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Outline: Rule 10 Amended & Supplemental Pleadings

CIVIL PROCEDURE

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

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Case Digest: Rule 10 Amended & Supplemental Pleadings


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.

CIVIL PROCEDURE

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.

meikimouse

Case Digest: Rule 10 Amended & Supplemental Pleadings


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

CIVIL PROCEDURE

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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Case Digest: Rule 10 Amended & Supplemental Pleadings


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

CIVIL PROCEDURE

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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Case Digest: Rule 10 Amended & Supplemental Pleadings


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

CIVIL PROCEDURE

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

meikimouse

Case Digest: Rule 10 Amended & Supplemental Pleadings


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.

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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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Case Digest: Rule 10 Amended & Supplemental Pleadings


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.

CIVIL PROCEDURE

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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Case Digest: Rule 10 Amended & Supplemental Pleadings

CIVIL PROCEDURE

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.

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CIVIL PROCEDURE

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


[G.R. No. 133657. May 29, 2002]
REMINGTON INDUSTRIAL SALES CORPORATION, petitioner,
vs. THE COURT OF APPEALS and BRITISH STEEL (ASIA),
LTD., respondents.
DECISION
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
[1]
CA-G.R. SP No. 44529 dated February 24, 1998 , 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
[2]
the resolution of the Court of Appeals denying petitioners
motion for reconsideration.
The facts of the case, as culled from the records, are as
follows:
[3]

On August 21, 1996, petitioner filed a complaint 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
[4]
the motions to dismiss, as well as the ensuing motion for
[5]
reconsideration. 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
[6]
Appeals, 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
[7]
pursuant to Section 13, Rule 3 of the Revised Rules of Court.
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
[8]
alternative defendant under Section 13, Rule 3, 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,
[9]
Rule 10 of the Rules of Court, petitioner maintained that it can
amend the complaint as a matter of right because respondent
[10]
has not yet filed a responsive pleading thereto.
Subsequently, petitioner filed a Manifestation and
[11]
Motion 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
th
6 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
[14]
dismiss.
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:
-ITHE 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.
-IITHE 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 PREEMPTING 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
[15]
ACTION, THEREBY ABETTING MULTIPLICITY OF SUITS.

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Full Text Cases: Rule 10 Amended & Supplemental Pleadings


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?
[16]

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
[17]
action or change in theory is introduced. The reason for this
[18]
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.
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
[19]
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.

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defendant, but not as to claims asserted against the other


[22]
defendants.
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
[23]
petition before the appellate court. 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.

The right granted to the plaintiff under procedural law to


amend the complaint before an answer has been served is not
[20]
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.
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
[21]
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 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

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Full Text Cases: Rule 10 Amended & Supplemental Pleadings


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

CIVIL PROCEDURE

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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Full Text Cases: Rule 10 Amended & Supplemental Pleadings


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;

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

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.

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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Full Text Cases: Rule 10 Amended & Supplemental Pleadings


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

CIVIL PROCEDURE

admit the same was made prior to the termination of the pretrial.
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 nondelivery 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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Full Text Cases: Rule 10 Amended & Supplemental Pleadings

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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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Full Text Cases: Rule 10 Amended & Supplemental Pleadings


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".

CIVIL PROCEDURE

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.

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

meikimouse

CIVIL PROCEDURE

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


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.
DECISION
CHICO-NAZARIO, J.:
Assailed in a Petition for Review on Certiorari under Rule 45 of
1
the 1997 Rules of Civil Procedure are the decision of 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
2
its Resolution 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.

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
3
Aganda.
The lower court ruled, among other things, that the withdrawals
from Savings Account No. 12241-16 through seven (7)
4
withdrawal slips 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. 3847029 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.
5

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

In its decision 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;

meikimouse

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


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
6
the cost of suit.
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
7
REDUCED to a combined P30,000.00.
The motion for reconsideration filed by petitioners was denied
8
in a resolution dated 06 June 2003.
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.

10

Respondent filed a Comment on 04 September 2003 to which


11
petitioners filed their Reply 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
12
13
within thirty (30) days from notice. Both parties complied.
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

CIVIL PROCEDURE

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
meikimouse

Full Text Cases: Rule 10 Amended & Supplemental Pleadings

CIVIL PROCEDURE

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.

assume a degree of diligence higher than that of a good father


of a family. Article 1172 of the New Civil Code states that the
degree of diligence required of an obligor is that prescribed by
law or contract, and absent such stipulation then the diligence of
a family. In every case, the depositor expects the bank to treat
his account with utmost fidelity, whether such accounts consists
only of a few hundred pesos or of millions of pesos.

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.

Settled is the rule that gross negligence of a bank in the handling


of its clients deposit amounts to bad faith that calls for an
award of moral damages. Moral damages are meant to
compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation and similar
15
injuries unjustly caused.

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.
14

In the case of Philippine National Bank v. Pike, 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 stability
of banks largely depends on the confidence of the people in the
honesty and efficiency of banks. Thus, the law imposes on banks
a high degree of obligation to treat the accounts of its
depositors with meticulous care, always having in mind the
fiduciary nature of banking. Section 2 of Republic Act No. 8791,
which took effect on 13 June 2000, makes a categorical
declaration that the State recognizes the "fiduciary nature of
banking that requires high standards of integrity and
performance."
Though passed long after the unauthorized withdrawals in this
case, the aforequoted provision is a statutory affirmation of
Supreme Court decisions already in esse at the time of such
withdrawals. We elucidated in the 1990 case of Simex
International, Inc. v. Court of Appeals that "the bank is under
obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their
relationship."
Likewise, in the case of The Consolidated Bank and Trust
Corporation v. Court of Appeals, we clarified that said fiduciary
relationship means that the banks obligation to observe
"highest standards of integrity and performance" is deemed
written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to

