G.R. No. 178529 ; September 4, 2009
EQUITABLE PCI BANK, INC. (now known as BANCO DE ORO – EPCI, INC.), Petitioner, vs. HEIRS OF ANTONIO C. TIU, namely: ARLENE T. FU, MICHAEL U. TIU, ANDREW U. TIU, EDGAR U. TIU and ERWIN U. TIU, Respondents.

FACTS

Antonio C. Tiu executed a Real Estate Mortgage (REM) in 1994 and an Amendment to the Real Estate Mortgage (AREM) in 1998 in favor of Equitable PCI Bank to secure loans. Both instruments bore a signature attributed to his wife, Matilde, above the words “With my Marital Consent.” Antonio died in 1999. Upon default, the bank initiated extrajudicial foreclosure proceedings in 2003. A day before the scheduled auction, Antonio’s children, the respondents, filed a complaint for annulment of the AREM, injunction, and damages. They alleged the AREM was void as Matilde, suffering from advanced Alzheimer’s disease at the time of execution, was incapable of giving valid consent.
The petitioner bank filed a Motion to Dismiss, arguing the respondents were not real parties-in-interest and thus the complaint stated no cause of action. The Regional Trial Court denied the motion, ruling the heirs stood to be benefited or injured by the suit concerning their inheritance rights. The Court of Appeals affirmed this denial.

ISSUE

Whether the complaint filed by the children-heirs, without impleading their mother Matilde, is dismissible for lack of cause of action.

RULING

Yes, the complaint must be dismissed for lack of cause of action. The Supreme Court reversed the Court of Appeals. The legal logic hinges on the rules governing real parties-in-interest and actions for annulment of contracts. Under Article 1397 of the Civil Code, an action for annulment may be instituted by all who are obliged principally or subsidiarily by the contract. The mortgaged property is presumed conjugal, making Matilde a principal obligor under the AREM alongside her late husband. Consequently, she is the real party-in-interest under Rule 3, Section 2 of the Rules of Court, as she stands to be directly benefited or injured by the judgment annulling the mortgage.
The complaint was filed solely in the names of the children. Matilde, the indispensable real party-in-interest, was not included in the title of the case, violating Rule 3, Section 3. The respondents’ claim of Matilde’s incapacity does not cure this defect. If she was indeed incapacitated, the action should have been prosecuted by her legally appointed guardian on her behalf. There was no allegation that the respondents were such lawful guardians. Therefore, since the suit was not prosecuted in the name of the real party-in-interest, the complaint failed to state a valid cause of action, warranting its dismissal.