CIVPRO CASES 08-03-15

RULE 7
1. TRAVENO v. BOBONGON
SECOND DIVISION
[G.R. No. 164205. September 3, 2009.]
OLDARICO S. TRAVEO, ROVEL A. GENELSA, RUEL U.
VILLARMENTE, ALFREDO A. PANILAGAO, CARMEN P.
DANILA, ELIZABETH B. MACALINO, RAMIL P. ALBITO,
REYNALDO A. LADRILLO, LUCAS G. TAMAYO, DIOSDADO
A. AMORIN, RODINO C. VASQUEZ, GLORIA A. FELICANO,
NOLE E. FERMILAN, JOSELITO B. RENDON, CRISTETA D.
CAA, EVELYN D. ARCENAL and JEORGE M.
NONO, petitioners, vs. BOBONGON BANANA GROWERS
MULTI-PURPOSE COOPERATIVE, TIMOG AGRICULTURAL
CORPORATION, DIAMOND FARMS, INC., and DOLE ASIA
PHILIPPINES, respondents.
DECISION
CARPIO MORALES, J p:
By the account of petitioner Oldarico Traveo and his 16 copetitioners, in 1992, respondent Timog Agricultural Corporation
(TACOR) and respondent Diamond Farms, Inc. (DFI) hired
them to work at a banana plantation at Bobongon, Santo
Tomas, Davao Del Norte which covered lands previously
planted with rice and corn but whose owners had agreed to
convert into a banana plantation upon being convinced that
TACOR and DFI could provide the needed capital, expertise,
and equipment. Petitioners helped prepare the lands for the
planting of banana suckers and eventually carried out the
planting as well. 1 CAIHTE
Petitioners asseverated that while they worked under the direct
control of supervisors assigned by TACOR and DFI, these
companies used different schemes to make it appear that
petitioners were hired through independent contractors,
including
individuals,
unregistered
associations,
and
cooperatives; that the successive changes in the names of
their employers notwithstanding, they continued to perform the
same work under the direct control of TACOR and DFI
supervisors; and that under the last scheme adopted by these
companies, the nominal individual contractors were required
to, as they did, join a cooperative and thus became members
of respondent Bobongon Banana Growers Multi-purpose
Cooperative (the Cooperative). 2
Continued petitioners: Sometime in 2000, above-named
respondents began utilizing harassment tactics to ease them
out of their jobs. Without first seeking the approval of the
Department of Labor and Employment (DOLE), they changed
their compensation package from being based on a daily rate
to a pakyawan rate that depended on the combined
productivity of the "gangs" they had been grouped into. Soon
thereafter, they stopped paying their salaries, prompting them
to stop working. 3

One after another, three separate complaints for illegal

dismissal were filed by petitioners, individually and collectively,
with the National Labor Relations Commission (NLRC) against
said respondents including respondent Dole Asia Philippines
as it then supposedly owned TACOR, 4 for unpaid salaries,
overtime pay, 13th month pay, service incentive leave pay,
damages, and attorney's fees. 5
DFI answered for itself and TACOR, which it claimed had been
merged with it and ceased to exist as a corporation. Denying
that it had engaged the services of petitioners, 6 DFI alleged
that during the corporate lifetime of TACOR, it had an
arrangement with several landowners in Santo Tomas, Davao
Del Norte whereby TACOR was to extend financial and
technical assistance to them for the development of their lands
into a banana plantation on the condition that the bananas
produced therein would be sold exclusively to TACOR; that the
landowners worked on their own farms and hired laborers to
assist them; that the landowners themselves decided to form a
cooperative in order to better attain their business objectives;
and that it was not in a position to state whether petitioners
were working on the banana plantation of the landowners who
had contracted with TACOR. 7
The Cooperative failed to file a position paper despite due
notice, prompting the Labor Arbiter to consider it to have
waived its right to adduce evidence in its defense. AaIDCS
Nothing was heard from respondent Dole Asia Philippines.
By consolidated Decision dated October 30, 2002, 8 the Labor
Arbiter, found respondent Cooperative guilty of illegal
dismissal. It dropped the complaints against DFI, TACOR and
Dole Asia Philippines. Thus it disposed:
WHEREFORE, judgment is hereby rendered:
1.Declaring respondent Bobongon Banana Growers Multipurpose Cooperative guilty of illegal dismissal;
2.Ordering respondent Bobongon Banana Growers Multipurpose Cooperative to pay complainants full backwages from
the time of their illegal dismissal up to this promulgation, to be
determined during the execution stage;
3.Ordering respondent Bobongon Banana Growers Multipurpose Cooperative to reinstate complainants to their former
positions without loss of seniority rights and if not possible, to
pay them separation pay equivalent to 1/2 month pay for every
year of service;
4.Ordering respondent Bobongon Banana Grower Cooperative
[sic] to pay 10% of the total award as Attorney's fees;
5.All other respondents are hereby dropped as
respondents for lack of merit. (Underscoring supplied)

party-

In finding for petitioners, the Labor Arbiter relied heavily on the

following Orders submitted by DFI which were issued in an
earlier case filed with the DOLE, viz.: (1) Order dated July 11,
1995 of the Director of DOLE Regional Office No. XI declaring
the Cooperative as the employer of the 341 workers in the

