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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; 100,000 for moral damages; 50,000 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 1 million as moral damages; 500,000 as exemplary damages; and 100,000 as attorneys fees.4

In due course and after hearing, the trial court rendered a decision5 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 2003,9
the 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. Jalandoni,14 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 199821 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.

G.R. No. 188051 November 22, 2010

ASIA UNITED BANK, Petitioner,


vs.
GOODLAND COMPANY, INC., Respondent.

DECISION

NACHURA, J.:

Petitioner assails the February 16, 2009 Decision1 and the May 18, 2009 Resolution2 of the Court
of Appeals (CA) in CA-G.R. SP No. 103304, annulling the August 23, 20073 and February 15,
20084 Orders of the Regional Trial Court (RTC) of Makati City, Branch 150, which in turn
denied due course to respondent Goodland Company, Inc.s (GOODLAND) notice of appeal for
invalid substitution of counsel.

The antecedents:

An Ex-Parte Application/Petition for the Issuance of Writ of Possession5 was filed by Asia
United Bank (AUB) over a 5,801-square- meter lot located in Makati City and covered by
Transfer Certificate of Title (TCT) No. 223120 of the Registry of Deeds of Makati in AUBs
name. The property was previously registered in the name of GOODLAND under TCT No.
192674 (114645).

The petition alleged that, on February 20, 2000, GOODLAND executed a Third Party Real
Estate Mortgage on the property in favor of AUB to secure the 202 million credit
accommodation extended by the latter to Radiomarine Network (Smartnet) Inc. (Radiomarine).

When Radiomarine defaulted in the payment of its obligation, AUB instituted extrajudicial
foreclosure proceedings against the real estate mortgage. At the public auction sale held on
December 4, 2006, AUB was declared the highest bidder. On the same date, a Certificate of Sale
was issued in its name and registered with the Registry of Deeds of Makati City.

With the expiration of the redemption period, AUB proceeded to execute an Affidavit of
Consolidation of Ownership, through its First Vice-President, Florante del Mundo. AUB
thereafter secured a Certificate Authorizing Registration from the Bureau of Internal Revenue to
facilitate the transfer of the title.

On December 8, 2006, TCT No. 192674 (114645) was cancelled and, in lieu thereof, TCT No.
223120 was issued in the name of AUB.

GOODLAND, through its counsel, Atty. Antonio Bautista (Atty. Bautista), opposed the petition,
denying that it executed the real estate mortgage. GOODLAND further averred that the signature
of the notary public appearing on the deed was a forgery, and that no technical description of the
property supposedly mortgaged was indicated therein. Concluding that AUBs title was derived
from the foreclosure of a fake mortgage, GOODLAND prayed for the petitions denial.6

On March 1, 2007, the RTC issued the writ of possession sought by AUB. It ratiocinated that, as
the purchaser of the property at the foreclosure sale and as the new title holder thereof, AUBs
right of possession and enjoyment of the same had become absolute.7

GOODLAND, through its counsel on record, Atty. Bautista, filed a motion for reconsideration8
and a supplemental motion for reconsideration,9 but both were denied in the Order10 dated April
25, 2007, which was received by Atty. Bautista on June 15, 2007.11

Relentless, GOODLAND sought recourse with the CA by initially filing a Notice of Appeal12
with the RTC, through a certain Atty. Lito Mondragon (Atty. Mondragon) of the Mondragon &
Montoya Law Offices. On August 23, 2007, the RTC issued an Order13 denying due course to
GOODLANDs notice of appeal for being legally inutile due to Atty. Mondragons failure to
properly effect the substitution of former counsel on record, Atty. Bautista. GOODLAND moved
for reconsideration, but the same was denied in the Order dated February 15, 2008.14

GOODLAND elevated the incident to the CA by way of a special civil acton for certiorari. In its
February 16, 2009 Decision, the CA granted the petition and directed the RTC to give due course
to the notice of appeal, thus:

WHEREFORE, the petition is hereby GRANTED. The assailed Orders dated August 23, 2007
and February 15, 2008 of the Regional Trial Court, Branch 150, Makati City are ANNULLED
and SET ASIDE. The trial court is DIRECTED to give due course to petitioners Notice of
Appeal.

SO ORDERED.15

Aggrieved, AUB moved for reconsideration, but the CA denied the motion in its Resolution
dated May 18, 2009. Hence, the present petition for review on certiorari,16 praying for the
reinstatement of the RTC Order.

The petition is meritorious.

Under Rule 138, Section 26 of the Rules of Court, for a substitution of attorney to be effectual,
the following essential requisites must concur: (1) there must be a written application for
substitution; (2) it must be filed with the written consent of the client; (3) it must be with the
written consent of the attorney substituted; and (4) in case the consent of the attorney to be
substituted cannot be obtained, there must at least be proof of notice that the motion for
substitution was served on him in the manner prescribed by the Rules of Court. 17

The courts a quo were uniform and correct in finding that Atty. Mondragon failed to observe the
prescribed procedure and, thus, no valid substitution of counsel was actualized. However, they
took divergent postures as to the repercussion of such non-compliance, thereby igniting the
herein controversy.

The RTC strictly imposed the rule on substitution of counsel and held that the notice of appeal
filed by Atty. Mondragon was a mere scrap of paper.lawphi1

However, relying on our pronouncement in Land Bank of the Philippines v. Pamintuan


Development Co.,18 the CA brushed aside the procedural lapse and took a liberal stance on
considerations of substantial justice, viz.:

It is a far better and more prudent course of action for the court to excuse a technical lapse and
afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of
the case on technicality and cause a grave injustice to the parties, giving a false impression of
speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice.
Thus, substantial justice would be better served by giving due course to petitioners notice of
appeal.19

AUB argues that the liberality applied by the Court in Land Bank is incompatible with the herein
controversy, and that Pioneer Insurance and Surety Corporation v. De Dios Transportation Co.,
Inc.,20 which espouses the same view adopted by the RTC, is more appropriate.

GOODLAND, on the other hand, insists that the CA committed no reversible error in ordering
that the notice of appeal be allowed in order not to frustrate the ends of substantial justice.

