MANUFACTURER’S BANK & TRUST CO., PETITIONER, VS. DIVERSIFIED INDUSTRIES, INC., AND ALFONSO TAN, RESPONDENTS.

The propriety of a judgment on the pleadings is the principal issue
in the case at bar.  The rule is set out
in Rule 19 of the Rules of Court.

SECTION 1. 
Judgment on the pleadings.  — Where an answer fails to tender an issue,
or otherwise admits the material allegations of the adverse party’s pleading,
the court may, on motion of that party, direct judgment on such pleading. **.

Manufacturers Bank & Trust Co. filed a complaint with the
Court of First Instance of Manila for the recovery of a sum of money against
Diversified Industries, Inc. and Alfonso Tan.1 The complaint alleged:2

2.  That on December 17, 1963
the defendants were granted a loan in the form of an agreement for credit in
current account in the sum of ONE HUNDRED TWENTY-FIVE THOUSAND PESOS (P125,000.00) with interest at the rate of 10% per annum computed
upon average daily balances, a copy of the ** Agreement for Credit in Current
Account ** (being attached) as Annex “A” **;

3.  That the loan became due
and payable on February 26, 1965,
but the defendants failed and refused to liquidate their obligations, leaving
an outstanding balance of P100,119.21 as of June 25, 1965;

4.  That by reason of the
unjust refusal on the part of the defendants to satisfy their just and valid
obligation upon maturity, the plaintiff was compelled to engage the services of
counsel for a fee equivalent to 10% of the total sum due which the defendants
have expressly agreed to pay in accordance with the terms of the agreement,
Annex “A.”

WHEREFORE, it is most respectfully prayed ** that judgment be
rendered in favor of the plaintiff ordering the defendant to pay:

a)  the
sum of P100,119.27 plus interest thereon from June 26, 1965 until complete payment is made;

b)  the
sum equivalent to 10% of the total sum due as attorney’s fees;

c)  the
costs of suit.

PLAINTIFF prays for such other remedy as this Honorable Court may
deem just and equitable under the premises.

In their answer,1 the defendants admitted the
averments of paragraph 2 of the complaint (and paragraph 1 thereof relative to
the parties’ personal circumstances); but they professed to have no “sufficient
knowledge or information to form a belief as to the truth or falsity of the
allegations contained in paragraphs 3 and 4 and, therefore, ** (denied) the
same.”

Manufacturers Bank moved for judgment on the pleadings.2 It
adverted to the defendants’ admissions of the parties’ personal circumstances
and “the fact that the defendants were granted a loan in the form of an
Agreement for Credit in Current Account in the sum of P125,000.00
with interest at the rate of 10% per annum computed upon average daily
balances, a copy of which agreement has been attached as Annex A of the
complaint.” It also branded as contrived and inefficacious the defendants’
profession of lack of knowledge of “the fact that the loan was due and
payable on February 26, 1965 and that the same has been unliquidated
as of the time that the complaint was filed,” as well as the fact “of
attorney’s fees equivalent to 10% of the total sum due,” since –

1)  the Agreement for
Credit in Current Account — which the defendants had expressly admitted —
clearly stated that the loan would automatically be due and payable on February
26, 1965 and that attorney’s fees would be payable at the rate of 10% of amount
due, and hence, it was not credible for them to claim to have no knowledge of
the transactions in question, including the drawing they had made in virtue of
the agreement; and

2)  by letter dated October
18, 1966, written to Manufacturers Bank by defendant Alfonso Tan, as President
of Diversified Industries (copy attached to the motion), the latter had
requested that they be allowed to pay the obligation by installments at the
rate of P20,000.00 every six (6) months until the same was paid in full.

The defendants, Diversified Industries and Tan, filed an
opposition to the bank’s motion for judgment on the pleadings.1
They alleged that neither the amounts drawn against the overdraft account nor
the current balance due from them, were within the knowledge either of Alfonso
Tan — because he was a mere “guarantor” — or even of Diversified
Industries — because its account officer had long since resigned, and
moreover, they could not be expected to know the attorney’s fees that
Manufacturers Bank had undertaken to pay to its attorney.  They also theorized that since there was no allegation
that they had in fact made drawings against the overdraft account, no
obligation to pay a sum of money had been pleaded and therefore, the complaint
failed to state a cause of action.