farms of its several members; (2) Order dated December 17,

1997 of the DOLE Secretary affirming the Order dated July 11,
1995 of the Director of DOLE Regional Office No. XI; and (3)
Order dated June 23, 1998 of the DOLE Secretary denying the
Cooperative's Motion for Reconsideration. IcTaAH
On partial appeal to the NLRC, petitioners questioned the
Labor Arbiter's denial of their money claims and the dropping of
their complaints against TACOR, DFI, and Dole Asia
Philippines.
By Resolution dated July 30, 2003, 9 the NLRC sustained the
Labor Arbiter's ruling that the employer of petitioners is the
Cooperative, there being no showing that the earlier mentioned
Orders of the DOLE Secretary had been set aside by a court of
competent jurisdiction. It partially granted petitioners' appeal,
however, by ordering the Cooperative to pay them their unpaid
wages, wage differentials, service incentive leave pay, and
13th month pay. It thus remanded the case to the Labor Arbiter
for computation of those awards.
Their Motion for Reconsideration having been denied by
Resolution of September 30, 2003, 10 petitioners appealed to
the Court of Appeals via certiorari.11
By Resolution dated February 20, 2004, 12 the appellate court
dismissed petitioners' petition for certiorari on the ground that
the accompanying verification and certification against forum
shopping was defective, it having been signed by only 19 of
the 22 therein named petitioners. Their Motion for
Reconsideration having been denied by Resolution of May 13,
2004, 13 petitioners lodged the present Petition for Review
on Certiorari.
Petitioners posit that the appellate court erred in dismissing
their petition on a mere technicality as it should have, at most,
dismissed the petition only with respect to the non-signing
petitioners. CacHES
Dwelling on the merits of the case, petitioners posit that the
Labor Arbiter and the NLRC disregarded evidence on record
showing that while the Cooperative was their employer on
paper, the other respondents exercised control and supervision
over them; that the Cooperative was a labor-only contractor;
and that the Orders of the DOLE Secretary relied upon by the
Labor Arbiter and the NLRC are not applicable to them as the
same pertained to a certification election case involving
different parties and issues. 14
DFI, commenting for itself and TACOR, maintains that, among
other things, it was not the employer of petitioners; and that it
cannot comment on their money claims because no evidence
was submitted in support thereof. 15
It appears that respondent Cooperative had been dissolved. 16
As respondent Dole Asia Philippines failed to file a comment,
the Court, by Resolution of November 29, 2006, 17 required it
to (1) show cause why it should not be held in contempt for its
failure to heed the Court's directive, and (2) file the required
comment, within 10 days from notice.

Dole Philippines, Inc. (DPI) promptly filed an Urgent

Manifestation 18 stating that, among other things, while its
division located in Davao City received the Court's Resolution
directing Dole Asia Philippines to file a comment on the present
petition, DPI did not file a comment as the directive was
addressed to "Dole Asia Philippines", an entity which is not
registered at the Securities and Exchange Commission.
Commenting on DPI's Urgent Manifestation, petitioners
contend that DPI cannot be allowed to take advantage of their
lack of knowledge as to its exact corporate name, DPI having
raised the matter for the first time before this Court
notwithstanding its receipt of all pleadings and court processes
from the inception of this case. 19
Upon review of the records, the Court finds that DPI never ever
participated in the proceedings despite due notice. Its
posturing, therefore, that the court processes it received were
addressed to "Dole Asia Philippines", a non-existent entity,
does not lie. That DPI is the intended respondent, there is no
doubt.
Respecting the appellate court's dismissal of petitioners'
appeal due to the failure of some of them to sign the therein
accompanying verification and certification against forumshopping, the Court's guidelines for the bench and bar in Altres
v. Empleo, 20 which were culled "from jurisprudential
pronouncements", are instructive:
For the guidance of the bench and bar, the Court restates in
capsule form the jurisprudential pronouncements already
reflected above respecting non-compliance with the
requirements on, or submission of defective, verification
and certification against forum shopping:
1)A distinction must be made between non-compliance with the
requirement on or submission of defective verification, and
non-compliance with the requirement on or submission of
defective certification against forum shopping.

2)As to verification, non-compliance therewith or a defect

therein does not necessarily render the pleading fatally
defective. The court may order its submission or correction or
act on the pleading if the attending circumstances are such
that strict compliance with the Rule may be dispensed with in
order that the ends of justice may be served thereby.
3)Verification is deemed substantially complied with when
one who has ample knowledge to swear to the truth of the
allegations in the complaint or petition signs the
verification, and when matters alleged in the petition have
been made in good faith or are true and correct.
4)As to certification against forum shopping, non-compliance
therewith or a defect therein, unlike in verification, is generally
not curable by its subsequent submission or correction thereof,
unless there is a need to relax the Rule on the ground of
"substantial compliance" or presence of "special circumstances
or compelling reasons". DcCITS

