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SECOND DIVISION and P1,500,000.

00 on November 23, 1995 and December 23, 1995,

G.R. No. 146595 June 20, 2003
As of November 22, 1996, petitioner failed to pay his obligation. He
CARLO A. TAN, petitioner, claimed that Kaakbay never furnished him a copy of the real estate
vs. mortgage; that, according to Kaakbay, his obligation had now
KAAKBAY FINANCE CORPORATION, DENNIS S. LAZARO and reached P5,570,000.00 because the actual interest was 0.3925% for a
ROLDAN M. NOYNAY, respondents. 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
QUISUMBING, J.: postdated to January 31, 1997.7

Petitioner seeks the review and reversal of the decision of the Court of Petitioner further alleged that he negotiated with Kaakbay for a further
Appeals, dated August 22, 2000 in CA-G.R. SP No. 58379, 1 which extension of time to pay his obligation, which the latter agreed to. It
affirmed the orders of the Regional Trial Court (RTC), Branch 37, was agreed that petitioner and Kaakbay would sign, execute, and
Calamba, Laguna, dated February 8, 2000 and March 29, 2000 in Civil acknowledge a Deed of Sale Under Pacto de Retro upon the
Case No. 2881-2000-C entitled "Carlo A. Tan v. Kaakbay Finance expiration of a two-year period starting January 8, 1998 to January 8,
Corporation, Dennis S. Lazaro and Roldan M. Noynay"2 for declaration 2000. Petitioner was then given a blank Deed of Sale Under Pacto de
of nullity of the Promissory Note purportedly attached to the Real Retro on January 8, 1998 which he signed. 8 His suspicions that
Estate Mortgage, the usurious and unlawful or exorbitant and Kaakbay was charging him usurious rates of interest were confirmed
unconscionable rates of interest and fees therein, and the Deed of when he obtained a Statement of Account stating that his obligation
Sale Under Pacto de Retro. Likewise, assailed is the appellate courts had now reached P13,333,750.00.9
resolution3 dated December 20, 2000, denying petitioners motion for
On October 21, 1999, petitioner learned of the existence of an
accomplished Deed of Sale Under Pacto de Retro, which appeared
The facts, as culled from the records, are as follows: 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
In the latter part of 1995, petitioner Carlo 4 A. Tan applied for and was was allegedly notarized by private respondent Atty. Roldan M. Noynay
granted a loan of four million pesos (P4,000,000.00) by private on February 5, 1998,10 when in truth and in fact, he, his wife, and their
respondent Kaakbay Finance Corporation (Kaakbay), as represented witness Charito Morales did not sign it on said date, nor did they
by its president, private respondent Dennis S. Lazaro. As collateral, a execute it before Atty. Noynay or any other notary public on said date.
real estate mortgage5 on petitioner Tans parcel of land with the
improvements therein all covered by Transfer Certificate Title No. T- On January 5, 2000, petitioner filed a complaint for Declaration of
2071256 located along Rizal St., Calamba, Laguna was executed. Nullity, Invalidity and Unenforceability or Annulment of the Promissory
Petitioner alleged that the stipulated interest was 12% per annum until Notes purportedly attached to the Real Estate Mortgage dated
fully paid, which amount however, was not stated in the mortgage November 16, 1995, the usurious and void rates of interest and other
when he signed it on November 16, 1995. The amount loaned was fees therein appearing, and the Deed of Sale Under Pacto De
released to him in two installments of P2,500,000.00
Retro purportedly dated February 5, 1998, and damages, with prayer On February 3, 2000, respondents, through the new counsel, filed
for Preliminary Injunction and/or Temporary Restraining Order against their Answer with Counterclaim,19 praying that petitioner pay them four
respondents Kaakbay Finance Corporation, Dennis S. Lazaro and million pesos (P4,000,000.00) representing the principal amount of the
Roldan M. Noynay,11with the RTC Calamba, Laguna, and docketed as loan, nine million three hundred thirty three thousand seven hundred
Civil Case No. 2881-2000-C. The complaint essentially prayed that fifty pesos (P9,333,750.00) representing the compounded monthly
herein petitioners obligation to Kaakbay Finance Corporation in the interest and annual penalty interest, two hundred fifty thousand pesos
amount of P4,000,000.00 be subject to interest of only 12% per annum (P250,000.00) as litigation expenses, and five hundred thousand
from November 23, 1995; that the promissory notes attached to his pesos (P500,000.00) as attorneys fees.
Real Estate Mortgage dated November 16, 1995 be declared null and
void; that the Deed of Sale Under Pacto de Retro dated February 5, In addition, respondents filed a Motion for Admission of Counterclaim
1998 be declared unenforceable; and that respondents pay moral and Without Payment of Fees, on the ground that their counterclaim is
exemplary damages in the amount of P200,000.00 and P50,000.00, compulsory in nature, hence it may be admitted without payment of
respectively, as well as attorneys fees. fees.20

On the same date, petitioner filed a Notice of Lis Pendens with the On February 21, 2000, petitioner filed an Urgent Motion to Expunge
Registry of Deeds of Calamba, Laguna, which was annotated on TCT Motions and Pleadings Filed by Defendants Kaakbay Finance
No. 207125.12 Corporation and Dennis S. Lazaro, Particularly Their Answer with
Counterclaim and Motion for Admission of Counterclaim both Dated
On January 17, 2000, respondents, through their counsel, Atty. Roldan February 3, 2000 and/or Comment/Opposition (To Said Defendants
M. Noynay, filed their Consolidated Answer With Compulsory Manifestation and Supplemental Opposition to their Prayer for
Counterclaim And Opposition To Temporary Restraining Order (TRO) Preliminary Injunction and to Temporary Injunction Dated January 24,
and Preliminary Injunction.13 2000 and February 3, 2000 Respectively.) 21 In this motion, petitioner
pointed out that the respondents were being represented by their
During the hearing of petitioners application for the issuance of a counsel, the law firm of Ortega, Del Castillo, Bacorro, Odulio, Calma,
TRO, the parties agreed in open court that petitioner would withdraw and Carbonell without stating if said law firm is in collaboration with or
his application for a TRO, while respondents in turn would hold in in substitution of their previous counsel, respondent Atty. Roldan M.
abeyance the registration of the Deed of Sale Under Pacto de Noynay. Petitioner argued that the procedure laid down in the rules
Retro until the case was terminated. The trial court issued an order to concerning the change or substitution of counsel of a party litigant had
that effect, dated January 17, 2000.14 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
Later, the law firm of Ortega, Del Castillo, Bacorro, Odulio, Calma, and
not be admitted, as it partook of the nature of a permissive
Carbonell entered its appearance as counsel for respondents. 15 Said
counterclaim, which required the payment of the prescribed filing fees;
counsel requested for an extension of time to file an Answer, and also
and since the fees were not paid, the lower court did not acquire
moved for the withdrawal of the Consolidated Answer 16 filed by Atty.
jurisdiction over said Answer.
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 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 GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
Reconsideration" but this was denied. OR EXCESS OF JURISDICTION IN ISSUING THE ORDERS
OF FEBRUARY 8, 2000 AND MARCH 29, 2000
Petitioner seasonably appealed to the Court of Appeals where he CONSIDERING THAT THE COLLECTION OF THE TOTAL
maintained that the trial court committed grave abuse of discretion in AMOUNT OF P14,083,750.00 REPRESENTING UNPAID
admitting the answer with counterclaim, which contains a permissive LOAN AND ACCRUED INTEREST THEREIN BY WAY OF
counterclaim the correct filing fees of which have not been paid by COUNTERCLAIM IS COMPULSORY AND THAT THE
respondents Kaakbay and Lazaro to the trial court. Thus, petitioner ANSWER MAY BE ADMITTED WITHOUT NECESSITY OF
insisted that the trial court had not acquired jurisdiction over the said PAYING THE DOCKET FEES.
answer with counterclaim. Alternatively, petitioner urged that said
answer be expunged from the record of the case a quo. (c) ITS FAILURE TO DECLARE IN THE ASSAILED
On August 22, 2000, the appellate court promulgated its decision, COUNTERCLAIM WITHOUT PAYMENT OF FEES IS A MERE
WHEREFORE, the instant petition is DENIED for lack of merit,
and accordingly, DISMISSED.23 The basic issue for resolution in this case is whether the counterclaim
of respondents is compulsory or permissive in nature.
Petitioner then moved for reconsideration, but the appellate court
denied it in the resolution dated December 20, 2000. 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
Hence, this instant petition, where petitioner now contends that the
complaint against the respondents is predicated on the unauthorized
Court of Appeals committed the following errors, in:
application of usurious, unconscionable and exorbitant rates of interest
and other fees by respondents Kaakbay and Lazaro to petitioners
(a) ITS HOLDING THAT "XXX THE LOWER COURT DID NOT loan without the latters knowledge, as well as the approval and the
COMMIT GRAVE ABUSE OF DISCRETION IN DECLARING falsification of the promissory note supposed to be attached to the
THE COUNTERCLAIM OF PRIVATE RESPONDENTS 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
(b) ITS FAILURE TO RULE IN THE ASSAILED DECISION evidence to be presented by the petitioner as plaintiff in the case
THAT HON. JUDGE JUANITA T. GUERRERO HAS ACTED below to support his claim of fraud employed by respondents,
petitioner asserts the counterclaim cannot be deemed compulsory. He Tested against the abovementioned standards, we agree with the
adds that since the respondents demand the payment of the loan and appellate courts view that respondents counterclaims are compulsory
the interests pursuant to the contract of loan, completely inconsistent in nature. Petitioners complaint was for declaration of nullity, invalidity
with his claim that subject documents were a nullity, what respondents or annulment of the promissory notes purportedly attached to the Real
had filed is not a compulsory counterclaim. Estate Mortgage dated November 16, 1995 and the usurious and void
interest rates appearing therein and the Deed of Sale Under Pacto De
For their part, respondents contend that their counterclaims are for Retro. Respondents counterclaim was for the payment of the principal
payment of the unpaid loan of the petitioner in the amount amount of the loan, compounded monthly interest and annual penalty
of P4,000,000.00, the compounded interest with annual penalty interest arising out of the non-payment of the principal loan, litigation
equivalent to P9,333,750.00, litigation expenses of P250,000 and expenses and attorneys fees. There is no dispute as to the principal
attorneys fees of P500,000. The respondents say these are all obligation of P4,000,000, but there is a dispute as to the rate and
compulsory and not permissive counterclaims. Petitioner admitted in amount of interest. Petitioner insists that the amount of interest is only
his complaint his indebtedness to respondent Kaakbay Finance 12% yearly until fully paid, while respondents insist on 3.5% monthly.
Corporation in the amount of P4,000,000.00 and his liability for interest Also, respondents allege that petitioner owes them P9,333,750.00
at the rate of 12% per annum only. These admissions arise out of, or representing the compounded monthly interest and annual penalty,
are necessarily connected with, or have a logical relation to the which is disputed by petitioner. Petitioner further seeks the nullification
transaction or occurrence forming the subject matter of the petitioners of the Deed of Sale Under Pacto de Retro for being falsified, while
claim. Consequently, respondents conclude that the trial court did not respondents aver the deed is valid. It thus appears that the evidence
err in ruling that payment of the docket fees is no longer necessary as required to prove petitioners claims is similar or identical to that
their counterclaims are compulsory in nature. 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,
In Intestate Estate of Dalisay v. Hon. Marasigan, 25 we held that a
such that conducting separate trials for the claim and the counterclaim
counterclaim is compulsory where: (1) it arises out of, or is necessarily
would result in the substantial duplication of the time and effort of the
connected with the transaction or occurrence that is the subject matter
court and the parties. Clearly, this is the situation contemplated under
of the opposing partys claim; (2) it does not require the presence of
the "compelling test of compulsoriness." The counterclaims of
third parties of whom the court cannot acquire jurisdiction; and (3) the
respondents herein are obviously compulsory, not permissive. As aptly
trial court has jurisdiction to entertain the claim. To determine whether
held by the Court of Appeals, the issues of fact and law raised by both
a counterclaim is compulsory or not, we have devised the following
the claim and counterclaim are largely the same, with a logical
tests: (1) Are the issues of fact or law raised by the claim and the
relation, considering that the two claims arose out of the same
counterclaim largely the same? (2) Would res judicata bar a
circumstances requiring substantially the same evidence. Any decision
subsequent suit on defendants claims absent the compulsory
the trial court will make in favor of petitioner will necessarily impinge
counterclaim rule? (3) Will substantially the same evidence support or
on the claim of respondents, and vice versa. In this light, considering
refute plaintiffs claim as well as the defendants counterclaim? and (4)
that the counterclaims of respondents are compulsory in nature,
Is there any logical relation between the claim and the counterclaim? 26
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
In Quintanilla v. Court of Appeals, we said a "compelling test of
compulsoriness" is whether there is "a logical relationship between the
WHEREFORE, the petition is hereby DENIED for lack of merit, and
claim and counterclaim, that is, where conducting separate trials of the
the assailed decision of the Court of Appeals dated August 22, 2000
respective claims of the parties would entail a substantial duplication
of effort and time by the parties and the court." 27
and its resolution dated December 20, 2000, in CA-G.R. SP No.
58379, are AFFIRMED. No pronouncement as to costs.


