rule 10 (outline, case digest, full text).pdf

Outline: Rule 10 Amended & Supplemental Pleadings CIVIL PROCEDURE

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Lesson for September 2, 2014

Tuesday

Amended and Supplemental Pleadings - Rule 10

1. Amendments in general - Sec. 1

2. Amendment as a matter of right - Sec. 2

- Remington Industrial Sales Corp. v. CA, G.R. No. 133657, May 29, 2002

3. Amendments by leave of court - Sec. 3

- R and B Surety and Insurance Co. Inc. v. Hon. Savellano, G.R. No. L-45234, May 8, 1985

- Keramik Industries Inc. v. Hon. Guerrero, G.R. No. L-38866, November 29, 1974

4. Formal amendment - Sec. 4

5. Amendments to conform to or authorize presentation of evidence - Sec. 5

- Cagungun v. Planters Development Bank, G.R. No. 158674, October 17, 2005

6. Different from supplemental pleadings - Sec. 6

- Asset Privatization Trust v. CA, G.R. No. 81024, February 3, 2000

7. Effect of amended pleading - Secs. 7 & 8

Case Digest: Rule 10 Amended & Supplemental Pleadings CIVIL PROCEDURE

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Amendment as a matter of right - Sec. 2

REMINGTON INDUSTRIAL SALES CORP. vs CA

G.R. No. 133657, May 29, 2002

Facts:

Petitioner filed a complaint for sum of money

and damages arising from breach of contract before the

sala of Judge Marino M. De la Cruz of the Regional Trial

Court (RTC). Impleaded as principal defendant therein was

Industrial Steels, Ltd. (ISL), with Ferro Trading GMBH

(Ferro) and respondent British Steel as alternative

defendants.

ISL and respondent British Steel separately

moved for the dismissal of the complaint on the ground

that it failed to state a cause of action against them. The

RTC denied the motions to dismiss, as well as the ensuing

motion for reconsideration. ISL then filed its answer to

the complaint.

Respondent British Steel filed a petition

for certiorari and prohibition before the Court of Appeals.

Respondent claimed therein that the complaint did not

contain a single averment that respondent committed any

act or is guilty of any omission in violation of petitioners

legal rights.

No other reference was made to respondent that

would constitute a valid cause of action against it. Since

petitioner failed to plead any cause of action against

respondent as alternative defendant under Section 13,

Rule 3, the trial court should have ordered the dismissal of

the complaint insofar as respondent was concerned.

Petitioner sought to amend its complaint by

incorporating therein additional factual allegations

constitutive of its cause of action against respondent.

Pursuant to Section 2, Rule 10 of the Rules of Court,

petitioner maintained that it can amend the complaint as

a matter of right because respondent has not yet filed a

responsive pleading thereto.

Petitioner filed a Manifestation and Motion

stating that it had filed a Motion to Admit Amended

Complaint together with said Amended Complaint before

the trial court. Petitioner prayed that the proceedings in

the special civil action be suspended.

The trial court ruled on petitioners Motion to

Admit Amended Complaint thus:chanrob1es virtual

1awWHEREFORE, the Amended Complaint is NOTED and

further proceedings thereon and action on the other

incidents as aforementioned are hereby held in abeyance

until final resolution by the Honorable Court of Appeals

(Special 6th Division) of the petition for certiorari and

prohibition of petitioner (defendant British) and/or

Manifestations and Motions of therein private

respondent, herein plaintiff.

The Court of Appeals (CA) rendered the assailed

decision which granted the writ of certiorari and ordered

the respondent judge to dismiss without prejudice the

complaint against petitioner British Steel (Asia) Ltd.

In the same decision, the CA addressed

petitioners prayer for suspension of proceedings in this

wise:

Issue:

Can a complaint still be amended as a matter of

right before an answer has been filed, even if there was a

pending proceeding for its dismissal before the higher

court?

Held:

Section 2, Rule 10 of the Revised Rules of Court

explicitly states that a pleading may be amended as a

matter of right before a responsive pleading is served.

This only means that prior to the filing of an answer, the

plaintiff has the absolute right to amend the complaint

whether a new cause of action or change in theory is

introduced. The reason for this rule is implied in the

subsequent Section 3 of Rule 10. Under this provision,

substantial amendment of the complaint is not allowed

without leave of court after an answer has been served,

because any material change in the allegations contained

in the complaint could prejudice the rights of the

defendant who has already set up his defense in the

answer. 1ibrary

Conversely, it cannot be said that the

defendants rights have been violated by changes made in

the complaint if he has yet to file an answer thereto. In

such an event, the defendant has not presented any

defense that can be altered or affected by the

amendment of the complaint in accordance with Section

2 of Rule 10. The defendant still retains the unqualified

opportunity to address the allegations against him by

properly setting up his defense in the answer.

Considerable leeway is thus given to the plaintiff to

amend his complaint once, as a matter of right, prior to

the filing of an answer by the defendant.

The right granted to the plaintiff under

procedural law to amend the complaint before an answer

has been served is not precluded by the filing of a motion

to dismiss or any other proceeding contesting its

sufficiency. Were we to conclude otherwise, the right to

amend a pleading under Section 2, Rule 10 will be

rendered nugatory and ineffectual, since all that a

defendant has to do to foreclose this remedial right is to

challenge the adequacy of the complaint before he files

an answer.


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Moreover, amendment of pleadings is favored

and should be liberally allowed in the furtherance of

justice in order to determine every case as far as possible

on its merits without regard to technicalities. This

principle is generally recognized to speed up trial and save

party litigants from incurring unnecessary expense, so

that a full hearing on the merits of every case may be had

and multiplicity of suits avoided.

In this case, the remedy espoused by the

appellate court in its assailed judgment will precisely

result in multiple suits, involving the same set of facts and

to which the defendants would likely raise the same or, at

least, related defenses. Plainly stated, we find no practical

advantage in ordering the dismissal of the complaint

against respondent and for petitioner to re-file the same,

when the latter can still clearly amend the complaint as a

matter of right. The amendment of the complaint would

not prejudice respondents or delay the action, as this

would, in fact, simplify the case and expedite it

disposition.

The fact that the other defendants below has

filed their answers to the complaint does not bar

petitioners right to amend the complaint as

against Respondent. Indeed, where some but not all the

defendants have answered, the plaintiff may still amend

its complaint once, as a matter of right, in respect to

claims asserted solely against the non-answering

defendant, but not as to claims asserted against the other

defendants.

Amendments by leave of court - Sec. 3

R AND B SURETY AND INSURANCE CO. INC. vs HON.

SAVELLANO

G.R. No. L-45234, May 8, 1985

Facts:

Private respondent Investors Finance

Corporation doing business under the name "FNCB

Finance" (FNCB) filed an action for a sum of money

against petitioners R & B Surety and Insurance Co., Inc.

(R&B) and Towers Assurance Corporation (Towers) in

their capacity as sureties and against one Rassagi

Transport Corporation (Rassagi) in its capacity as principal

debtor.

The complaint alleged that Rassagi obtained

credit facilities from Citiwide Motors, Inc. (Citiwide) duly

evidenced by promissory notes in the sum of

P1,273,108.06 and P1,696,969.70 or an aggregate amount

of P2,970,077.76; that Citiwide endorsed the promissory

notes to plaintiff FNCB and notified defendant Rassagi

that it had assigned its rights over said promissory notes

and said defendant gave its conformity to the assignment;

that as security for payment of the promissory notes,

defendants R & B and Towers issued surety bonds in favor

of Citiwide and which surety bonds were also assigned to

plaintiff; that the promissory notes contained a provision

that default in payment when due on any installment shall

make the whole principal sums remaining unpaid

immediately due and payable; that under the provisions

of the surety bonds defendant R & B and Towers

obligated themselves, jointly and severally with their

principal, the other defendant Rassagi, to pay the latters

obligation to plaintiff; that defendant Rassagi broke the

terms and conditions of said promissory notes by its

failure to pay the installments thereon when the same fell

due and said defendant owed plaintiff the sum of

P2,842,676.14, plus interest thereon; and that

notwithstanding repeated demands by plaintiff, the

defendants have failed and refused and still fail and

refuse to pay their matured and overdue obligation under

the said promissory notes.