5)The certification against forum shopping must be signed

by all the plaintiffs or petitioners in a case; otherwise,
those who did not sign will be dropped as parties to the
case. Under reasonable or justifiable circumstances, however,
as when all the plaintiffs or petitioners share a common interest
and invoke a common cause of action or defense, the
signature of only one of them in the certification against forum
shopping substantially complies with the Rule.
6)Finally, the certification against forum shopping must be
executed by the party-pleader, not by his counsel. If, however,
for reasonable or justifiable reasons, the party-pleader is
unable to sign, he must execute a Special Power of Attorney
designating his counsel of record to sign on his behalf.
(Emphasis and underscoring supplied)
The foregoing restated pronouncements were lost in the
challenged Resolutions of the appellate court. Petitioners'
contention that the appellate court should have dismissed the
petition only as to the non-signing petitioners or
merely dropped them as parties to the case is thus in order.
Instead of remanding the case to the appellate court, however,
the Court deems it more practical to decide the substantive
issue raised in this petition so as not to further delay the
disposition of this case. 21 And it thus resolves to deviate as
well from the general rule that factual questions are not
entertained in petitions for review on certiorari of the appellate
court's decisions in order to write finis to this protracted
litigation.
The sole issue is whether DFI (with which TACOR had been
merged) and DPI should be held solidarily liable with the
Cooperative for petitioners' illegal dismissal and money claims.
The Labor Code and its Implementing Rules empower the
Labor Arbiter to be the trier of facts in labor cases. 22 Much
reliance is thus placed on the Arbiter's findings of fact, having
had the opportunity to discuss with the parties and their
witnesses the factual matters of the case during the
conciliation phase. 23 Just the same, a review of the records of
the present case does not warrant a conclusion different from
the Arbiter's, as affirmed by the NLRC, that the Cooperative is
the employer of petitioners. AEHTIC
To be sure, the matter of whether the Cooperative is an
independent contractor or a labor-only contractor may not be
used to predicate a ruling in this case. Job contracting or
subcontracting refers to an arrangement whereby a principal
agrees to farm out with a contractor or subcontractor the
performance of a specific job, work or service within a definite
or predetermined period, regardless of whether such job, work
or service is to be performed or completed within or outside the
premises of the principal. 24 The present case does not
involve such an arrangement.
DFI did not farm out to the Cooperative the performance of a
specific job, work, or service. Instead, it entered into a Banana
Production and Purchase Agreement 25 (Contract) with the
Cooperative, under which the Cooperative would handle and
fund the production of bananas and operation of the plantation

covering lands owned by its members in consideration of DFI's

commitment to provide financial and technical assistance as
needed, including the supply of information and equipment in
growing, packing, and shipping bananas. The Cooperative
would hire its own workers and pay their wages and benefits,
and sell exclusively to DFI all export quality bananas produced
that meet the specifications agreed upon.
To the Court, the Contract between the Cooperative and DFI,
far from being a job contracting arrangement, is in essence a
business partnership that partakes of the nature of a joint
venture. 26 The rules on job contracting are, therefore,
inapposite. The Court may not alter the intention of the
contracting parties as gleaned from their stipulations without
violating the autonomy of contracts principle under Article 1306
of the Civil Code which gives the contracting parties the utmost
liberality and freedom to establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good custom, public order
or public policy.
Petitioners' claim of employment relationship with the
Cooperative's herein co-respondents must be assessed on the
basis of four standards, viz.: (a) the manner of their selection
and engagement; (b) the mode of payment of their wages; (c)
the presence or absence of the power of dismissal; and (d) the
presence or absence of control over their conduct. Most
determinative among these factors is the so-called "control
test". 27
There is nothing in the records which indicates the presence of
any of the foregoing elements of an employer-employee
relationship.
The absence of the first requisite, which refers to selection and
engagement, is shown by DFI's total lack of knowledge on who
actually were engaged by the Cooperative to work in the
banana plantation. This is borne out by the Contract between
the Cooperative and DFI, under which the Cooperative was to
hire its own workers. As TACOR had been merged with DFI,
and DPI is merely alleged to have previously owned TACOR,
this applies to them as well. Petitioners failed to prove the
contrary. No employment contract whatsoever was submitted
to substantiate how petitioners were hired and by whom.
On the second requisite, which refers to the payment of wages,
it was likewise the Cooperative that paid the same. As reflected
earlier, under the Contract, the Cooperative was to handle and
fund the production of bananas and operation of the
plantation. 28 The Cooperative was also to be responsible for
the proper conduct, safety, benefits, and general welfare of its
members and workers in the plantation. 29
As to the third requisite, which refers to the power of dismissal,
and the fourth requisite, which refers to the power of control,
both were retained by the Cooperative. Again, the Contract
stipulated that the Cooperative was to be responsible for the
proper conduct and general welfare of its members and
workers in the plantation. ADSIaT

The crucial element of control refers to the authority of the

employer to control the employee not only with regard to
the result of the work to be done, but also to the means and
methods by which the work is to be accomplished. 30 While it
suffices that the power of control exists, albeit not actually
exercised, there must be some evidence of such power. In the
present case, petitioners did not present any.
There being no employer-employee relationship between
petitioners and the Cooperative's co-respondents, the latter are
not solidarily liable with the Cooperative for petitioners' illegal
dismissal and money claims.
While the Court commiserates with petitioners on their loss of
employment, especially now that the Cooperative is no longer
a going concern, it cannot simply, by default, hold the
Cooperative's co-respondents liable for their claims without any
factual and legal justification therefor. The social justice policy
of labor laws and the Constitution is not meant to be
oppressive of capital.

for brevity), upon the other hand, is a government-owned and

controlled company created and existing by virtue of the
provisions of P.D. No. 87 and mandated under its charter to
operate and administer the country's sea port and port
facilities.
After the expiration of the lease contract of Veterans Shipping
Corporation over the Marine Slip Way in the North Harbor on
December 31, 2000, petitioner WG&A requested respondent
PPA for it to be allowed to lease and operate the said facility.
Thereafter, then President Estrada issued a memorandum
dated December 18, 2000 addressed to the Secretary of the
Department of Transportation and Communication (DOTC) and
the General Manager of PPA, stating to the effect that in its
meeting held on December 13, 2000, the Economic
Coordinating Council (ECC) has approved the request of
petitioner WG&A to lease the Marine Slip Way from January 1
to June 30, 2001 or until such time that respondent PPA turns
over its operations to the winning bidder for the North Harbor
Modernization Project.