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

Austria-Martinez, J., on official leave.

G.R. No. 121687 October 16, 1997 DAVIDE, JR., J.:

HEIRS OF MARCELINO PAGOBO namely: PELAGIO PAGOBO, This is a petition for review on certiorari under Rule 45 of the Rules of
GONZALO PAGOBO, ANIANA PAGOBO, ALFREDO SALVADOR, Court to set aside the decision 1 of April 1995 of public respondent
SAMUEL PAGOBO, REMEDIOS PAGOBO, VALENTINA PAGOBO, Court of Appeals in C.A.-G.R. SP No. 35389, affirming the 24 March
JONATHAN PAGOBO, VIRGILIO PAGOBO, FELISA YAYON, 1994 order 2 of the Regional Trial Court of Lapu-Lapu City, Branch 54,
SIMPLICIO YAYON, BARTOLOME, BERNARDINA YAYON, and in Civil Case No. 2349-L, denying petitioners' motion to admit their
DAHIL, BRIGIDA P. GODINEZ, HONORATA P. GODINEZ, MAXIMO The factual and procedural antecedents are summarized by the Court
PAGOBO, CANDIDO PAGOBO, BARTOLOME PAGOBO, ELPIDIO It appears that on October 12, 1990, plaintiffs Alfonso
PAGOBO, PEDRO PAGOBO, ROGELIO PAGOBO, SHIRLEY P. Pa[g]obo, et al. filed a complaint for "Declaration of Nullity of
CANETE, MILAGROS PAGOBO, JUANITO PAGOBO, JR., Documents, Reconveyances [sic] With Right of Legal
ANTONIO PAGOBO, IRENEA PAGOBO, and ANANIANO P. Redemption, Damages & Attorney's Fees" docketed as Civil
WAGWAG; HEIRS OF ANTONIO PAGOBO, namely: GAUDENCIO Case No. 2349-L against defendants Gabriel Baez, et al.
PAGOBO, LOTITA PAGOBO, ERNESTO PAGOBO, ROMANA P. before the respondent Regional Trial Court.
PAGOBO; HEIRS OF MAXIMO PAGOBO namely: PAGOBO, On December 7, 1990, defendant[s] filed their answer thereto.
WAG, ANASTACIO WAGWAG, FIDEL WAGWAG and NEMESIA On February 21, 1994, plaintiffs filed a motion to admit
WAGWAG; HEIRS OF AQUILINA PAGOBO, namely: VICTOR amended complaint. The amended complaint attached to the
PAGOBO; HEIRS OF JUANITO PAGOBO EYAS, namely: motion was for "Partition, Declaration of Nullity of
MARCELO P. EYAS, ROCHI P. FLORES and ORDIE P. FLORES; Documents, Cancellation of Transfer Certificate of Titles, [sic]
HEIRS OF CATALINA PAGOBO, namely: RESTITUTO PAGOBO, Reconveyance With Right of Legal Redemption, Damages
CARLINA P. TALINGTING, TEOFILO P. TALINGTING, and JUANITO and Attorney's Fees, and Other Reliefs.
P. TALINGTING, petitioners,
vs. On February 28, 1994, defendants filed an opposition to the
THE COURT OF APPEALS, HON. RUMOLDO R. FERNANDEZ, admission of the amended complaint.
(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 On March 29, 1994, plaintiffs filed a rejoinder thereto.
Judicial Region Branch 54, Lapu-Lapu City; and Spouses
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
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 Private respondents, however, submit that the instant petition
reimplead the defendants be dismissed for the following reasons, to wit:
already ordered dropped as
shown by the fact that their (1) Petitioners deliberately failed to state in
names had not been their certification of non-forum shopping the
underscored, hence, it is but fact that there existed a terminated civil case
a clerical error; No. 124-L involving the same parties and/or
their predecessors or successors-in-interest
(b) pre-trial is yet to be and involving the same lot in litigation;
(2) The respondent trial court did not commit named in plaintiff's amended complaint attached to its Motion
grave abuse of discretion when it denied to Admit Amended Complaint.
petitioners' motion to admit amended
complaint, their motion for reconsideration, In view thereof, and for the reasons adduced by counsel for
and their omnibus motion: defendant spouses in its opposition, the Motion to Admit
Amended Complaint is hereby denied. 4
(a) the trial court correctly
denied admission of the The opposition of defendants-spouses Gabriel and Aida Baez 5 to the
amended complaint because motion to admit the Amended Complaint, which the trial court took into
the admission thereof will account, was anchored on the following grounds: (1) the 3-day notice
prejudice the rights of rule for motions was not observed as they received a copy of the
defendants; 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
(b) there is no necessity to of Court by substantially altering the original cause of action; besides it
implead the Register of was filed late viz, three years after the filing of the original complaint;
Deeds in Civil Case No. and (3) the motion to amend was dilatory.
The Court of Appeals ruled that the trial court was correct in not
(c) the amended complaint admitting the amended complaint and held, to wit:
violates Section 3, Rule 10 of
the Revised Rules of Court; To determine whether a different cause of action is introduced
by amendments to the complaint, what is ascertained is
(d) the amendments sought whether the defendant is being required to answer for a
to be admitted would further liability or legal obligation completely different from that stated
delay the early resolution of in the original complaint. A closer scrutiny of the original
the case at bars [sic]. 3 complaint shows that the original action was for "declaration of
nullity of documents, reconveyance with right of legal
The challenged order of 24 March 1994 of the trial court reads as redemption, damages and attorney's fees" while the amended
follows: 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
plaintiffs is hereby denied.
the amended complaint that petitioners are the absolute and
legal owners of the land in question and that:
A perusal of the records would show that as early as
September 15, 1993, this court ordered the dismissal of this
All of the defendants entered into transactions
case as against defendants Damasa and Candido both
of the lands subject matter of this case,
surnamed Pagobo, Olimpia Tampus, Salud Maloloy-on and
without the knowledge of plaintiffs and their
Adriana Mahusay, yet these very same defendants were again
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 considered only one ground, i.e., the Amended Complaint substantially
trial court and their rights will changed or altered the cause of action in the original complaint. The
not be completely ultimate issue then in this petition for review is whether the trial court
determined, and that the case committed grave abuse of discretion in denying the motion to admit
will not be fully tried on the the Amended Complaint on the ground that the Amended Complaint
merits. substantially changed or altered, the cause of action in the original
complaint. Upon this issue the parties have focused their arguments.
In his Comment on the petition, private respondent Gabriel Baez
points out that the mode of review interposed by petitioners is Section 3 of Rule 10 of the Rules of Court is the law on the matter.
erroneous, as redress should have been sought under Rule 65 since Prior to the 1997 amendments, the section read as follows:
the challenged decision of the Court of Appeals was on a petition
for certiorari under said Rule. He further maintains that the denial of Sec. 3. Amendments by leave of court. After the case is set
the admission of the Amended Complaint was proper since the latter for hearing, substantial amendments may be made only upon
substantially altered petitioners' original cause of action and was leave of court. But such leave may be refused if it appears to
clearly dilatory. the court that the motion was made with intent to delay the
action or that the cause of action or defense is substantially
In their Reply, petitioners assert that the remedy they availed of is altered. Orders of the court upon the matters provided in this
sanctioned by jurisprudence, citing several cases wherein "to avoid section shall be made upon motion filed in court, and after
delay and to thwart the commission of injustice, a special civil action notice to the adverse party, and an opportunity to be heard.
filed with the Appellate Court was liberally considered as an appeal, or
vice-versa." 7 As amended, it now reads:

Private respondent filed a Motion to Expunge Appellants' Reply to Sec. 3. Amendments by leave of court. Except as provided
Comment since no leave of court was secured before said reply was in the next preceding section, substantial amendments may be
filed. 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
In a Resolution dated 8 July 1996, we noted private respondent Baez' delay. Orders of the court upon the matters provided in this
Motion to Expunge the Reply, gave due course to the petition and section shall be made upon motion filed in court, and after
required the petitioners and private respondent Gabriel Baez to file notice to the adverse party, and an opportunity to be heard.
their respective memoranda, which they subsequently did. (3a)
Parenthetically, as the other private respondents did not file their
comments or memoranda, they are deemed to have waived the filing Since this case was decided by the Court of Appeals under the old
thereof. law, we resolve it in that light. Thereunder, while substantial
amendments were allowed even after the case had been set for
As earlier adverted to, the trial court's principal reasons for refusing to hearing, such could only be done upon leave of court. That leave could
admit the Amended Complaint were the inclusion of the names of be refused if the court found that: (a) the motion was made with intent
some of the defendants against whom the case was already ordered to delay the action; or (b) the cause of action or defense was
dismissed and the grounds relied upon by defendants Gabriel and substantially altered. The first ground is no longer an issue in this
Aida Baez in their opposition. However, the Court of Appeals 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 years; and that petitioners had been in continuous, peaceful, open and
action. The trial court had not even set Civil Case No. 2349-L, for adverse possession thereof. Plainly, these allegations do not constitute
hearing. substantial amendments. If anything, they merely strengthen
petitioners' original cause of action by providing a more detailed
We cannot also agree with both the trial court and respondent Court of account thereof, which then puts in clearer perspective the second
Appeals that petitioners' Amended Complaint substantially changed or element of a cause of action. Under Section 2 of Rule 8, a party may
altered their original cause of action. A cause of action is an act or even set forth two or more statements of a claim or defense
omission of one party in violation of the legal rights of the other. 8 It is alternatively or hypothetically, either in one cause of action or defense
the reason why the litigation has come about. 9 Its essential elements or in separate causes of action or defenses.
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 Anent the claim for partition, we hold the same to be incidental to the
defendant violative of such right. 10 allegation in the original complaint that the property had not been
extrajudicially settled and was thus intended to obtain complete relief
A perusal of petitioners' original complaint 11 shows that essentially, in one action. We likewise find that allowance of the Amended
petitioners' cause of action is founded on the fact that as grandchildren Complaint would cause no prejudice to private respondents since their
and great-grandchildren of the late Juan Pagobo, who was the defenses of lack of cause of action, prescription, laches and res
registered owner of Lot No. 6727 of the Opon Cadastre, they are judicata 13 would neither be diminished nor impaired.
entitled to a share therein by virtue of hereditary succession; that after
it was subdivided into thirty-four (34) lots, one Juana Pagobo sold Hence, the trial court should have granted the motion to admit the
sublot No. 6727-0 on 5 May 1964 to Edward Short, Jr., and thereafter, Amended Complaint on the principle that amendments of pleadings
Short sold Lots Nos. 6727-0-1, 6727-0-2 and 6727-CC to defendants are favored and should be liberally allowed in the furtherance of justice
Gabriel and Aida Baez to whom certificates of title were in order to determine every case as far as possible on its merits
issued. 12 Petitioners alleged that the sale was void because the without regard to technicalities, to speed up trial and save party
mother lot, Lot 6727, has not yet been extrajudicially settled by and litigants from incurring unnecessary expense, so that a full hearing on
among the heirs of Juan Pagobo. They then prayed that the deeds of the merits of every case may be had and multiplicity of suits
sale executed by Juana Pagobo and Edward Short be declared null avoided. 14 It must be pointed out that the new Section 3 of Rule 10 of
and void; that defendants Gabriel and Aida Baez be ordered to the Rules of Court relaxes further the rule on amendment of pleadings.
reconvey to petitioners the lots sold to them; and that petitioners be Refusal to allow amendments other than those which may be made as
allowed to exercise their right of redemption under Article 1620 in a matter of right under Section 2, 15 may be based only on the ground
relation to Article 1623 of the Civil Code in respect of said lots. that the motion was made with intent to delay. The other ground, viz.,
the amendment substantially alters the original cause of action or
In their Amended Complaint, petitioners impleaded the Register of defense, has been dropped from the Rule. This simply means then
Deeds; specifically alleged that Lots Nos. 6727-0-1, 6727-0-2 and that amendments may substantially alter the cause of action or
6727-CC, being parts of Lot No. 6727 owned by Juan Pagobo, defense. 16
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 In closing, we address the argument of private respondents Baez that
because of defendants' full knowledge that petitioners owned the lots as what the petitioners filed with respondent Court of Appeals was a
in question, but also because Edward Short, being a foreigner, was special civil action for certiorari under Rule 65 of the Rules of Court,
disqualified from acquiring the lots; further, that since the lots were then redress from an adverse decision therein should likewise have
covered by homestead patents, they could not be alienated for 25 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.


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

No. 44529. Respondent claimed therein that the complaint did not
FIRST DIVISION 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:
G.R. No. 133657 May 29, 2002

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
LTD., respondents.

