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G.R.No.L28764

TodayisThursday,November10,2016

RepublicofthePhilippines
SUPREMECOURT
Manila
FIRSTDIVISION

G.R.No.L28764November29,1973
GENERALINSURANCEANDSURETYCORPORATION,petitioner,
vs.
HON.HONORATOB.MASAKAYAN,JudgeoftheCourtofFirstInstanceofRizal,BranchV,QuezonCity
LEANDROE.CASTELOandJOSEFAPAYUMOCASTELO,respondents.
ErnestoP.VillarandArthurTordesillasforpetitioners.
VicenteP.Fernandoforprivaterespondents.

ESGUERRA,J.:
Petitionforcertiorari,prohibitionandmandamus,withprayerforawritofpreliminaryinjunctiontoreviewtheorder
dated June 7, 1967 of the Court of First Instance (CFI) of Rizal, Branch V (Quezon City), denying petitioner's
motion to file an amended answer with counterclaim, together with the order dated November 21, 1967, also
denyingpetitioner'smotionforreconsiderationthereof,bothissuedinitsCivilCaseNo.Q4795entitled,"Leandro
E.Castelo,etal.,Plaintiffsvs.GeneralInsuranceandSuretyCorporation,Defendant."
ThiscasestemmedfromthefilingbypetitioneronOctober22,1959,ofacomplaintforunlawfuldetaineragainst
private respondents Castelos in the Municipal Court of Quezon City, docketed as Civil Case No. 6743. On
November12,1959,respondentsCasteloslikewisefiledacomplaintwiththeCFIofRizal,BranchV,QuezonCity,
againsthereinpetitioners,docketedasCivilCaseNo.Q4795.
Thepetitioner'scaseforunlawfuldetainer(CivilCaseNo.Q6743)wasdismissedforlackofjurisdiction,bothby
theCityCourtandtheCourtofFirstInstanceofQuezonCity.UponappealtotheCourtofAppeals,thelattercourt
certifiedthecasetothisCourtasoneinvolvingpurelyaquestionoflaw.ItwasacceptedanddocketedasG.R.
No.
L19330,anddecidedonApril30,1965,affirmingthejudgmentofthelowercourt,asfollows:
INVIEWOFALLTHEFOREGOINGthedecisionappealedfromisherebyaffirmedinfull,withcosts
against the appellant. This decision is without prejudice to the filing by the appellant of whatever
claimsitmayhaveunderthecontroverteddeedofsale.(EmphasisOurs)
Ontheotherhand,thesameCourtofFirstInstancedecidedCivilCaseQ4795asfollows:
WHEREFORE,judgmentisrenderedinthiscaseasfollows:
1. Declaring the deed of sale with right of repurchase as additional security for the loans with the
PhilippineBankofCommerce
2.OrderingthecancellationofTCTNo.35546,inthenameofthedefendantanditsreconveyanceto
theplaintiffs
3.OrderingtheplaintiffstopaythedefendantthesumofP2,698.15anduponpaymentofwhichthe
IndemnityAgreementwithChattelMortgageisherebyorderedcancelled.
ThisdecisionwasappealedtotheCourtofAppealswhereitwasdocketedasCAG.R.No.29574R.Assetforth
inthedecisionoftheCourtofAppeals,thefactsofCivilCaseQ4795areasfollows:
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Substantially,thecomplaintallegesthatbyvirtueofacontracttosell,J.M.Tuason,Inc.represented
by its agent, Gregorio Araneta, Inc. was bound to convey plaintiffs its ownership over a lot upon
receiptofthetotalpurchasepricewhichwaspayablebyinstallmentthatmeanwhile,plaintiffswere
given possession of the lot, and had built a house thereon that before complete payment of the
purchaseprice,plaintiffs,throughthehelpofdefendantGeneralInsuranceandSuretyCorporation,
obtained from the Philippine Bank of Commerce a loan of P4,000.00 documented by a promissory
notewhereindefendantsignedasaccommodationcomakerthatinviewthereof,plaintiffsentered
intoindemnityagreementswithdefendantwherebytheymortgagedtothelatterthehouseaswellas
thelotthatthemortgageofthelot,didnothowevermeetwiththeapprovalofGregorioAraneta,Inc.
