SECOND DIVISION
00 on November 23, 1995 and December 23, 1995,
G.R. No. 146595 June 20, 2003
CARLO A. TAN, petitioner,
vs.
KAAKBAY FINANCE CORPORATION, DENNIS S. LAZARO and
ROLDAN M. NOYNAY, respondents.
RESOLUTION
QUISUMBING, J.:
Petitioner seeks the review and reversal of the decision of the Court of
Appeals, dated August 22, 2000 in CA-G.R. SP No. 58379, 1 which
affirmed the orders of the Regional Trial Court (RTC), Branch 37,
Calamba, Laguna, dated February 8, 2000 and March 29, 2000 in Civil
Case No. 2881-2000-C entitled "Carlo A. Tan v. Kaakbay Finance
Corporation, Dennis S. Lazaro and Roldan M. Noynay"2 for declaration
of nullity of the Promissory Note purportedly attached to the Real
Estate Mortgage, the usurious and unlawful or exorbitant and
unconscionable rates of interest and fees therein, and the Deed of
Sale Under Pacto de Retro. Likewise, assailed is the appellate courts
resolution3 dated December 20, 2000, denying petitioners motion for
reconsideration.
The facts, as culled from the records, are as follows:
In the latter part of 1995, petitioner Carlo 4 A. Tan applied for and was
granted a loan of four million pesos (P4,000,000.00) by private
respondent Kaakbay Finance Corporation (Kaakbay), as represented
by its president, private respondent Dennis S. Lazaro. As collateral, a
real estate mortgage5 on petitioner Tans parcel of land with the
improvements therein all covered by Transfer Certificate Title No. T-
2071256 located along Rizal St., Calamba, Laguna was executed.
Petitioner alleged that the stipulated interest was 12% per annum until
fully paid, which amount however, was not stated in the mortgage
when he signed it on November 16, 1995. The amount loaned was
released to him in two installments of P2,500,000.00
and P1,500,000.
respectively.
As of November 22, 1996, petitioner failed to pay his obligation. He
claimed that Kaakbay never furnished him a copy of the real estate
mortgage; that, according to Kaakbay, his obligation had now
reached P5,570,000.00 because the actual interest was 0.3925% for a
period of less than one year instead of the agreed-upon interest of
12% per annum; and that he was made to issue two postdated checks
to guarantee his obligation, namely: UCPB Check No. CBA 052985 in
the amount of P5,570,000.00 postdated to November 5, 1996; and
UCPB Check No. CBA 095215 in the amount of P6,175,000.00
postdated to January 31, 1997.7
Petitioner further alleged that he negotiated with Kaakbay for a further
extension of time to pay his obligation, which the latter agreed to. It
was agreed that petitioner and Kaakbay would sign, execute, and
acknowledge a Deed of Sale Under Pacto de Retro upon the
expiration of a two-year period starting January 8, 1998 to January 8,
2000. Petitioner was then given a blank Deed of Sale Under Pacto de
Retro on January 8, 1998 which he signed. 8 His suspicions that
Kaakbay was charging him usurious rates of interest were confirmed
when he obtained a Statement of Account stating that his obligation
had now reached P13,333,750.00.9
On October 21, 1999, petitioner learned of the existence of an
accomplished Deed of Sale Under Pacto de Retro, which appeared
that the same was signed by him and his wife Maria Rosario Delmo
Tan, on one hand, and private respondent Lazaro on the other, and
was allegedly notarized by private respondent Atty. Roldan M. Noynay
on February 5, 1998,10 when in truth and in fact, he, his wife, and their
witness Charito Morales did not sign it on said date, nor did they
execute it before Atty. Noynay or any other notary public on said date.
On January 5, 2000, petitioner filed a complaint for Declaration of
Nullity, Invalidity and Unenforceability or Annulment of the Promissory
Notes purportedly attached to the Real Estate Mortgage dated
November 16, 1995, the usurious and void rates of interest and other
fees therein appearing, and the Deed of Sale Under Pacto De
Retro purportedly dated February 5, 1998, and damages, with prayer
for Preliminary Injunction and/or Temporary Restraining Order against
respondents Kaakbay Finance Corporation, Dennis S. Lazaro and
Roldan M. Noynay,11with the RTC Calamba, Laguna, and docketed as
Civil Case No. 2881-2000-C. The complaint essentially prayed that
herein petitioners obligation to Kaakbay Finance Corporation in the
amount of P4,000,000.00 be subject to interest of only 12% per annum
from November 23, 1995; that the promissory notes attached to his
Real Estate Mortgage dated November 16, 1995 be declared null and
void; that the Deed of Sale Under Pacto de Retro dated February 5,
1998 be declared unenforceable; and that respondents pay moral and
exemplary damages in the amount of P200,000.00 and P50,000.00,
respectively, as well as attorneys fees.
On the same date, petitioner filed a Notice of Lis Pendens with the
Registry of Deeds of Calamba, Laguna, which was annotated on TCT
No. 207125.12
On January 17, 2000, respondents, through their counsel, Atty. Roldan
M. Noynay, filed their Consolidated Answer With Compulsory
Counterclaim And Opposition To Temporary Restraining Order (TRO)
and Preliminary Injunction.13
During the hearing of petitioners application for the issuance of a
TRO, the parties agreed in open court that petitioner would withdraw
his application for a TRO, while respondents in turn would hold in
abeyance the registration of the Deed of Sale Under Pacto de
Retro until the case was terminated. The trial court issued an order to
that effect, dated January 17, 2000.14
Later, the law firm of Ortega, Del Castillo, Bacorro, Odulio, Calma, and
Carbonell entered its appearance as counsel for respondents. 15 Said
counsel requested for an extension of time to file an Answer, and also
moved for the withdrawal of the Consolidated Answer 16 filed by Atty.
Noynay insofar as respondents Kaakbay and Lazaro are
concerned.17 Respondents also filed a Supplemental Opposition To
The Prayer For Preliminary Injunction Or To Temporary Injunction. 18
On February 3, 2000, respondents, through the new counsel, filed
their Answer with Counterclaim,19 praying that petitioner pay them four
million pesos (P4,000,000.00) representing the principal amount of the
loan, nine million three hundred thirty three thousand seven hundred
fifty pesos (P9,333,750.00) representing the compounded monthly
interest and annual penalty interest, two hundred fifty thousand pesos
(P250,000.00) as litigation expenses, and five hundred thousand
pesos (P500,000.00) as attorneys fees.
In addition, respondents filed a Motion for Admission of Counterclaim
Without Payment of Fees, on the ground that their counterclaim is
compulsory in nature, hence it may be admitted without payment of
fees.20
On February 21, 2000, petitioner filed an Urgent Motion to Expunge
Motions and Pleadings Filed by Defendants Kaakbay Finance
Corporation and Dennis S. Lazaro, Particularly Their Answer with
Counterclaim and Motion for Admission of Counterclaim both Dated
February 3, 2000 and/or Comment/Opposition (To Said Defendants
Manifestation and Supplemental Opposition to their Prayer for
Preliminary Injunction and to Temporary Injunction Dated January 24,
2000 and February 3, 2000 Respectively.) 21 In this motion, petitioner
pointed out that the respondents were being represented by their
counsel, the law firm of Ortega, Del Castillo, Bacorro, Odulio, Calma,
and Carbonell without stating if said law firm is in collaboration with or
in substitution of their previous counsel, respondent Atty. Roldan M.
Noynay. Petitioner argued that the procedure laid down in the rules
concerning the change or substitution of counsel of a party litigant had
not been properly complied with by the respondents, and thus the
motions filed by the said law firm should be expunged. In addition,
petitioner argued that respondents Answer with Counterclaim should
not be admitted, as it partook of the nature of a permissive
counterclaim, which required the payment of the prescribed filing fees;
and since the fees were not paid, the lower court did not acquire
jurisdiction over said Answer.
In its order of February 8, 2000, the trial court granted respondents
motion for admission of counterclaim without payment of fees. 22
Petitioner then filed a "Supplemental Motion by Way of Motion for
Reconsideration" but this was denied.
Petitioner seasonably appealed to the Court of Appeals where he
maintained that the trial court committed grave abuse of discretion in
admitting the answer with counterclaim, which contains a permissive
counterclaim the correct filing fees of which have not been paid by
respondents Kaakbay and Lazaro to the trial court. Thus, petitioner
insisted that the trial court had not acquired jurisdiction over the said
answer with counterclaim. Alternatively, petitioner urged that said
answer be expunged from the record of the case a quo.
On August 22, 2000, the appellate court promulgated its decision,
decreeing as follows:
WHEREFORE, the instant petition is DENIED for lack of merit,
and accordingly, DISMISSED.23
Petitioner then moved for reconsideration, but the appellate court
denied it in the resolution dated December 20, 2000.
Hence, this instant petition, where petitioner now contends that the
Court of Appeals committed the following errors, in:
(a) ITS HOLDING THAT "XXX THE LOWER COURT DID NOT
COMMIT GRAVE ABUSE OF DISCRETION IN DECLARING
THE COUNTERCLAIM OF PRIVATE RESPONDENTS
KAAKBAY FINANCE CORPORATION AND DENNIS S.
LAZARO AS COMPULSORY, REQUIRING NO PAYMENT OF
LEGAL FEES XXX" WHEN EVEN THE YULIENCO VS.
COURT OF APPEALS CASE (G.R. NO. 131692, JUNE 10,
1999, 308 SCRA 206) IT CITED IN ITS DECISION
FAVORABLY SUPPORTS THE ASSERTION OF PETITIONER
THAT THE COUNTERCLAIM IN RESPONDENTS ANSWER
IN THE CASE A QUO IS A PERMISSIVE COUNTERCLAIM.
(b) ITS FAILURE TO RULE IN THE ASSAILED DECISION
THAT HON. JUDGE JUANITA T. GUERRERO HAS ACTED
WITHOUT OR IN EXCESS OF JURISDICTION, OR WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN ISSUING THE ORDERS
OF FEBRUARY 8, 2000 AND MARCH 29, 2000
CONSIDERING THAT THE COLLECTION OF THE TOTAL
AMOUNT OF P14,083,750.00 REPRESENTING UNPAID
LOAN AND ACCRUED INTEREST THEREIN BY WAY OF
COUNTERCLAIM IS COMPULSORY AND THAT THE
ANSWER MAY BE ADMITTED WITHOUT NECESSITY OF
PAYING THE DOCKET FEES.
(c) ITS FAILURE TO DECLARE IN THE ASSAILED
DECISION THAT THE MOTION FOR ADMISSION OF
COUNTERCLAIM WITHOUT PAYMENT OF FEES IS A MERE
SCRAP OF PAPER AND VIOLATIVE OF SECTIONS 4, 5 AND
6, RULE 15 OF THE 1997 RULES OF CIVIL PROCEDURE.24
The basic issue for resolution in this case is whether the counterclaim
of respondents is compulsory or permissive in nature.
Petitioner assails the Court of Appeals for affirming the trial courts
order that the counterclaim of respondents is compulsory in nature,
thus requiring no payment of legal fees. Petitioner contends that his
complaint against the respondents is predicated on the unauthorized
application of usurious, unconscionable and exorbitant rates of interest
and other fees by respondents Kaakbay and Lazaro to petitioners
loan without the latters knowledge, as well as the approval and the
falsification of the promissory note supposed to be attached to the
Real Estate Mortgage and the Deed of Sale Under Pacto de Retro.
According to petitioner, he did not attempt to prevent the foreclosure of
the mortgage because what he questions is the validity of the
promissory note and the void rates of interest. He insists that these
were falsified. He likewise assails the genuineness of the deed of sale
in dispute. Since the evidence to be presented by the respondents to
support the genuineness and due execution of the questioned
promissory note and the Deed of Sale Under Pacto de Retro as a
ground for the specific performance thereof, is not the same as the
evidence to be presented by the petitioner as plaintiff in the case
below to support his claim of fraud employed by respondents,
petitioner asserts the counterclaim cannot be deemed compulsory. He
adds that since the respondents demand the payment of the loan and
the interests pursuant to the contract of loan, completely inconsistent
with his claim that subject documents were a nullity, what respondents
had filed is not a compulsory counterclaim.
For their part, respondents contend that their counterclaims are for
payment of the unpaid loan of the petitioner in the amount
of P4,000,000.00, the compounded interest with annual penalty
equivalent to P9,333,750.00, litigation expenses of P250,000 and
attorneys fees of P500,000. The respondents say these are all
compulsory and not permissive counterclaims. Petitioner admitted in
his complaint his indebtedness to respondent Kaakbay Finance
Corporation in the amount of P4,000,000.00 and his liability for interest
at the rate of 12% per annum only. These admissions arise out of, or
are necessarily connected with, or have a logical relation to the
transaction or occurrence forming the subject matter of the petitioners
claim. Consequently, respondents conclude that the trial court did not
err in ruling that payment of the docket fees is no longer necessary as
their counterclaims are compulsory in nature.
In Intestate Estate of Dalisay v. Hon. Marasigan, 25 we held that a
counterclaim is compulsory where: (1) it arises out of, or is necessarily
connected with the transaction or occurrence that is the subject matter
of the opposing partys claim; (2) it does not require the presence of
third parties of whom the court cannot acquire jurisdiction; and (3) the
trial court has jurisdiction to entertain the claim. To determine whether
a counterclaim is compulsory or not, we have devised the following
tests: (1) Are the issues of fact or law raised by the claim and the
counterclaim largely the same? (2) Would res judicata bar a
subsequent suit on defendants claims absent the compulsory
counterclaim rule? (3) Will substantially the same evidence support or
refute plaintiffs claim as well as the defendants counterclaim? and (4)
Is there any logical relation between the claim and the counterclaim? 26
In Quintanilla v. Court of Appeals, we said a "compelling test of
compulsoriness" is whether there is "a logical relationship between the
claim and counterclaim, that is, where conducting separate trials of the
respective claims of the parties would entail a substantial duplication
of effort and time by the parties and the court." 27
Tested against the abovementioned standards, we agree with the
appellate courts view that respondents counterclaims are compulsory
in nature. Petitioners complaint was for declaration of nullity, invalidity
or annulment of the promissory notes purportedly attached to the Real
Estate Mortgage dated November 16, 1995 and the usurious and void
interest rates appearing therein and the Deed of Sale Under Pacto De
Retro. Respondents counterclaim was for the payment of the principal
amount of the loan, compounded monthly interest and annual penalty
interest arising out of the non-payment of the principal loan, litigation
expenses and attorneys fees. There is no dispute as to the principal
obligation of P4,000,000, but there is a dispute as to the rate and
amount of interest. Petitioner insists that the amount of interest is only
12% yearly until fully paid, while respondents insist on 3.5% monthly.
Also, respondents allege that petitioner owes them P9,333,750.00
representing the compounded monthly interest and annual penalty,
which is disputed by petitioner. Petitioner further seeks the nullification
of the Deed of Sale Under Pacto de Retro for being falsified, while
respondents aver the deed is valid. It thus appears that the evidence
required to prove petitioners claims is similar or identical to that
needed to establish respondents demands for the payment of unpaid
loan from petitioner such as amount of interest rates. In other words,
petitioners claim is so related logically to respondents counterclaim,
such that conducting separate trials for the claim and the counterclaim
would result in the substantial duplication of the time and effort of the
court and the parties. Clearly, this is the situation contemplated under
the "compelling test of compulsoriness." The counterclaims of
respondents herein are obviously compulsory, not permissive. As aptly
held by the Court of Appeals, the issues of fact and law raised by both
the claim and counterclaim are largely the same, with a logical
relation, considering that the two claims arose out of the same
circumstances requiring substantially the same evidence. Any decision
the trial court will make in favor of petitioner will necessarily impinge
on the claim of respondents, and vice versa. In this light, considering
that the counterclaims of respondents are compulsory in nature,
payment of docket fees is not required. The CA did not err in holding
that the trial court had acquired jurisdiction on the matter.28
WHEREFORE, the petition is hereby DENIED for lack of merit, and
the assailed decision of the Court of Appeals dated August 22, 2000
and its resolution dated December 20, 2000, in CA-G.R. SP No.
58379, are AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Bellosillo, and Callejo, Sr., JJ., concur.

