ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION, PETITIONER, VS. COURT OF APPEALS AND MONARK EQUIPMENT CORPORATION, RESPONDENTS.

Asian Construction and Development Corporation versus Monark Equipment Corporation

The Case

This is a petition for review on certiorari brought by Asian Construction and Development Corporation, the defendant in a collection suit, against Monark Equipment Corporation, the plaintiff, and the Court of Appeals. Monark sued Asian Construction for unpaid rentals on leased heavy equipment and for the price of equipment parts it had sold. Asian Construction admitted the debt but tried to drag a third party, Bechtel Overseas Corporation, into the case, blaming Bechtel's nonpayment for its own inability to pay Monark. The case matters because it teaches the two procedural rules every litigator must know cold: when a third-party complaint is proper under the Rules of Court, and when a court may render judgment on the pleadings.

Procedural History

Monark filed its complaint for a sum of money with damages before the Regional Trial Court of Quezon City. Asian Construction sought leave to file an answer with a third-party complaint against Bechtel. Monark opposed the third-party complaint and moved for summary judgment, which the trial court treated as a motion for judgment on the pleadings. The trial court denied leave to file the third-party complaint and rendered judgment ordering Asian Construction to pay the principal amount with interest. Asian Construction appealed to the Court of Appeals, which dismissed the appeal and affirmed the trial court, holding that Monark had waived its other damages claims and that the third-party complaint did not arise from the same transaction as Monark's claim. After the Court of Appeals denied reconsideration, Asian Construction elevated the matter to the Supreme Court by petition for review on certiorari.

Facts

From March to July 1998, Asian Construction leased generator sets and mobile floodlighting systems from Monark. It failed to pay the rentals, leaving an unpaid balance of four million three hundred thirteen thousand nine hundred thirty-five pesos. From July to August 1998, it leased more equipment for its power plant project in Mauban, Quezon, leaving a further balance of four hundred fifty-six thousand six hundred sixty-six pesos and sixty-seven centavos. It also purchased equipment parts worth two hundred thirty-seven thousand three hundred thirty-six pesos and twenty centavos, which it did not pay. In total, Monark demanded five million seventy-one thousand three hundred thirty-five pesos and eighty-six centavos.

When Monark sued, Asian Construction admitted the entire amount of five million seventy-one thousand three hundred thirty-five pesos and eighty-six centavos. But it alleged that Bechtel, its principal on the Mauban and Pampanga projects, had failed to pay for its construction services, and that this was why it could not pay Monark. It sought to implead Bechtel as a third-party defendant for contribution, indemnity, or subrogation.

Monark objected, insisting that its lease and sale transactions with Asian Construction were independent of whatever existed between Asian Construction and Bechtel. The trial court agreed, denied the third-party complaint, and entered judgment on the pleadings. The Court of Appeals affirmed, and the case reached the Supreme Court.

Issues

• Whether or not the third-party complaint against Bechtel was proper and should have been admitted.
• Whether or not judgment on the pleadings was proper given the answer filed by Asian Construction.

Applicable Provisions

Section 11 of Rule 6 of the Rules of Court defines the third-party complaint:

Section 11. Third (fourth, etc.)-party complaint. A third (fourth, etc.) party complaint is a claim that a defending party may, with leave of court, file against a person not a party to the action, called the third (fourth, etc.) party defendant, for contribution, indemnity, subrogation or any other relief, in respect of his opponent's claim.

This provision supplies the substantive test the Court applies: the third-party claim must relate to the plaintiff's claim for contribution, indemnity, subrogation, or other relief.

Section 1 of Rule 34 of the Rules of Court governs judgment on the pleadings:

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. However, in actions for declaration of nullity or annulment of marriage or for legal separation, the material facts alleged in the complaint shall always be proved.

This is the basis for the trial court's judgment, since Asian Construction's answer admitted the material allegations of Monark's complaint.

Ruling

On the first issue, the Court held that the third-party complaint was not proper. The right to file one rests in the sound discretion of the trial court, and a prerequisite is some substantive basis for the claim, whether indemnity, subrogation, contribution, or other substantive right. The Court stressed that common liability is the very essence of contribution. Applying the test, the Court found that Monark's claims arose from contracts of lease and sale, while Asian Construction's claim against Bechtel arose from a construction contract. These are separate and distinct transactions. There was no showing that Monark knew of or approved the use of the leased equipment in the Bechtel project. Bechtel could not invoke any defense Asian Construction might have against Monark, precisely because Asian Construction had admitted its liability. The mere fact that the leased equipment was used in the Bechtel project did not supply a causal connection. The Court also noted the inconsistency that Asian Construction sought both to collect from Bechtel and to have Monark's complaint dismissed. The rulings in Allied Banking Corporation and British Airways were distinguished on their facts.

On the second issue, the Court held that judgment on the pleadings was proper. Since Asian Construction admitted its liability for the principal claim in its answer, the answer tendered no genuine issue, and the trial court correctly rendered judgment on the pleadings under Section 1 of Rule 34.

Doctrine

A third-party complaint is a procedural device, resting in the trial court's discretion, that permits a defendant to bring in a person not a party to the action for contribution, indemnity, subrogation, or other relief in respect of the plaintiff's claim. It requires a substantive basis and a causal connection between the plaintiff's claim and the defendant's claim against the third party. The third-party claim need not arise from the same transaction, but it must be connected with the plaintiff's claim. Common liability is the essence of contribution. Judgment on the pleadings is proper where the answer fails to tender an issue or admits the material allegations of the complaint, as when the defendant expressly admits the principal obligation sued upon.

Disposition

The petition was denied for lack of merit, and the judgment of the Court of Appeals affirming the trial court was upheld, with costs against Asian Construction. The denial of the third-party complaint was without prejudice to Asian Construction's right to file a separate complaint against Bechtel.

Remember This

Memorize this line: a third-party complaint requires a causal connection between the plaintiff's claim and the defendant's claim against the third party, and common liability is the essence of contribution. Examiners use this case to test the requisites of a third-party complaint under Section 11 of Rule 6 and the propriety of judgment on the pleadings under Section 1 of Rule 34 when the defendant admits the debt.