G.R. No. L-16082 February 29, 1964
BENIGNO MALINAO, petitioner, vs. LUZON SURETY CO., INC., respondent.

FACTS

Escudero and Co., Inc. sued Benigno Malinao and Luzon Surety Co., Inc. in the Court of First Instance of Manila for the recovery of the value of goods sold on credit to Malinao, with the surety included as defendant due to its bond guaranteeing Malinao’s obligation. During the proceedings, Malinao sought leave to file a cross-claim against the surety, alleging that the surety had taken possession of his hardware store and accounts receivable under an agreement to apply the proceeds to his debt, but thereafter refused to return the alleged remaining balance. The trial court initially denied Malinao’s motions for leave to file the cross-claim, with orders dated June 20, 1957 and September 12, 1957, the latter explicitly stating the cross-claim lacked sufficient justification under the rules. Malinao did not appeal these orders.
Subsequently, Malinao filed a motion for reconsideration in August 1958. The trial court granted this motion, allowing the cross-claim retroactively, inferring that prior verbal authorization might have been granted but not transcribed. The surety challenged this order via certiorari in the Court of Appeals, which annulled the trial court’s order, finding grave abuse of discretion. The appellate court held the cross-claim was improper as it did not arise from the transaction subject of the original complaint. Malinao appealed to the Supreme Court.

ISSUE

Whether the Court of Appeals erred in ruling that the trial court committed grave abuse of discretion in allowing Malinao’s cross-claim.

RULING

The Supreme Court affirmed the decision of the Court of Appeals. The legal logic centers on two key points: the impropriety of the cross-claim under the Rules of Court and the finality of the trial court’s earlier orders denying it. First, under Section 2, Rule 10, a cross-claim must arise out of the transaction or occurrence that is the subject matter of the original action or a counterclaim therein. Malinao’s cross-claim, concerning an alleged separate agreement where the surety took possession of his assets, contained no allegation connecting it to the original sales transaction between Malinao and Escudero and Co. Therefore, it was substantively improper.
Second, the trial court’s orders of June 20, 1957 and September 12, 1957, which denied Malinao’s motions for leave to file the cross-claim, were final orders as they disposed of the motions definitively. Malinao’s failure to appeal these orders or seek relief under Rule 38 allowed them to become final. The trial court’s subsequent order in 1958, which reversed these final orders without legal basis, constituted a grave abuse of discretion. The Court rejected Malinao’s argument that the propriety of the cross-claim was not in issue, noting the September 12, 1957 order had already ruled on its insufficiency. The availability of certiorari was proper for the surety as appeal was not an equally adequate and speedy remedy to address the injurious effects of the trial court’s disregard of final orders. The Court also noted that any prescriptive concerns were of Malinao’s own making.