G. R. No. L-7452. December 23, 1957

This is an appeal from  an order of the Court of First Instance of Capizj dated September 18, 1953, dismissing the complaint filed in  the above-entitled case,  and from another  order,  dated November  14,  1953,  denying  this motion  for reconsideration of the order of dismissal as well as  the admission of an  amended complaint,  but authorizing plaintiff Jose A.  Arches to file a separate action against  William  Villarruz for the  collection of the sums of money mentioned  in the complaint.

Plaintiff filed his  complaint under Act No. 3688.  He alleged therein that William Villarruz entered into a contract with  the  Government  of  the  Philippines  for  the construction of  Ivisan  Bridge  and  Approaches,  Capiz- Iloilo Road, Project  No. PR-48  (1); that as required by law, William Villarruz together  with the  Visayan Surety & Insurance Corporation executed a surety bond whereby they agreed jointly  and severally to pay 1*16,871, Philippine  currency, in favor  of  the  government  of  the Philippines and to  “any  individual,  firm, partnership, corporation,  or  association supplying the contractor  and principal,  William  Villarruz, with labor and materials which may be used  in the  construction of  said bridge”; that “defendant contractor William Villarruz, as principal, on  various  times and on  various  occasions  prior thereto had obtained money from the  plaintiff  Jose  A.  Arches and paid  for  labor and  materials  to  help finance  the construction and completion of his specific contract work with the Government, Project No. PR-48 (1)  Ivisan Bridge and Approaches, Capiz-IIoilo Road, as follows: 

a. To principal of promissory note, dated July 16, 1950, in the sum of	P8,400.00
To interest on the same from July 16, 1950, at the rate of 10% per annum, to this date, January 16, 1952, or	1,260.00
b. To principal of promissory note, dated December 4, 1950, in the sum of	1,397.00
To interest on the same from December 4, 1950, at the rate of 10% per annum, to this date, January 4, 1952, or	160.00
c. To principal of promissory note, dated January 16, 1951, in the sum of	1,092.00
To interest on the same from January 16, 1951, at the rate of 10% per annum to this date, January 16, 1952, or	109.00
d. To principal of promissory note, dated February 19, 1951, in the sum of	645.00
To interest on the same from February 19, 1951, at the rate of 10% per annum, to this date, January 19, 1952, or	55.00
e. To principal of promissory note dated April 19, 1951, in the sum of	1,300.00
To interest on the same from April 19, 1951, at the rate of 10% per annum, to this date, January 19, 1952, or	96.00
	__________
Total.	P14.504.00
f. To allowances of 10%, as attorneys’ fees against the defendant-contractor agreed to on said promissory notes, or	Pl,450.00
g. To allowances of 10%, as liquidated damages in favor of plaintiff agreed to on said promissory notes, or	1,450.00
	__________
Total amount duo as of January 19, 1952	P17,404.00

that William Villarruz failed to complete the construction of said project and on  March,  1951, the Government had to take over and  prosecute it until it “was terminated  on June 19,  1951;  that thereafter the  Director of  Public Works  instructed the  defendant  William  Villarruz,  as principal,  and  the Visayan Surety & Insurance Corporation,  as sureties,  to settle the  claims for materials and labor against them, on their surety bond; that on November 26, 1951,  the  Director  of Public  Works  authorized  the plaintiff Jose A.  Arches to institute a special civil action against  defendants  Villarruz  and his  surety, the Visayan Surety &  Insurance  Corporation, for the collection of the aforementioned promissory notes which had  become due and payable; and that despite repeated demands for payment made  on defendants  William  Villarruz  and  the Visayan  Surety & Insurance Corporation, they failed  and refused to pay said promissory notes.  Accordingly,  plaintiff prayed that “judgment be rendered in  his favor  and against  the  defendants,  ordering them to  jointly  and severally pay him the full amount of the sureties’ liability under their penal surety bond of P16,871.00 plus costs and such  other just and equitable relief that may be granted in favor of plaintiff.”

On March  18, 1952, defendant Villarruz filed his answer admitting  having received the  various  sums  of money mentioned  in the complaint, but alleging that those were usurious loans  as  the  interest charged thereon was 36% per annum or  3% per month.

On March 20, 1952, defendant  Visayan Surety  & Insurance  Corporation, in turn, filed its answer pleading two affirmative defenses:  (1)  that  plaintiff Jose A. Arches had no  right to present the  complaint  in  his own name in order to enforce the bond  Annex  “A”, and  (2)  that “the action  should  have been  filed  in  the name of the Government  of the Philippines  as provided  expressly in said  Act No. 3688 and that, granting the allegations of the complaint to be true,  they do not constitute a cause of action against  defendant Visayan  Surety  & Insurance Corporation, because, under the  bond, it is only liable for unpaid claims  in  favor of any  individual, firm,  partnership, corporation,  or association supplying the  contractor with labor or materials for the prosecution of the  work, and  as  the plaintiff had  advanced sums of money,  and not  labor  or materials, as so appears  in  the  complaint, plaintiff has no right to demand from this defendant the sums of money claimed in the complaint.”

