G.R. No. L-27441 June 30, 1969
GERMAN E. VILLANUEVA, doing business under the name and style of VILTRA COMPANY, plaintiff-appellee, vs. NATIONAL MARKETING CORPORATION, defendant-appellant.

FACTS

On November 25, 1965, the National Marketing Corporation (NAMARCO) entered into a contract with Viltra Company, a single proprietorship represented by German E. Villanueva. Under the contract, NAMARCO agreed to import and sell 10,000 metric tons of wire rod to Viltra. Viltra was to pay the C&F value plus banking charges and a 2% service fee, negotiate directly with the foreign supplier (Tokyo Boeki, Ltd. of Japan), handle shipment, and assume loading/unloading expenses. A key stipulation required Viltra to “open an irrevocable domestic letter of credit in favor of NAMARCO and/or assign domestic letters of credit opened in favor of the BUYER TO NAMARCO,” after which NAMARCO would open an irrevocable foreign letter of credit for the supplier. On January 3, 1966, NAMARCO’s General Manager issued an authority to its bank to open the foreign letter of credit. However, after a request for cancellation from Jose P. Marcelo was referred to NAMARCO’s new General Manager, Juvenal D. Almendras, who initially affirmed the corporation’s commitment, NAMARCO ultimately failed to open the letter of credit. Villanueva filed an action initially styled as a petition for mandamus with a prayer for a writ of preliminary injunction, later amended to a complaint for specific performance. NAMARCO’s original answer raised two defenses: (1) the contract was not perfected as Villanueva lacked legal capacity under NAMARCO’s Administrative Order No. 16, and (2) Villanueva failed to open the required domestic letters of credit. After the amended complaint was admitted, NAMARCO filed an answer reiterating these defenses and adding a new one: that the contract was null and void as a scheme to avoid taxes and duties. The trial court struck out this answer for being filed without leave and, on Villanueva’s motion, rendered a partial summary judgment ordering NAMARCO to specifically perform its obligation to open the letter of credit. NAMARCO appealed.

ISSUE

Whether the trial court erred in (1) striking out NAMARCO’s answer to the amended complaint, and (2) rendering a partial summary judgment based on the pleadings.

RULING

Yes. The Supreme Court set aside the partial decision and remanded the case.
1. On the procedural issue, the trial court should not have stricken out NAMARCO’s answer to the amended complaint. While the amended complaint contained similar factual allegations, it substantially changed the cause of action from mandamus to specific performance. Under Section 3, Rule 11 of the Rules of Court, a party may file a new answer to an amended complaint as a matter of right within the reglementary period, which NAMARCO did. Furthermore, as the case had not been scheduled for trial, the court should have allowed the answer, especially since it considered the original answer insufficient to tender an issue.
2. On the substantive issue, the summary judgment was unjustified. The defenses raised by NAMARCO in its original answer tendered genuine factual issues requiring evidence. The first defense challenged Villanueva’s legal capacity to contract under NAMARCO’s Administrative Order No. 16, which set qualifications for trade assistance applicants. The second defense alleged Villanueva’s failure to open the required domestic letters of credit. Although Villanueva presented documentary evidence on this point during a hearing on a motion for contempt, there was no showing the parties agreed to have this evidence considered for a decision on the merits, nor that NAMARCO was precluded from contesting the sufficiency of that compliance. NAMARCO was entitled to be heard on these defenses. The case should proceed through the usual trial process.