G.R. No. 207970, January 20, 2016 b.

b. Deed of Undertaking dated July 5, 2006 for the installation of medical gas
pipeline system valued at P8,500,000.00;4 ch an rob lesv irtu allawlib rary

FERNANDO MEDICAL ENTERPRISES, INC., Petitioner, v. WESLEYAN

UNIVERSITY PHILIPPINES, INC., Respondent. c. Deed of Undertaking dated July 27, 2006 for the supply of one unit of
Diamond Select Slice CT and one unit of Diamond Select CV-P costing
DECISION P65,000,000.00;5 and

BERSAMIN, J.: d. Deed of Undertaking dated February 2, 2007 for the supply of furnishings and
equipment worth P32,926,650.00.6
The trial court may render a judgment on the pleadings upon motion of the claiming
party when the defending party's answer fails to tender an issue, or otherwise admits
the material allegations of the adverse party's pleading. For that purpose, only the According to the petitioner, the respondent paid only P67,3 57,683.23 of its total
pleadings of the parties in the action are considered. It is error for the trial court to obligation of P123,901,650.00, leaving unpaid the sum of P54,654,195.54. 7 However,
deny the motion for judgment on the pleadings because the defending party's pleading on February 11, 2009, the petitioner and the respondent, respectively represented by
in another case supposedly tendered an issue of fact. ch an Ro blesv irtu alLawli b rary
Rafael P. Fernando and Guillermo T. Maglaya, Sr., entered into an agreement, 8
whereby the former agreed to reduce its claim to only P50,400,000.00, and allowed
The Case the latter to pay the adjusted obligation on installment basis within 36 months. 9 ch an rob lesv irtu all awlib rary

The petitioner appeals the decision promulgated on July 2, 2013,1 whereby the Court In the letter dated May 27, 2009,10 the respondent notified the petitioner that its new
of Appeals (CA) affirmed the order issued on November 23, 2011 by the Regional administration had reviewed their contracts and had found the contracts defective and
Trial Court (RTC), Branch 1, in Manila, denying its motion for judgment on the rescissible due to economic prejudice or lesion; and that it was consequently
pleadings in Civil Case No. 09-122116 entitled Fernando Medical Enterprises, Inc. v. declining to recognize the February 11, 2009 agreement because of the lack of
Wesleyan University-Philippines.2 ch an Rob lesvirtu alLawlib rary
approval by its Board of Trustees and for having been signed by Maglaya whose term
of office had expired.
Antecedents
On June 24, 2009, the petitioner sent a demand letter to the respondent. 11 ch an ro blesv irtu allawlib rary

From January 9, 2006 until February 2, 2007, the petitioner, a domestic corporation
dealing with medical equipment and supplies, delivered to and installed medical Due to the respondent's failure to pay as demanded, the petitioner filed its complaint
equipment and supplies at the respondent's hospital under the following contracts: for sum of money in the RTC,12 averring as follows:

a. Memorandum of Agreement dated January 9, 2006 for the supply ol' medical xxxx
equipment in the total amount of P18,625,000.00;3 ch an ro b lesv irtu allawlib rary

2. On January 9, 2006, plaintiff supplied defendant with hospital medical equipment

for an in consideration of P18,625,000.00 payable in the following manner: (2.1) For
nos. 1 to 9 of items to be sourced from Fernando Medical Equipment, Inc. (FMEI) -
30% down payment of P17,475,000 or P5,242,500 with the balance of PI2,232,500 or
70% payable in 24 equal monthly instalments of P509,687.50 and (2.2.) cash
transaction amounting to P1,150,000.00 (2.3) or an initial cash payment of
P6,392,500.00 with the remaining balance payable in 24 equal monthly installments
every 20th day of each month until paid, as stated in the Memorandum of Agreement,
copy of which is hereto attached as Annex "A";
3. On July 5, 2006, plaintiff installed defendants medical gas pipeline system in the
latter's hospital building complex for and in consideration of P8,500,000.00 payable
upon installation thereof under a Deed of Undertaking, copy of which is hereto
attached as Annex "B";
4. On July 27, 2006, plaintiff supplied defendant one (1) unit Diamond Select Slice
CT and one (1) unit Diamond Select CV-9 for and in consideration of P65,000,000.00
thirty percent (30%) of which shall be paid as down payment and the balance in 30
equal monthly instalments as provided in that Deed of Undertaking, copy of which is
hereto attached as Annex "C";
5. On February 2, 2007, plaintiff supplied defendants hospital furnishings and
equipment for an in consideration of P32,926,650.00 twenty percent (20%) of which
was to be paid as downpayment and the balance in 30 months under a Deed of
Undertaking, copy of which is hereto attached as Annex "D";
6. Defendant's total obligation to plaintiff was P123,901,650.00 as of February 15,
2009, but defendant was able to pay plaintiff the sum of P67,357,683.23 thus leaving
a balance P54,654,195.54 which has become overdue and demandable;
7. On February 11, 2009, plaintiff agreed to reduce its claim to only P50,400,000.00
and extended its payment for 36 months provided defendants shall pay the same
within 36 months and to issue 36 postdated checks therefor in the amount of
P1,400,000.00 each to which defendant agreed under an Agreement, copy of which is
hereto attached as Annex "E";
8. Accordingly, defendant issued in favor of plaintiff 36 postdated checks each in the
[a]mount of P1,400,000.00 but after four (4) of the said checks in the sum of
P5,600,000.00 were honored defendant stopped their payment thus making the entire
obligation of defendant due and demandable under the February 11, 2009 agreement;
9. In a letter dated May 27, 2009, defendant claimed that all of the first four (4)
agreements may be rescissible and one of them is unenforceable while the Agreement
dated February 11, 2009 was without the requisite board approval as it was signed by
an agent whose term of office already expired, copy of which letter is hereto attached
as Annex "F";
10. Consequently, plaintiff told defendant that if it does not want to honor the
February 11, 2009 contract then plaintiff will insists [sic] on its original claim which
is P54,654,195.54 and made a demand for the payment thereof within 10 days from
receipt of its letter copy of which is hereto attached as Annex "G";
11. Defendant received the aforesaid letter on July 6, 2009 but to date it has not paid
plaintiff any amount, either in the first four contracts nor in the February 11, 2009
agreement, hence, the latter was constrained to institute the instant suit and thus
incurred attorney's fee equivalent to 10% of the overdue account but only after
endeavouring to resolve the dispute amicable and in a spirit of friendship[;]
12. Under the February 11, 2009 agreement the parties agreed to bring all actions or
proceedings thereunder or characterized therewith in the City of Manila to the
exclusion of other courts and for defendant to pay plaintiff 3% per months of delay
without need of demand;13 ch an rob lesv irtu allawli b rary
xxxx
The respondent moved to dismiss the complaint upon the following grounds,14
namely: (a) lack of jurisdiction over the person of the defendant; (b) improper venue;
(c) litis pendentia; and (d) forum shopping. In support of the ground of litis
pendentia, it stated that it had earlier filed a complaint for the rescission of the four that it had specifically denied the material allegations in the complaint, particularly
contracts and of the February 11, 2009 agreement in the RTC in Cabanatuan City; paragraphs 6, 7, 8, 11 and 12.21 ch an rob lesv irtu allawli b rary

and that the resolution of that case would be determinative of the petitioner's action
for collection.15
ch an ro b lesvirtu allawlib rary On November 23, 2011, the RTC issued the order denying the Motion for Judgment
Based on the Pleadings of the petitioner, to wit:
After the RTC denied the motion to dismiss on July 19, 2009, 16 the respondent filed
its answer (ad cautelam),17 averring thusly: At the hearing of the "Motion for Judgment Based on the Pleadings" filed by the
plaintiff thru counsel, Atty. Jose Maacop on September 28, 2011, the court issued an
xxxx Order dated October 27, 2011 which read in part as follows:

2. The allegations in Paragraphs Nos. 2, 3, 4, and 5 of the complaint are ADMITTED xxxx
subject to the special and affirmative defenses hereafter pleaded;
Considering that the allegations stated on the Motion for Judgment Based on the
3. The allegations in Paragraphs Nos. 6, 7 and 8 of the complaint are DENIED for Pleadings, are evidentiary in nature, the Court, instead of acting on the same, hereby
lack of knowledge or information sufficient to form a belief as to the truth or falsity sets this case for pre-trial, considering that with the Answer and the Reply, issues
thereof, inasmuch as the alleged transactions were undertaken during the term of have been joined.
office of the past officers of defendant Wesleyan University-Philippines. At any rate,
these allegations are subject to the special and affirmative defenses hereafter pleaded; xxxx

4. The allegations in Paragraphs Nos. 9 and 10 of the complaint are ADMITTED In view therefore of the Order of the Court dated October 27, 2011. let the Motion for
subject to the special and affirmative defenses hereafter pleaded; Judgment Based on the Pleadings be hereby ordered DENIED on reasons as
abovestated and hereto reiterated.
5. The allegations in Paragraphs Nos. 11 and 12 of the complaint are DENIED for
being conclusions of law.18 ch an ro b lesv irtu allawlib rary
xxxx

xxxx SO ORDERED.22 ch an ro b lesv irtu allawlib rary

The petitioner filed its reply to the answer.19 ch an rob lesv irtu allawli b rary
The petitioner moved for reconsideration,23 but its motion was denied on December
29, 2011.24ch an rob lesvirtu allawlib rary

On September 28, 2011, the petitioner filed its Motion for Judgment Based on the
Pleadings,20 stating that the respondent had admitted the material allegations of its The petitioner assailed the denial in the CA on certiorari.25 cralawred

complaint and thus did not tender any issue as to such allegations.
Judgment of the CA
The respondent opposed the Motion for Judgment Based on the Pleadings, arguing