When the case  was  called for hearing  on March 2, 1953, defendant Visayan Surety & Insurance Corporation, without  filing any  formal  motion to dismiss, invoked the provisions of  section  5, Rule  8 of the Rules  of  Court and petitioned the court that the  affirmative  defenses averred in its answer  be first  considered and  decided  in a  preliminary hearing.  The  court  granted the  petition and ordered  the  parties to  file  their respective  memoranda.   Thereafter, on September 18,  1953, the court  upheld  the  affirmative defenses  of  the  Visayan  Surety &. Insurance  Corporation and  dismissed the  complaint.

On October 24,  1953,  plaintiff filed a motion for  reconsideration  of  the order of dismissal,  praying” at  the same  time for the admission  of  an amended complaint, paragraphs 5, 6 and 7  of which are as follows:

“V—-That prior to July  16, 1950,  up  to  the date the Government took over  the   construction and  completion of  the  said  Project PR-48 (1)  in 1951 from defendant Villarruz, and in  consideration of, and  covered by,  the  said  Surety  Bond, Annex  ‘A’, plaintiff Jose A,  Arches supplied  defendant William Villarruz,  from  time to time as per requisitions,  with,  materials which  Villarruz  needed for, and actually used in, his  undertaking  or  construction  of the said Ivisan Bridge  and  Approaches, and that  the values  of  the said materials  supplied by  plaintiff Jose  A. Arches  to  defendant William Villarruz are accounted and  evidenced by the following promissory  notes the latter executed:

(1)  Promissory note  with collateral  security  for paymentf in the  amount of P8,400 dated July 16, 1950, at  10%  interest per  annum, and subject  to  10% fop  attorneys’  fees,  10% for liquidated damages,  and for court costs.

(2)  Promissory note in the amount  of Pl,397, dated December 4, 1950, at 10% interest per annum, and  subject to 10% for attorney’s  fees,  10%  for liquidated damages, and for  costs. (3) Promissory note  in the amount of Fl,092, dated January 16, 1951, at 10% per annum, and subject to 10%  for attorneys’ fees,  10%  for liquidated damages,  and for  costs. (4) Promissory note in the amount  of  Pl,300, dated April 19, 1951, at 10%j per annum, and subject to 10%  for attorneys’ fees, 10%  for liquidated damages,  and for  costs.

“VI—That  the foregoing promissory  notes,  Annexes ‘C,  ‘D’, ‘E’ and  ‘G’ were executed and  delivered  by  defendant  “William Viilarruz  to  plaintiff Jose  A.  Arches  long  after  the materials supplied  were requisitioned for,  delivered to, and used  in the  said Project PR-48  (1), because  the  accounting  of each group  of deliveries was  not made  immediately after the  delivery of materials supplied but one or more months thereafter, and that each promissory note  represents  two or more requisitionists  and deliveries  to the said project;

“VII—That on February  10, 1951,  for the purpose of collecting any  amount due, at that  time, to   defendant Villarruz, plaintiff Jose A. Arches filed a  claim, for   materials  supplied,  with the Director of Public Works in the amount of P12,000 vhieh was the rough estimate  of what  was then  owing from defendant Villarruz to  plaintiff J ose A. Arches  pending  a definite accounting of the same for the values  of  materials supplied.  A true copy of said claim for  P12,000,  made  and attached as  Annex ‘B’ of the com- plaint,  is made an integral part  of  this  Amended  Complaint  as Annex ‘B’.”

After  hearing,  the  motion  for  reconsideration  was denied, for not being well taken,  and  the  amended com- plaint rejected on  the ground that it changed completely the action  averred by the plaintiff in  the original  complaint by adopting a  completely  new  theory  on the  case. The lower court, however, modified the  order of dismissal by authorizing the plaintiff to file a separate action against William Villarruz  for the  collection of the  promissory notes mentioned in  the  complaint.   Thereupon,  plaintiff perfected his  record  on  appeal   and brought  the case  to this Court  on the  ground that the lower court  erred—