because the same had not yet been fully paid for by plaintiffs that on account of this, plaintiffs
executed in the favor of defendant a "Deed of Sale with Right of Repurchase" (in lieu of the real
estate mortgage) whereby they sold to the latter all their rights and interests over the lot, that
subsequently, plaintiffs again obtained, thru the help of the defendant, a loan of P600.00 from the
Philippine Bank of Commerce, likewise with defendant as accommodation comaker of the
corresponding promissory note that eventually thereafter, defendant paid the balance of the
purchasepriceofthelottoGregorioAraneta,Inc.andtherebysucceededinobtainingfromthelatter
a deed of sale thereof in its favor, and later on an owner's title over the property Transfer
CertificateofTitleNo.35546issuedbytheRegisterofDeedsofQuezonCityindefendant'sname
thattheaforesaidadditionalloanofP600.00hasalreadybeenliquidatedbyplaintiffs,andasregards
theoriginalloanofP4,000.00,thetruthisthat"onlyP1,000wasreceivedbyplaintiffsandtheP3,000
wasleftinthepossessionofthedefendantandwithwhichitpaidGregorioAraneta,Inc.thebalance
ofthepurchasepriceofthelotthatalthough"theaforesaidinstrumentexecutedbyplaintiffsoverthe
lot in question is on its face a deed of sale with right of repurchase, between the parties the real
contractisoneofmortgage"thatinviewofthesefacts,defendantisholdingthetitletotheproperty
inquestion,asatrusteeandforthebenefitoftheplaintiff.
Traversingthecomplaint,defendantinitsanswerwithcounterclaim,deniedamongotherthingsthat
the real contract is one of mortgage instead of sale with right of repurchase, and averred in effect
thatithadrightfullyconsolidateditsownershipoverthelotinquestionasvendeearetro.(Emphasis
Supplied)
Amongtheseveralerrorsattributedtothetrialcourtisthatitabuseditsdiscretionindenyingdefendant'smotion
forpostponementandinrefusingtosetasideitsorderdirectingplaintiffstoadducetheirevidenceexpartebefore
aCommissioner.TheCourtofAppeals,onAugust18,1965,renderedjudgmentforthedefendant,asfollows:
Ontopofthis,itmustbereckonedthatthecasehadpreviouslybeensetforhearingseventimesand
defendant,thrucounsel,waspresentandreadyfortrialeverytime,butforonereasonoranother,
thetrialcourthaskeptonorderingthepostponementeithermotupropiooronplaintiffsmotion.On
theotherhand,defendant'srequestforpostponementwastheveryfirstonitspart.
Wethinkthatthedemandsofjusticeandequitywouldcallfortheremandingofthiscasetothetrial
court so as to give the defendant a fair chance to crossexamine plaintiffs' witness and adduce its
ownevidence.
Accordingly, the decision appealed from is hereby set aside, and this case will be remanded to the
courtaquoforfurtherproceedingpermittingthedefendanttocrossexamineplaintiffwitnessandto
adduceitsevidence.(EmphasisOurs)
After the remand of the case to the Court of First Instance for further proceedings, the defendant, now herein
petitioner, on April 12, 1967, filed a motion for leave to file an amended answer with counterclaim which, as
aforementioned,wasdeniedbythelowerCourtinitsorderofJune7,1967,nowsubjectofthispetitionforreview.