We agree with AUB. A revisit of our pronouncements in Land Bank and Pioneer is in order.

In Land Bank, we held that the Department of Agrarian Reform Adjudication Board gravely
abused its discretion when it denied due course to the Notice of Appeal and Notice of Entry of
Appearance filed by petitioners new counsel for failure to effect a valid substitution of the
former counsel on record.

We clarified that the new counsel never intended to replace the counsel of record because,
although not so specified in the notice, they entered their appearance as collaborating counsel.
Absent a formal notice of substitution, all lawyers who appear before the court or file pleadings
in behalf of a client are considered counsel of the latter. We pursued a liberal application of the
rule in order not to frustrate the just, speedy, and inexpensive determination of the controversy.

In Pioneer, we adopted a strict posture and declared the notice of withdrawal of appeal filed by
appellants new counsel as a mere scrap of paper for his failure to file beforehand a motion for
the substitution of the counsel on record.

Provoking such deportment was the absence of a special power of attorney authorizing the
withdrawal of the appeal in addition to the lack of a proper substitution of counsel. More
importantly, we found that the withdrawal of the appeal was calculated to frustrate the
satisfaction of the judgment debt rendered against appellant, thereby necessitating a rigid
application of the rules in order to deter appellant from benefiting from its own deleterious
manipulation thereof.

The emerging trend of jurisprudence is more inclined to the liberal and flexible application of the
Rules of Court. However, we have not been remiss in reminding the bench and the bar that
zealous compliance with the rules is still the general course of action. Rules of procedure are in
place to ensure the orderly, just, and speedy dispensation of cases;21 to this end, inflexibility or
liberality must be weighed. The relaxation or suspension of procedural rules or the exemption of
a case from their operation is warranted only by compelling reasons or when the purpose of
justice requires it.22

As early as 1998, in Hon. Fortich v. Hon. Corona,23 we expounded on these guiding principles:

Procedural rules, we must stress, should be treated with utmost respect and due regard since they
are designed to facilitate the adjudication of cases to remedy the worsening problem of delay in
the resolution of rival claims and in the administration of justice. The requirement is in
pursuance to the bill of rights inscribed in the Constitution which guarantees that "all persons
shall have a right to the speedy disposition of their cases before all judicial, quasi-judicial and
administrative bodies." The adjudicatory bodies and the parties to a case are thus enjoined to
abide strictly by the rules. While it is true that a litigation is not a game of technicalities, it is
equally true that every case must be prosecuted in accordance with the prescribed procedure to
ensure an orderly and speedy administration of justice. There have been some instances wherein
this Court allowed a relaxation in the application of the rules, but this flexibility was "never
intended to forge a bastion for erring litigants to violate the rules with impunity." A liberal
interpretation and application of the rules of procedure can be resorted to only in proper cases
and under justifiable causes and circumstances.

In Sebastian v. Hon. Morales,24 we straightened out the misconception that the enforcement of
procedural rules should never be permitted if it would prejudice the substantive rights of
litigants:

Under Rule 1, Section 6 of the 1997 Rules of Civil Procedure, liberal construction of the rules is
the controlling principle to effect substantial justice. Thus, litigations should, as much as
possible, be decided on their merits and not on technicalities. This does not mean, however, that
procedural rules are to be ignored or disdained at will to suit the convenience of a party.
Procedural law has its own rationale in the orderly administration of justice, namely, to ensure
the effective enforcement of substantive rights by providing for a system that obviates
arbitrariness, caprice, despotism, or whimsicality in the settlement of disputes. Hence, it is a
mistake to suppose that substantive law and procedural law are contradictory to each other, or as
often suggested, that enforcement of procedural rules should never be permitted if it would result
in prejudice to the substantive rights of the litigants.

x x x. Hence, rules of procedure must be faithfully followed except only when for persuasive
reasons, they may be relaxed to relieve a litigant of an injustice not commensurate with his
failure to comply with the prescribed procedure. x x x.
Indeed, the primordial policy is a faithful observance of the Rules of Court, and their relaxation
or suspension should only be for persuasive reasons and only in meritorious cases, to relieve a
litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying
with the procedure prescribed.25 Further, a bare invocation of "the interest of substantial justice"
will not suffice to override a stringent implementation of the rules.26

A reading of the CAs Decision readily shows that the leniency it granted GOODLAND was
merely anchored on substantial justice. The CA overlooked GOODLANDs failure to advance
meritorious reasons to support its plea for the relaxation of Rule 138, Section 26. The fact that
GOODLAND stands to lose a valuable property is inadequate to dispense with the exacting
imposition of a rather basic rule.

More importantly, the CA failed to realize that the ultimate consequences that will come about
should GOODLANDs appeal proceed would in fact contravene substantial justice. The CA and,
eventually, this Court will just re-litigate an otherwise non-litigious matter and thereby
compound the delay GOODLAND attempts to perpetrate in order to prevent AUB from
rightfully taking possession of the property.

It is a time-honored legal precept that after the consolidation of titles in the buyer's name, for
failure of the mortgagor to redeem, entitlement to a writ of possession becomes a matter of
right.27 As the confirmed owner, the purchasers right to possession becomes absolute.28 There is
even no need for him to post a bond,29 and it is the ministerial duty of the courts to issue the same
upon proper application and proof of title.30 To accentuate the writs ministerial character, the
Court has consistently disallowed injunction to prohibit its issuance despite a pending action for
annulment of mortgage or the foreclosure itself.31

The nature of an ex parte petition for issuance of the possessory writ under Act No. 3135 has
been described as a non-litigious proceeding and summary in nature.32 As an ex parte
proceeding, it is brought for the benefit of one party only, and without notice to or consent by
any person adversely interested.33

Subsequent proceedings in the appellate courts would merely involve a reiteration of the
foregoing settled doctrines. The issue involved in the assailed RTC issuances is conclusively
determined by the above cited legal dictum, and it would be unnecessarily vexatious and unjust
to allow the present controversy to undergo protracted litigation.