1. In finding that  it  was money,  and not labor and materials, that was supplied by the plaintiff-appellant to contractor William Villarruz in connection with,  the supply of labor and materials used in the construction  of the Ivisan Bridge and Approaches, Project Wo. 48  (1).
2. Assuming  arguendo, without  however  admitting, that it was rather money that was  supplied by the plaintiff-appellant to con- tractor  William  Villarruz, the  court  a quo erred in arriving  at the  conclusion that the  present claims of the  plaintiff-appellant for  the  payment  of  such  sums  so   advanced  are  not  covered and authorized  by and  under the provisions of  Act 3688, and cannot  therefore be  assessed against the  surety bond  filed by the  defendants-appellees  pursuant to such  construction  Project and Act.
3. In  arriving at the conclusion that the amended  complaint changes  the  theory of  the  plaintiff   and  is  made  to avoid the ejects of the order  of  this court wherein  we  stated  that the claim is  for certain amount  of  money  and  not for  materials’, and  ‘that  the  plaintiff  is  exerting  efforts to change the nature of the averments of his original complaint but the evidence supporting the claims is the same as the original, that is, the collection of promissory  notes representing  amounts of  money advanced to the defendant,
4.   In dismissing  the  complaint,  in disallowing the amended com- plaint, and in not holding a trial on  the merits to give opportunity to the plaintiff-appellant to  prove that he supplied materials, as he claims, to  contractor William Villarruz  in the construction of the Ivisan Bridge and Approaches.
5.   In arriving at the conclusion that the complaint should have been brought in  the name  of  the Government  of  the Philippines as party plaintiff.”

   Upon   careful  examination  of the briefs filed  by the parties, we find  that the decisive  question is reduced  to whether  or not the  order of dismissal  of the case  and the denial of the  motion for the  admission of the amended complaint were erroneous.

With regard  to defendant Villarruz, we find no justification for the dismissal of the case against him for, in his answer, he admitted having signed the promissory notes mentioned  in the complaint though he claims that  said promissory notes  represent loans with  usurious interest, and he failed  to  deny  plaintiff’s  allegation  that  he did not  pay  for  them.   In  view  of this answer, the lower court could not legally  dismiss  the case without  hearing and presentation  of evidence by  the  parties; it  should have proceeded on with its trial in accordance with  law.  And  because of  that answer, the  lower court  was not even  justified in  ordering  the plaintiff  to file a separate and  new complaint  for  it  will  necessarily  entail  new expenses  for docketing  and service  of  summons as  well as  require the  plaintiff to  rewrite the complaint,  all  of which could  have been  avoided by  proceeding with the trial of the case, the parties concerned having joined issues thereon.   Evidently,  the order  of  dismissal  with  regard to defendant Villarruz,  runs counter to the spirit of the Rules of   Court  which  should be  liberally  construed  in it order to assist the parties in obtaining speedy and in  expensive determination of any action or proceeding filed in court.

With  regard to the  order denying  the admission of the  amended  complaint, we find it  also  erroneous for, under Rule 17, “the court may, at any stage of an  action, permit a party to amend  any pleading, to the end that the  real  matter in dispute and all matters in the  action in  dispute  between the parties  may, as far  as  possible, be completely determined  in a  single  proceeding“; and altho, under this  rule, it was discretionary for the court to refuse or grant the  leave for the amendments  sought  for, yet, in the present case, we find that such judicial discretion should  have  been exercised favorably, so that the  true dispute  between the parties may be completely terminated in a single proceeding.  The lower court denied the  admission of the amended complaint  on the ground that the plaintiff therein has changed the action  alleged in the original complaint, but upon comparing the two complaints, we find that, essentially, there was no  change of action for,  in  both the original and the amended complaints, the action was for the  collection of  tha value of the  same  promissory notes  and the  only  difference between the original  and the amended complaints is with regard to the  consideration of said promissory notes, for while in the original complaint it was  alleged that these were executed by defendant  Villarruz for money obtained from plaintiff  Arches  and with which  the former paid for labor  and materials for the construction  and  completion  of  the Ivisan Bridge,  in the amended complaint it was  alleged that  said promissory  notes were executed for materials  supplied  to  William Villarruz and actually used  in the  construction of the  Ivisan  Bridge.   While the rule allowing amendments to a pleading  is  subject to the general limitation that the cause of action should not be  substantially  changed or that the theory  of the case should not be altered, in the furtherance of  justice, amendments to a pleading should be favored  and the rules thereon should be liberally construed.  In the present case, we find  justification for  allowing the  admission of the amended complaint in order that the real question between the parties may be properly  and justly threshed out,  in a single proceeding, and thus avoid multiplicity of actions.

Wherefore,  the  orders  appealed  from are  hereby  set aside and the ease remanded to the lower court for further proceedings upon previous admission of the amended com- plaint and the filing of the corresponding answers thereof by the defendants, without costs.

Paras,  C. J., Bengzon, Padilla,  Montemayor, Reyes,  A., Bautista Angelo, Labrador, Concepcion, Reyes, J. B, L., and Felix, JJ.,  concur.