Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 164398             March 30, 2007

ALICIA C. MARANAN, Petitioner,
vs.
MANILA BANKING CORPORATION, Respondent.

D E C I S I O N

QUISUMBING, J.:

For review on certiorari are the Decision1 dated March 29, 2004 and Resolution2 dated July 5, 2004 of the Court of Appeals in CA-G.R. SP No. 35398, which affirmed the Orders3 dated November 17, 1993 and July 27, 1994 of the Regional Trial Court of Makati City, Branch 150 in Civil Case No. 90-2918.

The facts, borne out by the records, are as follows:

On January 11, 1979, Mandarin Development Corporation (Mandarin) obtained from respondent Manila Banking Corporation a ten million peso loan as additional working capital. Petitioner Alicia C. Maranan, with Yu Kim Chuy, Sofio Mo Gianan, Nestor Ignacio, and Roberto Posadas, signed a surety agreement binding themselves solidarily liable with Mandarin for the said loan.4

By June 30, 1990, Mandarinís outstanding loan obligation inclusive of interest reached P30,500,000 prompting respondent to file a complaint5 for a sum of money against Mandarin, as well as Pacific Enamel and Glass Manufacturing Corporation (Pacific Enamel), S. Antonio Roxas Chua, Jr., and the aforementioned guarantors including herein petitioner.

Chua and Pacific Enamel filed a motion to dismiss on the ground that the complaint states no cause of action against them.6 The trial court granted the motion to dismiss and accordingly dropped them from the case.7

For her part, petitioner filed an Answer alleging that the surety agreement did not express the true intent of the parties. She claimed that Chua was the real borrower and actual recipient of the loan and that Mandarin was merely used as a conduit of Pacific Enamel. Mandarin and Pacific Enamel were allegedly owned and controlled by Chua.8 She stated in the Answer that as a mere employee of Chua, she was made to sign the surety agreement in compliance with the formalities required by the Central Bank.

Respondent subsequently filed a Motion for Judgment on the Pleadings.9 The trial court, however, denied the said motion.

About two years later, petitioner filed an Amended Answer10 impleading Chua and Pacific Enamel as defendants in her counterclaim.

In its first assailed Order, the trial court denied the admission of petitionerís Amended Answer and deemed the same expunged from the records, thus:

Wherefore, defendants (sic) Amended Answer is hereby DENIED and considered expunged from the record.

SO ORDERED.11

The trial court explained that it had already dismissed the complaint against Chua and Pacific Enamel for lack of cause of action. It had also denied the motion for reconsideration of said dismissal. The trial court further pointed out that the Amended Answer was filed without prior leave of court.

Petitioner filed a motion for reconsideration, which the trial court denied in its second impugned Order.

Petitioner elevated the case to the Court of Appeals ascribing grave abuse of discretion to the court a quo in not admitting the Amended Answer.

The appellate court dismissed the petition for lack of merit. Petitionerís motion for reconsideration was likewise denied. Hence, the instant petition anchored on the following grounds:

THE COURT OF APPEALS GRAVELY ERRED IN DISMISSING THE PETITION FOR CERTIORARI IN CA-G.R. SP NO. 35398.

A. The filing of petitionerís Amended Answer was a matter of right and, therefore, did not require prior leave of court.

B. As mandated by the Rules of Court, petitioner correctly resorted to filing a counterclaim, and not a third-party complaint, in impleading the intended defendants-on-counterclaim.

C. Jurisprudence looks upon amendment of pleadings with favor and liberality in order to determine every case as far as possible on its merits and without regard to technicalities.12

Petitioner contends that the filing of an Amended Answer before a responsive pleading is filed does not require prior leave of court. She alleges that respondentís Motion for Judgment on the Pleadings cannot be considered a responsive pleading as it does not set up any defense against the claims stated in the Answer. She maintains that resort to the filing of a counterclaim instead of a third-party complaint in impleading Chua and Pacific Enamel is sanctioned by the Rules. She insists that her counterclaim for annulment of the loan and the surety agreement arose out of the same occurrence as the obligation being enforced by respondent. She further alleges that payment of docket fees is not required for jurisdiction to be acquired.

Respondent, however, counters that prior leave of court is required before petitionerís Amended Answer may be admitted as the Motion for Judgment on the Pleadings set up the defense that petitionerís Answer did not tender any genuine issue and sought the affirmative relief of a judgment on the pleadings. Respondent further alleges that the allegations in the Amended Answer altered the theory of the defense, and thus should have been properly pleaded in a third-party complaint.

Simply stated, the basic issues for resolution now are: (1) whether petitionerís Amended Answer, filed without prior leave of court, should have been admitted; and (2) whether petitionerís resort to a counterclaim instead of a third-party complaint in impleading Chua and Pacific Enamel was proper.

We find the petition without merit, and we hold that the Court of Appeals did not err in dismissing the petition below.

At the outset, we note that petitionerís Answer was confined to allegations that the surety agreement did not express the true intent of the parties. The Answer merely purported to show that Chua was the real borrower and actual recipient of the loan and that Mandarin was only used as a conduit of Pacific Enamel. Also, petitioner therein alleged that as a mere employee of Chua, she was made to sign the surety agreement in compliance with the formalities required by the Central Bank.

In her Amended Answer, however, petitioner alleged for the first time that the surety agreement dated December 28, 1978 is void as an accessory contract because the promissory notes it was supposed to secure were nonexistent at the time, having been executed only on May 11, 1979. She likewise hinted that the loan was obtained in circumvention of the DOSRI13 Rule prohibiting the lending of funds by corporations to their directors, officers, stockholders and other persons with related interests.