On the same date the defendants filed a motion for leave to amend
their answer, and the amended answer itself.2 Their motion alleged that their
original pleading had failed to embody their true plea respecting every
material allegation of the complaint and had failed to set forth their
affirmative defenses.  Their amended
answer –

1)  again admitted the
execution of the Agreement for Credit in Current Account but stressed that (a)
at time of execution and delivery of the agreement, the bank had not disbursed
a single centavo, and (b) the agreement failed to reflect the true intent of
the parties, which was that Tan, as “guarantor” of Diversified
Industries, was merely an “accommodation party;”

2)  denied (a) the claim that
defendants’ obligation had become due on February 26, 1965 as expressly
stipulated because the bank had extended the term of payment at said
defendants’ behest; (b) having knowledge of the veracity of the claim that
their outstanding balance was P100,119.21 as of June
25, 1961; and (c) having knowledge of Manufacturers Bank’s engagement of
counsel for a fee of 10% of the total amount due; and

3)  set up the following
“affirmative defenses:” (a) Tan was meant to be only a guarantor of
Diversified Industries, with the benefit of excussion,
and since this was not expressed in the agreement, the agreement failed to
express the parties’ real intention; (b) the term of the agreement had been
renewed without Tan’s consent and therefore, the guaranty had been
extinguished; (c) there had been no demand for payment before suit was
instituted; (d) alternatively, Tan’s liability, if not that of a guarantor, was
solidary only as regards payment of interest and
merely joint as regards payment of the principal; and (e) the complaint fails
to state a cause of action.

The Court denied the defendants’ motion for leave to amend their
answer and rendered judgment on the pleadings.1 It opined that the original answer
failed to tender any issue, the defendants’ asserted lack of knowledge or
information regarding matters principally and necessarily within their
knowledge could not be considered a specific denial.  It disposed of the case as follows:

“WHEREFORE, judgment is hereby rendered ordering the
defendants, Diversified Industries, Inc. and Alfonso Tan to pay the plaintiff
the sum of One Hundred Thousand One Hundred Nineteen Pesos and Twenty-Seven
Centavos (P100,119.27), with interest thereon at the
legal rate, from 26 June 1965 until fully paid, plus the sum of 110% on the
amount due as and for attorney’s fees.  Costs against defendants.”

From this judgment appeal was taken to this Court on questions of
law by the defendants as well as the plaintiff, Manufactuers
Bank.

Manufacturers Bank faults the Trial Court for (1) not specifying
the defendants’ liability to it to be joint and several; and (2) requiring
payment by defendants of interest only at the legal rate instead of that
stipulated in their agreement.

On the other hand, Diversified Industries and Alfonso Tan ascribe
the following errors to the Court a quo: 
(1) refusing to admit their amended answer; (2) not dismissing the
complaint for failure to state a cause of action; and (3) rendering judgment on
the pleadings.

Of no little significance is the fact that the motion to amend
the answer was presented only after two (2) years had lapsed from the date of
its filing, and only after the plaintiff had drawn attention to its patent and
grave imperfections and moved for judgment on the pleadings.  Equally noteworthy is that defendants never
challenged the authenticity of their letter to the bank dated October 18, 1966, advising that they
had made, thru an Atty. Colayco, payment on their
account and requesting that they be allowed to pay their obligation by
installments at the rate of P20,000.00 every six (6)
months.1
These facts, considered conjointly with the admissions expressly made in the
pleadings and those reasonably inferable therefrom,
dictate a verdict in favor of the plaintiff bank.

Under the circumstances obtaining in this case, the amendment of
the answer in substantial aspects was not a matter of right,2
but lay in the discretion of the Court.3 Where amendment is not a matter of
right, a bare assertion of a desire to amend the pleading because certain
matters had not been therein alleged, or the submission of an amended one,
without more, is obviously not sufficient. 
It is needful to state to the Court some reasonable ground justifying
its exercise of discretion to allow amendment.4 Indeed, the Rules elsewhere provide
that judicial admissions “can not be contradicted unless previously shown
to have been made through palpable mistake.”5 It
is thus incumbent upon a party desiring to amend his pleading, in other words,
to furnish the Court with some adequate foundation for it to grant leave to
amend the pleading.  This was not done by
the defendants.  Their motion merely
declared that they had failed to include certain allegations and defenses in
their original answer, but gave no explanation for their failure to do so at
the time they drew up that pleading or within a reasonable time thereafter, and
why they had not essayed such amendment until after two (2) years and only
after their receipt of plaintiff bank’s motion for judgment on the pleadings
which cited certain serious defects of their answer.  The absence of such an explanation, and the
implicit admission of liability in their letter of October 18, 1966 requesting
that they be permitted to pay in installments of P20,000.00
every six (6) months not unreasonably engendered the belief in the mind of the
Court a quo that their motion had been “made with intent to delay
the action”1
by relieving them from the effects of their judicial admissions without a
showing of palpable mistake, or other acceptable absolutory cause.