In the case at bar, the failure of the bank to prevent seven


unauthorized withdrawals from the deposits of petitioners and
its non-compliance with petitioners instructions regarding the
loan payments constitute gross negligence which justifies the
award of moral damages. As employer, respondent is liable for
the negligence or misdeed of its employees which caused
petitioners to have sleepless nights thinking about the
threatened foreclosure of their house and lot. In addition, the
way respondent gave petitioners a hard time in securing copies
of their withdrawal slips and ledgers of their deposits is an
indication of bad faith. Respondent could have easily cooperated
with petitioners by immediately furnishing the latter with
documents they wanted. This was not to be. Written
communications from petitioners lawyers and from the Central
Bank Governor were not sufficient in order that respondent will
provide petitioners with the documents they needed. It was only
after two agents of the CIS of the Philippine Constabulary went
to the bank that respondent was obliged to give petitioners
what they were asking for.
In culpa contractual or breach of contract, as in the
16
case before us, moral damages are recoverable only if the
17
defendant has acted fraudulently or in bad faith, or is found
guilty of gross negligence amounting to bad faith, or in wanton
18
disregard of his contractual obligations.
In fine, the requisites on award of moral damages would require,
firstly, evidence of besmirched reputation or physical, mental or
psychological suffering sustained by the claimant; secondly, a
culpable act or omission factually established; thirdly, proof that
the wrongful act or omission of the defendant is the proximate
cause of the damages sustained by the claimant; and fourthly,
that the case is predicated on any of the instances expressed or
19
20
envisioned by Article 2219 and Article 2220 of the Civil Code.
All these elements are present in the instant case.
There is no hard-and-fast rule in the determination of what
would be a fair amount of moral damages since each case must
be governed by its own peculiar facts. The yardstick should be
21
that it is not palpably and scandalously excessive. We find the
sum of P300,000.00 awarded by the lower courts excessive. In
our view, the award ofP100,000.00 as moral damages is
reasonable and is in accord with our rulings in similar cases
involving banks negligence with regard to the accounts of their
22
depositors.
Anent the removal by the Court of Appeals of the award of
exemplary damages, we find the same to be not in order.
meikimouse

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


The law allows the grant of exemplary damages to set an
23
example for the public good. The banking system has become
an indispensable institution in the modern world and plays a
vital role in the economic life of every civilized society. Whether
as mere passive entities for the safe-keeping and saving of
money or as active instruments of business and commerce,
banks have attained a ubiquitous presence among the people,
who have come to regard them with respect and even gratitude
24
and most of all, confidence. For this reason, banks should
guard against injury attributable to negligence or bad faith on its
25
part. The award of exemplary damages is warranted by the
failure of respondent bank to prevent the unauthorized
withdrawals from petitioners deposits and its failure to properly
apply the latters deposits to their loan. We, however, find
the P300,000.00 awarded by the lower court to be excessive and
should accordingly be reduced to P50,000.00.
On the matter of attorneys fees and expenses of litigation, it is
settled that the reasons or grounds for the award thereof must
26
be set forth in the decision of the court. An award of attorneys
fees, being an exception from the policy of not putting a
premium or a penalty on the right to litigate, has since been
27
28
limited to the grounds specified by law. Article 2208 of the
Civil Code enumerates the instances where attorneys fees and
expenses of litigation can be recovered.
In the case at bar, the RTC clearly stated in its decision that
petitioners are entitled to attorneys fees and litigation expenses
because they were compelled to litigate in order to protect their
interest. We agree. Moreover, there being an award for
exemplary damages, it follows that there should be an award of
attorneys fees and litigation expenses. However, the awards
of P50,000.00 for attorneys fees and P50,000.00 for litigation
expenses by the RTC are too much, while the award
of P30,000.00 of the Court of Appeals for both is too small. In as
much as this case has been pending for more than twenty (20)
years, the award of P25,000.00 for each will be sufficient.
Petitioners claim that the Court of Appeals erred in deleting the
portions of the RTC decision declaring their mortgage loan paid
and enjoining foreclosure. They insist that they were able to
prove that the amounts ofP30,000.00 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
29
objected and attempted to have the testimony thereon
30
stricken off the record on the ground of allegata et probata.
31

Under Section 5, Rule 10 of the Revised Rules of Court, 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 freely when the presentation of
the merits of the action will be subserved thereby and the
admission of such evidence would not prejudice the objecting
party in maintaining his action or defense upon the merit. Said
section reads:

CIVIL PROCEDURE

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 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.
As regards respondents right to exercise its right to foreclosure
of the real estate mortgage on petitioners property, we rule
that respondent cannot exercise such right under the
circumstances obtaining. It will be the height of inequity if we
allow such a thing. The evidence is clear that the sum
of P220,000.00 was withdrawn from petitioners deposits
without their knowledge and authority. This amount is more
than sufficient to pay for the loan had it not been illegally
withdrawn. Neither should petitioners be held liable for any
interest on the remaining balance of the loan considering that
they could have easily settled their obligation with respondent if
they were not embroiled in the anomaly caused by respondents
employees. Finally, payment for the remaining balance of the
loan amounting toP58,297.16 should be deducted from the
actual damages awarded by the court.
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The 25 March 2002 decision of the Court of Appeals
modifying the decision of the Regional Trial Court of Olongapo
City is AFFIRMED with MODIFICATIONS. As modified, respondent
Planters Development Bank is ordered to pay petitioners the
following: (1) P220,000.00 as actual damages representing the
total amount withdrawn from petitioners accounts plus interest
of 6% per annum to be computed from the date of the filing of
the complaint which interest rate shall become 12% per annum
from the time of finality of this judgment until actual payment;
(2) P100,000.00 as moral damages; (3)P50,000.00 as exemplary
damages; and (4) P25,000.00 as attorneys fees and P25,000.00
for litigation expenses. Respondent is enjoined from foreclosing
the real estate mortgage on petitioners property located at No.
88 Gordon Avenue, Pag-asa, Olongapo City. Payment for the
outstanding loan of petitioners in the amount of P58,297.16
shall be deducted from the damages awarded by the Court.
SO ORDERED.

