G.R. No.

168979, December 02, 2013

REBECCA PACAACONTRERAS AND ROSALIE

PACAA, Petitioners, v. ROVILA WATER SUPPLY, INC., EARL U. KOKSENG,
LILIA TORRES, DALLA P. ROMANILLOS AND MARISA GABUYA, Respondents.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the Rules of
Court seeking the reversal of the decision2 dated January 27, 2005 and the
resolution3 dated June 6, 2005 of the Court of Appeals (CA) in CAG.R. SP No.
71551. The CA set aside the orders dated February 28, 20024 and April 1, 20025 of
the Regional Trial Court (RTC), Branch 8, Cebu City, which denied the motion to
dismiss and the motion for reconsideration, respectively, of respondents Rovila
Water Supply, Inc. (Rovila Inc.), Earl U. Kokseng, Lilia Torres, Dalla P. Romanillos
and Marisa Gabuya.

THE FACTUAL ANTECEDENTS

Petitioners Rebecca PacaaContreras and Rosalie Pacaa, children of Lourdes

Teves Pacaa and Luciano Pacaa, filed the present case against Rovila Inc., Earl,
Lilia, Dalla and Marisa for accounting and damages.6 The petitioners claimed that
their family has long been known in the community to be engaged in the water
supply business; they operated the Rovila Water Supply from their family
residence and were engaged in the distribution of water to customers in Cebu City.

The petitioners alleged that Lilia was a former trusted employee in the family
business who hid business records and burned and ransacked the family files. Lilia
also allegedly posted security guards and barred the members of the Pacaa family
from operating their business. She then claimed ownership over the family business
through a corporation named Rovila Water Supply, Inc. (Rovila Inc.) Upon inquiry
with the Securities and Exchange Commission (SEC), the petitioners claimed that
Rovila Inc. was surreptitiously formed with the respondents as the majority
stockholders. The respondents did so by conspiring with one another and forming
the respondent corporation to takeover and illegally usurp the family business
registered name.7 c ralawre d

In forming the respondent corporation, the respondents allegedly used the name of
Lourdes as one of the incorporators and made it appear in the SEC documents that
the family business was operated in a place other than the Pacaa residence.
Thereafter, the respondents used the Pacaa familys receipts and the deliveries
and sales were made to appear as those of the respondent Rovila Inc. Using this
scheme, the respondents fraudulently appropriated the collections and
payments.8 cra lawlawlib ra ry

The petitioners filed the complaint in their own names although Rosalie was
authorized by Lourdes through a sworn declaration and special power of attorney
(SPA). The respondents filed a first motion to dismiss on the ground that the RTC
had no jurisdiction over an intracorporate controversy.9 The RTC denied the
motion.

On September 26, 2000, Lourdes died10 and the petitioners amended their
complaint, with leave of court, on October 2, 2000 to reflect this
development.11 They still attached to their amended complaint the sworn
declaration with SPA, but the caption of the amended complaint remained the
same.12 On October 10, 2000, Luciano also died.13

The respondents filed their Answer on November 16, 2000.14 The petitioners sister,
Lagrimas PacaaGonzales, filed a motion for leave to intervene and her answer
inintervention was granted by the trial court. At the subsequent pretrial, the
respondents manifested to the RTC that a substitution of the parties was necessary
in light of the deaths of Lourdes and Luciano. They further stated that they would
seek the dismissal of the complaint because the petitioners are not the real parties
in interest to prosecute the case. The pretrial pushed through as scheduled and
the RTC directed the respondents to put into writing their earlier manifestation. The
RTC issued a pretrial order where one of the issues submitted was whether the
complaint should be dismissed for failure to comply with Section 2, Rule 3 of the
Rules of Court which requires that every action must be prosecuted in the name of
the real party in interest.15

On January 23, 2002,16 the respondents again filed a motion to dismiss on the
grounds, among others, that the petitioners are not the real parties in interest to
institute and prosecute the case and that they have no valid cause of action against
the respondents.

THE RTC RULING

The RTC denied the respondents motion to dismiss. It ruled that, save for the
grounds for dismissal which may be raised at any stage of the proceedings, a
motion to dismiss based on the grounds invoked by the respondents may only be
filed within the time for, but before, the filing of their answer to the amended
complaint. Thus, even granting that the defenses invoked by the respondents are
meritorious, their motion was filed out of time as it was filed only after the
conclusion of the pretrial conference. Furthermore, the rule on substitution of
parties only applies when the parties to the case die, which is not what happened in
the present case.17 The RTC likewise denied the respondents motion for
reconsideration.18

The respondents filed a petition for certiorari under Rule 65 of the Rules of Court
with the CA, invoking grave abuse of discretion in the denial of their motion to
dismiss. They argued that the deceased spouses Luciano and Lourdes, not the
petitioners, were the real parties in interest. Thus, the petitioners violated Section
16, Rule 3 of the Rules of Court on the substitution of parties.19 Furthermore, they
seasonably moved for the dismissal of the case20 and the RTC never acquired
jurisdiction over the persons of the petitioners as heirs of Lourdes and Luciano.21

THE CA RULING

The CA granted the petition and ruled that the RTC committed grave abuse of
discretion as the petitioners filed the complaint and the amended complaint as
attorneysinfact of their parents. As such, they are not the real parties in interest
and cannot bring an action in their own names; thus, the complaint should be
dismissed22 pursuant to the Courts ruling in Casimiro v. Roque and Gonzales.23

Neither are the petitioners suing as heirs of their deceased parents. Pursuant to
jurisprudence,24 the petitioners should first be declared as heirs before they can be
considered as the real parties in interest. This cannot be done in the present
ordinary civil case but in a special proceeding for that purpose.

The CA agreed with the respondents that they alleged the following issues as
affirmative defenses in their answer: 1) the petitioners are not the real parties in
interest; and 2) that they had no legal right to institute the action in behalf of their
parents.25 That the motion to dismiss was filed after the period to file an answer
has lapsed is of no moment. The RTC judge entertained it and passed upon its
merit. He was correct in doing so because in the pretrial order, one of the
submitted issues was whether the case must be dismissed for failure to comply with
the requirements of the Rules of Court. Furthermore, in Dabuco v. Court of
Appeals,26 the Court held that the ground of lack of cause of action may be raised in
a motion to dismiss at anytime.27

The CA further ruled that, in denying the motion to dismiss, the RTC judge acted
contrary to established rules and jurisprudence which may be questioned via a
petition for certiorari. The phrase grave abuse of discretion which was traditionally
confined to capricious and whimsical exercise of judgment has been expanded to
include any action done contrary to the Constitution, the law or jurisprudence[.]28

THE PARTIES ARGUMENTS

The petitioners filed the present petition and argued that, first, in annulling the
interlocutory orders, the CA unjustly allowed the motion to dismiss which did not
conform to the rules.29 Specifically, the motion was not filed within the time for, but
before the filing of, the answer to the amended complaint, nor were the grounds
raised in the answer. Citing Section 1, Rule 9 of the Rules of Court, the respondents
are deemed to have waived these grounds, as correctly held by the RTC.30

Second, even if there is nonjoinder and misjoinder of parties or that the suit is not
brought in the name of the real party in interest, the remedy is not outright
dismissal of the complaint, but its amendment to include the real parties in
interest.31

Third, the petitioners sued in their own right because they have actual and
substantial interest in the subject matter of the action as heirs or coowners,
pursuant to Section 2, Rule 3 of the Rules of Court.32Their declaration as heirs in a
special proceeding is not necessary, pursuant to the Courts ruling in Marabilles, et
al. v. Quito.33 Finally, the sworn declaration is evidentiary in nature which remains
to be appreciated after the trial is completed.34

The respondents reiterated in their comment that the petitioners are not the real
parties in interest.35They likewise argued that they moved for the dismissal of the
case during the pretrial conference due to the petitioners procedural lapse in
refusing to comply with a condition precedent, which is, to substitute the heirs as
plaintiffs. Besides, an administrator of the estates of Luciano and Lourdes has
already been appointed.36

The respondents also argued that the grounds invoked in their motion to dismiss
were timely raised, pursuant to Section 2, paragraphs g and i, Rule 18 of the Rules
of Court. Specifically, the nature and purposes of the pretrial include, among
others, the dismissal of the action, should a valid ground therefor be found to exist;
and such other matters as may aid in the prompt disposition of the action. Finally,
the special civil action of certiorari was the proper remedy in assailing the order of
the RTC.37

THE COURTS RULING

We find the petition meritorious.

Petition for certiorari under Rule 65 is a proper remedy for a denial of a motion to
dismiss attended by grave abuse of discretion

In Barrazona v. RTC, Branch 61, Baguio City,38 the Court held that while an order
denying a motion to dismiss is interlocutory and nonappealable, certiorari and
prohibition are proper remedies to address an order of denial made without or in
excess of jurisdiction. The writ of certiorari is granted to keep an inferior court
within the bounds of its jurisdiction or to prevent it from committing grave abuse of
discretion amounting to lack or excess of jurisdiction.

The history and development of the ground fails to state a cause of action in the
1940, 1964 and the present 1997 Rules of Court

Preliminarily, a suit that is not brought in the name of the real party in interest is
dismissible on the ground that the complaint fails to state a cause of
action.39 Pursuant to jurisprudence,40 this is also the ground invoked when the
respondents alleged that the petitioners are not the real parties in interest because:
1) the petitioners should not have filed the case in their own names, being merely
attorneysinfact of their mother; and 2) the petitioners should first be declared as
heirs.

A review of the 1940, 1964 and the present 1997 Rules of Court shows that the
fundamentals of the ground for dismissal based on failure to state a cause of
action have drastically changed over time. A historical background of this
particular ground is in order to preclude any confusion or misapplication of
jurisprudence decided prior to the effectivity of the present Rules of Court.