On July 2, 2013, the CA promulgated its decision. Although observing that the
respondent had admitted the contracts as well as the February 11, 2009 agreement,
viz.:
It must be remembered that Private Respondent admitted the existence of the subject
contracts, including Petitioner's fulfilment of its obligations under the same, but
subjected the said admission to the "special and affirmative defenses" earlier raised in
its Motion to Dismiss.
xxxx
Obviously, Private Respondent's special and affirmative defenses are not of such
character as to avoid Petitioner's claim. The same special and affirmative defenses
have been passed upon by the RTC in its Order dated July 19, 2010 when it denied
Private Respondent's Motion to Dismiss. As correctly found by the RTC, Private
Respondent's special and affirmative defences of lack of jurisdiction over its person,
improper venue, litis pendentia and wilful and deliberate forum shopping are not
meritorious and cannot operate to dismiss Petitioner's Complaint. Hence, when
Private Respondent subjected its admission to the said defenses, it is as though it
raised no defense at all.
Not even is Private Respondent's contention that the rescission case must take
precedence over Petitioner's Complaint for Sum of Money tenable. To begin with.
Private Respondent had not yet proven that the subject contracts are rescissible. And
even if the subject contracts are indeed rescissible, it is well-settled that rescissible
contracts are valid contracts until they are rescinded. Since the subject contracts have
not yet been rescinded, they are deemed valid contracts which may be enforced in
legal contemplation.
In effect, Private Respondent admitted that it entered into the subject contracts and
that Petitioner had performed its obligations under the same.
As regards Private Respondent's denial by disavowal of knowledge of the Agreement
dated February 11, 2009, We agree with Petitioner that such denial was made in bad
faith because such allegations are plainly and necessarily within its knowledge.
In its letter dated May 27, 2009, Private Respondent made reference to the Agreement
dated February 11, 2009, viz.: Ch an Ro blesVirtu alawli b rary
"The Agreement dated 11 February 2009, in particular, was entered into by an Agent
of the University without the requisite authority from the Board of Trustees, and
executed when said agent's term of office had already expired. Consequently, such
contract is, being an unenforceable contract."
Also, Private Respondent averred in page 5 of its Complaint for Rescission, which it
attached to its Motion to Dismiss, that:
"13. On 6 February 2009, when the terms of office of plaintiffs Board of Trustess
chaired by Dominador Cabasal, as well as of Atty. Guillermo C. Maglaya as
President, had already expired, thereby rendering them on a hold-over capacity, the
said Board once again authorized Atty. Maglaya to enter into another contract with
defendant FMEI, whereby the plaintiff was obligated to pay and deliver to defendant
FMEI the amount of Fifty Million Four Hundred Thousand Pesos (Php50,400,000.00)
in thirty five (35) monthly instalments of One Million Four Hundred Thousand Pesos
(Phpl,400,000.00), representing the balance of the payment for the medical equipment
supplied under the afore-cited rescissible contracts. This side agreement, executed
five (5) days later, or on 11 February 2009, and denominated as "AGREEMENT",
had no object as a contract, but was entered into solely for the purpose of getting the
plaintiff locked-in to the payment of the balance price under the rescissible contracts;
x x x"
From the above averments, Private Respondent cannot deny knowledge of the
Agreement dated February 11, 2009. In one case, it was held that when a respondent
makes a "specific denial" of a material allegation of the petition without setting forth
the substance of the matters relied upon to support its general denial, when such
matters where plainly within its knowledge and the defendant could not logically
pretend ignorance as to the same, said defendant fails to properly tender an
issue."26
ch an ro b lesv irtu allawlib rary
the CA ruled that a judgment on the pleadings would be improper because the
outstanding balance due to the petitioner remained to be an issue in the face of the
allegations of the respondent in its complaint for rescission in the RTC in Cabanatuan
City, to wit:
However, Private Respondent's disavowal of knowledge of its outstanding balance is
well-taken. Paragraph 6 of Petitioner's Complaint states that Private Respondent was
able to pay only the amount of P67,357,683.23. Taken together with paragraph 8,
which states that Private Respondent was only able to make good four (4) check
payments worth P1,400,000.00 or a total of P5,600,000.00, Private Respondent's total
payments would be, in Petitioner's view, P72,957,683.23. However, in its Complaint
for Rescission, attached to its Motion to Dismiss Petitioner's Complaint for Sum of
Money, Private Respondent alleged that: Ch an Ro b lesVirtu alawlib rary
"16. To date, plaintiff had already paid defendant the amount of Seventy Eight
Million Four Hundred One Thousand Six Hundred Fifty Pesos (P78,401,650.00)"
It is apparent that Private Respondent's computation and Petitioner's computation of
the total payments made by Private Respondent are different. Thus, Private
Respondent tendered an issue as to the amount of the balance due to Petitioner under
the subject contracts. 27 ch an ro bleslaw
Hence, this appeal. ch an Rob lesv irtu alL awlib rary
Issue
The petitioner posits that the CA erred in going outside of the respondent's answer by
relying on the allegations contained in the latter's complaint for rescission; and insists
that the CA should have confined itself to the respondent's answer in the action in
order to resolve the petitioner's motion for judgment based on the pleadings.
In contrast, the respondent contends that it had specifically denied the material
allegations of the petitioner's complaint, including the amount claimed; and that the
CA only affirmed the previous ruling of the RTC that the pleadings submitted by the
parties tendered an issue as to the balance owing to the petitioner.
Did the CA commit reversible error in affirming the RTC's denial of the petitioner's
motion for judgment on the pleadings? ch an Rob lesv irtu alL awlib rary
Ruling of the Court
The appeal is meritorious.
The rule on judgment based on the pleadings is Section 1, Rule 34 of the Rules of
Court, which provides thus:
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, x x x
The essential query in resolving a motion for judgment on the pleadings is whether or
not there are issues of fact generated by the pleadings.28 Whether issues of fact exist
in a case or not depends on how the defending party's answer has dealt with the
ultimate facts alleged in the complaint. The defending party's answer either admits or
denies the allegations of ultimate facts in the complaint or other initiatory pleading.
The allegations of ultimate facts the answer admit, being undisputed, will not require
evidence to establish the truth of such facts, but the allegations of ultimate facts the
answer properly denies, being disputed, will require evidence.
The answer admits the material allegations of ultimate facts of the adverse party's
pleadings not only when it expressly confesses the truth of such allegations but also
when it omits to deal with them at all. 29 The controversion of the ultimate facts must
only be by specific denial. Section 10, Rule 8 of the Rules of Court recognizes only
three modes by which the denial in the answer raises an issue of fact. The first is by
the defending party specifying each material allegation of fact the truth of which he
does not admit and, whenever practicable, setting forth the substance of the matters
upon which he relies to support his denial. The second applies to the defending party
who desires to deny only a part of an averment, and the denial is done by the
defending party specifying so much of the material allegation of ultimate facts as is
true and material and denying only the remainder. The third is done by the defending
party who is without knowledge or information sufficient to form a belief as to the
truth of a material averment made in the complaint by stating so in the answer. Any
material averment in the complaint not so specifically denied are deemed admitted
except an averment of the amount of unliquidated damages.30 ch an ro b lesv irtu allawlib rary
In the case of a written instrument or document upon which an action or defense is
based, which is also known as the actionable document, the pleader of such document
is required either to set forth the substance of such instrument or document in the
pleading, and to attach the original or a copy thereof to the pleading as an exhibit,
which shall then be deemed to be a part of the pleading, or to set forth a copy in the
pleading.31 The adverse party is deemed to admit the genuineness and due execution
of the actionable document unless he specifically denies them under oath, and sets
forth what he claims to be the facts, but the requirement of an oath does not apply
when the adverse party does not appear to be a party to the instrument or when
compliance with an order for an inspection of the original instrument is refused.32
In Civil Case No. 09-122116, the respondent expressly admitted paragraphs no. 2, 3,
4, 5, 9 and 10 of the complaint. The admission related to the petitioner's allegations
on: (a) the four transactions for the delivery and installation of various hospital
equipment; (b) the total liability of the respondent; (c) the payments made by the
respondents; (d) the balance still due to the petitioner; and (e) the execution of the
February 11, 2009 agreement. The admission of the various agreements, especially
the February 11, 2009 agreement, significantly admitted the petitioner's complaint. To
recall, the petitioner's cause of action was based on the February 1 1, 2009 agreement,
which was the actionable document in the case. The complaint properly alleged the
substance of the February 11, 2009 agreement, and contained a copy thereof as an
annex. Upon the express admission of the genuineness and due execution of the
February 11, 2009 agreement, judgment on the pleadings became proper. 33 As held in
Santos v. Alcazar:34ch an ro blesv irtu allawlib rary
There is no need for proof of execution and authenticity with respect to documents
the genuineness and due execution of which are admitted by the adverse party. With
the consequent admission engendered by petitioners' failure to properly deny the
Acknowledgment in their Answer, coupled with its proper authentication,
ch an ro b lesv irtu allawlib rary
identification and offer by the respondent, not to mention petitioners' admissions in
paragraphs 4 to 6 of their Answer that they are indeed indebted to respondent, the
Court believes that judgment may be had solely on the document, and there is no need
to present receipts and other documents to prove the claimed indebtedness. The
Acknowledgment, just as an ordinary acknowledgment receipt, is valid and binding
between the parties who executed it, as a document evidencing the loan agreement
they had entered into. The absence of rebutting evidence occasioned by petitioners'
waiver of their right to present evidence renders the Acknowledgment as the best
evidence of the transactions between the parties and the consequential indebtedness
incurred. Indeed, the effect of the admission is such that a prima facie case is made
for the plaintiff which dispenses with the necessity of evidence on his part and
entitled him to a judgment on the pleadings unless a special defense of new matter,
such as payment, is interposed by the defendant.35 (citations omitted)
The respondent denied paragraphs no. 6, 7 and 8 of the complaint "for lack of
knowledge or information sufficient to form a belief as to the truth or falsity thereof,
inasmuch as the alleged transactions were undertaken during the term of office of the
past officers of defendant Wesleyan University-Philippines." Was the manner of
denial effective as a specific denial?
We answer the query in the negative. Paragraph no. 6 alleged that the respondent's
total obligation as of February 15, 2009 was P123,901,650.00, but its balance
thereafter became only P54,654,195.54 because it had since then paid P67,357,683.23
to the petitioner. Paragraph no. 7 stated that the petitioner had agreed with the
respondent on February 11, 2009 to reduce the balance to only P50,400,000.00,
which the respondent would pay in 36 months through 36 postdated checks of
P1,400,000.00 each, which the respondent then issued for the purpose. Paragraph no.
8 averred that after four of the checks totalling P5,600,000.00 were paid the
respondent stopped payment of the rest, rendering the entire obligation due and
demandable pursuant to the February 11, 2009 agreement. Considering that
paragraphs no. 6, 7 and 8 of the complaint averred matters that the respondent ought
to know or could have easily known, the answer did not specifically deny such
material averments. It is settled that denials based on lack of knowledge or
information of matters clearly known to the pleader, or ought to be known to it, or
could have easily been known by it are insufficient, and constitute ineffective 36 or
sham denials. 37
ch an ro blesv irtu allawli b rary
That the respondent qualified its admissions and denials by subjecting them to its
special and affirmative defenses of lack of jurisdiction over its person, improper
venue, litis pendentia and forum shopping was of no consequence because the
affirmative defenses, by their nature, involved matters extrinsic to the merits of the
petitioner's claim, and thus did not negate the material averments of the complaint.
Lastly, we should emphasize that in order to resolve the petitioner's Motion for
Judgment Based on the Pleadings, the trial court could rely only on the answer of the
respondent filed in Civil Case No. 09-122116. Under Section 1, Rule 34 of the Rules
of Court, the answer was the sole basis for ascertaining whether the complaint's
material allegations were admitted or properly denied. As such, the respondent's
averment of payment of the total of P78,401,650.00 to the petitioner made in its
complaint for rescission had no relevance to the resolution of the Motion for
Judgment Based on the Pleadings. The CA thus wrongly held that a factual issue on
the total liability of the respondent remained to be settled through trial on the merits.
It should have openly wondered why the respondent's answer in Civil Case No. 09-
122116 did not allege the supposed payment of the P78,401,650.00, if the payment
was true, if only to buttress the specific denial of its alleged liability. The omission
exposed the respondent's denial of liability as insincere.
WHEREFORE, the Court REVERSES and SETS ASIDE the decision promulgated
on July 2, 2013; DIRECTS the Regional Trial Court, Branch 1, in Manila to resume
its proceedings in Civil Case No. 09-122116 entitled Fernando Medical Enterprises,
Inc. v. Wesleyan University-Philippines, and to forthwith act on and grant the Motion
for Judgment Based on the Pleadings by rendering the proper judgment on the
pleadings; and ORDERS the respondent to pay the costs of suit.
SO ORDERED. cralawlawlib rary
G.R. No. 187487 June 29, 2015
GO TONG ELECTRICAL SUPPLY CO., INC. and GEORGE C. GO,
Petitioners,
vs.
BPI FAMILY SAVINGS BANK, INC., substituted by PHILIPPINE
INVESTMENT ONE [SPV-AMC], INC.,* Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated February
17, 2009 and the Resolution3 dated April 13, 2009 of the Court of Appeals (CA) in
CA-G.R. CV No. 86749 which affirmed the Decision 4 dated September 6, 2005 of
the Regional Trial Court of Makati City, Branch 143 (RTC) in Civil Case No. 02-
1203, an action for collection of sum of money, rendered in favor of respondent BPI
Family Savings Bank, Inc. (respondent).
The Facts
On October 4, 2002, respondent filed a complaint5against petitioners Go Tong
Electrical Supply Co., Inc. (Go Tong Electrical) and its President, George C. Go (Go;
collectively petitioners), docketed as Civil Case No. 02-1203, seeking that the latter
be held jointly and severally liable to it for the payment of their loan obligation in the
aggregate amount of P87,086,398.71, inclusive of the principal sum, interests, and
penalties as of May 28, 2002, as well as attorneys fees, litigation expenses, and costs
of suit.6 As alleged by respondent as early as 1996, Go Tong Electrical had applied
for and was granted financial assistance by the then Bank of South East Asia (BSA).
Subsequently, DBS7 Bank of the Philippines, Inc. (DBS) became the successor in
interest of BSA. The application for financial assistance was renewed on January 6,
1999 through a Credit Agreement.8 On even date, Go Tong Electrical, represented by PENALTY P47,473,042.27
Go, among others, obtained a loan from DBS in the principal amount of
P40,491,051.65, for which Go Tong Electrical executed Promissory Note No. 82-91- SUB-TOTAL P119,401,894.20
00176-79 (PN) for the same amount in favor of DBS, maturing on February 5,
PLUS
200010 Under the PNs terms, Go Tong Electrical bound itself to pay a default
penalty interest at the rate of one percent (1%) per month in addition to the current UNPAID INTEREST P1,805,507.21
interest rate,11 as well as attorneys fees equivalent to twenty-five percent (25%) of UNPAID PENALTY P1,776,022.80
the amount sought to be recovered.12 As additional security, Go executed a
Comprehensive Surety Agreement13 (CSA) covering any and all obligations SUB-TOTAL P122,983,424.21
undertaken by Go Tong Electrical, including the aforesaid loan.14 Upon default of LESS: PAYMENTS -1,877,286.08
petitioners, DBS and later, its successor-in-interest, herein respondent15
demanded payment from petitioners,16 but to no avail,17 hence, the aforesaid
complaint. 121,106,138.1326