AUBs right of possession is founded on its right of ownership over the property which it
purchased at the auction sale. Upon expiration of the redemption period and consolidation of the
title to the property, its possessory rights over the same became absolute. We quote with approval
the pronouncement of the RTC, viz.:

As the purchaser of the property in the foreclosure sale to which new title has already been
issued, petitioners right over the property has become absolute, vesting upon it the right of
possession and enjoyment of the property which this Court must aid in effecting its delivery.
Under the circumstances, and following established doctrine, the issuance of a writ of possession
is a ministerial function whereby the court exercises neither discretion nor judgment x x x. Said
writ of possession must be enforced without delay x x x.34

The law does not require that a petition for a writ of possession be granted only after
documentary and testimonial evidence shall have been offered to and admitted by the court.35 As
long as a verified petition states the facts sufficient to entitle petitioner to the relief requested, the
court shall issue the writ prayed for.36

Given the foregoing, we are bound to deny a liberal application of the rules on substitution of
counsel and resolve definitively that GOODLANDs notice of appeal merits a denial, for the
failure of Atty. Mondragon to effect a valid substitution of the counsel on record. Substantial
justice would be better served if the notice of appeal is disallowed. In the same way that the
appellant in Pioneer was not permitted to profit from its own manipulation of the rules on
substitution of counsel, so too can GOODLAND be not tolerated to foster vexatious delay by
allowing its notice of appeal to carry on.

WHEREFORE, premises considered, the petition is GRANTED. The February 16, 2009
Decision and the May 18, 2009 Resolution of the Court of Appeals are hereby ANNULLED and
SET ASIDE; and the August 23, 2007 and February 15, 2008 Orders of the Regional Trial Court
of Makati City, Branch 150, are REINSTATED.

SO ORDERED.

G.R. No. 166302. July 28, 2005

LOTTE PHIL. CO., INC., Petitioners,


vs.
ERLINDA DELA CRUZ, LEONOR MAMAUAG, LOURDES CAUBA, JOSEPHINE
DOMANAIS, ARLENE CAGAYAT, AMELITA YAM, VIVIAN DOMARAIS, MARILYN
ANTALAN, CHRISTOPHER RAMIREZ, ARNOLD SAN PEDRO, MARISSA SAN
PEDRO, LORELI JIMENEZ, JEFFREY BUENO, CHRISTOPHER CAGAYAT,
GERARD CABILES, JOAN ENRIQUEZ, JOSEPH DE LA CRUZ, NELLY CLERIGO,
DULCE NAVARETTE, ROWENA BELLO, DANIEL RAMIREZ, AILEEN BAUTISTA
and BALTAZAR FERRERA, Respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari1 assails the July 9, 2004 decision2 of the Court of Appeals
in CA-G.R. SP No. 72732 and its November 26, 2004 resolution3 denying reconsideration
thereof.

The established facts of this case are as follows:


Private respondent (petitioner herein) Lotte Phils., Inc. (Lotte) is a domestic corporation.
Petitioners (respondents herein) are among those who were hired and assigned to the
confectionery facility operated by private respondent.

On December 14, 1995 and yearly thereafter until the year 2000 7J Maintenance and
Janitorial Services ("7J") entered into a contract with private respondent to provide manpower
for needed maintenance, utility, janitorial and other services to the latter. In compliance with the
terms and conditions of the service contract, and to accommodate the needs of private respondent
for personnel/workers to do and perform "piece works," petitioners, among others, were hired
and assigned to private respondent as repackers or sealers.

However, either in October, 1999 or on February 9, 2000, private respondent dispensed with
their services allegedly due to the expiration/termination of the service contract by respondent
with 7J. They were either told "hwag muna kayong pumasok at tatawagan na lang kung may
gawa"; or were asked to wait "pag magrereport sila sa trabaho." Unfortunately, petitioners were
never called back to work again.

Aggrieved, petitioners lodged a labor complaint against both private respondent Lotte and 7J, for
illegal dismissal, regularization, payment of corresponding backwages and related employment
benefits, 13th month pay, service incentive leave, moral and exemplary damages and attorneys
fees based on total judgment award.4

On February 28, 2001, Labor Arbiter Cresencio G. Ramos, Jr., rendered judgment5 declaring 7J
as employer of respondents.6 The arbiter also found 7J guilty of illegal dismissal7 and ordered to
reinstate respondents,8 pay P2,374,710.00 as backwages, P713,648.00 as 13th month pay and
P117,000.00 as service incentive leave pay.9

Respondents appealed to the National Labor Relations Commission (NLRC) praying that Lotte
be declared as their direct employer because 7J is merely a labor-only contractor. In its decision10
dated April 24, 2002, the NLRC found no cogent reason to disturb the findings of the labor
arbiter and affirmed its ruling that 7J is the employer of respondents and solely liable for their
claims.

Respondents motion for reconsideration was denied by the NLRC in a resolution dated June 18,
2002.

Undaunted, they filed a petition for certiorari in the Court of Appeals11 against the NLRC and
Lotte, insisting that their employer is Lotte and not 7J.

Lotte, however, denied that respondents were its employees. It prayed that the petition be
dismissed for failure to implead 7J who is a party interested in sustaining the proceedings in
court, pursuant to Section 3, Rule 46 of the Revised Rules of Civil Procedure.

On July 9, 2004, the Court of Appeals reversed and set aside the rulings of the Labor Arbiter and
the NLRC. In its decision, the Court of Appeals declared Lotte as the real employer of
respondents and that 7J who engaged in labor-only contracting was merely the agent of Lotte.
Respondents who performed activities directly related to Lottes business were its regular
employees under Art. 280 of the Labor Code. As such, they must be accorded security of tenure
and their services terminated only on "just" and "authorized" causes.

Lottes motion for reconsideration was denied, hence this petition, on the following issues:

8. Whether or not petitioner herein had the burden of proof to establish before the proceedings in
the Court of Appeals that 7J Maintenance and Janitorial Service was not a labor-only contractor.

8.1. Whether or not the Petition in CA-G.R. SP No. 72732 is dismissible for failure to comply
with Section 3, Rule 46 in relation to Section 5, Rule 65 of the 1997 Rules of Civil Procedure.12

We first resolve the procedural issue raised by petitioner. Lotte asserts that 7J is an indispensable
party and should have been impleaded in respondents petition in the Court of Appeals. It claims
that the petition before the Court of Appeals was dismissible for failure to comply with Section
3,13 Rule 46 in relation to Section 514 of Rule 65 of the Revised Rules of Civil Procedure.