The 1940 Rules of Court provides under Section 10, Rule 9 that: chanRo blesvi rtual Lawli bra ry

Section 10. Waiver of defenses Defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived; except the defense of
failure to state a cause of action, which may be alleged in a later pleading, if one is
permitted, or by motion for judgment on the pleadings, or at the trial on the
merits; but in the last instance, the motion shall be disposed of as provided in
section 5 of Rule 17 in the light of any evidence which may have been received.
Whenever it appears that the court has no jurisdiction over the subjectmatter, it
shall dismiss the action. [underscoring supplied]
This provision was essentially reproduced in Section 2, Rule 9 of the 1964 Rules of
Court, and we quote: chanRob lesvirtual Lawlib ra ry

Section 2. Defenses and objections not pleaded deemed waived. Defenses and
objections not pleaded either in a motion to dismiss or in the answer are deemed
waived; except the failure to state a cause of action which may be alleged in a later
pleading, if one is permitted, or by motion for judgment on the pleadings, or at the
trial on the merits; but in the last instance, the motion shall be disposed of as
provided in section 5 of Rule 10 in the light of any evidence which may have been
received. Whenever it appears that the court has no jurisdiction over the subject
matter, it shall dismiss the action. [underscoring supplied]
Under the present Rules of Court, this provision was reflected in Section 1, Rule 9,
and we quote:

Section 1. Defenses and objections not pleaded. Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived.
However, when it appears from the pleadings or the evidence on record that the
court has no jurisdiction over the subject matter, that there is another action
pending between the same parties for the same cause, or that the action is barred
by a prior judgment or by statute of limitations, the court shall dismiss the claim.
[underscoring supplied]

Notably, in the present rules, there was a deletion of the ground of failure to state
a cause of action from the list of those which may be waived if not invoked either
in a motion to dismiss or in the answer.

Another novelty introduced by the present Rules, which was totally absent in its two
precedents, is the addition of the period of time within which a motion to dismiss
should be filed as provided under Section 1, Rule 16 and we quote: chanRoblesvi rtual Lawli bra ry

Section 1. Grounds. Within the time for but before filing the answer to the
complaint or pleading asserting a claim, a motion to dismiss may be made on any
of the following grounds: xxx [underscoring supplied]
All these considerations point to the legal reality that the new Rules effectively
restricted the dismissal of complaints in general, especially when what is being
invoked is the ground of failure to state a cause of action. Thus, jurisprudence
governed by the 1940 and 1964 Rules of Court to the effect that the ground for
dismissal based on failure to state a cause of action may be raised anytime during
the proceedings, is already inapplicable to cases already governed by the present
Rules of Court which took effect on July 1, 1997.

As the rule now stands, the failure to invoke this ground in a motion to dismiss or in
the answer would result in its waiver. According to Oscar M. Herrera,41 the reason
for the deletion is that failure to state a cause of action may be cured under Section
5, Rule 10 and we quote: chanRoblesvirtual Lawlib ra ry

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 effect 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.
With this clarification, we now proceed to the substantial issues of the petition.

The motion to dismiss in the present case based on failure to state a cause of
action was not timely filed and was thus waived

Applying Rule 16 of the Rules of Court which provides for the grounds for the
dismissal of a civil case, the respondents grounds for dismissal fall under Section
1(g) and (j), Rule 16 of the Rules of Court, particularly, failure to state a cause of
action and failure to comply with a condition precedent (substitution of parties),
respectively.

The first paragraph of Section 1,42 Rule 16 of the Rules of Court provides for the
period within which to file a motion to dismiss under the grounds enumerated.
Specifically, the motion should be filed within the time for, but before the filing of,
the answer to the complaint or pleading asserting a claim. Equally important to this
provision is Section 1,43 Rule 9 of the Rules of Court which states that defenses and
objections not pleaded either in a motion to dismiss or in the answer are deemed
waived, except for the following grounds: 1) the court has no jurisdiction over the
subject matter; 2) litis pendencia; 3) res judicata; and 4) prescription.

Therefore, the grounds not falling under these four exceptions may be considered
as waived in the event that they are not timely invoked. As the respondents motion
to dismiss was based on the grounds which should be timely invoked, material to
the resolution of this case is the period within which they were raised.

Both the RTC and the CA found that the motion to dismiss was only filed after the
filing of the answer and after the pretrial had been concluded. Because there was
no motion to dismiss before the filing of the answer, the respondents should then
have at least raised these grounds as affirmative defenses in their answer. The
RTCs assailed orders did not touch on this particular issue but the CA ruled that the
respondents did, while the petitioners insist that the respondents did not. In the
present petition, the petitioners reiterate that there was a blatant nonobservance
of the rules when the respondents did not amend their answer to invoke the
grounds for dismissal which were raised only during the pretrial and,
subsequently, in the subject motion to dismiss.44

The divergent findings of the CA and the petitioners arguments are essentially
factual issues. Time and again, we have held that the jurisdiction of the Court in a
petition for review on certiorari under Rule 45, such as the present case, is limited
only to questions of law, save for certain exceptions. One of these is attendant
herein, which is, when the findings are conclusions without citation of specific
evidence on which they are based.45

In the petition filed with the CA, the respondents made a passing allegation that, as
affirmative defenses in their answer, they raised the issue that the petitioners are
not the real parties in interest.46 On the other hand, the petitioners consistently
argued otherwise in their opposition47 to the motion to dismiss, and in their
comment48 and in their memorandum49 on the respondents petition before the CA.

Our examination of the records shows that the CA had no basis in its finding that
the respondents alleged the grounds as affirmative defenses in their answer. The
respondents merely stated in their petition for certiorari that they alleged the
subject grounds in their answer. However, nowhere in the petition did they support
this allegation; they did not even attach a copy of their answer to the petition. It is
basic that the respondents had the duty to prove by substantial evidence their
positive assertions. Considering that the petition for certiorari is an original and not
an appellate action, the CA had no records of the RTCs proceedings upon which the
CA could refer to in order to validate the respondents claim. Clearly, other than the
respondents bare allegations, the CA had no basis to rule, without proof, that the
respondents alleged the grounds for dismissal as affirmative defenses in the
answer. The respondents, as the parties with the burden of proving that they timely
raised their grounds for dismissal, could have at least attached a copy of their
answer to the petition. This simple task they failed to do.

That the respondents did not allege in their answer the subject grounds is made
more apparent through their argument, both in their motion to dismiss50 and in
their comment,51 that it was only during the pretrial stage that they verbally
manifested and invited the attention of the lower court on their grounds for
dismissal. In order to justify such late invocation, they heavily relied on Section
2(g) and (i), Rule 1852 of the Rules of Court that the nature and purpose of the pre
trial include, among others, the propriety of dismissing the action should there be a
valid ground therefor and matters which may aid in the prompt disposition of the
action.

The respondents are not correct. The rules are clear and require no interpretation.
Pursuant to Section 1, Rule 9 of the Rules of Court, a motion to dismiss based on
the grounds invoked by the respondents may be waived if not raised in a motion to
dismiss or alleged in their answer. On the other hand, the pretrial is primarily
intended to make certain that all issues necessary to the disposition of a case are
properly raised. The purpose is to obviate the element of surprise, hence, the
parties are expected to disclose at the pretrial conference all issues of law and fact
which they intend to raise at the trial, except such as may involve privileged or
impeaching matter.53 The issues submitted during the pretrial are thus the issues
that would govern the trial proper. The dismissal of the case based on the grounds
invoked by the respondents are specifically covered by Rule 16 and Rule 9 of the
Rules of Court which set a period when they should be raised; otherwise, they are
deemed waived.

The Dabuco ruling is inapplicable in the present case; the ground for dismissal
failure to state a cause of action distinguished from lack of cause of action

To justify the belated filing of the motion to dismiss, the CA reasoned out that the
ground for dismissal of lack of cause of action may be raised at any time during
the proceedings, pursuant to Dabuco v. Court of Appeals.54 This is an erroneous
interpretation and application of I>Dabuco as will be explained below.

First, in Dabuco, the grounds for dismissal were raised as affirmative defenses in
the answer which is in stark contrast to the present case. Second, in Dabuco, the
Court distinguished between the dismissal of the complaint for failure to state a
cause of action and lack of cause of action. The Court emphasized that in a
dismissal of action for lack of cause of action, questions of fact are involved,
[therefore,] courts hesitate to declare a plaintiff as lacking in cause of action. Such
declaration is postponed until the insufficiency of cause is apparent from a
preponderance of evidence. Usually, this is done only after the parties have been
given the opportunity to present all relevant evidence on such questions of
fact.55 In fact, in Dabuco, the Court held that even the preliminary hearing on the
propriety of lifting the restraining order was declared insufficient for purposes of
dismissing the complaint for lack of cause of action. This is so because the issues of
fact had not yet been adequately ventilated at that preliminary stage. For these
reasons, the Court declared in Dabuco that the dismissal by the trial court of the
complaint was premature.

In the case of Macaslang v. Zamora,56 the Court noted that the incorrect
appreciation by both the RTC and the CA of the distinction between the dismissal of
an action, based on failure to state a cause of action and lack of cause of action,
prevented it from properly deciding the case, and we quote: chanRoblesvi rtua lLaw lib rary

Failure to state a cause of action and lack of cause of action are really different
from each other. On the one hand, failure to state a cause of action refers to the
insufficiency of the pleading, and is a ground for dismissal under Rule 16 of
the Rules of Court. On the other hand, lack of cause [of] action refers to a situation
where the evidence does not prove the cause of action alleged in the pleading.
Justice Regalado, a recognized commentator on remedial law, has explained the
distinction:
chanRoblesvi rt ualLaw lib rary

xxx What is contemplated, therefore, is a failure to state a cause of action which is

provided in Sec. 1(g) of Rule 16. This is a matter of insufficiency of the pleading.
Sec. 5 of Rule 10, which was also included as the last mode for raising the issue to
the court, refers to the situation where the evidence does not prove a cause of
action. This is, therefore, a matter of insufficiency of evidence. Failure to state a
cause of action is different from failure to prove a cause of action. The remedy in
the first is to move for dismissal of the pleading, while the remedy in the second is
to demur to the evidence, hence reference to Sec. 5 of Rule 10 has been eliminated
in this section. The procedure would consequently be to require the pleading to
state a cause of action, by timely objection to its deficiency; or, at the trial, to file a
demurrer to evidence, if such motion is warranted. [italics supplied]
Based on this discussion, the Court cannot uphold the dismissal of the present case
based on the grounds invoked by the respondents which they have waived for
failure to invoke them within the period prescribed by the Rules. The Court cannot
also dismiss the case based on lack of cause of action as this would require at
least a preponderance of evidence which is yet to be appreciated by the trial court.

Therefore, the RTC did not commit grave abuse of discretion in issuing the assailed
orders denying the respondents motion to dismiss and motion for reconsideration.
The Court shall not resolve the merits of the respondents grounds for dismissal
which are considered as waived.

Other heirs of the spouses Pacaa to be impleaded in the case

It should be emphasized that insofar as the petitioners are concerned, the

respondents have waived the dismissal of the complaint based on the ground of
failure to state a cause of action because the petitioners are not the real parties in
interest.