Obviously, petitionerís Amended Answer contained substantial amendments not found in her original Answer and involved a significant shift in the theory of the defense. Noteworthy too, said Amended Answer was filed after the case was already set for hearing.

In this connection, Sections 2 and 3 of Rule 10 of the Rules of Court14 state:

SEC. 2. When amendments allowed as a matter of right. Ė A party may amend his pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within ten (10) days after it is served. (Emphasis supplied.)

SEC. 3. Amendments by leave of court. Ė After the case is set for hearing, substantial amendments may be made only upon leave of court. But such leave may be refused if it appears to the court that the motion was made with intent to delay the action or that the cause of action or defense is substantially altered. Orders of the court upon the matters provided in this section shall be made upon motion filed in court, and after notice to the adverse party, and an opportunity to be heard. (Emphasis supplied.)

It is clear from Sections 2 and 3 of Rule 10 that once a case has already been set for hearing, regardless of whether a responsive pleading has been served, substantial amendments such as those contained in petitionerís Amended Answer may only be made upon leave of court. Unfortunately, petitioner failed to secure such prior leave, thus, the lower court cannot be faulted for denying the admission of the said Amended Answer. Nonetheless, even if such prior leave of court was duly filed, the court a quo could still deny it on the ground that the Amended Answer substantially altered the theory of the defense.

As to the second issue, Sections 6 and 14 of Rule 6 provide:

SEC. 6. Counterclaim. Ė A counterclaim is any claim for money or other relief which a defending party may have against an opposing party. A counterclaim need not diminish or defeat the recovery sought by the opposing party, but may claim relief exceeding in amount or different in kind from that sought by the opposing partyís claim. (Emphasis supplied)

SEC. 14. Bringing new parties. Ė When the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be brought in as defendants, if jurisdiction over them can be obtained.

Records show that at the time of the filing of the Amended Answer in which Chua and Pacific Enamel were impleaded in the counterclaim, the two were no longer parties to the action. Note that the trial court had already dropped Chua and Pacific Enamel from the case for lack of cause of action against them. Under the Rules, a counterclaim may be filed only against an opposing party. The filing of a counterclaim against a third party is not allowed, but the court may order such party to be brought in as defendant.

Corollarily, Section 12 of Rule 6 further provides:

SEC. 12. Third-party complaint. Ė A third-party complaint is a claim that a defending party may, with leave of court, file against a person not a party to the action, called the third-party defendant, for contribution, indemnity, subrogation or any other relief, in respect of his opponentís claim.

The purpose of the foregoing provision is to allow a defendant to assert an independent claim against a third party, which would otherwise be asserted in another action, thus preventing multiplicity of suits. A prerequisite to the exercise of such right is the existence of substantive basis for a third-party claim, such as indemnity, subrogation, contribution or other substantive right. The bringing of a third-party defendant is proper if the latter would be liable to the plaintiff or to the defendant or both for all or part of the plaintiffís claim against the original defendant, although the third-party defendantís liability arises out of another transaction.15

In this case, petitionerís allegations in the Amended Answer point to the existence of a substantive right against Chua and Pacific Enamel, and impute liability to both for the sum of money respondent claims against petitioner. Clearly, under Section 12 of Rule 6, the petitionerís appropriate recourse is the filing, with proper leave of court, of a third-party complaint against Chua and Pacific Enamel.

At any rate, as previously discussed, the Amended Answer could not have been admitted for lack of prior leave of court and for having substantially altered the theory of the defense. Thus, at this stage, whether Chua and Pacific Enamel were impleaded through a simple counterclaim or through a third-party complaint would not have mattered.

As a final point, petitionerís plea for liberal construction of the Rules is without merit. Liberal construction of the Rules applies only in situations involving excusable formal error in a pleading, as long as the same does not subvert the essence of the proceeding and connotes at least a reasonable attempt at compliance with the Rules. Utter disregard of the Rules, in our view, cannot justly be rationalized by harking on the policy of liberal construction.16

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated March 29, 2004 and Resolution dated July 5, 2004 of the Court of Appeals in CA-G.R. SP No. 35398 are AFFIRMED. Costs against the petitioner.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES
Associate Justice
DANTE O. TINGA
Asscociate Justice

PRESBITERO J. VELASCO, JR.
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courtís Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersonís Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courtís Division.

REYNATO S. PUNO
Chief Justice


Foonotes

1 Rollo, pp. 268-282.

2 Id. at 314.

3 Records, pp. 733-734, 807-808.

4 Id. at 12-13.

5 Id. at 1-8, originally entitled Manila Banking Corp. (thru the Statutory Receiver, Renan V. Santos), plaintiff, versus Mandarin Development Corporation, Sofio Mo Gianan, Nestor Ignacio, Yu Kim Chuy, Roberto Posadas, Alicia Maranan, Pacific Enamel & Glass Manufacturing Corporation and S. Antonio Roxas Chua, Jr., defendants.

6 Id. at 85-90.

7 Id. at 241-243.

8 Id. at 225.

9 Rollo, pp. 396-406.

10 Records, pp. 581-593.

11 Id. at 734.

12 Rollo, p. 418.

13 Is a business acronym that stands for Directors, Officers, Stakeholders and other Related Interests, an acronym mostly used by banks.

14 Since the controversy started in 1993, the pre-1997 Rules of Court applies.

15 Asian Construction and Development Corporation v. Court of Appeals, G.R. No. 160242, May 17, 2005, 458 SCRA 750, 759.

16 Delgado v. Court of Appeals, G.R. No. 137881, August 19, 2005, 467 SCRA 418, 424.


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