Defendant Rassagi filed its answer, alleging that

it did not obtain credit facilities from Citiwide but it had

applied for a direct loan from FNCB; that after the

approval of said loan which was intended for the purchase

of PUB bus trucks, Citiwide offered to supply it with the

equipment and had actually delivered 14 units of

Chevrolet trucks to the latter; that the amount of the

equipment loan acquired by Rassagi from FNCB is

P1,960,000.00 which amount was released and paid to

Citiwide in payment of the fourteen (14) units with a unit

price of P140,000.00 including the body building; that

since the loan was already approved, there was no

necessity for the deed of assignment made by Citiwide in

favor of FNCB; that what FNCB did was to require Rassagi

to sign blank forms, which the latter understood to be

documents representing the obligation directly to the

former and not to Citiwide; that after Rassagi paid the

amount of P61,877.31 as amortization payments, it had

requested FNCB to apply the amount of P100,000.00

which was a holdback of the proceeds of the loan which

the latter favorably applied and now Rassagi had actually

paid P161,877.31 as total amortization payments and that

considering that the 14 buses could only possibly earn the

amount of P110.00 per unit a day and could not come up

with the P210.00 per unit a day equivalent to P20,625.77

a week amortization, Rassagi requested for a

restructuring of its amortization payments from weekly

amortizations to monthly amortizations and a

readjustment of the period of payment from three (3) to


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five (5) years, but instead of readjusting the same, FNCB

after Rassagi failed to pay only one weekly installment

tried to collect the entire obligation and to pursue its

claim against the bonding company, so much so that it

refused to accept the payments made by Rassagi and it

was for this reason that the latter stopped its

amortization payments.

Rassagi also alleged usury on the part of FNCB

stating that after realizing that the amount of its

obligation was so excessive considering that only

P1,960,000.00 was actually released and approved, it

formally demanded a statement of account from FNCB

and that was the only time that defendant knew that its

entire obligation to said plaintiff is P3,003,231.12.

Defendants R & B and Towers filed their own

answer, putting up the same defenses made by Rassagi.

They denied the genuineness and due execution of the

promissory note alleging that Rassagi was made to sign

only blank documents and that the latter obtained a

direct loan from FNCB but did not obtain credit facilities

from Citiwide; that FNCB had illegally and usuriously

charged Rassagi excessive interest upon the loan.

FNCB filed its reply and answer to the

counterclaim by defendants R & B and Towers.

FNCB filed a manifestation and motion for

summary judgment on the ground that no genuine issue

was tendered in the pleadings. This motion was

accompanied by an affidavit of Mamerto Endriga, FNCB

vice-president.

The defendant sureties filed their oppositions to

the motion accompanied by the affidavits of their

respective corporate secretaries. Rassagi likewise filed its

opposition but the same was not accompanied by any

affidavit.

Before the trial court could rule on the motion,

the defendant sureties filed a motion for leave to admit

amended answer with special and affirmative defenses

and counter-claims.

RTC ruled against defendants Rassagi and R and B

Surety and Insurance Co.

Issue:

Whether or not the trial court erred in denying

their motion to admit the amended answer.

Held:

The contentions of the petitioners impressed

with merit. The instant petition, therefore, should be

granted.

While it is true that in their amended answer,

petitioners sought to alter their own admission in their

original answer by alleging that fourteen (14) Chevrolet

trucks were not actually delivered to Rassagi, such

allegation did not really alter the theory of their defense

which is, that they are not liable to FNCB.

In their original answer, petitioners and

defendant Rassagi denied the fact that the latter obtained

credit facilities from Citiwide, they instead alleged that

Rassagi obtained a direct loan from FNCB. In essence,

therefore, petitioners were already raising the defense of

non-liability not on the basis of non-delivery of the subject

matter of the promissory notes but on the basis of the

fact that since Rassagi obtained a direct loan from FNCB,

there was no longer any need for Citiwide to extend credit

facilities in favor of Rassagi as the former was paid

immediately upon the release of the said loan. Thus,

petitioners as sureties can no longer be bound under the

contract of surety wherein they obligated themselves

solidarily with Rassagi in favor of Citiwide, in

consideration of the credit facilities that the latter was

supposed to extend to defendant Rassagi.

In essence, therefore, there was no change in the

theory of herein petitioners when they tried to amend

their answer by stating that they were not liable to FNCB

because the fourteen (14) trucks which were the subject

matter of the questioned promissory notes were never

delivered by Citiwide to Rassagi although this defense was

not present in their original answer where the petitioners

virtually adopted the allegations made by Rassagi which

however admitted the delivery of the abovementioned

trucks. Although as a general rule, facts alleged in a

partys pleading are deemed admissions of that party and

binding upon it, this is not an absolute and inflexible rule

because an answer is a mere statement of fact which the

party filing it expects to prove, but it is not evidence.

Rule 34 of the Rules of Court authorizes the

rendition of a summary judgment when, on motion for

the plaintiff after the answer to the complaint has been

filed, it would appear, during the hearing of the motion

for such judgment, from the pleadings, depositions and

admissions on file, together with the affidavits that,

except as to the amount of damages, "there is no genuine

issue as to any material fact and that the winning party is

entitled to a judgment as a matter of law." (Section 3,

Rule 34, Rules of Court). Conversely, the rendition of

summary judgment is not justified when the defending

party tenders vital issues which call for the presentation

of evidence.

It is evident from the records that the original

answer filed by the petitioners tendered a genuine issue

and thus, the partial summary judgment by the

respondent court should not have been rendered.

And, even assuming that the amendment altered

the theory of the defense, justice and equity still dictate

that such amendment be allowed for if the allegations

therein are proven, then the same would altogether


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negate liability on the part of the petitioners, a fact which

may no longer be ventilated should we uphold the

propriety of the summary judgment. Surely, the right of

the petitioners to be given the chance to prove that they

are not liable under the questioned promissory notes is

more important than the change in the theory of the

defense or the possibility of delay in the proceedings

which, in this case is only at its pre-trial stage.

". . . There is consequently no substantial change

in the gist of petitioners defense and, what is of more

vital significance to the ends of justice, is that to admit the

Second Amended Answer would serve to give the parties

a full hearing on the merits of their entire controversy and

avoid multiplicity of suits. Courts should be liberal in

allowing amendments to pleadings at any stage on the

action to avoid multiplicity of suits and in order that the

real controversies between the parties are presented,

their rights determined and the case decided on the

merits without unnecessary delay.

Amendments by leave of court - Sec. 3

KERAMIK INDUSTRIES INC. vs HON. GUERRERO

G.R. No. L-38866, November 29, 1974

Facts:

Keramik obtained a loan of two million four

hundred thousand pesos (P2,400,000) from the

Government Service Insurance System (GSIS). As security,

it mortgaged to the GSIS certain lands, buildings,

machineries and equipment used in its ceramic business.

After Keramik's default, the GSIS extrajudicially

foreclosed the real and chattel mortgages. The mortgaged

properties were sold at public auction to satisfy the claim

of the GSIS amounting to P3,461,138.09 and was awarded

to GSIS, being the highest bidder.

Keramik sued the GSIS. It asked for the

nullification of the extrajudicial foreclosure due to

supposed irregularities.

Keramik filed a motion for the admission of its

amended complaint. The amendment refers to the

insurance in the sum of P2,400,000 which Keramik had

allegedly secured from the GSIS for the mortgaged

buildings, machineries and equipment. The insurance was

an additional security for the loan. Keramik alleged that

through inadvertence it failed to mention in its original

complaint the insurance and the circumstance that the

typhoon Yoling totally damaged the insured properties. Its

alternative contention was that the proceeds of the

insurance and the excess premiums paid should be

deducted from its indebtedness because the GSIS was in

effect both the insurer and the insured.

The GSIS opposed the admission of the amended

complaint on the ground that the amendment altered the

plaintiff's causes of action by supposedly injecting "new,

distinct and entirely foreign causes of action".

Trial court denied the admission of the

amendment

Issue:

Whether or not the trial court erred in the denial

of the admission of the amendment.

Held:

Yes. Keramik's alternative cause of action is

predicated on the major premise that the GSIS, as

mortgagee, should not enrich itself unjustly at its expense.

The allegations in the amended complaint

regarding the insurance for the mortgaged properties did

not change at all Keramik's theory of the case and did not

introduce a new cause of action. As may be seen from the

original and amended complaints, the causes of action

remained the same. The prayers of the two complaints

are identical verbatim et literatim.

The new matter concerning the insurance merely

reinforced, amplified or enlarged Keramik's alternative

cause of action for the recovery of the surplus or excess

(See sec. 4, Rule 68 of the Rules of Court). Whether

Keramik's theory is sustainable would depend on the

evidence and the applicable substantive law.