At this juncture, a distinction between a real party in interest and an indispensable

party is in order. In Carandang v. Heirs of de Guzman, et al.,57 the Court clarified
these two concepts and held that [a] real party in interest is the party who
stands to be benefited or injured by the judgment of the suit, or the party entitled
to the avails of the suit. On the other hand, an indispensable party is a party in
interest without whom no final determination can be had of an action, in contrast to
a necessary party, which is one who is not indispensable but who ought to be
joined as a party if complete relief is to be accorded as to those already parties, or
for a complete determination or settlement of the claim subject of the action. xxx If
a suit is not brought in the name of or against the real party in interest, a motion to
dismiss may be filed on the ground that the complaint states no cause of action.
However, the dismissal on this ground entails an examination of whether the
parties presently pleaded are interested in the outcome of the litigation,
and not whether all persons interested in such outcome are actually pleaded. The
latter query is relevant in discussions concerning indispensable and necessary
parties, but not in discussions concerning real parties in interest. Both
indispensable and necessary parties are considered as real parties in interest, since
both classes of parties stand to be benefited or injured by the judgment of the
suit.

At the inception of the present case, both the spouses Pacaa were not impleaded
as partiesplaintiffs. The Court notes, however, that they are indispensable parties
to the case as the alleged owners of Rovila Water Supply. Without their inclusion as
parties, there can be no final determination of the present case. They possess such
an interest in the controversy that a final decree would necessarily affect their
rights, so that the courts cannot proceed without their presence. Their interest in
the subject matter of the suit and in the relief sought is inextricably intertwined
with that of the other parties.58

Jurisprudence on the procedural consequence of the inclusion or noninclusion of

an indispensable party is divided in our jurisdiction. Due to the noninclusion of
indispensable parties, the Court dismissed the case in Lucman v. Malawi, et
al.59 and Go v. Distinction Properties Development Construction, Inc.,60while
in Casals, et al. v. Tayud Golf and Country Club et al.,61 the Court annulled the
judgment which was rendered without the inclusion of the indispensable parties.

In Arcelona et al. v. Court of Appeals62 and Bulawan v. Aquende,63 and Metropolitan

Bank & Trust Company v. Alejo et al.64 the Court ruled that the burden to implead
or order the impleading of an indispensable party rests on the plaintiff and on the
trial court, respectively. Thus, the noninclusion of the indispensable parties,
despite notice of this infirmity, resulted in the annulment of these cases.

In Plasabas, et al. v. Court of Appeals, et al.,65 the Court held that the trial court
and the CA committed reversible error when they summarily dismissed the case,
after both parties had rested their cases following a protracted trial, on the sole
ground of failure to implead indispensable parties. Nonjoinder of indispensable
parties is not a ground for the dismissal of an action. The remedy is to implead the
nonparty claimed to be indispensable.

However, in the cases of Quilatan, et al. v. Heirs of Quilatan, et al.66 and Lagunilla,
et al. v. Monis, et al.,67 the Court remanded the case to the RTC for the impleading
of indispensable parties. On the other hand, in Lotte Phil. Co., Inc. v. Dela
Cruz,68PepsiCo, Inc. v. Emerald Pizza,69 and ValdezTallorin, v. Heirs of Tarona, et
al.,70 the Court directly ordered that the indispensable parties be impleaded.

Mindful of the differing views of the Court as regards the legal effects of the non
inclusion of indispensable parties, the Court clarified in Republic of the Philippines v.
Sandiganbayan, et al.71 , that the failure to implead indispensable parties is
a curable error and the foreign origin of our present rules on indispensable parties
permitted this corrective measure. This cited case held: chanRoblesvi rtual Lawli bra ry

Even in those cases where it might reasonably be argued that the failure of the
Government to implead the sequestered corporations as defendants is indeed a
procedural aberration xxx, slight reflection would nevertheless lead to the
conclusion that the defect is not fatal, but one correctible under applicable adjective
rules e.g., Section 10, Rule 5 of the Rules of Court [specifying the remedy of
amendment during trial to authorize or to conform to the evidence]; Section 1, Rule
20 [governing amendments before trial], in relation to the rule respecting omission
of socalled necessary or indispensable parties, set out in Section 11, Rule 3 of the
Rules of Court. It is relevant in this context to advert to the old familiar doctrines
that the omission to implead such parties is a mere technical defect which can be
cured at any stage of the proceedings even after judgment ; and that, particularly
in the case of indispensable parties, since their presence and participation is
essential to the very life of the action, for without them no judgment may be
rendered, amendments of the complaint in order to implead them should be freely
allowed, even on appeal, in fact even after rendition of judgment by this Court,
where it appears that the complaint otherwise indicates their identity and character
as such indispensable parties."

Although there are decided cases wherein the nonjoinder of indispensable parties
in fact led to the dismissal of the suit or the annulment of judgment, such cases do
not jibe with the matter at hand. The better view is that nonjoinder is not a
ground to dismiss the suit or annul the judgment. The rule on joinder of
indispensable parties is founded on equity. And the spirit of the law is reflected in
Section 11, Rule 3 of the 1997 Rules of Civil Procedure. It prohibits the dismissal of
a suit on the ground of nonjoinder or misjoinder of parties and allows the
amendment of the complaint at any stage of the proceedings, through motion or on
order of the court on its own initiative.

Likewise, jurisprudence on the Federal Rules of Procedure, from which our Section
7, Rule 3 on indispensable parties was copied, allows the joinder of indispensable
parties even after judgment has been entered if such is needed to afford the
moving party full relief. Mere delay in filing the joinder motion does not necessarily
result in the waiver of the right as long as the delay is excusable.
In Galicia, et al. v. Vda. De Mindo, et al.,72 the Court ruled that in line with its policy
of promoting a just and inexpensive disposition of a case, it allowed the
intervention of the indispensable parties instead of dismissing the complaint.
Furthermore, in Commissioner Domingo v. Scheer,73 the Court cited Salvador, et al.
v. Court of Appeals, et al.74 and held that the Court has full powers, apart from that
power and authority which are inherent, to amend the processes, pleadings,
proceedings and decisions by substituting as partyplaintiff the real party in
interest. The Court has the power to avoid delay in the disposition of this case, and
to order its amendment in order to implead an indispensable party.

With these discussions as premises, the Court is of the view that the proper remedy
in the present case is to implead the indispensable parties especially when their
noninclusion is merely a technical defect. To do so would serve proper
administration of justice and prevent further delay and multiplicity of suits.
Pursuant to Section 9, Rule 3 of the Rules of Court, 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. If the plaintiff refuses to implead an indispensable party despite the order of
the court, then the court may dismiss the complaint for the plaintiffs failure to
comply with a lawful court order.75 The operative act that would lead to the
dismissal of the case would be the refusal to comply with the directive of the court
for the joinder of an indispensable party to the case.76

Obviously, in the present case, the deceased Pacaas can no longer be included in
the complaint as indispensable parties because of their death during the pendency
of the case. Upon their death, however, their ownership and rights over their
properties were transmitted to their heirs, including herein petitioners, pursuant to
Article 77477 in relation with Article 77778 of the Civil Code. In Orbeta, et al. v.
Sendiong,79 the Court acknowledged that the heirs, whose hereditary rights are to
be affected by the case, are deemed indispensable parties who should have been
impleaded by the trial court.

Therefore, to obviate further delay in the proceedings of the present case and given
the Courts authority to order the inclusion of an indispensable party at any stage of
the proceedings, the heirs of the spouses Pacaa, except the petitioners who are
already parties to the case and Lagrimas PacaaGonzalez who intervened in the
case, are hereby ordered impleaded as partiesplaintiffs.

WHEREFORE, the petition is GRANTED. The decision dated January 27, 2005 and
the resolution dated June 6, 2005 of the Court of Appeals in CAG.R. SP No. 71551
are REVERSED and SET ASIDE. The heirs of the spouses Luciano and Lourdes
Pacaa, except herein petitioners and Lagrimas PacaaGonzalez, are ORDERED
IMPLEADED as partiesplaintiffs and the RTC is directed to proceed with the trial
of the case with DISPATCH.

SO ORDERED.

SECOND DIVISION

G.R. No. 173559 January 7, 2013

LETICIA DIONA, represented by her Attorney-in-Fact, MARCELINA

DIONA, Petitioner,
vs.
ROMEO A. BALANGUE, SONNY A. BALANGUE, REYNALDO A.
BALANGUE, and ESTEBAN A. BALANGUE, JR., Respondents.

DECISION

DEL CASTILLO, J.:

The great of a relief neither sought by the party in whose favor it was given
not supported by the evidence presented violates the opposing partys right
to due process and may be declared void ab initio in a proper proceeding.

This Petition for Review on Certiorari1 assails the November 24, 2005
Resolution2 of the Court of Appeals (CA) issued in G.R. SP No. 85541
which granted the Petition for Annulment of Judgment3 filed by the
respondents seeking to nullify that portion of the October 17, 2000
Decision4 of the Regional Trial Court (RTC), Branch 75, Valenzuela City
awarding petitioner 5% monthly interest rate for the principal amount of the
loan respondent obtained from her.

This Petition likewise assails the CAs June 26, 2006 Resolution5 denying
petitioners Motion for Reconsideration.

Factual Antecedents

The facts of this case are simple and undisputed.

On March 2, 1991, respondents obtained a loan of P45,000.00 from

petitioner payable in six months and secured by a Real Estate
Mortgage6 over their 202-square meter property located in Marulas,
Valenzuela and covered by Transfer Certificate of Title (TCT) No. V-
12296.7 When the debt became due, respondents failed to pay
notwithstanding demand. Thus, on September 17, 1999, petitioner filed
with the RTC a Complaint8 praying that respondents be ordered:

(a) To pay petitioner the principal obligation of P45,000.00, with

interest thereon at the rate of 12% per annum, from 02 March 1991
until the full obligation is paid.

(b) To pay petitioner actual damages as may be proven during the

trial but shall in no case be less than P10,000.00; P25,000.00 by way
of attorneys fee, plus P2,000.00 per hearing as appearance fee.

(c) To issue a decree of foreclosure for the sale at public auction of

the aforementioned parcel of land, and for the disposition of the
proceeds thereof in accordance with law, upon failure of the
respondents to fully pay petitioner within the period set by law the
sums set forth in this complaint.

(d) Costs of this suit.

