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G.R. No.

131686

March 18, 2002

ROUEL AD. REYES, petitioner, vs. SPOUSES PEPITO and MARTA TORRES, HON. ELIEZER R. DELOS SANTOS, Executive Judge, RTC, Angeles City, respondents. YNARES-SANTIAGO, J.: This petition for certiorari originates from a case for ejectment with damages concerning a parcel of land1 located in Mabalacat, Pampanga. Sometime in 1993, petitioner Rouel AD. Reyes purchased the subject property. At that time, the property was already occupied by several tenants who had constructed their homes and commercial establishments thereon. These residents were informed that petitioner had acquired the property and were asked to vacate the same.1wphi1.nt Respondent spouses Pepito and Marta Torres and Arcelli T. Manalo refused to vacate and remove their structure. Moreover, they erected one more structure and leased the same to Lolita Ticse for a monthly rental of One Thousand Pesos (P1,000.00). Several written demands2 to vacate addressed to the Torres couple and Manalo went unheeded, which prompted petitioner Reyes to file a complaint before the Barangay Lupon for conciliation proceedings. When no settlement was reached, a certificate to file action was issued to petitioner, who filed a case for ejectment3 against respondents and Manalo before the Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga. On May 29, 1997, the MCTC rendered a decision, disposing of the case as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against herein defendants by ordering the latter: 1. To vacate the premises and to surrender the same peacefully to the plaintiff or to any of his authorized representative/s; 2. To remove the structure/s standing on the premises; 3. To pay the plaintiff a rental of P1,000.00 a month commencing from the date of filing of the complaint on July 22, 1996, up to the time defendants finally vacate the premises; 4. To pay the plaintiff the amount of P20,000.00 as attorney's fees and to pay the cost of this suit. Plaintiff's claims for moral damages and defendants' counterclaim are hereby denied for lack of proof. SO ORDERED.4

The Torres couple and co-defendant Manalo appealed to the Regional Trial Court of Angeles City and filed the required supersedeas bond. The case was docketed as Civil Case No. 8746. On September 18, 1997, the RTC dismissed the appeal for failure to pay docket and other legal fees.5 Respondents filed a motion for reconsideration,6 averring that they had paid the proper docket fees as early as August 27, 1997, annexing thereto the receipts. They manifested that it was the Clerk of Court of the MCTC of Mabalacat and Magalang who neglected to attach the said receipts to the records of the case. The motion for reconsideration was set for hearing at 2:00 in the afternoon of October 3, 1997. The day before the hearing, respondents filed a petition for certiorari and prohibition7 with Branch 62 of the Regional Trial Court of Angeles City, docketed as Civil Case No. 8794. Respondents assailed the writ of execution issued by the MCTC on September 30, 1997 despite their filing of the supersedeas bond to stay execution of judgment pending appeal. Nevertheless, the sheriff executed the writ and demolished respondents' house and other structure on the subject property. Respondents failed to appear at the hearing of their motion for reconsideration before Branch 59 of the RTC. The motion for reconsideration was denied and its earlier order dismissing the appeal was sustained. The following day, respondents filed another motion for reconsideration8 of the order denying their first motion for reconsideration. They alleged that their counsel arrived late at the hearing on October 3, 1997; that their counsel was at Branch 62 of the RTC Angeles City awaiting the issuance of a temporary restraining order in Civil Case No. 8794, which was issued only a few minutes before 2:00 o'clock; that he thereafter rushed to Branch 59 to attend the hearing but was delayed by heavy traffic due to a vehicular accident. On November 17, 1997, the Regional Trial Court issued an Order,9 ruling as follows: Without necessarily touching on the issue as to whether the appeal was filed on time and it appearing that indeed there was payment of the appellate docket fees as evidenced by Official Receipt Nos. 5864393 and 6674615, the Branch Clerk of Court of the Municipal Circuit Trial Court, Mabalacat-Magalang, Pampanga, is hereby ORDERED to immediately transmit the entire records of this case to this Court for inclusion in the raffle. SO ORDERED. Petitioner filed a motion for reconsideration.10 While his motion for reconsideration remained unresolved, the case was raffled to Branch 57 of the Regional Trial Court of Angeles City.11 On December 5, 1997, said court issued an Order12 directing the parties to submit their respective memoranda, after which the case would be considered submitted for decision.

Hence, the instant petition for certiorari. Petitioner argues that respondent court had lost jurisdiction when it dismissed the appeal and returned the records of the case to the Municipal Circuit Trial Court; that respondent court erred in reinstating the appeal without first resolving the motion for reconsideration; that respondent court erred in not citing private respondents in contempt for forum-shopping; and that respondents' motion for reconsideration of the dismissal order was bereft of merit. We find no grave abuse of discretion on the part of respondent court. This Court is fully aware that procedural rules are not to be belittled or simply disregarded for these prescribed procedures insure an orderly and speedy administration of justice. However, it is equally true that litigation is not merely a game of technicalities. Time and again, courts have been guided by the principle that the rules of procedure are not to be applied in a very rigid and technical manner, as rules of procedure are used only to help secure and not to override substantial justice.13 The law and jurisprudence grant to courts the prerogative to relax compliance with procedural rules of even the most mandatory character,14 mindful of the duty to reconcile both the need to put an end to litigation speedily and the parties' right to an opportunity to be heard.15 A more lenient interpretation is appropriate in this case especially because the dismissal of respondents' appeal for failure to pay docket fees was manifestly erroneous. Through no fault of respondents, the clerk of court of the Municipal Circuit Trial Court failed to include and transmit to respondent Regional Trial Court the receipts of payment. The records show that respondents paid to the Clerk of Court of the Municipal Circuit Trial Court the corresponding amounts well within the five (5) days granted by the respondent court in its order requiring such payment.16 Contrary to petitioner's contention, there was nothing respondents could have done about the situation since they had every right to rely on the presumption that the clerk of court would do her bounden duty. Rule 40, Section 5 of the Rules of Court, as amended, provides: Within the period for taking an appeal, the appellant shall pay to the clerk of the court which rendered the judgment or final order appealed from the full amount of the appellate court docket and other lawful fees. Proof of payment thereof shall be transmitted to the appellate court together with the original record or the record on appeal, as the case may be. (Underscoring ours) Clearly then, it was the responsibility of the clerk of court to attach respondents' proof of payment to the original record. Respondent court's error in dismissing the appeal after having been inadvertently misled to believe that respondents had failed to pay the docket fees was rectifiable. Respondents endeavored to set this right through their first motion for reconsideration.

It cannot be said that respondents' second motion is strictly prohibited by the rules for the matters raised in the first and second motions are not identical, since they challenged two different orders of the respondent court. To our mind, a strict application of the rule prohibiting a second motion for reconsideration in this instance would be unreasonable. Both orders dismissing the appeal were based on technicalities and not on the merits of the case. Recognizing that litigations should, as much as possible, be resolved on the merits and not on technicality, the strict interpretation of this exclusionary rule in this case would amount to a deprivation of the petitioner's statutory right to appeal. The Court has in innumerable instances held that the right of appeal is an essential part of the judicial system; hence, courts should proceed with caution so as not to unduly and hastily divest a party of the right to appeal.17 In the first place, were it not for the omission or negligence of the Clerk of the Municipal Court, the appeal would not have been dismissed, and the same would have been resolved on the merits. The final resolution of this case has been delayed because of procedural or technical lapses. However, such procedural lapses on the part of respondents was neither intended to delay nor did it result in prejudice to petitioner; hence, denying respondents' appeal under the circumstances would be putting a premium on technicalities at the expense of a just resolution of the case.18 Whenever non-compliance with the rules is not intended to delay the final disposition of the case, nor to cause prejudice to the adverse party, we have repeatedly held that the dismissal of an appeal on mere technicalities may be stayed in the exercise of the court's equity jurisdiction.19 Thus, when respondent court set aside its earlier dismissal of respondents' appeal, it did not do so with grave abuse of discretion amounting to excess or lack of jurisdiction. Litigations should, as much as possible, be decided on the merits and not on technicality.20 It is the court's policy to encourage hearings of appeals on the merits21 so that every party-litigant is afforded the amplest opportunity for the proper and just disposition of his cause, unhampered by the constraints of technicalities.22 WHEREFORE, in view of all the foregoing, the petition is DISMISSED. The case is REMANDED to the Regional Trial Court of Angeles City, Pampanga, which is directed to resume proceedings in Civil Case No. 8746.1wphi1.nt SO ORDERED. Davide, Jr., C.J., Puno, and Kapunan, JJ., concur.

