GERMAN E. VILLANUEVA, DOING BUSINESS UNDER THE NAME AND STYLE OF VILTRA COMPANY, PLAINTIFF-APPELLEE, VS. NATIONAL MARKETING CORPORATION, DEFENDANT-APPELLANT.

This is an action for specific performance.  The contract sued upon was entered into on November 25, 1965 between the
National Marketing Corporation (NAMARCO) and Viltra
Company, a single proprietorship represented by the plaintiff German E.
Villanueva.  By its terms NAMARCO,
purportedly in implementation of its trade assistance program,
agreed to import and sell to VILTRA 10,000 metric tons of wire rod valued at
$1,320,000, in consideration of which VILTRA would pay the C & F value of
the shipment plus banking charges that NAMARCO might incur by reason of the
dollar require­ments of the importation, and a service fee equivalent to 2% of
such C & F value.  The buyer was to
negotiate directly with the foreign supplier, take charge of effect­ing the
shipment to the Philippines,
and assume all the expenses of loading and unloading.  The buyer furthermore agreed “to open an
irrevocable domestic letter of credit in favor of NAMARCO and/or assign
domestic letters of credit opened in favor of the BUYER TO NAMARCO which in
turn shall open an irrevocable (for­eign) letter of credit in favor of the
supplier.”

Thereafter the plaintiff negotiated with Tokyo Boeki, Ltd., of Tokyo, Japan,
to supply the wire rod importation provided for in the contract.  On its part NAMARCO,
through its General Manager, Jose D. Calderon, issued to its bank, the Pacific
Banking Corporation, a letter-authority to open an irrevocable letter of credit
up to the amount of $1,320,000 in favor of the Japanese supplier
aforementioned, covering the full in­voice value of 10,000 metric tons of wire
rod subject of the contract.  That
was on January 3, 1966.

On January 28, 1966
the Secretary of Commerce and Industry, Marcelo S. Balatbat,
who was concurrently the Chairman of the Board of NAMARCO, received a telegram
from Jose P. Marcelo asking that the contract with the plaintiff be
cancelled.  Balatbat
referred the telegram to Juvenal D. Almendras, then newly appointed General Manager of NAMARCO, for
“comment and appropriate action.” On February 11, 1966 Almendras
replied that the importa­tion was “duly covered by a perfected contract of
sale between the former management and Viltra
Company, executed on November 24,
1965, in view of which the corporation (NAMARCO) is duly committed
and has no alternative but to comply with its obligations per contract.”
Marcelo was duly informed of the recommendation.  NAMARCO, however, failed to comply
thereafter, particularly with its under­taking to open the irrevocable foreign
letter of credit agreed upon.  Hence this action.

The initial pleading filed by Villanueva was denominated as a
petition for mandamus to compel performance of the contract, with a prayer for
the issuance of a writ of preliminary (mandatory) injunction ordering the
Pacific Banking Corporation, also impleaded as
respondent, to immediately open the letter of credit in question.  An additional prayer was for actual, moral
and exemplary damages, attorney’s fees and expenses of litiga­tion, aggregating
in the alleged amount of P350,000.

On March 21, 1966 NAMARCO filed its answer, wherein it averred
two defenses, namely:  (1) that the con­tract
of sale was never perfected, since the petitioner had no legal capacity to
enter into it, not being qualified as an applicant for trade assistance under
section 7 of Administrative Order No. 16 of NAMARCO, dated August 31, 1965; and
(2) that the petitioner had not complied with the stipulation in the contract
that it would “open an irrevocable domestic letter of credit in favor of
NAMARCO and/or assign domestic letters of credit opened in favor of the BUYER
to NAMARCO…”

Apropos this second defense, it appears that in connection with a
motion for contempt filed by the peti­tioner against the Acting General Manager
and the Assistant General Manager of NAMARCO for failure to comply with the
writ of preliminary injunction issued by the Court, a hear­ing was held wherein
the petitioner presented documentary evidence, on the basis of which the Court,
in its order of March 24, 1966, found that the corresponding domestic letters
of credit called for in the contract had been opened by said petitioner in
favor of NAMARCO and that the latter had been duly informed thereof.

On November 23, 1966
the petitioner filed an amended complaint, with a motion for its
admission.  The amendment consisted in
changing the formal designation of the original pleading from
“petition” to “complaint,” and of the parties from
“petitioner” to “plaintiff” and “respondent” to
“defendant” respectively.  In
effect the action was converted from one of mandamus to one of specific
performance.  The amended complaint was
admitted by the Court “without terms,” over the opposition of
respondent NAMARCO, in an order dated November
29, 1966.  On the following
December 7, the plaintiff moved for sum­mary judgment, alleging that no genuine
issue as to any material fact had been tendered by the defendant’s answer.

