses and directed the trial court to proceed with the case.