Austria-Martinez, J., on official leave.

FIRST DIVISION
G.R. No. 121687 October 16, 1997
HEIRS OF MARCELINO PAGOBO namely: PELAGIO PAGOBO,
GONZALO PAGOBO, ANIANA PAGOBO, ALFREDO SALVADOR,
SAMUEL PAGOBO, REMEDIOS PAGOBO, VALENTINA PAGOBO,
JONATHAN PAGOBO, VIRGILIO PAGOBO, FELISA YAYON,
SIMPLICIO YAYON, BARTOLOME, BERNARDINA YAYON, and
ISIDRA YAYON; HEIRS OF HILARION PAGOBO, namely: PABLO
PAGOBO, ALFREDO PAGOBO, FELIX PAGOBO, RUFINO P.
DAHIL, BRIGIDA P. GODINEZ, HONORATA P. GODINEZ, MAXIMO
PAGOBO, ADRIANA PAGOBO, CECILIA PAGOBO, LILIA PAGOBO,
CRESCENCIO PAGOBO, ROBERTO PAGOBO, ALFONSO
PAGOBO, CANDIDO PAGOBO, BARTOLOME PAGOBO, ELPIDIO
PAGOBO, PEDRO PAGOBO, ROGELIO PAGOBO, SHIRLEY P.
CANETE, MILAGROS PAGOBO, JUANITO PAGOBO, JR.,
ANTONIO PAGOBO, IRENEA PAGOBO, and ANANIANO P.
WAGWAG; HEIRS OF ANTONIO PAGOBO, namely: GAUDENCIO
PAGOBO, LOTITA PAGOBO, ERNESTO PAGOBO, ROMANA P.
DAHIL, FELISA PAGOBO, CARMEN PAGOBO, and SALUD
PAGOBO; HEIRS OF MAXIMO PAGOBO namely: PAGOBO,
RODULFO PAGOBO, CRISPIN PAGOBO, and URBANO PAGOBO;
HEIRS OF DONATA PAGOBO WAGWAG, namely: FELISA WAG-
WAG, ANASTACIO WAGWAG, FIDEL WAGWAG and NEMESIA
WAGWAG; HEIRS OF AQUILINA PAGOBO, namely: VICTOR
PAGOBO; HEIRS OF JUANITO PAGOBO EYAS, namely:
MARCELO P. EYAS, ROCHI P. FLORES and ORDIE P. FLORES;
HEIRS OF CATALINA PAGOBO, namely: RESTITUTO PAGOBO,
CARLINA P. TALINGTING, TEOFILO P. TALINGTING, and JUANITO
P. TALINGTING, petitioners,
vs.
THE COURT OF APPEALS, HON. RUMOLDO R. FERNANDEZ,
(RTC BR. 54 LAPU-LAPU CITY in his capacity as Presiding Judge
in CIVIL CASE NO. 2349-L) Judge of the Regional Trial Court, 7th
Judicial Region Branch 54, Lapu-Lapu City; and Spouses
GABRIEL and AIDA BANEZ, ANASTACIO PAGOBO, DEMETRIO
PAGOBO and FELIX PAGOBO, respondents.
DAVIDE, JR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court to set aside the decision 1 of April 1995 of public respondent
Court of Appeals in C.A.-G.R. SP No. 35389, affirming the 24 March
1994 order 2 of the Regional Trial Court of Lapu-Lapu City, Branch 54,
in Civil Case No. 2349-L, denying petitioners' motion to admit their
Amended Complaint.
The factual and procedural antecedents are summarized by the Court
of Appeals as follows:
It appears that on October 12, 1990, plaintiffs Alfonso
Pa[g]obo, et al. filed a complaint for "Declaration of Nullity of
Documents, Reconveyances [sic] With Right of Legal
Redemption, Damages & Attorney's Fees" docketed as Civil
Case No. 2349-L against defendants Gabriel Baez, et al.
before the respondent Regional Trial Court.
On December 7, 1990, defendant[s] filed their answer thereto.
On February 21, 1994, plaintiffs filed a motion to admit
amended complaint. The amended complaint attached to the
motion was for "Partition, Declaration of Nullity of
Documents, Cancellation of Transfer Certificate of Titles, [sic]
Reconveyance With Right of Legal Redemption, Damages
and Attorney's Fees, and Other Reliefs.
On February 28, 1994, defendants filed an opposition to the
admission of the amended complaint.
On March 29, 1994, plaintiffs filed a rejoinder thereto.
On March 24, 1994, the respondent court issued the assailed (c) the three (3) day notice
Order denying the motion to admit amended complaint. rule was observed in filing the
motion;
On March 25, 1994, plaintiffs filed an urgent motion for
reconsideration to which an opposition thereto was filed on (d) the salient points namely:
April 13, 1994. A rejoinder thereto was filed by the plaintiffs on (1) the impleading of the
April 28, 1994. On May 11, 1994, defendants filed Register of Deeds; (2) the
comment/reply to rejoinder to the opposition. void sale to Edward Short
who is a foreigner; the
On May 20, 1994, the respondent court issued an Order prohibition to alienate a
denying the motion for reconsideration. homestead lot; and that they
were continuous, peaceful,
open, and adverse
On June 10, 1994, plaintiffs filed an omnibus motion praying
possession of the lots in the
that the Orders of March 24, 1994 and May 20, 1994 be
concept of owners prior to the
reconsidered and that the Motion to Admit the Amended
entry of defendants do not
Complaint dated February 21, 1993 be, granted.
change the cause of action
nor theory of the case.
On June 23, 1994, the respondent court issued an Order Rather, it [sic] merely amplify,
denying the omnibus motion. enlarge and fortify the cause
of action originally alleged;
Hence, this petition. and

Petitioner maintains that the respondent Regional Trial Court (e) that the amendments
committed grave abuse of discretion tantamount to lack or clearly conforms [sic] with
excess of jurisdiction in denying their motions to admit Section 3, Rule 10 of the
amended complaint and the omnibus motion it appearing that: Revised Rules of Court.