Thedecisivequestiontodetermineiswhetherornottheamendmentswithcounterclaimsoughttobeincludedby
petitioner in the amended answer, particularly paragraphs 8, 12, 15 and 16, really changed the theory of
petitioner'sdefense.Acomparisonoftheaforementionedparagraphs,bothoftheoriginalandamendedanswer,
respectivelyreadasfollows:
8.Thatdefendantspecificallydeniestheallegationscontainedinparagraph8oftheComplaint,the
truth of the matter being, the "Deed of Sale with Right of Redemption of his Equitable Rights" only
(because all that he had at the time was a right to buy the land in question from the Gregorio
Araneta, Inc.) was a distinct transaction that whatever transaction on the said land of Gregorio
Araneta, Inc., which did not meet with the approval of the same, could not have been carried out
because Gregorio Araneta, Inc. was then the owner of the land and not the plaintiffs (Original
AnswerwithCounterclaim,Annex"B"ofPetition)
8.Thatdefendantspecificallydeniestheallegationscontainedinparagraph8oftheComplaint,the
truth of the matter being that the "Deed of Sale with Right of Repurchase" was not over the lot in
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questionbutonplaintiffs'equitablerightsonlybecauseallthatplaintiffshadatthetimewasarightto
buythelandinquestionfromGregorioAraneta,Inc.,byvirtueoftheTransferofthesamemadein
his favor by Raymundo Fernando and that the reason for its execution by plaintiffs was not as
alleged in par. 8 of the Complaint, but because Gregorio Araneta, Inc. required the plaintiffs to
transfertheirrights,titlesandinterestsonthesaidlotbymeansofadeedofsale.(AmendedAnswer
withCounterclaim,Annex"D1"Petition)
In paragraph 8 of the Original Answer, the theory of the defense is that the original transaction proposed by
respondentsCastelosonthelandofAraneta,Inc.didnotmeetwiththeapprovalofthelatterandwasnotcarried
outoverthelotofAranetabutonrespondentCastelos'equitablerightsonly,becauseallthatrespondentshadat
thetimeofexecutionofthesaiddeedofsalewasarighttobuythelandinquestion.Comparingsaidtheoryof
defensewiththatembodiedintheamendedanswer,Webelievethattherewasnochangeinthelineofdefense,
the amended answer being only an amplification of the original answer. The respondents' assertion that
paragraph8oftheAmendedAnswerisasubstantialamendmentandacompleteturnaboutfromitsoriginalstand
is unwarranted, as evidenced by the Deed of Sale with Right of Repurchase (Annex "A" of the complaint),
executed by no less than the petitioner and respondents themselves, clearly showing that it was Gregorio
Araneta, Inc., and not herein petitioner which required the execution of the said Deed of Sale with Right of
Repurchase.PertinentportionofthesaidDeedofSalereadsasfollows:
WHEREAS,apreviousDeedofIndemnityAgreementwithRealEstateMortgageoftheirrights,title
andinterestsintheabovedescribedparceloflandexecutedbytheSELLERSinfavoroftheBUYER
did not meet the approval of the GREGORIO ARANETA, INC., and instead has required the
SELLERS to transfer such rights, titles and interests to the BUYER by means of a document of a
deedofsalewithrightofrepurchase.
Besides no valid mortgage could have been executed between the parties as the respondents were not the
absoluteownersofthelandasrequiredbyArt.2085oftheNewCivilCode.1
Paragraph12ofthepetitioner'soriginalandamendedanswer,respectivelyreadthus:
12.Thatdefendantspecificallydeniestheallegationsinparagraph12oftheComplaint,thetruthof
thematterbeing,theconsiderationfortheexecutionofsaiddeedofsalewithrightofrepurchaseis
thesumofP2,800.00paidbythedefendant.
12. That defendant specifically denies the allegations contained in paragraph 12 of the Complaint,
thetruthofthematterbeingthattheaforesaidloanofplaintiffsforP2,800.00withtheBankwasnot
secured at all by the Indemnity Agreement with Chattel Mortgage referred to in said par. 12 of the
Complaintfortherewasnosuchsubsistingindemnityagreement,orbyanycollateraloftheplaintiffs
asfarastheloanofP4,000reducedlatertoP2,800.00isconcernedthattheconsiderationforthe
execution of said Deed of Sale with Right to Repurchase was the sum of P2,800.00 paid by the
defendanttotheBankasstatedinpar.11ofthisAnswer.