To deny the admission of Keramik's amended

complaint would constrain it to bring a separate action for

the purpose of compelling the GSIS to credit the proceeds

of the insurance against its mortgage debt. That remedy

would be repugnant to the rule which discourages

multiplicity of suits. A separate action for that purpose

would amount to splitting a cause of action. The

allowance of the amendment would be in the furtherance

of justice and would not prejudice at all the GSIS or place

it at a disadvantage since it could controvert the new

matters constituting the amendment in an amended

answer and during the trial


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Amendments to conform to or authorize presentation of

evidence - Sec. 5

CAGUNGUN vs PLANTERS DEVELOPMENT BANK

G.R. No. 158674, October 17, 2005

Facts:

The spouses Vicente Cagungun and

Lapreciosisima Cagungun filed suit with the Regional Trial

Court of Olongapo City against the Country Development

Bank. Vicente Cagungun has since died and was

substituted as plaintiff by their children. On the other

hand COUNTRY has entered into a merger and reflective

of this the party defendant has been changed to Planters

Development Bank.

COUNTRY had opened an extension office in

Olongapo City, and among their first customers were the

Cagungun spouses who had diverse business interests in

the locality. They opened some accounts, and for two (2)

of which they were issued Savings Passbook No. 12241-16

in the name of Purings Dry Goods and Savings Passbook

No. 38470-29 in the names of V/L Cagungun.

It was claimed by the Cagungun spouses at least

once a day the Branch manager Ruperto Reyes or a

certain Bong and Ding would come to get their funds and

with the agreement that these would be rounded off and

deposited to their account while the odd remainder

would be applied to their loan.

The arrangement apparently went well, until

March 1981 when the Cagungun spouses received a letter

from COUNTRY telling them that their loan is past due and

payment was demanded . . . or else. The Cagungun

spouses were able to access and pry information that in

the year 1979, with the use of withdrawal slips a total of

P220,000.00 was withdrawn from their Savings Passbook

No. 12241-16. These withdrawals were invalid for no such

withdrawal was authorized, made or received by the

depositors, and the signatures of Vicente Cagungun on

the slips were forgeries. This was confirmed by Arcadio

Ramos, Chief of the Questioned Documents Division of

the NBI when these were subjected to examination.

The side of PLANTERS explained that the

withdrawal of P20,000.00 made on October 8, 1979 from

Savings Account No. 12241-16 and the withdrawals of a

total of P30,000.00 from several of the other accounts of

the spouses, were placed on time deposits on the same

date by Vicente Cagungun in five (5) accounts held with

their children. The other said withdrawals from Savings

Account No. 12241-16 were made by Vicente Cagungun in

exchange for Managers Checks made in the names of

payees Santiago Lee, Rosita Saldana, Benito Yap and

Joaquin Aganda.

The lower court rendered judgment in favor of

the plaintiffs and against the defendant.

Upon appeal, the CA ruled that the money was

withdrawn from the deposits of petitioners without their

authority or knowledge, and that this was done by one or

some of the personnel of respondent. However, it held

that petitioners are not free from the obligation to pay

the admitted loan. It also deleted the award of moral and

exemplary damages as awarded by the lower court.

Issue:

Whether or not the the Court of Appeals erred in

deleting the portions of the RTC decision declaring

mortgage loan paid and enjoining foreclosure.

Held:

Petitioners insist that they were able to prove

that the amounts of P30,000.00 and P118,000.00 were

respectively withdrawn from their accounts (SA No.

38470-29 and No. 12241-16) and that same were not

applied as payment for their loan. They maintain that by

adding together said amounts, the sum thereof is

sufficient to pay their loan and to consider the real estate

mortgage as discharged.

Looking at the complaint filed by petitioners,

there is no allegation that said amounts were withdrawn

from their accounts and that same were not applied as

payments for their loan. Petitioners likewise did not ask in

their prayer that said amounts be returned to them or

that they be used to off-set their indebtedness to

respondent. Moreover, when petitioners tried to prove

this allegation, counsel for respondent objected and

attempted to have the testimony thereon stricken off the

record on the ground of allegata et probata.

Under Section 5, Rule 10 of the Revised Rules of Court:

Sec. 5. Amendment to conform to or

authorize presentation of evidence.

When issues not raised by the pleadings

are tried by 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 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 freely when

presentation of the merits of the action


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will be subserved thereby and the

objecting party fails to satisfy the court

that the admission of such evidence

would prejudice him in maintaining his

action or defense upon the merits. The

court may grant a continuance to enable

the objecting party to meet such

evidence.

It is thus clear that when there is an objection on

the evidence presented because it is not within the issues

made by the pleadings, an amendment must be made

before accepting such evidence. If no amendment is

made, the evidence objected to cannot be considered.

In the case before us, the trial court, there being an

objection on the evidence being presented by

respondent, failed to order the amendment of the

complaint. Thus, we are constrained not to consider

evidence regarding the P30,000.00 and P118,000.00

allegedly withdrawn from their accounts. With this ruling,

it follows that the outstanding loan of petitioners in the

amount of P58,297.16 remains unpaid.

Different from supplemental pleadings - Sec. 6

ASSET PRIVATIZATION TRUST vs. CA

G.R. No. 81024, February 3, 2000

Facts:

The petition stemmed from the transaction

between the DBP and Galleon Shipping Corporation

sometime in 1979. Galleon obtained several foreign loan

guarantee accommodation to purchase brand new vessels

and to finance the second hand vessels.

Private Respondent Cuenca filed a complaint

against DBP and Galleon before the RTC of makati, on the

ground that under letter of instructions directed NDC to

take over the ownership and operation of Galleon. The

Complaint prayed for the issuance of a temporary

restraining order directing the defendants "to cease and

desist from filing or pursuing any action or claim for

deficiency judgment or enforcing further claim of any

nature against the plaintiffs.

In its answer to the complaint, DBP theorized

that the liability of the plaintiffs therein for Galleons

obligation was not extinguished because L.O.I. 1155,

which was not implemented, was in fact revoked by L.O.I.

1195. So, the ownership was not transferred.

the trial court issued a writ of preliminary

injunction ordering the DBP and its co-defendants to

"refrain from pursuing any other deficiency claims.

Afterwards, SIM and DBP entered into a

mortgage contract which authorized DBP to take actual

possession of the mortgaged property. SIM defaulted.

DBP foreclosed the said mortgage. SIM took the act of

DBP as a retaliatory moved.

Now, SIM sought to supplement the original

complaint by filing a "Motion to Admit Supplemental

Complaint. It alleged that DBPs taking possession of the

said plant was a "new development" between the parties

and in violation of the writ of preliminary injunction

issued and therefore, warranted the admission of the

supplemental complaint pursuant to Section 6, Rule 10 of

the Rules of Court.

The supplemental complaint sought a declaration

that "the defendant DBP is not entitled to foreclose the

mortgage" and that DBPs act of posting its security

guards in the Agusan del Sur plant is null and void and

unlawful.

The trial court issued an order directing DBP and

all persons acting under it "to refrain from interfering with

the possession, operation, management and

administration" of SIMs plant at Agusan del Norte, "as

well as its other mortgaged properties, until plaintiffs

motion could be heard on June 21, 1985.

DBP filed a comment on the said motion. It

alleged that the subject matter of the supplemental

complaint is not a proper subject to be heard in the

instant case and that it was merely exercising its power as

attorney-in fact" under the mortgage contract, the DBP

argued that the supplemental complaint "introduces

another cause of action into this case.

The RTC admitted the Supplemental Complaint.

Then, DBP filed a petition for certiorari with the CA

questioning the order.

The CA rendered the order null and void and

dismissed the supplemental complaint on the ground that

it violated the rule on venue, rule on joinder of cause of

action and rules on matters subject of supplemental

pleadings.

SIM filed a motion for reconsideration. It was

granted by the CA. DBP filed its motion for

reconsideration. It was denied for lack of merit.

Issue:

Whether or not the CA erred in admitting the

Supplemental complaint it being violative of the rules on

matters subject of supplemental pleadings.

Held.

Yes. "Sec. 6. Matters subject of supplemental

pleadings. - Upon motion of a party the court may, upon

reasonable notice and upon such terms as are just, permit

him to serve a supplemental pleading setting forth


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transactions, occurrences or events which have happened

since the date of the pleading sought to be

supplemented. If the court deems it advisable that the

adverse party should plead thereto, it shall so order,

specifying the time therefor."

Under the aforecited rule, a supplemental

pleading is meant to supply deficiencies in aid of the

original pleading and not to dispense with or substitute

the latter. It is not like an amended pleading which is a

substitute for the original one. It does not supersede the

original, but assumes that the original pleading is to stand.

The issues joined under the original pleading remain as

issues to be tried in the action.

a closer look at the facts reveals that the original

complaint was based on a cause of action that is entirely

different from that stated in the supplemental complaint

which arose out of a different set of facts.

In the original complaint what private

respondents sought to prevent by their prayer for an

injunction was the DBPs intention to go after private

respondents for the deficiency resulting from the

foreclosure of the mortgages in June 1984 of seven (7)

vessels of Galleon.