meikimouse

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


G.R. No. 81024

February 3, 2000

ASSET
PRIVATIZATION
TRUST, petitioner,
vs.
COURT OF APPEALS, HON. JESUS F. GUERRERO, Judge of the
Regional Trial Court of Makati, Branch 148, STA. INES MELALE
FOREST PRODUCTS CORPORATION, RODOLFO M. CUENCA and
MANUEL I. TINIO,respondents.
PURISIMA, J.:
May the proscription against multiplicity of suits be properly
invoked to allow the filing of a supplemental complaint involving
basically the same parties as those in the original complaint but
with a cause of action arising from a transaction distinct from
that sued upon in the original complaint? This is the issue posed
in the present petition for review on certiorari of the Decision of
the Court of Appeals.
At the outset, it should be clarified that the Development Bank
of the Philippines (DBP), not the Asset Privatization Trust (APT),
was the original petitioner in the case. APT was first impleaded
1
as a party-respondent in the Resolution of August 14, 1989 on
account of the fact that respondent Sta. Ines Melale Forest
Products Corporation (SIM) "has been taken over" by the APT.
However, in its reply to the manifestation and comment of APT,
the DBP asserted that the transfer of SIM's rights and interests
to the APT cannot be valid ground for the dismissal of the
petition because the said transfer was effected pendente lite.
The case could prosper only if the Court would direct "APT, as
transferee (of SIM's interests), to be substituted in the action or
joined with petitioner" in accordance with Sec. 20, Rule 3 of the
2
Rules of Court. Thus, pursuant to the said rule, in the Resolution
3
of March 26, 1990, the Court ordered that the DBP "be
4
substituted" as party-petitioner in this case by APT.
The petition originated from a transaction between the DBP and
Galleon Shipping Corporation sometime in 1979. Galleon
obtained several "foreign loan guarantee accommodations"
from DBP in the total amount of US$87.233 Million for the
acquisition of five (5) brand-new vessels and to finance twenty
percent (20%) of the acquisition cost of two (2) second-hand
vessels. To secure payment thereof, Galleon mortgaged the
vessels to DBP. Named joint and solidary debtors with Galleon in
such transaction were SIM, Rodolfo M. Cuenca and Manuel I.
Tinio. Due to Galleon's default in the payment of its obligations,
DBP had to "make good its guarantees to Galleon's foreign
creditors." In June 1984, DBP forclosed the mortgage but the
proceeds of the auction sales conducted after the extrajudicial
foreclosure of the mortgage on the vessels, yielded a deficiency
5
in the amount of P2,700,960,412.60.
Apparently in anticipation of DBP's claim for the said deficiency,
private respondents SIM, Cuenca and Tinio lodged a complaint
against DBP, National Development Corporation (NDC) and
Galleon (which had become the National Galleon Shipping
Corporation (NGSC) before Branch 148 of the Regional Trial
Court of Makati, alleging that under Letter of Instruction No.
1155, July 21, 1981, the then President of the Philippines
directed NDC to take over the ownership and operation of
Galleon. In compliance with such directive, on August 10, 1981
Galleon, represented Cuenca, entered into a Memorandum of
Agreement with NDC whereby the latter acquired 100% of
Galleon's equity. However, without paying a single centavo in
accordance with the "share purchase agreement," NDC took
over absolute ownership of Galleon but mismanaged its

CIVIL PROCEDURE

operations and placed obstacles to the formal signing of the


"share purchase agreement". It is alleged that it was during the
management of NDC that Galleon incurred the aforesaid
indebtedness with the accommodation of DBP.
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 or any of them whether connected or not with the
transaction herein, whether the action be judicial or extrajudicial
foreclosure, until the rights of the parties shall have been
declared under L.O.I. 1155, the Memorandum Agreement, and
other supporting documents, and contemporaneous actions of
the parties." They also prayed that the injunction that the court
would grant be made permanent; that they be declared as "no
longer liable to the defendants under the Deed of Undertaking,
pledge, mortgages, and other accessory contracts between the
parties;" that the contracts be declared as having been
extinguished and the plaintiffs released from any and all
responsibilities therefor, and that the NDC be declared the
absolute owner of Galleon "even without the execution of a
share purchase agreement and responsible for any and all
obligations of said Galleon and the plaintiffs, if any prior to the
transfer of ownership, management and control of defendant
NDC." They further prayed that NDC and Galleon be made to pay
them their "advances" on behalf of Galleon in the total amount
of P15.15 million plus $2.3 million, the price of their equity in
6
Galleon and damages.
In its answer to the complaint, DBP theorized that the liability of
the plaintiffs therein for Galleon's obligation was not
extinguished because L.O.I. 1155, which was not implemented,
was in fact revoked by L.O.I. 1195 dated February 19, 1982.
Galleon's ownership was not transferred to NDC because
Galleon and NDC did not proceed with the formality of entering
into the "share purchase agreement" which was supposed to
effect the conveyance as stipulated in the memorandum of
Agreement. The DBP stated further that it was enforcing its
claim against the plaintiffs upon a deed of undertaking they had
signed and not upon the deed of mortgage. By way of
counterclaim, the DBP reiterated its deficiency claim against the
7
plaintiffs in the amount of P2,700,960,412.60.
On May 15, 1985, the trial court issued a writ of preliminary
injunction ordering the DBP and its co-defendants to "refrain
from pursuing any other deficiency claims or any other claim of
any nature, whether judicial or extra-judicial, arising out of, bred
by or incident to the transactions covered by the complaint
8
except as counterclaims in this proceedings.
Meanwhile, the DBP granted SIM, Cuenca and Tinio foreign loan
guarantee accommodations in the total amount of
P238,526,225.68, as of August 31, 1985. The transactions were
secured by a mortgage over certain parcels of land owned by
9
SIM in Magallanes, Agusan del Sur. The mortgage contract
authorized DBP to take actual possession of the mortgaged
property upon breach of any of the conditions therein
10
stipulated. Thus, when the mortgagor failed to pay their
amortizations on time, the DBP took the initial step to foreclose
the mortgage by taking possession of the mortgaged plant site in
Magallanes, Agusan del Sur. It posted forty-five (45) security
guards with instructions to prevent the taking out therefrom of
11
property or equipment without DBP's approval.
12