In their Answer with Counterclaim18 (Answer), petitioners merely stated that they
"specifically deny" 19 the allegations under the complaint. Of particular note is their
denial of the execution of the loan agreement, the PN, and the CSA "for being self-
serving and pure conclusions intended to suit [respondent's] purposes."20 By way of
special and affirmative defenses, petitioners argued, among others, that: (a) the real
party-in-interest should be DBS and not respondent; (b) no demand was made upon
them; and (c) Go cannot be held liable under the CSA since there was supposedly no
solidarity of debtors.21 Petitioners further interposed counterclaims for the payment
of moral and exemplary damages, as well as litigation and attorney's fees in the total
amount of P1,250,000.00.22During trial, respondent presented Ricardo 0. Suio23
(Suio ), the Account Officer handling petitioners' loan accounts, as its witness. Sunio
attested to the existence of petitioners' loan obligation in favor of respondent, 24 and
identified a Statement of Account25 which shows the amount due as of June 16, 2004
as follows:
SUMMARY
PRINCIPAL P40,491,051.65
PAST DUE INTEREST P31,437,800.28
On cross-examination, Suio nonetheless admitted that he had no knowledge of how
the PN was prepared, executed, and signed, nor did he witness its signing27
For their part, petitioners presented Go Tong Electrical's Finance Officer, Jocelyn
Antonette Lim, who testified that Go Tong Electrical was able to pay its loan, albeit
partially. However, she admitted that she does not know how much payments were
made, nor does she have a rough estimate thereof, as these were allegedly paid for in
dollars.28
The RTC Ruling
In a Decision29 dated September 6, 2005, the RTC ruled in favor of respondent,
thereby ordering petitioners to jointly and severally pay the former: (a) the principal
sum of P40,491,051.65, with legal interest to be reckoned from the filing of the
Complaint; ( b) penalty interest of one percent (1 %) per month until the obligation is
fully paid; and (c) attorney's fees in the sum of P50,000.00.30
It found that respondent had amply demonstrated by competent evidence that it was
entitled to the reliefs it prayed for. Particularly, respondent's documentary evidence -
the authenticity of which the RTC observed to be undisputed - showed the existence
of petitioners' valid and demandable obligation. On the other hand, petitioners failed
to discharge the burden of proving that they had already paid the same, even partially.
31 Further, the RTC debunked petitioners' denial of the demands made by respondent
since, ultimately, the Credit Agreement, PN, and CSA clearly stated that no demand
was needed to render them in default.32 Likewise, the argument that Go could not be
held solidarily liable was not sustained since he bound himself as a surety under the
CSA, which was executed precisely to induce respondent's predecessor-in-interest,
DBS, to grant the loan. 33 Separately, the RTC found the penalty interest at three
percent (3%) per month sought by respondent to be patently iniquitous and
unconscionable and thus, was reduced to twelve percent(12%) per annum, or one
percent (1 %) per month. Attorney's fees were also tempered to the reasonable
amount of P50,000.00.34
Unconvinced, petitioners appealed35 to the CA.
The CA Ruling
In a Decision36 dated February 17, 2009, the CA sustained the RTC's ruling in toto,
finding the following facts to be beyond cavil: (a) that Go Tong Electrical applied for
and was granted a loan accommodation from DBS in the amount of P40,491,051.65
after the execution of the Credit Agreement and the PN dated January 6, 1999,
maturing on February 5, 2000; (b) that as additional security, Go executed the CSA
binding himself jointly and severally to pay the obligation of Go Tong Electrical; and
(c) that petitioners failed to pay the loan obligation upon maturity, despite written
demands from then DBS, now, herein respondent.37 In this relation, the CA
discredited petitioners' argument that respondent's sole witness, Suio, was
incompetent to testify on the documentary evidence presented as he had no personal
knowledge of the loan documents' execution,38 given that petitioners, in their
Answer, did not deny under oath the genuineness and due execution of the PN and
CSA and, hence, are deemed admitted under Section 8, Rule 8 of the Rules of Court
(Rules).39 Besides, the CA observed that, despite the aforesaid admission, respondent
still presented the testimony of Suio who, having informed the court that the loan
documents were in his legal custody as the designated Account Officer when DBS
merged with herein respondent, had personal knowledge of the existence of the loan
documents. 40 It added that, although he was not privy to the execution of the same,
it does not significantly matter as their genuineness and due execution were already
admitted.41
Petitioners filed a motion for reconsideration,42 which was, however, denied in a
Resolution43 dated April 13, 2009, hence, this petition.
The Issue Before The Court
The issue for the Court's resolution is whether or not the CA erred in upholding the
RTC's ruling.
The Court's Ruling
The petition lacks merit. The Court concurs with the CA Decision holding that the
genuineness and due execution of the loan documents in this case were deemed
admitted by petitioners under the parameters of Section 8, Rule 8 of the Rules which
provides:
SEC. 8. How to contest such documents. - When an action or defense is founded upon
a written instrument, copied in or attached to the corresponding pleading as provided
in the preceding Section, the genuineness and due execution of the instrument shall be
deemed admitted unless the adverse party, under oath, specifically denies them, and
sets forth what he claims to be the facts; but the requirement of an oath does not apply
when the adverse party does not appear to be a party to the instrument or when
compliance with an order for an inspection of the original instrument is refused.
A reading of the Answer shows that petitioners failed to specifically deny the
execution of the Credit Agreement, PN, and CSA under the auspices of the above-
quoted rule. The mere statement in paragraph 4 of their Answer, i.e., that they
"specifically deny" the pertinent allegations of the Complaint "for being self-serving
and pure conclusions intended to suit plaintiffs purposes,"44 does not constitute an
effective specific denial as contemplated by law.45 Verily, a denial is not specific
simply because it is so qualified by the defendant. Stated otherwise, a general denial
does not become specific by the use of the word "specifically."46 Neither does it
become so by the simple expedient of coupling the same with a broad conclusion of
law that the allegations contested are "self-serving" or are intended "to suit plaintiffs
purposes."
In Permanent Savings & Loan Bank v. Velarde47 (Permanent Savings & Loan Bank),
citing the earlier case of Songco v. Sellner,48 the Court expounded on how to deny
the genuineness and due execution of an actionable document, viz.:
This means that the defendant must declare under oath that he did not sign the
document or that it is otherwise false or fabricated. Neither does the statement of the
answer to the effect that the instrument was procured by fraudulent representation
raise any issue as to its genuineness or due execution. On the contrary such a plea is
an- admission both of the genuineness and due execution thereof, since it seeks to
avoid the instrument upon a ground not affecting either.49
To add, Section 8, Rule 8 of the Rules further requires that the defendant "sets forth
what he claims to be the facts," which requirement, likewise, remains absent from the
Answer in this case.
Thus, with said pleading failing to comply with the "specific denial under oath"
requirement under Section 8, Rule 8 of the Rules, the proper conclusion, as arrived at
by the CA, is that petitioners had impliedly admitted the due execution and
genuineness of the documents evidencing their loan obligation to respondent.
To this, case law enlightens that "[t]he admission of the genuineness and due
execution of a document means that the party whose signature it bears admits that he
voluntarily signed the document or it was signed by another for him and with his
authority; that at the time it was signed it was in words and figures exactly as set out
in the pleading of the party relying upon it; that the document was delivered; and that
any formalities required by law, such as a seal, an acknowledgment, or revenue
stamp, which it lacks, are waived by him. Also, it effectively eliminated any defense
relating to the authenticity and due execution of the document, e.g., that the document
was spurious, counterfeit, or of different import on its face as the one executed by the
parties; or that the signatures appearing thereon were forgeries; or that the signatures
were unauthorized."50
Accordingly, with petitioners' admission of the genuineness and due execution of the
loan documents as above-discussed, the competence of respondent's witness Suio to
testify in order to authenticate the same is therefore of no moment. As the Court
similarly pointed out in Permanent Savings & Loan Bank, "[w]hile Section [20],51
Rule 132 of the [Rules] requires that private documents be proved of their due
execution and authenticity before they can be received in evidence, i.e., presentation
and examination of witnesses to testify on this fact; in the present case, there is no
need for proof of execution and authenticity with respect to the loan documents
because of respondent's implied admission thereof."52
The Court clarifies that while the "[ f]ailure to deny the genuineness and due
execution of an actionable document does not preclude a party from arguing against it
by evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel
and want of consideration [nor] bar a party from raising the defense in his answer or
reply and prove at the trial that there is a mistake or imperfection in the writing, or
that it does not express the true agreement of the parties, or that the agreement is
invalid or that there is an intrinsic ambiguity in the writing,"53 none of these defenses
were adequately argued or proven during the proceedings of this case.
Of particular note is the affirmative defense of payment raised during the proceedings
a quo. While petitioners insisted that they had paid, albeit partially, their loan
obligation to respondent, the fact of such payment was never established by
petitioners in this case. Jurisprudence abounds that, in civil cases, one who pleads
payment has the burden of proving it; the burden rests on the defendant, i.e.,
petitioners, to prove payment, rather than on the plaintiff, i.e., respondent, to prove
non-payment. When the creditor is in possession of the document of credit, proof of
non-payment is not needed for it is presumed. 54 Here, respondent's possession of the
Credit Agreement, PN, and CSA, especially with their genuineness and due
execution already having been admitted, cements its claim that the obligation of
petitioners has not been extinguished. Instructive too is the Court's disquisition in
Jison v. CA55 on the evidentiary burdens attendant in a civil proceeding, to wit:
Simply put, he who alleges the affirmative of the issue has the burden of proof, and
upon the plaintiff in a civil case, the burden of proof never parts. However, in the
course of trial in a civil case, once plaintiff makes out a prima facie case in his favor,
the duty or the burden of evidence shifts to defendant to controvert plaintiffs prima
facie case, otherwise, a verdict must be returned in favor of plaintiff. Moreover, in
civil cases, the party having the burden of proof must produce a preponderance of
evidence thereon, with plaintiff having to rely on the strength of his own evidence
and not upon the weakness of the defendant's. The concept of "preponderance of
evidence" refers to evidence which is of greater weight, or more convincing, that
which is offered in opposition to it; at bottom, it means probability of truth.56
Finally, the Court finds as untenable petitioners' theory on Go's supposed non-
liability. As established through the CSA, Go had clearly bound himself as a surety to
Go Tong Electrical's loan obligation. Thus, there is no question that Go's liability
thereto is solidary with the former. As provided in Article 204757 of the Civil Code,
"the surety undertakes to be bound solidarily with the principal obligor. That
undertaking makes a surety agreement an ancillary contract as it presupposes the
existence of a principal contract. Although the contract of a surety is in essence
secondary only to a valid principal obligation, the surety becomes liable for the debt
or duty of another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom. Let it be stressed that
notwithstanding the fact that the surety contract is secondary to the principal
obligation, the surety assumes liability as a regular party to the undertaking,"58 as Go
in this case.
However, while petitioners' liability has been upheld in this case, the Court finds it
proper to modify the RTC's ruling, as affirmed by the CA, with respect to the
following:
First, the partial payment made by Go Tong Electrical on June 16, 2004 in the amount
of P1,877,286.08, as admitted by respondent through a Statement of Account,59
formally offered as Exhibit "G" and duly identified by Suio during trial, should be
deducted from the principal amount of P40,491,05 l .65 due respondent.
Second, with respect to the interests and penalties:
(a) petitioners should be held liable for the twenty percent (20%) per annum
stipulated interest rate reckoned 31 days from January 6, 1999, as agreed upon
in the PN,60 until its maturity date on February 5, 2000, which period is
regarded as the initial period in said PN. Said interest rate should be upheld as
this was stipulated by the parties, and the rate cannot be considered
unconscionable.61 The same shall be computed based on the entire principal
amount due, i.e., P40,491,05 l.65, since the records disclose that the admitted
partial payment of Pl,877,286.08 was still unpaid before the complaint was
filed on October 4, 2002,62 or before the February 5, 2000 maturity date; and
(b) the reduced interest rate of one percent (1%) per month and penalty rate of
one percent (1%) per month are upheld,63 but should accrue from the PN's
February 5, 2000 maturity date64 until June 16, 2004, or the date when the
partial payment of P1,877,286.08 has been made by Go Tong Electrical, and
computed based on the entire principal amount of P40,491,051.65. Interest
and penalty, at the same reduced rate, due thereafter (i.e., from June 17, 2004
until full payment) shall be computed based on the net amount of
P38,613,765.57 (i.e., the amount arrived at after deducting the partial payment
of P1,877,286.08 from the principal amount of P40,491,051.65).
WHEREFORE, the petition is DENIED. The Decision dated February 17, 2009 and
the Resolution dated April 13, 2009 of the Court of Appeals in CA-G.R. CV No.
86749 are hereby AFFIRMED with the above-stated MODIFICATIONS.
SO ORDERED.
[G.R. No. 117434. February 9, 2001]
BENGUET EXPLORATION, INC., petitioner, vs. COURT OF APPEALS,
SWITZERLAND GENERAL INSURANCE, CO., LTD., and SEAWOOD
SHIPPING, INC., respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision, dated June 30, 1994, and
resolution, dated September 29, 1994, of the Court of Appealsi[1] which affirmed the
decision of the Regional Trial Court, Branch 149, Makati, dismissing the complaints
filed by petitioner against herein private respondents, and denied petitioners motion
for reconsideration, respectively.
The background of this case is as follows:
On November 29, 1985, petitioner Benguet Exploration, Inc. (Benguet) filed a
complaint for damages against Seawood Shipping, Inc. (Seawood Shipping) with the
Regional Trial Court of Makati, which was docketed as Civil Case No. 12394 and
assigned to Branch 149.ii[2] On March 4, 1986, petitioner Benguet filed another
complaint for damages against respondent Switzerland General Insurance, Co., Ltd.
(Switzerland Insurance), which was docketed as Civil Case No. 13085iii[3] and
assigned to Branch 148 of the court.
The two cases were consolidated. Switzerland Insurance filed a third-party complaint
against Seawood Shipping, praying that the latter be ordered to indemnify it for
whatever might be adjudged against it in favor of petitioner.iv[4] Thereafter, the cases
were jointly tried, during which petitioner Benguet presented its employees, Rogelio
Lumibao and Ernesto Cayabyab, as witnesses.
Rogelio Lumibao, marketing assistant of Benguet, was in charge of exportation. His
responsibilities included the documentation of export products, presentations with
banks, and other duties connected with the export of products. He explained that
private respondent Seawood Shipping was chartered by petitioner Benguet to
transport copper concentrates. The bill of lading (Exh. A) stated that the cargo,
consisting of 2,243.496 wet metric tons of copper concentrates, was loaded on board
Sangkulirang No. 3 at Poro Point, San Fernando, La Union. It was insured by
Switzerland Insurance (marine insurance policy was marked Exh. C). When the cargo
was unloaded in Japan, however, Rogelio Lumibao received a report (Exh. B), dated
August 19, 1985, from a surveyor in Japan stating that the cargo was 355 metric tons
short of the amount stated in the bill of lading. For this reason, petitioner Benguet
made a claim of the loss to Seawood Shipping and Switzerland Insurance. In its letter,
dated August 21, 1985 (Exh. D), petitioner Benguet made a formal demand for the
value of the alleged shortage. As both Seawood Shipping and Switzerland Insurance
refused the demand, petitioner Benguet brought these cases against Seawood
Shipping and Switzerland Insurance.v[5]
On cross-examination, Lumibao admitted that he did not see the actual loading of the
cargo at Poro Point and that his knowledge was limited to what was contained in the
bill of lading which he received about two days after the loading. Lumibao testified
that at Camp 6, Kennon Road, Baguio, the copper concentrates were weighed prior to
being transported to Poro Point, where they were once more weighed before being
loaded on the vessel. But again he admitted that he had not seen the actual weighing
and loading of the copper concentrates because he was not the one in charge of the
operation. Nor was he in Japan when the cargo was unloaded. He also did not know
how to perform the procedure for weighing cargo. Thus, he could not determine the
truth or falsity of the contents of the draft survey. He only knew that there was in fact
a shortage based on his reading of the draft report.vi[6] Further, Lumibao testified
that, although he prepared the export declaration, he did not prepare the bill of lading.
The bill of lading was made on the basis of the draft survey conducted by the
Overseas Merchandise Inspection Co., Ltd. or OMIC.vii[7] Some other person
undertook the weighing of the cargo, and Lumibao was only informed by telephone
of the cargos weight during its loading and unloading.
Lumibao had nothing to do with the preparation of the bill of lading, the weighing of
the copper concentrates, and the shipment of the cargo. He did not accompany the
trucks which transferred the cargo from Baguio to Poro Point. He was not on the ship
when the cargo was loaded at Poro Point. Nor did he know if spillage occurred during
the loading or unloading of the copper concentrates.
Lumibao said that the buyer of the copper concentrates was the Brandeis Intsel Co.,
Inc. Upon receipt of the cargo, Brandeis Intsel Co., Inc. paid for the cargo based on
its weight in dry metric tons, or 90 percent more or less of the price of 2,243.496 tons,
the weight of the cargo in wet metric tons. With regard to the insurance policy, he
testified that petitioner Benguet made no objection to any of the terms stated on the
face of the policy.viii[8]
Ernesto Cayabyab next testified for petitioner. He had been with Benguet for 13 years
and, at the time of his testimony, he was secretary of Nil Alejandre, manager of
Benguet. According to Cayabyab, on July 28, 1985, he was sent to the warehouse
(bodega) at Poro Point, La Union to assist in the loading of the copper concentrates.
These copper concentrates were to be loaded on the ship Sangkulirang No. 3.
Cayabyab said he was present when the cargo was loaded on the ship, as evidenced
by the Certificate of Loading (Exh. E), Certificate of Weight (Exh. F), and the Mates
Receipt (Exh. G), all dated July 28, 1985. According to Cayabyab, the Marine
Surveyor and the Chief Mate would go around the boat to determine how much was
loaded on the ship. Cayabyab stated that he saw petitioner Benguets representative
and his immediate superior, Mr. Alejandre, and the Inspector of Customs, Mr.
Cardenas, sign the Certificate of Weight. Cayabyab also witnessed the ship captain
sign the Certificate of Weight,ix[9] which stated therein that 2,243.496 wet metric
tons of copper concentrates were loaded on the ship.x[10] Cayabyab likewise
confirmed the authenticity of the Mates Receipt, saying that he witnessed the Chief
Mate sign the document.xi[11]
When cross-examined, Cayabyab said that, as a secretary, his duties included
computing the companys daily main production in the mine site and accompanying
his superior, Mr. Alejandre, during shipments. He explained that the copper
concentrates were transported by dump trucks from the mining site to Poro Point for
over a month, possibly even three to six months. Cayabyab went to Poro Point on
July 27, 1985 to witness the loading of the copper concentrates on the vessel
Sangkulirang No. 3. But the copper concentrates had already been delivered and
stored in a bodega when he arrived. These concentrates were placed on the cemented
ground inside the bodega after their weight was recorded. Describing the procedure
for weighing, he said that the trucks, without the copper concentrates, were weighed.
Then, after they had been loaded with copper concentrates, the trucks were placed in
the bodega and weighed again. To determine the weight of the copper concentrates,
the weight of the trucks was deducted from the weight of the trucks loaded with
copper concentrates. The copper concentrates were then loaded on the ship by means
of a conveyor at the average rate of 400 tons an hour. Cayabyab did not know,
however, how many trucks were used to load the entire cargo of the copper