An analysis of the allegations set forth in the abovequoted paragraphs points out more clearly that the
petitioner'sdefense"thattheconsiderationfortheexecutionoftheDeedofSalewithRighttoRepurchaseisthe
sumofP2,800.00paidbypetitionertotheBank"fortheloanofrespondentsCasteloswhofailedtopaythesame
when it became due, and that said loan was not secured at all by any collateral or by the alleged Indemnity
Agreement with Chattel Mortgage, has neither been changed or altered. Moreover, paragraph 7 of the Original
Answerstates:
7.Thatdefendantspecificallydeniestheallegationscontainedintheparagraph7oftheComplaint,
thetruthofthematterwasthatthechattelmortgageonthehouseisaseparatetransactionfromthe
"DeedofSalewithRighttoRepurchase"
andparagraph7oftheAmendedAnsweralleges:
7.Thatdefendantspecificallydeniestheallegationscontainedinparagraph7oftheComplaint,the
truth of the matter is that in consonance with the suggestion of Gregorio Araneta, Inc. after its
disapproval of the aforesaid real estate mortgage on the lot in question on October 13, 1952,
plaintiffs executed the Deed of Sale with Right of Repurchase referred to in their Complaint.
Defendant further alleges that plaintiffs executed on March 5, 1953, an Indemnity Agreement with
ChattelMortgageonthehouseofplaintiffs,butitwasacounterbondinfavorofthedefendantforthe
latter's having signed as comaker on a promissory note for plaintiff's loan of P600.00 with the
PhilippineBankofCommerce,whichwascompletelyaseparatetransactionfromthe"DeedofSale
withRightofRepurchase."
Theallegedindemnityagreementwiththechattelmortgagewas,therefore,aseparatetransaction,andthedeed
ofsalewasforaconsideration,aselucidatedbytheAmendedAnswer.
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Paragraph15and16ofthepetitioner'soriginalanswer,likewisereadthus:
15.Thatdefendantspecificallydeniestheallegationscontainedinparagraph15oftheComplaintfor
the reason that while it is true that they were granted loan of P4,000.00 by the Philippine Bank of
Commerce, before the said loan was made available by the Bank, they already received from the
defendant the sum of P1,000 out of their loan of P4,000 and the amount of P1,200.00 was also
partiallypaidtothesameuponplaintiffsowninstruction,thusreducingtheirloantoonlyP2,800.00.
When this balance of P2,800.00 became due finally, the plaintiffs did not pay it and the same was
debited,therefore,bytheBankfromthedefendantscurrentaccountascomaker.Itisthereforenot
true that the "Deed of Sale with Right of Repurchase" has no consideration as falsely alleged by
plaintiffsinparagraph11oftheirComplainttomisleadthisHonorableCourt.
16. That defendant specifically denies the allegations contained in paragraph 16 of the Complaint,
thetruthofthematterbeing,thatdefendanthasneverbeenappointedtrusteebyanyone,muchless
by the plaintiffs, and defendant cannot see its way clear how the Transfer Certificate of Title No.
35546couldhavebeenissuedinitsnameasthesoleandabsoluteownerthereofbytheRegisterof
DeedsofQuezonCityifitisameretrustee
Andparagraphs15and16ofitsAmendedAnswerareasfollows:
15. That defendant specifically denies the allegations contained in paragraph 15 of the Complaint,
the truth of the matter is that out of the proceeds of the plaintiffs' loan of P4,000.00 with the Bank,
plaintiffsreceiveddirectlyfromthedefendantthesumsofP1,000.00andP410.07onSeptember12,
1952 and October 14, 1952, respectively and because of the agreement had between them and
stipulatedintheaforesaidDeedofSalewithRightofRepurchase,thesumofP1,200.00waspaidto
the bank to reduce the said loan of P4,000 to P2,800 and another sum of P1,000 to Gregorio
Araneta,Inc.forthebackinstallmentsontheaforesaidlotwhichwerenotpaidbytheplaintiffsand
werealreadyoverdueandthebalanceofP389.93wasappliedonthebankcharges,inspectionfee,
documentary stamps and documentation of the deed of sale, insurance premiums and other
expenses in connection with the aforesaid loan. Hence, after making all the aforesaid payments,
therewasnobalanceleftwiththedefendantoutoftheproceedsoftheplaintiffs'loanofP4,000and
thereafter,whateverpaymentsmadebythedefendantontheinstallmentsontheaforesaidlotwere
fromdefendant'sownmoneyandforitsownaccount.