SIM took DBP's action as a "retaliatory move." It sought to


supplement the original complaint in Civil Case No. 10378 by
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CIVIL PROCEDURE

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


13

filing a "Motion to Admit Supplemental Complaint." It alleged


that DBP's 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 dated June 13, 1985 sought a
declaration that "the defendant DBP is not entitled to foreclose
the mortgage" and that DBP's act of posting its security guards in
the Agusan del Sur plant is null and void and unlawful. The same
pleading, the first sentence of which stated that it was filed by
SIM only, alleged that the presence of DBP's security men at the
manufacturing and logging plant site caused SIM's creditors,
suppliers and workers to panic. SIM also claimed that the
foreclosure of mortgage would "paralyze" its "business
operation" thereby rendering jobless 2,300 employees. It then,
prayed that judgment be rendered "making the injunction
permanent" and that petitioner be adjudged liable to SIM for
14
damages.
Immediately, or on June 14, 1985, to be precise, 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 SIM's plant at Agusan del
Norte, "as well as its other mortgaged properties, until plaintiffs'
motion could be heard on June 21, 1985." In the same order the
court directed DBP to file its comment on or opposition to
15
plaintiffs' motion to admit supplemental complaint.
The DBP opposed the admission of the supplemental complaint;
alleging primarily "that the subject matter of the supplemental
complaint is not a proper subject to be heard in the instant
16
case." Explaining that it "merely exercised 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". It added that the cause of action in the
original complaint could not he joined with that alleged in the
supplemental complaint "pursuant to the provisions of Sec. 5 of
17
Rule 2 of the Rules of a Court."
On August 20, 1985, the trial court issued an Order admitting
18
the supplemental complaint; stating thus;
Considering that the Supreme Court of the Philippines
has implicitly recognized the propriety of admitting a
supplemental pleading although the causes therein
mentioned are not in any way relevant and material to
the action originally pleaded as a means of serving
"the ends of a speedy administration of justice or a
prompt dispatch of cases" (De la Rama Steamship Co.,
Inc. v. National Development Co., 6 SCRA 775, 781);
that the provisions of the Rules on joinder of causes of
action should be liberally construed to avoid
multiplicity of suits and to expedite the disposition of
litigation at minimum cost (Francisco on Rules of
Court, 1973 Ed., Vol. I, p. 186, citing cases &
authorities);that the Supreme Court has likewise
recognized an exception to the general rule that it is a
prerequisite to the joinder of causes of action that all
the causes must affect all the parties to the action
(Sapalico vs. Calpe, et. al., 41 Phil 850, cited in
Francisco, supra, p. 187); that cognizance of the cause
pleaded in plaintiffs supplemental pleading will not by
itself cause prejudice to the other parties inasmuch as
certain specific procedural measures in the course of
the proceedings could be adopted and imposed by the

Court to obviate not only inconvenience on the part of


the parties but more importantly confusion of the
material issues in controversy; and that the filing of
the supplemental pleading with this Court is not
violative of the rules on venue considering that the
subject of the action refers essentially to the propriety
of the right of defendant Development Bank of the
Philippines to foreclose and the legality of certain acts
done or about to be perpetrated by the said
defendants anterior to and as incidents of the exercise
of such right to foreclose, and not the actual
foreclosure of the mortgaged propertied located in
Mindanao;
This Court finds no cogent grounds to deny the
admission of plaintiffs' Supplemental Complaint.
xxx

xxx

xxx

The DBP questioned the said Order before the Court of Appeals
19
via a petition for certiorari dated November 19, 1985.
20

On February 18, 1987, the Court of Appeals declared the


assailed Order as null and void, dismissed the supplemental
complaint and lifted the preliminary injunction issued by the trial
court. It held that the trial court gravely abused its discretion in
issuing subject Order for two reasons: First, the admission of the
supplemental complaint violated the rule on venue, specifically
Sec. 2 (a), Rule 4 of the Rules of Court. The supplemental
complaint was filed when DBP had already initiated foreclosure
proceedings and therefore while the supplemental complaint
appeared to be a personal action, in reality it was a real action
seeking "a ruling on the legality of (DBP's) foreclosure action."
21
Citing Lizares v. Caluag, the Court of Appeals held that venue
was improperly laid. Second, a supplemental complaint should
strengthen or reinforce the cause of action or defense in the
original complaint for it is meant to "supply deficiencies in aid of
one original pleading, not to entirely substitute the latter." The
supplemental complaint, however, has a subject matter "distinct
and different from each other." The cause of action in the
original complaint arose from the mortgage contract executed
by Galleon while that in the supplemental complaint arose from
the mortgage contract "executed by principal obligors (firm)."
The Court of Appeals also held that the trial court gravely,
abused its discretion in directing the parties "to maintain the
status quo ante, litem" as it would restrain the DBP from
exercising its right to foreclose the mortgage in accordance with
P.D. No. 385. Section 2 of said decree specifically enjoins courts
from issuing permanent injunctions against any government
financial institution that seeks foreclosure of mortgage unless
after hearing it is proven that after the filing of the foreclosure
proceedings, the borrower had paid twenty percent (20%) of the
outstanding arrearages. The status quo order also violated Sec.
5, Rule 58 of the Rules of Court, as amended by B.P. Blg. 224,
limiting the period of a restraining order to only twenty (20)
days from the date of its issuance, as well as Circular No. 13
dated May 17, 1984 of this Court enjoining Justices and Judges
22
to observe strictly said provisions of law.
However, upon motion for reconsideration, the Court of Appeals
reversed its aforesaid Decision. In its Resolution dated August
25, 1987, the appellate court said:
There is a difference between an action for foreclosure
of mortgage, and an action to stop the foreclosure of
meikimouse