(a) there is no intention to
reimplead the defendants
already ordered dropped as
shown by the fact that their
names had not been
underscored, hence, it is but
a clerical error;
(b) pre-trial is yet to be
conducted;
Private respondents, however, submit that the instant petition
be dismissed for the following reasons, to wit:
(1) Petitioners deliberately failed to state in
their certification of non-forum shopping the
fact that there existed a terminated civil case
No. 124-L involving the same parties and/or
their predecessors or successors-in-interest
and involving the same lot in litigation;
 (2) The respondent trial court did not commit
grave abuse of discretion when it denied
petitioners' motion to admit amended
complaint, their motion for reconsideration,
and their omnibus motion:
(a) the trial court correctly
denied admission of the
amended complaint because
the admission thereof will
prejudice the rights of
defendants;
(b) there is no necessity to
implead the Register of
Deeds in Civil Case No.
2349-L;
(c) the amended complaint
violates Section 3, Rule 10 of
the Revised Rules of Court;
(d) the amendments sought
to be admitted would further
delay the early resolution of
the case at bars [sic]. 3
The challenged order of 24 March 1994 of the trial court reads as
follows:
The MOTION TO ADMIT AMENDED COMPLAINT filed by
plaintiffs is hereby denied.
A perusal of the records would show that as early as
September 15, 1993, this court ordered the dismissal of this
case as against defendants Damasa and Candido both
surnamed Pagobo, Olimpia Tampus, Salud Maloloy-on and
Adriana Mahusay, yet these very same defendants were again
named in plaintiff's amended complaint attached to its Motion
to Admit Amended Complaint.
In view thereof, and for the reasons adduced by counsel for
defendant spouses in its opposition, the Motion to Admit
Amended Complaint is hereby denied. 4
The opposition of defendants-spouses Gabriel and Aida Baez 5 to the
motion to admit the Amended Complaint, which the trial court took into
account, was anchored on the following grounds: (1) the 3-day notice
rule for motions was not observed as they received a copy of the
motion in question only on 21 February 1994, the date of said motion;
(2) the Amended Complaint violated Section 3 of Rule 10 of the Rules
of Court by substantially altering the original cause of action; besides it
was filed late viz, three years after the filing of the original complaint;
and (3) the motion to amend was dilatory.
The Court of Appeals ruled that the trial court was correct in not
admitting the amended complaint and held, to wit:
To determine whether a different cause of action is introduced
by amendments to the complaint, what is ascertained is
whether the defendant is being required to answer for a
liability or legal obligation completely different from that stated
in the original complaint. A closer scrutiny of the original
complaint shows that the original action was for "declaration of
nullity of documents, reconveyance with right of legal
redemption, damages and attorney's fees" while the amended
complaint is for "partition, declaration of nullity of
documents, cancellation of transfer certificate of titles [sic],
reconveyance with right of legal redemption, damages and
attorney's fee[s], and other reliefs." Further, it was alleged in
the amended complaint that petitioners are the absolute and
legal owners of the land in question and that:
All of the defendants entered into transactions
of the lands subject matter of this case,
without the knowledge of plaintiffs and their
predecessors-in-interest, and defendant[s] did
 so despite full knowledge that ownership of FIRST. [They] will be
said lands belonged to the plaintiffs and their precluded from impleading
predecessor[s]-in-interest; and also despite the Register of Deeds for
full knowledge that Edward Short, being a Lapu-Lapu City who is an
foreigner, had no legal capacity to buy or own indispensable party because
said lots; and despite full knowledge that the trial court cannot order
plaintiffs and their predecessors-in-interest the said Register of Deeds to
had been in continuous, peaceful, open, and cancel the void Transfer
adverse possession of said lot in concept of Certificate of Titles [sic] and
the owner prior to the entry by defendants in issue new Transfer Certificate
to the premises. of Titles [sic] unless said
Register of Deeds is
Moreover, petitioners, in the amended complaint, also prayed impleaded.
that they be declared absolute and legal owners of the subject
lots, that it be partitioned among them in accordance with the SECOND. [They] would be
law on hereditary succession, and that the transfer certificates forever barred from invoking
of title in the name[s] of the private respondents be cancelled their right of redemption as
and a new title be issued in their names. co-owner under Article 1620
in relation to Article 1623 of
A scrutiny of abovementioned amendment shows that there the New Civil Code and as
are additional causes of action which necessitates the private heirs of the homestead
respondents to file an amended answer in order to controvert patentee under
the new allegations contained in the amended complaint. Commonwealth Act No. 141,
Incidentally, it appears that petitioners took sometime before as amended.
filing the amended complaint albeit, courts are liberal in
allowing a plaintiff to amend complaint so long as there is no THIRD. [They] would be
departure from the original cause of action. We find, however, forced to breach the principle
that the amendments in the case at bar introduced new issues against multiplicity of suits by
and materially altered the grounds of relief, thus, the filing a separate suit for
respondent court did not err in denying the motion to admit partition against other
amended complaint. The granting of leave to file amended appellees who are co-heirs of
pleadings is a matter [particularly] within the sound discretion appellants in the event that
of the trial court. This discretion will not be disturbed on the land is ultimately awarded
appeal, except in case of an evident abuse thereof. Such in favor of plaintiffs and
abuse does not appear in the case at bench. 6 against appellees-Spouses
Gabriel Baez and Aida
Petitioners submit to us that their Amended Complaint did not Baez.
substantially depart from their cause of action set forth in the original
complaint and proffered four "special and important reasons" for the FOURTH. The controversies
allowance of their petition,viz: between the parties will never
 be fully presented before the
trial court and their rights will
not be completely
determined, and that the case
will not be fully tried on the
merits.
In his Comment on the petition, private respondent Gabriel Baez
points out that the mode of review interposed by petitioners is
erroneous, as redress should have been sought under Rule 65 since
the challenged decision of the Court of Appeals was on a petition
for certiorari under said Rule. He further maintains that the denial of
the admission of the Amended Complaint was proper since the latter
substantially altered petitioners' original cause of action and was
clearly dilatory.
In their Reply, petitioners assert that the remedy they availed of is
sanctioned by jurisprudence, citing several cases wherein "to avoid
delay and to thwart the commission of injustice, a special civil action
filed with the Appellate Court was liberally considered as an appeal, or
vice-versa." 7
Private respondent filed a Motion to Expunge Appellants' Reply to
Comment since no leave of court was secured before said reply was
filed.
In a Resolution dated 8 July 1996, we noted private respondent Baez'
Motion to Expunge the Reply, gave due course to the petition and
required the petitioners and private respondent Gabriel Baez to file
their respective memoranda, which they subsequently did.
Parenthetically, as the other private respondents did not file their
comments or memoranda, they are deemed to have waived the filing
thereof.
As earlier adverted to, the trial court's principal reasons for refusing to
admit the Amended Complaint were the inclusion of the names of
some of the defendants against whom the case was already ordered
dismissed and the grounds relied upon by defendants Gabriel and
Aida Baez in their opposition. However, the Court of Appeals
considered only one ground, i.e., the Amended Complaint substantially
changed or altered the cause of action in the original complaint. The
ultimate issue then in this petition for review is whether the trial court
committed grave abuse of discretion in denying the motion to admit
the Amended Complaint on the ground that the Amended Complaint
substantially changed or altered, the cause of action in the original
complaint. Upon this issue the parties have focused their arguments.
Section 3 of Rule 10 of the Rules of Court is the law on the matter.
Prior to the 1997 amendments, the section read as follows:
Sec. 3. Amendments by leave of court. After the case is set
for hearing, substantial amendments may be made only upon
leave of court. But such leave may be refused if it appears to
the court that the motion was made with intent to delay the
action or that the cause of action or defense is substantially
altered. Orders of the court upon the matters provided in this
section shall be made upon motion filed in court, and after
notice to the adverse party, and an opportunity to be heard.
As amended, it now reads:
Sec. 3. Amendments by leave of court. Except as provided
in the next preceding section, substantial amendments may be
made only by leave of court. But such leave may be refused if
it appears to the court that the motion was made with intent to
delay. Orders of the court upon the matters provided in this
section shall be made upon motion filed in court, and after
notice to the adverse party, and an opportunity to be heard.
(3a)
Since this case was decided by the Court of Appeals under the old
law, we resolve it in that light. Thereunder, while substantial
amendments were allowed even after the case had been set for
hearing, such could only be done upon leave of court. That leave could
be refused if the court found that: (a) the motion was made with intent
to delay the action; or (b) the cause of action or defense was
substantially altered. The first ground is no longer an issue in this
case. Even if it were, it had to be resolved in the negative since there
is at all no showing that the amendment was intended to delay the
action. The trial court had not even set Civil Case No. 2349-L, for
hearing.
We cannot also agree with both the trial court and respondent Court of
Appeals that petitioners' Amended Complaint substantially changed or
altered their original cause of action. A cause of action is an act or
omission of one party in violation of the legal rights of the other. 8 It is
the reason why the litigation has come about. 9 Its essential elements
are a legal right of the plaintiff, a correlative obligation on the part of
the defendant to respect the right and an act or omission of the
defendant violative of such right. 10
A perusal of petitioners' original complaint 11 shows that essentially,
petitioners' cause of action is founded on the fact that as grandchildren
and great-grandchildren of the late Juan Pagobo, who was the
registered owner of Lot No. 6727 of the Opon Cadastre, they are
entitled to a share therein by virtue of hereditary succession; that after
it was subdivided into thirty-four (34) lots, one Juana Pagobo sold
sublot No. 6727-0 on 5 May 1964 to Edward Short, Jr., and thereafter,
Short sold Lots Nos. 6727-0-1, 6727-0-2 and 6727-CC to defendants
Gabriel and Aida Baez to whom certificates of title were
issued. 12 Petitioners alleged that the sale was void because the
mother lot, Lot 6727, has not yet been extrajudicially settled by and
among the heirs of Juan Pagobo. They then prayed that the deeds of
sale executed by Juana Pagobo and Edward Short be declared null
and void; that defendants Gabriel and Aida Baez be ordered to
reconvey to petitioners the lots sold to them; and that petitioners be
allowed to exercise their right of redemption under Article 1620 in
relation to Article 1623 of the Civil Code in respect of said lots.
In their Amended Complaint, petitioners impleaded the Register of
Deeds; specifically alleged that Lots Nos. 6727-0-1, 6727-0-2 and
6727-CC, being parts of Lot No. 6727 owned by Juan Pagobo,
belonged to them as heirs of the latter; that demands for partition had
been made; that the sales made by Juana Pagobo were void not only
because of defendants' full knowledge that petitioners owned the lots
in question, but also because Edward Short, being a foreigner, was
disqualified from acquiring the lots; further, that since the lots were
covered by homestead patents, they could not be alienated for 25
years; and that petitioners had been in continuous, peaceful, open and
adverse possession thereof. Plainly, these allegations do not constitute
substantial amendments. If anything, they merely strengthen
petitioners' original cause of action by providing a more detailed
account thereof, which then puts in clearer perspective the second
element of a cause of action. Under Section 2 of Rule 8, a party may
even set forth two or more statements of a claim or defense
alternatively or hypothetically, either in one cause of action or defense
or in separate causes of action or defenses.
Anent the claim for partition, we hold the same to be incidental to the
allegation in the original complaint that the property had not been
extrajudicially settled and was thus intended to obtain complete relief
in one action. We likewise find that allowance of the Amended
Complaint would cause no prejudice to private respondents since their
defenses of lack of cause of action, prescription, laches and res
judicata 13 would neither be diminished nor impaired.
Hence, the trial court should have granted the motion to admit the
Amended Complaint on the principle that amendments of pleadings
are favored and should be liberally allowed in the furtherance of justice
in order to determine every case as far as possible on its merits
without regard to technicalities, to speed up trial and save party
litigants from incurring unnecessary expense, so that a full hearing on
the merits of every case may be had and multiplicity of suits
avoided. 14 It must be pointed out that the new Section 3 of Rule 10 of
the Rules of Court relaxes further the rule on amendment of pleadings.
Refusal to allow amendments other than those which may be made as
a matter of right under Section 2, 15 may be based only on the ground
that the motion was made with intent to delay. The other ground, viz.,
the amendment substantially alters the original cause of action or
defense, has been dropped from the Rule. This simply means then
that amendments may substantially alter the cause of action or
defense. 16
In closing, we address the argument of private respondents Baez that
as what the petitioners filed with respondent Court of Appeals was a
special civil action for certiorari under Rule 65 of the Rules of Court,
then redress from an adverse decision therein should likewise have
been sought under said Rule. We disagree. Rule 45 of the Rules of
Court is clear that decisions, final orders or resolutions of the Court of
Appeals in any case, i.e., regardless of the nature of the action or
proceedings involved, may be appealed to us by filing a petition for
review, which would be but a continuation of the appellate process
over the original case. On the other hand, a special civil action under
Rule 65 is an independent action based on the specific grounds
therein provided and, as a general rule, cannot be availed of as a
substitute for the lost remedy of an ordinary appeal, 17 including that
under Rule 45. 18

WHEREFORE, the petition is hereby GRANTED. The decision of 28

April 1995 of the Court of Appeals in CA-G.R. SP No. 35389 and the
Order of the Regional Trial Court of Lapulapu, Branch 54, of 24 March
1994 in Civil Case No. 2349-L are SET ASIDE and said Regional Trial
Court of Cebu is directed to admit petitioners' Amended Complaint.

No pronouncement as to costs.

SO ORDERED.

Bellosillo, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.