On the other hand, the cause of action stated in the

supplemental complaint was the DBPs initial act of posing

security guards in SIMs Agusan del Norte plant

preparatory to the foreclosure of the mortgage of the

same plant, allegedly in contravention of the writ of

preliminary injunction issued by the trial court.

The supplemental complaint, however, states a

fact that is entirely distinct from those in the original

complaint.

Full Text Cases: Rule 10 Amended & Supplemental Pleadings CIVIL PROCEDURE

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[G.R. No. 133657. May 29, 2002] REMINGTON INDUSTRIAL SALES CORPORATION, petitioner,

vs. THE COURT OF APPEALS and BRITISH STEEL (ASIA), LTD., respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

Before us is a petition for review under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals in CA-G.R. SP No. 44529 dated February 24, 1998

[1], which granted

the petition for certiorari filed by respondent British Steel Asia Ltd. (British Steel) and ordered the dismissal of petitioner Remington Industrial Sales Corporations (Remington) complaint for sum of money and damages. Also assailed in this petition is the resolution

[2] of the Court of Appeals denying petitioners

motion for reconsideration.

The facts of the case, as culled from the records, are as follows:

On August 21, 1996, petitioner filed a complaint[3]

for sum of money and damages arising from breach of contract, docketed as Civil Case No. 96-79674, before the sala of Judge Marino M. De la Cruz of the Regional Trial Court of Manila, Branch 22. Impleaded as principal defendant therein was Industrial Steels, Ltd. (ISL), with Ferro Trading GMBH (Ferro) and respondent British Steel as alternative defendants.

ISL and respondent British Steel separately moved for the dismissal of the complaint on the ground that it failed to state a cause of action against them. On April 7, 1997, the RTC denied the motions to dismiss,

[4] as well as the ensuing motion for

reconsideration.[5]

ISL then filed its answer to the complaint.

On the other hand, respondent British Steel filed a petition for certiorari and prohibition before the Court of Appeals,

[6] docketed as CA-G.R. SP No. 44529. Respondent

claimed therein that the complaint did not contain a single averment that respondent committed any act or is guilty of any omission in violation of petitioners legal rights. Apart from the allegation in the complaints Jurisdictional Facts that:

1.05. Defendants British Steel (Asia) Ltd. and Ferro Trading Gmbh, while understood by the plaintiff as mere suppliers of goods for defendant ISL, are impleaded as party defendants pursuant to Section 13, Rule 3 of the Revised Rules of Court.

[7]

no other reference was made to respondent that would constitute a valid cause of action against it. Since petitioner failed to plead any cause of action against respondent as alternative defendant under Section 13, Rule 3,

[8] the trial court

should have ordered the dismissal of the complaint insofar as respondent was concerned.

Meanwhile, petitioner sought to amend its complaint by incorporating therein additional factual allegations constitutive of its cause of action against respondent. Pursuant to Section 2, Rule 10

[9] of the Rules of Court, petitioner maintained that it can

amend the complaint as a matter of right because respondent has not yet filed a responsive pleading thereto.

[10]

Subsequently, petitioner filed a Manifestation and Motion

[11] in CA-G.R. SP No. 44529 stating that it had filed a

Motion to Admit Amended Complaint together with said Amended Complaint before the trial court. Hence, petitioner prayed that the proceedings in the special civil action be suspended.

On January 29, 1998, the trial court ruled on petitioners Motion to Admit Amended Complaint thus:

WHEREFORE, the Amended Complaint is NOTED and further proceedings thereon and action on the other incidents as aforementioned are hereby held in abeyance until final resolution by the Honorable Court of Appeals (Special 6

th Division) of the petition for certiorari and prohibition of

petitioner (defendant British) and/or Manifestations and Motions of therein private respondent, herein plaintiff.

SO ORDERED.[12]

Thereafter, on February 24, 1998, the Court of Appeals rendered the assailed decision in CA-G.R. SP No. 44529 as follows:

WHEREFORE, this Court grants the writ of certiorari and orders the respondent judge to dismiss without prejudice the Complaint in Civil Case No. 96-79674 against petitioner British Steel (Asia) Ltd. Costs against private respondent.

SO ORDERED.[13]

In the same decision, the Court of Appeals addressed petitioners prayer for suspension of proceedings in this wise:

The incident which transpired after the filing of the instant petition for certiorari and prohibition are immaterial in the resolution of this petition. What this Court is called upon to resolve is whether the lower court committed grave abuse of discretion when it denied petitioners motion to dismiss the complaint against it. The admission or rejection by the lower court of said amended complaint will not, insofar as this Court is concerned, impinge upon the issue of whether or not said court gravely abused its discretion in denying petitioners motion to dismiss.

[14]

Petitioner filed a motion for reconsideration of the appellate courts decision, which was denied in a resolution dated April 28, 1998. Hence, this petition, anchored on the following grounds:

-I-

THE HON. COURT OF APPEALS ERRED IN ORDERING THE DISMISSAL OF THE COMPLAINT AGAINST THE PRIVATE RESPONDENT FOR LACK OF CAUSE OF ACTION UNDER THE ORIGINAL COMPLAINT EVEN AS SAID COMPLAINT WAS ALREADY AMENDED AS A MATTER OF RIGHT AND SUFFICIENT CAUSES OF ACTION ARE AVERRED IN THE AMENDED COMPLAINT, IN GROSS VIOLATION OF SEC. 2, RULE 10 OF THE 1997 RULES OF CIVIL PROCEDURE.

-II-

THE HON. COURT OF APPEALS ERRED IN HOLDING THAT IF THE PETITIONER WANTS TO PURSUE ITS CASE AGAINST THE PRIVATE RESPONDENT, IT HAS TO REFILE THE COMPLAINT, THUS PRE-EMPTING THE RIGHT OF THE LOWER COURT TO RULE ON THE AMENDED COMPLAINT AND COMPELLING THE PETITIONER TO LITIGATE ITS CAUSES OF ACTION AGAINST THE PRIVATE RESPONDENT AS AN ALTERNATIVE DEFENDANT IN A SEPARATE ACTION, THEREBY ABETTING MULTIPLICITY OF SUITS.

[15]


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The basic issue in this case is whether or not the Court of Appeals, by granting the extraordinary writ of certiorari, correctly ordered the dismissal of the complaint for failure to state a cause of action, despite the fact that petitioner exercised its right to amend the defective complaint under Section 2, Rule 10 of the Rules of Court. Stated differently, the query posed before us is: can a complaint still be amended as a matter of right before an answer has been filed, even if there was a pending proceeding for its dismissal before the higher court?

Section 2, Rule 10[16]

of the Revised Rules of Court explicitly states that a pleading may be amended as a matter of right before a responsive pleading is served. This only means that prior to the filing of an answer, the plaintiff has the absolute right to amend the complaint whether a new cause of action or change in theory is introduced.

[17] The reason for this

rule is implied in the subsequent Section 3 of Rule 10[18]

. Under this provision, substantial amendment of the complaint is not allowed without leave of court after an answer has been served, because any material change in the allegations contained in the complaint could prejudice the rights of the defendant who has already set up his defense in the answer.

Conversely, it cannot be said that the defendants rights have been violated by changes made in the complaint if he has yet to file an answer thereto. In such an event, the defendant has not presented any defense that can be altered

[19] or affected

by the amendment of the complaint in accordance with Section 2 of Rule 10. The defendant still retains the unqualified opportunity to address the allegations against him by properly setting up his defense in the answer. Considerable leeway is thus given to the plaintiff to amend his complaint once, as a matter of right, prior to the filing of an answer by the defendant.

The right granted to the plaintiff under procedural law to amend the complaint before an answer has been served is not precluded by the filing of a motion to dismiss

[20] or any other

proceeding contesting its sufficiency. Were we to conclude otherwise, the right to amend a pleading under Section 2, Rule 10 will be rendered nugatory and ineffectual, since all that a defendant has to do to foreclose this remedial right is to challenge the adequacy of the complaint before he files an answer.

Moreover, amendment of pleadings is favored and should be liberally allowed in the furtherance of justice in order to determine every case as far as possible on its merits without regard to technicalities. This principle is generally recognized to speed up trial and save party litigants from incurring unnecessary expense, so that a full hearing on the merits of every case may be had and multiplicity of suits avoided.

[21]

In this case, the remedy espoused by the appellate court in its assailed judgment will precisely result in multiple suits, involving the same set of facts and to which the defendants would likely raise the same or, at least, related defenses. Plainly stated, we find no practical advantage in ordering the dismissal of the complaint against respondent and for petitioner to re-file the same, when the latter can still clearly amend the complaint as a matter of right. The amendment of the complaint would not prejudice respondents or delay the action, as this would, in fact, simplify the case and expedite its disposition.