En passant, petitioners are not precluded from pursuing any

available remedies against the former members of the defunct
Cooperative as their individual circumstances may warrant.

Pursuant to the said Memorandum, a Contract of Lease was

prepared by respondent PPA containing the following terms:

WHEREFORE, the petition is DISMISSED.

1. The lease of the area shall take effect on January 1 to June

30, 2001 or until such time that PPA turns over its operation to
the winning bidder for the North Harbor modernization;

SO ORDERED.
Quisumbing, Corona, * Del Castillo and Abad, JJ., concur.

2. You shall pay a monthly rental rate of P12.15 per square

meter or an aggregate monthly rental amount of P886,950.00;

||| (Traveo v. Bobongon Banana Growers Multi-purpose

Cooperative, G.R. No. 164205, [September 3, 2009], 614 PHIL
222-236)

3. All structures/improvements introduced

premises shall be turned over to PPA;

in

the

leased

4. Water, electricity, telephone and other utility expenses shall

be for the account of William, Gothong & Aboitiz, Inc.;
RULE 10
1. PPA v. GOTHONG
THIRD DIVISION
[G.R. No. 158401. January 28, 2008.]
PHILIPPINE PORTS AUTHORITY, petitioner, vs. WILLIAM
GOTHONG & ABOITIZ (WG&A), INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J p:
This resolves the Petition for Review on Certiorari filed by the
Philippine Ports Authority (petitioner) seeking the reversal of
the Decision 1 of the Court of Appeals (CA) promulgated on
October 24, 2002 and its Resolution dated May 15, 2003.
The antecedent facts are accurately narrated by the CA as
follows:
Petitioner William Gothong & Aboitiz, Inc. (WG&A for brevity),
is a duly organized domestic corporation engaged in the
shipping industry. Respondent Philippine Ports Authority (PPA

5. Real Estate tax/insurance and other government dues and

charges shall be borne by WG&A.
The said contract was eventually conformed to and signed by
the petitioner company, through its President/Chief Executive
Officer Endika Aboitiz, Jr. Thereafter, in accordance with the
stipulations made in the lease agreement, PPA surrendered
possession of the Marine Slip Way in favor of the petitioner.
However, believing that the said lease already expired on June
30, 2001, respondent PPA subsequently sent a letter to
petitioner WG&A dated November 12, 2001 directing the latter
to vacate the contested premises not later than November 30,
2001 and to turnover the improvements made therein pursuant
to the terms and conditions agreed upon in the contract.
In response, petitioner WG&A wrote PPA on November 27,
2001 urging the latter to reconsider its decision to eject the
former. Said request was denied by the PPA via a letter dated
November 29, 2001.
On November 28, 2001, petitioner WG&A commenced an
Injunction suit before the Regional Trial Court of Manila.
Petitioner claims that the PPA unjustly, illegally and
prematurely terminated the lease contract. It likewise prayed

for the issuance of a temporary restraining order to arrest the

evacuation. In its complaint, petitioner also sought recovery of
damages for breach of contract and attorney's fees.
On December 11, 2001, petitioner WG&A amended its
complaint for the first time. The complaint was still
denominated as one for Injunction with prayer for TRO. In the
said amended pleading, the petitioner incorporated statements
to the effect that PPA is already estopped from denying that the
correct period of lease is "until such time that the North Harbor
Modernization Project has been bidded out to and operations
turned over to the winning bidder. It likewise included, as its
third cause of action, the additional relief in its prayer, that
should the petitioner be forced to vacate the said facility, it
should be deemed as entitled to be refunded of the value of
the improvements it introduced in the leased property.
Following the first amendment in the petitioner's complaint,
respondent PPA submitted its answer on January 23, 2002.
Meanwhile, the TRO sought by the former was denied by the
trial court by way of an order dated January 16, 2002.
Petitioner later moved for the reconsideration of the said Order
on February 11, 2002. Shortly thereafter, petitioner filed a
Motion to Admit Attached Second Amended Complaint. This
time, however, the complaint was already captioned as one for
Injunction with Prayer for Temporary Restraining Order and/or
Writ of Preliminary Injunction and damages and/or for
Reformation of Contract. Also, it included as its fourth cause of
action and additional relief in its prayer, the reformation of the
contract as it failed to express or embody the true intent of the
contracting parties.
The admission of the second amended complaint met strong
opposition from the respondent PPA. It postulated that the
reformation sought for by the petitioner constituted substantial
amendment, which if granted, will substantially alter the latter's
cause of action and theory of the case.
On March 22, 2002, the respondent judge issued an Order
denying the Admission of the Second Amended Complaint.
Petitioner filed a motion for reconsideration of the aforesaid
order but the same was again denied in an order dated April
26, 2002. 2
Herein respondent WG&A then filed a petition for certiorari with
the CA seeking the nullification of the aforementioned RTC
orders.
In its Decision dated October 24, 2002, the CA granted
respondent's petition, thereby setting aside the RTC orders
and directing the RTC to admit respondent's second amended
complaint pursuant to Section 3, Rule 10 of the 1997 Rules of
Civil Procedure. Petitioner moved for reconsideration but the
same was denied per Resolution dated May 15, 2003.
Hence, the present petition where the only issue raised is
whether the CA erred in ruling that the RTC committed grave
abuse of discretion when it denied the admission of the second
amended complaint.
The Court finds the petition without merit.