FIRST DIVISION
G.R. No. 133657 May 29, 2002
REMINGTON INDUSTRIAL SALES CORPORATION, petitioner,
vs.
THE COURT OF APPEALS and BRITISH STEEL (ASIA),
LTD., respondents.
YNARES-SANTIAGO, J.:
Before us is a petition for review under Rule 45 of the Rules of Court
assailing the decision of the Court of Appeals in CA-G.R. SP No.
44529 dated February 24, 19981, which granted the petition for
certiorari filed by respondent British Steel Asia Ltd. (British Steel) and
ordered the dismissal of petitioner Remington Industrial Sales
Corporations (Remington) complaint for sum of money and damages.
Also assailed in this petition is the resolution2 of the Court of Appeals
denying petitioners motion for reconsideration.
The facts of the case, as culled from the records, are as follows:
On August 21, 1996, petitioner filed a complaint 3 for sum of money and
damages arising from breach of contract, docketed as Civil Case No.
96-79674, before the sala of Judge Marino M. De la Cruz of the
Regional Trial Court of Manila, Branch 22. Impleaded as principal
defendant therein was Industrial Steels, Ltd. (ISL), with Ferro Trading
GMBH (Ferro) and respondent British Steel as alternative defendants.
ISL and respondent British Steel separately moved for the dismissal of
the complaint on the ground that it failed to state a cause of action
against them. On April 7, 1997, the RTC denied the motions to
dismiss,4 as well as the ensuing motion for reconsideration. 5 ISL then
filed its answer to the complaint.
On the other hand, respondent British Steel filed a petition for certiorari
and prohibition before the Court of Appeals, 6 docketed as CA-G.R. SP
No. 44529. Respondent claimed therein that the complaint did not
contain a single averment that respondent committed any act or is
guilty of any omission in violation of petitioners legal rights. Apart from
the allegation in the complaints "Jurisdictional Facts" that:
1.05. Defendants British Steel (Asia) Ltd. and Ferro Trading
Gmbh, while understood by the plaintiff as mere suppliers of
goods for defendant ISL, are impleaded as party defendants
pursuant to Section 13, Rule 3 of the Revised Rules of Court. 7
no other reference was made to respondent that would constitute a
valid cause of action against it. Since petitioner failed to plead any
cause of action against respondent as alternative defendant under
Section 13, Rule 3,8 the trial court should have ordered the dismissal
of the complaint insofar as respondent was concerned.
Meanwhile, petitioner sought to amend its complaint by incorporating
therein additional factual allegations constitutive of its cause of action
against respondent. Pursuant to Section 2, Rule 10 9 of the Rules of
Court, petitioner maintained that it can amend the complaint as a
matter of right because respondent has not yet filed a responsive
pleading thereto.10
Subsequently, petitioner filed a Manifestation and Motion 11 in CA-G.R.
SP No. 44529 stating that it had filed a Motion to Admit Amended
Complaint together with said Amended Complaint before the trial
court. Hence, petitioner prayed that the proceedings in the special civil
action be suspended.
On January 29, 1998, the trial court ruled on petitioners Motion to
Admit Amended Complaint thus:
WHEREFORE, the Amended Complaint is NOTED and further
proceedings thereon and action on the other incidents as
aforementioned are hereby held in abeyance until final
resolution by the Honorable Court of Appeals (Special
6th Division) of the petition for certiorari and prohibition of
petitioner (defendant British) and/or Manifestations and
Motions of therein private respondent, herein plaintiff.
 SO ORDERED.12
Thereafter, on February 24, 1998, the Court of Appeals rendered the
assailed decision in CA-G.R. SP No. 44529 as follows:
WHEREFORE, this Court grants the writ of certiorari and
orders the respondent judge to dismiss without prejudice the
Complaint in Civil Case No. 96-79674 against petitioner British
Steel (Asia) Ltd. Costs against private respondent.
SO ORDERED.13
In the same decision, the Court of Appeals addressed petitioners
prayer for suspension of proceedings in this wise:
The incident which transpired after the filing of the instant
petition for certiorari and prohibition are immaterial in the
resolution of this petition. What this Court is called upon to
resolve is whether the lower court committed grave abuse of
discretion when it denied petitioners motion to dismiss the
complaint against it. The admission or rejection by the lower
court of said amended complaint will not, insofar as this Court
is concerned, impinge upon the issue of whether or not said
court gravely abused its discretion in denying petitioners
motion to dismiss.14
Petitioner filed a motion for reconsideration of the appellate courts
decision, which was denied in a resolution dated April 28, 1998.
Hence, this petition, anchored on the following grounds:
-I-
THE HON. COURT OF APPEALS ERRED IN ORDERING
THE DISMISSAL OF THE COMPLAINT AGAINST THE
PRIVATE RESPONDENT FOR LACK OF CAUSE OF ACTION
UNDER THE ORIGINAL COMPLAINT EVEN AS SAID
COMPLAINT WAS ALREADY AMENDED AS A MATTER OF
RIGHT AND SUFFICIENT CAUSES OF ACTION ARE
AVERRED IN THE AMENDED COMPLAINT, IN GROSS
VIOLATION OF SEC. 2, RULE 10 OF THE 1997 RULES OF
CIVIL PROCEDURE.
-II-
THE HON. COURT OF APPEALS ERRED IN HOLDING THAT
IF THE PETITIONER WANTS TO PURSUE ITS CASE
AGAINST THE PRIVATE RESPONDENT, IT HAS TO REFILE
THE COMPLAINT, THUS PRE-EMPTING THE RIGHT OF
THE LOWER COURT TO RULE ON THE AMENDED
COMPLAINT AND COMPELLING THE PETITIONER TO
LITIGATE ITS CAUSES OF ACTION AGAINST THE PRIVATE
RESPONDENT AS AN ALTERNATIVE DEFENDANT IN A
SEPARATE ACTION, THEREBY ABETTING MULTIPLICITY
OF SUITS.15
The basic issue in this case is whether or not the Court of Appeals, by
granting the extraordinary writ of certiorari, correctly ordered the
dismissal of the complaint for failure to state a cause of action, despite
the fact that petitioner exercised its right to amend the defective
complaint under Section 2, Rule 10 of the Rules of Court. Stated
differently, the query posed before us is: can a complaint still be
amended as a matter of right before an answer has been filed, even if
there was a pending proceeding for its dismissal before the higher
court?
Section 2, Rule 1016 of the Revised Rules of Court explicitly states that
a pleading may be amended as a matter of right before a responsive
pleading is served. This only means that prior to the filing of an
answer, the plaintiff has the absolute right to amend the complaint
whether a new cause of action or change in theory is introduced. 17 The
reason for this rule is implied in the subsequent Section 3 of Rule 10 18.
Under this provision, substantial amendment of the complaint is not
allowed without leave of court after an answer has been served,
because any material change in the allegations contained in the
complaint could prejudice the rights of the defendant who has already
set up his defense in the answer.
Conversely, it cannot be said that the defendants rights have been
violated by changes made in the complaint if he has yet to file an
answer thereto. In such an event, the defendant has not presented
any defense that can be altered 19 or affected by the amendment of the
complaint in accordance with Section 2 of Rule 10. The defendant still
retains the unqualified opportunity to address the allegations against
him by properly setting up his defense in the answer. Considerable
leeway is thus given to the plaintiff to amend his complaint once, as a
matter of right, prior to the filing of an answer by the defendant.
The right granted to the plaintiff under procedural law to amend the
complaint before an answer has been served is not precluded by the
filing of a motion to dismiss 20 or any other proceeding contesting its
sufficiency. Were we to conclude otherwise, the right to amend a
pleading under Section 2, Rule 10 will be rendered nugatory and
ineffectual, since all that a defendant has to do to foreclose this
remedial right is to challenge the adequacy of the complaint before he
files an answer.
Moreover, amendment of pleadings is favored and should be liberally
allowed in the furtherance of justice in order to determine every case
as far as possible on its merits without regard to technicalities. This
principle is generally recognized to speed up trial and save party
litigants from incurring unnecessary expense, so that a full hearing on
the merits of every case may be had and multiplicity of suits avoided. 21
In this case, the remedy espoused by the appellate court in its
assailed judgment will precisely result in multiple suits, involving the
same set of facts and to which the defendants would likely raise the
same or, at least, related defenses. Plainly stated, we find no practical
advantage in ordering the dismissal of the complaint against
respondent and for petitioner to re-file the same, when the latter can
still clearly amend the complaint as a matter of right. The amendment
of the complaint would not prejudice respondents or delay the action,
as this would, in fact, simplify the case and expedite its disposition.
The fact that the other defendants below has filed their answers to the
complaint does not bar petitioners right to amend the complaint as
against respondent. Indeed, where some but not all the defendants
have answered, the plaintiff may still amend its complaint once, as a
matter of right, in respect to claims asserted solely against the non-
answering defendant, but not as to claims asserted against the other
defendants.22
Furthermore, we do not agree with respondents claim that it will be
prejudiced by the admission of the Amended Complaint because it had
spent time, money and effort to file its petition before the appellate
court.23 We cannot see how the result could be any different for
respondent, if petitioner merely re-filed the complaint instead of being
allowed to amend it. As adverted to earlier, amendment would even
work to respondents advantage since it will undoubtedly speed up the
proceedings before the trial court. Consequently, the amendment
should be allowed in the case at bar as a matter of right in accordance
with the rules.
WHEREFORE, the petition is GRANTED. The assailed decision and
resolution of the Court of Appeals in CA-G.R. SP No. 44529 dated
February 24, 1998 and April 28, 1998, respectively,
are REVERSED and SET ASIDE. The Regional Trial Court of Manila,
Branch 22 is further ordered to ADMIT petitioners Amended
Complaint in Civil Case No. 96-79674 and to conduct further
proceedings in said case.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan, and Austria-Martinez, JJ., concur.

SECOND DIVISION
G.R. No. L-38866 November 29, 1974
KERAMIK INDUSTRIES INC., petitioner,
vs.
HONORABLE BUENAVENTURA J. GUERRERO in his official
capacity as the Presiding Judge of the Court of First Instance of
Rizal, Branch XXIV and GOVERNMENT SERVICE INSURANCE
SYSTEM, respondents.
AQUINO, J.:p
Keramik Industries, Inc. (Keramik for short), in this special civil action
for certiorari, seeks to annul the order dated May 31, 1974 of the Court
of First Instance of Rizal, Pasig Branch XXIV, denying its motion to file
an amended complaint in Civil Case No. 16540. The certiorari action is
based on the following salient allegations of the petition and its
annexes:
On October 7, 1964, Keramik obtained a loan of two million four
hundred thousand pesos (P2,400,000) from the Government Service
Insurance System (GSIS). As security, it mortgaged to the GSIS
certain lands, buildings, machineries and equipment used in its
ceramic business.
After Keramik's default, the GSIS extrajudicially foreclosed the real
and chattel mortgages. The mortgaged properties were sold at public
auction on March 2, 1971 to satisfy the claim of the GSIS amounting to
P3,461,138.09. The GSIS, as the highest bidder, bought them for
P5,129,145.
On August 17, 1972 Keramik sued the GSIS. It asked for the
nullification of the extrajudicial foreclosure due to supposed
irregularities. In the alternative, it prayed that the GSIS be ordered to
pay to it the sum of P1,668,006.91 which amount allegedly constitutes
the difference between the GSIS bid of P5,129,145 at the foreclosure
sale and the actual mortgage debt of P3,461,138.09. Other minor
reliefs were sought. The GSIS answered the complaint. No pre-trial
has as yet been held.
On March 26, 1974 Keramik filed a motion for the admission of its
amended complaint. The amendment refers to the insurance in the
sum of P2,400,000 which Keramik had allegedly secured from the
GSIS for the mortgaged buildings, machineries and equipment. The
insurance was an additional security for the loan. Keramik alleged that
through inadvertence it failed to mention in its original complaint the
insurance and the circumstance that the typhoon Yoling totally
damaged the insured properties. Its alternative contention was that the
proceeds of the insurance and the excess premiums paid should be
deducted from its indebtedness because the GSIS was in effect both
the insurer and the insured.
The GSIS opposed the admission of the amended complaint on the
ground that the amendment altered the plaintiff's causes of action by
supposedly injecting "new, distinct and entirely foreign causes of
action".
The lower court, in its minute order dated May 31, 1974, sustained the
opposition and denied the admission of the amended complaint.
Keramik then filed the instant special civil action of certiorari. It
contends that the lower court acted with grave abuse of discretion in
not admitting its amended complaint.
We hold that the trial court committed a grave abuse of discretion in
not allowing Keramik to amend its complaint. Keramik's alternative
cause of action is predicated on the major premise that the GSIS, as
mortgagee, should not enrich itself unjustly at its expense. Although
not so explicitly and succinctly spelled out in its complaint, Keramik's
theory is that the mortgaged properties and the proceeds of the
insurance were more than sufficient to cover its aggregate debt to the WHEREFORE, the trial court's order of May 31, 1974 is set aside and
GSIS and, therefore, the latter, as bidder at the foreclosure sale, it is directed to admit petitioner's amended complaint dated March 20,
should refund to the mortgagor the excess or "the difference between 1974. No costs.
the price at which the foreclosed property was bought and the actual
indebtedness of defendant" (should be plaintiff). (Par. 3 of prayer of SO ORDERED.
original and amended complaints, Annexes A and C of the petition).
Fernando (Chairman), Barredo, Antonio and Fernandez, JJ., concur.
The allegations in the amended complaint regarding the insurance for
the mortgaged properties did not change at all Keramik's theory of the
case and did not introduce a new cause of action. As may be seen
from the original and amended complaints, the causes of action
remained the same. The prayers of the two complaints are
identicalverbatim et literatim.

The new matter concerning the insurance merely reinforced, amplified

or enlarged Keramik's alternative cause of action for the recovery of
the surplus or excess (See sec. 4, Rule 68 of the Rules of Court).
Whether Keramik's theory is sustainable would depend on the
evidence and the applicable substantive law.

To deny the admission of Keramik's amended complaint would

constrain it to bring a separate action for the purpose of compelling the
GSIS to credit the proceeds of the insurance against its mortgage
debt. That remedy would be repugnant to the rule which discourages
multiplicity of suits. A separate action for that purpose would amount to
splitting a cause of action. "It is a cherished rule of procedure that a
court should always strive to settle the entire controversy in a single
proceeding leaving no root or branch to bear the seeds of future
litigation" (Marquez vs. Marquez, 73 Phil. 74, 78).