Other reliefs and remedies just and equitable under the premises are
likewise prayed for.9 (Emphasis supplied)
Respondents were served with summons thru respondent Sonny A.
Balangue (Sonny). On October 15, 1999, with the assistance of Atty. Arthur
C. Coroza (Atty. Coroza) of the Public Attorneys Office, they filed a Motion
to Extend Period to Answer. Despite the requested extension, however,
respondents failed to file any responsive pleadings. Thus, upon motion of
the petitioner, the RTC declared them in default and allowed petitioner to
present her evidence ex parte.10

Ruling of the RTC sought to be annulled.

In a Decision11 dated October 17, 2000, the RTC granted petitioners

Complaint. The dispositive portion of said Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioner,

ordering the respondents to pay the petitioner as follows:

a) the sum of FORTY FIVE THOUSAND (P45,000.00) PESOS,

representing the unpaid principal loan obligation plus interest at 5%
per month [sic] reckoned from March 2, 1991, until the same is fully
paid;

b) P20,000.00 as attorneys fees plus cost of suit;

c) in the event the [respondents] fail to satisfy the aforesaid

obligation, an order of foreclosure shall be issued accordingly for the
sale at public auction of the subject property covered by Transfer
Certificate of Title No. V-12296 and the improvements thereon for the
satisfaction of the petitioners claim.

SO ORDERED.12 (Emphasis supplied)

Subsequently, petitioner filed a Motion for Execution,13 alleging that

respondents did not interpose a timely appeal despite receipt by their
former counsel of the RTCs Decision on November 13, 2000. Before it
could be resolved, however, respondents filed a Motion to Set Aside
Judgment14 dated January 26, 2001, claiming that not all of them were duly
served with summons. According to the other respondents, they had no
knowledge of the case because their co-respondent Sonny did not inform
them about it. They prayed that the RTCs October 17, 2000 Decision be
set aside and a new trial be conducted.
But on March 16, 2001, the RTC ordered15 the issuance of a Writ of
Execution to implement its October 17, 2000 Decision. However, since the
writ could not be satisfied, petitioner moved for the public auction of the
mortgaged property,16 which the RTC granted.17 In an auction sale
conducted on November 7, 2001, petitioner was the only bidder in the
amount of P420,000.00. Thus, a Certificate of Sale18 was issued in her
favor and accordingly annotated at the back of TCT No. V-12296.

Respondents then filed a Motion to Correct/Amend Judgment and To Set

Aside Execution Sale19 dated December 17, 2001, claiming that the parties
did not agree in writing on any rate of interest and that petitioner merely
sought for a 12% per annum interest in her Complaint. Surprisingly, the
RTC awarded 5% monthly interest (or 60% per annum) from March 2, 1991
until full payment. Resultantly, their indebtedness inclusive of the exorbitant
interest from March 2, 1991 to May 22, 2001 ballooned from P124,400.00
to P652,000.00.

In an Order20 dated May 7, 2002, the RTC granted respondents motion

and accordingly modified the interest rate awarded from 5% monthly to
12% per annum. Then on August 2, 2002, respondents filed a Motion for
Leave To Deposit/Consign Judgment Obligation21 in the total amount
of P126,650.00.22

Displeased with the RTCs May 7, 2002 Order, petitioner elevated the
matter to the CA via a Petition for Certiorari23under Rule 65 of the Rules of
Court. On August 5, 2003, the CA rendered a Decision24 declaring that the
RTC exceeded its jurisdiction in awarding the 5% monthly interest but at
the same time pronouncing that the RTC gravely abused its discretion in
subsequently reducing the rate of interest to 12% per annum. In so ruling,
the CA ratiocinated:

Indeed, We are convinced that the Trial Court exceeded its jurisdiction
when it granted 5% monthly interest instead of the 12% per annum prayed
for in the complaint. However, the proper remedy is not to amend the
judgment but to declare that portion as a nullity. Void judgment for want of
jurisdiction is no judgment at all. It cannot be the source of any right nor the
creator of any obligation (Leonor vs. CA, 256 SCRA 69). No legal rights
can emanate from a resolution that is null and void (Fortich vs. Corona, 312
SCRA 751).
From the foregoing, the remedy of the respondents is to have the Court
declare the portion of the judgment providing for a higher interest than that
prayed for as null and void for want of or in excess of jurisdiction. A void
judgment never acquire[s] finality and any action to declare its nullity does
not prescribe (Heirs of Mayor Nemencio Galvez vs. CA, 255 SCRA 672).

WHEREFORE, foregoing premises considered, the Petition having merit, is

hereby GIVEN DUE COURSE. Resultantly, the challenged May 7, 2002
and September 5, 2000 orders of Public Respondent Court are hereby
ANNULLED and SET ASIDE for having been issued with grave abuse of
discretion amounting to lack or in excess of jurisdiction. No costs.

SO ORDERED.25 (Emphases in the original; italics supplied.)

Proceedings before the Court of Appeals

Taking their cue from the Decision of the CA in the special civil action for
certiorari, respondents filed with the same court a Petition for Annulment of
Judgment and Execution Sale with Damages.26 They contended that the
portion of the RTC Decision granting petitioner 5% monthly interest rate is
in gross violation of Section 3(d) of Rule 9 of the Rules of Court and of their
right to due process. According to respondents, the loan did not carry any
interest as it was the verbal agreement of the parties that in lieu thereof
petitioners family can continue occupying respondents residential building
located in Marulas, Valenzuela for free until said loan is fully paid.

Ruling of the Court of Appeals

Initially, the CA denied due course to the Petition.27 Upon respondents

motion, however, it reinstated and granted the Petition. In setting aside
portions of the RTCs October 17, 2000 Decision, the CA ruled that aside
from being unconscionably excessive, the monthly interest rate of 5% was
not agreed upon by the parties and that petitioners Complaint clearly
sought only the legal rate of 12% per annum. Following the mandate of
Section 3(d) of Rule 9 of the Rules of Court, the CA concluded that the
awarded rate of interest is void for being in excess of the relief sought in
the Complaint. It ruled thus:

WHEREFORE, respondents motion for reconsideration is GRANTED and

our resolution dated October 13, 2004 is, accordingly, REVERSED and
SET ASIDE. In lieu thereof, another is entered ordering the ANNULMENT
OF:

(a) public respondents impugned October 17, 2000 judgment, insofar

as it awarded 5% monthly interest in favor of petitioner; and

(b) all proceedings relative to the sale at public auction of the property
titled in respondents names under Transfer Certificate of Title No. V-
12296 of the Valenzuela registry.

The judgment debt adjudicated in public respondents impugned October

17, 2000 judgment is, likewise, ordered RECOMPUTED at the rate of 12%
per annum from March 2, 1991. No costs.

SO ORDERED.28 (Emphases in the original.)

Petitioner sought reconsideration, which was denied by the CA in its June

26, 2006 Resolution.29

Issues

Hence, this Petition anchored on the following grounds:

I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE

AND SERIOUS ERROR OF LAW WHEN IT GRANTED
RESPONDENTS PETITION FOR ANNULMENT OF JUDGMENT AS
A SUBSTITUTE OR ALTERNATIVE REMEDY OF A LOST APPEAL.

II. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE

AND SERIOUS ERROR AND MISAPPREHENSION OF LAW AND
THE FACTS WHEN IT GRANTED RESPONDENTS PETITION FOR
ANNULMENT OF JUDGMENT OF THE DECISION OF THE
REGIONAL TRIAL COURT OF VALENZUELA, BRANCH 75 DATED
OCTOBER 17, 2000 IN CIVIL CASE NO. 241-V-99, DESPITE THE
FACT THAT SAID DECISION HAS BECOME FINAL AND ALREADY
EXECUTED CONTRARY TO THE DOCTRINE OF IMMUTABILITY
OF JUDGMENT.30

Petitioners Arguments
Petitioner claims that the CA erred in partially annulling the RTCs October
17, 2000 Decision. She contends that a Petition for Annulment of Judgment
may be availed of only when the ordinary remedies of new trial, appeal,
petition for relief or other appropriate remedies are no longer available
through no fault of the claimant. In the present case, however, respondents
had all the opportunity to question the October 17, 2000 Decision of the
RTC, but because of their own inaction or negligence they failed to avail of
the remedies sanctioned by the rules. Instead, they contented themselves
with the filing of a Motion to Set Aside Judgment and then a Motion to
Correct/Amend Judgment and to Set Aside Execution Sale.

Petitioner likewise argues that for a Rule 47 petition to prosper, the same
must either be based on extrinsic fraud or lack of jurisdiction. However, the
allegations in respondents Rule 47 petition do not constitute extrinsic fraud
because they simply pass the blame to the negligence of their former
counsel. In addition, it is too late for respondents to pass the buck to their
erstwhile counsel considering that when they filed their Motion to
Correct/Amend Judgment and To Set Aside Execution Sale they were
already assisted by their new lawyer, Atty. Reynaldo A. Ruiz, who did not
also avail of the remedies of new trial, appeal, etc. As to the ground of lack
of jurisdiction, petitioner posits that there is no reason to doubt that the
RTC had jurisdiction over the subject matter of the case and over the
persons of the respondents.

While conceding that the RTC patently made a mistake in awarding 5%

monthly interest, petitioner nonetheless invokes the doctrine of immutability
of final judgment and contends that the RTC Decision can no longer be
corrected or modified since it had long become final and executory. She
likewise points out that respondents received a copy of said Decision on
November 13, 2000 but did nothing to correct the same. They did not even
question the award of 5% monthly interest when they filed their Motion to
Set Aside Judgment which they anchored on the sole ground of the RTCs
lack of jurisdiction over the persons of some of the respondents.

Respondents Arguments

Respondents do not contest the existence of their obligation and the

principal amount thereof. They only seek quittance from the 5% monthly
interest or 60% per annum imposed by the RTC. Respondents contend that
Section (3)d of Rule 9 of the Rules of Court is clear that when the
defendant is declared in default, the court cannot grant a relief more than
what is being prayed for in the Complaint. A judgment which transgresses
said rule, according to the respondents, is void for having been issued
without jurisdiction and for being violative of due process of law.

Respondents maintain that it was through no fault of their own, but through
the gross negligence of their former counsel, Atty. Coroza, that the
remedies of new trial, appeal or petition for relief from judgment were lost.
They allege that after filing a Motion to Extend Period to Answer, Atty.
Coroza did not file any pleading resulting to their being declared in default.
While the said lawyer filed on their behalf a Motion to Set Aside Judgment
dated January 26, 2001, he however took no steps to appeal from the
Decision of the RTC, thereby allowing said judgment to lapse into finality.
Citing Legarda v. Court of Appeals,31 respondents aver that clients are not
always bound by the actions of their counsel, as in the present case where
the clients are to lose their property due to the gross negligence of their
counsel.