16. That defendant specifically denies the allegations contained in paragraph 16 of the Complaint,
thetruthofthematteristhataftertheaforesaidpaymentofP1,000onOctober14,1952wasmade
toGregorioAraneta,Inc.,allthepaymentsmadebythedefendanttoGregorioAraneta,Inc.forthe
installments on the aforesaid lot, until the price thereof was fully paid, were the money of the
defendantandforitsownaccount,and,consequently,thetitletotheaforesaidlotwastransferredto
thedefendantinitsownrightandaccountbytheformerownerJ.M.Tuason,Inc.,throughGregorio
Araneta, Inc., of the aforesaid lot. Moreover, the defendant has never been appointed trustee by
anyone, much less by the plaintiffs, and defendant cannot see its way clear how the Transfer
Certificate Title No. 35546 could have been issued in its name as the sole and absolute owner
thereofbytheRegisterofDeedsofQuezonCityifitisameretrustee.
In paragraphs 15 and 16 of the original answer, the petitioner specifically denies the respective allegations
containedinparagraphs15and16oftheComplaint,thuscontrovertingalltheallegationsinthelatterpleading.It
deniesthatitisholdingthetitleofthepropertyinquestionasatrusteeforthebenefitoftherespondent.Inthe
amended answer, the petitioner, without changing its defense theory, gave a more accurate statement and
explanation of the circumstances involving the land the different items covered by the P4,000.00 loan, and the
eventsleadingtotheissuancetothemoftheTransferCertificateTitle.
Uponcarefulcomparisonofthedisputedparagraphsinboththeoriginalandamendedanswers,thisCourtisof
theopinionthattheamendmentssoughttobeincludeddidnotinanymannerchangethetheoryofthedefense.
Hencethetrialcourtshouldhaveadmittedtheamendments(Shafferv.Palma,22SCRA943Guiraov.Ver,16
SCRA639UyHooCo.v.Tan,105Phil.719Montev.Ortega,2SCRA1044).
Section3ofRule10clearlyprovidesthat:
Amendmentsbyleaveofcourt.Afterthecaseissetforhearing,substantialamendmentsmaybe
made only upon leave of court. But such leave may be refused if it appears to the court that the
motionwasmadewithintenttodelaytheactionorthatthecauseofactionordefenseissubstantially
altered.Ordersofthecourtuponthemattersprovidedinthissectionshallbemadeuponmotionfiled
incourt,andafternoticetotheadverseparty,andanopportunitytobeheard.
Whenthepurposeofanamendmentistosubmittherealmatterindisputewithoutanyintenttodelaytheaction,
the court in its discretion, may order or allow the amendment upon such terms as may be just. Anything,
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therefore,thatmayprecludeapartyfromfullyrepresentingthefactsofhiscaseshouldbebrushedaside,ifthis
canbedonewithoutunfairnesstotheotherpartyandbythemeansprovidedforbytheRulesofCourt.2
ItmustberecalledthatasperfindingsoftheCourtofAppeals(p.48ofPetition),the"hearinghadbeensetfor
seventimesandforseventimestooitwaspostponedbutneveronmotionofdefendantwhowasalwayspresent
and prepared for trial" thereby showing that defendant, now herein petitioner, never had the slightest intent to
delaytheearlysettlementofthiscasebutwasconsistentlyforitsearlydecision.
Asidefromtheamendmentstoparagraphs8,12,15and16,respondentsCastelos'likewiseassailparagraph4of
theAmendedAnswerwithCounterclaims3 as having introduced a new defense. Bearing in mind that the established
policy of all courts should be to provide rules which will avoid lengthy and expensive litigation and which will assist in the
speedy disposition of cases and considering further that in the case at bar the counterclaim set forth as amendment is
connected with the subject matter of the action, the same should be filed and interposed in the same action as a
compulsarycounterclaimwhich,ifnotsetup,isbarred.InNationalMarketingCorporationv.FederationofUnitedNamarco
Distributors, Inc., L22578, January 31, 1973, this Court had occasion to extensively expound on the subject
"Counterclaims".Amongothersitsaid:

Thelogicalrelationshipbetweentheclaimandcounterclaimhasbeencalled"theonecompellingtest
of compulsoriness". Under this test, any claim that a party has against an opposing party that is
logically related to the claim being asserted by the opposing party, and that is not within the
exceptionstotherule,isacompulsarycounterclaim.