concentrates nor did he know exactly how many hours were spent loading the copper
concentrates to the ship. He could only remember that he reported for work in the
morning and that he worked overtime because he had to wait until the loading of the
cargo was finished before he could leave. During the loading, he moved from place to
place, and his attention was sometimes distracted. Thus, he could not tell with
certainty that no spillage took place during the loading. The figure of 2,243.496 wet
metric tons was computed by the Marine Surveyor and the Chief Mate.xii[12]
Respondent Switzerland Insurance then presented its evidence. Three witnesses,
Eduardo Pantoja, Anastacio Fabian, and Edgardo Dio, testified for it.
Eduardo Pantoja, assistant branch manager of respondent Switzerland Insurance in
the Philippines, testified that he prepared the data and conditions of the marine
insurance policy of petitioner Benguet using information furnished by the latter,
although some of the conditions attached to the policy were conditions Switzerland
Insurance attached to all the marine policies issued by it. Pantoja stated that the figure
of 2,243.496 wet metric tons contained in the policy of Benguet was taken from the
latters declaration. Switzerland Insurance relied on the value of the cargo declared by
the insured on the basis of the principle of uberrimae fidei, i.e., the insured must act
in the utmost good faith.xiii[13] One of the conditions set forth in the marine policy
(Exh. 8) was that the [w]arranted vessel is equipped with steel centerline bulk head.
According to Pantoja, this condition was specifically included in the policy because
the nature of the cargo warranted the same, and Switzerland Insurance would not
have accepted the policy had such condition not been attached. The purpose of the
centerline bulkhead was to prevent the copper concentrates from shifting while being
transported on the ship. Upon verification by Certified Adjusters, Inc., adjusters of
Switzerland Insurance, it was found that the vessel Sangkulirang No. 3 did not have a
steel centerline bulkhead. Pantoja identified a letter, dated February 13, 1986, sent by
his company to petitioner Benguet canceling its insurance contract because the
carrying vessel was not equipped with a steel centerline bulkhead as warranted under
the policy (Exh. 7-a). Enclosed was Check No. HSBC 419463 for P98,174.43
representing the refund by Switzerland Insurance of the premium payments,
documentary stamps, and premium taxes paid by petitioner Benguet (Exh. 7). He
testified that Switzerland Insurance paid its legal counsel P40,000.00 as attorneys fees
plus appearance fees.xiv[14]
On cross-examination, Pantoja explained that the company had its own system of
determining various rates of insurance. Several factors were taken into consideration,
such as the nature of the goods, the manner by which they were packed, and the
destination of the cargo. For example, Switzerland Insurance would anticipate
pilferages if the cargo involved household goods or, in the case of chemicals, it would
consider the possibility of spillage. Pantoja, however, stated that he did not make any
investigation in this case but used only his previous experience and project
knowledge in dealing with similar cases. He admitted that Switzerland Insurance
checked whether the ship had a steel centerline bulkhead only after a claim had been
made by petitioner Benguet. He explained, however, that it was impossible for them
to make the investigation before the execution of the marine policy because they had
only one day to check whether the ship had a steel centerline bulkhead and the ship at
that time was not in Manila but in Poro Point. He reiterated that good faith dealing
with the insured included relying on the truth of the latters representations. There was
little risk involved in relying on the insureds representations because the company
would not have accepted the risk if it found that the conditions in the policy had not
been complied with. Switzerland Insurance refused Benguets demand because non-
compliance with the condition that the ship be equipped with a steel centerline
bulkhead rendered the marine insurance policy null and void from the beginning. This
is why Switzerland Insurance refunded the premium paid by petitioner Benguet.
Pantoja stated that petitioner Benguet did not claim that the loss was caused by the
shipping of the cargo because it did not know the cause of the shortage.xv[15]
Another witness for Switzerland Insurance was Anastacio Fabian, the marine
manager of Certified Adjusters, Inc. He testified that he went to Poro Point where the
shipment was loaded for transport to Japan. It took him almost two months to finish
his investigation and to come up with a written report (Exh. 12). He prepared a letter,
dated January 31, 1986, seeking a certification from Capt. Jae Jang of Sangkulirang
No. 3 on whether the ship was equipped with a steel centerline bulkhead (Exh. 5). In
response thereto, respondent Seawood Shipping sent a letter, dated February 1, 1986,
stating therein that the vessel was not equipped with a steel centerline bulkhead (Exh.
6). This steel centerline bulkhead was a steel separation of a vessel for the purpose of
preventing the vessel from sinking, especially in heavy weather. Pictures of the ship
were taken by Wise Insurance showing that the vessel did not have a steel centerline
bulkhead (Exhs. 15 to 15-H).
Fabian also identified petitioner Benguets export declaration (Exh. 11) which
provides therein that the cargo loaded on the ship weighed 2,050 wet metric tons or
1,845 dry metric tons.xvi[16] On further direct examination, he testified that Certified
Adjusters, Inc.s president, Mr. Edgardo Dio, wrote a letter, dated January 13, 1986, to
the shipping company inquiring as to the circumstances surrounding the loss of the
cargo (Exh. 17). Seawood Shipping responded to Certified Adjusters, Inc. in a letter,
dated January 16, 1986, explaining that the weight of the cargo might have been
increased by the rains which occurred during the loading, and that the shortage upon
unloading might be due to the moisture which evaporated during the voyage from the
Philippines to Japan. Fabian testified that the moisture on the copper concentrates
increased the weight of the cargo.
Fabian said that during his investigation he asked how and when the shipment was
loaded in the vessel and where it was loaded. He also checked records of the loading
of the cargo. Although he admitted that the records show that a shortage of the copper
concentrates had occurred when these reached Japan, he attributed it to the rains
which occurred during the loading of the copper concentrates which increased their
weight, although he conceded that it was not possible that the rains would cause a
shortage of around 300 metric tons. He did not know what could have caused the
shortage.xvii[17]
The last witness to testify for the defense was Edgardo Dio, president and general
manager of Certified Adjusters, Inc. He testified that his company conducted an
investigation and found that the vessel Sangkulirang No. 3 was not equipped with a
steel centerline bulkhead. The main function of the steel centerline bulkhead was to
prevent shifting of the copper concentrates during transport. If there was no steel
centerline bulkhead, the vessel was liable to sink. He stated that the ship had two
holds, one of which was loaded with petitioner Benguets copper concentrates and the
other with a Lepanto shipment. Dio identified photographs showing that only a
wooden partition separated the two cargoes on both holds (Exhs. 15-A to 15-G). He
testified that his company wrote a letter to the shipping company inquiring about the
shortage which occurred on petitioner Benguets copper concentrates. He expressed
doubt that the loss of moisture of the copper concentrates caused the shortage because
these were actually mixed with some water to keep them from heating up or to
prevent spontaneous combustion. According to Dio, it was possible that some shifting
of the cargo occurred as indicated by the photographs of the ship.xviii[18]
Based on the evidence presented, the trial court rendered its decision on July 2, 1990
dismissing petitioners complaint as well as Switzerland Insurances third-party
complaint against Seawood Shipping.
On appeal, its decision was affirmed by the Court of Appeals.xix[19] Petitioner
Benguet moved for reconsideration, but its motion was denied.xx[20] Hence this
petition.
Petitioner Benguet contends that the Court of Appeals gravely erred in ruling that it
failed to establish the loss or shortage of the subject cargo because such loss was
sufficiently established by documentary and testimonial evidence, as well as the
admissions of private respondents.xxi[21] Petitioner argues that documents regarding
the tonnage of the copper concentrates have been properly identified and that the bill
of lading (Exh. A), the Certificate of Weight (Exh. F), and the Mates Receipt (Exh.
G), all of which stated that 2,243.496 wet metric tons of copper concentrates were
loaded on the ship, create a prima facie presumption that such amount was indeed
what was loaded on the vessel. Petitioner asserts that the Draft Survey Report of
OMIC (Exh. B) was sufficient evidence to prove that the cargo which arrived in
Japan had a shortage of 355 wet metric tons.
We find petitioners contentions to be without merit.
First. It is settled that only questions of law may be raised on appeal by certiorari
under Rule 45. The trial court, having heard the witnesses and observed their
demeanor and manner of testifying, is in a better position to decide the question of
their credibility. Hence, unless the factual findings complained of are not supported
by the evidence on record or the assailed judgment is based on a misapprehension of
facts, the findings of the trial court must be accorded the highest respect, even
finality, by this Court.xxii[22] It is noteworthy that the Court of Appeals made the
same factual findings as did the trial court.xxiii[23]
Contrary to this rule, petitioner is raising questions of facts as it seeks an evaluation
of the evidence presented by the parties. However, we find no basis for concluding
that both the trial court and the Court of Appeals misappreciated the evidence in this
case. To the contrary, we find that petitioner failed to present evidence to prove that
the weight of the copper concentrates actually loaded on the ship Sangkulirang No. 3
was 2,243.496 wet metric tons and that there was a shortage of 355 metric tons when
the cargo was discharged in Japan.
Petitioners own witness, Rogelio Lumibao, admitted that he was not present at the
actual loading of the cargo at Poro Point, his information being limited to what was
contained in the bill of lading. As he was not in charge of the operation, he did not see
the actual weighing and loading of the copper concentrates. Nor did he prepare the
bill of lading. He only verified the weight of the cargo, from the time it was loaded on Q You are not an employee of OMIC?
the ship to the time it was unloaded in Japan, through the telephone. Neither was he
present when the cargo was discharged in Japan.xxiv[24] Thus, Lumibao testified: A No, sir.