The CA did not err in finding that the RTC committed grave
abuse of discretion in issuing the Order dated March 22, 2002
denying the admission of respondent's second amended
complaint.
The RTC applied the old Section 3, Rule 10 of the Rules of
Court:
Section 3. Amendments by leave of court. after the case is
set for hearing, substantial amendments may be made only
upon leave of court. But such leave may be refused if it
appears to the court that the motion was made with intent to
delay the action or that the cause of action or defense is
substantially altered. Orders of the court upon the matters
provided in this section shall be made upon motion filed in
court, and after notice to the adverse party, and an opportunity
to be heard.
instead of the provisions of the 1997 Rules of Civil Procedure,
amending Section 3, Rule 10, to wit:
SECTION 3. Amendments by leave of court. Except as
provided in the next preceding section, substantial
amendments may be made only upon leave of court. But
such leave may be refused if it appears to the court that
the motion was made with intent to delay. Orders of the
court upon the matters provided in this section shall be made
upon motion filed in court, and after notice to the adverse party,
and an opportunity to be heard.
The Court has emphasized the import of Section 3, Rule 10 of
the 1997 Rules of Civil Procedure in Valenzuela v. Court of
Appeals, 3 thus:
Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil
Procedure amended the former rule in such manner that the
phrase "or that the cause of action or defense is substantially
altered" was stricken-off and not retained in the new rules. The
clear import of such amendment in Section 3, Rule 10 is
that under the new rules, "the amendment may (now)
substantially alter the cause of action or defense." This
should only be true, however, when despite a substantial
change or alteration in the cause of action or defense, the
amendments sought to be made shall serve the higher
interests of substantial justice, and prevent delay and equally
promote the laudable objective of the rules which is to secure a
"just, speedy and inexpensive disposition of every action and
proceeding." 4
The application of the old Rules by the RTC almost five years
after its amendment by the 1997 Rules of Civil Procedure
patently constitutes grave abuse of discretion.
WHEREFORE, the petition is DENIED for lack of merit. The
Decision of the Court of Appeals promulgated on October 24,
2002 and its Resolution dated May 15, 2003 are hereby
AFFIRMED in toto.
SO ORDERED.
Ynares-Santiago, Corona, * Nachura and Reyes, JJ., concur.

||| (Philippine Ports Authority v. William Gothong & Aboitiz, Inc.,

G.R. No. 158401, [January 28, 2008], 566 PHIL 501-507)

2. SWAGMAN v. CA
FIRST DIVISION
[G.R. No. 161135. April 8, 2005.]
SWAGMAN HOTELS AND TRAVEL, INC., petitioner, vs.
HON.
COURT
OF
APPEALS,
and
NEAL
B.
CHRISTIAN, respondents.
DECISION
DAVIDE, JR., C.J p:
May a complaint that lacks a cause of action at the time it was
filed be cured by the accrual of a cause of action during the
pendency of the case? This is the basic issue raised in this
petition for the Court's consideration.
Sometime in 1996 and 1997, petitioner Swagman Hotels and
Travel, Inc., through Atty. Leonor L. Infante and Rodney David
Hegerty, its president and vice-president, respectively, obtained
from private respondent Neal B. Christian loans evidenced by
three promissory notes dated 7 August 1996, 14 March 1997,
and 14 July 1997. Each of the promissory notes is in the
amount of US$50,000 payable after three years from its date
with an interest of 15% per annum payable every three
months. 1 In a letter dated 16 December 1998, Christian
informed the petitioner corporation that he was terminating the
loans and demanded from the latter payment in the total
amount of US$150,000 plus unpaid interests in the total
amount of US$13,500.2
On 2 February 1999, private respondent Christian filed with the
Regional Trial Court of Baguio City, Branch 59, a complaint for
a sum of money and damages against the petitioner
corporation, Hegerty, and Atty. Infante. The complaint alleged
as follows: On 7 August 1996, 14 March 1997, and 14 July
1997, the petitioner, as well as its president and vice-president
obtained loans from him in the total amount of US$150,000
payable after three years, with an interest of 15% per
annum payable quarterly or every three months. For a while,
they paid an interest of 15% per annum every three months in
accordance with the three promissory notes. However, starting
January 1998 until December 1998, they paid him only an
interest of 6% per annum,instead of 15% per annum, in
violation of the terms of the three promissory notes. Thus,
Christian prayed that the trial court order them to pay him
jointly and solidarily the amount of US$150,000 representing
the total amount of the loans; US$13,500 representing unpaid
interests from January 1998 until December 1998; P100,000
for moral damages; P50,000 for attorney's fees; and the cost of
the suit. 3
The petitioner corporation, together with its president and vicepresident, filed an Answer raising as defenses lack of cause of
action and novation of the principal obligations. According to