With regard to petitioners invocation of immutability of judgment,

respondents argue that said doctrine applies only to valid and not to void
judgments.

Our Ruling

The petition must fail.

We agree with respondents that the award of 5% monthly interest violated

their right to due process and, hence, the same may be set aside in a
Petition for Annulment of Judgment filed under Rule 47 of the Rules of
Court.

Annulment of judgment under Rule 47; an exception to the final judgment

rule; grounds therefor.

A Petition for Annulment of Judgment under Rule 47 of the Rules of Court

is a remedy granted only under exceptional circumstances where a party,
without fault on his part, has failed to avail of the ordinary remedies of new
trial, appeal, petition for relief or other appropriate remedies. Said rule
explicitly provides that it is not available as a substitute for a remedy which
was lost due to the partys own neglect in promptly availing of the same.
"The underlying reason is traceable to the notion that annulling final
judgments goes against the grain of finality of judgment. Litigation must end
and terminate sometime and somewhere, and it is essential to an effective
administration of justice that once a judgment has become final, the issue
or cause involved therein should be laid to rest."32

While under Section 2, Rule 4733 of the Rules of Court a Petition for
Annulment of Judgment may be based only on the grounds of extrinsic
fraud and lack of jurisdiction, jurisprudence recognizes lack of due process
as additional ground to annul a judgment.34 In Arcelona v. Court of
Appeals,35 this Court declared that a final and executory judgment may still
be set aside if, upon mere inspection thereof, its patent nullity can be
shown for having been issued without jurisdiction or for lack of due process
of law.

Grant of 5% monthly interest is way beyond the 12% per annum interest
sought in the Complaint and smacks of violation of due process.

It is settled that courts cannot grant a relief not prayed for in the pleadings
or in excess of what is being sought by the party. They cannot also grant a
relief without first ascertaining the evidence presented in support thereof.
Due process considerations require that judgments must conform to and be
supported by the pleadings and evidence presented in court. In
Development Bank of the Philippines v. Teston,36 this Court expounded
that:

Due process considerations justify this requirement. It is improper to enter

an order which exceeds the scope of relief sought by the pleadings, absent
notice which affords the opposing party an opportunity to be heard with
respect to the proposed relief. The fundamental purpose of the requirement
that allegations of a complaint must provide the measure of recovery is to
prevent surprise to the defendant.

Notably, the Rules is even more strict in safeguarding the right to due
process of a defendant who was declared in default than of a defendant
who participated in trial. For instance, amendment to conform to the
evidence presented during trial is allowed the parties under the Rules.37 But
the same is not feasible when the defendant is declared in default because
Section 3(d), Rule 9 of the Rules of Court comes into play and limits the
relief that may be granted by the courts to what has been prayed for in the
Complaint. It provides:
(d) Extent of relief to be awarded. A judgment rendered against a party in
default shall not exceed the amount or be different in kind from that prayed
for nor award unliquidated damages.

The raison dtre in limiting the extent of relief that may be granted is that it
cannot be presumed that the defendant would not file an Answer and allow
himself to be declared in default had he known that the plaintiff will be
accorded a relief greater than or different in kind from that sought in the
Complaint.38 No doubt, the reason behind Section 3(d), Rule 9 of the Rules
of Court is to safeguard defendants right to due process against
unforeseen and arbitrarily issued judgment. This, to the mind of this Court,
is akin to the very essence of due process. It embodies "the sporting idea
of fair play"39 and forbids the grant of relief on matters where the defendant
was not given the opportunity to be heard thereon.

In the case at bench, the award of 5% monthly interest rate is not

supported both by the allegations in the pleadings and the evidence on
record. The Real Estate Mortgage40 executed by the parties does not
include any provision on interest. When petitioner filed her Complaint
before the RTC, she alleged that respondents borrowed from her "the sum
of FORTY-FIVE THOUSAND PESOS (P45,000.00), with interest thereon at
the rate of 12% per annum"41 and sought payment thereof. She did not
allege or pray for the disputed 5% monthly interest. Neither did she present
evidence nor testified thereon. Clearly, the RTCs award of 5% monthly
interest or 60% per annum lacks basis and disregards due process. It
violated the due process requirement because respondents were not
informed of the possibility that the RTC may award 5% monthly interest.
They were deprived of reasonable opportunity to refute and present
controverting evidence as they were made to believe that the complainant
petitioner was seeking for what she merely stated in her Complaint.

Neither can the grant of the 5% monthly interest be considered subsumed

by petitioners general prayer for "other reliefs and remedies just and
equitable under the premises x x x."42 To repeat, the courts grant of relief is
limited only to what has been prayed for in the Complaint or related thereto,
supported by evidence, and covered by the partys cause of
action.43 Besides, even assuming that the awarded 5% monthly or 60% per
annum interest was properly alleged and proven during trial, the same
remains unconscionably excessive and ought to be equitably reduced in
accordance with applicable jurisprudence. In Bulos, Jr. v. Yasuma, 44 this
Court held:

In the case of Ruiz v. Court of Appeals, citing the cases of Medel v. Court
of Appeals, Garcia v. Court of Appeals, Spouses Bautista v. Pilar
Development Corporation and the recent case of Spouses Solangon v.
Salazar, this Court considered the 3% interest per month or 36% interest
per annum as excessive and unconscionable. Thereby, the Court, in the
said case, equitably reduced the rate of interest to 1% interest per month or
12% interest per annum. (Citations omitted)

It is understandable for the respondents not to contest the default order for,
as alleged in their Comment, "it is not their intention to impugn or run away
from their just and valid obligation."45 Nonetheless, their waiver to present
evidence should never be construed as waiver to contest patently
erroneous award which already transgresses their right to due process, as
well as applicable jurisprudence.

Respondents former counsel was grossly negligent in handling the case of

his clients; respondents did not lose ordinary remedies of new trial, petition
for relief, etc. through their own fault.

Ordinarily, the mistake, negligence or lack of competence of counsel binds

the client. This is based on the rule that any act performed by a counsel
1wphi1

within the scope of his general or implied authority is regarded as an act of

his client. A recognized exception to the rule is when the lawyers were
grossly negligent in their duty to maintain their clients cause and such
amounted to a deprivation of their clients property without due process of
law.46 In which case, the courts must step in and accord relief to a client
who suffered thereby.47

The manifest indifference of respondents former counsel in handling the

cause of his client was already present even from the beginning. It should
be recalled that after filing in behalf of his clients a Motion to Extend Period
to Answer, said counsel allowed the requested extension to pass without
filing an Answer, which resulted to respondents being declared in default.
His negligence was aggravated by the fact that he did not question the
awarded 5% monthly interest despite receipt of the RTC Decision on
November 13, 2000.48 A simple reading of the dispositive portion of the
RTC Decision readily reveals that it awarded exorbitant and
unconscionable rate of interest. Its difference from what is being prayed for
by the petitioner in her Complaint is so blatant and very patent. It also
defies elementary jurisprudence on legal rate of interests. Had the counsel
carefully read the judgment it would have caught his attention and
compelled him to take the necessary steps to protect the interest of his
client. But he did not. Instead, he filed in behalf of his clients a Motion to
Set Aside Judgment49 dated January 26, 2001 based on the sole ground of
lack of jurisdiction, oblivious to the fact that the erroneous award of 5%
monthly interest would result to his clients deprivation of property without
due process of law. Worse, he even allowed the RTC Decision to become
final by not perfecting an appeal. Neither did he file a petition for relief
therefrom. It was only a year later that the patently erroneous award of 5%
monthly interest was brought to the attention of the RTC when
respondents, thru their new counsel, filed a Motion to Correct/Amend
Judgment and To Set Aside Execution Sale. Even the RTC candidly
admitted that it "made a glaring mistake in directing the defendants to pay
interest on the principal loan at 5% per month which is very different from
what was prayed for by the plaintiff."50

"A lawyer owes entire devotion to the interest of his client, warmth and zeal
in the maintenance and defense of his rights and the exertion of his utmost
learning and ability, to the end that nothing can be taken or withheld from
his client except in accordance with the law."51 Judging from how
respondents former counsel handled the cause of his clients, there is no
doubt that he was grossly negligent in protecting their rights, to the extent
that they were deprived of their property without due process of law.

In fine, respondents did not lose the remedies of new trial, appeal, petition
for relief and other remedies through their own fault. It can only be
attributed to the gross negligence of their erstwhile counsel which
prevented them from pursuing such remedies. We cannot also blame
respondents for relying too much on their former counsel. Clients have
reasonable expectations that their lawyer would amply protect their interest
during the trial of the case.52 Here,

"respondents are plain and ordinary people x x x who are totally ignorant of
the intricacies and technicalities of law and legal procedures. Being so,
they completely relied upon and trusted their former counsel to
appropriately act as their interest may lawfully warrant and require."53
As a final word, it is worth noting that respondents principal obligation was
only P45,000.00. Due to their former counsels gross negligence in
handling their cause, coupled with the RTCs erroneous, baseless, and
illegal award of 5% monthly interest, they now stand to lose their property
and still owe petitioner a large amount of money. As aptly observed by the
CA:

x x x If the impugned judgment is not, therefore, rightfully nullified,

petitioners will not only end up losing their property but will additionally owe
private respondent the sum of P232,000.00 plus the legal interest said
balance had, in the meantime, earned. As a court of justice and equity, we
cannot, in good conscience, allow this unconscionable situation to prevail.54

Indeed, this Court is appalled by petitioners invocation of the doctrine of

immutability of judgment. Petitioner does not contest as she even admits
that the RTC made a glaring mistake in awarding 5% monthly
interest.55 Amazingly, she wants to benefit from such erroneous award. This
Court cannot allow this injustice to happen.

WHEREFORE, the instant Petition is hereby DENIED and the assailed

November 24, 2005 and June 26, 2006 Resolution of the Court of Appeals
in CA-G.R. SP No. 85541 are AFFIRMED.

SO ORDERED.

SECOND DIVISION

G.R. No. 173946 June 19, 2013

BOSTON EQUITY RESOURCES, INC., Petitioner,

vs.
COURT OF APPEALS AND LOLITA G. TOLEDO, Respondents.