Q Now Exhibit A is a bill of lading which you identified? Q Are you connected with it in any way?

A Yes, sir. A No, sir.

Q Do you have anything to do in the preparation of this bill of lading? Q In the Bill of Lading, you identified this document a xerox copy of the
supposed original Bill of Lading and marked as Exh. A, are the wordings and figures
A None, sir. copper concentrate 2,243.496 WMT this means weight per metric ton?

Q In other words, you did not verify if the weight stated in the bill of lading was
the actual weight of the copper concentrate loaded in the ship of the defendant
Seawood Shipping Inc.?
....
A The bill of lading is prepared on the basis of the draft survey. That is the
procedure.
A Yes, sir.
Q Did you have it [verified] if this was the actual weight loaded on the ship of
the defendant Seawood, Shipping, Inc.?
A We were advised by the OMIC surveyor that the weight was loaded.
Q Did you personally verify if these figures are true?

Q And who undertakes the draft survey? A Yes, by phone.

A For that particular shipment we required or hired the services of OMIC. Q Did you participate in weighing?

Q In other words, your draft survey is from the point of origin to Poro Point up A No, sir. Just by phone.
to the point of destination, Onahama, Japan, was done by OMIC?
Q In other words somebody else made the weighing not you?
A Yes, sir.
A Yes, sir.
Q And you have nothing to do with OMIC?
Q Did you personally do the verification of the actual weight loaded in the ship?
A None, sir.
.... A No, sir.

A Yes, sir by phone. Q You did not know whether there was spillage when or while loading copper
concentrates?
Q So you are informed [of] the weight actually loaded by phone?
A Yes, sir.
A Yes, sir.
Q Neither were you on the ship on its way to Japan, were you?
Q Do you always verify by phone?
A No, sir.
A That is only preliminary, while waiting what is the concluding things. (sic)
That is after the surveyor has submitted the report to us. Q You were not at Onahama, Japan, the port of destination?

Q So in other words, all the time you have been basing your testimony on A No, sir.xxv[25]
reports prepared by other person?
On the other hand, Ernesto Cayabyab testified that he was at Poro Point when the
A Yes, sir. copper concentrates were being loaded on the ship. Although he was present when the
Certificate of Loading (Exh. E), Certificate of Weight (Exh. F), and the Mates
Q In fact, you have nothing to do with the preparation of the Bill of Lading? Receipt (Exh. G) were signed at the loading site,xxvi[26] he admitted that he could
not say for certain that no spillage occurred during the loading of the cargo on the
A Yes, sir. ship because his attention was not on the cargo at all times.xxvii[27]

