G.R. No. L-33695 - Manufacturer's Bank and Trust Co. vs. Diversified Industries, Inc.

Manufacturers Bank & Trust Co. (the Plaintiff) filed a complaint for the recovery of money against Diversified Industries, Inc. and Alfonso Tan (the Defendants).
The complaint was based on an Agreement for Credit in Current Account executed on December 17, 1963, wherein the defendants were granted a loan amounting to P125,000.00 with interest at 10% per annum computed on average daily balances.
The agreement explicitly provided that the loan became due and payable automatically on February 26, 1965, and that attorney’s fees at 10% of the total sum due were to be paid upon default.

The Plaintiff alleged that the Defendants failed to liquidate their obligation upon maturity, leaving an outstanding balance of approximately P100,119.21 as of June 25, 1965.
The Plaintiff further claimed that, as a consequence of the defendants’ unjust refusal to pay when due, it was compelled to engage counsel and that the fee (10% of the outstanding amount) was recoverable under the terms of the agreement.
Based on the admitted facts in the pleadings—especially the existence and essential terms of the credit agreement—the Plaintiff moved for judgment on the pleadings pursuant to Rule 19 of the Rules of Court.

Admitted the execution of the Agreement for Credit in Current Account as to the parties’ personal circumstances and its existence.
Claimed insufficient knowledge or information to either confirm or deny allegations concerning the due date of the loan, the precise outstanding balance, and the attorney’s fee.

Subsequently, the Defendants filed a motion for leave to amend their answer and subsequently submitted an amended answer which:

Reiterated the admission regarding the credit agreement but asserted that no funds had actually been disbursed by the bank at the time of execution.
Contended that the agreement did not reflect the true intent of the parties, claiming Alfonso Tan was merely an “accommodation party” or guarantor, not a principal debtor, and therefore not jointly and severally liable.
Denied that the obligation was due on February 26, 1965, arguing that an extension had been granted at the defendants’ behest, and further denied having knowledge of the outstanding amount or the fee arrangement.
Presented several affirmative defenses, including the allegation that the complaint failed to state a cause of action.

Manufacturers Bank moved for judgment on the pleadings, relying on the admissions contained in the pleadings and the clear stipulations in the Agreement for Credit.
The Trial Court denied the Defendants’ motion to amend their answer on the ground that the amendment was filed excessively late (after two years) and without a sufficient explanation or justification.
Consequently, the Trial Court entered judgment on the pleadings, ordering the Defendants to pay:

The principal amount plus interest from June 26, 1965 until full payment, and
Attorney’s fees as provided by the agreement, while initially setting the interest rate at the legal rate rather than the contractual 10%.

Manufacturers Bank contended that the judgment should have specified joint and several liability and that the interest should be at the stipulated rate of 10% per annum.
The Defendants argued that the Trial Court erred in refusing to admit their amended answer, in not dismissing the complaint for failure to state a cause of action, and in rendering judgment on the pleadings.

The Court considered the timeliness and merit of the amendment, noting that the amendment was not filed as a matter of right but was subject to the court’s discretion, which was properly exercised given the excessive delay and lack of substantive explanation.

Whether the Trial Court properly granted judgment on the pleadings based on the defendants’ failure to raise any genuine or substantial issue against the allegations in the complaint.

Did the defendants’ initial denial by asserting a lack of sufficient knowledge constitute a proper or specific denial of material allegations?
Were the admissions in the pleadings binding in light of the defendants’ later attempt to amend their answer?

Was the defendants’ late filing of the amended answer—after a two-year lapse—a justifiable exercise of the court’s discretion?
Did the amendment attempt merely to rebrand previous denials without providing adequate justification, thereby serving as a delaying tactic?

Should the liability of Diversified Industries, Inc. and Alfonso Tan be considered joint and several as stipulated in the Agreement for Credit?
Is the interest due to be computed at the legal rate or at the contractual rate of 10% per annum as clearly provided in the credit agreement?