Petitioners contention is tenable.

An indispensable party is a party in interest without whom no final determination can be had of
an action,15 and who shall be joined either as plaintiffs or defendants.16 The joinder of
indispensable parties is mandatory.17 The presence of indispensable parties is necessary to vest
the court with jurisdiction, which is "the authority to hear and determine a cause, the right to act
in a case".18 Thus, without the presence of indispensable parties to a suit or proceeding, judgment
of a court cannot attain real finality.19 The absence of an indispensable party renders all
subsequent actions of the court null and void for want of authority to act, not only as to the
absent parties but even as to those present.20

In the case at bar, 7J is an indispensable party. It is a party in interest because it will be affected
by the outcome of the case. The Labor Arbiter and the NLRC found 7J to be solely liable as the
employer of respondents. The Court of Appeals however rendered Lotte jointly and severally
liable with 7J who was not impleaded by holding that the former is the real employer of
respondents. Plainly, its decision directly affected 7J.

In Domingo v. Scheer,21 we held that the non-joinder of indispensable parties is not a ground for
the dismissal of an action22 and the remedy is to implead the non-party claimed to be
indispensable.23 Parties may be added by order of the court on motion of the party or on its own
initiative at any stage of the action and/or such times as are just. If the petitioner refuses to
implead an indispensable party despite the order of the court, the latter may dismiss the
complaint/petition for the petitioner/plaintiffs failure to comply therefor.24

Although 7J was a co-party in the case before the Labor Arbiter and the NLRC, respondents
failed to include it in their petition for certiorari in the Court of Appeals. Hence, the Court of
Appeals did not acquire jurisdiction over 7J. No final ruling on this matter can be had without
impleading 7J, whose inclusion is necessary for the effective and complete resolution of the case
and in order to accord all parties with due process and fair play.
In light of the foregoing, the Court sees no need to discuss the second issue raised by petitioner.

WHEREFORE, the July 9, 2004 decision of the Court of Appeals in CA-G.R. SP No. 72732
and the November 26, 2004 resolution, are SET ASIDE. Let the case be REMANDED to the
Court of Appeals to include 7J Maintenance and Janitorial Services as an indispensable party to
the case for further proceedings.

SO ORDERED.

[G.R. NO. 161955 : August 31, 2005]

CELEDONIO MOLDES, ROSITA MOLDES and CAROLINA CEDIA, Petitioners, v.


TIBURCIO VILLANUEVA, APOLONIO VILLANUEVA, MANUEL VILLANUEVA,
MARIANO DULLAVIN, RONALDO DULLAVIN and TEODORA DULLAVIN,
Respondent.

DECISION

CALLEJO, SR., J.:

This is a Petition for Review on Certiorariof the Decision1 of the Court of Appeals (CA) and its
Resolution2 in CA-G.R. CV No. 47518.

The Antecedents

The spouses Juan Mollet and Silvina Del Monte were the owners of three parcels of land then
located in the Municipality of Taguig (now a part of Muntinlupa City) identified as Lot Nos. 589,
590 and 591. The lots had a total area of 3,600 square meters, covered by Transfer Certificate of
Title (TCT) No. 2180 issued by the Register of Deeds of Rizal. Their daughter, Josefa, died
intestate on November 24, 1918 at the age of 25. Juan Mollet died intestate on January 30, 1934
and his widow died also, intestate, on March 22, 1948. They were survived by their daughter
Romana Mollet, who married Andres Gelardo.3 Romana and Andres were blessed with five
children, namely, Flaviana, Brigida, Maria, Isaac and Leonila, all surnamed Gelardo.4 Flaviana
married Manuel Villanueva, and their marriage produced four offsprings, namely, Apolinario,
Tiburcio, Manuel and Juanita (now deceased), all surnamed Villanueva.5 Juanita married
Cornelio Maritana. The couple begot five children, namely, Luis, Orlando, Normita, Diego, and
Julieta, all surnamed Maritima.

Brigida married Mariano Dullavin and they had two children, Rolando and Teodora, both
surnamed Dullavin.6 Maria married Primo Tolentino and the couple had two children, Hermino
and Carolyn.7 Leonila married Delfin Malacca and they had two sons, Gelardo and Marcial.8
Isaac died a bachelor and without any issue.9
On March 17, 1965, a document denominated as Deed of Extrajudicial Settlement with
Quitclaim10 covering Lot Nos. 589, 590 and 591 was executed by Maria and Leonila, surnamed
Gelardo, Mariano Dullavin, Manuel, Juanita, Tiburcio and Apolonio, all surnamed Villanueva,
and Emeterio, Celedonio, Domingo, Rosita and Carolina, all surnamed Moldes.

Lot 589 was divided as follows: Maria Gelardo, - share; Emeterio Moldes, Domingo Moldes,
Celedonio Moldes, Rosita Moldes, and Carolina Moldes Cedia, - share. It appears that the
Villanueva siblings (Manuel, Tiburcio, Apolonio and Juanita) waived their - share in favor of the
Moldeses and Carolina.

Lot 590 was adjudicated as follows: Lot 590-B entirely to Leonila Gelardo; Lot 590-C was
allotted to Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita Moldes, and Carolina
Moldes Cedia; Lot 590-D was given to Maria Gelardo, Leonila Gelardo, Mariano Dullavin,
Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita Moldes, and Carolina Moldes
Cedia.

It appears that Mariano Dullavin and the Villanueva siblings waived their respective shares in
Lot 590-B in favor of Leonila Gelardo; in Lot 590-C, to Emeterio Moldes, Domingo Moldes,
Celedonio Moldes, Rosita Moldes, and Carolina Moldes Cedia; and, again in Lot D in favor of
Maria Gelardo, Leonila Gelardo, Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita
Moldes, and Carolina Moldes Cedia.

Lot 591 was partitioned as follows: - share of Lot 591-A to Leonila Gelardo; - share of Lot 591-
A to Maria Gelardo; and Lot Nos. 591-B and 591-C to Celedonio Moldes.