The allowance of the amendment would be in the furtherance of

justice and would not prejudice at all the GSIS or place it at a
disadvantage since it could controvert the new matters constituting the
amendment in an amended answer and during the trial (See Shaffer
vs. Palma, L-24115, March 1, 1968, 22 SCRA 934; Rubio vs. Mariano,
L-30404, January 31, 1973, 49 SCRA 319).

FIRST DIVISION
G.R. No. L-45234 May 8, 1985
R and B SURETY & INSURANCE CO., INC., and TOWERS
ASSURANCE CORPORATION, petitioners,
vs.
HON. VICTORINO A. SAVELLANO, as Presiding Judge, Branch
XIX, Court of First Instance of Manila, and INVESTORS' FINANCE
CORPORATION, doing business under the name and style "FNCB
FINANCE",respondents.
Redento R. Silvestre for petitioners.
Benigno A. Mariano, Sr. for Rassagi Transport Corp.
GUTIERREZ, JR., J.:
This petition for review on certiorari seeks to set aside the partial
summary judgment rendered by the respondent court. The petitioners
state that their answer raised genuine and valid issues. The petitioners
also seek to compel the respondent court to allow their amended
answer on the ground that the same does not alter the theory of their
defense nor delay the proceedings of the trial.
Private respondent Investors' Finance Corporation doing business
under the name "FNCB Finance" (FNCB) filed an action for a sum of
money against petitioners R & B Surety and Insurance Co., Inc. (R&
B) and Towers Assurance Corporation (Towers) in their capacity as
sureties and against one Rassagi Transport Corporation (Rassagi) in
its capacity as principal debtor.
The complaint alleged, among others, that Rassagi obtained credit
facilities from Citiwide Motors, Inc. (Citiwide) duly evidenced by
promissory notes in the sum of P1,273,108.06 and P1,696,969.70 or
an aggregate amount of P2,970,077.76; that Citiwide endorsed the
promissory notes to plaintiff FNCB and notified defendant Rassagi that
it had assigned its rights over said promissory notes and said
defendant gave its conformity to the assignment; that as security for
payment of the promissory notes, defendants R & B and Towers
issued surety bonds in favor of Citiwide and which surety b nds were
also assigned to plaintiff; that the promissory notes contained a
provision that default in payment when due on any installment shall
make the whole principal sums remaining unpaid immediately due and
payable; that under the provisions of the surety bonds defendant R &
B and Towers obligated themselves, jointly and severally with their
principal, the other defendant Rassagi, to pay the latter's obligation to
plaintiff; that defendant Rassagi broke the terms and conditions of said
promissory notes by its failure to pay the installments thereon when
the same fell due and as of April 14, 1975, said defendant owed
plaintiff the sum of Two Million Eight Hundred Forty-Two Thousand Six
Hundred Seventy Six Pesos and Fourteen Centavos
(P2,842,676.14), plus interest thereon from said date at 14% per
annum; and that notwithstanding repeated demands by plaintiff, the
defendants have failed and refused and still fail and refuse to pay their
matured and overdue obligation under the said promissory notes.
Defendant Rassagi in turn, filed its answer, alleging that it did not
obtain credit facilities from Citiwide but it had applied for a direct loan
from FNCB sometime before October, 1974; that after the approval of
said loan which was intended for the purchase of PUB bus trucks,
Citiwide offered to supply it with the equipment and had actually
delivered 14 units of Chevrolet trucks to the latter; that the amount of
the equipment loan acquired by Rassagi from FNCB is P1,960,000.00
which amount was released and paid to Citiwide in payment of the
fourteen (14) units with a unit price of P140,000.00 including the body
building; that since the loan was already approved, there was no
necessity for the deed of assignment made by Citiwide in favor of
FNCB; that what FNCB did was to require Rassagi to sign blank
forms, which the latter understood to be documents representing the
obligation directly to the former and not to Citiwide; that after Rassagi
paid the amount of P61,877.31 as amortization payments, it had
requested FNCB to apply the amount of P100,000.00 which was a
hold back of the proceeds of the loan which the latter favorably applied
and now Rassagi had actually paid P161,877.31 as total amortization
payments and that considering that the 14 buses could only possibly
earn the amount of P110.00 per unit a day and could not come up with
the P210.00 per unit a day equivalent to P20,625.77 a week
amortization, Rassagi requested for a restructuring of its amortization
payments from weekly amortizations to monthly amortizations and a
re-adjustment of the period of payment from three (3) to five (5) years,
but instead of re-adjusting the same, FNCB after Rassagi failed to pay
only one weekly installment tried to collect the entire obligation and to
pursue its claim against the bonding company, so much so that it
refused to accept the payments made by Rassagi and it was for this
reason that the latter stopped its amortization payments.
Rassagi also alleged usury on the part of FNCB stating that after
realizing that the amount of its obligation was so excessive
considering that only P1,960,000.00 was actually released and
approved, it formally demanded a statement of account from FNCB
and that was the only time that defendant knew that its entire
obligation to said plaintiff is P3,003,231.12.
Defendants R & B and Towers filed their own answer, putting up the
same defenses made by Rassagi. They denied the genuineness and
due execution of the promissory note alleging that Rassagi was made
to sign only blank documents and that the latter obtained a direct loan
from FNCB but did not obtain credit facilities from Citiwide; that FNCB
had illegally and usuriously charged Rassagi excessive interest upon
the loan; and that what the latter knows is that FNCB shall only charge
an interest of 14% per annum diminishing balance on the
P1,960,000.00 but that there was no agreement to pay three years
interest in advance and surcharges for late amortization payments.
Defendant sureties admitted that Rassagi had accepted delivery of the
fourteen (14) Chevrolet trucks purchased out of the loan of
P1,960,000.00:
On July 3, 1975, FNCB filed its reply and answer to the counterclaim
by defendants R & B and Towers.
When the case was caged for pre-trial, the counsel for Rassagi moved
that the pre-trial be postponed in order to enable the parties to try to
settle the case amicably. Upon inquiry by the court as to the defense of
Rassagi, the latter's counsel informed the court that Rassagi does not
deny its obligation as evidenced by the promissory notes and that it
would just approach FNCB for the restructuring of said obligation. The
counsel for the defendant sureties likewise manifested that the latter
are willing to enter into a settlement and ready to assign collaterals in
favor of FNCB.
On August 8, 1975, the trial court issued an order, which partly
provides:
xxx xxx xxx
The Court grants the motion for postponement to
enable the parties to thresh out all possibilities of
settlement with the warning that in view of the
manifestation of counsel for defendant transport
corporation, the Court may issue a summary judgment
at the next schedule hearing. ...
xxx xxx xxx
On October 29, 1975, FNCB filed a manifestation and motion for
summary judgment on the ground that no genuine issue was tendered
in the pleadings. This motion was accompanied by an affidavit of
Mamerto Endriga, FNCB vice-president.
The defendant sureties filed their oppositions to the motion
accompanied by the affidavits of their respective corporate secretaries.
Rassagi likewise filed its opposition but the same was not
accompanied by any affidavit.
Before the trial court could rule on the motion, the defendant sureties,
on March 8, 1976, filed a motion for leave to admit amended answer
with special and affirmative defenses and counter-claims, alleging:
1. That in the month of February, 1976, herein
defendants in their desire and anxiety to check up and
investigate what further assets defendant RASSAGI
 may have for the purpose of attachment or satisfaction
of any judgment whatsoever, by chance, upon said
investigation and check-up, discovered that the
Twenty (20) units of new buses which were
supposedly to be sold and delivered to RASSAGI
under installment payment, the Promissory Notes of
which are the subject of the instant case and covered
by the Surety Bonds, have not as yet, to this day been
so sold or delivered to defendant RASSAGI;
2. That confronted with such findings, RASSAGI's
President and Chairman of the Board, Mr. Rodolfo
Echague, confirmed such non-sale and delivery of the
buses, even though they were, up to October, 1975,
with the Sarmiento Engineering Corp. of Quezon City
for preparation and conversion into de Luxe type
passenger buses;
3. That this turn of events compels herein defendants
to amend their pleadings to the complaint;
4. That in the interest of justice, and considering that
the case is still in its early stages, no evidence so far
having been presented by any party therein,
admission of the herewith attached amended
pleadings to the complaint is called for and justifiable.
xxx xxx xxx
In their amended answer, the defendant sureties alleged the following:
xxx xxx xxx
4. Subject to the averments contained in the
preceding paragraphs and the hereinafter following
Special and Affirmative Defenses, they admit the
allegations contained in paragraph 5 of plaintiff's
complaint to the effect that they issued their Surety
Bonds Nos. G (16) 0743 and G (16) 0059 in the
respective amounts appearing therein in favor of
Citiwide Motors, Inc., with RASSAGI as principal. The
same were to be the security for the Promissory Notes
defendant RASSAGI may execute by virtue of and in
consideration for credit facilities that may be extended
first above alluded to. The said Surety Bonds were
applied for and issued specifically for said credit
accommodation and no other, and cannot be and
must not be, applied as security for any other
Promissory Notes executed by RASSAGI under and
by virtue of another or other transactions and/or
obligations or credit accommodations.
5. That they deny the allegations contained in
paragraph 6 of the complaint Citiwide Motors, Inc. and
plaintiff may have transacted for the assignment of the
aforestated Surety Bonds, but said assignment is
baseless, unjustified, and is a faceous (sic) farce and
charade insofar as herein defendants are concerned,
the reason being that Citiwide Motors, Inc. had no
rights, title and interests over/in/ against said Surety
Bonds unless it had actually made sales on
installment basis of the Twenty (20) units of new
buses to RASSAGI, the performance of which fact is a
condition resolutory that can bind said bonds and give
legal rights to Citiwide Motors, Inc. over/in/against the
same. No allegation of said fact of installment sales
are averred in the complaint. The averments in this
paragraph are subject further to the hereinafter
following Special and Affirmative Defenses.
The respondent court denied the above-quoted motion on the ground
that the amended answer would not only alter the answer sought to be
amended but would also delay the proceedings. On May 24, 1976, the
court, rendered a partial summary judgment, stating:
xxx xxx xxx
Under the circumstances obtaining in the present case
and pursuant to settled jurisprudence on usury and in
order to render substantial justice, the patch of
reason, justice and equity dictates that the Court must
functionalize and breathe life into invisible justice
epitomed in the precepts of equity and justice and
render partial judgment on the undisputed obligation
so that litigation should continue with respect to the
controverted acceleration and alleged usurious
interest being charged under plaintiff's financing
scheme. The defendant Rassagi in its opposition to
plaintiff's motion for summary judgment has attached
plaintiff's official receipts for installment payments (pp.
144 to 166, record) which shows that of the amount
financed under the promissory note (Annex A)
secured by defendant R & B Surety's surety bond
(Annex D) the amount of P141,417.24 has already
been paid while under the promissory note (Annex A-
1) secured by defendant Tower's bond (Annex D-1)
the amount of P97,251.00 has already been paid.
These amounts should be deducted from
Pl,960,000.00 only for the purpose of this partial
judgment. At this stage, the Court will not rule on
whether or not there was a holdout of P100,000.00 as
defendant Rassagi claims. This must be supported by
evidence during the trial because the Court considers
that 14 buses at the rate of P140,000.00 per unit is
Pl,960,000.00, the uncontroverted amount received by
defendant Rassagi.
WHEREFORE, premises considered, partial judgment
at this stage is hereby rendered ordering:
a. Defendants Rassagi and R&B Surety and
Insurance Co., Inc. to pay plaintiff, jointly and
severally, the amount of P978,582.76:
b. Defendants Rassagi and Towers Assurance
Corporation to pay plaintiff, jointly and severally, the
amount of P742,749.00.
A motion for reconsideration was filed by the defendant sureties but
the same having been denied, they filed this instant petition.
Defendant sureties, now as petitioners, contend that the trial court
erred in denying their motion to admit the amended answer and in
rendering partial summary judgment notwithstanding the fact that their
answer and that of defendant Rassagi raised valid defenses, both
legal and factual. According to petitioners, in view of the non-delivery
of the trucks to Rassagi, no credit facilities were, therefore, extended
by Citiwide Motors, Inc. to it, and in effect the promissory notes which
are the principal basis of FNCB's action, are totally lacking and short of
consideration, the maker thereof not having received anything of value
in having signed or executed the same, and are therefore null and
void, unenforceable against the petitioners. Petitioners further contend
that there is absolutely no basis for the statement of the respondent
judge that the admission of the amended answer would only delay the
proceedings for they never resorted to dilatory tactics and all
postponements were at the instance of Rassagi; and although the
defenses raised in the amended answer were only discovered after
the filing of the original answer, the motion to admit the same was
made prior to the termination of the pre-trial.
After a careful consideration of the case, we find the contentions of the
petitioners impressed with merit. The instant petition, therefore, should
be granted.
While it is true that in their amended answer, petitioners sought to alter
their own admission in their original answer by alleging that fourteen
(14) Chevrolet trucks were not actually delivered to Rassagi, such
allegation did not really alter the theory of their defense which is, that
they are not liable to FNCB.
In their original answer, petitioners and defendant Rassagi denied the
fact that the latter obtained credit facilities from Citiwide, they instead
alleged that Rassagi obtained a direct loan from FNCB. In essence,
therefore, petitioners were already raising the defense of non-liability
not on the basis of non-delivery of the subject matter of the promissory
notes but on the basis of the fact that since Rassagi obtained a direct
loan from FNCB, there was no longer any need for Citiwide to extend
credit facilities in favor of Rassagi as the former was paid immediately
upon the release of the said loan. Thus, petitioners as sureties can no
longer be bound under the contract of surety wherein they obligated
themselves solidarily with Rassagi in favor of Citiwide, in consideration
of the credit facilities that the latter was supposed to extend to
defendant Rassagi.
In essence, therefore, there was no change in the theory of herein
petitioners when they tried to amend their answer by stating that they
were not liable to FNCB because the fourteen (14) trucks which were
the subject matter of the questioned promissory notes were never
delivered by Citiwide to Rassagi although this defense was not present
in their original answer where the petitioners virtually adopted the
allegations made by Rassagi which however admitted the delivery of
the abovementioned trucks. Although as a general rule, facts alleged
in a party's pleading are deemed admissions of that party and binding
upon it, this is not an absolute and inflexible rule because an answer is
a mere statement of fact which the party filing it expects to prove, but it
is not evidence. (See Gardner v. Court of Appeals, 131 SCRA 600).
Rule 34 of the Rules of Court authorizes the rendition of a summary
judgment when, on motion for the plaintiff after the answer to the
complaint has been filed, it would appear, during the hearing of the
motion for such judgment, from the pleadings, depositions and
admissions on file, together with the affidavits that, except as to the
amount of damages, "there is no genuine issue as to any material fact
and that the winning party is entitled to a judgment as a matter of law."
(Section 3, Rule 34, Rules of Court). Conversely, the rendition of
summary judgment is not justified when the defending party tenders
vital issues which call for the presentation of evidence. (Guevarra v.
Court of Appeals, 124 SCRA 313).
It is evident from the records that the original answer filed by the
petitioners tendered a genuine issue and thus, the partial summary
judgment by the respondent court should not have been rendered.
And, even assuming that the amendment altered the theory of the
defense, justice and equity still dictate that such amendment be
allowed for if the allegations therein are proven, then the same would
altogether negate liability on the part of the petitioners, a fact which
may no longer be ventilated should we uphold the propriety of the
summary judgment. Surely, the right of the petitioners to be given the
chance to prove that the are not liable under the questioned
promissory notes is more important than the change in the theory of
the defense or the possibility of delay in the proceedings which, in this
case is only at its pre-trial stage. As we have held in the case of
Sedeco v. Court of Appeals, (1 15 SCRA 102-103):
xxx xxx xxx
... There is consequently no substantial change in the
gist of petitioners' defense and, what is of more vital
significance to the ends of justice, is that to admit the
Second Amended Answer would serve to give the
parties a full hearing on the merits of their entire
controversy and avoid multiplicity of suits. Courts
should be liberal in allowing amendments to pleadings
at any stage on the action to avoid multiplicity of suits
and in order that the real controversies between the
parties are presented, their rights determined and the
case decided on the merits without unnecessary
delay. (Demaronsing v. Tandayag, 58 SCRA 484
11974]; Shaffer v. Palma, 22 SCRA 934 [1968])
Similarly, in the case of Paman v. Diaz (116 SCRA 129), we ruled:
When the purpose of an amendment is to submit the
real matter in dispute without any intent to delay the
action, the court in its discretion, may order or allow
the amendment upon such terms as may be just.
Anything, therefore, that may preclude a party from
fully representing the facts of his case should be
brushed aside, if this can be done without unfairness
to the other party and by the means provided for by
the Rules of Court. ...
WHEREFORE, the petition is GRANTED. The partial summary
judgment and the order denying the motion for reconsideration are
hereby REVERSED and SET ASIDE. The Regional Trial Court of
Manila is directed to admit the petitioner's Amended Answer with
Affirmative and Special Defenses with Compulsory Counterclaim.