Q You have nothing to do with the weighing of the copper concentrate? . . . .
You have nothing to do [with] the transport of the copper concentrate from Camp 6,
Baguio to Poro Point?
A None, sir.
Q You did not even accompany the truck?
A No, sir.
Q You were not at the shipside when this copper concentrate was loaded?
It is evident that petitioners witnesses had no personal knowledge of the actual weight
of copper concentrates loaded on the vessel and discharged in Japan. Lumibao had no
part in the preparation of the bill of lading (Exh. A) and the Draft Survey Report
prepared by OMIC (Exh. B). Nor was he present when the copper concentrates were
loaded on the vessel or when the cargo was unloaded in Japan. He merely relied on
the declarations made by other persons that 2,243.496 wet metric tons were indeed
loaded on Sangkulirang No. 3 and that the cargo was short by 355 metric tons when
unloaded in Japan. The same may be said of witness Cayabyab. While present at the
loading site and familiar with the procedure followed in loading the cargo, he
admitted that he could not state for certain that no spillage occurred as his attention
was not at all times focused on the loading operation. Moreover, none of the
documents he identified, i.e., Certificate of Loading, Certificate of Weight, and Mates
Receipt, were signed by him. He only witnessed the signing of these documents by
other people. Hence, he was in no position to testify as to the truth or falsity of the
figures contained therein. The testimonies of these witnesses were thus hearsay. It has
been held:
Any evidence, whether oral or documentary, is hearsay if its probative value is not
based on the personal knowledge of the witness but on the knowledge of another
person who is not on the witness stand. Hearsay evidence, whether objected to or not,
has no probative value unless the proponent can show that the evidence falls within
the exceptions to the hearsay evidence rule. xxviii[28]
Second. Petitioner contends that the genuineness and due execution of the documents
presented, i.e., Bill of Lading, Certificate of Loading, Certificate of Weight, Mates
Receipt, were properly established by the testimony of its witness, Ernesto Cayabyab,
and that as a result, there is a prima facie presumption that their contents are true.
This contention has no merit. The admission of the due execution and genuineness of
a document simply means that the party whose signature it bears admits that he
signed it or that it was signed by another for him with his authority; that at the time it
was signed it was in words and figures exactly as set out in the pleading of the party
relying upon it; that the document was delivered; and that any formal requisites
required by law, such as a seal, an acknowledgment, or revenue stamp, which it lacks,
are waived by him.xxix[29] In another case, we held that When the law makes use of
the phrase genuineness and due execution of the instrument it means nothing more
than that the instrument is not spurious, counterfeit, or of different import on its face
from the one executed.xxx[30] It is equally true, however, that
Execution can only refer to the actual making and delivery, but it cannot involve
other matters without enlarging its meaning beyond reason. The only object of the
rule was to enable a plaintiff to make out a prima facie, not a conclusive case, and it
cannot preclude a defendant from introducing any defense on the merits which does
not contradict the execution of the instrument introduced in evidence. xxxi[31]
In this case, respondents presented evidence which casts doubt on the veracity of
these documents. Respondent Switzerland Insurance presented Export Declaration
No. 1131/85 (Exh. 11)xxxii[32] which petitioners own witness, Rogelio Lumibao,
prepared,xxxiii[33] in which it was stated that the copper concentrates to be
transported to Japan had a gross weight of only 2,050 wet metric tons or 1,845 dry
metric tons, 10 percent more or less.xxxiv[34] On the other hand, Certified Adjusters,
Inc., to which Switzerland Insurance had referred petitioners claim, prepared a report
which showed that a total of 2,451.630 wet metric tons of copper concentrates were
delivered at Poro Point.xxxv[35] As the report stated:
It is to be pointed out that there were no actual weighing made at Benguet
Exploration, Inc.s site. The procedure done was that after weighing the trucks before
and after unloading at Philex Poro Point Installation, the weight of the load was
determined and entered on Philex Trip Ticket which was later on copied and entered
by the truck driver on Benguet Exploration, Inc.s Transfer Slip. xxxvi[36]
Considering the discrepancies in the various documents showing the actual amount of
copper concentrates transported to Poro Point and loaded in the vessel, there is no
evidence of the exact amount of copper concentrates shipped. Thus, whatever
presumption of regularity in the transactions might have risen from the genuineness
and due execution of the Bill of Lading, Certificate of Weight, Certificate of Loading,
and Mates Receipt was successfully rebutted by the evidence presented by respondent
Switzerland Insurance which showed disparities in the actual weight of the cargo
transported to Poro Point and loaded on the vessel. This fact is compounded by the
admissions made by Lumibao and Cayabyab that they had no personal knowledge of
the actual amount of copper concentrates loaded on the vessel. Correctly did the
Court of Appeals rule:
In the face of these admissions, appellants claim of loss or shortage is placed in
serious doubt, there being no other way of verifying the accuracy of the figures
indicated in appellants documentary evidence that could confirm the alleged loss of
355.736 MT. Notwithstanding the figure stated in Bill of Lading No. PP/0-1 (Exhibit
A) that 2,243.496 WMT of copper concentrates was loaded by appellant at the port of
origin, it should be stressed that this is merely prima facie evidence of the receipt by
the carrier of said cargo as described in the bill of lading. Thus, it has been held that
recitals in the bill of lading as to the goods shipped raise only a rebuttable
presumption that such goods were delivered for shipment and as between the
consignor and a receiving carrier, the fact must outweigh the recital (Saludo vs. Court
of Appeals, 207 SCRA 498, 509 [1992]). Resultingly, the admissions elicited from
appellants witnesses that they could not confirm the accuracy of the figures indicated
in their documentary evidence with regard to the actual weight of the cargo loaded at
the port of origin and that unloaded at the port of destination, in effect rebuts the
presumption in favor of the figure indicated in the bill of lading. xxxvii[37]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
[G.R. No. 160242. May 17, 2005]
ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION, petitioner, vs.
COURT OF APPEALS and MONARK EQUIPMENT CORPORATION,
respondents.
DECISION
CALLEJO, SR., J.:
On March 13, 2001, Monark Equipment Corporation (MEC) filed a Complaint [1] for a
sum of money with damages against the Asian Construction and Development
Corporation (ACDC) with the Regional Trial Court (RTC) of Quezon City. The
complaint alleged the following: ACDC leased Caterpillar generator sets and Amida
mobile floodlighting systems from MEC during the period of March 13 to July 15,
1998 but failed, despite demands, to pay the rentals therefor in the total amount of
P4,313,935.00; from July 14 to August 25, 1998, various equipments from MEC
were, likewise, leased by ACDC for the latters power plant in Mauban, Quezon, and
that there was still a balance of P456,666.67; and ACDC also purchased and took
custody of various equipment parts from MEC for the agreed price of P237,336.20
which, despite demands, ACDC failed to pay.
MEC prayed that judgment be rendered in its favor, thus:
1. Ordering defendant to pay the plaintiff the total amount of FIVE MILLION
SEVENTY-ONE THOUSAND THREE HUNDRED THIRTY-FIVE [PESOS] &
86/100 (P5,071,335.86);
2. Ordering defendant to pay the plaintiff legal interest of 12% per annum on the
principal obligations in the total amount of FIVE MILLION SEVENTY-ONE
THOUSAND THREE HUNDRED THIRTY-FIVE [PESOS] & 86/100
(P5,071,335.86) computed from the date the obligations became due until fully paid;
3. Ordering defendant to pay attorneys fees in the amount equivalent to 15% of the
amount of claim;
4. Ordering defendant to pay all costs of litigation.
Plaintiff prays for such other reliefs as may be just and equitable under the
premises.[2]
ACDC filed a motion to file and admit answer with third-party complaint against
Becthel Overseas Corporation (Becthel). In its answer, ACDC admitted its
indebtedness to MEC in the amount of P5,071,335.86 but alleged the following
special and affirmative defenses:
5. Defendant has incurred an obligation with plaintiff, in the amount of
P5,071,335.86. But third-party defendant fails and refuses to pay its overdue
obligation in connection with the leased equipment used by defendant to comply with
its contracted services;
6. The equipment covered by the lease were all used in the construction project of
Becthel in Mauban, Quezon, and Expo in Pampanga and defendant was not yet paid
of its services that resulted to the non-payment of rentals on the leased equipment.[3]
And by way of third-party complaint against Becthel as third-party defendant, ACDC
alleged that:
7. Third-party plaintiff repleads the foregoing allegations in the preceding
paragraphs as may be material and pertinent hereto;
8. Third-party BECTHEL OVERSEAS CORPORATION (herein called Becthel)
is a corporation duly organized and existing under the laws of the United
States of America but may be served with summons at Barangay Cagsiay I,
Mauban, Quezon 4330, Philippines;
9. Third-party defendant Becthel contracted the services of third-party plaintiff to
do construction work at its Mauban, Quezon project using the leased
equipment of plaintiff Monark;
10. With the contracted work, third-party plaintiff rented the equipment of the
plaintiff Monark;
11. Third-party plaintiff rendered and complied with its contracted works with
third-party defendant using plaintiffs (Monark) rented equipment. But, third-
party defendant BECTHEL did not pay for the services of third-party
plaintiff ASIAKONSTRUKT that resulted to the non-payment of plaintiff
Monarks claim;
12. Despite repeated demands, third-party defendant failed and refused to pay its
overdue obligation to third-party plaintiff ASIAKONSTRUKT, and third-
party defendant needs to be impleaded in this case for contribution,
indemnity, subrogation or other reliefs to off-set or to pay the amount of
money claim of plaintiff Monark on the leased equipment used in the
Mauban, Quezon project in the total amount of P456,666.67;
13. By reason thereof, third-party plaintiff was compelled to prosecute its claim
against third-party defendant and hired the services of undersigned counsel
for an attorneys fees of P500,000.00.[4]
ACDC prayed that judgment be rendered in its favor dismissing the complaint and
ordering the third-party defendant (Becthel) to pay P456,666.67 plus interest thereon
and attorneys fees.[5]
MEC opposed the motion of ACDC to file a third-party complaint against Becthel on
the ground that the defendant had already admitted its principal obligation to MEC in
the amount of P5,071,335.86; the transaction between it and ACDC, on the one hand,
and between ACDC and Becthel, on the other, were independent transactions.
Furthermore, the allowance of the third-party complaint would result in undue delays
in the disposition of the case.[6]
MEC then filed a motion for summary judgment, alleging therein that there was no
genuine issue as to the obligation of ACDC to MEC in the total amount of
P5,071,335.86, the only issue for the trial courts resolution being the amount of
attorneys fees and costs of litigation.[7]
ACDC opposed the motion for summary judgment, alleging that there was a genuine
issue with respect to the amount of P5,071,335.86 being claimed by MEC, and that it
had a third-party complaint against Becthel in connection with the reliefs sought
against it which had to be litigated.[8]
In its reply, MEC alleged that the demand of ACDC in its special and affirmative
defenses partook of the nature of a negative pregnant, and that there was a need for a
hearing on its claim for damages.
On August 2, 2001, the trial court issued a Resolution denying the motion of ACDC
for leave to file a third-party complaint and granting the motion of MEC, which the
trial court considered as a motion for a judgment on the pleadings. The fallo of the
resolution reads:
ACCORDINGLY, this Court finds defendant Asian Construction and Development
Corporation liable to pay plaintiff Monark Equipment Corporation and is hereby
ordered to pay plaintiff the amount of FIVE MILLION SEVENTY-ONE
