Pacaña-Contreras vs. Rovila Water Supply, Inc.

A motion to dismiss based on failure to state a cause of action must be filed within the time for, but before the filing of, the answer, or the ground is deemed waived under Section 1, Rule 9 of the Rules of Court. The non-inclusion of indispensable parties is not a ground for dismissal of an action; the proper remedy is to implead them, as the omission is a curable technical defect.

Petitioners Rebecca Pacaña-Contreras and Rosalie Pacaña are the children of Lourdes Teves Pacaña and Luciano Pacaña, who operated the "Rovila Water Supply" business from their family residence in Cebu City. The respondents include Rovila Water Supply, Inc., a corporation allegedly surreptitiously formed to take over the family business, and several individuals associated with it. The dispute involves claims of fraudulent appropriation of the family business, with the petitioners seeking accounting and damages against the respondents.

Petitioners Rebecca Pacaña-Contreras and Rosalie Pacaña, children of Lourdes Teves Pacaña and Luciano Pacaña, filed a complaint for accounting and damages against Rovila Water Supply, Inc., Earl U. Kokseng, Lilia Torres, Dalla P. Romanillos, and Marissa Gabuya. The petitioners claimed that their family had long been known in the community to be engaged in the water supply business, operating the "Rovila Water Supply" from their family residence and distributing water to customers in Cebu City. They alleged that Lilia, a former trusted employee, hid business records, burned and ransacked family files, posted security guards, and barred the Pacaña family from operating their business. Lilia then claimed ownership over the family business through a corporation named "Rovila Water Supply, Inc.," which the petitioners alleged was surreptitiously formed with the respondents as majority stockholders, conspiring to take over and illegally usurp the family business's registered name. The respondents allegedly used Lourdes's name as one of the incorporators and made it appear in SEC documents that the family business was operated elsewhere, then used the Pacaña family's receipts and made deliveries and sales appear as those of the respondent corporation, fraudulently appropriating collections and payments.

The petitioners filed the complaint in their own names, although Rosalie was authorized by Lourdes through a sworn declaration and special power of attorney. The respondents filed a first motion to dismiss on the ground that the RTC had no jurisdiction over an intra-corporate controversy, which the RTC denied. On September 26, 2000, Lourdes died, and the petitioners amended their complaint on October 2, 2000, still attaching the sworn declaration with SPA but keeping the same caption. On October 10, 2000, Luciano also died. The respondents filed their Answer on November 16, 2000. The petitioners' sister, Lagrimas Pacaña-Gonzales, filed a motion for leave to intervene, which was granted. At the subsequent pre-trial, the respondents manifested that substitution of parties was necessary in light of the deaths of Lourdes and Luciano and stated they would seek dismissal because the petitioners were not the real parties in interest. The RTC issued a pre-trial 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.

On January 23, 2002, the respondents filed a second motion to dismiss on the grounds 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. The RTC denied the motion, ruling that a motion to dismiss based on the grounds invoked may only be filed within the time for, but before, the filing of the answer, and that the rule on substitution of parties only applies when the parties to the case die. The RTC likewise denied the motion for reconsideration. The respondents then filed a petition for certiorari with the CA, which granted the petition and ruled that the RTC committed grave abuse of discretion, as the petitioners filed the complaint as attorneys-in-fact of their parents and were not the real parties in interest, and that the petitioners should first be declared as heirs in a special proceeding before they can be considered real parties in interest.

• Timeliness of Motion to Dismiss: Petitioners argued that the CA unjustly allowed the motion to dismiss which did not conform to the rules, as it 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, and thus the respondents are deemed to have waived these grounds under Section 1, Rule 9 of the Rules of Court.
• Remedy for Non-Joinder: Petitioners argued that even if there is non-joinder 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.
• Real Party in Interest: Petitioners argued that they sued in their own right because they have actual and substantial interest in the subject matter of the action as heirs or co-owners, pursuant to Section 2, Rule 3 of the Rules of Court, and that their declaration as heirs in a special proceeding is not necessary, pursuant to the Court's ruling in Marabilles vs. Quito.
• Evidentiary Nature of SPA: Petitioners argued that the sworn declaration is evidentiary in nature which remains to be appreciated after the trial is completed.