It appears that Emeterio Moldes, Domingo Moldes, Rosita Moldes, Apolonio Moldes and
Carolina Moldes Cedia, the Villanueva siblings, and Mariano Dullavin waived all their
respective rights to the - share of Lot 591-A given to Leonila Gelardo; to the - share of Lot 591-A
given to Maria Gelardo; and to Lot Nos. 591-B and 591-C awarded to Celedonio Moldes.

On January 26, 1987, Manuel Villanueva and his children, namely, Tiburio and Apolonio, and
Mariano Dullavin and his children, namely, Rolando and Teodora, filed a Complaint with the
Regional Trial Court (RTC) of Makati against Celedonio, Rosita and Carolina Cedia, all
surnamed Moldes, to annul the Deed of Extrajudicial Settlement with Quitclaim. The complaint
contained the following prayer:

WHEREFORE, it is most respectfully prayed of this Honorable Court to:

1. Order the rescission of the Extrajudicial Settlement with Quitclaim (Annex "B");

2. Order the defendants to pay plaintiffs the following:

a) Moral damages in the sum of P100,000;

b) Exemplary damages in the sum of P50,000;


c) Attorney's fee of P60,000 plus P450 per court appearance; and,

d) To pay the costs of suit.

Plaintiffs further pray for such other reliefs and remedies which are just and equitable under
premises.11

Plaintiffs Rolando and Teodora Dullavin also alleged that they never knew of any document
wherein they repudiated their share in the estate of their great-grandparents. In fact, in the past,
they had wanted to eject the Moldeses but their case was dismissed because of the questioned
deed, which incidentally was the very first time they saw it. They pointed out that by reckoning,
they were still minor when their father, Mariano, signed the questioned deed. Be that as it may, it
was of no moment, because their father had nothing to repudiate as he was not given any share in
the estate of the spouses Mollet.12

Plaintiffs Tiburio and Apolonio Villanueva alleged that they and their sister Juanita were
entrusted by their father to their aunt, Leonila Gelardo, when they were eight years old, six years
old and one year old, respectively; they lived with her until 1938 when they were married; as a
result, they developed a deep respect for their aunt, so much so that they signed the deed
believing that they would be getting their inheritance under the deed more expeditiously, not
knowing that because of their illiteracy, they had relinquished their rights over their inheritance.

Plaintiffs Tiburcio, Apolonio and Manuel further alleged that they were hoodwinked by their
aunt Leonila as well as Celedonio in parting with their inheritance. They claimed that being
illiterate and unlettered, they did not understand the contents and the legal effects of the
questioned deed. They explained that they signed the deed upon Leonila's representation and that
what they were signing was just a partition of the estate of their great-grandparents. As it turned
out and was revealed later, they were surprised to be excluded therefrom.13

The plaintiffs alleged, inter alia, that the deed was tainted with fraud because it included
Celedonio, Rosita and Carolina, who were not heirs of the spouses Mollet (whose estate was
partitioned). They denied the defendants' allegation that they were Josefa's descendants, the latter
having died single at the age of 25 and without issue.

In their answer, the defendants specifically denied that there was fraud or undue pressure in the
execution of the questioned deed. They maintained that they were the direct descendants of the
spouses Mollet, and successors-in-interest of Josefa Mollet from whom they derived their rights.
According to them, long before she died, their grandmother Josefa married one Florencio Diaz.
This matrimonial union begot Domingo Diaz and their mother, Dolores Diaz, who, in turn,
married their father, Emeterio Moldes.14

By way of special and affirmative defense, the defendants averred that the action had prescribed
because more than 20 years had elapsed from execution of the questioned deed.15 As
counterclaim, they prayed that the plaintiffs be adjudged to pay them the amounts of
P100,000.00 for moral damages; P50,000.00, for exemplary damages; and P30,000.00, for
attorney's fees.16
The Ruling of the Regional Trial Court

On May 16, 1994, the RTC rendered a decision declaring that the Deed of Extra-judicial
Settlement with Quitclaim was void. The dispositive portion thereof, reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs. It is


the findings of this Court that since the consent of the plaintiffs were not freely given when they
signed the document of the parties which they did not understand, but was obtained thru fraud,
the Deed of Partition with Quitclaim is hereby ordered rescinded and voided.

The other great grandchildren, particularly the children of Brigida Mollet Gelardo, married to
Mariano Dullavin, being Rolando Dullavin and Teodora Dullavin, including the children of
Maria Mollet Gelardo married to Primo Tolentino, being Hermino and Carolyn, were not given
their share of their inheritance, all the more reason that this Deed of Partition with Waiver and
Quitclaim should be rescinded and partition effected among all of the Plaintiffs as they probably
are the only true heirs of spouses Juan Mollet and Silvina Del Monte.

Accordingly, the property should remain as the Estate of the late Spouses Juan Mollet and
Silvina Del Monte Mollet.

As plaintiffs were force to litigate, all Defendants are, jointly and solidarily, directed to pay the
Plaintiffs actual damages in the sum of P100,000.00.

Defendants, jointly and solidarily, must pay moral damages for the trouble and anxiety caused to
plaintiffs in the sum of P100,000.00 and as a deterrent to their propensity to covet what do not
belong to them, Defendants must, jointly and solidarily, pay Plaintiffs exemplary damages of
P100,000.00.

As Plaintiffs were forced to litigate thru counsel, Defendants must, jointly and in solidum, pay
Attorney's fees in the sum of P50,000.00, and,

The cost of this proceedings.

It is SO ORDERED.17

The RTC held that the Deed of Extrajudicial Settlement with Quitclaim was a sham. Through
deceit and machinations, the plaintiffs, being illiterate at that, were "mislead, duped, railroaded
and bamboozled" by the defendants in signing the deed and waiving their respective shares. In
fact, the defendants never filed it in the Office of the Register of Deeds, an act "[giving] doubt to
[its] existence and validity."