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
Before us is a petition for review under Rule 45 of the Rules of Court Section 13, Rule 3,8 the trial court should have ordered the dismissal
assailing the decision of the Court of Appeals in CA-G.R. SP No. of the complaint insofar as respondent was concerned.
44529 dated February 24, 19981, which granted the petition for
certiorari filed by respondent British Steel Asia Ltd. (British Steel) and
Meanwhile, petitioner sought to amend its complaint by incorporating
ordered the dismissal of petitioner Remington Industrial Sales
therein additional factual allegations constitutive of its cause of action
Corporations (Remington) complaint for sum of money and damages.
against respondent. Pursuant to Section 2, Rule 10 9 of the Rules of
Also assailed in this petition is the resolution2 of the Court of Appeals
Court, petitioner maintained that it can amend the complaint as a
denying petitioners motion for reconsideration.
matter of right because respondent has not yet filed a responsive
pleading thereto.10
The facts of the case, as culled from the records, are as follows:
Subsequently, petitioner filed a Manifestation and Motion 11 in CA-G.R.
On August 21, 1996, petitioner filed a complaint 3 for sum of money and SP No. 44529 stating that it had filed a Motion to Admit Amended
damages arising from breach of contract, docketed as Civil Case No. Complaint together with said Amended Complaint before the trial
96-79674, before the sala of Judge Marino M. De la Cruz of the court. Hence, petitioner prayed that the proceedings in the special civil
Regional Trial Court of Manila, Branch 22. Impleaded as principal action be suspended.
defendant therein was Industrial Steels, Ltd. (ISL), with Ferro Trading
GMBH (Ferro) and respondent British Steel as alternative defendants.
On January 29, 1998, the trial court ruled on petitioners Motion to
Admit Amended Complaint thus:
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
WHEREFORE, the Amended Complaint is NOTED and further
against them. On April 7, 1997, the RTC denied the motions to
proceedings thereon and action on the other incidents as
dismiss,4 as well as the ensuing motion for reconsideration. 5 ISL then
aforementioned are hereby held in abeyance until final
filed its answer to the complaint.
resolution by the Honorable Court of Appeals (Special
6th Division) of the petition for certiorari and prohibition of
On the other hand, respondent British Steel filed a petition for certiorari petitioner (defendant British) and/or Manifestations and
and prohibition before the Court of Appeals, 6 docketed as CA-G.R. SP Motions of therein private respondent, herein plaintiff.
Thereafter, on February 24, 1998, the Court of Appeals rendered the CIVIL PROCEDURE.
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 THE HON. COURT OF APPEALS ERRED IN HOLDING THAT
Complaint in Civil Case No. 96-79674 against petitioner British IF THE PETITIONER WANTS TO PURSUE ITS CASE
Steel (Asia) Ltd. Costs against private respondent. AGAINST THE PRIVATE RESPONDENT, IT HAS TO REFILE
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
The basic issue in this case is whether or not the Court of Appeals, by
resolution of this petition. What this Court is called upon to
granting the extraordinary writ of certiorari, correctly ordered the
resolve is whether the lower court committed grave abuse of
dismissal of the complaint for failure to state a cause of action, despite
discretion when it denied petitioners motion to dismiss the
the fact that petitioner exercised its right to amend the defective
complaint against it. The admission or rejection by the lower
complaint under Section 2, Rule 10 of the Rules of Court. Stated
court of said amended complaint will not, insofar as this Court
differently, the query posed before us is: can a complaint still be
is concerned, impinge upon the issue of whether or not said
amended as a matter of right before an answer has been filed, even if
court gravely abused its discretion in denying petitioners
there was a pending proceeding for its dismissal before the higher
motion to dismiss.14
Petitioner filed a motion for reconsideration of the appellate courts
Section 2, Rule 1016 of the Revised Rules of Court explicitly states that
decision, which was denied in a resolution dated April 28, 1998.
a pleading may be amended as a matter of right before a responsive
Hence, this petition, anchored on the following grounds:
pleading is served. This only means that prior to the filing of an
answer, the plaintiff has the absolute right to amend the complaint
-I- 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.
THE HON. COURT OF APPEALS ERRED IN ORDERING Under this provision, substantial amendment of the complaint is not
THE DISMISSAL OF THE COMPLAINT AGAINST THE allowed without leave of court after an answer has been served,
PRIVATE RESPONDENT FOR LACK OF CAUSE OF ACTION because any material change in the allegations contained in the
UNDER THE ORIGINAL COMPLAINT EVEN AS SAID complaint could prejudice the rights of the defendant who has already
COMPLAINT WAS ALREADY AMENDED AS A MATTER OF set up his defense in the answer.
Conversely, it cannot be said that the defendants rights have been have answered, the plaintiff may still amend its complaint once, as a
violated by changes made in the complaint if he has yet to file an matter of right, in respect to claims asserted solely against the non-
answer thereto. In such an event, the defendant has not presented answering defendant, but not as to claims asserted against the other
any defense that can be altered 19 or affected by the amendment of the defendants.22
complaint in accordance with Section 2 of Rule 10. The defendant still
retains the unqualified opportunity to address the allegations against Furthermore, we do not agree with respondents claim that it will be
him by properly setting up his defense in the answer. Considerable prejudiced by the admission of the Amended Complaint because it had
leeway is thus given to the plaintiff to amend his complaint once, as a spent time, money and effort to file its petition before the appellate
matter of right, prior to the filing of an answer by the defendant. court.23 We cannot see how the result could be any different for
respondent, if petitioner merely re-filed the complaint instead of being
The right granted to the plaintiff under procedural law to amend the allowed to amend it. As adverted to earlier, amendment would even
complaint before an answer has been served is not precluded by the work to respondents advantage since it will undoubtedly speed up the
filing of a motion to dismiss 20 or any other proceeding contesting its proceedings before the trial court. Consequently, the amendment
sufficiency. Were we to conclude otherwise, the right to amend a should be allowed in the case at bar as a matter of right in accordance
pleading under Section 2, Rule 10 will be rendered nugatory and with the rules.
ineffectual, since all that a defendant has to do to foreclose this
remedial right is to challenge the adequacy of the complaint before he WHEREFORE, the petition is GRANTED. The assailed decision and
files an answer. resolution of the Court of Appeals in CA-G.R. SP No. 44529 dated
February 24, 1998 and April 28, 1998, respectively,
Moreover, amendment of pleadings is favored and should be liberally are REVERSED and SET ASIDE. The Regional Trial Court of Manila,
allowed in the furtherance of justice in order to determine every case Branch 22 is further ordered to ADMIT petitioners Amended
as far as possible on its merits without regard to technicalities. This Complaint in Civil Case No. 96-79674 and to conduct further
principle is generally recognized to speed up trial and save party proceedings in said case.
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 SO ORDERED.

In this case, the remedy espoused by the appellate court in its Davide, Jr., C.J., Puno, Kapunan, and Austria-Martinez, JJ., concur.
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
On August 17, 1972 Keramik sued the GSIS. It asked for the
SECOND DIVISION 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
G.R. No. L-38866 November 29, 1974 reliefs were sought. The GSIS answered the complaint. No pre-trial
has as yet been held.
vs. On March 26, 1974 Keramik filed a motion for the admission of its
HONORABLE BUENAVENTURA J. GUERRERO in his official amended complaint. The amendment refers to the insurance in the
capacity as the Presiding Judge of the Court of First Instance of sum of P2,400,000 which Keramik had allegedly secured from the
Rizal, Branch XXIV and GOVERNMENT SERVICE INSURANCE GSIS for the mortgaged buildings, machineries and equipment. The
SYSTEM, respondents. 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
AQUINO, J.:p proceeds of the insurance and the excess premiums paid should be
deducted from its indebtedness because the GSIS was in effect both
Keramik Industries, Inc. (Keramik for short), in this special civil action the insurer and the insured.
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 The GSIS opposed the admission of the amended complaint on the
an amended complaint in Civil Case No. 16540. The certiorari action is ground that the amendment altered the plaintiff's causes of action by
based on the following salient allegations of the petition and its supposedly injecting "new, distinct and entirely foreign causes of
annexes: action".

On October 7, 1964, Keramik obtained a loan of two million four The lower court, in its minute order dated May 31, 1974, sustained the
hundred thousand pesos (P2,400,000) from the Government Service opposition and denied the admission of the amended complaint.
Insurance System (GSIS). As security, it mortgaged to the GSIS
certain lands, buildings, machineries and equipment used in its Keramik then filed the instant special civil action of certiorari. It
ceramic business. contends that the lower court acted with grave abuse of discretion in
not admitting its amended complaint.
After Keramik's default, the GSIS extrajudicially foreclosed the real
and chattel mortgages. The mortgaged properties were sold at public We hold that the trial court committed a grave abuse of discretion in
auction on March 2, 1971 to satisfy the claim of the GSIS amounting to not allowing Keramik to amend its complaint. Keramik's alternative
P3,461,138.09. The GSIS, as the highest bidder, bought them for cause of action is predicated on the major premise that the GSIS, as
P5,129,145. 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).
an aggregate amount of P2,970,077.76; that Citiwide endorsed the
FIRST DIVISION 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
G.R. No. L-45234 May 8, 1985
payment of the promissory notes, defendants R & B and Towers
issued surety bonds in favor of Citiwide and which surety b nds were
R and B SURETY & INSURANCE CO., INC., and TOWERS also assigned to plaintiff; that the promissory notes contained a
ASSURANCE CORPORATION, petitioners, provision that default in payment when due on any installment shall
vs. make the whole principal sums remaining unpaid immediately due and
HON. VICTORINO A. SAVELLANO, as Presiding Judge, Branch payable; that under the provisions of the surety bonds defendant R &
XIX, Court of First Instance of Manila, and INVESTORS' FINANCE B and Towers obligated themselves, jointly and severally with their
CORPORATION, doing business under the name and style "FNCB principal, the other defendant Rassagi, to pay the latter's obligation to
FINANCE",respondents. plaintiff; that defendant Rassagi broke the terms and conditions of said
promissory notes by its failure to pay the installments thereon when
Redento R. Silvestre for petitioners. 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
Benigno A. Mariano, Sr. for Rassagi Transport Corp. 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
This petition for review on certiorari seeks to set aside the partial
obtain credit facilities from Citiwide but it had applied for a direct loan
summary judgment rendered by the respondent court. The petitioners
from FNCB sometime before October, 1974; that after the approval of
state that their answer raised genuine and valid issues. The petitioners
said loan which was intended for the purchase of PUB bus trucks,
also seek to compel the respondent court to allow their amended
Citiwide offered to supply it with the equipment and had actually
answer on the ground that the same does not alter the theory of their
delivered 14 units of Chevrolet trucks to the latter; that the amount of
defense nor delay the proceedings of the trial.
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
Private respondent Investors' Finance Corporation doing business fourteen (14) units with a unit price of P140,000.00 including the body
under the name "FNCB Finance" (FNCB) filed an action for a sum of building; that since the loan was already approved, there was no
money against petitioners R & B Surety and Insurance Co., Inc. (R& necessity for the deed of assignment made by Citiwide in favor of
B) and Towers Assurance Corporation (Towers) in their capacity as FNCB; that what FNCB did was to require Rassagi to sign blank
sureties and against one Rassagi Transport Corporation (Rassagi) in forms, which the latter understood to be documents representing the
its capacity as principal debtor. obligation directly to the former and not to Citiwide; that after Rassagi
paid the amount of P61,877.31 as amortization payments, it had
The complaint alleged, among others, that Rassagi obtained credit requested FNCB to apply the amount of P100,000.00 which was a
facilities from Citiwide Motors, Inc. (Citiwide) duly evidenced by hold back of the proceeds of the loan which the latter favorably applied
promissory notes in the sum of P1,273,108.06 and P1,696,969.70 or and now Rassagi had actually paid P161,877.31 as total amortization
payments and that considering that the 14 buses could only possibly Rassagi, the latter's counsel informed the court that Rassagi does not
earn the amount of P110.00 per unit a day and could not come up with deny its obligation as evidenced by the promissory notes and that it
the P210.00 per unit a day equivalent to P20,625.77 a week would just approach FNCB for the restructuring of said obligation. The
amortization, Rassagi requested for a restructuring of its amortization counsel for the defendant sureties likewise manifested that the latter
payments from weekly amortizations to monthly amortizations and a are willing to enter into a settlement and ready to assign collaterals in
re-adjustment of the period of payment from three (3) to five (5) years, favor of FNCB.
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 On August 8, 1975, the trial court issued an order, which partly
pursue its claim against the bonding company, so much so that it provides:
refused to accept the payments made by Rassagi and it was for this
reason that the latter stopped its amortization payments. xxx xxx xxx