G.R. No. 116695 June 20, 1997 VICTORIA G. GACHON and ALEX GUEVARA, petitioners, vs. HON. NORBERTO C. DEVERA, JR., Presiding Judge, Branch XXIV, RTC, Iloilo City; HON. JOSE R. ASTORGA, Presiding Judge, Branch I, Municipal Trial Court in Cities, Iloilo City; and SUSANA GUEVARA, represented by her attorney-in-fact, ROSALIE GUEVARA, respondents.

PANGANIBAN, J.: May the Rule on Summary Procedure be interpreted liberally to allow the admission of an answer filed out of time due to alleged "oversight"? This is the main legal question raised in this petition for review assailing the Decision of the Regional Trial Court of Iloilo City, Branch 24, 1 which dismissed a special civil action for certiorari and injunction filed by herein petitioners. The dispositive portion of the assailed RTC Decision reads: 2
WHEREFORE premises considered, the prayer for the issuance of a writ of preliminary injunction is denied and, with respect to the merits, the instant case is hereby ordered dismissed. Double costs against petitioners.

Facts The factual antecedents of this case as found by the Regional Trial Court are undisputed and admitted as correct by the parties. A complaint for forcible entry 3 was filed by Private Respondent Susana Guevara against Patricio Guevara and Petitioners Victoria Gachon and Alex Guevara before the Municipal Trial Court for Cities (MTCC) of Iloilo City. Summons was served on and received by petitioners on August 25, 1993, directing them to file an answer within the reglementary period of ten (10) days. Patricio Guevara was abroad at that time; hence, the MTCC did not acquire jurisdiction over him. On September 4, 1993, petitioners filed with the MTCC an urgent motion for extension of time to file an answer. 4 On September 7, 1993, the MTCC denied the motion on the ground that it was a prohibited pleading under the Rule on Summary Procedure. 5 On September 8, 1993, or more than ten days from their receipt of the summons, petitioner submitted an urgent motion praying for the admission of their answer, 6 which was attached thereto. Two days later, petitioners filed another motion pleading for the admission of an amended answer. On September 23, 1993, the MTCC denied the motions and considered the case submitted for resolution. 7 On October 27, 1993, the MTCC also denied the petitioners' motion for reconsideration. 8 Thereafter, on November 26, 1993, the MTCC 9 issued a

decision 10 resolving the complaint for forcible entry in favor of herein private respondents. Instead of filing an appeal, petitioners filed a petition for certiorari and injunction before the Regional Trial Court (RTC) of Iloilo City, 11 Branch 24, praying mainly that the MTCC be ordered to admit the amended answer and to conduct further proceedings in the civil case for forcible entry. As prayed for, a temporary restraining order was issued by the RTC. Thereafter, the RTC issued the assailed Decision 12 dismissing the petition. Respondent Judge Norberto E. Devera, Jr. ratiocinated: 13
Section 36 of Batas Pambansa Blg. 129, otherwise known as The Judiciary Reorganization Act of 1980 provides, among others, as follows: Sec. 36 Summary Procedures in Special Cases . . . The Supreme Court shall adopt special rules or procedures applicable to such cases in order to achieve an expeditions (sic) and inexpensive determination thereof without regard to technical rules. Such simplified procedures may provide that affidavits and counter-affidavits may be admitted in lieu of oral testimony and that the periods for filing pleadings shall be nonextendible.

Pursuant to the aforequoted legislative mandate, the Supreme Court promulgated the Rule on Summary Procedure, the pertinent provisions of which, as related to the issues raised in this case, are hereunder set forth
II Civil Cases Sec. 3. Pleadings A. (P)leadings allowed The only pleadings allowed to be filed are the complaints, compulsory counter-claims and cross-claims pleaded in the answer, and the answers thereto xxx xxx xxx Sec. 5. Answer Within ten (10) days from service of summons, the defendant shall file his answer to the complaint and serve a copy thereof on the plaintiff . . . Sec. 6. Effect of Failure to answer Should the defendant fail to answer the complaint within the period above provided, the Court, motu proprio, or on motion of the plaintiff, shall render judgment as may be warranted by the facts alleged in the complaint and limited to what is prayed for therein: . . . xxx xxx xxx Sec. 19. Prohibited Pleadings and Motions The following pleadings, motions, or petitions shall not be allowed in the cases covered by this Rule:

(a) Motion for extension of time to file pleadings, affidavits or any other paper. xxx xxx xxx The foregoing should underscore quite clearly the reality that the ten-day-period to file an answer reckoned from the date of the receipt of the summons is mandatory and no reason of any kind is acceptable to operate as an excuse. The rule is explicit. It is addressed more, being one of procedure, to counsels than to litigants. Counsels, therefore cannot assert the validity of their client's cause to evade the mandate of the law. Accordingly, the Court cannot fault the respondent judge [referring to Judge Jose R. Astorga] in acting the way he did in Civil Case No. 130 (93) taking into account the admitted facts and circumstances.

Hence, this petition directly filed before this Court. The Issues Petitioners submit for resolution the following questions of law: 14
I. Are the provisions of the Rules on Summary Procedure on the period of pleadings to be applied STRICTLY or LIBERALLY. II. What is the legal effect of a belated answer under the Rules on Summary Procedure.

Petitioners argue that the "technical rules of procedure must yield to the higher interest of justice." Petitioners explain that they filed the motion for extension of time to file an answer, a prohibited pleading under the Rule on Summary Procedure, because of "oversight. That was why immediately upon receipt of the denial of that motion, petitioners filed their motion to admit answer which was later verified and had to be amended. All these (actions) were done in a period of five (5) days from the lapse of the reglementary period to file an answer." 15 Furthermore, petitioners contend that "no prejudice to private respondent has been claimed or alleged by reason of the delay" in filing an answer. 16 Petitioners also argue that their defense in the action for forcible entry is based on substantial grounds, because they "were in prior physical possession of the premises subject of the action and that their houses have long been standing on the land in question because the land on which said houses are standing are (sic) the common properties of the parties." Citing Section 2, Rule 1 17 of the Rules of Court, petitioners pray that the provisions in the Rule on Summary Procedure regarding prohibited pleadings and the period for filing an answer be given liberal interpretation. Petitioners concede that said provisions appear to be couched in mandatory language. They contend, however, that other similarly worded provisions in the Rules of Court have nonetheless been liberally applied by this Court to promote substantial justice. 18

Private respondent, on the other hand, submits that the provisions in question have to be strictly construed in order to avoid delay, considering that the Rule on Summary Procedure is aimed at inexpensive, expeditious and summary determination of cases. 19 Private respondent adds that the petition can also be dismissed on the ground of violation of Revised Circular 28-91 on forum shopping, because three (3) months after the rendition of the assailed Decision, a "petition for quieting of title and partition, and damages, involving the same parcel of residential land (Cadastral Lot No. 709 . . . ), was filed . . . docketed as Civil Case No. 21618, by (Petitioner) Victoria Guevara-Gachon (. . .), Patricio Guevara (father of Petitioner Alex Guevara), Lilia Guevara-Doreza and Fe Guevara-Burgos against herein private respondent." Private respondent contends that the subsequent case is the appropriate forum where ownership of the property in question may be threshed out. 20 As observed at the outset, the issue to be resolved is whether, under the undisputed facts of this case, the Rule on Summary Procedure may be liberally construed in order to allow the admission of petitioners' answer which unquestionably was filed beyond the reglementary period. Preliminary Matter It bears noting that petitioners filed directly before this Court a petition for review assailing the RTC Decision. This remedy is allowed under paragraph 2 of Circular 2-90 21 which provides:
Sec. 2. Appeals from Regional Trial Courts to the Supreme Court. Except in criminal cases where the penalty imposed is life imprisonment or reclusion perpetua, judgments of regional trial courts may be appealed to the Supreme Court only by petition for review on certiorari in accordance with Rule 45 of the Rules of Court in relation to Section 17 of the Judiciary Act of 1948, as amended, 22 this being the clear intendment of the provision of the Interim Rules that "(a)ppeals to the Supreme Court shall be taken by petition for certiorari which shall be governed by Rule 45 of the Rules of Court.

