SHTI is a corporation engaged in hotel business. To finance its operations, it borrowed $150,000 from Mr. O’Neil. The amount of the loan was covered by three promissory notes of $50,000 (PN) each dated August 7, 1996, March 14, 1997 and July 14, 1997 respectively. The PNs uniformly provided for a term of years; an interest of 15 percent per annum payable quarterly; and repayment of the principal loans after three years from their respective dates. Due to the Asian financial crisis, a renegotiation of the three PNs happened in December 1997 resulting in the reduction of the interest from 15 percent to 6 percent per annum, which from then on became payable monthly, instead of quarterly. The terms of the principal loans remained unchanged in that they were still due three years from the respective dates of the PNs. From January 1998 SHTI paid O’Neil $750 a month. On December 16, 1998, O’Neil wrote SHTI that he was already terminating the loans and demanded from the latter payment in the total amount of $150,000 plus unpaid interest of $13,500.
On February 2, 1999, when his demands remained unheeded, O’Neil filed with the Regional Trial Court a complaint for sum of money and damages against SHTI, its President and Vice President who signed the PNs. He asked the RTC to order them to pay him jointly and severally $150,000 representing the loan principal; $13,500 interest P100,000 moral damages and P50,000 attorney’s fees.
In answer, SHTI and its officers alleged among others that O’Neil had no cause of action because the three PNs were not yet due and demandable. In due course and after hearing, the RTC rendered a decision on May 5, 2000 declaring the first two PNs dated August 7, 1996 and March 14, 1997 as already due and demandable and that interest on the loans had been reduced from 15 percent to 6 percent per annum. Thus it ordered SHTI to pay $100,000 covered by the two PNs plus interest of 6 percent. The RTC said that even if O’Neil had no cause of action at the time he filed the complaint on February 2, 1999, as SHTI’s obligation were not yet due and demandable then, he may nevertheless recover on the first two PNs in view of the introduction of evidence showing that the obligations covered by said PNs had become due and demandable. This ruling was affirmed by the Court of Appeals citing Section 5, Rule 10 of the Rules of Court which allows a complaint that 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 amendment of the complaint with leave of court. Were the RTC and the CA correct?
No. When the complaint was filed on February 2, 1999, no cause of action has as yet existed because SHTI had not committed any act in violation of the terms of the three PNs as modified by the renegotiation in December 1997. Without a cause of action, O’Neil had no right to maintain an action in court and the trial court should have therefore dismissed his complaint. The curing effect under Section 5 of Rule 10 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 constituting such cause of action.
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. 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. It is a rule to which perhaps there is 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, and that which is no cause of action whatsoever cannot by amendment or supplemental pleading be converted into a cause of action. 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. So O’Neil’s complaint should be dismissed for lack of cause of action (Swagman Hotels and Travel Inc. vs. Court of Appeals G.R. 161135 April 8, 2005. 455 SCRA 175).