G.R. No. 118438 - Allied Agri-Business Development Co., Inc. vs. Court of Appeals

Case Summary (G.R. No. 118438)

Parties and Setting

CHERRY VALLEY sued ALLIED in the Regional Trial Court of Makati City for collection of sum of money. In its complaint, CHERRY VALLEY alleged that it was a foreign corporation with principal office at Rothwell, Lincoln, England. It further asserted that from 1 September 1982 to 16 February 1983, for a period of less than six (6) months, ALLIED ordered and received duck hatching eggs and ducklings in ten (10) separate orders valued at 51,245.12, based on CHERRY VALLEY invoices. The complaint alleged that ALLIED failed to pay despite repeated demands evidenced by a letter from Solicitor Braithwaite in England, and that ALLIED instead invited CHERRY VALLEY to be a stockholder in a new corporation, which invitation was rejected. CHERRY VALLEY also alleged that ALLIED’s president, Ricardo Quintos, expressly acknowledged the obligation in a letter dated 8 October 1985.

Filing of the Complaint and the Answer

CHERRY VALLEY’s complaint prayed that ALLIED be ordered to pay 51,245.12 (or its peso equivalent at the time of payment), plus legal interest from the date of filing of the complaint until full payment, and twenty percent (20%) of the total amount claimed as attorneys fees, together with costs of suit. ALLIED filed an answer on 27 February 1986 denying material allegations and raising, among others, that: CHERRY VALLEY allegedly lacked legal capacity to sue; the letter of Quintos acknowledging the obligation was allegedly never authorized by ALLIED’s board, so it could not bind ALLIED; the amount claimed allegedly did not represent the true and real obligation; some goods covered by invoices allegedly may not have been ordered; and that CHERRY VALLEY allegedly had no cause of action.

The Request for Admission and ALLIED’s Objections

After issues joined, CHERRY VALLEY served ALLIED with a Request for Admission dated 15 July 1988 on 19 July 1988. The request asked ALLIED to admit, in substance: that Ricardo V. Quintos was chairman of the board and president; that Quintos and his wife owned most of the subscribed shares; that for a six (6)-month period starting 1 September 1982, ALLIED ordered and received duck eggs and ducklings valued at 51,245.12 as reflected on CHERRY VALLEY invoices; that ALLIED received a lawyer’s demand letter dated 22 March 1985 for unpaid 52,245.12; that the president sent a letter dated 17 July 1985 proposing a new corporation with CHERRY VALLEY as stockholder, which was refused; that CHERRY VALLEY refused acceptance; and that Quintos in a letter dated 8 October 1985 admitted indebtedness of English Sterling Pounds 51,245.12. The request required a sworn admission within ten (10) days from receipt.

ALLIED filed Comments/Objections asserting that the matters were within CHERRY VALLEY’s burden of proof and thus purportedly did not require responsive action, and that an admission relating to stock ownership and the contemplated corporate set-up was allegedly immaterial and improper for not being pleaded in the complaint. In reply, CHERRY VALLEY maintained that a witness was unnecessary because the matters pertained to incidents personal to and within ALLIED’s knowledge.

Trial Court Orders Under Rule 26 and ALLIED’s Non-Compliance

On 2 August 1988, CHERRY VALLEY moved the trial court to resolve ALLIED’s objections. On 11 August 1988, the trial court issued an order disregarding ALLIED’s comments and objections due to its non-compliance with Sec. 2, Rule 26 of the Rules of Court, and directed ALLIED to answer within ten (10) days from receipt, with the warning that otherwise the matters would be deemed admitted. ALLIED moved for reconsideration, but on 8 November 1988 the trial court denied the motion and ordered ALLIED to answer within a nonextendible period of five (5) days from receipt. ALLIED failed to submit a sworn answer within that additional period.

CHERRY VALLEY then moved for summary judgment, alleging that the failure to respond resulted in implied admissions under Rule 26. The trial court granted the motion and, on 23 October 1990, ordered ALLIED to pay 51,245.12 (or its peso equivalent at the time of payment) plus legal interest from the date of filing of the complaint until fully paid. The trial court also ordered ten percent (10%) of the total amount due as attorneys fees because no protracted trial was held, together with costs.

Issues Raised on Appeal and in the Petition

ALLIED appealed to the Court of Appeals and later filed the instant petition. ALLIED argued that serious errors were committed in affirming the summary judgment. It specifically contended that: (a) the complaint should have been dismissed for lack of personality to sue on the part of CHERRY VALLEY, allegedly as an unlicensed foreign corporation; (b) summary judgment amounted to a denial of due process because CHERRY VALLEY was not required to produce its own witness; and (c) the admissions were allegedly matters CHERRY VALLEY had the burden to prove at trial.

The Court of Appeals affirmed the summary judgment on 6 September 1994, but modified it by requiring payment in Philippine currency and deleting the award of attorneys fees and costs of suit. This prompted ALLIED’s petition to the Supreme Court.