them, Christian had no cause of action because the three

promissory notes were not yet due and demandable. In
December 1997, since the petitioner corporation was
experiencing huge losses due to the Asian financial crisis,
Christian agreed (a) to waive the interest of 15% per
annum, and (b) accept payments of the principal loans in
installment basis, the amount and period of which would
depend on the state of business of the petitioner corporation.
Thus, the petitioner paid Christian capital repayment in the
amount of US$750 per month from January 1998 until the time
the complaint was filed in February 1999. The petitioner and its
co-defendants then prayed that the complaint be dismissed
and that Christian be ordered to pay P1 million as moral
damages; P500,000 as exemplary damages; and P100,000 as
attorney's fees. 4
In due course and after hearing, the trial court rendered a
decision 5 on 5 May 2000 declaring the first two promissory
notes dated 7 August 1996 and 14 March 1997 as already due
and demandable and that the interest on the loans had been
reduced by the parties from 15% to 6% per annum. It then
ordered the petitioner corporation to pay Christian the amount
of $100,000 representing the principal obligation covered by
the promissory notes dated 7 August 1996 and 14 March 1997,
"plus interest of 6% per month thereon until fully paid, with all
interest payments already paid by the defendant to the plaintiff
to be deducted therefrom."
The trial court ratiocinated in this wise:
(1) There was no novation of defendant's obligation to the
plaintiff. Under Article 1292 of the Civil Code, there is an
implied novation only if the old and the new obligation be on
every point incompatible with one another.
The test of incompatibility between the two obligations or
contracts, according to an imminent author, is whether they
can stand together, each one having an independent
existence. If they cannot, they are incompatible, and the
subsequent obligation novates the first (Tolentino, Civil Code of
the Philippines, Vol. IV, 1991 ed., p. 384). Otherwise, the old
obligation will continue to subsist subject to the modifications
agreed upon by the parties. Thus, it has been written that
accidental modifications in an existing obligation do not
extinguish it by novation. Mere modifications of the debt
agreed upon between the parties do not constitute novation.
When the changes refer to secondary agreement and not to
the object or principal conditions of the contract, there is no
novation; such changes will produce modifications of incidental
facts, but will not extinguish the original obligation. Thus, the
acceptance of partial payments or a partial remission does not
involve novation (id., p. 387). Neither does the reduction of the
amount of an obligation amount to a novation because it only
means a partial remission or condonation of the same debt.
In the instant case, the Court is of the view that the parties
merely intended to change the rate of interest from 15% per
annum to 6% per annum when the defendant started paying
$750 per month which payments were all accepted by the
plaintiff from January 1998 onward. The payment of the
principal obligation, however, remains unaffected which means

that the defendant should still pay the plaintiff $50,000 on

August 9, 1999, March 14, 2000 and July 14, 2000.
(2) When the instant case was filed on February 2, 1999, none
of the promissory notes was due and demandable. As of this
date however, the first and the second promissory notes have
already matured. Hence, payment is already due.

xxx xxx xxx

In the case at bench, while it is true that appellant Swagman
raised in its Answer the issue of prematurity in the filing of the
complaint, appellant Swagman nonetheless failed to object to
appellee Christian's presentation of evidence to the effect that
the promissory notes have become due and demandable.

Under Section 5 of Rule 10 of the 1997 Rules of Civil

Procedure, a complaint which states no cause of action may
be cured by evidence presented without objection. Thus, even
if the plaintiff had no cause of action at the time he filed the
instant complaint, as defendants' obligation are not yet due and
demandable then, he may nevertheless recover on the first two
promissory notes in view of the introduction of evidence
showing that the obligations covered by the two promissory
notes are now due and demandable. DAaEIc

The afore-quoted rule allows a complaint which states no

cause of action to be cured either by evidence presented
without objection or, in the event of an objection sustained by
the court, by an amendment of the complaint with leave of
court (Herrera, Remedial Law, Vol. VII, 1997 ed., p. 108). 8

(3) Individual defendants Rodney Hegerty and Atty. Leonor L.

Infante can not be held personally liable for the obligations
contracted by the defendant corporation it being clear that they
merely acted in representation of the defendant corporation in
their capacity as General Manager and President, respectively,
when they signed the promissory notes as evidenced by Board
Resolution No. 1(94) passed by the Board of Directors of the
defendant corporation (Exhibit "4"). 6

I. WHERE THE DECISION OF THE TRIAL COURT

DROPPING TWO DEFENDANTS HAS BECOME FINAL AND
EXECUTORY, MAY THE RESPONDENT COURT OF
APPEALS STILL STUBBORNLY CONSIDER THEM AS
APPELLANTS WHEN THEY DID NOT APPEAL?

In its decision 7 of 5 September 2003, the Court of Appeals

denied petitioner's appeal and affirmed in toto the decision of
the trial court, holding as follows:

III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY

AFFIRM A DECISION OF THE LOWER COURT WHICH IS
INVALID DUE TO LACK OF CAUSE OF ACTION?

In the case at bench, there is no incompatibility because the

changes referred to by appellant Swagman consist only in the
manner of payment. . . .

IV. WHERE THERE IS A VALID NOVATION, MAY THE

ORIGINAL TERMS OF CONTRACT WHICH HAS BEEN
NOVATED STILL PREVAIL? 10

Appellant Swagman's interpretation that the three (3)

promissory notes have been novated by reason of appellee
Christian's acceptance of the monthly payments of US$750.00
as capital repayments continuously even after the filing of the
instant case is a little bit strained considering the stiff
requirements of the law on novation that the intention to novate
must appear by express agreement of the parties, or by their
acts that are too clear and unequivocal to be mistaken. Under
the circumstances, the more reasonable interpretation of the
act of the appellee Christian in receiving the monthly payments
of US$750.00 is that appellee Christian merely allowed
appellant Swagman to pay whatever amount the latter is
capable of. This interpretation is supported by the letter of
demand dated December 16, 1998 wherein appellee Christian
demanded from appellant Swagman to return the principal loan
in the amount of US$150,000 plus unpaid interest in the
amount of US$13,500.00
xxx xxx xxx
Appellant Swagman, likewise, contends that, at the time of the
filing of the complaint, appellee Christian ha[d] no cause of
action because none of the promissory notes was due and
demandable.
Again, We are not persuaded.

Its motion for reconsideration having been denied by the Court

of Appeals in its Resolution of 4 December 2003, 9 the
petitioner came to this Court raising the following issues:

II. WHERE THERE IS NO CAUSE OF ACTION, IS THE

DECISION OF THE LOWER COURT VALID?