Petitioners ask the Court to interpret a provision of the Rule on Summary Procedure. This is a pure question of law that may be properly raised in this petition for review. The Court's Ruling The petition has no merit. First Issue: Interpretation of the Period The pertinent provisions of the Rule on Summary Procedure are as follows:
Sec. 5. Answer. Within ten (10) days from service of summons, the defendant shall file his answer to the complaint and serve a copy thereof on the plaintiff . . .

Sec. 6. Effect of failure to answer. Should the defendant fail to answer the complaint within the period above provided, the Court, motu proprio, or on motion of the plaintiff, shall render judgment as may be warranted by the facts alleged in the complaint and limited to what is prayed for therein: . . . xxx xxx xxx Sec. 19. Prohibited pleadings and motions. The following pleadings, motions, or petitions shall not be allowed in the cases covered by this Rule: (a) Motion for extension of time to file pleadings, affidavits or any other paper. xxx xxx xxx (Emphasis supplied.)

The word "shall" ordinarily connotes an imperative and indicates the mandatory character of a statute. 23 This, however, is not an absolute rule in statutory construction. The import of the word ultimately depends upon a consideration of the entire provision, its nature, object and the consequences that would follow from construing it one way or the other. 24 As a general principle, rules prescribing the time within which certain acts must be done, or certain proceedings taken, are considered absolutely indispensable to the prevention of needless delays and to the orderly and speedy discharge of judicial business. By their very nature, these rules are regarded as mandatory. 25 The Rule on Summary Procedure, in particular, was promulgated for the purpose of achieving "an expeditious and inexpensive determination of cases." 26 For this reason, the Rule frowns upon delays and prohibits altogether the filing of motions for extension of time. Consistent with this reasoning is Section 6 of the Rule which allows the trial court to render judgment, even motu proprio, upon the failure of a defendant to file an answer within the reglementary period. Indeed, the Judiciary Reorganization Act of 1980, mandating the promulgation of the Rule on Summary Procedure, authorizes the Court to stipulate that the period for filing pleadings in cases covered by the Rule on Summary Procedure shall be "non-extendible." 27 Furthermore, speedy resolution of unlawful detainer cases is a matter of public policy, 28 and this rule should equally apply with full force in forcible entry cases where the possession of the premises at the start is already illegal. From the foregoing, it is clear that the use of the word "shall" in the Rule on Summary Procedure underscores the mandatory character of the challenged provisions. Giving the provisions a directory application would subvert the nature of the Rule on Summary Procedure and defeat its objective of expediting the

adjudication of suits. Indeed, to admit a late answer, as petitioners suggest, is to put premium on dilatory maneuvers the very mischief that the Rule seeks to redress. In this light, petitioners' invocation of the general principle in Rule 1, Section 2 of the Rules of Court is misplaced. Other than a plea for the liberal interpretation of the Rule on Summary Procedure, petitioners do not provide an adequate justification for the admission of their late answer. "Oversight," which they candidly cite as the reason for their filing a motion for extension of time to file an answer, is not a justification. Oversight, at best, implies negligence; at worst, ignorance. The negligence displayed by petitioners is clearly inexcusable; ignorance of so basic a rule, on the other hand, can never be condoned. In either case, the directory application of the questioned provision is not warranted. Petitioners also cite Rosales vs. Court of Appeals 29 and Co Keng Kian vs. Intermediate Appellate Court, 30 but these cases do not support their position. In Rosales vs. Court of Appeals, 31 this Court applied the Rule on Summary Procedure liberally when the defendant, instead of filing an answer, filed within the reglementary period a pleading labeled as a motion to dismiss. In treating the motion to dismiss as an answer, the Court ruled: 32
Parenthetically, petitioner argues in the present petition that, notwithstanding its being labeled as a motion to dismiss, said pleading should have been considered as his answer pursuant to the liberal interpretation accorded the rules and inasmuch as the grounds involved therein also qualify as defenses proper in an answer. In this instance the Court agrees. Indeed, the rule on summary procedure was conceptualized to facilitate the immediate resolution of cases such as the present one. Well-settled is the rule that forcible entry and detainer cases being summary in nature and involving disturbance of social order, procedural technicalities should be carefully avoided and should not be allowed to override substantial justice. With this premise in mind and having insisted, however erroneously, on its jurisdiction over the case, it certainly would have been more prudent for the lower court to have treated the motion to dismiss as the answer of petitioner and examined the case on its merits. As will be shown shortly, the long drawn out proceedings that took place would have been avoided.

Furthermore, the said case did not involve the question of extension in the period for filing pleadings under the Rule on Summary Procedure. In Co Keng Kian vs. Intermediate Appellate Court, 33 this Court allowed the notice to vacate, served upon the tenant, by registered mail instead of personal service as required by the Rules of Court. We thus ruled: 34
At this juncture it bears repeating that actions for forcible entry and unlawful detainer are summary in nature because they involve a disturbance a social order which must be abated as promptly as possible without any undue reliance on technical and procedural rules which only cause delays. In the ultimate analysis, it matters not how the notice to vacate was conveyed, so long as the

lessee or his agent has personally received the written demand, whether handed to him by the lessor, his attorney, a messenger or even a postman. The undisputed facts in the instant case show that the Manila Times Publishing Company, through its manager, had informed petitioner that Plaza Arcade Inc. was the new owner of the subject building; that on October 18, 1979, a demand letter was sent to petitioner advising him to leave the premises but petitioner refused to receive the letter; that a second demand on January 12, 1981 elicited the same reaction; that a final demand dated November 16, 1981 was sent to petitioner by registered mail which he again refused. And even on the supposition that there was no personal service as claimed by petitioner, this could only be due to petitioner's blatant attempts at evasion which compelled the new landlord to resort to registered mail. The Court cannot countenance an unfair situation where the plaintiff in an eviction case suffers further injustice by the unwarranted delay resulting from the obstinate refusal of the defendant to acknowledge the existence of a valid demand.

In both cases, there was substantial compliance with the law, something that cannot be said of herein petitioners. Second Issue: Forum-Shopping Private respondent assails petitioners for engaging in forum-shopping by pursuing the present ejectment suit, notwithstanding the pendency of an action for quieting of title involving the same property and parties. We are unable to find basis for this charge. For forum-shopping to exist, both actions must involve the same transactions, essential facts and circumstances; and the actions must raise identical causes of action, subject matter, and issues. 35 Suffice it to say that an action for quieting of title and partition has a different cause of action than that in an ejectment suit. As private respondent herself contended, ownership of a certain portion of the property which is determined in a case of partition does not necessarily mean that the successful litigant has the right to possess the property adjudged in his favor. In ejectment cases, the only issue for resolution is physical or material possession of the property involved, independent of any claim of ownership set forth by any of the party litigants. Anyone of them who can prove prior possession de facto may recover such possession even from the owner himself. This rule holds true regardless of the character of a party's possession, provided that he has in his favor priority of time which entitles him to stay on the property until he is lawfully ejected by a person having a better right by either accion publiciana or accion reivindicatoria. 36 It has even been ruled that the institution of a separate action for quieting of title is not a valid reason for defeating the execution of the summary remedy of ejectment. 37 WHEREFORE, in view of the foregoing, the petition is DENIED and the assailed Decision is AFFIRMED in toto. Double costs against petitioners. SO ORDERED.