The RTC further ruled that the evidence showed that the defendants were not heirs of the spouses
Mollet, whose estate was partitioned. According to the trial court, the defendants' own evidence
belied their claim of heirship.
The defendants appealed the decision to the CA where they alleged, inter alia, that the RTC erred
(1) in ruling that they were not heirs of the spouses Juan Mollet and Silvina Del Monte Mollet;
(2) in voiding the Deed of Extrajudicial Settlement with Quitclaim on the ground of fraud; and
(3) in awarding damages against them.18

The Ruling of the Court of Appeals

On January 30, 2003, the CA affirmed with modification the decision of the RTC with this fallo:

WHEREFORE, the assailed decision dated 16 May 1994 is hereby AFFIRMED with
MODIFICATION deleting the award of damages and attorney's fees.

SO ORDERED.19

The CA affirmed the findings of the RTC that the plaintiffs-appellees were duped by the
defendants-appellants in signing the fraudulent deed. It amplified that the waivers, having no
consideration, were wangled from the very much gullible plaintiffs-appellees, who were not
given a copy by the defendants-appellants. In fact, the latter refused to give the plaintiffs-
appellees a copy of the deed when they requested one.

The appellate court further ratiocinated that as the subject deed included persons who were not
heirs of the person whose estate was partitioned, such deed is governed by Article 1105 of the
Civil Code.20 Thus, since the partition deemed inexistent and void from the beginning, the action
seeking a declaration of its nullity could not prescribe.

The appellate court denied the motion for reconsideration of the defendants-appellants21 who,
forthwith, filed the instant petition. They made the following allegations:

I. The Court of Appeals disregarded the basic rule that the respondents were the plaintiffs who
had the burden of proving the rescissability (sic) of the notarial deed in favor of the petitioners.

II. The Court of Appeals disregarded the incontestable and uncontested fact that petitioners have
been in possession of the property in the concept of owners fifty (50) years prior to the execution
of the deed that respondents sought to rescind.

III. The Court of Appeals disregarded the basic principle in the adjudication that when the
evidence of the parties in a civil case are in equipoise, the complaint must be dismissed for
failure of the plaintiff to prove his case by preponderant evidence.

IV. The Court of Appeals based its decision on evidence it itself pronounce as improbable,
compounding the error by completely disregarding the nature and consequence of a notarial
document.22

The Ruling of the Court


The Court grants the petition on the sole ground that the respondents, who were the plaintiffs in
the trial court, failed to implead indispensable parties.

The respondents herein, who were the plaintiffs in the court a quo, alleged in their complaint
that, as heirs of the spouses Mollet, they were co-owners of the subject property together with the
heirs of Maria and Leonila, namely, Primo Tolentino and their children, Hermino and Carolyn,
and Delfin Malacca and their sons Gelardo and Marcial. With the death of the respondent's sister
Juanita Maritana, her heirs, (Cornelio Maritana and their children Luis, Orlando, Normita, Diego,
and Julieta) retained their right to inherit despite her death.23 However, the respondents failed to
implead the aforementioned heirs as parties-plaintiffs. The respondents also failed to implead the
other signatories of the deed, namely, Emeterio and Domingo, surnamed Moldes, who, under the
deed, were deeded shares in the property.

This is fatal to the complaint. All heirs of the deceased are indispensable parties to the
respondents' action to nullify the deed and the partition of the subject property among the
signatories therein.24 All the parties to the deed are, likewise, indispensable parties.25

Section 7, Rule 3 of the Rules of Court provides:

SEC. 7. Compulsory joinder of indispensable parties. - Parties-in-interest without whom no final


determination can be had of an action shall be joined either as plaintiffs or defendants.

An indispensable party is one who has such an interest in the controversy or subject matter that a
final adjudication cannot be made, in his absence, without injuring or affecting that interest. A
party who has not only an interest in the subject matter of the controversy, but also has an
interest of such nature that a final decree cannot be made without affecting his interest or leaving
the controversy in such a condition that its final determination may be wholly inconsistent with
equity and good conscience. He is a person in whose absence there cannot be a determination
between the parties already before the court which is effective, complete, or equitable.26 In
Commissioner Andrea D. Domingo v. Herbert Markus Emil Scheer,27 the Court held that the
joinder of indispensable parties is mandatory. Without the presence of indispensable parties to
the suit, the judgment of the court cannot attain real finality. Strangers to a case are not bound by
the judgment rendered by the court. The absence of an indispensable party renders all subsequent
actions of the court null and void, with no authority to act not only as to the absent party but also
as to those present. The responsibility of impleading all the indispensable parties rests on the
petitioner/plaintiff.

Likewise, in Metropolitan Bank and Trust Company v. Hon. Floro T. Alejo,28 the Court ruled that
the evident aim and intent of the Rules regarding the joinder of indispensable and necessary
parties is a complete determination of all possible issues, not only between the parties themselves
but also as regards to other persons who may be affected by the judgment. A valid judgment
cannot even be rendered where there is want of indispensable parties.

WHEREFORE, the petition is GRANTED. The Decision of the Regional Trial Court and
Decision of the Court of Appeals in CA-G.R. CV No. 47518 are REVERSED and SET ASIDE.
No costs.
SO ORDERED.

G.R. No. 193753 : September 26, 2012

LIVING @ SENSE, INC., Petitioner, v. MALAYAN INSURANCE COMPANY, INC.,


Respondent.

RE S O LUTI ON

PERLAS-BERNABE, J.:

This Petition for Review on Certiorari assails, on pure question of law, the Orders dated April 8,
20101 and August 25, 20102 of the Regional Trial Court (RTC) of Parafiaque City, Branch 257
rll rll

dismissing, without prejudice, the complaint for specific performance and breach of contract
filed by petitioner Living @ Sense, Inc. (petitioner) for failure to implead Dou Mac, Inc. (DMI)
as an indispensable party.

