GR No. 120384 / 13 Jan 2004 / J.

Austria-Martinez
Topic:

Amended/ supplemental pleadings Rule 10; Rule 1.5

Summary:
Petitioners who are gurantors of respondents filed a case when the
guarantees were called. Respondent raised as affirmative defense
failure to state cause of action, but trial still ensued. When the
petitioners already presented evidence that clearly states a cause of
action, respondents failed to object, but the motion to amend the
pleadings was denied and the case was dismissed. SC held that
respondents needed to raise an objection at the time the evidence was
presented, and failure to do so would make amendment proper under
Rule 10.5.
FACTS
In 1986, Philippine Export and Foreign Loan Guarantee Corp (Phil Export) filed
a complaint in the RTC for a sum of money against respondents Philippine
Infrastructures Inc. (PII), Philippine British Assurance Co., Inc. (PBAC), The
Solid Guaranty (Solid), B.F. Homes, Inc. (BF Homes) and Tomas B. Aguirre
(Aguirre). It alleged:
It issued five letters of guaranty in favor of PNB for credit

accommodations given by the latter to PII

All the respondents executed a Deed of Undertaking binding

themselves severally to reimburse petitioner any damage it may suffer

on account of the guaranty
PBAC and Solid issued surety and performance bonds in favor of Phil

Export as security for prompt payment by PII

PNB called on the guaranty.

Phil Export demanded the settlement of P20+ million from PII, the

aggregate amount of the guarantees and P350k representing various

fees and charges.
PII refused to pay. Solid and PBAC also refused.

BF Homes filed a motion to dismiss, on the ground of lack of jurisdiction of

the trial court, since it is undergoing rehabilitation and receivership in the
SEC.
PII filed a motion to dismiss on the ground that the complaint states no
cause of action as it does not allege any loss or penalty suffered by Phil
Export because of the guarantees it extended in favor of PII.
The RTC Judge Lagman issued an order suspending the case as against BF
Homes and denying PII's motion. Thus, hearing on the merits ensued.
In 1992, Phil Export presented its treasury department manager Rosauro
Termulo who testified that the amount of about P19 million was remitted to

PNB to cover the principal loan and interests guaranteed by petitioner

through the account of the National Treasury. It filed a motion to amend
complaint to conform to evidence pursuant to Sec. 5 Rule 10, seeking to
amend Par. 17 and the pertinent portion in the complaint. It added the
paragraph that it paid the PNB.
The RTC Judge Dela Rosa (who then presided), acting on the motion,
dismissed the case without prejudice for failure of the complaint to state
a cause of action. MR was denied.
Petition for review on certiorari was filed before the SC, but the case was
referred to the CA. The CA dismissed the petition and upheld the RTC order
dismissing the case. It said that:
The proper remedy is appeal, because an order of dismissal is a final

order.
The amendment was not to make the complaint conform to the

evidence presented but rather to introduce a cause of action then nonexisting when the complaint was filed, which was prohibited.
MR was denied. Petition for review on certiorari to the SC.
ISSUE
W/N appeal is the proper remedy for an order dismissing a case without
prejudice. (Under the 1997 rules, NO)
W/N the amendment sought by petitioner can be allowed. YES
SC REVERSED CA, remanded case to trial court.
RATIO
1 No appeal may be taken from an order dismissing an action without
prejudice under Sec. 1(h) of Rule 41. Thus a rule 65 petition for certiorari
is the proper remedy under the 1997 Rules, although admittedly the CA
promulgated the decision in 1994. Thus it was correct, but the SC still
resolved the case in the interest of substantial justice and because
procedural rules should be applied retroactively.
1

None of the respondents denied petitioner's claim that said evidence

was presented before the trial court without objections having been
raised by respondents. None of them claimed they raised any objections
at the time when petitioner presented its evidence to prove its payment
to PNB.
Even if they had already alleged failure to state a cause of action as an
affirmative defense in their answer, respondents needed to raise an
objection at the time evidence was introduced. Failure to do so is fatal
to their cause.
Even if the complaint is defective, but the parties go to trial thereon, and
the plaintiff without objection introduces sufficient evidence to
constitute the particular cause of action which it intended to allege in

the original complaint, and the defendant voluntarily produces witnesses

to meet the cause of action thus established, an issue is joined as fully
and as effectively as if it had been previously joined by the most perfect
pleadings. (Bernardo Sr. v. Court of Appeals)
The cause of action also arose out of the deed of undertaking executed
by the respondents. There they bound themselves jointly and severally
to keep the obligee free and harmless from any damage or
liability which may arise out of the issuance of the guarantee
referred to in the first 'whereas' clause, showing that the Deed of
Undertaking is actually an indemnity against liability. In a contract of
indemnity against liability, the indemnitor's liability arises as soon as the
liability of the person has arisen without regard to whether or not he has
suffered loss.
Thus, the present suit is not immature, even if there was no action yet
by PNB to go against Phil Export at the time the complaint was filed. The
inclusion in petitioner's original complaint that PNB had called on the
guaranty of Phil Export is sufficient to constitute a cause of action
against respondents.