[G.R. No. 161135. April 8, 2005] SWAGMAN HOTELS AND TRAVEL, INC., petitioner, vs. HON. COURT OF APPEALS, and NEAL B. CHRISTIAN, respondents. DECISION DAVIDE, JR., C.J.: May a complaint that lacks a cause of action at the time it was filed be cured by the accrual of a cause of action during the pendency of the case? This is the basic issue raised in this petition for the Courts consideration. Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L. Infante and Rodney David Hegerty, its president and vice-president, respectively, obtained from private respondent Neal B. Christian loans evidenced by three promissory notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of the promissory notes is in the amount of US$50,000 payable after three years from its date with an interest of 15% per annum payable every three months.[1] In a letter dated 16 December 1998, Christian informed the petitioner corporation that he was terminating the loans and demanded from the latter payment in the total amount of US$150,000 plus unpaid interests in the total amount of US$13,500.[2] On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City, Branch 59, a complaint for a sum of money and damages against the petitioner corporation, Hegerty, and Atty. Infante. The complaint alleged as follows: On 7 August 1996, 14 March 1997, and 14 July 1997, the petitioner, as well as its president and vice-president obtained loans from him in the total amount of US$150,000 payable after three years, with an interest of 15% per annum payable quarterly or every three months. For a while, they paid an interest of 15% per annum every three months in accordance with the three promissory notes. However, starting January 1998 until December 1998, they paid him only an interest of 6% per annum, instead of 15% per annum, in violation of the terms of the three promissory notes. Thus, Christian prayed that the trial court order them to pay him jointly and solidarily the amount of US$150,000 representing the total amount of the loans; US$13,500 representing unpaid interests from January 1998 until December 1998; P100,000 for moral damages; P50,000 for attorneys fees; and the cost of the suit.[3] The petitioner corporation, together with its president and vice-president, filed an Answer raising as defenses lack of cause of action and novation of the principal obligations. According to them, Christian had no cause of action because the three promissory notes were not yet due and demandable. In December 1997, since the petitioner corporation was experiencing huge losses due to the Asian financial crisis, Christian agreed (a) to waive the interest of 15% per annum, and (b) accept payments of the principal loans in installment basis, the amount and period of which would depend on the state of business of the petitioner corporation. Thus, the petitioner paid Christian capital repayment in the

amount of US$750 per month from January 1998 until the time the complaint was filed in February 1999. The petitioner and its co-defendants then prayed that the complaint be dismissed and that Christian be ordered to pay P1 million as moral damages; P500,000 as exemplary damages; and P100,000 as attorneys fees.[4] In due course and after hearing, the trial court rendered a decision[5] on 5 May 2000 declaring the first two promissory notes dated 7 August 1996 and 14 March 1997 as already due and demandable and that the interest on the loans had been reduced by the parties from 15% to 6% per annum. It then ordered the petitioner corporation to pay Christian the amount of $100,000 representing the principal obligation covered by the promissory notes dated 7 August 1996 and 14 March 1997, plus interest of 6% per month thereon until fully paid, with all interest payments already paid by the defendant to the plaintiff to be deducted therefrom. The trial court ratiocinated in this wise: (1) There was no novation of defendants obligation to the plaintiff. Under Article 1292 of the Civil Code, there is an implied novation only if the old and the new obligation be on every point incompatible with one another. The test of incompatibility between the two obligations or contracts, according to an imminent author, is whether they can stand together, each one having an independent existence. If they cannot, they are incompatible, and the subsequent obligation novates the first (Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., p. 384). Otherwise, the old obligation will continue to subsist subject to the modifications agreed upon by the parties. Thus, it has been written that accidental modifications in an existing obligation do not extinguish it by novation. Mere modifications of the debt agreed upon between the parties do not constitute novation. When the changes refer to secondary agreement and not to the object or principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation. Thus, the acceptance of partial payments or a partial remission does not involve novation (id., p. 387). Neither does the reduction of the amount of an obligation amount to a novation because it only means a partial remission or condonation of the same debt. In the instant case, the Court is of the view that the parties merely intended to change the rate of interest from 15% per annum to 6% per annum when the defendant started paying $750 per month which payments were all accepted by the plaintiff from January 1998 onward. The payment of the principal obligation, however, remains unaffected which means that the defendant should still pay the plaintiff $50,000 on August 9, 1999, March 14, 2000 and July 14, 2000. (2) When the instant case was filed on February 2, 1999, none of the promissory notes was due and demandable. As of this date however, the first and the second promissory notes have already matured. Hence, payment is already due.

Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a complaint which states no cause of action may be cured by evidence presented without objection. Thus, even if the plaintiff had no cause of action at the time he filed the instant complaint, as defendants obligation are not yet due and demandable then, he may nevertheless recover on the first two promissory notes in view of the introduction of evidence showing that the obligations covered by the two promissory notes are now due and demandable. (3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante can not be held personally liable for the obligations contracted by the defendant corporation it being clear that they merely acted in representation of the defendant corporation in their capacity as General Manager and President, respectively, when they signed the promissory notes as evidenced by Board Resolution No. 1(94) passed by the Board of Directors of the defendant corporation (Exhibit 4).[6] In its decision[7] of 5 September 2003, the Court of Appeals denied petitioners appeal and affirmed in toto the decision of the trial court, holding as follows: In the case at bench, there is no incompatibility because the changes referred to by appellant Swagman consist only in the manner of payment. . . . Appellant Swagmans interpretation that the three (3) promissory notes have been novated by reason of appellee Christians acceptance of the monthly payments of US$750.00 as capital repayments continuously even after the filing of the instant case is a little bit strained considering the stiff requirements of the law on novation that the intention to novate must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. Under the circumstances, the more reasonable interpretation of the act of the appellee Christian in receiving the monthly payments of US$750.00 is that appellee Christian merely allowed appellant Swagman to pay whatever amount the latter is capable of. This interpretation is supported by the letter of demand dated December 16, 1998 wherein appellee Christian demanded from appellant Swagman to return the principal loan in the amount of US$150,000 plus unpaid interest in the amount of US$13,500.00 ... Appellant Swagman, likewise, contends that, at the time of the filing of the complaint, appellee Christian ha[d] no cause of action because none of the promissory notes was due and demandable. Again, We are not persuaded. ... In the case at bench, while it is true that appellant Swagman raised in its Answer the issue of prematurity in the filing of the complaint, appellant Swagman nonetheless failed to

object to appellee Christians presentation of evidence to the effect that the promissory notes have become due and demandable. The afore-quoted rule allows a complaint which states no cause of action to be cured either by evidence presented without objection or, in the event of an objection sustained by the court, by an amendment of the complaint with leave of court (Herrera, Remedial Law, Vol. VII, 1997 ed., p. 108).[8] Its motion for reconsideration having been denied by the Court of Appeals in its Resolution of 4 December 2003,[9] the petitioner came to this Court raising the following issues: I. WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO DEFENDANTS HAS BECOME FINAL AND EXECUTORY, MAY THE RESPONDENT COURT OF APPEALS STILL STUBBORNLY CONSIDER THEM AS APPELLANTS WHEN THEY DID NOT APPEAL? II. WHERE THERE IS NO CAUSE OF ACTION, IS THE DECISION OF THE LOWER COURT VALID? III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY AFFIRM A DECISION OF THE LOWER COURT WHICH IS INVALID DUE TO LACK OF CAUSE OF ACTION? IV. WHERE THERE IS A VALID NOVATION, MAY THE ORIGINAL TERMS OF CONTRACT WHICH HAS BEEN NOVATED STILL PREVAIL?[10] The petitioner harps on the absence of a cause of action at the time the private respondents complaint was filed with the trial court. In connection with this, the petitioner raises the issue of novation by arguing that its obligations under the three promissory notes were novated by the renegotiation that happened in December 1997 wherein the private respondent agreed to waive the interest in each of the three promissory notes and to accept US$750 per month as installment payment for the principal loans in the total amount of US$150,000. Lastly, the petitioner questions the act of the Court of Appeals in considering Hegerty and Infante as appellants when they no longer appealed because the trial court had already absolved them of the liability of the petitioner corporation. On the other hand, the private respondent asserts that this petition is a mere ploy to continue delaying the payment of a just obligation. Anent the fact that Hegerty and Atty. Infante were considered by the Court of Appeals as appellants, the private respondent finds it immaterial because they are not affected by the assailed decision anyway.

Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil Procedure, is the act or omission by which a party violates the right of another. Its essential elements are as follows: 1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created; 2. An obligation on the part of the named defendant to respect or not to violate such right; and 3. Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages or other appropriate relief.[11] It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the plaintiff the right to maintain an action in court for recovery of damages or other appropriate relief. It is undisputed that the three promissory notes were for the amount of P50,000 each and uniformly provided for (1) a term of three years; (2) an interest of 15 % per annum, payable quarterly; and (3) the repayment of the principal loans after three years from their respective dates. However, both the Court of Appeals and the trial court found that a renegotiation of the three promissory notes indeed happened in December 1997 between the private respondent and the petitioner resulting in the reduction not waiver of the interest from 15% to 6% per annum, which from then on was payable monthly, instead of quarterly. The term of the principal loans remained unchanged in that they were still due three years from the respective dates of the promissory notes. Thus, at the time the complaint was filed with the trial court on 2 February 1999, none of the three promissory notes was due yet; although, two of the promissory notes with the due dates of 7 August 1999 and 14 March 2000 matured during the pendency of the case with the trial court. Both courts also found that the petitioner had been religiously paying the private respondent US$750 per month from January 1998 and even during the pendency of the case before the trial court and that the private respondent had accepted all these monthly payments. With these findings of facts, it has become glaringly obvious that when the complaint for a sum of money and damages was filed with the trial court on 2 February 1999, no cause of action has as yet existed because the petitioner had not committed any act in violation of the terms of the three promissory notes as modified by the renegotiation in December 1997. Without a cause of action, the private respondent had no right to maintain an action in court, and the trial court should have therefore dismissed his complaint. Despite its finding that the petitioner corporation did not violate the modified terms of the three promissory notes and that the payment of the principal loans were not yet due when the complaint was filed, the trial court did not dismiss the complaint, citing Section 5, Rule 10 of the 1997 Rules of Civil Procedure, which reads:

Section 5. Amendment to conform to or authorize presentation of evidence. When issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made. According to the trial court, and sustained by the Court of Appeals, this Section allows a complaint that does not state a cause of action to be cured by evidence presented without objection during the trial. Thus, it ruled that even if the private respondent had no cause of action when he filed the complaint for a sum of money and damages because none of the three promissory notes was due yet, he could nevertheless recover on the first two promissory notes dated 7 August 1996 and 14 March 1997, which became due during the pendency of the case in view of the introduction of evidence of their maturity during the trial. Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is erroneous. Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil Procedure in order that the actual merits of a case may be determined in the most expeditious and inexpensive manner without regard to technicalities, and that all other matters included in the case may be determined in a single proceeding, thereby avoiding multiplicity of suits.[12] Section 5 thereof applies to situations wherein evidence not within the issues raised in the pleadings is presented by the parties during the trial, and to conform to such evidence the pleadings are subsequently amended on motion of a party. Thus, a complaint which fails to state a cause of action may be cured by evidence presented during the trial. However, the curing effect under Section 5 is applicable only if a cause of action in fact exists at the time the complaint is filed, but the complaint is defective for failure to allege the essential facts. For example, if a complaint failed to allege the fulfillment of a condition precedent upon which the cause of action depends, evidence showing that such condition had already been fulfilled when the complaint was filed may be presented during the trial, and the complaint may accordingly be amended thereafter.[13] Thus, in Roces v. Jalandoni,[14] this Court upheld the trial court in taking cognizance of an otherwise defective complaint which was later cured by the testimony of the plaintiff during the trial. In that case, there was in fact a cause of action and the only problem was the insufficiency of the allegations in the complaint. This ruling was reiterated in Pascua v. Court of Appeals.[15]

It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or remedied by an amended or supplemental pleading alleging the existence or accrual of a cause of action while the case is pending.[16] Such an action is prematurely brought and is, therefore, a groundless suit, which should be dismissed by the court upon proper motion seasonably filed by the defendant. The underlying reason for this rule is that a person should not be summoned before the public tribunals to answer for complaints which are immature. As this Court eloquently said in Surigao Mine Exploration Co., Inc. v. Harris:[17] It is a rule of law to which there is, perhaps, no exception, either at law or in equity, that to recover at all there must be some cause of action at the commencement of the suit. As observed by counsel for appellees, there are reasons of public policy why there should be no needless haste in bringing up litigation, and why people who are in no default and against whom there is yet no cause of action should not be summoned before the public tribunals to answer complaints which are groundless. We say groundless because if the action is immature, it should not be entertained, and an action prematurely brought is a groundless suit. It is true that an amended complaint and the answer thereto take the place of the originals which are thereby regarded as abandoned (Reynes vs. Compaa General de Tabacos [1912], 21 Phil. 416; Ruyman and Farris vs. Director of Lands [1916], 34 Phil., 428) and that the complaint and answer having been superseded by the amended complaint and answer thereto, and the answer to the original complaint not having been presented in evidence as an exhibit, the trial court was not authorized to take it into account. (Bastida vs. Menzi & Co. [1933], 58 Phil., 188.) But in none of these cases or in any other case have we held that if a right of action did not exist when the original complaint was filed, one could be created by filing an amended complaint. In some jurisdictions in the United States what was termed an imperfect cause of action could be perfected by suitable amendment (Brown vs. Galena Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is virtually permitted in Banzon and Rosauro vs. Sellner ([1933], 58 Phil., 453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683); and recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however, which is no cause of action whatsoever cannot by amendment or supplemental pleading be converted into a cause of action: Nihil de re accrescit ei qui nihil in re quando jus accresceret habet. We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and subsisting cause of action at the time his action is commenced, the defect cannot be cured or remedied by the acquisition or accrual of one while the action is pending, and a supplemental complaint or an amendment setting up such after-accrued cause of action is not permissible. (Emphasis ours). Hence, contrary to the holding of the trial court and the Court of Appeals, the defect of lack of cause of action at the commencement of this suit cannot be cured by the accrual of a cause of action during the pendency of this case arising from the alleged maturity of two of the promissory notes on 7 August 1999 and 14 March 2000.