• Real Party in Interest: Respondents reiterated that the petitioners are not the real parties in interest, as the deceased spouses Luciano and Lourdes, not the petitioners, were the real parties in interest, and the petitioners violated Section 16, Rule 3 of the Rules of Court on the substitution of parties.
• Timeliness of Grounds: Respondents argued that they moved for the dismissal of the case during the pre-trial conference due to the petitioners' procedural lapse in refusing to comply with a condition precedent, which is to substitute the heirs as plaintiffs, and that an administrator of the estates of Luciano and Lourdes has already been appointed.
• Pre-Trial Grounds: Respondents 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, as the nature and purposes of the pre-trial include the dismissal of the action should a valid ground therefor be found to exist.
• Propriety of Certiorari: Respondents argued that the special civil action of certiorari was the proper remedy in assailing the order of the RTC.

• Timeliness of Motion to Dismiss: Whether the respondents' motion to dismiss based on failure to state a cause of action and failure to comply with a condition precedent was timely filed.
• Waiver of Grounds: Whether the respondents' failure to invoke the grounds for dismissal in a motion to dismiss or in their answer resulted in the waiver of these grounds under Section 1, Rule 9 of the Rules of Court.
• Applicability of Dabuco: Whether the CA erred in applying the Dabuco ruling, which allows the ground of lack of cause of action to be raised at any time, to the present case.
• Non-Inclusion of Indispensable Parties: Whether the non-inclusion of the deceased spouses Pacaña as indispensable parties warrants the dismissal of the case or merely the impleading of the heirs.

• Timeliness of Motion to Dismiss: No. The respondents' motion to dismiss was filed out of time, as it was filed only after the filing of the answer and after the conclusion of the pre-trial conference, and the grounds were not raised as affirmative defenses in the answer.
• Waiver of Grounds: Yes. The grounds for dismissal based on failure to state a cause of action and failure to comply with a condition precedent were deemed waived under Section 1, Rule 9 of the Rules of Court, as they were not invoked in a motion to dismiss or in the answer within the prescribed period.
• Applicability of Dabuco: No. The Dabuco ruling is inapplicable because in Dabuco, the grounds for dismissal were raised as affirmative defenses in the answer, and the Court distinguished between "failure to state a cause of action" and "lack of cause of action," the latter requiring a preponderance of evidence.
• Non-Inclusion of Indispensable Parties: No. The non-inclusion of indispensable parties is not a ground for dismissal of an action; the proper remedy is to implead the non-party claimed to be indispensable, as the omission is a curable technical defect.

• Timeliness of Motion to Dismiss: The Court applied Section 1, Rule 16 of the Rules of Court, which provides that a motion to dismiss must be filed within the time for, but before the filing of, the answer. The respondents' grounds for dismissal fall under Section 1(g) and (j), Rule 16, particularly failure to state a cause of action and failure to comply with a condition precedent. Both the RTC and the CA found that the motion to dismiss was only filed after the filing of the answer and after the pre-trial had been concluded. Because there was no motion to dismiss before the filing of the answer, the respondents should have at least raised these grounds as affirmative defenses in their answer. The Court examined the records and found that the CA had no basis in its finding that the respondents alleged the grounds as affirmative defenses in their answer, as the respondents merely stated this in their petition for certiorari without attaching a copy of their answer. The respondents, as the parties with the burden of proving that they timely raised their grounds for dismissal, failed to do so.
• Waiver of Grounds: The Court applied Section 1, 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. The grounds invoked by the respondents do not fall under these four exceptions and were therefore waived. The Court rejected the respondents' reliance on Section 2(g) and (i), Rule 18 on the nature and purpose of pre-trial, ruling that the rules are clear and require no interpretation, and that the dismissal of the case based on the grounds invoked is specifically covered by Rule 16 and Rule 9, which set a period when they should be raised; otherwise, they are deemed waived.
• Applicability of Dabuco: The Court distinguished Dabuco vs. Court of Appeals, noting that in Dabuco, the grounds for dismissal were raised as affirmative defenses in the answer, which is in stark contrast to the present case. The Court also distinguished between "failure to state a cause of action," which refers to the insufficiency of the pleading and is a ground for dismissal under Rule 16, and "lack of cause of action," which refers to a situation where the evidence does not prove the cause of action alleged in the pleading. The Court cannot 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.
• Non-Inclusion of Indispensable Parties: The Court distinguished between a real party in interest and an indispensable party, citing Carandang vs. Heirs of de Guzman. The Court noted that the deceased spouses Pacaña are indispensable parties to the case as the alleged owners of Rovila Water Supply, and without their inclusion, there can be no final determination of the present case. However, the Court ruled that the non-inclusion of indispensable parties is not a ground for dismissal of an action, citing Republic vs. Sandiganbayan, which held that the failure to implead indispensable parties is a curable error. The Court ordered the impleading of the heirs of the spouses Pacaña, except the petitioners who are already parties and Lagrimas Pacaña-Gonzalez who intervened, as parties-plaintiffs, pursuant to Section 9, Rule 3 of the Rules of Court.