The Factual Antecedents

Records show that petitioner was the main contractor of the FOC Network Project of Globe
Telecom in Mindanao. In connection with the project, petitioner entered into a Sub-Contract
Agreement3 (Agreement) with DMI, under which the latter was tasked to undertake an
rll

underground open-trench work. Petitioner required DMI to give a bond, in the event that DMI
fails to perform its obligations under the Agreement. Thus, DMI secured surety4 and rll

performance5 bonds, both in the amount of P 5,171,488.00, from respondent Malayan Insurance
rll

Company, Inc. (respondent) to answer: (1) for the unliquidated portion of the downpayment, and
(2) for the loss and damage that petitioner may suffer, respectively, should DMI fail to perform
its obligations under the Agreement. Under the bonds, respondent bound itself jointly and
severally liable with DMI.6 rll

During the course of excavation and restoration works, the Department of Public Works and
Highways (DPWH) issued a work-stoppage order against DMI after finding the latters work
unsatisfactory. Notwithstanding the said order, however, DMI still failed to adopt corrective
measures, prompting petitioner to terminate7 the Agreement and seek8 indemnification from
rll rll

respondent in the total amount of P 1,040,895.34.

However, respondent effectively denied9 petitioners claim on the ground that the liability of its
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principal, DMI, should first be ascertained before its own liability as a surety attaches. Hence,
the instant complaint, premised on respondents liability under the surety and performance bonds
secured by DMI.

Seeking the dismissal10 of the complaint, respondent claimed that DMI is an indispensable party
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that should be impleaded and whose liability should first be determined before respondent can be
held liable.
On the other hand, petitioner asserted11 that respondent is a surety who is directly and primarily
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liable to indemnify petitioner, and that the bond is "callable on demand"12 in the event DMI fails rll

to perform its obligations under the Agreement.

The RTCs Ruling

In its April 8, 2010 Order,13 the RTC dismissed the complaint without prejudice, for failure to
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implead DMI as a party defendant. It ruled that before respondent could be held liable on the
surety and performance bonds, it must first be established that DMI, with whom petitioner had
originally contracted, had indeed violated the Agreement. DMI, therefore, is an indispensable
party that must be impleaded in the instant suit.

On August 25, 2010, the RTC denied14 petitioners motion for reconsideration for failure to set
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the same for hearing as required under the rules.

The Issue Before The Court

The sole issue to be resolved by the Court is whether DMI is an indispensable party in this case.

The Court's Ruling

Petitioner maintains that the rule on solidary obligations permits it, as creditor, to proceed against
any of the solidary debtors, citing Article 1216 of the Civil Code which provides: chanroblesvirtuallawlibrary

Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so long as the debt has not been fully
collected.

The petition is meritorious.

Records show that when DMI secured the surety and performance bonds from respondent in
compliance with petitioners requirement, respondent bound itself "jointly and severally" with
DMI for the damages and actual loss that petitioner may suffer should DMI fail to perform its
obligations under the Agreement, as follows: chanroblesvirtuallawlibrary

That we, DOU MAC INC. as Principal, and MALAYAN INSURANCE CO., INC., x xx are held
firmly bound unto LIVING @ SENSE INC. in the sum of FIVE MILLION ONE HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED EIGHTY EIGHT AND 00/100 PESOS
ONLY (PHP ***5,171,488.00), PHILIPPINE Currency, for the payment of which sum, well and
truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns,
jointly and severally, firmly by these presents xxx15 (Emphasis Supplied) rll

The term "jointly and severally" expresses a solidary obligation16 granting petitioner, as creditor,
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the right to proceed against its debtors, i.e., respondent or DMI.


The nature of the solidary obligation under the surety does not make one an indispensable
party.17 An indispensable party is a party-in-interest without whom no final determination can be
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had of an action, and who shall be joined mandatorily either as plaintiffs or defendants. The
presence of indispensable parties is necessary to vest the court with jurisdiction, thus, without
their presence to a suit or proceeding, the judgment of a court cannot attain real finality. The
absence of an indispensable party renders all subsequent actions of the court null and void for
want of authority to act, not only as to the absent parties but even as to those present.18 rll

In this case, DMI is not an indispensable party because petitioner can claim indemnity directly
from respondent, having made itself jointly and severally liable with DMI for the obligation
under the bonds. Therefore, the failure to implead DMI is not a ground to dismiss the case, even
if the same was without prejudice.

Moreover, even on the assumption that DMI was, indeed, an indispensable party, the RTC
committed reversible error in dismissing the complaint. Failure to implead an indispensable party
is not a ground for the dismissal of an action, as the remedy in such case is to implead the party
claimed to be indispensable, considering that parties may be added by order of the court, on
motion of the party or on its own initiative at any stage of the action.19
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Accordingly, the Court finds that the RTC erred in holding that DMI Is an indispensable party
and, consequently, in dismissing the complaint filed by petitioner without prejudice. bl rlllbrr

WHEREFORE, the assailed April 8, 2010 and August 25, 2010 Orders of the Regional Trial
Court (RTC) of Paraque City, Branch 257 are hereby SET ASIDE. Petitioner's complaint is
ordered REINSTATED and the case remanded to the RTC for further proceedings. rllbrr

SO ORDERED.

G.R. No. L-27033 October 31, 1969

POLYTRADE CORPORATION, plaintiff-appellee,


vs.
VICTORIANO BLANCO, defendant-appellant.

Paredes, Poblador, Cruz and Nazareno for plaintiff-appellee.


Isidro T. Almeda and Mario T. Banzuela for defendant-appellant.

SANCHEZ, J.:

Suit before the Court of First Instance of Bulacan on four causes of action to recover the
purchase price of rawhide delivered by plaintiff to defendant.1 Plaintiff corporation has its
principal office and place of business in Makati, Rizal. Defendant is a resident of Meycauayan,
Bulacan. Defendant moved to dismiss upon the ground of improper venue. He claims that by
contract suit may only be lodged in the courts of Manila. The Bulacan court overruled him. He
did not answer the complaint. In consequence, a default judgment was rendered against him on
September 21, 1966, thus:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant


ordering defendant to pay plaintiff the following amounts:

First Cause of P60,845.67, with interest thereon at 1% a month from May 9, 1965
Action until the full amount is paid.

Second Cause of P51,952.55, with interest thereon at 1% a month from March 30,
Action 1965 until the full amount is paid.

Third Cause of P53,973.07, with interest thereon at 1% a month from July 3, 1965
Action until the full amount is paid.

Fourth Cause of P41,075.22, with interest thereon at 1% a month 2 until the full
Action amount is paid.