Anent the issue of novation, this Court observes that the petitioner corporation argues the existence of novation based on its own version of what transpired during the renegotiation of the three promissory notes in December 1997. By using its own version of facts, the petitioner is, in a way, questioning the findings of facts of the trial court and the Court of Appeals. As a rule, the findings of fact of the trial court and the Court of Appeals are final and conclusive and cannot be reviewed on appeal to the Supreme Court[18] as long as they are borne out by the record or are based on substantial evidence.[19] The Supreme Court is not a trier of facts, its jurisdiction being limited to reviewing only errors of law that may have been committed by the lower courts. Among the exceptions is when the finding of fact of the trial court or the Court of Appeals is not supported by the evidence on record or is based on a misapprehension of facts. Such exception obtains in the present case.[20] This Court finds to be contrary to the evidence on record the finding of both the trial court and the Court of Appeals that the renegotiation in December 1997 resulted in the reduction of the interest from 15% to 6% per annum and that the monthly payments of US$750 made by the petitioner were for the reduced interests. It is worthy to note that the cash voucher dated January 1998[21] states that the payment of US$750 represents INVESTMENT PAYMENT. All the succeeding cash vouchers describe the payments from February 1998 to September 1999 as CAPITAL REPAYMENT.[22] All these cash vouchers served as receipts evidencing private respondents acknowledgment of the payments made by the petitioner: two of which were signed by the private respondent himself and all the others were signed by his representatives. The private respondent even identified and confirmed the existence of these receipts during the hearing. [23] Significantly, cognizant of these receipts, the private respondent applied these payments to the three consolidated principal loans in the summary of payments he submitted to the court.[24] Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall not be deemed to have been made until the interest has been covered. In this case, the private respondent would not have signed the receipts describing the payments made by the petitioner as capital repayment if the obligation to pay the interest was still subsisting. The receipts, as well as private respondents summary of payments, lend credence to petitioners claim that the payments were for the principal loans and that the interests on the three consolidated loans were waived by the private respondent during the undisputed renegotiation of the loans on account of the business reverses suffered by the petitioner at the time. There was therefore a novation of the terms of the three promissory notes in that the interest was waived and the principal was payable in monthly installments of US$750. Alterations of the terms and conditions of the obligation would generally result only in modificatory novation unless such terms and conditions are considered to be the essence of the obligation itself.[25] The resulting novation in this case was, therefore, of the

modificatory type, not the extinctive type, since the obligation to pay a sum of money remains in force. Thus, since the petitioner did not renege on its obligation to pay the monthly installments conformably with their new agreement and even continued paying during the pendency of the case, the private respondent had no cause of action to file the complaint. It is only upon petitioners default in the payment of the monthly amortizations that a cause of action would arise and give the private respondent a right to maintain an action against the petitioner. Lastly, the petitioner contends that the Court of Appeals obstinately included its President Infante and Vice-President Hegerty as appellants even if they did not appeal the trial courts decision since they were found to be not personally liable for the obligation of the petitioner. Indeed, the Court of Appeals erred in referring to them as defendantsappellants; nevertheless, that error is no cause for alarm because its ruling was clear that the petitioner corporation was the one solely liable for its obligation. In fact, the Court of Appeals affirmed in toto the decision of the trial court, which means that it also upheld the latters ruling that Hegerty and Infante were not personally liable for the pecuniary obligations of the petitioner to the private respondent. In sum, based on our disquisition on the lack of cause of action when the complaint for sum of money and damages was filed by the private respondent, the petition in the case at bar is impressed with merit. WHEREFORE, the petition is hereby GRANTED. The Decision of 5 September 2003 of the Court of Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of 5 May 2000 of the Regional Trial Court of Baguio, Branch 59, granting in part private respondents complaint for sum of money and damages, and its Resolution of 4 December 2003, which denied petitioners motion for reconsideration are hereby REVERSED and SET ASIDE. The complaint docketed as Civil Case No. 4282-R is hereby DISMISSED for lack of cause of action. No costs. SO ORDERED.

G.R. No. 166302. July 28, 2005 LOTTE PHIL. CO., INC., Petitioners, vs. ERLINDA DELA CRUZ, LEONOR MAMAUAG, LOURDES CAUBA, JOSEPHINE DOMANAIS, ARLENE CAGAYAT, AMELITA YAM, VIVIAN DOMARAIS, MARILYN ANTALAN, CHRISTOPHER RAMIREZ, ARNOLD SAN PEDRO, MARISSA SAN PEDRO, LORELI JIMENEZ, JEFFREY BUENO, CHRISTOPHER CAGAYAT, GERARD CABILES, JOAN ENRIQUEZ, JOSEPH DE LA CRUZ, NELLY CLERIGO, DULCE NAVARETTE, ROWENA BELLO, DANIEL RAMIREZ, AILEEN BAUTISTA and BALTAZAR FERRERA, Respondents. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari1 assails the July 9, 2004 decision2 of the Court of Appeals in CA-G.R. SP No. 72732 and its November 26, 2004 resolution3 denying reconsideration thereof. The established facts of this case are as follows: Private respondent (petitioner herein) Lotte Phils., Inc. (Lotte) is a domestic corporation. Petitioners (respondents herein) are among those who were hired and assigned to the confectionery facility operated by private respondent. On December 14, 1995 and yearly thereafter until the year 2000 7J Maintenance and Janitorial Services ("7J") entered into a contract with private respondent to provide manpower for needed maintenance, utility, janitorial and other services to the latter. In compliance with the terms and conditions of the service contract, and to accommodate the needs of private respondent for personnel/workers to do and perform "piece works," petitioners, among others, were hired and assigned to private respondent as repackers or sealers. However, either in October, 1999 or on February 9, 2000, private respondent dispensed with their services allegedly due to the expiration/termination of the service contract by respondent with 7J. They were either told "hwag muna kayong pumasok at tatawagan na lang kung may gawa"; or were asked to wait "pag magrereport sila sa trabaho." Unfortunately, petitioners were never called back to work again. Aggrieved, petitioners lodged a labor complaint against both private respondent Lotte and 7J, for illegal dismissal, regularization, payment of corresponding backwages and related employment benefits, 13th month pay, service incentive leave, moral and exemplary damages and attorneys fees based on total judgment award.4

On February 28, 2001, Labor Arbiter Cresencio G. Ramos, Jr., rendered judgment5 declaring 7J as employer of respondents.6 The arbiter also found 7J guilty of illegal dismissal7 and ordered to reinstate respondents,8 pay P2,374,710.00 as backwages, P713,648.00 as 13th month pay and P117,000.00 as service incentive leave pay.9 Respondents appealed to the National Labor Relations Commission (NLRC) praying that Lotte be declared as their direct employer because 7J is merely a labor-only contractor. In its decision10 dated April 24, 2002, the NLRC found no cogent reason to disturb the findings of the labor arbiter and affirmed its ruling that 7J is the employer of respondents and solely liable for their claims. Respondents motion for reconsideration was denied by the NLRC in a resolution dated June 18, 2002. Undaunted, they filed a petition for certiorari in the Court of Appeals11 against the NLRC and Lotte, insisting that their employer is Lotte and not 7J. Lotte, however, denied that respondents were its employees. It prayed that the petition be dismissed for failure to implead 7J who is a party interested in sustaining the proceedings in court, pursuant to Section 3, Rule 46 of the Revised Rules of Civil Procedure. On July 9, 2004, the Court of Appeals reversed and set aside the rulings of the Labor Arbiter and the NLRC. In its decision, the Court of Appeals declared Lotte as the real employer of respondents and that 7J who engaged in labor-only contracting was merely the agent of Lotte. Respondents who performed activities directly related to Lottes business were its regular employees under Art. 280 of the Labor Code. As such, they must be accorded security of tenure and their services terminated only on "just" and "authorized" causes. Lottes motion for reconsideration was denied, hence this petition, on the following issues: 8. Whether or not petitioner herein had the burden of proof to establish before the proceedings in the Court of Appeals that 7J Maintenance and Janitorial Service was not a labor-only contractor. 8.1. Whether or not the Petition in CA-G.R. SP No. 72732 is dismissible for failure to comply with Section 3, Rule 46 in relation to Section 5, Rule 65 of the 1997 Rules of Civil Procedure.12 We first resolve the procedural issue raised by petitioner. Lotte asserts that 7J is an indispensable party and should have been impleaded in respondents petition in the Court of Appeals. It claims that the petition before the Court of Appeals was dismissible for failure to comply with Section 3,13 Rule 46 in relation to Section 514 of Rule 65 of the Revised Rules of Civil Procedure.