CIVIL PROCEDURE

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


said mortgage, because the former is a real action and,
therefore, venue is governed by Section 2-(a) of Rule 4
of the Rules of Court; while the latter is definitely a
personal action which is governed by Section 2-(b) of
said rule.
A personal action is one for the recovery of personal
property, the enforcement of a contract or damages
for its breach, or for damages for injury to person or
property (1 C.J.S. 948). In a real action, the plaintiff
seeks the recovery of real property, or, as indicated in
Section 2(a) of Rule 4, it is an action affecting title to
real property or for the recovery of possession, or for
partition or condemnation of, or foreclosure of a
mortgage on, real property (Hernandez vs. Rural Bank
of Lucena, Inc., 81 SCRA 75, 84).
The case of Lizares, Inc. v. Caluag (4 SCRA 746) cited by
petitioner in support of its claim that venue was
improperly laid is clearly not applicable since said case
involves "Cacnio's title to the real property adverted
to" and involved his retention of possession of said
property, while in the case at bar, there is no dispute
as to the title of the properties therein. What is in
issue is the right of petitioner to foreclose, and this
involves a personal action.
xxx

xxx

xxx

At any rate, the original and amended complaint filed


by private respondent Sta. Ines (SIM) against
petitioner with the Regional Trial Court of Makati,
Branch 148, in Civil Case No. 10387, with prayer for
the issuance of a writ of preliminary injunction has for
its purpose to declare private respondents not liable as
co-makers to petitioner in view of LOI No. 1155, and to
defeat petitioner's right to sue respondents for a
deficiency claim. On May 15, 1985, said Court acting
on the petition for the issuance of a writ preliminary
injunction, issued said writ restraining petitioner

. . . to refrain from interfering with the


possession, management and administration
of respondents' mortgaged assets.
xxx

xxx

23

On the alleged error of the court a quo in directing the parties to


maintain the status quo ante litem, the Court of Appeals agreed
with therein private respondents that in raising the issue of
equity, the DBP did so with "dirty hands" because it had invoked
the jurisdiction of the trial court to stop SIM from moving out
any item from the plant site and it had agreed with private
respondents in open court that the status quo ante litem should
be maintained. The Court of Appeals considered as an
"important issue" the fact that the DBP had ceased to be the
real party-in-interest by the transfer of SIM's account to the APT.
It noted the PCGG's letter to the DBP emphasizing that it was
necessary to keep SIM operational because as "a surrendered
asset with millions worth of valuable equipment," a foreclosure
would mean its closure, the loss of jobs and the eventual
destruction of equipment by vandals. The Court of Appeals
added that the PCGG cannot allow the foreclosure of SIM
because of its policy that foreclosure is allowed only if "there is
no pending litigation or controversy regarding either the asset or
the loan transaction which may adversely affect the foreclosure
of the sequestered asset."
The DBP presented a motion for the reconsideration of the
Resolution of August 25, 1987 but on November 25, 1987, the
Court of Appeals denied the same for lack of merit.
Undaunted, DBP has come to this Court via the instant petition
for review on certiorari where petitioner DBP (now the APT)
contends that:
THE HONORABLE COURT OF APPEALS ERRED IN
ADMITTING THE SUPPLEMENTAL COMPLAINT IT BEING
VIOLATIVE OF THE
A) RULE ON VENUE OF REAL ACTION (Rule 4,
Sec. 2-A, Revised Rules of Court)

. . . from pursuing any other deficiency


claims or any other claim of any nature,
whether judicial or extrajudicial, arising out
of, bred by or incident to the transaction
covered by the complaint, except on
counterclaim.
In spite of said injunction, on June 3, 1985 petitioner
posted guards at the Magallanes Plant of private
respondent SIM to immobilize private respondent,
thereby causing panic on the suppliers of SIM. The
need, therefore, for a declaration that the petitioner
could not yet foreclose on the mortgage and for an
imposition of damages, necessitated the filing on June
13, 1985 of a Motion to Admit Supplemental
Complaint with application for issuance of restraining
order or preliminary injunction. Private respondent
SIM questioned the right of petitioner to take
possession of its mortgaged properties and assets and
to foreclose the same. On June 14, 1985, the
respondent Judge issued a restraining order directing
petitioner. (sic)

xxx

B) RULE ON JOINDER OF CAUSES OF ACTION


(Rule 2, Sec. 5, Revised Rules of Court)
C) RULE ON MATTERS SUBJECT OF
SUPPLEMENTAL PLEADINGS (Rule 10, Sec. 8,
Revised Rules of Court)
II
THE HONORABLE COURT OF APPEALS ERRED IN
UPHOLDING THE LOWER COURT'S ISSUANCE OF A
RESTRAINING ORDER/PRELIMINARY INJUNCTION
WHICH IS CONTRARY TO LAW.
III
THE HONORABLE COURT OF APPEALS ERRED IN
CONSIDERING THAT THE TRANSFER OF THE STA. INES
MELALE ACCOUNT FROM DBP TO ASSETS
PRIVATIZATION TRUST WARRANTS DISMISSAL OF THE
PETITION.

meikimouse

CIVIL PROCEDURE

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


The petition is impressed with merit.
At the time the supplemental complaint was filed in Civil Case
No. 10387, the pertinent provision of Rule 10 of the Rules of
Court provided:
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 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,
24
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
25
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
26
issues to be tried in the action.
27