On December 9, 1966 the defendant filed an answer to the amended
complaint wherein the previous defenses were reiterated and a new defense
added, namely, that the contract was null and void because it was con­trary to
law, public policy and public interest, being merely “a scheme between
plaintiff and the former manage­ment of defendant, to bring into the
Philippines the goods described in the contract aforesaid free from taxes and
customs duties, making it appear that defendant was and is the importer
thereof, whereas in truth it was and is the plaintiff Viltra
Company that was and is the importer of the same.”

On December 14, 1966
the plaintiff filed a motion to strike out the answer to the amended complaint
on the ground that it was in effect an amended answer to the original petition
and contained substantial amendments which materially altered the defenses set
up in the original answer, and that it was filed without prior leave of
court.  The motion to strike was granted
by the Court in an order dated December
17, 1966, and on the following December 19 a partial decision was
rendered pursuant to the plaintiff’s motion for summary judgment.  The dispositive part
of said decision reads:

“Wherefore, judgment is hereby rendered in favor of the
plaintiff against the defendant, ordering the said defendant to comply with its
obligations under the contract in question, more specifically to cause the open­ing
immediately of an irrevo­cable letter of credit in favor of Tokyo Boeki, Ltd., in accordance with the terms and condi­tions
of paragraph 2 relative to the opening of domestic let­ters of credit.”

The defendant’s motion for reconsideration having been denied,
the case was brought to this Court on direct appeal.  The appellant contends that in striking out
its answer to the amended complaint and rendering a partial decision pursuant
to the appellee’s motion for summary judgment, the
trial Court deprived it of the right to prove the defenses it had raised.

The procedural point concerning the answer to the amended
complaint involves the question of whether or not it was entitled to admission
in the first place, even without leave of court.  The appel­lant invokes section 3 of Rule 11,
which states that if the complaint is amended a new answer thereto may be filed
(as a matter of right) within 10 days from notice, failing which the previous
answer filed before the amendment shall stand as answer to the amended complaint.  In this case the defendant filed its answer
to the amended complaint within the reglementary
period.  We believe that the trial court
should not have ordered the said answer stricken out, for while it is true that
the amended complaint contained practically the same allegations of fact as the
original petition, there was a substantial change in the nature of the cause of
action itself:  the first was one for
mandamus while the other was one for specific performance.  And in any case, since the case had not yet
been scheduled for trial at the time the said answer was submitted, the trial
Court should have allowed it, especially considering that in its opinion the
original answer failed to tender an issue, as shown by the fact that it
rendered a partial summary judgment.

But going to the more fundamental question of whether the summary
judgment was justified on the basis of the pleadings then before the Court, we
note that the two defenses set up by the defendant did tender factual issues
which called for the presentation of evidence. 
The first one challenged the legal capacity of the appellee
to enter into the con­tract in question on the ground that it was not qualified
as an applicant for trade assistance from NAMARCO under the latter’s
Administrative Order No. 16, dated August
31, 1965, under which applicants must be either:

“(1) 
Duly accredited NAMARCO Distributor and/or retailer;

(a)  
Who are actively in operation per
sales record;

(b)  
Who are of sound financial
condition and credit standing;

(c)  
Who have a permanent establish­ment
conveniently located in the commercial district of the locality;

(d)  
and who
have adequate storage and transportation facilities.

“(2) 
Local Manufacturers:

(a) 
Filipino owned and managed, single
proprietor­ship, partnership, corporation or cooperative associa­tion;

(b) 
Must be duly licensed and
registered in accordance with existing local laws;

(c) 
Must be actively engaged in the
business of manufac­turing or processing consumer goods and/or industrial
products.”

With respect to the second of the defenses raised by the
appellant there is of course reference in the partial decision to certain
domestic letters of credit submitted as evidence by the appellee,
but their submission was only in relation to a motion for contempt that came up
as an incident before the lower court, and there is no showing that the parties
had agreed to have them considered, such as they are, for purposes of a
decision on the merits, or that the appellant can no longer question those
letters of credit as sufficient compliance by the appellee
with its obligations under the contract. 
The fact is that the appellant has raised the appellee’s
failure to so comply as a defense, and the appellant is entitled to be heard
thereon.

The delay in this case, which the appellee
claims has been causing it considerable prejudice, could have been avoided if
shortcuts of doubtful validity had not been resorted to and the case had been
allowed to go through the usual procedure of trial and judgment.

Wherefore, the partial decision appealed from is set
aside, the defendant’s answer to the amended complaint is ordered admitted, and
the case is remanded for further proceedings. 
No special pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Zaldivar, Sanchez, Ruiz Castro, Capistrano, and Teehankee, JJ., concur.

Dizon, Fernando, and Barredo, JJ., did not take part.