Inthisjurisdiction,"thelogicalrelationtest"hasbeenuniformlyadheredto.InBercesv.Villanueva,25Phil.473,
whichwasanactionforejectment,thisCourtsaid:
Whenplaintiffsweresuedforrecoveryofatractofland,theyoughttohavepresentedinreplytothe
complaint a joint petition or counterclaim for the value of the improvement and the amount of
damages suffered, because the claim for such improvements and the amount of damages or
indemnityisnecessarilyrelatedtotheactionfortherecoveryofthelandsaidtohavebeenimproved
andtotheconsequencesofthejudgmentorderingrestitutionthereof.(EmphasisSupplied)
That ruling was reiterated in Beltran v. Villanueva, 53 Phil. 697 Ozea v. Vda. de Montaur, L8621, August 26,
1956,99Phil.1061Carpenav.Manalo,1SCRA1060(citedintheNAMARCOcase,supra).
Inthecaseatbar,itisclearthattheamendmentinparagraph4setsupacounterclaimforthedamagessuffered
by the petitioner, as owner of the lot in question, for having been deprived by respondents Castelos of the use
andenjoymentthereof.Andsaidcounterclaimisnecessarilyconnectedwiththelotsubjectofthepresentaction,it
shouldbeinterposedinthesameaction.Nonewcauseofactionordefenseistherebyinterposedsincethesame
wasthesubjectmatterbetweenthesamepartiesintheejectmentcasefiledinthemunicipalcourt,docketedas
CivilCaseNo.6743,butwhichwasdismissednotforlackofmeritbutforlackofjurisdiction.Iftheamendmentis
notallowed,anotheractionwouldhavetobeinstituted,(ifnotbarred)againstrespondentCastelos,thuscausing
multiplicityofsuits.Thissituationiswhattherulepreciselyseekstoavoidandthuscompelthepartiestolitigateall
theissuesinasingleproceeding.4
Theassertionofrespondentsthatthecounterclaimsoughttobeincludedasamendmenttoparagraph4inthe
AmendedAnswershouldbefiledasanoriginalandseparateactioninthepropercourt,iswithoutmerit.Itruns
countertoasettledrulethatinthefurtheranceofjustice,theCourtshouldbeliberalinallowingamendmentsto
pleadingstoavoidmultiplicityofsuitsandinorderthattherealcontroversiesbetweenthepartiesarepresented,
theirrightsdeterminedandthecasedecidedonthemeritswithoutunnecessarydelay.5
Evidently,therespondentJudgedisregardedtheabovetenetswhenhedeniedthemotionforleavetoamendthe
answerinthemannerindicated.
WHEREFORE, the orders appealed from dated June 7 and November 21, 1967, are hereby set aside and the
caseremandedtothelowercourtforfurtherproceedings.Therespondentcourtshalladmittheamendedanswer
withcounterclaimandproceedtothehearingandfinaldeterminationofitsCivilCaseNo.Q4795.
Costsagainstprivaterespondents.
Makalintal,C.J.,Castro,Teehankee,MakasiarandMuozPalma,JJ.,concur.

Footnotes
1Art.2085.Thefollowingrequisitesareessentialtothecontractofpledgeandmortgage.
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1xxxxxxxxx
2.Thatthepledgeormortgagebetheabsoluteownerofthethingpledgeormortgage
xxxxxxxxx
ThesamerulinghasbeenappliedinthecaseofVda.deBautistav.Marcos,3SCRA
434.
2Dacanayv.Lucero,76Phil.141.
3"4ThatplaintiffshavebeenoccupyingandusingtheaforesaidlotfromOctober13,1952andthus
havedeprivedthedefendantoftheuseandenjoymentthereof,withoutpayinganyrentaltothe
defendantconsequently,theplaintiffsareliabletothedefendantfortherentaloftheaforesaidlot,
fromOctober14,1952uptothedefendantarentalofP50.00permonth"
4HeirsofRoxasv.Galindo,etal.,108Phil.589.
5Diaz,etal.v.DelaRama,etal.,73Phil.104ChuaKiongv.Whitaker,etal.,46Phil.578ascitedin
MoransCommentsontheRulesofCourt,Vol.I,1970ed.371.
TheLawphilProjectArellanoLawFoundation

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