Rassagi also alleged usury on the part of FNCB stating that after The Court grants the motion for postponement to
realizing that the amount of its obligation was so excessive enable the parties to thresh out all possibilities of
considering that only P1,960,000.00 was actually released and settlement with the warning that in view of the
approved, it formally demanded a statement of account from FNCB manifestation of counsel for defendant transport
and that was the only time that defendant knew that its entire corporation, the Court may issue a summary judgment
obligation to said plaintiff is P3,003,231.12. at the next schedule hearing. ...

Defendants R & B and Towers filed their own answer, putting up the xxx xxx xxx
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 On October 29, 1975, FNCB filed a manifestation and motion for
from FNCB but did not obtain credit facilities from Citiwide; that FNCB summary judgment on the ground that no genuine issue was tendered
had illegally and usuriously charged Rassagi excessive interest upon in the pleadings. This motion was accompanied by an affidavit of
the loan; and that what the latter knows is that FNCB shall only charge Mamerto Endriga, FNCB vice-president.
an interest of 14% per annum diminishing balance on the
P1,960,000.00 but that there was no agreement to pay three years The defendant sureties filed their oppositions to the motion
interest in advance and surcharges for late amortization payments. accompanied by the affidavits of their respective corporate secretaries.
Defendant sureties admitted that Rassagi had accepted delivery of the Rassagi likewise filed its opposition but the same was not
fourteen (14) Chevrolet trucks purchased out of the loan of accompanied by any affidavit.
Before the trial court could rule on the motion, the defendant sureties,
On July 3, 1975, FNCB filed its reply and answer to the counterclaim on March 8, 1976, filed a motion for leave to admit amended answer
by defendants R & B and Towers. with special and affirmative defenses and counter-claims, alleging:

When the case was caged for pre-trial, the counsel for Rassagi moved 1. That in the month of February, 1976, herein
that the pre-trial be postponed in order to enable the parties to try to defendants in their desire and anxiety to check up and
settle the case amicably. Upon inquiry by the court as to the defense of investigate what further assets defendant RASSAGI
may have for the purpose of attachment or satisfaction respective amounts appearing therein in favor of
of any judgment whatsoever, by chance, upon said Citiwide Motors, Inc., with RASSAGI as principal. The
investigation and check-up, discovered that the same were to be the security for the Promissory Notes
Twenty (20) units of new buses which were defendant RASSAGI may execute by virtue of and in
supposedly to be sold and delivered to RASSAGI consideration for credit facilities that may be extended
under installment payment, the Promissory Notes of first above alluded to. The said Surety Bonds were
which are the subject of the instant case and covered applied for and issued specifically for said credit
by the Surety Bonds, have not as yet, to this day been accommodation and no other, and cannot be and
so sold or delivered to defendant RASSAGI; must not be, applied as security for any other
Promissory Notes executed by RASSAGI under and
2. That confronted with such findings, RASSAGI's by virtue of another or other transactions and/or
President and Chairman of the Board, Mr. Rodolfo obligations or credit accommodations.
Echague, confirmed such non-sale and delivery of the
buses, even though they were, up to October, 1975, 5. That they deny the allegations contained in
with the Sarmiento Engineering Corp. of Quezon City paragraph 6 of the complaint Citiwide Motors, Inc. and
for preparation and conversion into de Luxe type plaintiff may have transacted for the assignment of the
passenger buses; aforestated Surety Bonds, but said assignment is
baseless, unjustified, and is a faceous (sic) farce and
3. That this turn of events compels herein defendants charade insofar as herein defendants are concerned,
to amend their pleadings to the complaint; 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
4. That in the interest of justice, and considering that
installment basis of the Twenty (20) units of new
the case is still in its early stages, no evidence so far
buses to RASSAGI, the performance of which fact is a
having been presented by any party therein,
condition resolutory that can bind said bonds and give
admission of the herewith attached amended
legal rights to Citiwide Motors, Inc. over/in/against the
pleadings to the complaint is called for and justifiable.
same. No allegation of said fact of installment sales
are averred in the complaint. The averments in this
xxx xxx xxx paragraph are subject further to the hereinafter
following Special and Affirmative Defenses.
In their amended answer, the defendant sureties alleged the following:
The respondent court denied the above-quoted motion on the ground
xxx xxx xxx 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
4. Subject to the averments contained in the court, rendered a partial summary judgment, stating:
preceding paragraphs and the hereinafter following
Special and Affirmative Defenses, they admit the xxx xxx xxx
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
Under the circumstances obtaining in the present case A motion for reconsideration was filed by the defendant sureties but
and pursuant to settled jurisprudence on usury and in the same having been denied, they filed this instant petition.
order to render substantial justice, the patch of
reason, justice and equity dictates that the Court must Defendant sureties, now as petitioners, contend that the trial court
functionalize and breathe life into invisible justice erred in denying their motion to admit the amended answer and in
epitomed in the precepts of equity and justice and rendering partial summary judgment notwithstanding the fact that their
render partial judgment on the undisputed obligation answer and that of defendant Rassagi raised valid defenses, both
so that litigation should continue with respect to the legal and factual. According to petitioners, in view of the non-delivery
controverted acceleration and alleged usurious of the trucks to Rassagi, no credit facilities were, therefore, extended
interest being charged under plaintiff's financing by Citiwide Motors, Inc. to it, and in effect the promissory notes which
scheme. The defendant Rassagi in its opposition to are the principal basis of FNCB's action, are totally lacking and short of
plaintiff's motion for summary judgment has attached consideration, the maker thereof not having received anything of value
plaintiff's official receipts for installment payments (pp. in having signed or executed the same, and are therefore null and
144 to 166, record) which shows that of the amount void, unenforceable against the petitioners. Petitioners further contend
financed under the promissory note (Annex A) that there is absolutely no basis for the statement of the respondent
secured by defendant R & B Surety's surety bond judge that the admission of the amended answer would only delay the
(Annex D) the amount of P141,417.24 has already proceedings for they never resorted to dilatory tactics and all
been paid while under the promissory note (Annex A- postponements were at the instance of Rassagi; and although the
1) secured by defendant Tower's bond (Annex D-1) defenses raised in the amended answer were only discovered after
the amount of P97,251.00 has already been paid. the filing of the original answer, the motion to admit the same was
These amounts should be deducted from made prior to the termination of the pre-trial.
Pl,960,000.00 only for the purpose of this partial
judgment. At this stage, the Court will not rule on After a careful consideration of the case, we find the contentions of the
whether or not there was a holdout of P100,000.00 as petitioners impressed with merit. The instant petition, therefore, should
defendant Rassagi claims. This must be supported by be granted.
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 While it is true that in their amended answer, petitioners sought to alter
defendant Rassagi. 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
WHEREFORE, premises considered, partial judgment they are not liable to FNCB.
at this stage is hereby rendered ordering:
In their original answer, petitioners and defendant Rassagi denied the
a. Defendants Rassagi and R&B Surety and fact that the latter obtained credit facilities from Citiwide, they instead
Insurance Co., Inc. to pay plaintiff, jointly and alleged that Rassagi obtained a direct loan from FNCB. In essence,
severally, the amount of P978,582.76: therefore, petitioners were already raising the defense of non-liability
not on the basis of non-delivery of the subject matter of the promissory
b. Defendants Rassagi and Towers Assurance notes but on the basis of the fact that since Rassagi obtained a direct
Corporation to pay plaintiff, jointly and severally, the loan from FNCB, there was no longer any need for Citiwide to extend
amount of P742,749.00.
credit facilities in favor of Rassagi as the former was paid immediately altogether negate liability on the part of the petitioners, a fact which
upon the release of the said loan. Thus, petitioners as sureties can no may no longer be ventilated should we uphold the propriety of the
longer be bound under the contract of surety wherein they obligated summary judgment. Surely, the right of the petitioners to be given the
themselves solidarily with Rassagi in favor of Citiwide, in consideration chance to prove that the are not liable under the questioned
of the credit facilities that the latter was supposed to extend to promissory notes is more important than the change in the theory of
defendant Rassagi. 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
In essence, therefore, there was no change in the theory of herein Sedeco v. Court of Appeals, (1 15 SCRA 102-103):
petitioners when they tried to amend their answer by stating that they
were not liable to FNCB because the fourteen (14) trucks which were xxx xxx xxx
the subject matter of the questioned promissory notes were never
delivered by Citiwide to Rassagi although this defense was not present ... There is consequently no substantial change in the
in their original answer where the petitioners virtually adopted the gist of petitioners' defense and, what is of more vital
allegations made by Rassagi which however admitted the delivery of significance to the ends of justice, is that to admit the
the abovementioned trucks. Although as a general rule, facts alleged Second Amended Answer would serve to give the
in a party's pleading are deemed admissions of that party and binding parties a full hearing on the merits of their entire
upon it, this is not an absolute and inflexible rule because an answer is controversy and avoid multiplicity of suits. Courts
a mere statement of fact which the party filing it expects to prove, but it should be liberal in allowing amendments to pleadings
is not evidence. (See Gardner v. Court of Appeals, 131 SCRA 600). at any stage on the action to avoid multiplicity of suits
and in order that the real controversies between the
Rule 34 of the Rules of Court authorizes the rendition of a summary parties are presented, their rights determined and the
judgment when, on motion for the plaintiff after the answer to the case decided on the merits without unnecessary
complaint has been filed, it would appear, during the hearing of the delay. (Demaronsing v. Tandayag, 58 SCRA 484
motion for such judgment, from the pleadings, depositions and 11974]; Shaffer v. Palma, 22 SCRA 934 [1968])
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 Similarly, in the case of Paman v. Diaz (116 SCRA 129), we ruled:
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 When the purpose of an amendment is to submit the
summary judgment is not justified when the defending party tenders real matter in dispute without any intent to delay the
vital issues which call for the presentation of evidence. (Guevarra v. action, the court in its discretion, may order or allow
Court of Appeals, 124 SCRA 313). the amendment upon such terms as may be just.
Anything, therefore, that may preclude a party from
It is evident from the records that the original answer filed by the fully representing the facts of his case should be
petitioners tendered a genuine issue and thus, the partial summary brushed aside, if this can be done without unfairness
judgment by the respondent court should not have been rendered. to the other party and by the means provided for by
the Rules of Court. ...
And, even assuming that the amendment altered the theory of the
defense, justice and equity still dictate that such amendment be WHEREFORE, the petition is GRANTED. The partial summary
allowed for if the allegations therein are proven, then the same would 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.


