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

Manufacturer's Bank and Trust Company versus Diversified Industries and Alfonso Tan

The Case

This is a collection suit for a sum of money. Manufacturer's Bank and Trust Company sued Diversified Industries, Incorporated and Alfonso Tan to recover the unpaid balance of a credit line granted in a current account agreement. The case matters because it is the Supreme Court's clean teaching on two procedural rules that examiners love: when a court may render judgment on the pleadings because the answer tendered no genuine issue, and when the amendment of a pleading is a matter of right as opposed to a matter of judicial discretion. It also reminds us that a written request to pay by installments is, in substance, an admission of liability.

Procedural History

The bank filed its complaint for recovery of a sum of money with the Court of First Instance of Manila. The defendants answered, admitting the credit agreement but professing no knowledge of the other allegations. The bank then moved for judgment on the pleadings. The defendants opposed the motion and, on the same date, sought leave to amend their answer, attaching the amended answer. The trial court denied leave to amend and rendered judgment on the pleadings in favor of the bank, ordering the defendants to pay the principal balance with interest at the legal rate, plus attorney's fees and costs. Both sides appealed to the Supreme Court on pure questions of law: the defendants assailing the denial of their amendment, the refusal to dismiss, and the judgment on the pleadings; the bank faulting the trial court for not declaring the liability solidary and for using the legal rate of interest instead of the stipulated rate.

Facts

On December 17, 1963, the bank granted Diversified Industries and Alfonso Tan a loan in the form of an Agreement for Credit in Current Account in the sum of 125,000 pesos, with interest at 10 percent per annum computed on average daily balances. The agreement provided that the loan would automatically fall due on February 26, 1965, without need of demand. The defendants failed to pay, leaving an outstanding balance of 100,119 pesos as of June 25, 1965. The agreement also stipulated attorney's fees equivalent to 10 percent of the total amount due.

In their answer, the defendants admitted the execution of the credit agreement but claimed they had no sufficient knowledge or information to form a belief as to the truth of the allegations on the balance due and the attorney's fees, and denied them. The bank moved for judgment on the pleadings, pointing to the admissions and to a letter dated October 18, 1966, in which Alfonso Tan, as president of Diversified Industries, had asked that the obligation be paid in installments of 20,000 pesos every six months.

The defendants opposed the motion and sought leave to amend their answer, now claiming that Tan was a mere guarantor or accommodation party, that the term had been extended without his consent, and that no demand had been made. The trial court found the original answer tendered no issue, denied the amendment, and rendered judgment on the pleadings. The Supreme Court noted that the motion to amend came only after two years and only after the bank had exposed the defects of the answer and moved for judgment.

Issues

• Whether or not the trial court erred in denying the defendants' motion for leave to amend their answer.
• Whether or not the trial court erred in not dismissing the complaint for failure to state a cause of action.
• Whether or not the trial court properly rendered judgment on the pleadings.
• Whether or not the defendants' liability is joint and several, and whether the interest should be at the stipulated rate of 10 percent per annum rather than the legal rate.

Applicable Provisions

Section 1 of Rule 19 of the Rules of Court, on judgment on the pleadings, provides:

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.

This is the very rule the trial court applied, and its propriety is the principal issue in the case.

Section 2 of Rule 129 of the Rules of Court, on judicial admissions, provides:

Judicial admissions can not be contradicted unless previously shown to have been made through palpable mistake.

This governs whether the defendants could escape, by amendment, the admissions made in their original answer.

The Agreement for Credit in Current Account, quoted by the Court, provides:

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

This fixes the solidary character of the liability of Tan and his firm.

The same agreement further provides:

The principal and interest of this loan shall be due and become payable on demand by the Second Party 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.

This defeats the claim that the obligation was not yet due or that demand was required.

Ruling

On the first issue, the Court held that the amendment was not a matter of right but lay in the sound discretion of the court, because the amendment sought was substantial. A bare assertion of a desire to amend, without stating a reasonable ground, is not enough. The defendants offered no explanation for their two year delay, and their letter of October 18, 1966 requesting installment payment was an implicit admission of liability. The trial court therefore did not abuse its discretion in denying leave to amend.

On the second issue, the Court found the complaint sufficiently stated a cause of action, since it alleged the credit agreement, the balance due, and the stipulation on attorney's fees.

On the third issue, the Court upheld the judgment on the pleadings. The original answer tendered no genuine issue. The defendants' professed lack of knowledge concerned matters plainly within their knowledge or easily verifiable by them, and such a disclaimer is not a specific denial but a sham denial. Their claim that the term had been extended was specious, being contrary to their own written request to pay by installments.

On the fourth issue, the Court ruled for the bank. Since the agreement plainly made both Diversified Industries and Alfonso Tan jointly and severally liable for principal and interest at 10 percent per annum, the trial court erred in failing to hold them solidarily liable and in fixing interest at the legal rate.

Doctrine

A court may render judgment on the pleadings where the answer fails to tender an issue or otherwise admits the material allegations of the complaint, as Section 1 of Rule 19 provides. A denial based on alleged lack of knowledge of matters that are within the pleader's own knowledge, or that he could easily have verified, is not a specific denial but a sham denial that tenders no issue.

The amendment of a pleading is a matter of right only when it is not substantial; otherwise it lies in the discretion of the court, and the movant must show a reasonable ground. Judicial admissions cannot be contradicted unless previously shown to have been made through palpable mistake.

A written request to pay an obligation in installments is an admission of liability. Where the credit agreement expressly makes the borrowers jointly and severally liable, the courts must enforce the solidary liability and the stipulated rate of interest.

Disposition

The Supreme Court affirmed the judgment of the trial court with modification, pronouncing the liability of Diversified Industries and Alfonso Tan joint and several and fixing the interest at 10 percent per annum, with costs against them.

Remember This

Memorize this line: an answer that denies matters plainly within the pleader's own knowledge tenders no issue, so judgment on the pleadings lies. Examiners use this case to test judgment on the pleadings, sham denials, and the limits on the right to amend a pleading.