SO ORDERED.

Melencio-Herrera, Plana, Relova and Alampay, JJ., concur.

Teehankee, Acting C.J., concur in the result.

De la Fuente J., took no part.


FIRST DIVISION
G.R. No. 161135. April 8, 2005
SWAGMAN HOTELS AND TRAVEL, INC., Petitioners,
vs.
HON. COURT OF APPEALS, and NEAL B.
CHRISTIAN, Respondents.
DECISION
DAVIDE, JR., C.J.:
May a complaint that lacks a cause of action at the time it was filed be
cured by the accrual of a cause of action during the pendency of the
case? This is the basic issue raised in this petition for the Courts
consideration.
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel,
Inc., through Atty. Leonor L. Infante and Rodney David Hegerty, its
president and vice-president, respectively, obtained from private
respondent Neal B. Christian loans evidenced by three promissory
notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of
the promissory notes is in the amount of US$50,000 payable after
three years from its date with an interest of 15% per annum payable
every three months.1 In a letter dated 16 December 1998, Christian
informed the petitioner corporation that he was terminating the loans
and demanded from the latter payment in the total amount of
US$150,000 plus unpaid interests in the total amount of US$13,500. 2
On 2 February 1999, private respondent Christian filed with the
Regional Trial Court of Baguio City, Branch 59, a complaint for a sum
of money and damages against the petitioner corporation, Hegerty,
and Atty. Infante. The complaint alleged as follows: On 7 August 1996,
14 March 1997, and 14 July 1997, the petitioner, as well as its
president and vice-president obtained loans from him in the total
amount of US$150,000 payable after three years, with an interest of
15% per annum payable quarterly or every three months. For a while,
they paid an interest of 15% per annum every three months in
accordance with the three promissory notes. However, starting
January 1998 until December 1998, they paid him only an interest of
6% per annum, instead of 15% per annum, in violation of the terms of
the three promissory notes. Thus, Christian prayed that the trial court
order them to pay him jointly and solidarily the amount of US$150,000
representing the total amount of the loans; US$13,500 representing
unpaid interests from January 1998 until December 1998; P100,000
for moral damages; P50,000 for attorneys fees; and the cost of the
suit.3
The petitioner corporation, together with its president and vice-
president, filed an Answer raising as defenses lack of cause of action
and novation of the principal obligations. According to them, Christian
had no cause of action because the three promissory notes were not
yet due and demandable. In December 1997, since the petitioner
corporation was experiencing huge losses due to the Asian financial
crisis, Christian agreed (a) to waive the interest of 15% per annum,
and (b) accept payments of the principal loans in installment basis, the
amount and period of which would depend on the state of business of
the petitioner corporation. Thus, the petitioner paid Christian capital
repayment in the amount of US$750 per month from January 1998
until the time the complaint was filed in February 1999. The petitioner
and its co-defendants then prayed that the complaint be dismissed
and that Christian be ordered to pay P1 million as moral
damages; P500,000 as exemplary damages; and P100,000 as
attorneys fees.4
In due course and after hearing, the trial court rendered a decision 5 on
5 May 2000 declaring the first two promissory notes dated 7 August
1996 and 14 March 1997 as already due and demandable and that the
interest on the loans had been reduced by the parties from 15% to 6%
per annum. It then ordered the petitioner corporation to pay Christian
the amount of $100,000 representing the principal obligation covered
by the promissory notes dated 7 August 1996 and 14 March 1997,
"plus interest of 6% per month thereon until fully paid, with all interest
payments already paid by the defendant to the plaintiff to be deducted
therefrom."
The trial court ratiocinated in this wise:
(1) There was no novation of defendants obligation to the plaintiff.
Under Article 1292 of the Civil Code, there is an implied novation only
if the old and the new obligation be on every point incompatible with
one another.
The test of incompatibility between the two obligations or contracts,
according to an imminent author, is whether they can stand together,
each one having an independent existence. If they cannot, they are
incompatible, and the subsequent obligation novates the first
(Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., p. 384).
Otherwise, the old obligation will continue to subsist subject to the
modifications agreed upon by the parties. Thus, it has been written
that accidental modifications in an existing obligation do not extinguish
it by novation. Mere modifications of the debt agreed upon between
the parties do not constitute novation. When the changes refer to
secondary agreement and not to the object or principal conditions of
the contract, there is no novation; such changes will produce
modifications of incidental facts, but will not extinguish the original
obligation. Thus, the acceptance of partial payments or a partial
remission does not involve novation (id., p. 387). Neither does the
reduction of the amount of an obligation amount to a novation because
it only means a partial remission or condonation of the same debt.
In the instant case, the Court is of the view that the parties merely
intended to change the rate of interest from 15% per annum to 6% per
annum when the defendant started paying $750 per month which
payments were all accepted by the plaintiff from January 1998 onward.
The payment of the principal obligation, however, remains unaffected
which means that the defendant should still pay the plaintiff $50,000
on August 9, 1999, March 14, 2000 and July 14, 2000.
(2) When the instant case was filed on February 2, 1999, none of the
promissory notes was due and demandable. As of this date however,
the first and the second promissory notes have already matured.
Hence, payment is already due.
Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a
complaint which states no cause of action may be cured by evidence
presented without objection. Thus, even if the plaintiff had no cause of
action at the time he filed the instant complaint, as defendants
obligation are not yet due and demandable then, he may nevertheless
recover on the first two promissory notes in view of the introduction of
evidence showing that the obligations covered by the two promissory
notes are now due and demandable.
(3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante
can not be held personally liable for the obligations contracted by the
defendant corporation it being clear that they merely acted in
representation of the defendant corporation in their capacity as
General Manager and President, respectively, when they signed the
promissory notes as evidenced by Board Resolution No. 1(94) passed
by the Board of Directors of the defendant corporation (Exhibit "4"). 6
In its decision7 of 5 September 2003, the Court of Appeals denied
petitioners appeal and affirmed in toto the decision of the trial court,
holding as follows:
In the case at bench, there is no incompatibility because the changes
referred to by appellant Swagman consist only in the manner of
payment. . . .
Appellant Swagmans interpretation that the three (3) promissory notes
have been novated by reason of appellee Christians acceptance of
the monthly payments of US$750.00 as capital repayments
continuously even after the filing of the instant case is a little bit
strained considering the stiff requirements of the law on novation that
the intention to novate must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be
mistaken. Under the circumstances, the more reasonable
interpretation of the act of the appellee Christian in receiving the
monthly payments of US$750.00 is that appellee Christian merely
allowed appellant Swagman to pay whatever amount the latter is
capable of. This interpretation is supported by the letter of demand
dated December 16, 1998 wherein appellee Christian demanded from
appellant Swagman to return the principal loan in the amount of
US$150,000 plus unpaid interest in the amount of US$13,500.00
...
Appellant Swagman, likewise, contends that, at the time of the filing of
the complaint, appellee Christian ha[d] no cause of action because
none of the promissory notes was due and demandable.
Again, We are not persuaded.
...
In the case at bench, while it is true that appellant Swagman raised in
its Answer the issue of prematurity in the filing of the complaint,
appellant Swagman nonetheless failed to object to appellee Christians
presentation of evidence to the effect that the promissory notes have
become due and demandable.
The afore-quoted rule allows a complaint which states no cause of
action to be cured either by evidence presented without objection or, in
the event of an objection sustained by the court, by an amendment of
the complaint with leave of court (Herrera, Remedial Law, Vol. VII,
1997 ed., p. 108).8
Its motion for reconsideration having been denied by the Court of
Appeals in its Resolution of 4 December 2003, 9the petitioner came to
this Court raising the following issues:
I. WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO
DEFENDANTS HAS BECOME FINAL AND EXECUTORY, MAY THE
RESPONDENT COURT OF APPEALS STILL STUBBORNLY
CONSIDER THEM AS APPELLANTS WHEN THEY DID NOT
APPEAL?
ii. Where there is no cause of action, is the decision of the lower court
valid?
III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY
AFFIRM A DECISION OF THE LOWER COURT WHICH IS INVALID
DUE TO LACK OF CAUSE OF ACTION?
IV. Where there is a valid novation, may the original terms of contract
which has been novated still prevail?10
The petitioner harps on the absence of a cause of action at the time
the private respondents complaint was filed with the trial court. In
connection with this, the petitioner raises the issue of novation by
arguing that its obligations under the three promissory notes were
novated by the renegotiation that happened in December 1997
wherein the private respondent agreed to waive the interest in each of
the three promissory notes and to accept US$750 per month as
installment payment for the principal loans in the total amount of
US$150,000. Lastly, the petitioner questions the act of the Court of
Appeals in considering Hegerty and Infante as appellants when they
no longer appealed because the trial court had already absolved them
of the liability of the petitioner corporation.
On the other hand, the private respondent asserts that this petition is
"a mere ploy to continue delaying the payment of a just obligation."
Anent the fact that Hegerty and Atty. Infante were considered by the
Court of Appeals as appellants, the private respondent finds it
immaterial because they are not affected by the assailed decision
anyway.
Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of
Civil Procedure, is the act or omission by which a party violates the
right of another. Its essential elements are as follows:
1. A right in favor of the plaintiff by whatever means and under
whatever law it arises or is created;
2. An obligation on the part of the named defendant to respect or not
to violate such right; and
3. Act or omission on the part of such defendant in violation of the right
of the plaintiff or constituting a breach of the obligation of the
defendant to the plaintiff for which the latter may maintain an action for
recovery of damages or other appropriate relief.11
It is, thus, only upon the occurrence of the last element that a cause of
action arises, giving the plaintiff the right to maintain an action in court
for recovery of damages or other appropriate relief.
It is undisputed that the three promissory notes were for the amount of
P50,000 each and uniformly provided for (1) a term of three years; (2)
an interest of 15 % per annum, payable quarterly; and (3) the
repayment of the principal loans after three years from their respective
dates. However, both the Court of Appeals and the trial court found
that a renegotiation of the three promissory notes indeed happened in
December 1997 between the private respondent and the petitioner
resulting in the reduction not waiver of the interest from 15% to 6%
per annum, which from then on was payable monthly, instead of
quarterly. The term of the principal loans remained unchanged in that
they were still due three years from the respective dates of the
promissory notes. Thus, at the time the complaint was filed with the
trial court on 2 February 1999, none of the three promissory notes was
due yet; although, two of the promissory notes with the due dates of 7