In addition, defendant shall pay plaintiff attorney's fees amounting to 25% of the
principal amount due in each cause of action, and the costs of the suit. The amount of
P400.00 shall be deducted from the total amount due plaintiff in accordance with this
judgment.

Defendant appealed.

1. The forefront question is whether or not venue was properly laid in the province of Bulacan
where defendant is a resident.

Section 2 (b), Rule 4 of the Rules of Court on venue of personal actions triable by courts of first
instance and this is one provides that such "actions may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where the plaintiff or any of the
plaintiffs resides, at the election of the plaintiff." Qualifying this provision in Section 3 of the
same Rule which states that venue may be stipulated by written agreement "By written
agreement of the parties the venue of an action may be changed or transferred from one province
to another."

Defendant places his case upon Section 3 of Rule 4 just quoted. According to defendant, plaintiff
and defendant, by written contracts covering the four causes of action, stipulated that: "The
parties agree to sue and be sued in the Courts of Manila." This agreement is valid.3 Defendant
says that because of such covenant he can only be sued in the courts of Manila. We are thus
called upon to shake meaning from the terms of the agreement just quoted.

But first to the facts. No such stipulation appears in the contracts covering the first two causes of
action. The general rule set forth in Section 2 (b), Rule 4, governs, and as to said two causes of
action, venue was properly laid in Bulacan, the province of defendant's residence.

The stipulation adverted to is only found in the agreements covering the third and fourth causes
of action. An accurate reading, however, of the stipulation, "The parties agree to sue and be sued
in the Courts of Manila," does not preclude the filing of suits in the residence of plaintiff or
defendant. The plain meaning is that the parties merely consented to be sued in Manila.
Qualifying or restrictive words which would indicate that Manila and Manila alone is the venue
are totally absent therefrom. We cannot read into that clause that plaintiff and defendant bound
themselves to file suits with respect to the last two transactions in question only or exclusively in
Manila. For, that agreement did not change or transfer venue. It simply is permissive. The parties
solely agreed to add the courts of Manila as tribunals to which they may resort. They did not
waive their right to pursue remedy in the courts specifically mentioned in Section 2(b) of Rule 4.
Renuntiatio non praesumitur.

Illuminating on this point is Engel vs. Shubert Theatrical Co., 151 N.Y.S. 593, 594. And this,
became there the stipulation as to venue is along lines similar to the present. Said stipulation
reads: "In case of dispute, both contracting parties agree to submit to the jurisdiction of the
Vienna courts." And the ruling is: "By the clause in question the parties do not agree to submit
their disputes to the jurisdiction of the Viennese court, and to those courts only. There is nothing
exclusive in the language used. They do agree to submit to the Viennese jurisdiction, but they say
not a word in restriction of the jurisdiction of courts elsewhere; and whatever may be said on the
subject of the legality of contracts to submit controversies to courts of certain jurisdictions
exclusively, it is entirely plain that such agreements should be strictly construed, and should not
be extended by implication."

Venue here was properly laid.

2. Defendant next challenges the lower court's grant to plaintiff of interest at the rate of one per
centum per month. Defendant says that no such stipulation as to right of interest appears in the
sales confirmation orders which provided: "TERMS 60 days after delivery with interest
accruing on postdated cheques beyond 30 days." The flaw in this argument lies in that the
interest and the rate thereof are expressly covenanted in the covering trust receipts executed by
defendant in favor of plaintiff, as follows: "All obligations of the undersigned under this
agreement of trust shall bear interest at the rate of one per centum (1%) per month from the date
due until paid."

On this score, we find no error.


3. Defendant protests the award of attorneys' fees which totals P51,961.63, i.e., 25% of the total
principal indebtedness of P207,846.51 (exclusive of interest). Defendant's thesis is that the
foregoing sum is "exorbitant and unconscionable."

To be borne in mind is that the attorneys' fees here provided is not, strictly speaking, the
attorneys' fees recoverable as between attorney and client spoken of and regulated by the Rules
of Court. Rather, the attorneys' fees here are in the nature of liquidated damages and the
stipulation therefor is aptly called a penal clause.4 It has been said that so long as such stipulation
does not contravene law, morals, or public order, it is strictly binding upon defendant.5 The
attorneys' fees so provided are awarded in favor of the litigant, not his counsel. It is the litigant,
not counsel, who is the judgment creditor entitled to enforce the judgment by execution.6

The governing law then is Article 2227 of the Civil Code, viz.: "Liquidated damages, whether
intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable." For this reason, we do not really have to strictly view the reasonableness of the
attorneys' fees in the light of such factors as the amount and character of the services rendered,
the nature and importance of the litigation, and the professional character and the social standing
of the attorney. We do concede, however, that these factors may be an aid in the determination of
the iniquity or unconscionableness of attorneys' fees as liquidated damages.

May the attorneys' fees (P51,961.63) here granted be tagged as iniquitous or unconscionable?
Upon the circumstances, our answer is in the negative. Plaintiff's lawyers concededly are of high
standing. More important is that this case should not have gone to court. It could have been
easily avoided had defendant been faithful in complying with his obligations. It is not denied that
the rawhide was converted into leather and sold by defendant. He raises no defense. In fact, he
did not even answer the complaint in the lower court, and was thus declared in default. Nor does
he deny the principal liability. Add to all these the fact that the writ of attachment issued below
upon defendant's properties yielded no more than P400 and the picture is complete. The
continued maintenance by defendant of the suit is plainly intended for delay. The attorneys' fees
awarded cannot be called iniquitous or unconscionable.

In the very recent case of Universal Motors Corporation vs. Dy Hian Tat (1969), 28 SCRA 161,
170, we allowed attorneys' fees in the form of liquidated damages at the rate of 25% of the total
amount of the indebtedness. Here, the trial court has already reduced the attorneys' fees from the
stipulated 25% "of the total amount involved, principal and interest, then unpaid" to only 25% of
the principal amount due. There is no reason why such judgment should be disturbed.

FOR THE REASON GIVEN, the appealed judgment is hereby affirmed, except that interest
granted, in reference to the fourth cause of action, should start from March 24, 1965.

Costs against defendant-appellant. So ordered.