DECISION

PEREZ, J.:
Before the Court is a Petition for Review on Certiorari seeking to reverse
and set aside: (1) the Decision,1 dated 28 February 2006 and (2) the
Resolution,2 dated 1 August 2006 of the Court of Appeals in CA-G.R. SP
No. 88586. The challenged decision granted herein respondent's petition
for certiorari upon a finding that the trial court committed grave abuse of
discretion in denying respondent's motion to dismiss the complaint against
her.3 Based on this finding, the Court of Appeals reversed and set aside the
Orders, dated 8 November 20044 and 22 December 2004,5respectively, of
the Regional Trial Court (RTC) of Manila, Branch 24.

The Facts

On 24 December 1997, petitioner filed a complaint for sum of money with a

prayer for the issuance of a writ of preliminary attachment against the
spouses Manuel and Lolita Toledo.6 Herein respondent filed an Answer
dated 19 March 1998 but on 7 May 1998, she filed a Motion for Leave to
Admit Amended Answer7 in which she alleged, among others, that her
husband and co-defendant, Manuel Toledo (Manuel), is already dead.8 The
death certificate9of Manuel states "13 July 1995" as the date of death. As a
result, petitioner filed a motion, dated 5 August 1999, to require respondent
to disclose the heirs of Manuel.10 In compliance with the verbal order of the
court during the 11 October 1999 hearing of the case, respondent
submitted the required names and addresses of the heirs.11Petitioner then
filed a Motion for Substitution,12 dated 18 January 2000, praying that
Manuel be substituted by his children as party-defendants. It appears that
this motion was granted by the trial court in an Order dated 9 October
2000.13

Pre-trial thereafter ensued and on 18 July 2001, the trial court issued its
pre-trial order containing, among others, the dates of hearing of the case.14

The trial of the case then proceeded. Herein petitioner, as plaintiff,

presented its evidence and its exhibits were thereafter admitted.

On 26 May 2004, the reception of evidence for herein respondent was

cancelled upon agreement of the parties. On 24 September 2004, counsel
for herein respondent was given a period of fifteen days within which to file
a demurrer to evidence.15 However, on 7 October 2004, respondent instead
filed a motion to dismiss the complaint, citing the following as grounds: (1)
that the complaint failed to implead an indispensable party or a real party in
interest; hence, the case must be dismissed for failure to state a cause of
action; (2) that the trial court did not acquire jurisdiction over the person of
Manuel pursuant to Section 5, Rule 86 of the Revised Rules of Court; (3)
that the trial court erred in ordering the substitution of the deceased Manuel
by his heirs; and (4) that the court must also dismiss the case against Lolita
Toledo in accordance with Section 6, Rule 86 of the Rules of Court.16

The trial court, in an Order dated 8 November 2004, denied the motion to
dismiss for having been filed out of time, citing Section 1, Rule 16 of the
1997 Rules of Court which states that: "Within the time for but before filing
the answer to the complaint or pleading asserting a claim, a motion to
dismiss may be made x x x."17 Respondents motion for reconsideration of
the order of denial was likewise denied on the ground that "defendants
attack on the jurisdiction of this Court is now barred by estoppel by laches"
since respondent failed to raise the issue despite several chances to do
so.18

Aggrieved, respondent filed a petition for certiorari with the Court of

Appeals alleging that the trial court seriously erred and gravely abused its
discretion in denying her motion to dismiss despite discovery, during the
trial of the case, of evidence that would constitute a ground for dismissal of
the case.19

The Court of Appeals granted the petition based on the following grounds:

It is elementary that courts acquire jurisdiction over the person of the

defendant x x x only when the latter voluntarily appeared or submitted to
the court or by coercive process issued by the court to him, x x x. In this
case, it is undisputed that when petitioner Boston filed the complaint on
December 24, 1997, defendant Manuel S. Toledo was already dead, x x x.
Such being the case, the court a quo could not have acquired jurisdiction
over the person of defendant Manuel S. Toledo.

x x x the court a quos denial of respondents motion to dismiss was based

on its finding that respondents attack on the jurisdiction of the court was
already barred by laches as respondent failed to raise the said ground in its
[sic] amended answer and during the pre-trial, despite her active
participation in the proceedings.

However, x x x it is well-settled that issue on jurisdiction may be raised at

any stage of the proceeding, even for the first time on appeal. By timely
raising the issue on jurisdiction in her motion to dismiss x x x respondent is
not estopped from raising the question on jurisdiction.

Moreover, when issue on jurisdiction was raised by respondent, the court a

quo had not yet decided the case, hence, there is no basis for the court a
quo to invoke estoppel to justify its denial of the motion for reconsideration;

It should be stressed that when the complaint was filed, defendant Manuel
S. Toledo was already dead. The complaint should have impleaded the
estate of Manuel S. Toledo as defendant, not only the wife, considering that
the estate of Manuel S. Toledo is an indispensable party, which stands to
be benefited or be injured in the outcome of the case. x x x

xxxx

Respondents motion to dismiss the complaint should have been granted

by public respondent judge as the same was in order. Considering that the
obligation of Manuel S. Toledo is solidary with another debtor, x x x, the
claim x x x should be filed against the estate of Manuel S. Toledo, in
conformity with the provision of Section 6, Rule 86 of the Rules of Court, x
x x.20

The Court of Appeals denied petitioners motion for reconsideration. Hence,

this petition.

The Issues

Petitioner claims that the Court of Appeals erred in not holding that:

1. Respondent is already estopped from questioning the trial courts

jurisdiction;

2. Petitioner never failed to implead an indispensable party as the

estate of Manuel is not an indispensable party;

3. The inclusion of Manuel as party-defendant is a mere misjoinder of

party not warranting the dismissal of the case before the lower court;
and

4. Since the estate of Manuel is not an indispensable party, it is not

necessary that petitioner file its claim against the estate of Manuel.
In essence, what is at issue here is the correctness of the trial courts
orders denying respondents motion to dismiss.

The Ruling of the Court

We find merit in the petition.

Motion to dismiss filed out of time

To begin with, the Court of Appeals erred in granting the writ of certiorari in
favor of respondent. Well settled is the rule that the special civil action for
certiorari is not the proper remedy to assail the denial by the trial court of a
motion to dismiss. The order of the trial court denying a motion to dismiss is
merely interlocutory, as it neither terminates nor finally disposes of a case
and still leaves something to be done by the court before a case is finally
decided on the merits.21 Therefore, "the proper remedy in such a case is to
appeal after a decision has been rendered."22

As the Supreme Court held in Indiana Aerospace University v. Comm. on

Higher Education:23

A writ of certiorari is not intended to correct every controversial interlocutory

ruling; it is resorted only to correct a grave abuse of discretion or a
whimsical exercise of judgment equivalent to lack of jurisdiction. Its function
is limited to keeping an inferior court within its jurisdiction and to relieve
persons from arbitrary acts acts which courts or judges have no power or
authority in law to perform. It is not designed to correct erroneous findings
and conclusions made by the courts. (Emphasis supplied)

Even assuming that certiorari is the proper remedy, the trial court did not
commit grave abuse of discretion in denying respondents motion to
dismiss. It, in fact, acted correctly when it issued the questioned orders as
respondents motion to dismiss was filed SIX YEARS AND FIVE MONTHS
AFTER SHE FILED HER AMENDED ANSWER. This circumstance alone
already warranted the outright dismissal of the motion for having been filed
in clear contravention of the express mandate of Section 1, Rule 16, of the
Revised Rules of Court. Under this provision, a motion to dismiss shall be
filed within the time for but before the filing of an answer to the complaint or
pleading asserting a claim.24
More importantly, respondents motion to dismiss was filed after petitioner
has completed the presentation of its evidence in the trial court, giving
credence to petitioners and the trial courts conclusion that the filing of the
motion to dismiss was a mere ploy on the part of respondent to delay the
prompt resolution of the case against her.

Also worth mentioning is the fact that respondents motion to dismiss under
consideration herein is not the first motion to dismiss she filed in the trial
court. It appears that she had filed an earlier motion to dismiss26 on the sole
ground of the unenforceability of petitioners claim under the Statute of
Frauds, which motion was denied by the trial court. More telling is the
following narration of the trial court in its Order denying respondents
motion for reconsideration of the denial of her motion to dismiss:

As can be gleaned from the records, with the admission of plaintiffs

exhibits, reception of defendants evidence was set on March 31, and April
23, 2004 x x x . On motion of the defendants, the hearing on March 31,
2004 was cancelled.

On April 14, 2004, defendants sought the issuance of subpoena ad

testificandum and duces tecum to one Gina M. Madulid, to appear and
testify for the defendants on April 23, 2004. Reception of defendants
evidence was again deferred to May 26, June 2 and June 30, 2004, x x x.

On May 13, 2004, defendants sought again the issuance of a subpoena

duces tecum and ad testificandum to the said Gina Madulid. On May 26,
2004, reception of defendants [sic] evidence was cancelled upon the
agreement of the parties. On July 28, 2004, in the absence of defendants
witness, hearing was reset to September 24 and October 8, 2004 x x x.

On September 24, 2004, counsel for defendants was given a period of

fifteen (15) days to file a demurrer to evidence. On October 7, 2004,
defendants filed instead a Motion to Dismiss x x x.27

Respondents act of filing multiple motions, such as the first and earlier
motion to dismiss and then the motion to dismiss at issue here, as well as
several motions for postponement, lends credibility to the position taken by
petitioner, which is shared by the trial court, that respondent is

deliberately impeding the early disposition of this case. The filing of the
second motion to dismiss was, therefore, "not only improper but also
dilatory."28 Thus, the trial court, "far from deviating or straying off course
from established jurisprudence on the matter, x x x had in fact faithfully
observed the law and legal precedents in this case."29 The Court of
Appeals, therefore, erred not only in entertaining respondents petition for
certiorari, it likewise erred in ruling that the trial court committed grave
abuse of discretion when it denied respondents motion to dismiss.

On whether or not respondent is estopped from

questioning the jurisdiction of the trial court

At the outset, it must be here stated that, as the succeeding discussions

will demonstrate, jurisdiction over the person of Manuel should not be an
issue in this case. A protracted discourse on jurisdiction is, nevertheless,
demanded by the fact that jurisdiction has been raised as an issue from the
lower court, to the Court of Appeals and, finally, before this Court. For the
sake of clarity, and in order to finally settle the controversy and fully
dispose of all the issues in this case, it was deemed imperative to resolve
the issue of jurisdiction.