The fact that the other defendants below has filed their answers to the complaint does not bar petitioners right to amend the complaint as against respondent. Indeed, where some but not all the defendants have answered, the plaintiff may still amend its complaint once, as a matter of right, in respect to claims asserted solely against the non-answering

defendant, but not as to claims asserted against the other defendants.

[22]

Furthermore, we do not agree with respondents claim that it will be prejudiced by the admission of the Amended Complaint because it had spent time, money and effort to file its petition before the appellate court.

[23] We cannot see how the

result could be any different for respondent, if petitioner merely re-filed the complaint instead of being allowed to amend it. As adverted to earlier, amendment would even work to respondents advantage since it will undoubtedly speed up the proceedings before the trial court. Consequently, the amendment should be allowed in the case at bar as a matter of right in accordance with the rules.

WHEREFORE, the petition is GRANTED. The assailed decision and resolution of the Court of Appeals in CA-G.R. SP No. 44529 dated February 24, 1998 and April 28, 1998, respectively, are REVERSED and SET ASIDE. The Regional Trial Court of Manila, Branch 22 is further ordered to ADMIT petitioners Amended Complaint in Civil Case No. 96-79674 and to conduct further proceedings in said case.

SO ORDERED.


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G.R. No. L-45234 May 8, 1985

R and B SURETY & INSURANCE CO., INC., and TOWERS ASSURANCE CORPORATION, petitioners, vs. HON. VICTORINO A. SAVELLANO, as Presiding Judge, Branch XIX, Court of First Instance of Manila, and INVESTORS' FINANCE CORPORATION, doing business under the name and style "FNCB FINANCE",respondents.

Redento R. Silvestre for petitioners.

Benigno A. Mariano, Sr. for Rassagi Transport Corp.

GUTIERREZ, JR., J.:

This petition for review on certiorari seeks to set aside the partial summary judgment rendered by the respondent court. The petitioners state that their answer raised genuine and valid issues. The petitioners also seek to compel the respondent court to allow their amended answer on the ground that the same does not alter the theory of their defense nor delay the proceedings of the trial.

Private respondent Investors' Finance Corporation doing business under the name "FNCB Finance" (FNCB) filed an action for a sum of money against petitioners R & B Surety and Insurance Co., Inc. (R& B) and Towers Assurance Corporation (Towers) in their capacity as sureties and against one Rassagi Transport Corporation (Rassagi) in its capacity as principal debtor.

The complaint alleged, among others, that Rassagi obtained credit facilities from Citiwide Motors, Inc. (Citiwide) duly evidenced by promissory notes in the sum of P1,273,108.06 and P1,696,969.70 or an aggregate amount of P2,970,077.76; that Citiwide endorsed the promissory notes to plaintiff FNCB and notified defendant Rassagi that it had assigned its rights over said promissory notes and said defendant gave its conformity to the assignment; that as security for payment of the promissory notes, defendants R & B and Towers issued surety bonds in favor of Citiwide and which surety bnds were also assigned to plaintiff; that the promissory notes contained a provision that default in payment when due on any installment shall make the whole principal sums remaining unpaid immediately due and payable; that under the provisions of the surety bonds defendant R & B and Towers obligated themselves, jointly and severally with their principal, the other defendant Rassagi, to pay the latter's obligation to plaintiff; that defendant Rassagi broke the terms and conditions of said promissory notes by its failure to pay the installments thereon when the same fell due and as of April 14, 1975, said defendant owed plaintiff the sum of Two Million Eight Hundred Forty-Two Thousand Six Hundred Seventy Six Pesos and Fourteen Centavos(P2,842,676.14), plus interest thereon from said date at 14% per annum; and that notwithstanding repeated demands by plaintiff, the defendants have failed and refused and still fail and refuse to pay their matured and overdue obligation under the said promissory notes.

Defendant Rassagi in turn, filed its answer, alleging that it did not obtain credit facilities from Citiwide but it had applied for a direct loan from FNCB sometime before October, 1974; that

after the approval of said loan which was intended for the purchase of PUB bus trucks, Citiwide offered to supply it with the equipment and had actually delivered 14 units of Chevrolet trucks to the latter; that the amount of the equipment loan acquired by Rassagi from FNCB is P1,960,000.00 which amount was released and paid to Citiwide in payment of the fourteen (14) units with a unit price of P140,000.00 including the body building; that since the loan was already approved, there was no necessity for the deed of assignment made by Citiwide in favor of FNCB; that what FNCB did was to require Rassagi to sign blank forms, which the latter understood to be documents representing the obligation directly to the former and not to Citiwide; that after Rassagi paid the amount of P61,877.31 as amortization payments, it had requested FNCB to apply the amount of P100,000.00 which was a hold back of the proceeds of the loan which the latter favorably applied and now Rassagi had actually paid P161,877.31 as total amortization payments and that considering that the 14 buses could only possibly earn the amount of P110.00 per unit a day and could not come up with the P210.00 per unit a day equivalent to P20,625.77 a week amortization, Rassagi requested for a restructuring of its amortization payments from weekly amortizations to monthly amortizations and a re-adjustment of the period of payment from three (3) to five (5) years, but instead of re-adjusting the same, FNCB after Rassagi failed to pay only one weekly installment tried to collect the entire obligation and to pursue its claim against the bonding company, so much so that it refused to accept the payments made by Rassagi and it was for this reason that the latter stopped its amortization payments.

Rassagi also alleged usury on the part of FNCB stating that after realizing that the amount of its obligation was so excessive considering that only P1,960,000.00 was actually released and approved, it formally demanded a statement of account from FNCB and that was the only time that defendant knew that its entire obligation to said plaintiff is P3,003,231.12.

Defendants R & B and Towers filed their own answer, putting up the same defenses made by Rassagi. They denied the genuineness and due execution of the promissory note alleging that Rassagi was made to sign only blank documents and that the latter obtained a direct loan from FNCB but did not obtain credit facilities from Citiwide; that FNCB had illegally and usuriously charged Rassagi excessive interest upon the loan; and that what the latter knows is that FNCB shall only charge an interest of 14% per annum diminishing balance on the P1,960,000.00 but that there was no agreement to pay three years interest in advance and surcharges for late amortization payments. Defendant sureties admitted that Rassagi had accepted delivery of the fourteen (14) Chevrolet trucks purchased out of the loan of P1,960,000.00:

On July 3, 1975, FNCB filed its reply and answer to the counterclaim by defendants R & B and Towers.

When the case was caged for pre-trial, the counsel for Rassagi moved that the pre-trial be postponed in order to enable the parties to try to settle the case amicably. Upon inquiry by the court as to the defense of Rassagi, the latter's counsel informed the court that Rassagi does not deny its obligation as evidenced by the promissory notes and that it would just approach FNCB for the restructuring of said obligation. The counsel for the defendant sureties likewise manifested that the latter are willing to enter into a settlement and ready to assign collaterals in favor of FNCB.


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On August 8, 1975, the trial court issued an order, which partly provides:

xxx xxx xxx

The Court grants the motion for postponement to enable the parties to thresh out all possibilities of settlement with the warning that in view of the manifestation of counsel for defendant transport corporation, the Court may issue a summary judgment at the next schedule hearing. ...

xxx xxx xxx

On October 29, 1975, FNCB filed a manifestation and motion for summary judgment on the ground that no genuine issue was tendered in the pleadings. This motion was accompanied by an affidavit of Mamerto Endriga, FNCB vice-president.

The defendant sureties filed their oppositions to the motion accompanied by the affidavits of their respective corporate secretaries. Rassagi likewise filed its opposition but the same was not accompanied by any affidavit.

Before the trial court could rule on the motion, the defendant sureties, on March 8, 1976, filed a motion for leave to admit amended answer with special and affirmative defenses and counter-claims, alleging:

1. That in the month of February, 1976, herein defendants in their desire and anxiety to check up and investigate what further assets defendant RASSAGI may have for the purpose of attachment or satisfaction of any judgment whatsoever, by chance, upon said investigation and check-up, discovered that the Twenty (20) units of new buses which were supposedly to be sold and delivered to RASSAGI under installment payment, the Promissory Notes of which are the subject of the instant case and covered by the Surety Bonds, have not as yet, to this day been so sold or delivered to defendant RASSAGI;

2. That confronted with such findings, RASSAGI's President and Chairman of the Board, Mr. Rodolfo Echague, confirmed such non-sale and delivery of the buses, even though they were, up to October, 1975, with the Sarmiento Engineering Corp. of Quezon City for preparation and conversion into de Luxe type passenger buses;

3. That this turn of events compels herein defendants to amend their pleadings to the complaint;

4. That in the interest of justice, and considering that the case is still in its early stages, no evidence so far having been presented by any party therein, admission of the herewith attached amended pleadings to the complaint is called for and justifiable.

xxx xxx xxx

In their amended answer, the defendant sureties alleged the following:

xxx xxx xxx

4. Subject to the averments contained in the preceding paragraphs and the hereinafter following Special and Affirmative Defenses, they admit the allegations contained in paragraph 5 of plaintiff's complaint to the effect that they issued their Surety Bonds Nos. G (16) 0743 and G (16) 0059 in the respective amounts appearing therein in favor of Citiwide Motors, Inc., with RASSAGI as principal. The same were to be the security for the Promissory Notes defendant RASSAGI may execute by virtue of and in consideration for credit facilities that may be extended first above alluded to. The said Surety Bonds were applied for and issued specifically for said credit accommodation and no other, and cannot be and must not be, applied as security for any other Promissory Notes executed by RASSAGI under and by virtue of another or other transactions and/or obligations or credit accommodations.