August 1999 and 14 March 2000 matured during the pendency of the
case with the trial court. Both courts also found that the petitioner had
been religiously paying the private respondent US$750 per month
from January 1998 and even during the pendency of the case before
the trial court and that the private respondent had accepted all these
monthly payments.
With these findings of facts, it has become glaringly obvious that when
the complaint for a sum of money and damages was filed with the trial
court on 2 February 1999, no cause of action has as yet existed
because the petitioner had not committed any act in violation of the
terms of the three promissory notes as modified by the renegotiation in
December 1997. Without a cause of action, the private respondent
had no right to maintain an action in court, and the trial court should
have therefore dismissed his complaint.
Despite its finding that the petitioner corporation did not violate the
modified terms of the three promissory notes and that the payment of
the principal loans were not yet due when the complaint was filed, the
trial court did not dismiss the complaint, citing Section 5, Rule 10 of
the 1997 Rules of Civil Procedure, which reads:
Section 5. Amendment to conform to or authorize presentation of
evidence. When issues not raised by the pleadings are tried with
the express or implied consent of the parties, they shall be treated in
all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure to
amend does not affect the result of the trial of these issues. If evidence
is objected to at the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the merits
of the action and the ends of substantial justice will be subserved
thereby. The court may grant a continuance to enable the amendment
to be made.
According to the trial court, and sustained by the Court of Appeals, this
Section allows a complaint that does not state a cause of action to be
cured by evidence presented without objection during the trial. Thus, it
ruled that even if the private respondent had no cause of action when
he filed the complaint for a sum of money and damages because none
of the three promissory notes was due yet, he could nevertheless
recover on the first two promissory notes dated 7 August 1996 and 14
March 1997, which became due during the pendency of the case in
view of the introduction of evidence of their maturity during the trial.
Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil
Procedure is erroneous.
Amendments of pleadings are allowed under Rule 10 of the 1997
Rules of Civil Procedure in order that the actual merits of a case may
be determined in the most expeditious and inexpensive manner
without regard to technicalities, and that all other matters included in
the case may be determined in a single proceeding, thereby avoiding
multiplicity of suits.12 Section 5 thereof applies to situations wherein
evidence not within the issues raised in the pleadings is presented by
the parties during the trial, and to conform to such evidence the
pleadings are subsequently amended on motion of a party. Thus, a
complaint which fails to state a cause of action may be cured by
evidence presented during the trial.
However, the curing effect under Section 5 is applicable only if a
cause of action in fact exists at the time the complaint is filed, but the
complaint is defective for failure to allege the essential facts. For
example, if a complaint failed to allege the fulfillment of a condition
precedent upon which the cause of action depends, evidence showing
that such condition had already been fulfilled when the complaint was
filed may be presented during the trial, and the complaint may
accordingly be amended thereafter.13 Thus, in Roces v.
14
Jalandoni, this Court upheld the trial court in taking cognizance of an
otherwise defective complaint which was later cured by the testimony
of the plaintiff during the trial. In that case, there was in fact a cause of
action and the only problem was the insufficiency of the allegations in
the complaint. This ruling was reiterated in Pascua v. Court of
Appeals.15
It thus follows that a complaint whose cause of action has not yet
accrued cannot be cured or remedied by an amended or supplemental
pleading alleging the existence or accrual of a cause of action while
the case is pending.16 Such an action is prematurely brought and is,
therefore, a groundless suit, which should be dismissed by the court
upon proper motion seasonably filed by the defendant. The underlying
reason for this rule is that a person should not be summoned before
the public tribunals to answer for complaints which are immature. As
this Court eloquently said in Surigao Mine Exploration Co., Inc. v.
Harris:17
It is a rule of law to which there is, perhaps, no exception, either at law
or in equity, that to recover at all there must be some cause of
action at the commencement of the suit. As observed by counsel
for appellees, there are reasons of public policy why there should be
no needless haste in bringing up litigation, and why people who are in
no default and against whom there is yet no cause of action should not
be summoned before the public tribunals to answer complaints which
are groundless. We say groundless because if the action is immature,
it should not be entertained, and an action prematurely brought is a
groundless suit.
It is true that an amended complaint and the answer thereto take the
place of the originals which are thereby regarded as abandoned
(Reynes vs. Compaa General de Tabacos [1912], 21 Phil. 416;
Ruyman and Farris vs. Director of Lands [1916], 34 Phil., 428) and
that "the complaint and answer having been superseded by the
amended complaint and answer thereto, and the answer to the original
complaint not having been presented in evidence as an exhibit, the
trial court was not authorized to take it into account." (Bastida vs.
Menzi & Co. [1933], 58 Phil., 188.) But in none of these cases or in
any other case have we held that if a right of action did not exist when
the original complaint was filed, one could be created by filing an
amended complaint. In some jurisdictions in the United States what
was termed an "imperfect cause of action" could be perfected by
suitable amendment (Brown vs. Galena Mining & Smelting Co., 32
Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is
virtually permitted in Banzon and Rosauro vs. Sellner ([1933], 58 Phil.,
453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683); and
recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however,
which is no cause of action whatsoever cannot by amendment or
supplemental pleading be converted into a cause of action: Nihil de
re accrescit ei qui nihil in re quando jus accresceret habet.
We are therefore of the opinion, and so hold, that unless the plaintiff
has a valid and subsisting cause of action at the time his action
is commenced, the defect cannot be cured or remedied by the
acquisition or accrual of one while the action is pending, and a
supplemental complaint or an amendment setting up such after-
accrued cause of action is not permissible. (Emphasis ours).
Hence, contrary to the holding of the trial court and the Court of
Appeals, the defect of lack of cause of action at the commencement of
this suit cannot be cured by the accrual of a cause of action during the
pendency of this case arising from the alleged maturity of two of the
promissory notes on 7 August 1999 and 14 March 2000.
Anent the issue of novation, this Court observes that the petitioner
corporation argues the existence of novation based on its own version
of what transpired during the renegotiation of the three promissory
notes in December 1997. By using its own version of facts, the
petitioner is, in a way, questioning the findings of facts of the trial court
and the Court of Appeals.
As a rule, the findings of fact of the trial court and the Court of Appeals
are final and conclusive and cannot be reviewed on appeal to the
Supreme Court18 as long as they are borne out by the record or are
based on substantial evidence.19 The Supreme Court is not a trier of
facts, its jurisdiction being limited to reviewing only errors of law that
may have been committed by the lower courts. Among the exceptions
is when the finding of fact of the trial court or the Court of Appeals is
not supported by the evidence on record or is based on a
misapprehension of facts. Such exception obtains in the present
case.20
This Court finds to be contrary to the evidence on record the finding of
both the trial court and the Court of Appeals that the renegotiation in
December 1997 resulted in the reduction of the interest from 15% to
6% per annum and that the monthly payments of US$750 made by the
petitioner were for the reduced interests.
It is worthy to note that the cash voucher dated January 1998 21 states
that the payment of US$750 represents "INVESTMENT PAYMENT."
All the succeeding cash vouchers describe the payments from
February 1998 to September 1999 as "CAPITAL REPAYMENT." 22 All
these cash vouchers served as receipts evidencing private
respondents acknowledgment of the payments made by the
petitioner: two of which were signed by the private respondent himself
and all the others were signed by his representatives. The private
respondent even identified and confirmed the existence of these
receipts during the hearing. 23 Significantly, cognizant of these receipts,
the private respondent applied these payments to the three
consolidated principal loans in the summary of payments he submitted
to the court.24
Under Article 1253 of the Civil Code, if the debt produces interest,
payment of the principal shall not be deemed to have been made until
the interest has been covered. In this case, the private respondent
would not have signed the receipts describing the payments made by
the petitioner as "capital repayment" if the obligation to pay the interest
was still subsisting. The receipts, as well as private respondents
summary of payments, lend credence to petitioners claim that the
payments were for the principal loans and that the interests on the
three consolidated loans were waived by the private respondent during
the undisputed renegotiation of the loans on account of the business
reverses suffered by the petitioner at the time.
There was therefore a novation of the terms of the three promissory
notes in that the interest was waived and the principal was payable in
monthly installments of US$750. Alterations of the terms and
conditions of the obligation would generally result only in modificatory
novation unless such terms and conditions are considered to be the
essence of the obligation itself. 25 The resulting novation in this case
was, therefore, of the modificatory type, not the extinctive type, since
the obligation to pay a sum of money remains in force.
Thus, since the petitioner did not renege on its obligation to pay the
monthly installments conformably with their new agreement and even
continued paying during the pendency of the case, the private
respondent had no cause of action to file the complaint. It is only upon
petitioners default in the payment of the monthly amortizations that a
cause of action would arise and give the private respondent a right to
maintain an action against the petitioner.
Lastly, the petitioner contends that the Court of Appeals obstinately
included its President Infante and Vice-President Hegerty as
appellants even if they did not appeal the trial courts decision since
they were found to be not personally liable for the obligation of the
petitioner. Indeed, the Court of Appeals erred in referring to them as
defendants-appellants; nevertheless, that error is no cause for alarm
because its ruling was clear that the petitioner corporation was the one
solely liable for its obligation. In fact, the Court of Appeals
affirmed in toto the decision of the trial court, which means that it also
upheld the latters ruling that Hegerty and Infante were not personally
liable for the pecuniary obligations of the petitioner to the private
respondent.

In sum, based on our disquisition on the lack of cause of action when

the complaint for sum of money and damages was filed by the private
respondent, the petition in the case at bar is impressed with merit.

WHEREFORE, the petition is hereby GRANTED. The Decision of 5

September 2003 of the Court of Appeals in CA-G.R. CV No. 68109,
which affirmed the Decision of 5 May 2000 of the Regional Trial Court
of Baguio, Branch 59, granting in part private respondents complaint
for sum of money and damages, and its Resolution of 4 December
2003, which denied petitioners motion for reconsideration are hereby
REVERSED and SET ASIDE. The complaint docketed as Civil Case
No. 4282-R is hereby DISMISSED for lack of cause of action.

No costs.

SO ORDERED.