1. Aspects of Jurisdiction

Petitioner calls attention to the fact that respondents motion to dismiss

questioning the trial courts jurisdiction was filed more than six years after
her amended answer was filed. According to petitioner, respondent had
several opportunities, at various stages of the proceedings, to assail the
trial courts jurisdiction but never did so for six straight years. Citing the
doctrine laid down in the case of Tijam, et al. v. Sibonghanoy, et
al.30 petitioner claimed that respondents failure to raise the question of
jurisdiction at an earlier stage bars her from later questioning it, especially
since she actively participated in the proceedings conducted by the trial
court.

Petitioners argument is misplaced, in that, it failed to consider that the

concept of jurisdiction has several aspects, namely: (1) jurisdiction over the
subject matter; (2) jurisdiction over the parties; (3) jurisdiction over the
issues of the case; and (4) in cases involving property, jurisdiction over the
res or the thing which is the subject of the litigation.31

The aspect of jurisdiction which may be barred from being assailed as a

result of estoppel by laches is jurisdiction over the subject matter. Thus, in
Tijam, the case relied upon by petitioner, the issue involved was the
authority of the then Court of First Instance to hear a case for the collection
of a sum of money in the amount of P1,908.00 which amount was, at that
time, within the exclusive original jurisdiction of the municipal courts.

In subsequent cases citing the ruling of the Court in Tijam, what was
likewise at issue was the jurisdiction of the trial court over the subject
matter of the case. Accordingly, in Spouses Gonzaga v. Court of
Appeals,32 the issue for consideration was the authority of the regional trial
court to hear and decide an action for reformation of contract and damages
involving a subdivision lot, it being argued therein that jurisdiction is vested
in the Housing and Land Use Regulatory Board pursuant to PD 957 (The
Subdivision and Condominium Buyers Protective Decree). In Lee v.
Presiding Judge, MTC, Legaspi City,33 petitioners argued that the
respondent municipal trial court had no jurisdiction over the complaint for
ejectment because the issue of ownership was raised in the pleadings.
Finally, in People v. Casuga,34 accused-appellant claimed that the crime of
grave slander, of which she was charged, falls within the concurrent
jurisdiction of municipal courts or city courts and the then courts of first
instance, and that the judgment of the court of first instance, to which she
had appealed the municipal court's conviction, should be deemed null and
void for want of jurisdiction as her appeal should have been filed with the
Court of Appeals or the Supreme Court.

In all of these cases, the Supreme Court barred the attack on the
jurisdiction of the respective courts concerned over the subject matter of
the case based on estoppel by laches, declaring that parties cannot be
allowed to belatedly adopt an inconsistent posture by attacking the
jurisdiction of a court to which they submitted their cause voluntarily.35

Here, what respondent was questioning in her motion to dismiss before the
trial court was that courts jurisdiction over the person of defendant Manuel.
Thus, the principle of estoppel by laches finds no application in this case.
Instead, the principles relating to jurisdiction over the person of the parties
are pertinent herein.

The Rules of Court provide:

RULE 9
EFFECT OF FAILURE TO PLEAD
Section 1. Defenses and objections not pleaded. Defenses and
objections not pleaded either in a motion to dismiss or in the answer are
deemed waived. However, when it appears from the pleadings or the
evidence on record that the court has no jurisdiction over the subject
matter, that there is another action pending between the same parties for
the same cause, or that the action is barred by a prior judgment or by
statute of limitations, the court shall dismiss the claim.

RULE 15
MOTIONS

Sec. 8. Omnibus motion. Subject to the provisions of Section 1 of Rule 9,

a motion attacking a pleading, order, judgment, or proceeding shall include
all objections then available, and all objections not so included shall be
deemed waived.

Based on the foregoing provisions, the "objection on jurisdictional grounds

which is not waived even if not alleged in a motion to dismiss or the answer
is lack of jurisdiction over the subject matter. x x x Lack of jurisdiction over
the subject matter can always be raised anytime, even for the first time on
appeal, since jurisdictional issues cannot be waived x x x subject, however,
to the principle of estoppel by laches."36

Since the defense of lack of jurisdiction over the person of a party to a case
is not one of those defenses which are not deemed waived under Section 1
of Rule 9, such defense must be invoked when an answer or a motion to
dismiss is filed in order to prevent a waiver of the defense.37 If the objection
is not raised either in a motion to dismiss or in the answer, the objection to
the jurisdiction over the person of the plaintiff or the defendant is deemed
waived by virtue of the first sentence of the above-quoted Section 1 of Rule
9 of the Rules of Court.38

The Court of Appeals, therefore, erred when it made a sweeping

pronouncement in its questioned decision, stating that "issue on jurisdiction
may be raised at any stage of the proceeding, even for the first time on
appeal" and that, therefore, respondent timely raised the issue in her
motion to dismiss and is, consequently, not estopped from raising the
question of jurisdiction. As the question of jurisdiction involved here is that
over the person of the defendant Manuel, the same is deemed waived if not
raised in the answer or a motion to dismiss. In any case, respondent
cannot claim the defense since "lack of jurisdiction over the person, being
subject to waiver, is a personal defense which can only be asserted by the
party who can thereby waive it by silence."39

2. Jurisdiction over the person of a defendant is acquired through a valid

service of summons; trial court did not acquire jurisdiction over the person
of Manuel Toledo

In the first place, jurisdiction over the person of Manuel was never acquired
by the trial court. A defendant is informed of a case against him when he
receives summons. "Summons is a writ by which the defendant is notified
of the action brought against him. Service of such writ is the means by
which the court acquires jurisdiction over his person."40

In the case at bar, the trial court did not acquire jurisdiction over the person
of Manuel since there was no valid service of summons upon him, precisely
because he was already dead even before the complaint against him and
his wife was filed in the trial court. The issues presented in this case are
similar to those in the case of Sarsaba v. Vda. de Te.41

In Sarsaba, the NLRC rendered a decision declaring that Patricio Sereno

was illegally dismissed from employment and ordering the payment of his
monetary claims. To satisfy the claim, a truck in the possession of Serenos
employer was levied upon by a sheriff of the NLRC, accompanied by
Sereno and his lawyer, Rogelio Sarsaba, the petitioner in that case. A
complaint for recovery of motor vehicle and damages, with prayer for the
delivery of the truck pendente lite was eventually filed against Sarsaba,
Sereno, the NLRC sheriff and the NLRC by the registered owner of the
truck. After his motion to dismiss was denied by the trial court, petitioner
Sarsaba filed his answer. Later on, however, he filed an omnibus motion to
dismiss citing, as one of the grounds, lack of jurisdiction over one of the
principal defendants, in view of the fact that Sereno was already dead
when the complaint for recovery of possession was filed.

Although the factual milieu of the present case is not exactly similar to that
of Sarsaba, one of the issues submitted for resolution in both cases is
similar: whether or not a case, where one of the named defendants was
already dead at the time of its filing, should be dismissed so that the claim
may be pursued instead in the proceedings for the settlement of the estate
of the deceased defendant. The petitioner in the Sarsaba Case claimed, as
did respondent herein, that since one of the defendants died before
summons was served on him, the trial court should have dismissed the
complaint against all the defendants and the claim should be filed against
the estate of the deceased defendant. The petitioner in Sarsaba, therefore,
prayed that the complaint be dismissed, not only against Sereno, but as to
all the defendants, considering that the RTC did not acquire jurisdiction
over the person of Sereno.42 This is exactly the same prayer made by
respondent herein in her motion to dismiss.

The Court, in the Sarsaba Case, resolved the issue in this wise:

x x x We cannot countenance petitioners argument that the complaint

against the other defendants should have been dismissed, considering that
the RTC never acquired jurisdiction over the person of Sereno. The courts
failure to acquire jurisdiction over ones person is a defense which is
personal to the person claiming it. Obviously, it is now impossible for
Sereno to invoke the same in view of his death. Neither can petitioner
invoke such ground, on behalf of Sereno, so as to reap the benefit of
having the case dismissed against all of the defendants. Failure to serve
summons on Serenos person will not be a cause for the dismissal of the
complaint against the other defendants, considering that they have been
served with copies of the summons and complaints and have long
submitted their respective responsive pleadings. In fact, the other
defendants in the complaint were given the chance to raise all possible
defenses and objections personal to them in their respective motions to
dismiss and their subsequent answers.43 (Emphasis supplied.)

Hence, the Supreme Court affirmed the dismissal by the trial court of the
complaint against Sereno only.

Based on the foregoing pronouncements, there is no basis for dismissing

the complaint against respondent herein. Thus, as already emphasized
above, the trial court correctly denied her motion to dismiss.

On whether or not the estate of Manuel

Toledo is an indispensable party

Rule 3, Section 7 of the 1997 Rules of Court states:

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 of a case that a final adjudication cannot be made in his
or her absence, without injuring or affecting that interest. He or she is a
party who has not only an interest in the subject matter of the controversy,
but "an interest of such nature that a final decree cannot be made without
affecting that interest or leaving the controversy in such a condition that its
final determination may be wholly inconsistent with equity and good
conscience. It has also been considered that an indispensable party is a
person in whose absence there cannot be a determination between the
parties already before the court which is effective, complete or equitable."
Further, an indispensable party is one who must be included in an action
before it may properly proceed.44

On the other hand, a "person is not an indispensable party if his interest in

the controversy or subject matter is separable from the interest of the other
parties, so that it will not necessarily be directly or injuriously affected by a
decree which does complete justice between them. Also, a person is not an
indispensable party if his presence would merely permit complete relief
between him or her and those already parties to the action, or if he or she
has no interest in the subject matter of the action." It is not a sufficient
reason to declare a person to be an indispensable party simply because his
or her presence will avoid multiple litigations.45

Applying the foregoing pronouncements to the case at bar, it is clear that

the estate of Manuel is not an indispensable party to the collection case, for
the simple reason that the obligation of Manuel and his wife, respondent
herein, is solidary.

The contract between petitioner, on the one hand and respondent and
respondents husband, on the other, states:

FOR VALUE RECEIVED, I/We jointly and severally46 (in solemn) promise
to pay BOSTON EQUITY RESOURCES, INC. x x x the sum of PESOS:
[ONE MILLION FOUR HUNDRED (P1,400,000.00)] x x x.47

The provisions and stipulations of the contract were then followed by the
respective signatures of respondent as "MAKER" and her husband as "CO-
MAKER."48 Thus, pursuant to Article 1216 of the Civil Code, petitioner may
collect the entire amount of the obligation from respondent only. The
aforementioned provision states: "The creditor may proceed against any
one of the solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to those which
may subsequently be directed against the others, so long as the debt has
not been fully collected."