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

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

De la Fuente J., took no part.

15% per annum payable quarterly or every three months. For a while,
FIRST DIVISION 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
G.R. No. 161135. April 8, 2005
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
SWAGMAN HOTELS AND TRAVEL, INC., Petitioners, order them to pay him jointly and solidarily the amount of US$150,000
vs. representing the total amount of the loans; US$13,500 representing
HON. COURT OF APPEALS, and NEAL B. unpaid interests from January 1998 until December 1998; P100,000
CHRISTIAN, Respondents. for moral damages; P50,000 for attorneys fees; and the cost of the
The petitioner corporation, together with its president and vice-
DAVIDE, JR., C.J.: president, filed an Answer raising as defenses lack of cause of action
and novation of the principal obligations. According to them, Christian
May a complaint that lacks a cause of action at the time it was filed be had no cause of action because the three promissory notes were not
cured by the accrual of a cause of action during the pendency of the yet due and demandable. In December 1997, since the petitioner
case? This is the basic issue raised in this petition for the Courts corporation was experiencing huge losses due to the Asian financial
consideration. crisis, Christian agreed (a) to waive the interest of 15% per annum,
and (b) accept payments of the principal loans in installment basis, the
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, amount and period of which would depend on the state of business of
Inc., through Atty. Leonor L. Infante and Rodney David Hegerty, its the petitioner corporation. Thus, the petitioner paid Christian capital
president and vice-president, respectively, obtained from private repayment in the amount of US$750 per month from January 1998
respondent Neal B. Christian loans evidenced by three promissory until the time the complaint was filed in February 1999. The petitioner
notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of and its co-defendants then prayed that the complaint be dismissed
the promissory notes is in the amount of US$50,000 payable after and that Christian be ordered to pay P1 million as moral
three years from its date with an interest of 15% per annum payable damages; P500,000 as exemplary damages; and P100,000 as
every three months.1 In a letter dated 16 December 1998, Christian attorneys fees.4
informed the petitioner corporation that he was terminating the loans
and demanded from the latter payment in the total amount of In due course and after hearing, the trial court rendered a decision 5 on
US$150,000 plus unpaid interests in the total amount of US$13,500. 2 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
On 2 February 1999, private respondent Christian filed with the interest on the loans had been reduced by the parties from 15% to 6%
Regional Trial Court of Baguio City, Branch 59, a complaint for a sum per annum. It then ordered the petitioner corporation to pay Christian
of money and damages against the petitioner corporation, Hegerty, the amount of $100,000 representing the principal obligation covered
and Atty. Infante. The complaint alleged as follows: On 7 August 1996, by the promissory notes dated 7 August 1996 and 14 March 1997,
14 March 1997, and 14 July 1997, the petitioner, as well as its "plus interest of 6% per month thereon until fully paid, with all interest
president and vice-president obtained loans from him in the total payments already paid by the defendant to the plaintiff to be deducted
amount of US$150,000 payable after three years, with an interest of therefrom."
The trial court ratiocinated in this wise: 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
(1) There was no novation of defendants obligation to the plaintiff. presented without objection. Thus, even if the plaintiff had no cause of
Under Article 1292 of the Civil Code, there is an implied novation only action at the time he filed the instant complaint, as defendants
if the old and the new obligation be on every point incompatible with obligation are not yet due and demandable then, he may nevertheless
one another. 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.
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 (3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante
incompatible, and the subsequent obligation novates the first can not be held personally liable for the obligations contracted by the
(Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., p. 384). defendant corporation it being clear that they merely acted in
Otherwise, the old obligation will continue to subsist subject to the representation of the defendant corporation in their capacity as
modifications agreed upon by the parties. Thus, it has been written General Manager and President, respectively, when they signed the
that accidental modifications in an existing obligation do not extinguish promissory notes as evidenced by Board Resolution No. 1(94) passed
it by novation. Mere modifications of the debt agreed upon between by the Board of Directors of the defendant corporation (Exhibit "4"). 6
the parties do not constitute novation. When the changes refer to
secondary agreement and not to the object or principal conditions of In its decision7 of 5 September 2003, the Court of Appeals denied
the contract, there is no novation; such changes will produce petitioners appeal and affirmed in toto the decision of the trial court,
modifications of incidental facts, but will not extinguish the original holding as follows:
obligation. Thus, the acceptance of partial payments or a partial
remission does not involve novation (id., p. 387). Neither does the In the case at bench, there is no incompatibility because the changes
reduction of the amount of an obligation amount to a novation because referred to by appellant Swagman consist only in the manner of
it only means a partial remission or condonation of the same debt. payment. . . .

In the instant case, the Court is of the view that the parties merely Appellant Swagmans interpretation that the three (3) promissory notes
intended to change the rate of interest from 15% per annum to 6% per have been novated by reason of appellee Christians acceptance of
annum when the defendant started paying $750 per month which the monthly payments of US$750.00 as capital repayments
payments were all accepted by the plaintiff from January 1998 onward. continuously even after the filing of the instant case is a little bit
The payment of the principal obligation, however, remains unaffected strained considering the stiff requirements of the law on novation that
which means that the defendant should still pay the plaintiff $50,000 the intention to novate must appear by express agreement of the
on August 9, 1999, March 14, 2000 and July 14, 2000. parties, or by their acts that are too clear and unequivocal to be
mistaken. Under the circumstances, the more reasonable
(2) When the instant case was filed on February 2, 1999, none of the interpretation of the act of the appellee Christian in receiving the
promissory notes was due and demandable. As of this date however, monthly payments of US$750.00 is that appellee Christian merely
the first and the second promissory notes have already matured. allowed appellant Swagman to pay whatever amount the latter is
Hence, payment is already due. 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 III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY
US$150,000 plus unpaid interest in the amount of US$13,500.00 AFFIRM A DECISION OF THE LOWER COURT WHICH IS INVALID
IV. Where there is a valid novation, may the original terms of contract
Appellant Swagman, likewise, contends that, at the time of the filing of which has been novated still prevail?10
the complaint, appellee Christian ha[d] no cause of action because
none of the promissory notes was due and demandable. 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
Again, We are not persuaded. 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
In the case at bench, while it is true that appellant Swagman raised in installment payment for the principal loans in the total amount of
its Answer the issue of prematurity in the filing of the complaint, US$150,000. Lastly, the petitioner questions the act of the Court of
appellant Swagman nonetheless failed to object to appellee Christians Appeals in considering Hegerty and Infante as appellants when they
presentation of evidence to the effect that the promissory notes have no longer appealed because the trial court had already absolved them
become due and demandable. of the liability of the petitioner corporation.