5. That they deny the allegations contained in paragraph 6 of the complaint Citiwide Motors, Inc. and plaintiff may have transacted for the assignment of the aforestated Surety Bonds, but said assignment is baseless, unjustified, and is a faceous (sic) farce and charade insofar as herein defendants are concerned, the reason being that Citiwide Motors, Inc. had no rights, title and interests over/in/ against said Surety Bonds unless it had actually made sales on installment basis of the Twenty (20) units of new buses to RASSAGI, the performance of which fact is a condition resolutory that can bind said bonds and give legal rights to Citiwide Motors, Inc. over/in/against the same. No allegation of said fact of installment sales are averred in the complaint. The averments in this paragraph are subject further to the hereinafter following Special and Affirmative Defenses.

The respondent court denied the above-quoted motion on the ground that the amended answer would not only alter the answer sought to be amended but would also delay the proceedings. On May 24, 1976, the court, rendered a partial summary judgment, stating:

xxx xxx xxx

Under the circumstances obtaining in the present case and pursuant to settled jurisprudence on usury and in order to render substantial justice, the patch of reason, justice and equity dictates that the


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Court must functionalize and breathe life into invisible justice epitomed in the precepts of equity and justice and render partial judgment on the undisputed obligation so that litigation should continue with respect to the controverted acceleration and alleged usurious interest being charged under plaintiff's financing scheme. The defendant Rassagi in its opposition to plaintiff's motion for summary judgment has attached plaintiff's official receipts for installment payments (pp. 144 to 166, record) which shows that of the amount financed under the promissory note (Annex A) secured by defendant R & B Surety's surety bond (Annex D) the amount of P141,417.24 has already been paid while under the promissory note (Annex A-1) secured by defendant Tower's bond (Annex D-1) the amount of P97,251.00 has already been paid. These amounts should be deducted from Pl,960,000.00 only for the purpose of this partial judgment. At this stage, the Court will not rule on whether or not there was a holdout of P100,000.00 as defendant Rassagi claims. This must be supported by evidence during the trial because the Court considers that 14 buses at the rate of P140,000.00 per unit is Pl,960,000.00, the uncontroverted amount received by defendant Rassagi.

WHEREFORE, premises considered, partial judgment at this stage is hereby rendered ordering:

a. Defendants Rassagi and R&B Surety and Insurance Co., Inc. to pay plaintiff, jointly and severally, the amount of P978,582.76:

b. Defendants Rassagi and Towers Assurance Corporation to pay plaintiff, jointly and severally, the amount of P742,749.00.

A motion for reconsideration was filed by the defendant sureties but the same having been denied, they filed this instant petition.

Defendant sureties, now as petitioners, contend that the trial court erred in denying their motion to admit the amended answer and in rendering partial summary judgment notwithstanding the fact that their answer and that of defendant Rassagi raised valid defenses, both legal and factual. According to petitioners, in view of the non-delivery of the trucks to Rassagi, no credit facilities were, therefore, extended by Citiwide Motors, Inc. to it, and in effect the promissory notes which are the principal basis of FNCB's action, are totally lacking and short of consideration, the maker thereof not having received anything of value in having signed or executed the same, and are therefore null and void, unenforceable against the petitioners. Petitioners further contend that there is absolutely no basis for the statement of the respondent judge that the admission of the amended answer would only delay the proceedings for they never resorted to dilatory tactics and all postponements were at the instance of Rassagi; and although the defenses raised in the amended answer were only discovered after the filing of the original answer, the motion to

admit the same was made prior to the termination of the pre-trial.

After a careful consideration of the case, we find the contentions of the petitioners impressed with merit. The instant petition, therefore, should be granted.

While it is true that in their amended answer, petitioners sought to alter their own admission in their original answer by alleging that fourteen (14) Chevrolet trucks were not actually delivered to Rassagi, such allegation did not really alter the theory of their defense which is, that they are not liable to FNCB.

In their original answer, petitioners and defendant Rassagi denied the fact that the latter obtained credit facilities from Citiwide, they instead alleged that Rassagi obtained a direct loan from FNCB. In essence, therefore, petitioners were already raising the defense of non-liability not on the basis of non-delivery of the subject matter of the promissory notes but on the basis of the fact that since Rassagi obtained a direct loan from FNCB, there was no longer any need for Citiwide to extend credit facilities in favor of Rassagi as the former was paid immediately upon the release of the said loan. Thus, petitioners as sureties can no longer be bound under the contract of surety wherein they obligated themselves solidarily with Rassagi in favor of Citiwide, in consideration of the credit facilities that the latter was supposed to extend to defendant Rassagi.

In essence, therefore, there was no change in the theory of herein petitioners when they tried to amend their answer by stating that they were not liable to FNCB because the fourteen (14) trucks which were the subject matter of the questioned promissory notes were never delivered by Citiwide to Rassagi although this defense was not present in their original answer where the petitioners virtually adopted the allegations made by Rassagi which however admitted the delivery of the abovementioned trucks. Although as a general rule, facts alleged in a party's pleading are deemed admissions of that party and binding upon it, this is not an absolute and inflexible rule because an answer is a mere statement of fact which the party filing it expects to prove, but it is not evidence. (See Gardner v. Court of Appeals, 131 SCRA 600).

Rule 34 of the Rules of Court authorizes the rendition of a summary judgment when, on motion for the plaintiff after the answer to the complaint has been filed, it would appear, during the hearing of the motion for such judgment, from the pleadings, depositions and admissions on file, together with the affidavits that, except as to the amount of damages, "there is no genuine issue as to any material fact and that the winning party is entitled to a judgment as a matter of law." (Section 3, Rule 34, Rules of Court). Conversely, the rendition of summary judgment is not justified when the defending party tenders vital issues which call for the presentation of evidence. (Guevarra v. Court of Appeals, 124 SCRA 313).

It is evident from the records that the original answer filed by the petitioners tendered a genuine issue and thus, the partial summary judgment by the respondent court should not have been rendered.

And, even assuming that the amendment altered the theory of the defense, justice and equity still dictate that such amendment be allowed for if the allegations therein are proven, then the same would altogether negate liability on the part of the petitioners, a fact which may no longer be ventilated should we


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uphold the propriety of the summary judgment. Surely, the right of the petitioners to be given the chance to prove that the are not liable under the questioned promissory notes is more important than the change in the theory of the defense or the possibility of delay in the proceedings which, in this case is only at its pre-trial stage. As we have held in the case of Sedeco v. Court of Appeals, (1 15 SCRA 102-103):

xxx xxx xxx

... There is consequently no substantial change in the gist of petitioners' defense and, what is of more vital significance to the ends of justice, is that to admit the Second Amended Answer would serve to give the parties a full hearing on the merits of their entire controversy and avoid multiplicity of suits. Courts should be liberal in allowing amendments to pleadings at any stage on the action to avoid multiplicity of suits and in order that the real controversies between the parties are presented, their rights determined and the case decided on the merits without unnecessary delay. (Demaronsing v. Tandayag, 58 SCRA 484 11974]; Shaffer v. Palma, 22 SCRA 934 [1968])

Similarly, in the case of Paman v. Diaz (116 SCRA 129), we ruled:

When the purpose of an amendment is to submit the real matter in dispute without any intent to delay the action, the court in its discretion, may order or allow the amendment upon such terms as may be just. Anything, therefore, that may preclude a party from fully representing the facts of his case should be brushed aside, if this can be done without unfairness to the other party and by the means provided for by the Rules of Court. ...

WHEREFORE, the petition is GRANTED. The partial summary judgment and the order denying the motion for reconsideration are hereby REVERSED and SET ASIDE. The Regional Trial Court of Manila is directed to admit the petitioner's Amended Answer with Affirmative and Special Defenses with Compulsory Counterclaim.

SO ORDERED.