The petitioner harps on the absence of a cause of action at the

time the private respondent's complaint was filed with the trial
court. In connection with this, the petitioner raises the issue of
novation by arguing that its obligations under the three
promissory notes were novated by the renegotiation that
happened in December 1997 wherein the private respondent
agreed to waive the interest in each of the three promissory
notes and to accept US$750 per month as installment payment
for the principal loans in the total amount of US$150,000.
Lastly, the petitioner questions the act of the Court of Appeals
in considering Hegerty and Infante as appellants when they no
longer appealed because the trial court had already absolved
them of the liability of the petitioner corporation.
On the other hand, the private respondent asserts that this
petition is "a mere ploy to continue delaying the payment of a
just obligation." Anent the fact that Hegerty and Atty. Infante
were considered by the Court of Appeals as appellants, the
private respondent finds it immaterial because they are not
affected by the assailed decision anyway.
Cause of action, as defined in Section 2, Rule 2 of the 1997
Rules of Civil Procedure, is the act or omission by which a
party violates the right of another. Its essential elements are as
follows:

1. A right in favor of the plaintiff by whatever means and under

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

shall be treated in all respects as if they had been raised in the

pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at
any time, even after judgment; but failure to amend does not
affect the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the
presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may
grant a continuance to enable the amendment to be made.
According to the trial court, and sustained by the Court of
Appeals, this Section allows a complaint that does not state a
cause of action to be cured by evidence presented without
objection during the trial. Thus, it ruled that even if the private
respondent had no cause of action when he filed the complaint
for a sum of money and damages because none of the three
promissory notes was due yet, he could nevertheless recover
on the first two promissory notes dated 7 August 1996 and 14
March 1997, which became due during the pendency of the
case in view of the introduction of evidence of their maturity
during the trial.
Such interpretation of Section 5, Rule 10 of the 1997 Rules of
Civil Procedure is erroneous.
Amendments of pleadings are allowed under Rule 10 of the
1997 Rules of Civil Procedure in order that the actual merits of
a case may be determined in the most expeditious and
inexpensive manner without regard to technicalities, and that
all other matters included in the case may be determined in a
single
proceeding,
thereby
avoiding
multiplicity
of
suits. 12 Section 5 thereof applies to situations wherein
evidence not within the issues raised in the pleadings is
presented by the parties during the trial, and to conform to
such evidence the pleadings are subsequently amended on
motion of a party. Thus, a complaint which fails to state a
cause of action may be cured by evidence presented during
the trial.

Despite its finding that the petitioner corporation did not violate
the modified terms of the three promissory notes and that the
payment of the principal loans were not yet due when the
complaint was filed, the trial court did not dismiss the
complaint, citing Section 5, Rule 10 of the 1997 Rules of Civil
Procedure, which reads:

However, the curing effect under Section 5 is applicable only if

a cause of action in fact exists at the time the complaint is
filed, but the complaint is defective for failure to allege the
essential facts. For example, if a complaint failed to allege the
fulfillment of a condition precedent upon which the cause of
action depends, evidence showing that such condition had
already been fulfilled when the complaint was filed may be
presented during the trial, and the complaint may accordingly
be amended thereafter. 13 Thus, in Roces v. Jalandoni, 14 this
Court upheld the trial court in taking cognizance of an
otherwise defective complaint which was later cured by the
testimony of the plaintiff during the trial. In that case, there was
in fact a cause of action and the only problem was the
insufficiency of the allegations in the complaint. This ruling was
reiterated in Pascua v. Court of Appeals. 15

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

It thus follows that a complaint whose cause of action has not

yet accrued cannot be cured or remedied by an amended or
supplemental pleading alleging the existence or accrual of a

cause of action while the case is pending. 16 Such an action is

prematurely brought and is, therefore, a groundless suit, which
should be dismissed by the court upon proper motion
seasonably filed by the defendant. The underlying reason for
this rule is that a person should not be summoned before the
public tribunals to answer for complaints which are immature.
As this Court eloquently said in Surigao Mine Exploration Co.,
Inc. v. Harris: 17
It is a rule of law to which there is, perhaps, no exception,
either at law or in equity, that to recover at all there must be
some cause of action at the commencement of the suit. As
observed by counsel for appellees, there are reasons of public
policy why there should be no needless haste in bringing up
litigation, and why people who are in no default and against
whom there is yet no cause of action should not be summoned
before the public tribunals to answer complaints which are
groundless. We say groundless because if the action is
immature, it should not be entertained, and an action
prematurely brought is a groundless suit.
It is true that an amended complaint and the answer thereto
take the place of the originals which are thereby regarded as
abandoned (Reynes vs. Compaia General de Tabacos [1912],
21 Phil. 416; Ruyman and Farris vs. Director of Lands [1916],
34 Phil., 428) and that "the complaint and answer having been
superseded by the amended complaint and answer thereto,
and the answer to the original complaint not having been
presented in evidence as an exhibit, the trial court was not
authorized to take it into account." (Bastida vs. Menzi &
Co. [1933], 58 Phil., 188.) But in none of these cases or in any
other case have we held that if a right of action did not exist
when the original complaint was filed, one could be created by
filing an amended complaint. In some jurisdictions in the United
States what was termed an "imperfect cause of action" could
be perfected by suitable amendment (Brown vs. Galena
Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of
Atlanta, 26 Ga. App., 221) and this is virtually permitted
inBanzon and Rosauro vs. Sellner ([1933], 58 Phil.,
453); Asiatic Petroleum [sic] Co. vs. Veloso ([1935], 62 Phil.,
683); and recently in Ramos vs. Gibbon (38 Off. Gaz.,
241). That, however, which is no cause of action
whatsoever cannot by amendment or supplemental
pleading be converted into a cause of action: Nihil de re
accrescit ei qui nihil in re quando jus accresceret habet.