The afore-quoted rule allows a complaint which states no cause of On the other hand, the private respondent asserts that this petition is
action to be cured either by evidence presented without objection or, in "a mere ploy to continue delaying the payment of a just obligation."
the event of an objection sustained by the court, by an amendment of Anent the fact that Hegerty and Atty. Infante were considered by the
the complaint with leave of court (Herrera, Remedial Law, Vol. VII, Court of Appeals as appellants, the private respondent finds it
1997 ed., p. 108).8 immaterial because they are not affected by the assailed decision
Its motion for reconsideration having been denied by the Court of
Appeals in its Resolution of 4 December 2003, 9the petitioner came to Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of
this Court raising the following issues: Civil Procedure, is the act or omission by which a party violates the
right of another. Its essential elements are as follows:
DEFENDANTS HAS BECOME FINAL AND EXECUTORY, MAY THE 1. A right in favor of the plaintiff by whatever means and under
RESPONDENT COURT OF APPEALS STILL STUBBORNLY 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
ii. Where there is no cause of action, is the decision of the lower court
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 the principal loans were not yet due when the complaint was filed, the
recovery of damages or other appropriate relief.11 trial court did not dismiss the complaint, citing Section 5, Rule 10 of
the 1997 Rules of Civil Procedure, which reads:
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 Section 5. Amendment to conform to or authorize presentation of
for recovery of damages or other appropriate relief. evidence. When issues not raised by the pleadings are tried with
the express or implied consent of the parties, they shall be treated in
It is undisputed that the three promissory notes were for the amount of all respects as if they had been raised in the pleadings. Such
P50,000 each and uniformly provided for (1) a term of three years; (2) amendment of the pleadings as may be necessary to cause them to
an interest of 15 % per annum, payable quarterly; and (3) the conform to the evidence and to raise these issues may be made upon
repayment of the principal loans after three years from their respective motion of any party at any time, even after judgment; but failure to
dates. However, both the Court of Appeals and the trial court found amend does not affect the result of the trial of these issues. If evidence
that a renegotiation of the three promissory notes indeed happened in is objected to at the trial on the ground that it is not within the issues
December 1997 between the private respondent and the petitioner made by the pleadings, the court may allow the pleadings to be
resulting in the reduction not waiver of the interest from 15% to 6% amended and shall do so with liberality if the presentation of the merits
per annum, which from then on was payable monthly, instead of of the action and the ends of substantial justice will be subserved
quarterly. The term of the principal loans remained unchanged in that thereby. The court may grant a continuance to enable the amendment
they were still due three years from the respective dates of the to be made.
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 According to the trial court, and sustained by the Court of Appeals, this
due yet; although, two of the promissory notes with the due dates of 7 Section allows a complaint that does not state a cause of action to be
August 1999 and 14 March 2000 matured during the pendency of the cured by evidence presented without objection during the trial. Thus, it
case with the trial court. Both courts also found that the petitioner had ruled that even if the private respondent had no cause of action when
been religiously paying the private respondent US$750 per month he filed the complaint for a sum of money and damages because none
from January 1998 and even during the pendency of the case before of the three promissory notes was due yet, he could nevertheless
the trial court and that the private respondent had accepted all these recover on the first two promissory notes dated 7 August 1996 and 14
monthly payments. March 1997, which became due during the pendency of the case in
view of the introduction of evidence of their maturity during the trial.
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 Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil
court on 2 February 1999, no cause of action has as yet existed Procedure is erroneous.
because the petitioner had not committed any act in violation of the
terms of the three promissory notes as modified by the renegotiation in Amendments of pleadings are allowed under Rule 10 of the 1997
December 1997. Without a cause of action, the private respondent Rules of Civil Procedure in order that the actual merits of a case may
had no right to maintain an action in court, and the trial court should be determined in the most expeditious and inexpensive manner
have therefore dismissed his complaint. without regard to technicalities, and that all other matters included in
the case may be determined in a single proceeding, thereby avoiding
Despite its finding that the petitioner corporation did not violate the multiplicity of suits.12 Section 5 thereof applies to situations wherein
modified terms of the three promissory notes and that the payment of evidence not within the issues raised in the pleadings is presented by
the parties during the trial, and to conform to such evidence the it should not be entertained, and an action prematurely brought is a
pleadings are subsequently amended on motion of a party. Thus, a groundless suit.
complaint which fails to state a cause of action may be cured by
evidence presented during the trial. It is true that an amended complaint and the answer thereto take the
place of the originals which are thereby regarded as abandoned
However, the curing effect under Section 5 is applicable only if a (Reynes vs. Compaa General de Tabacos [1912], 21 Phil. 416;
cause of action in fact exists at the time the complaint is filed, but the Ruyman and Farris vs. Director of Lands [1916], 34 Phil., 428) and
complaint is defective for failure to allege the essential facts. For that "the complaint and answer having been superseded by the
example, if a complaint failed to allege the fulfillment of a condition amended complaint and answer thereto, and the answer to the original
precedent upon which the cause of action depends, evidence showing complaint not having been presented in evidence as an exhibit, the
that such condition had already been fulfilled when the complaint was trial court was not authorized to take it into account." (Bastida vs.
filed may be presented during the trial, and the complaint may Menzi & Co. [1933], 58 Phil., 188.) But in none of these cases or in
accordingly be amended thereafter.13 Thus, in Roces v. any other case have we held that if a right of action did not exist when
Jalandoni, this Court upheld the trial court in taking cognizance of an the original complaint was filed, one could be created by filing an
otherwise defective complaint which was later cured by the testimony amended complaint. In some jurisdictions in the United States what
of the plaintiff during the trial. In that case, there was in fact a cause of was termed an "imperfect cause of action" could be perfected by
action and the only problem was the insufficiency of the allegations in suitable amendment (Brown vs. Galena Mining & Smelting Co., 32
the complaint. This ruling was reiterated in Pascua v. Court of Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is
Appeals.15 virtually permitted in Banzon and Rosauro vs. Sellner ([1933], 58 Phil.,
453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683); and
It thus follows that a complaint whose cause of action has not yet recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however,
accrued cannot be cured or remedied by an amended or supplemental which is no cause of action whatsoever cannot by amendment or
pleading alleging the existence or accrual of a cause of action while supplemental pleading be converted into a cause of action: Nihil de
the case is pending.16 Such an action is prematurely brought and is, re accrescit ei qui nihil in re quando jus accresceret habet.
therefore, a groundless suit, which should be dismissed by the court
upon proper motion seasonably filed by the defendant. The underlying We are therefore of the opinion, and so hold, that unless the plaintiff
reason for this rule is that a person should not be summoned before has a valid and subsisting cause of action at the time his action
the public tribunals to answer for complaints which are immature. As is commenced, the defect cannot be cured or remedied by the
this Court eloquently said in Surigao Mine Exploration Co., Inc. v. acquisition or accrual of one while the action is pending, and a
Harris:17 supplemental complaint or an amendment setting up such after-
accrued cause of action is not permissible. (Emphasis ours).
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 Hence, contrary to the holding of the trial court and the Court of
action at the commencement of the suit. As observed by counsel Appeals, the defect of lack of cause of action at the commencement of
for appellees, there are reasons of public policy why there should be this suit cannot be cured by the accrual of a cause of action during the
no needless haste in bringing up litigation, and why people who are in pendency of this case arising from the alleged maturity of two of the
no default and against whom there is yet no cause of action should not promissory notes on 7 August 1999 and 14 March 2000.
be summoned before the public tribunals to answer complaints which
are groundless. We say groundless because if the action is immature,
Anent the issue of novation, this Court observes that the petitioner Under Article 1253 of the Civil Code, if the debt produces interest,
corporation argues the existence of novation based on its own version payment of the principal shall not be deemed to have been made until
of what transpired during the renegotiation of the three promissory the interest has been covered. In this case, the private respondent
notes in December 1997. By using its own version of facts, the would not have signed the receipts describing the payments made by
petitioner is, in a way, questioning the findings of facts of the trial court the petitioner as "capital repayment" if the obligation to pay the interest
and the Court of Appeals. was still subsisting. The receipts, as well as private respondents
summary of payments, lend credence to petitioners claim that the
As a rule, the findings of fact of the trial court and the Court of Appeals payments were for the principal loans and that the interests on the
are final and conclusive and cannot be reviewed on appeal to the three consolidated loans were waived by the private respondent during
Supreme Court18 as long as they are borne out by the record or are the undisputed renegotiation of the loans on account of the business
based on substantial evidence.19 The Supreme Court is not a trier of reverses suffered by the petitioner at the time.
facts, its jurisdiction being limited to reviewing only errors of law that
may have been committed by the lower courts. Among the exceptions There was therefore a novation of the terms of the three promissory
is when the finding of fact of the trial court or the Court of Appeals is notes in that the interest was waived and the principal was payable in
not supported by the evidence on record or is based on a monthly installments of US$750. Alterations of the terms and
misapprehension of facts. Such exception obtains in the present conditions of the obligation would generally result only in modificatory
case.20 novation unless such terms and conditions are considered to be the
essence of the obligation itself. 25 The resulting novation in this case
This Court finds to be contrary to the evidence on record the finding of was, therefore, of the modificatory type, not the extinctive type, since
both the trial court and the Court of Appeals that the renegotiation in the obligation to pay a sum of money remains in force.
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 Thus, since the petitioner did not renege on its obligation to pay the
petitioner were for the reduced interests. monthly installments conformably with their new agreement and even
continued paying during the pendency of the case, the private
It is worthy to note that the cash voucher dated January 1998 21 states respondent had no cause of action to file the complaint. It is only upon
that the payment of US$750 represents "INVESTMENT PAYMENT." petitioners default in the payment of the monthly amortizations that a
All the succeeding cash vouchers describe the payments from cause of action would arise and give the private respondent a right to
February 1998 to September 1999 as "CAPITAL REPAYMENT." 22 All maintain an action against the petitioner.
these cash vouchers served as receipts evidencing private
respondents acknowledgment of the payments made by the Lastly, the petitioner contends that the Court of Appeals obstinately
petitioner: two of which were signed by the private respondent himself included its President Infante and Vice-President Hegerty as
and all the others were signed by his representatives. The private appellants even if they did not appeal the trial courts decision since
respondent even identified and confirmed the existence of these they were found to be not personally liable for the obligation of the
receipts during the hearing. 23 Significantly, cognizant of these receipts, petitioner. Indeed, the Court of Appeals erred in referring to them as
the private respondent applied these payments to the three defendants-appellants; nevertheless, that error is no cause for alarm
consolidated principal loans in the summary of payments he submitted because its ruling was clear that the petitioner corporation was the one
to the court.24 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