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G.R. No. L-38866 November 29, 1974

KERAMIK INDUSTRIES INC., petitioner, vs. HONORABLE BUENAVENTURA J. GUERRERO in his official capacity as the Presiding Judge of the Court of First Instance of Rizal, Branch XXIV and GOVERNMENT SERVICE INSURANCE SYSTEM, respondents.

AQUINO, J.:p

Keramik Industries, Inc. (Keramik for short), in this special civil action for certiorari, seeks to annul the order dated May 31, 1974 of the Court of First Instance of Rizal, Pasig Branch XXIV, denying its motion to file an amended complaint in Civil Case No. 16540. The certiorari action is based on the following salient allegations of the petition and its annexes:

On October 7, 1964, Keramik obtained a loan of two million four hundred thousand pesos (P2,400,000) from the Government Service Insurance System (GSIS). As security, it mortgaged to the GSIS certain lands, buildings, machineries and equipment used in its ceramic business.

After Keramik's default, the GSIS extrajudicially foreclosed the real and chattel mortgages. The mortgaged properties were sold at public auction on March 2, 1971 to satisfy the claim of the GSIS amounting to P3,461,138.09. The GSIS, as the highest bidder, bought them for P5,129,145.

On August 17, 1972 Keramik sued the GSIS. It asked for the nullification of the extrajudicial foreclosure due to supposed irregularities. In the alternative, it prayed that the GSIS be ordered to pay to it the sum of P1,668,006.91 which amount allegedly constitutes the difference between the GSIS bid of P5,129,145 at the foreclosure sale and the actual mortgage debt of P3,461,138.09. Other minor reliefs were sought. The GSIS answered the complaint. No pre-trial has as yet been held.

On March 26, 1974 Keramik filed a motion for the admission of its amended complaint. The amendment refers to the insurance in the sum of P2,400,000 which Keramik had allegedly secured from the GSIS for the mortgaged buildings, machineries and equipment. The insurance was an additional security for the loan. Keramik alleged that through inadvertence it failed to mention in its original complaint the insurance and the circumstance that the typhoon Yoling totally damaged the insured properties. Its alternative contention was that the proceeds of the insurance and the excess premiums paid should be deducted from its indebtedness because the GSIS was in effect both the insurer and the insured.

The GSIS opposed the admission of the amended complaint on the ground that the amendment altered the plaintiff's causes of action by supposedly injecting "new, distinct and entirely foreign causes of action".

The lower court, in its minute order dated May 31, 1974, sustained the opposition and denied the admission of the amended complaint.

Keramik then filed the instant special civil action of certiorari. It contends that the lower court acted with grave abuse of discretion in not admitting its amended complaint.

We hold that the trial court committed a grave abuse of discretion in not allowing Keramik to amend its complaint. Keramik's alternative cause of action is predicated on the major premise that the GSIS, as mortgagee, should not enrich itself unjustly at its expense. Although not so explicitly and succinctly spelled out in its complaint, Keramik's theory is that the mortgaged properties and the proceeds of the insurance were more than sufficient to cover its aggregate debt to the GSIS and, therefore, the latter, as bidder at the foreclosure sale, should refund to the mortgagor the excess or "the difference between the price at which the foreclosed property was bought and the actual indebtedness of defendant" (should be plaintiff). (Par. 3 of prayer of original and amended complaints, Annexes A and C of the petition).

The allegations in the amended complaint regarding the insurance for the mortgaged properties did not change at all Keramik's theory of the case and did not introduce a new cause of action. As may be seen from the original and amended complaints, the causes of action remained the same. The prayers of the two complaints are identicalverbatim et literatim.

The new matter concerning the insurance merely reinforced, amplified or enlarged Keramik's alternative cause of action for the recovery of the surplus or excess (See sec. 4, Rule 68 of the Rules of Court). Whether Keramik's theory is sustainable would depend on the evidence and the applicable substantive law.

To deny the admission of Keramik's amended complaint would constrain it to bring a separate action for the purpose of compelling the GSIS to credit the proceeds of the insurance against its mortgage debt. That remedy would be repugnant to the rule which discourages multiplicity of suits. A separate action for that purpose would amount to splitting a cause of action. "It is a cherished rule of procedure that a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation" (Marquez vs. Marquez, 73 Phil. 74, 78).

The allowance of the amendment would be in the furtherance of justice and would not prejudice at all the GSIS or place it at a disadvantage since it could controvert the new matters constituting the amendment in an amended answer and during the trial (See Shaffer vs. Palma, L-24115, March 1, 1968, 22 SCRA 934; Rubio vs. Mariano, L-30404, January 31, 1973, 49 SCRA 319).

WHEREFORE, the trial court's order of May 31, 1974 is set aside and it is directed to admit petitioner's amended complaint dated March 20, 1974. No costs.

SO ORDERED.


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G.R. No. 158674 October 17, 2005

LAPRECIOSISIMA CAGUNGUN, REMEDIOS L. CAGUNGUN, JESUS L. CAGUNGUN, VICENTE L. CAGUNGUN, JR., RICARDO L. CAGUNGUN, EDUARDO L. CAGUNGUN, ROWENA L. CAGUNGUN, ALVIN L. CAGUNGUN and ALMA L. CAGUNGUN, Petitioners, vs. PLANTERS DEVELOPMENT BANK, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Assailed in a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure are the decision

1of the Court

of Appeals dated 25 March 2002 that modified the decision of the Regional Trial Court (RTC) of Olongapo City, Branch 74, in Civil Case No. 245-0-83, dated 26 June 1997, deleting the awards of moral and exemplary damages and finding that the mortgaged loan was deemed paid and enjoining foreclosure, as well as reducing the awards for litigation fees and expenses, and its Resolution

2 dated 06 June 2003 denying petitioners

Lapreciosisima Cagungun, et al.s motion for reconsideration.

The antecedents are summarized by the Court of Appeals in its decision as follows:

On September 1, 1987, the spouses Vicente Cagungun and Lapreciosisima Cagungun (or the Cagungun spouses) filed suit with the Regional Trial Court of Olongapo City against the Country Development Bank (or COUNTRY), and which was docketed as Civil Case No. 245-083 and assigned to Branch 74. Vicente Cagungun has since died and was substituted as plaintiff on August 8, 1984 by their children. On the other hand COUNTRY has entered into a merger and reflective of this the party defendant has been changed to Planters Development Bank (or PLANTERS) on September 1, 1987.

COUNTRY had opened an extension office in Olongapo City, and among their first customers were the Cagungun spouses who had diverse business interests in the locality. They opened some accounts, and for two (2) of which they were issued Savings Passbook No. 12241-16 in the name of Purings Dry Goods and Savings Passbook No. 38470-29 in the names of V/L Cagungun.

It was claimed by the Cagungun spouses and testified to by them and their daughter-in-law Sarah Cagungun, that because of the exigencies of their businesses that required daily deposits of the proceeds and of the trust that they have reposed with COUNTRY and its personnel, they entrusted and left with them their said savings pass books. At least once a day the Branch manager Ruperto Reyes or a certain Bong and Ding would come to get their funds and with the agreement that these would be rounded off and deposited to their account while the odd remainder would be applied to their loan. The arrangement apparently went well, until March 1981 when the Cagungun spouses received a letter from COUNTRY telling them that their loan is past due and payment was demanded . . . or else. This prompted them to investigate, but this was tedious and difficult because of lack of cooperation and even resistance from COUNTRY. But with the help of friends in high places the Cagungun spouses were able to access and pry information that in the year 1979 on the dates of October 8, 18, 20 and 31 and November 15, and December 4 and 8, with the use of withdrawal slips a total of P220,000.00 was withdrawn from

their Savings Passbook No. 12241-16. These withdrawals were invalid for no such withdrawal was authorized, made or received by the depositors, and the signatures of Vicente Cagungun on the slips were forgeries. This was confirmed by Arcadio Ramos, Chief of the Questioned Documents Division of the NBI when these were subjected to examination.

The side of PLANTERS was explicated by its employees, Internal Auditor Lilia Tactay, Branch Manager Lolita Mendoza and Cashier Bella Lumanog. It was explained that the withdrawal of P20,000.00 made on October 8, 1979 from Savings Account No. 12241-16 and the withdrawals of a total of P30,000.00 from several of the other accounts of the spouses, were placed on time deposits on the same date by Vicente Cagungun in five (5) accounts held with their children. The other said withdrawals from Savings Account No. 12241-16 were made by Vicente Cagungun in exchange for Managers Checks made in the names of payees Santiago Lee, Rosita Saldana, Benito Yap and Joaquin Aganda.