In Leobrera v. Court of Appeals the Court ruled that when the


cause of action stated in the supplemental complaint is different
from the cause of action mentioned in the original complaint,
the court should not admit the supplemental complaint. In that
case, the Bank of the Philippine Islands (BPI) granted Carlos
Leobrera an P800,000.00 credit facility that was secured by two
(2) real estate mortgages. The credit facility was later converted
into "a revolving promissory note line" the last of which was
renewed on March 21, 1986 through two (2) ninety-day
promissory notes. Upon maturity of the notes, Leobrera and BPI
negotiated for renewal thereof but they failed to agree.
Consequently, BPI demanded full payment 90-day loans.
Because Leobrera failed to pay the loans, BPI prepared to
foreclose the mortgages. However, before BPI could institute
the foreclosure proceedings, Leobrera filed a complaint for
damages with a prayer for the issuance of a writ of preliminary
injunction to enjoin BPI from foreclosing the mortgages. The trial
court issued the writ applied for.
It appeared, however, that apart from the P800,000.00 credit
facility, BPI also granted Leobrera a three-year term loan of
P500,000.00 secured by a real estate mortgage. After Leobrera
had defaulted in his amortization payments, BPI called the entire
loan due and demandable. Leobrera failed to pay but before BPI
could foreclose the mortgage, Leobrera filed with the trial court
a "Motion to File Supplemental Complaint" with the
supplemental complaint attached thereto. The trial court
granted Leobrera's motion but the Court of Appeals nullified
that order of the trial court. Leobrera thus filed a petition for
review on certiorari with this Court which, in due course, denied
Leobrera's petition; this Court ratiocinating:
As to the supplemental complaint, what likewise
militates against its admission is the fact that the
matters involved therein are entirely different from
the causes of action mentioned in the original
complaint.
A supplemental complaint should, as the name
implies, supply only deficiencies in aid of an original
complaint [British Traders Insurance Company v.
Commissioner of Internal Revenue, G.R. No. L-20501,

April 30, 1965, 13 SCRA 728]. It should contain only


causes of action relevant and material to the plaintiffs
right and which help or aid the plaintiffs right or
defense [De la Rama Steamship Co., Inc. v. National
Development Company, G.R. No. L-15659, November
30, 1962, 6 SCRA 775]. The supplemental complaint
must be based on matters arising subsequent to the
original complaint related to the claim or defense
presented therein, and founded on the same cause of
action. It cannot be used to try a new matter or a new
cause of action [See Randolphi v. Missouri-KansasTexas R. Co., D.C. Mo. 1948, 78 F. Supp. 727,
Berssenbrugge v. Luce Mfg. Co., D.C. Mo. 1939, 30 F.
Supp. 101.]
While petitioner would persuade this Court that the
causes of action are interrelated, the record reveals
otherwise. The record shows that petitioner's main
cause of action in the original complaint filed in Civil
Case No. 15644 concerned BPI's threat to foreclose
two real estate mortgages securing the two 90-day
promissory notes executed by petitioner in 1986.
Petitioner alleges that this threatened foreclosure
violated the terms of the 1980 amicable settlement
between BPI and petitioner.
The supplemental complaint on the other hand alleged
facts of harassment committed by BPI in unreasonably
opting to declare petitioner in default and in
demanding full liquidation of the 1985 three-year term
loan. This three-year term loan, as previously
mentioned, was entirely distinct and separate from
the two promissory notes. It was independent of the
1980 amicable settlement between petitioner and BPI
which gave rise to the credit facility subject of the
original complaint. Although there is identity in the
remedies asked for in the original and supplemental
complaints, i.e., injunction, petitioner's subsequent
cause of action giving rise to the claim for damages in
the supplemental complaint is unrelated to the
amicable settlement which brought about the grant of
the credit facilities, the breach of which settlement is
alleged to be the basis of the original complaint.
Petitioner himself in his supplemental complaint
admits this. . . .
xxx

xxx

xxx

The two causes of action being, entirely, different, the


latter one could not be successfully pleaded by
28
supplemental complaint.
The facts of the Leobrera cases are not very different from those
in the case under scrutiny. However, private respondent SIM
attempts to impress upon the Court that the facts alleged in the
original complaint are connected with those in the supplemental
complaint because the DBP's act of initiating foreclosure
proceedings as regards the mortgaged plant in Agusan del Sur
was in violation of the May 15, 1985 writ of preliminary
injunction. Nevertheless, 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.1wphi1.nt
A cause of action is the fact or combination of facts which
affords a party a right to judicial interference in his behalf. It is
meikimouse

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


the reason why the litigation has come about; it is the act or
omission of defendant resulting in the violation of someone's
right. Its existence is determined upon consideration of the
29
statements or allegations in the complaint.
In the original complaint in Civil Case No. 103871 what private
respondents sought to prevent by their prayer for an injunction
was the DBP's intention to go after private respondents for the
deficiency of P2,700,960,412.60 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 DBP's initial act of posing
security guards in SIM's 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 in Civil Case No. 10387. The supplemental complaint,
however, states a fact that is entirely distinct from those in the
original complaint. It alleges that the DBP's taking over the
Agusan del Sur plant of SIM could not have been, in pursuance
of any agreement between SIM and the DBP because the
mortgaged dated November 8, 1984 that was entered into
between those parties "does not provide extrajudicial and
forcible taking over of the mortgaged properties by defendant
30
DBP." Although the thrust of the allegations in the
supplemental complaint was to create a connection or relation
between it and the original complaint, the same allegations
reveal the fact that its filing was impelled by the imminence of
the foreclosure of the November 8, 1984 mortgage, that is
different from and outside of the subject matter of the
complaint.
Furthermore, if the supplemental complaint "assumes the
original pleading to stand," then there was no pint in naming
only the SIM as the plaintiff in the supplemental complaint. That
fact only proves that the other plaintiffs in the original
complaint, namely, Cuenca and Tinio, have no cause of action
against the DBP in the supplemental complaint as it is in reality
based on an different subject matter.
Granting that SIM's purpose in filing the supplemental complaint
was to effect a joinder of causes of action to avoid multiplicity of
suits, it must fail just the same. The Rules of Court provide that
causes of action may be joined provided that they arise out of
the same contract, transaction or relation between the parties
or are for demands for money or are of the same nature and
31
32
character. In Republic v. Hernandez, the Court held:
The statutory intent behind the provisions on joinder
of causes of action is to encourage joinder of actions
which could reasonably be said to involve kindred
rights and wrongs, although the courts have not
succeeded in giving a standard definition of the terms
used or in developing a rule of universal application.
The dominant idea is to permit joinder of causes of
action, legal or equitable, where there is some
substantial unity between them. While the rule allows
a plaintiff to join as many separate claims as he may
have, there should nevertheless be some unity in the
problems presented and a common question of law
and fact involved, subject always to the restriction
thereon regarding jurisdiction, venue and joinder of
parties. Unlimited joinder is not authorized
In this case, hardly do the original and supplemental complaints
meet the required test of "unity in the problem presented" and
"a common question of law and fact involved" as regards
jurisdiction venue and joinder of parties. The ultimate problem