THOUSAND AND THREE HUNDRED THIRTY-FIVE & 86/100 PESOS
(P5,071,335.86) plus 12% interest from the filing of the complaint until fully paid.
SO ORDERED.[9]
ACDC appealed the resolution to the Court of Appeals (CA), alleging that
I. THE LOWER COURT ERRED IN DENYING THE MOTION TO FILE AND
ADMIT ANSWER WITH THIRD-PARTY COMPLAINT;
II. THE LOWER COURT ERRED IN GRANTING THE MOTION FOR
SUMMARY JUDGMENT;
III. THE LOWER COURT ERRED WHEN IT DENIED THE THIRD-PARTY
COMPLAINT AND ORDERED DEFENDANT TO PAY THE AMOUNT OF
P5,071,335.86 PLUS INTEREST OF 12% PER ANNUM. [10]
On July 18, 2001, the CA rendered judgment dismissing the appeal and affirming the
assailed decision. The appellate court ruled that since MEC had prayed for judgment
on the pleadings, it thereby waived its claim for damages other than the amount of
P5,071,335.86; hence, there was no longer a genuine issue to be resolved by the court
which necessitated trial. The appellate court sustained the disallowance of the third-
party complaint of ACDC against Becthel on the ground that the transaction between
the said parties did not arise out of the same transaction on which MECs claim was
based.
Its motion for reconsideration of the decision having been denied, ACDC, now the
petitioner, filed the present petition for review on certiorari, and raises the following
issues:
I. WHETHER OR NOT A THIRD-PARTY COMPLAINT IS PROPER; AND
II. WHETHER OR NOT JUDGMENT ON THE PLEADINGS IS PROPER. [11]
Citing the rulings of this Court in Allied Banking Corporation v. Court of Appeals[12]
and British Airways v. Court of Appeals,[13] the petitioner avers that the CA erred in
ruling that in denying its motion for leave to file a third-party complaint, the RTC
acted in accordance with the Rules of Court and case law. The petitioner maintains
that it raised genuine issues in its answer; hence, it was improper for the trial court to
render judgment on the pleadings:
With due respect, the judgment on the pleadings affirmed by the Court of Appeals is
not, likewise, proper considering that the Answer with Third-Party Complaint,
although it admitted the obligation to respondent, tendered an issue of whether the
respondents claim is connected with the third-party claim.
As alleged in the Answer with Third-Party Complaint, it is admitted then by
respondent, for purposes of judgment on the pleadings, that failure to pay respondent
was in connection of Becthel Overseas Corporations failure to pay its obligation to
petitioner and that the equipment leased was used in connection with the Becthel
Overseas Corporation project.
This tendered issue could not just be disregarded in the light of the third-party
complaint filed by herein petitioner and third-party plaintiff which, as argued in the
first discussion/argument, is proper and should have been given due course. [14]
The petition is denied for lack of merit.
Section 11, Rule 6 of the Rules of Court provides:
Sec. 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 opponents claim.
Furthermore, Section 1, Rule 34 of the Rules of Court provides that the Court may
render judgment on the pleadings, as follows:
Section 1. Judgment on the pleadings. Where an answer fails to tender an issue, or,
otherwise, admits the material allegations of the adverse partys 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.
The purpose of Section 11, Rule 6 of the Rules of Court is to permit a defendant to
assert an independent claim against a third-party which he, otherwise, would assert in
another action, thus preventing multiplicity of suits. All the rights of the parties
concerned would then be adjudicated in one proceeding. This is a rule of procedure
and does not create a substantial right. Neither does it abridge, enlarge, or nullify the
substantial rights of any litigant.[15] This right to file a third-party complaint against a
third-party rests in the discretion of the trial court. The third-party complaint is
actually independent of, separate and distinct from the plaintiffs complaint, such that
were it not for the rule, it would have to be filed separately from the original
complaint.[16]
A prerequisite to the exercise of such right is that some substantive basis for a third-
party claim be found to exist, whether the basis be one of indemnity, subrogation,
contribution or other substantive right.[17] The bringing of a third-party defendant is
proper if he would be liable to the plaintiff or to the defendant or both for all or part
of the plaintiffs claim against the original defendant, although the third-party
defendants liability arises out of another transaction.[18] The defendant may implead
another as third-party defendant (a) on an allegation of liability of the latter to the
defendant for contribution, indemnity, subrogation or any other relief; (b) on the
ground of direct liability of the third-party defendant to the plaintiff; or (c) the
liability of the third-party defendant to both the plaintiff and the defendant.[19] There
must be a causal connection between the claim of the plaintiff in his complaint and a
claim for contribution, indemnity or other relief of the defendant against the third-
party defendant. In Capayas v. Court of First Instance,[20] the Court made out the
following tests: (1) whether it arises out of the same transaction on which the
plaintiffs claim is based; or whether the third-party claim, although arising out of
another or different contract or transaction, is connected with the plaintiffs claim; (2)
whether the third-party defendant would be liable to the plaintiff or to the defendant
for all or part of the plaintiffs claim against the original defendant, although the third-
party defendants liability arises out of another transaction; and (3) whether the third-
party defendant may assert any defenses which the third-party plaintiff has or may
have to the plaintiffs claim.
The third-party complaint does not have to show with certainty that there will be
recovery against the third-party defendant, and it is sufficient that pleadings show
possibility of recovery.[21] In determining the sufficiency of the third-party complaint,
the allegations in the original complaint and the third-party complaint must be
examined.[22] A third-party complaint must allege facts which prima facie show that
the defendant is entitled to contribution, indemnity, subrogation or other relief from
the third-party defendant.[23]
It bears stressing that common liability is the very essence for contribution.
Contribution is a payment made by each, or by any of several having a common
liability of his share in the damage suffered or in the money necessarily paid by one
of the parties in behalf of the other or others.[24] The rule on common liability is
fundamental in the action for contribution.[25] The test to determine whether the claim
for indemnity in a third-party complaint is, whether it arises out of the same
transaction on which the plaintiffs claim is based, or the third-party plaintiffs claim,
although arising out of another or different contract or transaction, is connected with
the plaintiffs claim.[26]
In this case, the claims of the respondent, as plaintiff in the RTC, against the
petitioner as defendant therein, arose out of the contracts of lease and sale; such
transactions are different and separate from those between Becthel and the petitioner
as third-party plaintiff for the construction of the latters project in Mauban, Quezon,
where the equipment leased from the respondent was used by the petitioner. The
controversy between the respondent and the petitioner, on one hand, and that between
the petitioner and Becthel, on the other, are thus entirely distinct from each other.
There is no showing in the proposed third-party complaint that the respondent knew
or approved the use of the leased equipment by the petitioner for the said project in
Quezon. Becthel cannot invoke any defense the petitioner had or may have against
the claims of the respondent in its complaint, because the petitioner admitted its
liabilities to the respondent for the amount of P5,075,335.86. The barefaced fact that
the petitioner used the equipment it leased from the respondent in connection with its
project with Becthel does not provide a substantive basis for the filing of a third-party
complaint against the latter. There is no causal connection between the claim of the
respondent for the rental and the balance of the purchase price of the equipment and
parts sold and leased to the petitioner, and the failure of Becthel to pay the balance of
its account to the petitioner after the completion of the project in Quezon. [27]
We note that in its third-party complaint, the petitioner alleged that Becthel should be
ordered to pay the balance of its account of P456,666.67, so that the petitioner could
pay the same to the respondent. However, contrary to its earlier plea for the admission
of its third-party complaint against Becthel, the petitioner also sought the dismissal of
the respondents complaint. The amount of P456,666.67 it sought to collect from
Becthel would not be remitted to the respondent after all.
The rulings of this Court in Allied Banking Corporation and British Airways are not
applicable in this case since the factual backdrops in the said cases are different.
In Allied Banking Corporation, Joselito Yujuico obtained a loan from General Bank
and Trust Company. The Central Bank of the Philippines ordered the liquidation of
the Bank. In a Memorandum Agreement between the liquidation of the Bank and
Allied Banking Corporation, the latter acquired the receivables from Yujuico. Allied
Banking Corporation then sued Yujuico for the collection of his loan, and the latter
filed a third-party complaint against the Central Bank, alleging that by reason of its
tortious interference with the affairs of the General Bank and Trust Company, he was
prevented from performing his obligation under the loan. This Court allowed the
third-party complaint based on the claim of the defendant therein, thus:
In the words of private respondent, he [s]eeks to transfer liability for the default
imputed against him by the petitioner to the proposed third-party defendants because
of their tortious acts which prevented him from performing his obligations. Thus, if at
the outset the issue appeared to be a simple makers liability on a promissory note, it
became complex by the rendition of the aforestated decision.[28]
In British Airways, the Court allowed the third-party complaint of British Airways
against its agent, the Philippine Airlines, on the plaintiffs complaint regarding his
luggage, considering that a contract of carriage was involved. The Court ruled, thus:
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in
view of their contract of carriage. Yet, BA adamantly disclaimed its liability and
instead imputed it to PAL which the latter naturally denies. In other words, BA and
PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was
exclusively between Mahtani and BA, the latter merely endorsing the Manila to
Hongkong leg of the formers journey to PAL, as its subcontractor or agent. In fact,
the fourth paragraph of the Conditions of Contracts of the ticket issued by BA to
Mahtani confirms that the contract was one of continuous air transportation from SO ORDERED.
Manila to Bombay.

4. xxx carriage to be performed hereunder by several successive carriers is regarded

as a single operation.

Prescinding from the above discussion, it is undisputed that PAL, in transporting

Mahtani from Manila to Hongkong acted as the agent of BA.

Parenthetically, the Court of Appeals should have been cognizant of the well-settled
rule that an agent is also responsible for any negligence in the performance of its
function and is liable for damages which the principal may suffer by reason of its
negligent act. Hence, the Court of Appeals erred when it opined that BA, being the
principal, had no cause of action against PAL, its agent or sub-contractor.

Also, it is worth mentioning that both BA and PAL are members of the International
Air Transport Association (IATA), wherein member airlines are regarded as agents of
each other in the issuance of the tickets and other matters pertaining to their
relationship. Therefore, in the instant case, the contractual relationship between BA
and PAL is one of agency, the former being the principal, since it was the one which
issued the confirmed ticket, and the latter the agent.[29]

It goes without saying that the denial of the petitioners motion with leave to file a
third-party complaint against Becthel is without prejudice to its right to file a separate
complaint against the latter.

Considering that the petitioner admitted its liability for the principal claim of the
respondent in its Answer with Third-Party Complaint, the trial court did not err in
rendering judgment on the pleadings against it.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.
Costs against the petitioner.