An analysis of the amended answer readily discloses its lack of
merit if not its arrant sophistry, adding persuasiveness to the Trial Court’s
resolution of the controversy.  The claim
that defendant Tan was only an “accommodation party” or a
“guarantor,” or that he was solidarily
bound only as regards interest, flies in the teeth of the Agreement for Credit
in Current Account.  The agreement
clearly and categorically expresses the solidary
character of the obligations of Tan and his firm, who are referred to jointly
as the “First Party.”

The First Party agree to be jointly and
severally bound by and to comply with the following terms and conditions:

** ** **.

3.  The principal and interest of this loan shall be due and become payable
on demand by the Second Party (Manufacturers Bank) whether in writing or otherwise;
Provided, That in any case, this loan shall automatically be due and become
payable and this agreement be terminated on February 26, 1965, without
necessity of demand.

The denials in the amended answer are cut from the same bolt as
those in the original answer.  They are
sham denials, consisting of an avowed lack of knowledge of facts which could
not but be clearly known to the defendants or ought to be or could quite easily
have been known by them.2 Their disclaimer of knowledge of
the amount of their outstanding balance is implausible, but even if true,
cannot be deemed a proper denial because concerning something they could very
easily have learned or verified had they wished to.  Their disclaimer of knowledge of the amount
of the fee undertaken to be paid by the Manufacturers Bank to its attorneys is
immaterial because not prayed for in the complaint, the claim being in fact for
attorney’s fees equivalent to 10% of the total amount due, as expressly
stipulated in the contract.  And the
averment that their obligation was not yet due because plaintiff bank had
extended the term of payment is also specious, being contrary to the
defendants’ written request to the bank that they be
allowed to repay their loan in stated installments.

The correctness, therefore, of the Trial Court’s denial of the
motion to amend answer and the propriety of the assailed judgment on the
pleadings, are beyond cavil.  Amendment
in the circumstances was clearly subject to said Court’s discretion the
exercise of which cannot be faulted; and the defendants’ original answer in
truth tendered no issue, or otherwise admitted the allegations of the complaint
material and necessary to a valid decision.1

Finally, since the Agreement for Credit on Current Account
plainly declares both Diversified Industries and Alfonso Tan jointly and
severally liable for both principal and interest on the loan, the interest
being fixed at 10% per annum, it was error for the Trial Court to decline to so
hold them both solidarily liable, and to set the interest
payable at the legal rate instead of the stipulated rate of 10% of the total
amount due.

WHEREFORE, the judgment of the Trial Court is AFFIRMED
WITH THE MODIFICATION that the liability to Manufacturers Bank & Trust Co.
of Diversified Industries, Inc. and Alfonso Tan is pronounced to be joint and
several, and the interest payable on their obligation is fixed at 10% per annum
of the total amount due, in accordance with the Agreement for Credit on Current
Account, with costs against the latter.

Cruz, Griño-Aquino, and Medialdea, JJ., concur.

Gancayco, J., on leave.

1
The complaint was filed on July 20,
1965 and was docketed as Civil Case No. 61796

2
Rollo, p. 7: 
Record on Appeal, pp. 2-3, 49

1
Id.:  Record on Appeal, p. 8

2
Id.:  Record on Appeal, pp. 12-15

1
Id.:  Record on Appeal, pp. 15-20

2
Id.:  Record on Appeal, pp. 20-26

1
Id.:  Record on Appeal, pp. 48-52

1
SEE footnote 2 and related text, at pp. 2-3, supra

2
Sec. 2, Rule 10, Rules of Court

3 Sec. 3, Rule 10

4 SEE Viray v. C.A.,
16 SCRA 412 (1966)

5 Sec. 2, Rule 129

1 Sec. 3, Rule 10

2 Philippine Advertising Counselors, Inc. v. Revilla, 52 SCRA 246, citing Capitol Motors Corporation v.
Yabut, 32 SCRA 1 and Dahlstrom
v. Gemundes, 92 N.E. 106; J.P. Juan &
Sons, Inc. v. Lianga Industries, Inc., 28 SCRA
807; Warner Barnes & Co., Ltd. v. Reyes, 55 O.G. 3109; New Japan
Motors, Inc. v. Perucho, L-44387, Nov. 5,
1976; Gutierrez v. C.A., L-31611, Nov. 29, 1976; Sy-Quia,
etc. v. Marsman, L-23426, March 1, 1968

1 Id.; Secs. 2, 3, Rule 20, and Sec. 1,
Rule 19, Rules of Court