3

The lower court ruled, among other things, that the withdrawals from Savings Account No. 12241-16 through seven (7) withdrawal slips

4 amounting to P220,000.00 were not made by

petitioners as the alleged signatures of Vicente Cagungun, Jr. appearing therein were falsified as confirmed by the National Bureau of Investigation Handwriting Expert Arcadio Ramos. It likewise considered petitioners to have paid their mortgage loan in the amount ofP58,297.16 in view of their instruction to respondent to apply their funds in Savings Account No. 38470-29 thereto which were adequate for this purpose.

For not applying the savings of petitioners in Savings Account No. 38470-29 as payment to their loan, thereby causing the threatened foreclosure of the real estate mortgage over their house and lot, and for allowing the unauthorized withdrawals from Savings Account No. 12241-16 through falsified withdrawal slips, the lower court held respondent liable to pay moral damages. For ignoring the two (2) demand letters of petitioners, the demand letter of petitioners counsel and the representations made by Pampanga Gov. Estelito Mendoza and Central Bank Governor Jaime Laya, and for the attempt to cover up the misdeeds of its employees constituting malice and bad faith, respondent was also ordered to pay exemplary damages as an example to others. On account of these acts, respondent was also ordered to pay attorneys fees and the cost of suit.

In its decision5 dated 26 June 1997, the lower court disposed of

the case in this wise:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant as follows:

1.) Enjoining the defendant from foreclosing the mortgage of plaintiffs property located at No. 88 Gordon Avenue, Pag-asa, Olongapo City;

2.) Ordering the defendant to pay plaintiffs the amount of P220,000.00 actual damages representing the total amount withdrawn from their accounts plus twelve (12%) per cent interest per annum from the date of the filing of the complaint until it shall have been fully paid;

3.) Considering plaintiffs mortgaged account in the amount of P58,297.16 to have been paid;


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4.) Ordering the defendant to pay plaintiffs the amount of P300,000.00 moral damages;

5.) Ordering the defendant to pay plaintiffs the amount of P300,000.00 exemplary damages; and

6.) Ordering defendant to pay plaintiffs the amount of P50,000.00 litigation expense, P50,000.00 attorneys fee plus the cost of suit.

6

Aggrieved, respondent appealed to the Court of Appeals.

The Court of Appeals agreed that money was withdrawn from the deposits of petitioners without their authority or knowledge, and that this was done by one or some of the personnel of respondent. However, it held that petitioners are not free from the obligation to pay the admitted loan (P58,297.16) for though the same was not paid for failure of respondent to comply with the instruction to apply the remainder of the sums deposited to their loan, it remained admittedly an unpaid obligation. It removed the awards for moral and exemplary damages and reduced the awards for attorneys fees and litigation expenses.

The Court of Appeals promulgated its decision on 25 March 2002, the dispositive portion of which reads:

WHEREFORE, the appealed decision is AFFIRMED, but with these MODIFICATONS (a) the dispositions in Par. 1 and Par. 3 of the fallo deeming the mortgaged loan paid and enjoining foreclosure, are DELETED; (b) the disposition in Par. 4 and Par. 5 of the fallo awarding moral and exemplary damages, are DELETED; and (c) the awards of litigation fees and expenses are REDUCED to a combined P30,000.00.

7

The motion for reconsideration filed by petitioners was denied in a resolution dated 06 June 2003.

8

Petitioners are now before us assailing the Decision and Resolution of the Court of Appeals when the latter:

(A) DELETED THE PORTION OF THE RTC DECISION DECLARING THE MORTGAGED LOAN PAID AND ENJOINING FORECLOSURE;

(B) DELETED THE AWARD OF MORAL AND EXEMPLARY DAMAGES; AND

(C) REDUCED THE LITIGATION FEES AND EXPENSES.9

Respondent filed a Comment10

on 04 September 2003 to which petitioners filed their Reply

11 dated 06 February 2004.

On 06 December 2004, the Court gave due course to the petition and required the parties to submit their respective memoranda within thirty (30) days from notice.

12 Both parties complied.

13

We first discuss the deletion made by the Court of Appeals of the awards of moral damages and exemplary damages.

Petitioners maintain that the Court of Appeals erred in removing the award of moral damages considering that it is settled jurisprudence that the same should be awarded when the injured party suffers mental anguish and serious anxiety. They contend that the Court of Appeals failed to appreciate the torment they suffered from the time they noticed their deposits

were not properly recorded until the receipt of respondents letter threatening the foreclosure of their residential house and lot for a loan of P58,000.00. They narrated that respondent bank refused to give them copies of the ledgers of their deposits as well as copies of the withdrawal slips. Despite the intercession of Pampanga Governor Estelito Mendoza and Central Bank Governor Jaime Laya, respondent did not give them copies of the ledgers and withdrawal slips. It was only after the Chief of the Criminal Investigation Service (CIS) of the Philippine Constabulary sent two of his investigators, whom they authorized to look into the records of their deposits, that they received copies thereof. They discovered therein that the sum of P220,000.00 was withdrawn from their accounts by respondent bank through its employees by falsifying the signatures of Vicente Cagungun, Jr. in seven withdrawal slips. Despite the forgeries, they refused to acknowledge its liability. Thus, on 07 September 1983, in order to protect their rights, petitioners were forced to file the instant case with prayer for issuance of a temporary restraining order and/or writ of preliminary injunction to enjoin the foreclosure of their property. Petitioners insist that respondent, in allowing withdrawals in their savings account without their authority or knowledge, is guilty of gross negligence to which it is liable for moral damages.

On the other hand, respondent maintains that the Court of Appeals was correct in deleting the award of moral damages.

Respondent argues that it should not be faulted if petitioners had to experience inconveniences in acquiring copies of ledgers of their deposits as well as copies of the withdrawal slips since certain banking procedures must be observed. It likewise faults petitioners for not strictly observing security rules of financial institutions in the care and custody of their passbooks, as well as in the standard operating procedure for deposits and withdrawals which led to the alleged improper recording of deposits and the alleged losses they incurred. It stresses that passbooks should be securely kept by the owner but, in the case of petitioners, they openly entrusted their passbooks to other people leaving them totally unable to monitor their transactions. It added that there was absence of any actual injury on the part of the petitioners. It asserts that it neither acted in bad faith nor took advantage of petitioners deposit for its use and benefit. It claims that petitioners failed to establish fraud on the part of respondent bank as to make it liable for the alleged improper recording of deposits. It claims that petitioners failed to present in court the persons (Bong or Ding) to whom they entrusted their money for deposit and to prove that Ruperto Reyes, then Officer-In-Charge (O-I-C) of the Extension Office of Country Development Bank, defrauded them by facilitating withdrawals for the benefit of the bank. No proof was adduced to show that they verified if the persons to whom they delegated to make the deposits faithfully performed the tasks in accordance with their intentions. Respondent insists that it is the negligence of petitioners, not fraud on its part, which was the reason that petitioners deposits were not applied in accordance with their intentions resulting to the (threatened) foreclosure of their mortgaged property.

From the foregoing reasons advanced by respondent bank, it is apparent that it is trying to pass all the blame on petitioners for the unauthorized withdrawals amounting to P220,000.00 and the non-applications of deposits to their loan.

This cannot be. The fact that petitioners left the custody of their passbooks to respondent, through its employee O-I-C Ruperto Reyes, and that they entrusted to Bong or Ding their deposits


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will not excuse respondent from being liable. Petitioners did these things because they trusted and depended on respondent to take care of their accounts with it. If respondent bank was really strict in enforcing the banking rule that the passbook must be kept by the depositor, why did it not do so? For its failure, any anomaly or damage that might result therefrom should be borne by it.

We, likewise, find untenable respondents contention that petitioners should have presented O-I-C Ruperto Reyes, Bong or Ding as witnesses to clear the air. On the contrary, it should have been respondents duty to present these persons they being their employees. It should have presented these people, especially O-I-C Ruperto Reyes, who had custody of the passbooks, to explain why unauthorized withdrawals were made and why the instruction to apply petitioners deposit to their loan was not complied with.

The bank was indeed grossly negligent when it allowed the sum of P220,000.00 to be withdrawn through falsified withdrawal slips without petitioners authority and knowledge and its failure to comply with petitioners instruction to apply their deposits on their loan. In so doing, respondent bank breached the trust that petitioners reposed on it.

We agree in the findings of the two courts below that the unauthorized transactions were committed by one or some of the employees of respondent bank for which it should be liable. The evidence showed that respondent did not exercise the degree of diligence it ought to have exercised in dealing with its clients -- diligence higher than that of a good father of a family. If only respondent exercised such diligence, no anomaly or irregularity would have happened.

In the case of Philippine National Bank v. Pike,14

we discussed the degree of diligence imposed on banks as follows:

With banks, the degree of diligence required, contrary to the position of petitioner PNB, is more than that of a good father of a family considering that the business of banking is imbued with public interest due to the nature of their functions. The stabi