We are therefore of the opinion, and so hold, that unless the

plaintiff has a valid and subsisting cause of action at the
time his action is commenced, the defect cannot be cured
or remedied by the acquisition or accrual of one while the
action is pending, and a supplemental complaint or an
amendment setting up such after-accrued cause of action
is not permissible. (Emphasis ours).
Hence, contrary to the holding of the trial court and the Court of
Appeals, the defect of lack of cause of action at the
commencement of this suit cannot be cured by the accrual of a
cause of action during the pendency of this case arising from

the alleged maturity of two of the promissory notes on 7 August

1999 and 14 March 2000.
Anent the issue of novation, this Court observes that the
petitioner corporation argues the existence of novation based
on its own version of what transpired during the renegotiation
of the three promissory notes in December 1997. By using its
own version of facts, the petitioner is, in a way, questioning the
findings of facts of the trial court and the Court of Appeals.
As a rule, the findings of fact of the trial court and the Court of
Appeals are final and conclusive and cannot be reviewed on
appeal to the Supreme Court18 as long as they are borne out
by the record or are based on substantial evidence. 19 The
Supreme Court is not a trier of facts, its jurisdiction being
limited to reviewing only errors of law that may have been
committed by the lower courts. Among the exceptions is when
the finding of fact of the trial court or the Court of Appeals is not
supported by the evidence on record or is based on a
misapprehension of facts. Such exception obtains in the
present case. 20
This Court finds to be contrary to the evidence on record the
finding of both the trial court and the Court of Appeals that the
renegotiation in December 1997 resulted in the reduction of the
interest from 15% to 6% per annum and that the monthly
payments of US$750 made by the petitioner were for the
reduced interests.
It is worthy to note that the cash voucher dated January
1998 21 states that the payment of US$750 represents
"INVESTMENT PAYMENT." All the succeeding cash vouchers
describe the payments from February 1998 to September 1999
as "CAPITAL REPAYMENT." 22 All these cash vouchers
served as receipts evidencing private respondent's
acknowledgment of the payments made by the petitioner: two
of which were signed by the private respondent himself and all
the others were signed by his representatives. The private
respondent even identified and confirmed the existence of
these receipts during the hearing. 23 Significantly, cognizant of
these receipts, the private respondent applied these payments
to the three consolidated principal loans in the summary of
payments he submitted to the court. 24
Under Article 1253 of the Civil Code, if the debt produces
interest, payment of the principal shall not be deemed to have
been made until the interest has been covered. In this case,
the private respondent would not have signed the receipts
describing the payments made by the petitioner as "capital
repayment" if the obligation to pay the interest was still
subsisting. The receipts, as well as private respondent's
summary of payments, lend credence to petitioner's claim that
the payments were for the principal loans and that the interests
on the three consolidated loans were waived by the private
respondent during the undisputed renegotiation of the loans on
account of the business reverses suffered by the petitioner at
the time.
There was therefore a novation of the terms of the three
promissory notes in that the interest was waived and the
principal was payable in monthly installments of US$750.

Alterations of the terms and conditions of the obligation would

generally result only in modificatory novation unless such
terms and conditions are considered to be the essence of the
obligation itself. 25 The resulting novation in this case was,
therefore, of the modificatory type, not the extinctive type,
since the obligation to pay a sum of money remains in force.
Thus, since the petitioner did not renege on its obligation to
pay the monthly installments conformably with their new
agreement and even continued paying during the pendency of
the case, the private respondent had no cause of action to file
the complaint. It is only upon petitioner's default in the payment
of the monthly amortizations that a cause of action would arise
and give the private respondent a right to maintain an action
against the petitioner.
Lastly, the petitioner contends that the Court of Appeals
obstinately included its President Infante and Vice-President
Hegerty as appellants even if they did not appeal the trial
court's decision since they were found to be not personally
liable for the obligation of the petitioner. Indeed, the Court of
Appeals erred in referring to them as defendants-appellants;
nevertheless, that error is no cause for alarm because its ruling
was clear that the petitioner corporation was the one solely
liable for its obligation. In fact, the Court of Appeals affirmed in
toto the decision of the trial court, which means that it also
upheld the latter's ruling that Hegerty and Infante were not

personally liable for the pecuniary obligations of the petitioner

to the private respondent.
In sum, based on our disquisition on the lack of cause of action
when the complaint for sum of money and damages was filed
by the private respondent, the petition in the case at bar is
impressed with merit.
WHEREFORE, the petition is hereby GRANTED. The Decision
of 5 September 2003 of the Court of Appeals in CA-G.R. CV
No. 68109, which affirmed the Decision of 5 May 2000 of the
Regional Trial Court of Baguio, Branch 59, granting in part
private respondent's complaint for sum of money and
damages, and its Resolution of 4 December 2003, which
denied petitioner's motion for reconsideration are hereby
REVERSED and SET ASIDE. The complaint docketed as Civil
Case No. 4282-R is hereby DISMISSED for lack of cause of
action. TcSAaH
No costs.
SO ORDERED.
Quisumbing,
JJ., concur.

Ynares-Santiago,

Carpio and Azcuna,

||| (Swagman Hotels & Travel Inc. v. Court of Appeals, G.R. No.
161135, [April 8, 2005], 495 PHIL 161-176)