• Failure to State a Cause of Action vs. Lack of Cause of Action — 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, while lack of cause of action refers to a situation where the evidence does not prove the cause of action alleged in the pleading. The Court applied this distinction to hold that the respondents' ground for dismissal based on failure to state a cause of action was waived for not being timely invoked, and the case could not be dismissed for lack of cause of action as this would require a preponderance of evidence not yet appreciated by the trial court.
• Waiver of Defenses Under Section 1, Rule 9 — 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. The Court applied this rule to hold that the respondents' grounds for dismissal, which do not fall under the four exceptions, were waived for failure to invoke them within the prescribed period.
• Non-Joinder of Indispensable Parties — Non-joinder of indispensable parties is not a ground for the dismissal of an action; the remedy is to implead the non-party claimed to be indispensable. The Court applied this doctrine to order the impleading of the heirs of the deceased spouses Pacaña, ruling that the non-inclusion of indispensable parties is a curable technical defect.
• Real Party in Interest vs. Indispensable Party — 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, while an indispensable party is a party in interest without whom no final determination can be had of an action. The Court applied this distinction to clarify that the dismissal on the ground of failure to state a cause of action 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 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." — This passage states the ratio decidendi on the waiver of grounds for dismissal, emphasizing the mandatory nature of the procedural rules.
• "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." — This passage defines the canonical distinction between the two grounds for dismissal, frequently cited in subsequent jurisprudence.
• "The better view is that non-joinder is not a ground to dismiss the suit or annul the judgment. The rule on joinder of indispensable parties is founded on equity." — This passage articulates the doctrine on non-joinder of indispensable parties, holding that it is a curable technical defect rather than a ground for dismissal.

• Casimiro vs. Roque and Gonzales, 98 Phil. 880 (1956) — Cited by the CA to support the ruling that petitioners, as attorneys-in-fact, are not the real parties in interest; the Court did not apply this ruling, as the ground was deemed waived.
• Dabuco vs. Court of Appeals, 379 Phil. 939 (2000) — Distinguished by the Court, as in Dabuco, the grounds for dismissal were raised as affirmative defenses in the answer, unlike in the present case.
• Carandang vs. Heirs of de Guzman, 538 Phil. 319 (2006) — Cited to clarify the distinction between a real party in interest and an indispensable party.
• Republic vs. Sandiganbayan, 453 Phil. 1060 (2003) — Cited to support the ruling that the failure to implead indispensable parties is a curable error and that non-joinder is not a ground to dismiss the suit.
• Marabilles vs. Quito, 100 Phil. 64 (1956) — Cited by the petitioners to support their argument that their declaration as heirs in a special proceeding is not necessary.
• Barrazona vs. RTC, Branch 61, Baguio City, 521 Phil. 53 (2006) — Cited to support the ruling that certiorari and prohibition are proper remedies to address an order of denial made without or in excess of jurisdiction.

• Section 1, Rule 9, Rules of Court — Provides that defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived, except for the grounds of lack of jurisdiction over the subject matter, litis pendencia, res judicata, and prescription. The Court applied this provision to hold that the respondents' grounds for dismissal were waived.
• Section 1, Rule 16, Rules of Court — Provides 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 on any of the grounds enumerated. The Court applied this provision to determine the timeliness of the respondents' motion to dismiss.
• Section 2, Rule 3, Rules of Court — Requires that every action must be prosecuted in the name of the real party in interest. The Court discussed this provision in relation to the issue of whether the petitioners are the real parties in interest.
• Section 9, Rule 3, Rules of Court — Provides that parties may be added by order of the court on motion of the party or on its own initiative at any stage of the action. The Court applied this provision to order the impleading of the heirs of the spouses Pacaña.
• Section 2, Rule 18, Rules of Court — Provides for the nature and purpose of the pre-trial, including the propriety of dismissing the action should a valid ground therefor be found to exist. The Court rejected the respondents' reliance on this provision to justify their belated invocation of grounds for dismissal.
• Article 774, Civil Code — Defines succession as a mode of acquisition by virtue of which the property, rights and obligations of a person are transmitted through his death to another or others. The Court cited this provision to support the transmission of the deceased Pacañas' rights to their heirs.
• Article 777, Civil Code — Provides that the rights to the succession are transmitted from the moment of the death of the decedent. The Court cited this provision to support the transmission of rights to the heirs.

Carpio, J. (Chairperson), Del Castillo, J., Perez, J., and Perlas-Bernabe, J. concurred in the decision.