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.


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 case moot and academic, without plaintiff obtaining
pleadings are meant to supply the deficiency in aid of the original complete relief to redress the wrong committed
pleading, not to entirely substitute the latter." against it by defendant, which is the unjustified and/or
unlawful refusal of defendant to recognize plaintiff as
Petitioner moved for a reconsideration, but its motion was denied in a the lowest qualifying bidder for janitorial services for
resolution of the Court of Appeals dated October 30, 1992. Hence, this the year 1990;
petition for review on certiorari.
2. By reason of the unjustified refusal of defendant to
First. The "Supplemental Complaint" appears to have been filed under recognize the result of the public bidding held in
Rule 10 of the Rules of Court which provides: 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
6 Matters Subject of Supplemental Pleadings. --
year 1990, and by hiring another entity to perform
Upon motion of a party the court may, upon
janitorial services during the pendency of the suit,
reasonable notice and upon such terms as are just,
plaintiff suffered unrealized profits in the sum of
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 The supervening event was therefore cited not to reinforce or aid the
adverse party should plead thereto, it shall so order, original demand, which was for the execution of a contract in
specifying the time therefor. 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 transaction, occurrence or event happening since the filing of the
the case, petitioner's remedy was not to supplement, but rather to
pleading, which is sought to be supplemented, must be pleaded in aid
amend its complaint.
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. 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
To begin with, what was alleged as a supervening event causing
its original complaint. If petitioner was entitled to the award of the
damage to petitioner was the fact that the year for which the contract
contract, as it claimed it was, it could have asked either for an award
should have been made had passed without the resolution of the case.
of the contract for janitorial services or for damages. The fact that it
Only incidentally was it claimed that because of the award of a
opted for the first does not preclude it from subsequently claiming
contract for janitorial services, on a month-to-month basis to a third
damages because through no fault of its own, the year passed without
party, petitioner failed to realize profits. In its "Supplemental
an award in its favor, with the result that it could no longer demand the
Complaint" petitioner alleged:
execution of a contract in its favor after that year.
1. Supervening events not attributable to anybody
Be that as it may, the so-called Supplemental Complaint filed by
which consist in the delay in the early disposition of
petitioner should simply be treated as embodying amendments to the
the case within the one (1) year period life span of the
contract for janitorial services, have rendered the
original complaint or petitioner may be required to file an amended complaint in order that the real question between the
complaint. parties may be properly and justly threshed out, in a
single proceeding, and thus avoid multiplicity of
Second. But, it is contended, such an amendment of the complaint actions.
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 In Vda. de Villaruel v. Manila Motor Co., Inc., 4 plaintiffs, as lessors of a
admit the so-called Supplemental Complaint of petitioner: (1) change property, filed an action for the rescission of the contract of lease for
in the reliefs prayed for; (2) change in the issues of the case; and (3) alleged refusal of defendants to pay rentals. While the case was
prejudice to the rights of private respondent. pending, the buildings leased were destroyed by fire. Plaintiffs filed a
supplemental complaint for the recovery of the value of the burned
The contention has no merit. An amendment to change the relief buildings. In holding the supplemental complaint proper, this Court
sought does not change the theory of a case. What is prohibited is a held:
change in the cause of action. Thus in Arches v. Villarruz, 3 it was held:
This action was inceptionally instituted for the
The lower court denied the admission of the amended rescission of the contract of lease and for the recovery
complaint on the ground that the plaintiff therein has of unpaid rentals before and after liberation. When the
changed the action alleged in the original complaint, leased buildings were destroyed, the plaintiffs-lessors
but upon comparing the two complaints, we find that, demanded from the defendants-lessees, instead, the
essentially, there was no change of action for, in both value of the burned premises, basing their right to do
the original and the amended complaints, the action so on defendants' alleged default in the payment of
was for the collection of the value of the same post-liberation rentals (which was also their basis in
promissory notes and the only difference between the formerly seeking for rescission). This cannot be
original and the amended complaints is with regard to considered as already altering the theory of the case
the consideration of said promissory notes, for while in which is merely a change in the relief prayed for,
the original complaint it was alleged that these were brought about by circumstances occurring during the
executed by defendant Villarruz for money obtained pendency of the action, and is not improper. (Southern
from plaintiff Arches and with which the former paid for Pacific Co. vs. Conway, 115 F. 2d 746; Suburban
labor and materials for the construction and Improvement Company vs. Scott Lumber Co., 87
completion of the Ivisan Bridge, in the amended A.L.R. 555, 59 F. 2d 711). The filing of the
complaint it was alleged that said promissory notes supplemental complaint can well be justified also
were executed for materials supplied to William under Section 2, Rule 17 of the Rules of Court (on
Villarruz and actually used in the construction of the amendments) "to the end that the real matter in
Ivisan Bridge. While the rule allowing amendments to dispute and all matters in the action in dispute
a pleading is subject to the general limitation that the between the parties may, as far as possible be
cause of action should not be substantially changed or completely determined in a single proceeding". It is to
that the theory of the case should not be altered, in be noted furthermore, that the admission or rejection
the furtherance of justice, amendments to a pleading of this kind of pleadings is within the sound discretion
should be favored and the rules thereon should be of the court that will not be disturbed on appeal in the
liberally construed. In the present case, we find absence of abuse thereof (see Sec. 5, Rule 17, Rules
justification for allowing the admission of the amended of Court), especially so, as in this case, where no
substantial procedural prejudice is caused to the These same allegations constitute petitioner's cause of action for
adverse party. 5 damages, to wit:

In this case, the original complaint for Mandamus/Certiorari With 1. the sum of P158,117.28 as unrealized profits;
Preliminary Injunction And/Or Restraining Order alleged, as cause of
action, private respondent's unjustifiable refusal to award the contract 2. the sum of P50,000.00 as exemplary damages;
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: 3. the sum equivalent to twenty-five (25%) percent of
the total amount due and demandable, plus P1,000.00
1. Upon filing [of] this Complaint, a restraining order for every appearance of counsel in court;
be issued to enjoin [private respondent] from
implementing [or] proceeding with its Notice of 4. the costs of suit.
Rebidding which is scheduled on November 9, 1989
at 10:00 A.M.;
As already stated, the change in the relief sought was necessitated by
a supervening event which rendered the first relief sought impossible
2. After trial on the merits, judgment be rendered of attainment.

a. ordering [private respondent] to Because the cause of action on which the complaint
recognize [petitioner] as the lowest for mandamus and injunction and the so-called Supplemental
qualifying responsive bidder at the Complaint are based is one and the same, the issue raised is the
public bidding held on September 22, same, namely, whether private respondent was justified in refusing to
1989 and therefore its right to the award the contract for janitorial services to petitioner.
award of the contract for janitorial
Nor would admission of the amended complaint prejudice the rights of
private respondent as defendant in the action below, as the Court of
b. declaring that [private respondent] Appeals held. Indeed neither the trial court nor the appellate court
in publishing its "Notice of Rebidding" showed in what way the rights of private respondent would be
acted with grave abuse of discretion prejudiced by the allowance of the amendment in question. There will
amounting to excess and/or lack of be no unfairness or surprise to private respondent, because after all
jurisdiction; private respondent will have a right to file an amended answer and
present evidence in support thereof. 6
c. declaring the restraining order or
temporary writ of injunction to be Third. The Court of Appeals also held that the action
permanent; and for mandamus and/or injunction had become moot and academic and
consequently there was no longer any complaint to be supplemented.
d. for costs of suit. 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.


Regalado, Romero and Puno, JJ., concur.

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