G.R. No. L-9873; May 20, 1959
UY HOO & CO., INC., petitioner, vs. JUDGE BIENVENIDO A. TAN, ETC., ET AL., respondents.

FACTS

1. On December 23, 1943, respondent Joaquin C. Yuseco obtained a loan of P70,000.00 in Japanese currency from petitioner Uy Hoo & Co., Inc., secured by a mortgage on his real property. The mortgage deed stipulated the loan “shall not be paid . . . within two years from the date hereof, but must be paid after the said period of two years but not later than December 24, 1946,” a condition unwaivable by either party.
2. Prior to September 25, 1944, Yuseco offered to pay the loan with interest, but Uy Hoo refused, invoking the two-year stipulation.
3. On September 25, 1944, Yuseco filed Civil Case No. 2904 to annul the mortgage, alleging a valid tender of payment which was wrongfully refused.
4. On November 29, 1944, Uy Hoo filed its answer, asserting the proffered payment violated the mortgage stipulation.
5. After the two-year period lapsed, Uy Hoo filed a separate foreclosure complaint (Civil Case No. 71980) on January 18, 1946.
6. On June 28, 1949, Yuseco moved to dismiss the foreclosure complaint citing the Moratorium Law. The motion was granted and affirmed on appeal.
7. After the dismissal, Civil Case No. 2904 was set for hearing. On July 29, 1955, before any evidence was presented, Uy Hoo asked for leave to file an amended answer to include a counterclaim to collect and/or foreclose the mortgage. Respondent Judge admitted the amended answer on August 6, 1955.
8. On September 23, 1955, Yuseco moved for reconsideration, arguing laches (ten years having elapsed from the original answer) and that the amendment eliminated a paragraph from the original answer which he claimed supported his action.
9. The respondent Judge granted the motion, set aside his prior order, and ordered the amended answer stricken off the record.
10. Uy Hoo failed to secure reversal and filed this petition for certiorari, alleging grave abuse of discretion since the Rules allow amendment of pleadings “at any stage of the action.”

ISSUE

Did the respondent Judge commit grave abuse of discretion in rejecting the petitioner’s amended answer with counterclaim?

RULING

Yes, the respondent Judge committed grave abuse of discretion.
1. The counterclaim for payment of the mortgage debt is a compulsory counterclaim under Section 6, Rule 10 of the Rules of Court, as it arises out of the same transaction that is the subject of Yuseco’s complaint. Failure to plead it would result in it being barred.
2. Uy Hoo’s failure to include the counterclaim in its 1944 original answer is understandable because the debt was not yet payable at that time. It subsequently filed a separate foreclosure action, which was dismissed due to the Moratorium Law. After the Moratorium Law was invalidated in May 1953, Uy Hoo’s only recourse to preserve its right to collect was to file the counterclaim.
3. The delay attributable to Uy Hoo from May 1953 to July 1955 was less than two years (further reduced by the pendency of Yuseco’s motion to dismiss from August to December 1954). No case was cited where such a delay constituted laches.
4. The Rules of Court liberally allow amendments “at any stage of an action” to completely determine all matters in dispute in a single proceeding. The rejection of the amendment contravened this policy.
5. The elimination of a paragraph from the original answer did not justify rejection. The quoted paragraph did not support Yuseco’s theory of a subsequent verbal agreement allowing pre-term payment; in fact, it contradicted it. The original answer remains in the record for reference.
6. The abuse of discretion was grave because disallowing the compulsory counterclaim could forever bar the creditor from collecting its credit.
The petition is granted. The respondent Judge’s order of September 28, 1955, is annulled.