CIVIL PROCEDURE

in the original complaint as far as private respondents are


concerned is how to prevent the DBP from pursuing the amount
of deficiency after an extrajudicial foreclosure sale of the
mortgaged vessels. In the supplemental complaint, what private
respondent SIM seeks to preempt is the foreclosure of the
mortgage of its Agusan del Sur plant.
As regards the issues of jurisdiction and venue, the original
complaint clearly presents a personal action between the parties
as it aims for a declaration of nonliability of private respondents
under the contracts wherein they are solidarily liable with
Galleon. A personal action is one brought for the recovery of
personal property or for the enforcement of some contract or
for the recovery of damages for its breach, or the recovery of
damages for the commission of an injury to the person or
33
property. Hence, it was properly filed with the RTC of Makati in
34
accordance with Sec. 2(b) of Rule 4 of the Rules of Court.
On the other hand, the supplemental complaint is actually a real
action as it was filed for the "specific recovery of land,
35
tenements, or hereditaments." Notably, private respondent
SIM prays in the supplemental complaint that the DBP be
declared as not entitled to foreclose the mortgage dated
November 8, 1984 and that the DBP be ordered to restructure
SIM's indebtedness. A declaration that the said mortgage should
not be foreclosed involves a determination of the validity of the
mortgage even though its subject mater, a real property, is
located in Agusan del Sur and not in Makati. Although the
supplemental complaint was so crafted that a cursory perusal
thereof would create the impression that it is a personal action,
the fact that is actually a real action, notwithstanding the claim
for damages, may be gleaned from its prayer:
WHEREFORE, it is most respectfully prayed that, after
hearing on the merits, judgment be rendered:
1. Making the injunction permanent;
2. Declaring that the defendant DBP is not
entitled to foreclose the mortgage under the
Deed of Mortgage;
3. Ordering defendant DBP to restructure
the indebtedness of plaintiff SIM to
defendant DBP;
4. Sentencing the defendant DBP to pay to
plaintiff SIM the following items of damages

a) actual and consequential


damages of not less that P21M;
b) moral damages of not less than
P1M;
c) exemplary damages of not less
than P1M;
d) 25% of whatever may be
recovered by plaintiff SIM from
defendant DBP as attorney's fees;
e) costs of suit;
meikimouse

CIVIL PROCEDURE

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


5. Granting to the plaintiff SIM such further
and other reliefs to which it may be entitled
in law and in equity.

the court issues a writ of possession upon


the mortgage putting up the corresponding
bond and after hearing the mortgagor, which
situations has not yet arisen in the case at
bar;

Should the prayer for a permanent injunction be considered in


connection with the writ of injunction that enjoined the DBP
from "pursuing any other deficiency claims or any other claim of
any nature, whether judicial or extrajudicial, arising out of, bred
by or incident to the transactions covered by the complaint,"
then SIM's primordial aim in filing the supplemental complaint is
to, end DBP's continued possession of the Agusan del Sur plant.
That would of course mean that the court had to deal with a
transaction that is not "covered by the (original) complaint" as
the November 8, 1984 mortgage is not alleged therein.
Moreover, upon admission of the supplemental complaint, the
Makati court would have to enforce the writ of injunction in
Agusan del Sur.

e) The plaintiff SIM has been required by


defendant DBP to secure additional logging
concessions to supplement its forest
resources as a basic condition to restructure
its loan, with assurance by defendant DBP
that said loan would be restructured, and
plaintiff has acquired Basey Wood Industries,
Inc. from a P20M loan extended by Far East
Bank & Trust Co. with a current floating rate
of interest, and this investment stands to be
lost totally by the plaintiff;

As regards the prayer that the DBP be declared as "not entitled


to foreclose" the November 8, 1984 mortgage that private
respondent SIM admitted it had entered into with the DBP, it
might as well be read as a prayer for the setting aside of the
provisions of said mortgage, if not its nullification, in light of the
following allegations in the supplemental complaint:

f) The defendant DBP is imposing surcharges,


penalties,
and
exorbitant
and
unconscionable rates of interest in spite of
the fact that plaintiff SIM is prevented by
fortuitous event from complying therewith,
such as, but not limited to the default of the
Republic of the Philippines in the payment of
its worl (sic) loan, which has produced
serious
repercussions
and
legal
complications to plaintiff SIM;

VII
The only instrument signed by the plaintiff SIM in favor
of the defendant DBP is a mortgage dated November
8, 1984, which does not provide extrajudicial and
forcible taking over of the mortgaged properties by
defendant DBP, a copy of which is hereto attached as
Annex "C" and made an integral part hereof;

g) The said impositions are not warranted by


any promissory note or mortgage;
h) The said taking over of possession and
foreclosure would paralyze the business
operation of the plaintiff SIM, since the
plaintiff is prevented from bringing out any
property or equipment;

VIII
The forcible and extrajudicial taking over possession of
the Magallanes plant of the plaintiff SIM is null and
void ab initio and unlawful, considering inter alia:

i) This will also panic creditors and suppliers


of plaintiff SIM, and invite several judicial or
extrajudicial actions to take over the assets
of the company;

a) There is no written contract,


authorization,
deed
or
instrument
authorizing defendant DBP to extrajudicially
possess and take over the said plant;

j) The said acts will also result in legal and


commercial complications with the foreign
buyers of the plaintiff SIM, who have made
cash advances for products to be produced
and delivered to them by plaintiff SIM;

b) The forcible taking over of the said plant


by the defendant DBP constitutes a pactum
commissoriumfor it amounts to an
appropriation by defendant DBP of the
mortgaged
properties
without
any
foreclosure thereof;

k) The disruption of the operation of the


plant would result in rendering jobless 2,300
employees of the plaintiff SIM, and in the
looting of company properties, theft and/or
destruction of its assets, etc.;

c) The said extrajudicial taking over of


possession also constitute a disobedience of
the writ of preliminary injunction issued by
this Honorable Court;

xxx

d) Defendant DBP can not immediately take


over possession without any writ of
possession being issued by any court under
Act 3135, as amended by Act 4118, because
even after the foreclosure of the mortgagee,
the mortgagor is still entitled to retain
possession within one year from the
registration of the certificate of sale, unless