In other words, the collection case can proceed and the demands of
petitioner can be satisfied by respondent only, even without impleading the
estate of Manuel. Consequently, the estate of Manuel is not an
indispensable party to petitioners complaint for sum of money.

However, the Court of Appeals, agreeing with the contention of respondent,

held that the claim of petitioner should have been filed against the estate of
Manuel in accordance with Sections 5 and 6 of Rule 86 of the Rules of
Court. The aforementioned provisions provide:

SEC. 5. Claims which must be filed under the notice. If not filed, barred;
exceptions. All claims for money against the decedent, arising from
contract, express or implied, whether the same be due, not due, or
contingent, all claims for funeral expenses and judgment for money against
the decedent, must be filed within the time limited in the notice; otherwise,
they are barred forever, except that they may be set forth as counterclaims
in any action that the executor or administrator may bring against the
claimants. x x x.

SEC. 6. Solidary obligation of decedent. Where the obligation of the

decedent is solidary with another debtor, the claim shall be filed against the
decedent as if he were the only debtor, without prejudice to the right of the
estate to recover contribution from the other debtor. x x x.

The Court of Appeals erred in its interpretation of the above-quoted

provisions.

In construing Section 6, Rule 87 of the old Rules of Court, the precursor of

Section 6, Rule 86 of the Revised Rules of Court, which latter provision has
been retained in the present Rules of Court without any revisions, the
Supreme Court, in the case of Manila Surety & Fidelity Co., Inc. v.
Villarama, et. al.,49 held:50
Construing Section 698 of the Code of Civil Procedure from whence
[Section 6, Rule 87] was taken, this Court held that where two persons are
bound in solidum for the same debt and one of them dies, the whole
indebtedness can be proved against the estate of the latter, the decedents
liability being absolute and primary; x x x. It is evident from the foregoing
that Section 6 of Rule 87 provides the procedure should the creditor desire
to go against the deceased debtor, but there is certainly nothing in the said
provision making compliance with such procedure a condition precedent
before an ordinary action against the surviving solidary debtors, should the
creditor choose to demand payment from the latter, could be entertained to
the extent that failure to observe the same would deprive the court
jurisdiction to take cognizance of the action against the surviving debtors.
Upon the other hand, the Civil Code expressly allows the creditor to
proceed against any one of the solidary debtors or some or all of them
simultaneously. There is, therefore, nothing improper in the creditors filing
of an action against the surviving solidary debtors alone, instead of
instituting a proceeding for the settlement of the estate of the deceased
debtor wherein his claim could be filed.

The foregoing ruling was reiterated and expounded in the later case of
Philippine National Bank v. Asuncion51where the Supreme Court
pronounced:

A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court

reveals that nothing therein prevents a creditor from proceeding against the
surviving solidary debtors. Said provision merely sets up the procedure in
enforcing collection in case a creditor chooses to pursue his claim against
the estate of the deceased solidary debtor. The rule has been set forth that
a creditor (in a solidary obligation) has the option whether to file or not to
file a claim against the estate of the solidary debtor. x x x

xxxx

It is crystal clear that Article 1216 of the New Civil Code is the applicable
provision in this matter. Said provision gives the creditor the right to
"proceed against anyone of the solidary debtors or some or all of them
simultaneously." The choice is undoubtedly left to the solidary creditor to
determine against whom he will enforce collection. In case of the death of
one of the solidary debtors, he (the creditor) may, if he so chooses,
proceed against the surviving solidary debtors without necessity of filing a
claim in the estate of the deceased debtors. It is not mandatory for him to
have the case dismissed as against the surviving debtors and file its claim
against the estate of the deceased solidary debtor, x x x. For to require the
creditor to proceed against the estate, making it a condition precedent for
any collection action against the surviving debtors to prosper, would
deprive him of his substantive rightsprovided by Article 1216 of the New
Civil Code. (Emphasis supplied.)

As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules

of Court were applied literally, Article 1216 of the New Civil Code would, in
effect, be repealed since under the Rules of Court, petitioner has no choice
but to proceed against the estate of [the deceased debtor] only. Obviously,
this provision diminishes the [creditors] right under the New Civil Code to
proceed against any one, some or all of the solidary debtors. Such a
construction is not sanctioned by principle, which is too well settled to
require citation, that a substantive law cannot be amended by a procedural
rule. Otherwise stated, Section 6, Rule 86 of the Revised Rules of Court
cannot be made to prevail over Article 1216 of the New Civil Code, the
former being merely procedural, while the latter, substantive.

Based on the foregoing, the estate of Manuel is not an indispensable party

and the case can proceed as against respondent only. That petitioner
opted to collect from respondent and not from the estate of Manuel is
evidenced by its opposition to respondents motion to dismiss asserting that
the case, as against her, should be dismissed so that petitioner can
proceed against the estate of Manuel.

On whether or not the inclusion of Manuel as

party defendant is a misjoinder of party

Section 11 of Rule 3 of the Rules of Court states that "neither misjoinder

nor non-joinder of parties is ground for dismissal of an action. Parties may
be dropped or added by order of the court on motion of any party or on its
own initiative at any stage of the action and on such terms as are just. Any
claim against a misjoined party may be severed and proceeded with
separately."

Based on the last sentence of the afore-quoted provision of law, a

misjoined party must have the capacity to sue or be sued in the event that
the claim by or against the misjoined party is pursued in a separate case. In
this case, therefore, the inclusion of Manuel in the complaint cannot be
considered a misjoinder, as in fact, the action would have proceeded
against him had he been alive at the time the collection case was filed by
petitioner. This being the case, the remedy provided by Section 11 of Rule
3 does not obtain here. The name of Manuel as party-defendant cannot
simply be dropped from the case. Instead, the procedure taken by the
Court in Sarsaba v. Vda. de Te,52whose facts, as mentioned earlier,
resemble those of this case, should be followed herein. There, the
Supreme Court agreed with the trial court when it resolved the issue of
jurisdiction over the person of the deceased Sereno in this wise:

As correctly pointed by defendants, the Honorable Court has not acquired

jurisdiction over the person of Patricio Sereno since there was indeed no
valid service of summons insofar as Patricio Sereno is concerned. Patricio
Sereno died before the summons, together with a copy of the complaint
and its annexes, could be served upon him.

However, the failure to effect service of summons unto Patricio Sereno,

one of the defendants herein, does not render the action DISMISSIBLE,
considering that the three (3) other defendants, x x x, were validly served
with summons and the case with respect to the answering defendants may
still proceed independently. Be it recalled that the three (3) answering
defendants have previously filed a Motion to Dismiss the Complaint which
was denied by the Court.

Hence, only the case against Patricio Sereno will be DISMISSED and the
same may be filed as a claim against the estate of Patricio Sereno, but the
case with respect to the three (3) other accused [sic] will proceed.
(Emphasis supplied.)53

As a result, the case, as against Manuel, must be dismissed.

In addition, the dismissal of the case against Manuel is further warranted by

Section 1 of Rule 3 of the Rules of Court, which states that: only natural or
juridical persons, or entities authorized by law may be parties in a civil
action." Applying this provision of law, the Court, in the case of Ventura v.
Militante,54 held:

Parties may be either plaintiffs or defendants. x x x. In order to maintain an

action in a court of justice, the plaintiff must have an actual legal existence,
that is, he, she or it must be a person in law and possessed of a legal entity
as either a natural or an artificial person, and no suit can be lawfully
prosecuted save in the name of such a person.

The rule is no different as regards party defendants. It is incumbent upon a

plaintiff, when he institutes a judicial proceeding, to name the proper party
defendant to his cause of action. In a suit or proceeding in personam of an
adversary character, the court can acquire no jurisdiction for the purpose of
trial or judgment until a party defendant who actually or legally exists and is
legally capable of being sued, is brought before it. It has even been held
that the question of the legal personality of a party defendant is a question
of substance going to the jurisdiction of the court and not one of procedure.

The original complaint of petitioner named the "estate of Carlos Ngo as

represented by surviving spouse Ms. Sulpicia Ventura" as the
defendant. Petitioner moved to dismiss the same on the ground that the
1wphi 1

defendant as named in the complaint had no legal personality. We agree.

x x x. Considering that capacity to be sued is a correlative of the capacity to

sue, to the same extent, a decedent does not have the capacity to be sued
and may not be named a party defendant in a court action. (Emphases
supplied.)

Indeed, where the defendant is neither a natural nor a juridical person or an

entity authorized by law, the complaint may be dismissed on the ground
that the pleading asserting the claim states no cause of action or for failure
to state a cause of action pursuant to Section 1(g) of Rule 16 of the Rules
of Court, because a complaint cannot possibly state a cause of action
against one who cannot be a party to a civil action.55

Since the proper course of action against the wrongful inclusion of Manuel
as party-defendant is the dismissal of the case as against him, thus did the
trial court err when it ordered the substitution of Manuel by his heirs.
Substitution is proper only where the party to be substituted died during the
pendency of the case, as expressly provided for by Section 16, Rule 3 of
the Rules of Court, which states:

Death of party;duty of counsel. Whenever a party to a pending action

dies, and the claim is not thereby extinguished, it shall be the duty of his
counsel to inform the court within thirty (30) days after such death of the
fact thereof, and to give the name and address of his legal representative
or representatives. x x x
The heirs of the deceased may be allowed to be substituted for the
deceased, without requiring the appointment of an executor or
administrator x x x.

The court shall forthwith order said legal representative or representatives

to appear and be substituted within a period of thirty (30) days from notice.
(Emphasis supplied.)

Here, since Manuel was already dead at the time of the filing of the
complaint, the court never acquired jurisdiction over his person and, in
effect, there was no party to be substituted.

WHEREFORE, the petition is GRANTED. The Decision dated 28 February

2006 and the Resolution dated 1 August 2006 of the Court of Appeals in
CA-G.R. SP No. 88586 are REVERSED and SET ASIDE. The Orders of
the Regional Trial Court dated 8 November 2004 and 22 December 2004,
respectively, in Civil Case No. 97-86672, are REINSTATED. The Regional
Trial Court, Branch 24, Manila is hereby DIRECTED to proceed with the
trial of Civil Case No. 97-86672 against respondent Lolita G. Toledo only, in
accordance with the above pronouncements of the Court, and to decide the
case with dispatch.