Petitioners contention is tenable. An indispensable party is a party in interest without whom no final determination can be had of an action,15 and who shall be joined either as plaintiffs or defendants.16 The joinder of indispensable parties is mandatory.17 The presence of indispensable parties is necessary to vest the court with jurisdiction, which is "the authority to hear and determine a cause, the right to act in a case".18 Thus, without the presence of indispensable parties to a suit or proceeding, judgment of a court cannot attain real finality.19 The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present.20 In the case at bar, 7J is an indispensable party. It is a party in interest because it will be affected by the outcome of the case. The Labor Arbiter and the NLRC found 7J to be solely liable as the employer of respondents. The Court of Appeals however rendered Lotte jointly and severally liable with 7J who was not impleaded by holding that the former is the real employer of respondents. Plainly, its decision directly affected 7J. In Domingo v. Scheer,21 we held that the non-joinder of indispensable parties is not a ground for the dismissal of an action22 and the remedy is to implead the non-party claimed to be indispensable.23 Parties may be added by order of the court on motion of the party or on its own initiative at any stage of the action and/or such times as are just. If the petitioner refuses to implead an indispensable party despite the order of the court, the latter may dismiss the complaint/petition for the petitioner/plaintiffs failure to comply therefor.24 Although 7J was a co-party in the case before the Labor Arbiter and the NLRC, respondents failed to include it in their petition for certiorari in the Court of Appeals. Hence, the Court of Appeals did not acquire jurisdiction over 7J. No final ruling on this matter can be had without impleading 7J, whose inclusion is necessary for the effective and complete resolution of the case and in order to accord all parties with due process and fair play. In light of the foregoing, the Court sees no need to discuss the second issue raised by petitioner. WHEREFORE, the July 9, 2004 decision of the Court of Appeals in CA-G.R. SP No. 72732 and the November 26, 2004 resolution, are SET ASIDE. Let the case be REMANDED to the Court of Appeals to include 7J Maintenance and Janitorial Services as an indispensable party to the case for further proceedings. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.

G.R. No. 161955. August 31, 2005 CELEDONIO MOLDES, ROSITA MOLDES and CAROLINA CEDIA, Petitioners, vs. TIBURCIO VILLANUEVA, APOLONIO VILLANUEVA, MANUEL VILLANUEVA, MARIANO DULLAVIN, RONALDO DULLAVIN and TEODORA DULLAVIN, Respondent. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) and its Resolution2 in CA-G.R. CV No. 47518. The Antecedents The spouses Juan Mollet and Silvina Del Monte were the owners of three parcels of land then located in the Municipality of Taguig (now a part of Muntinlupa City) identified as Lot Nos. 589, 590 and 591. The lots had a total area of 3,600 square meters, covered by Transfer Certificate of Title (TCT) No. 2180 issued by the Register of Deeds of Rizal. Their daughter, Josefa, died intestate on November 24, 1918 at the age of 25. Juan Mollet died intestate on January 30, 1934 and his widow died also, intestate, on March 22, 1948. They were survived by their daughter Romana Mollet, who married Andres Gelardo.3 Romana and Andres were blessed with five children, namely, Flaviana, Brigida, Maria, Isaac and Leonila, all surnamed Gelardo.4 Flaviana married Manuel Villanueva, and their marriage produced four offsprings, namely, Apolinario, Tiburcio, Manuel and Juanita (now deceased), all surnamed Villanueva.5 Juanita married Cornelio Maritana. The couple begot five children, namely, Luis, Orlando, Normita, Diego, and Julieta, all surnamed Maritima. Brigida married Mariano Dullavin and they had two children, Rolando and Teodora, both surnamed Dullavin.6 Maria married Primo Tolentino and the couple had two children, Hermino and Carolyn.7 Leonila married Delfin Malacca and they had two sons, Gelardo and Marcial.8 Isaac died a bachelor and without any issue.9 On March 17, 1965, a document denominated as Deed of Extrajudicial Settlement with Quitclaim10 covering Lot Nos. 589, 590 and 591 was executed by Maria and Leonila, surnamed Gelardo, Mariano Dullavin, Manuel, Juanita, Tiburcio and Apolonio, all surnamed Villanueva, and Emeterio, Celedonio, Domingo, Rosita and Carolina, all surnamed Moldes. Lot 589 was divided as follows: Maria Gelardo, share; Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita Moldes, and Carolina Moldes Cedia, share. It

appears that the Villanueva siblings (Manuel, Tiburcio, Apolonio and Juanita) waived their share in favor of the Moldeses and Carolina. Lot 590 was adjudicated as follows: Lot 590-B entirely to Leonila Gelardo; Lot 590-C was allotted to Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita Moldes, and Carolina Moldes Cedia; Lot 590-D was given to Maria Gelardo, Leonila Gelardo, Mariano Dullavin, Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita Moldes, and Carolina Moldes Cedia. It appears that Mariano Dullavin and the Villanueva siblings waived their respective shares in Lot 590-B in favor of Leonila Gelardo; in Lot 590-C, to Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita Moldes, and Carolina Moldes Cedia; and, again in Lot D in favor of Maria Gelardo, Leonila Gelardo, Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita Moldes, and Carolina Moldes Cedia. Lot 591 was partitioned as follows: share of Lot 591-A to Leonila Gelardo; share of Lot 591-A to Maria Gelardo; and Lot Nos. 591-B and 591-C to Celedonio Moldes. It appears that Emeterio Moldes, Domingo Moldes, Rosita Moldes, Apolonio Moldes and Carolina Moldes Cedia, the Villanueva siblings, and Mariano Dullavin waived all their respective rights to the share of Lot 591-A given to Leonila Gelardo; to the share of Lot 591-A given to Maria Gelardo; and to Lot Nos. 591-B and 591-C awarded to Celedonio Moldes. On January 26, 1987, Manuel Villanueva and his children, namely, Tiburio and Apolonio, and Mariano Dullavin and his children, namely, Rolando and Teodora, filed a Complaint with the Regional Trial Court (RTC) of Makati against Celedonio, Rosita and Carolina Cedia, all surnamed Moldes, to annul the Deed of Extrajudicial Settlement with Quitclaim. The complaint contained the following prayer: WHEREFORE, it is most respectfully prayed of this Honorable Court to: 1. Order the rescission of the Extrajudicial Settlement with Quitclaim (Annex "B"); 2. Order the defendants to pay plaintiffs the following: a) Moral damages in the sum of P100,000; b) Exemplary damages in the sum of P50,000; c) Attorneys fee of P60,000 plus P450 per court appearance; and, d) To pay the costs of suit. Plaintiffs further pray for such other reliefs and remedies which are just and equitable under premises.11

Plaintiffs Rolando and Teodora Dullavin also alleged that they never knew of any document wherein they repudiated their share in the estate of their great-grandparents. In fact, in the past, they had wanted to eject the Moldeses but their case was dismissed because of the questioned deed, which incidentally was the very first time they saw it. They pointed out that by reckoning, they were still minor when their father, Mariano, signed the questioned deed. Be that as it may, it was of no moment, because their father had nothing to repudiate as he was not given any share in the estate of the spouses Mollet.12 Plaintiffs Tiburio and Apolonio Villanueva alleged that they and their sister Juanita were entrusted by their father to their aunt, Leonila Gelardo, when they were eight years old, six years old and one year old, respectively; they lived with her until 1938 when they were married; as a result, they developed a deep respect for their aunt, so much so that they signed the deed believing that they would be getting their inheritance under the deed more expeditiously, not knowing that because of their illiteracy, they had relinquished their rights over their inheritance. Plaintiffs Tiburcio, Apolonio and Manuel further alleged that they were hoodwinked by their aunt Leonila as well as Celedonio in parting with their inheritance. They claimed that being illiterate and unlettered, they did not understand the contents and the legal effects of the questioned deed. They explained that they signed the deed upon Leonilas representation and that what they were signing was just a partition of the estate of their great-grandparents. As it turned out and was revealed later, they were surprised to be excluded therefrom.13 The plaintiffs alleged, inter alia, that the deed was tainted with fraud because it included Celedonio, Rosita and Carolina, who were not heirs of the spouses Mollet (whose estate was partitioned). They denied the defendants allegation that they were Josefas descendants, the latter having died single at the age of 25 and without issue. In their answer, the defendants specifically denied that there was fraud or undue pressure in the execution of the questioned deed. They maintained that they were the direct descendants of the spouses Mollet, and successors-in-interest of Josefa Mollet from whom they derived their rights. According to them, long before she died, their grandmother Josefa married one Florencio Diaz. This matrimonial union begot Domingo Diaz and their mother, Dolores Diaz, who, in turn, married their father, Emeterio Moldes.14 By way of special and affirmative defense, the defendants averred that the action had prescribed because more than 20 years had elapsed from execution of the questioned deed.15 As counterclaim, they prayed that the plaintiffs be adjudged to pay them the amounts of P100,000.00 for moral damages; P50,000.00, for exemplary damages; and P30,000.00, for attorneys fees.16 The Ruling of the Regional Trial Court