In short, while private respondent SIM admits that it had


entered into a mortgage contract with DBP involving the Agusan
del Sur plant, SIM denies that the contract has a power of
attorney authorizing the DBP to take possession of the Agusan
del Sur plant. In the same breadth, it asserts that the DBP's
"taking over" of possession of the plant, apparently in pursuance
of the mortgage contract, would irretrievably damage the plant's
operation and that such occurrence would warrant a declaration

xxx

xxx

36

meikimouse

Full Text Cases: Rule 10 Amended & Supplemental Pleadings


that the DBP "is not entitled to foreclose the mortgage."
Notably, the supplemental complaint cleverly intertwines the
issue of the validity of the mortgage of November 8, 1984 with
the enforcement of the preliminary injunction issued in Civil
Case No. 10387 that prevented the DBP's pursuit of the
deficiency resulting from the foreclosure sale in June 1984.
However, such ingenious attempt may not efface the fact that
the ultimate goal of the supplemental complaint is two-pronged:
(a) to retake possession of the plant, and (b) to abrogate the
provisions of the mortgage contract or to nullify it, for its own
survival. A prayer for the nullification of the mortgage is a prayer
affecting real property and hence, it is a real action. Verily, as
this Court held in Fortune Motors (Phils.), Inc. v. Court of
Appeals, a motion to dismiss an action filed in Manila to annul
an extrajudicial foreclosure sale of real property located in
Makati on the ground of improper venue should be granted as
37
the action was a real action affecting real property. Hence, the
supplemental complaint should have been filed as a separate
action in Agusan del Sur in accordance with the following
provision of Rule 4 of the Rules of Court:
Sec. 2. Venue in Courts of First Instance (now Regional
Trial Courts). Actions affecting title to, or for
recovery of possession, or for partition or
condemnation of, or foreclosure of mortgage on, real
property, shall be commenced and tried in the
province where the property or any part thereof lies.
xxx

xxx

xxx

The trial court also incorrectly relied upon the ruling in De la


Rama Steamship Co., Inc. v. National Development
38
Company. In its Order of August 20, 1985, the trial court stated
that in the De la Rama case, this Court "implicitly recognized the
propriety of admitting a supplemental pleading although the
causes therein mentioned are not in any way relevant and
material to the action originally pleaded as a means of serving
"the ends of speedy administration of justice or a prompt
39
dispatch of cases.'" The De la Rama ruling should be
understood in its proper context. In that case, the original action
and the supplemental pleading stemmed from one and the same
contract. i.e., the management agreement dated October 26,
1949 between De la Rama Steamship Co. and the NDC. Thus, the
joinder of causes of action would still have been in accord with
the Rules. Since the supplemental pleading was filed after the
original action was decided, this Court ordered that it "be
enrolled in the court below as a new action." There is thus a
marked difference between the facts of the case at bar and
those obtaining in De la Rama.

CIVIL PROCEDURE

order is merely an ancillary process to an action owing its


existence entirely and exclusively from the latter. It cannot
44
survive the main case which it was but an incident."
It should he stressed, moreover, that P.D. 385 should only be
invoked after the factual basis for its application has been laid
through the presentation of evidence in a trial on the merits. It
45
cannot be applied automatically. It is noteworthy, too, that the
TRO was issued on June 14, 1985, the same day the motion to
admit the supplemental pleading was filed, while the directive to
maintain the status quo ante litem was incorporated in the order
of August 20, 1985 or more than two (2) months after the
issuance of the restraining order. By force of law, the TRO
expired on the 20th day after notice of the June 14, 1985 TRO. It
is evident therefore that respondent judge acted with grave
abuse of discretion in extending the lifetime of the restraining
order that had in the meantime expired, by issuing another
order in violation of B.P. Blg. 224. As such, the second order of
August 20, 1985 as far as it ordered the return to the status quo
46
ante litem is concerned, is a "patent nullity" because the 2047
day lifetime of a restraining order is non-extendible. The court
is without discretion to extend such period considering the
48
mandatory tenor of the Rule.
On the issue of whether or not the transfer of private
respondent SIM's assets to APT warrants the dismissal of this
petition, the Court of Appeals erred in holding that petitioner
which should pursue the claim against SIM is no longer the real
party-in-interest
and
therefore,
the
instant
case
49
for certiorari should be dismissed. Transfer of interest from
litigant to another person or entity is a reason for substitution of
the former in a case. It is not a ground for dismissal of the case
50
or petition. Thus, in the Resolution of March 26, 1990, this
Court ordered the substitution of the original petitioner by Asset
Privatization Trust "pursuant to Sec. 20, Rule 3 of the Rules of
51
Court," now Sec. 19 of Rule 3 of the 1997 Rules of Civil
Procedure.1wphi1.nt
WHEREFORE, the Resolutions of August 25, 1987 and November
25, 1987 of the Court of Appeals are SET ASIDE and the Decision
of February 18, 1987 of the same appellate court is REINSTATED
and AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Multiplicity of suits should be avoided if the filing of a separate


and independent action to recover a claim would entail proving
40
exactly the same claim in an existing action. It can not
however, be avoided when the cause of action in the two
complaints are distinct and separate from each other.
With respect to the validity of the restraining order, issued on
June 14, 1985 and the trial court's directive enjoining the parties
to maintain the status quo ante litem, petitioner contends that
41
these are contrary to P.D. 385 and Sec. 5, Rule 59 of the Rules
42
of Court, as amended by B.P. Blg. 224, as well as this Court's
43
Circular No. 13 dated May 17, 1984.
That issue has been mooted by the invalidity of the order
admitting the supplemental complaint. "A temporary restraining

meikimouse