Quisumbing, Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

 The trial court thereafter set petitioner's application for preliminary
SECOND DIVISION injunction for hearing and in the meantime ordered private respondent
to desist from conducting a rebidding. At the same time, the court
granted leave to private respondent on January 4, 1990 to hire
janitorial services on a month-to-month basis to insure the
maintenance of its offices.
G.R. No. 107824 July 5, 1996
On July 24, 1991, petitioner moved for the admission of a
SUPERCLEAN SERVICES CORPORATION, petitioner, "Supplemental Complaint." 1 Petitioner alleged that because the
vs. contract of services was for the furnishing of janitorial service for the
COURT OF APPEALS and HOME DEVELOPMENT MUTUAL previous year 1990, the delay in the decision of the case had rendered
FUND, respondents. the case moot and academic "without [petitioner] obtaining complete
relief to redress the wrong committed against it by [private
respondent], which relief consists in unrealized profits, exemplary
damages and attorney's fees." Accordingly, instead of pursuing its
MENDOZA, J.:p prayer for a writ of mandamus, petitioner sought the payment of
damages to it.
The question in this case is the propriety of filing a Supplemental
Complaint in order to seek a different relief in view of developments On August 23, 1991, the trial court denied petitioner's motion, finding
rendering the original relief impossible of attainment. "no merit in and no basis supporting it" and set the continuation of the
trial on September 19, 1991.
The facts are as follows:
Petitioner filed a motion for reconsideration, but its motion was
On November 8, 1989, petitioner Superclean Services filed with the likewise denied. In its order dated November 25, 1991, the trial court
Regional Trial Court of Manila a complaint said that admission of the "Supplemental Complaint" would "not only
forMandamus/Certiorari with Preliminary Injunction And/Or Restraining radically but substantially [change] the issues" by "materially var[ying]
Order against private respondent Home Development and Mutual the grounds of relief, and would operate unjustly to the prejudice of the
Fund. Petitioner alleged that at the public bidding for janitorial services rights of [private respondent]."
for the year 1990 it was the "lowest or best bidder," but private
respondent refused without just cause to award the contract to it and Petitioner filed a petition for certiorari in the Court of Appeals which, on
instead caused the publication on October 23, 1989 of a Notice of August 5, 1992, rendered a decision, finding no grave abuse of
Rebidding to be held on November 9, 1989. discretion to have been committed by the trial court in not admitting
petitioner's "Supplemental Complaint" and denying the motion for
In its answer private respondent defended its action on the ground that reconsideration of its order. Its ruling was based on the fact that the
not a single bid submitted complied with the terms and conditions relief sought in the "Supplemental Complaint" was different from that
agreed upon in the pre-bidding conference held on September 6, contained in the original complaint which sought to compel private
1989. respondent to recognize petitioner as the lowest qualifying bidder. In
addition, the appellate court held that the original complaint had been
rendered moot and academic by supervening events and that a
supplemental complaint was inappropriate since "supplemental
pleadings are meant to supply the deficiency in aid of the original
pleading, not to entirely substitute the latter."
Petitioner moved for a reconsideration, but its motion was denied in a
resolution of the Court of Appeals dated October 30, 1992. Hence, this
petition for review on certiorari.
First. The "Supplemental Complaint" appears to have been filed under
Rule 10 of the Rules of Court which provides:
6 Matters Subject of Supplemental Pleadings. --
Upon motion of a party the court may, upon
reasonable notice and upon such terms as are just,
permit him to serve a supplemental pleading setting
forth transactions, occurrence or events which have
happened since the date of the pleading sought to be
supplemented. If the court deems it advisable that the
adverse party should plead thereto, it shall so order,
specifying the time therefor.
The transaction, occurrence or event happening since the filing of the
pleading, which is sought to be supplemented, must be pleaded in aid
of a party's right or defense as the case may be. 2 But in the case at
bar, the supervening event is not invoked for that purpose but to justify
the new relief sought.
To begin with, what was alleged as a supervening event causing
damage to petitioner was the fact that the year for which the contract
should have been made had passed without the resolution of the case.
Only incidentally was it claimed that because of the award of a
contract for janitorial services, on a month-to-month basis to a third
party, petitioner failed to realize profits. In its "Supplemental
Complaint" petitioner alleged:
1. Supervening events not attributable to anybody
which consist in the delay in the early disposition of
the case within the one (1) year period life span of the
contract for janitorial services, have rendered the
case moot and academic, without plaintiff obtaining
complete relief to redress the wrong committed
against it by defendant, which is the unjustified and/or
unlawful refusal of defendant to recognize plaintiff as
the lowest qualifying bidder for janitorial services for
the year 1990;
2. By reason of the unjustified refusal of defendant to
recognize the result of the public bidding held in
September 1989 and to award to plaintiff the contract
for janitorial services as the lowest qualifying bidder
favorable and advantageous to the defendant for the
year 1990, and by hiring another entity to perform
janitorial services during the pendency of the suit,
plaintiff suffered unrealized profits in the sum of
P158,117.28;
The supervening event was therefore cited not to reinforce or aid the
original demand, which was for the execution of a contract in
petitioner's favor, but to say that, precisely because of it, petitioner's
demand could no longer be enforced, thus justifying petitioner in
changing the relief sought to one for recovery of damages. This being
the case, petitioner's remedy was not to supplement, but rather to
amend its complaint.
Indeed the new relief sought (payment of damages in lieu of an award
of the contract for janitorial services) is actually an alternative remedy
to which petitioner was entitled even before at the time of the filing of
its original complaint. If petitioner was entitled to the award of the
contract, as it claimed it was, it could have asked either for an award
of the contract for janitorial services or for damages. The fact that it
opted for the first does not preclude it from subsequently claiming
damages because through no fault of its own, the year passed without
an award in its favor, with the result that it could no longer demand the
execution of a contract in its favor after that year.
Be that as it may, the so-called Supplemental Complaint filed by
petitioner should simply be treated as embodying amendments to the
original complaint or petitioner may be required to file an amended
complaint.
Second. But, it is contended, such an amendment of the complaint
would change the theory of the case. Three reasons were cited by the
Court of Appeals why it thought the trial court correctly refused to
admit the so-called Supplemental Complaint of petitioner: (1) change
in the reliefs prayed for; (2) change in the issues of the case; and (3)
prejudice to the rights of private respondent.
The contention has no merit. An amendment to change the relief
sought does not change the theory of a case. What is prohibited is a
change in the cause of action. Thus in Arches v. Villarruz, 3 it was held:
The lower court denied the admission of the amended
complaint on the ground that the plaintiff therein has
changed the action alleged in the original complaint,
but upon comparing the two complaints, we find that,
essentially, there was no change of action for, in both
the original and the amended complaints, the action
was for the collection of the value of the same
promissory notes and the only difference between the
original and the amended complaints is with regard to
the consideration of said promissory notes, for while in
the original complaint it was alleged that these were
executed by defendant Villarruz for money obtained
from plaintiff Arches and with which the former paid for
labor and materials for the construction and
completion of the Ivisan Bridge, in the amended
complaint it was alleged that said promissory notes
were executed for materials supplied to William
Villarruz and actually used in the construction of the
Ivisan Bridge. While the rule allowing amendments to
a pleading is subject to the general limitation that the
cause of action should not be substantially changed or
that the theory of the case should not be altered, in
the furtherance of justice, amendments to a pleading
should be favored and the rules thereon should be
liberally construed. In the present case, we find
justification for allowing the admission of the amended
complaint in order that the real question between the
parties may be properly and justly threshed out, in a
single proceeding, and thus avoid multiplicity of
actions.
In Vda. de Villaruel v. Manila Motor Co., Inc., 4 plaintiffs, as lessors of a
property, filed an action for the rescission of the contract of lease for
alleged refusal of defendants to pay rentals. While the case was
pending, the buildings leased were destroyed by fire. Plaintiffs filed a
supplemental complaint for the recovery of the value of the burned
buildings. In holding the supplemental complaint proper, this Court
held:
This action was inceptionally instituted for the
rescission of the contract of lease and for the recovery
of unpaid rentals before and after liberation. When the
leased buildings were destroyed, the plaintiffs-lessors
demanded from the defendants-lessees, instead, the
value of the burned premises, basing their right to do
so on defendants' alleged default in the payment of
post-liberation rentals (which was also their basis in
formerly seeking for rescission). This cannot be
considered as already altering the theory of the case
which is merely a change in the relief prayed for,
brought about by circumstances occurring during the
pendency of the action, and is not improper. (Southern
Pacific Co. vs. Conway, 115 F. 2d 746; Suburban
Improvement Company vs. Scott Lumber Co., 87
A.L.R. 555, 59 F. 2d 711). The filing of the
supplemental complaint can well be justified also
under Section 2, Rule 17 of the Rules of Court (on
amendments) "to the end that the real matter in
dispute and all matters in the action in dispute
between the parties may, as far as possible be
completely determined in a single proceeding". It is to
be noted furthermore, that the admission or rejection
of this kind of pleadings is within the sound discretion
of the court that will not be disturbed on appeal in the
absence of abuse thereof (see Sec. 5, Rule 17, Rules
of Court), especially so, as in this case, where no
 substantial procedural prejudice is caused to the
adverse party. 5
In this case, the original complaint for Mandamus/Certiorari With
Preliminary Injunction And/Or Restraining Order alleged, as cause of
action, private respondent's unjustifiable refusal to award the contract
to petitioner despite the fact that the latter was the "lowest and best
qualifying bidder." On the basis of this allegation, it was prayed that:
1. Upon filing [of] this Complaint, a restraining order
be issued to enjoin [private respondent] from
implementing [or] proceeding with its Notice of
Rebidding which is scheduled on November 9, 1989
at 10:00 A.M.;
2. After trial on the merits, judgment be rendered
a. ordering [private respondent] to
recognize [petitioner] as the lowest
qualifying responsive bidder at the
public bidding held on September 22,
1989 and therefore its right to the
award of the contract for janitorial
services;
b. declaring that [private respondent]
in publishing its "Notice of Rebidding"
acted with grave abuse of discretion
amounting to excess and/or lack of
jurisdiction;
c. declaring the restraining order or
temporary writ of injunction to be
permanent; and
d. for costs of suit.
These same allegations constitute petitioner's cause of action for
damages, to wit:
1. the sum of P158,117.28 as unrealized profits;
2. the sum of P50,000.00 as exemplary damages;
3. the sum equivalent to twenty-five (25%) percent of
the total amount due and demandable, plus P1,000.00
for every appearance of counsel in court;
4. the costs of suit.
As already stated, the change in the relief sought was necessitated by
a supervening event which rendered the first relief sought impossible
of attainment.
Because the cause of action on which the complaint
for mandamus and injunction and the so-called Supplemental
Complaint are based is one and the same, the issue raised is the
same, namely, whether private respondent was justified in refusing to
award the contract for janitorial services to petitioner.
Nor would admission of the amended complaint prejudice the rights of
private respondent as defendant in the action below, as the Court of
Appeals held. Indeed neither the trial court nor the appellate court
showed in what way the rights of private respondent would be
prejudiced by the allowance of the amendment in question. There will
be no unfairness or surprise to private respondent, because after all
private respondent will have a right to file an amended answer and
present evidence in support thereof. 6
Third. The Court of Appeals also held that the action
for mandamus and/or injunction had become moot and academic and
consequently there was no longer any complaint to be supplemented.
It is true that a supplemental or an amended pleading presupposes the
existence of a pleading. What was rendered moot and academic,
however, was not petitioner's cause of action but only its prayer for the
writ of mandamus. There was still an alternative remedy left to
petitioner of seeking damages in lieu of an award of the contract. The
situation is similar to an action for illegal dismissal in labor law. If
reinstatement is no longer possible, because the position has been
abolished and there is no way the dismissed employee can be
reinstated to a comparable position, the employee's action is not
thereby rendered moot and academic. He can instead ask for
separation pay.

Indeed, what is important is that, as already stated, the basic

allegations of fact in the original and in the amended complaints are
the same, namely, that private respondent, without justification,
refused to award the contract of services to petitioner. Through no fault
of petitioner, the year for which janitorial services were to be rendered
expired without the resolution of petitioner's case. It would be to exalt
technicality over substance to require that petitioner file a new
complaint. It would best serve the interests of justice if the so-called
Supplemental Complaint is simply considered as embodying
amendments to the original complaint. In fact it appears that the court
ordered a continuation of the trial on September 19, 1991, despite
petitioner's statement in its Supplemental Complaint that the original
case had become moot and academic.

WHEREFORE, the decision of the Court of Appeals is REVERSED

and the case is REMANDED to the trial court with instructions to admit
the "Supplemental Complaint" and to treat it as an amendment to the
original complaint or to require petitioner to file an amended complaint,
merging the relevant allegations of its original complaint and
"Supplemental Complaint," and thereafter to allow private respondent
to file an answer.

SO ORDERED.

Regalado, Romero and Puno, JJ., concur.

Torres, Jr., J., took no part.