Philippine Export and Foreign Loan Guarantee Corporation v. Philippine Infrastructures, Inc.
REITERATIONFacts
The Antecedents: Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee) initiated a collection case against Philippine Infrastructures, Inc. (PII), Philippine British Assurance Co., Inc., The Solid Guaranty, Inc., B.F. Homes, Inc., Pilar Development Corporation, and Tomas B. Aguirre. Philguarantee alleged that it issued five separate Letters of Guarantee in favor of Philippine National Bank (PNB) to secure credit accommodations for PII. Respondents PII, B.F. Homes, Pilar Development Corporation, and Aguirre executed a Deed of Undertaking, jointly and severally, to reimburse Philguarantee for any amounts paid or losses incurred due to these guarantees. PII also provided surety and performance bonds from Philippine British Assurance Co., Inc. and The Solid Guaranty, Inc. as security. When PNB called on the guarantees on April 24, 1985, Philguarantee demanded P20,959,529.36 from PII, plus fees, which PII refused to pay. Philguarantee's demands to the surety companies were also refused, leading Philguarantee to file suit for collection, seeking payment of the guaranteed amounts, surety bond liabilities, attorney's fees, and exemplary damages. Procedural History: The case began in the Regional Trial Court (RTC) of Manila on October 30, 1986. B.F. Homes moved to dismiss, citing rehabilitation receivership, while PII argued the complaint lacked a cause of action as it did not allege Philguarantee had suffered damages. Initially, the RTC denied PII's motion to dismiss but suspended the case against B.F. Homes. Philguarantee later presented evidence of payment to PNB and sought to amend its complaint to conform to the evidence. However, on December 7, 1992, a different RTC judge dismissed the case without prejudice for failure to state a cause of action, a decision upheld by an April 12, 1993 order denying reconsideration. Philguarantee appealed to the Supreme Court, which referred the case to the Court of Appeals (CA). The CA dismissed Philguarantee's petition on August 31, 1994, ruling that an order of dismissal is appealable, not assailable by certiorari, and that the amendment sought to introduce a new cause of action. A subsequent motion for reconsideration was denied on May 18, 1995. The Petition: Philippine Export and Foreign Loan Guarantee Corporation filed the present petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Court of Appeals' decision and resolution. The petitioner argued that the CA erred in affirming the RTC's dismissal, particularly the premise that there was no cause of action at the time of filing, and in disallowing the amendment of the complaint to conform to evidence presented without objection. The petitioner contended that the CA misconstrued the purpose of the amendment and erred in not giving due course to the petition. The respondents argued that the petitioner used the wrong remedy and that the CA correctly sustained the lower court's dismissal due to the initial lack of a cause of action and the attempt to introduce a subsequently acquired one.
Issue(s)
Whether the Court of Appeals erred in affirming the Regional Trial Court's order dismissing the case motu proprio on the premise that the original complaint failed to state a cause of action, and whether the amendment to conform to evidence should have been allowed. Whether the Court of Appeals erred in not giving due course to the petitioner-appellant's petition for review, considering the propriety of the remedy sought. Whether the trial court erred in reversing its earlier denial of a motion to dismiss, leading to the dismissal of the complaint after evidence had been presented without objection. Whether the Court of Appeals erred in its understanding of the nature of the Deed of Undertaking and the effect of the respondents' failure to object to evidence presented by the petitioner.
Ruling
The petition is GRANTED. The Decision of the Court of Appeals dated August 31, 1994, and its Resolution dated May 18, 1995, are REVERSED and SET ASIDE. The Orders of the Regional Trial Court (Branch 29), Manila, dated December 7, 1992, and April 12, 1993, are NULL and VOID and SET ASIDE. The case is REMANDED to the Regional Trial Court (Branch 29), Manila, for continuation of the trial on the merits.
Ratio Decidendi
On the issue of failure to state a cause of action and amendment to conform to evidence: The Court held that the original complaint stated a valid cause of action. The Deed of Undertaking was an indemnity against liability, not merely against actual loss. Under such an agreement, the obligor's liability arises as soon as the liability of the person to be indemnified has arisen, without regard to whether actual loss has been suffered. The PNB's call on Philguarantee's guarantees created a liability for Philguarantee, thus triggering the obligation of the respondents under the Deed of Undertaking. The allegation that PNB had called on the guarantees was sufficient to constitute a cause of action. Furthermore, even if the complaint had defects, the presentation of evidence by Philguarantee without objection from the respondents cured these defects. The amendment to conform to evidence, pursuant to Section 5, Rule 10 of the Revised Rules of Court, should have been allowed, as the evidence presented (testimony and debit memo) proved actual payment to PNB, thereby conforming to the intended cause of action. The trial court's dismissal of the case on the ground of failure to state a cause of action, after allowing the presentation of evidence without objection, was patently erroneous and amounted to grave abuse of discretion. On the propriety of the remedy: While acknowledging that prior to the 1997 Rules of Civil Procedure, an order of dismissal without prejudice could be appealed, and that the CA's dismissal of the petition for certiorari might have been correct under existing rules at the time, the Supreme Court gave due course to the petition in the higher interest of substantial justice and the retroactive application of procedural laws. The Court noted that under the 1997 Rules, such an order is subject to a special civil action for certiorari. This indicates a procedural evolution that favors allowing the review of such dismissals via certiorari, especially when substantial justice is at stake. On the trial court's authority to reverse itself: The Court clarified that while a court may reverse its earlier denial of a motion to dismiss, this power must be exercised judiciously and not in a manner that would subvert substantial justice. In this case, the trial court's reversal, leading to the dismissal of the complaint after evidence had been presented without objection, was deemed erroneous. The court's discretion to dismiss a case for failure to state a cause of action should be exercised early in the proceedings, and once issues have been joined and evidence presented, especially without objection, the court should proceed to try the case on the merits rather than dismiss it on a technicality that has been cured by the evidence. On the nature of the Deed of Undertaking and the effect of failure to object to evidence: The Court emphasized that the Deed of Undertaking executed by the respondents was a contract of indemnity against liability. Citing Cochingyan, Jr. vs. R & B Surety and Insurance Co., Inc., the Court explained that in contracts of indemnity against liability, the indemnitor's liability arises as soon as the liability of the person to be indemnified has arisen, irrespective of whether actual loss has been sustained. This contractual nature of the undertaking was crucial in establishing that a cause of action existed even before Philguarantee made the actual payment to PNB, as the PNB's call on the guarantees created the liability. The Court reiterated the principle that when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated as if they had been raised in the pleadings. The respondents' failure to object to the presentation of evidence proving Philguarantee's payment to PNB was fatal to their claim that the complaint lacked a cause of action or that the amendment sought to introduce a new cause of action. This failure to object cured any perceived defect in the original complaint and effectively joined the issue of Philguarantee's claim for reimbursement.
Main Doctrine
A complaint alleging that a guarantor has been called upon by the creditor to pay under its guarantees, and that the principal obligor and co-obligors have failed to reimburse or pay, states a valid cause of action for indemnity against liability, even if actual loss has not yet been sustained by the guarantor. Furthermore, amendments to conform to evidence, especially when presented without objection, should be allowed to cure defects in the pleadings and promote substantial justice.