On May 16, 1994, the RTC rendered a decision declaring that the Deed of Extra-judicial Settlement with Quitclaim was void. The dispositive portion thereof, reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs. It is the findings of this Court that since the consent of the plaintiffs were not freely given when they signed the document of the parties which they did not understand, but was obtained thru fraud, the Deed of Partition with Quitclaim is hereby ordered rescinded and voided. The other great grandchildren, particularly the children of Brigida Mollet Gelardo, married to Mariano Dullavin, being Rolando Dullavin and Teodora Dullavin, including the children of Maria Mollet Gelardo married to Primo Tolentino, being Hermino and Carolyn, were not given their share of their inheritance, all the more reason that this Deed of Partition with Waiver and Quitclaim should be rescinded and partition effected among all of the Plaintiffs as they probably are the only true heirs of spouses Juan Mollet and Silvina Del Monte. Accordingly, the property should remain as the Estate of the late Spouses Juan Mollet and Silvina Del Monte Mollet. As plaintiffs were force to litigate, all Defendants are, jointly and solidarily, directed to pay the Plaintiffs actual damages in the sum of P100,000.00. Defendants, jointly and solidarily, must pay moral damages for the trouble and anxiety caused to plaintiffs in the sum of P100,000.00 and as a deterrent to their propensity to covet what do not belong to them, Defendants must, jointly and solidarily, pay Plaintiffs exemplary damages of P100,000.00. As Plaintiffs were forced to litigate thru counsel, Defendants must, jointly and in solidum, pay Attorneys fees in the sum of P50,000.00, and, The cost of this proceedings. It is SO ORDERED.17 The RTC held that the Deed of Extrajudicial Settlement with Quitclaim was a sham. Through deceit and machinations, the plaintiffs, being illiterate at that, were "mislead, duped, railroaded and bamboozled" by the defendants in signing the deed and waiving their respective shares. In fact, the defendants never filed it in the Office of the Register of Deeds, an act "[giving] doubt to [its] existence and validity." The RTC further ruled that the evidence showed that the defendants were not heirs of the spouses Mollet, whose estate was partitioned. According to the trial court, the defendants own evidence belied their claim of heirship.

The defendants appealed the decision to the CA where they alleged, inter alia, that the RTC erred (1) in ruling that they were not heirs of the spouses Juan Mollet and Silvina Del Monte Mollet; (2) in voiding the Deed of Extrajudicial Settlement with Quitclaim on the ground of fraud; and (3) in awarding damages against them.18 The Ruling of the Court of Appeals On January 30, 2003, the CA affirmed with modification the decision of the RTC with this fallo: WHEREFORE, the assailed decision dated 16 May 1994 is hereby AFFIRMED with MODIFICATION deleting the award of damages and attorneys fees. SO ORDERED.19 The CA affirmed the findings of the RTC that the plaintiffs-appellees were duped by the defendants-appellants in signing the fraudulent deed. It amplified that the waivers, having no consideration, were wangled from the very much gullible plaintiffs-appellees, who were not given a copy by the defendants-appellants. In fact, the latter refused to give the plaintiffs-appellees a copy of the deed when they requested one. The appellate court further ratiocinated that as the subject deed included persons who were not heirs of the person whose estate was partitioned, such deed is governed by Article 1105 of the Civil Code.20 Thus, since the partition deemed inexistent and void from the beginning, the action seeking a declaration of its nullity could not prescribe. The appellate court denied the motion for reconsideration of the defendants-appellants21 who, forthwith, filed the instant petition. They made the following allegations: I. The Court of Appeals disregarded the basic rule that the respondents were the plaintiffs who had the burden of proving the rescissability (sic) of the notarial deed in favor of the petitioners. II. The Court of Appeals disregarded the incontestable and uncontested fact that petitioners have been in possession of the property in the concept of owners fifty (50) years prior to the execution of the deed that respondents sought to rescind. III. The Court of Appeals disregarded the basic principle in the adjudication that when the evidence of the parties in a civil case are in equipoise, the complaint must be dismissed for failure of the plaintiff to prove his case by preponderant evidence. IV. The Court of Appeals based its decision on evidence it itself pronounce as improbable, compounding the error by completely disregarding the nature and consequence of a notarial document.22 The Ruling of the Court

The Court grants the petition on the sole ground that the respondents, who were the plaintiffs in the trial court, failed to implead indispensable parties. The respondents herein, who were the plaintiffs in the court a quo, alleged in their complaint that, as heirs of the spouses Mollet, they were co-owners of the subject property together with the heirs of Maria and Leonila, namely, Primo Tolentino and their children, Hermino and Carolyn, and Delfin Malacca and their sons Gelardo and Marcial. With the death of the respondents sister Juanita Maritana, her heirs, (Cornelio Maritana and their children Luis, Orlando, Normita, Diego, and Julieta) retained their right to inherit despite her death.23 However, the respondents failed to implead the aforementioned heirs as parties-plaintiffs. The respondents also failed to implead the other signatories of the deed, namely, Emeterio and Domingo, surnamed Moldes, who, under the deed, were deeded shares in the property. This is fatal to the complaint. All heirs of the deceased are indispensable parties to the respondents action to nullify the deed and the partition of the subject property among the signatories therein.24 All the parties to the deed are, likewise, indispensable parties.25 Section 7, Rule 3 of the Rules of Court provides: SEC. 7. Compulsory joinder of indispensable parties. Parties-in-interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. An indispensable party is one who has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence, without injuring or affecting that interest. A party who has not only an interest in the subject matter of the controversy, but also has an interest of such nature that a final decree cannot be made without affecting his interest or leaving the controversy in such a condition that its final determination may be wholly inconsistent with equity and good conscience. He is a person in whose absence there cannot be a determination between the parties already before the court which is effective, complete, or equitable.26 In Commissioner Andrea D. Domingo v. Herbert Markus Emil Scheer,27 the Court held that the joinder of indispensable parties is mandatory. Without the presence of indispensable parties to the suit, the judgment of the court cannot attain real finality. Strangers to a case are not bound by the judgment rendered by the court. The absence of an indispensable party renders all subsequent actions of the court null and void, with no authority to act not only as to the absent party but also as to those present. The responsibility of impleading all the indispensable parties rests on the petitioner/plaintiff. Likewise, in Metropolitan Bank and Trust Company v. Hon. Floro T. Alejo,28 the Court ruled that the evident aim and intent of the Rules regarding the joinder of indispensable and necessary parties is a complete determination of all possible issues, not only between the parties themselves but also as regards to other persons who may be affected by the judgment. A valid judgment cannot even be rendered where there is want of indispensable parties.

WHEREFORE, the petition is GRANTED. The Decision of the Regional Trial Court and Decision of the Court of Appeals in CA-G.R. CV No. 47518 are REVERSED and SET ASIDE. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.