Supreme Court Ruling on the Capacity to Sue

The Court held that CHERRY VALLEY’s alleged lack of license as an unlicensed foreign corporation did not defeat its legal capacity to sue in the trial court for recovery of a money claim. The Court also relied on the principle that ALLIED was estopped from questioning corporate personality after it had acknowledged CHERRY VALLEY by entering into a contract with it. Further, the Court stated that the doctrine on lack of capacity to sue or the failure of a foreign corporation to acquire a local license was not intended to benefit domestic corporations that entered into solitary transactions with unwary foreign firms and then repudiated obligations on the technical ground that the foreign firm was not licensed.

Supreme Court Ruling on Requests for Admission and Implied Admissions

The Court rejected ALLIED’s contention that its failure to answer the request for admission did not result in admission of the requested matters. The Court emphasized Sec. 1 of Rule 26, which deems each matter requested for admission admitted unless, within the prescribed period, the served party files and serves a sworn statement either denying specifically the matters or setting forth detailed reasons why it cannot truthfully admit or deny.

The Court further observed that while ALLIED filed comments and objections, the trial court disregarded them and ordered ALLIED to answer within a period fixed by the court. When ALLIED failed to submit the required sworn response within the time given, the matters in the request were deemed admitted. The Court identified the admitted matters as: that for a six (6)-month period starting 1 September 1982, ALLIED ordered and received duck eggs and ducklings totaling 51,245.12; that ALLIED received a demand letter dated 22 March 1985; that ALLIED’s president sent a letter proposing establishment of a new corporation with CHERRY VALLEY as a stockholder instead of paying; that the director refused the proposal; and that the president admitted the indebtedness of English Sterling Pounds 51,245.12.

In addition, the Court articulated that the burden of affirmative action rested on the party served with notice to avoid the admission rather than on the party seeking it. The Court held that silence operated as an admission and prevented ALLIED from shifting the burden to CHERRY VALLEY by arguing that CHERRY VALLEY had the burden to prove those facts during trial.

Supreme Court Ruling on Summary Judgment and Due Process

The Court held that the trial court correctly granted CHERRY VALLEY’s motion for summary judgment. It treated summary judgment as proper where admitted facts show that no material issue of fact exists. The

Case Syllabus (G.R. No. 118438)

ALLIED AGRI-BUSINESS DEVELOPMENT CO., INC. (ALLIED) filed a petition assailing a Court of Appeals decision that affirmed a Regional Trial Court summary judgment in favor of CHERRY VALLEY FARMS LIMITED (CHERRY VALLEY).
The controversy arose from CHERRY VALLEY’s collection of sum of money complaint and ALLIED’s failure to comply with a Request for Admission procedure under Rule 26 of the Rules of Court.
The Supreme Court denied the petition and affirmed the Court of Appeals, sustaining the summary judgment as properly grounded on deemed admissions.

Parties and Procedural Posture

CHERRY VALLEY, a foreign company based in England, sued ALLIED in the Regional Trial Court of Makati City for recovery of money.
ALLIED answered and raised defenses including alleged lack of legal capacity of CHERRY VALLEY to sue and alleged impropriety and irrelevance of certain alleged admissions.
CHERRY VALLEY served ALLIED with a Request for Admission after issues had been joined.
The trial court issued orders requiring ALLIED to answer within specified periods, and it later deemed the requested matters admitted due to ALLIED’s noncompliance.
CHERRY VALLEY moved for summary judgment, invoking the deemed admissions under Rule 26.
The trial court granted summary judgment and awarded (i) the principal sum, (ii) legal interest, and (iii) attorneys fees, while the Court of Appeals later modified the attorneys fees and costs.
ALLIED then appealed to the Court of Appeals, and after denial of its petition there, it filed the present Supreme Court petition.

Key Factual Allegations

CHERRY VALLEY alleged that it is a foreign corporation with principal office in Rothwell, Lincoln, England.
CHERRY VALLEY claimed that from 1 September 1982 up to 16 February 1983, a period less than six months, ALLIED purchased duck hatching eggs and ducklings in ten separate orders valued at 51,245.12.
CHERRY VALLEY alleged that ALLIED did not pay the total purchase price of 51,245.12 despite repeated demands made through a letter from Solicitor Braithwaite in England.
CHERRY VALLEY alleged that instead of paying, ALLIED’s president Ricardo Quintos wrote CHERRY VALLEY on 17 July 1985 inviting CHERRY VALLEY to be a stockholder in a new corporation proposed by ALLIED.
CHERRY VALLEY alleged that CHERRY VALLEY rejected the proposal through a letter dated 26 September 1985.
CHERRY VALLEY alleged that Quintos expressly acknowledged ALLIED’s obligation in a letter dated 8 October 1985.
The complaint prayed for payment of 51,245.12 (or its peso equivalent at payment), legal interest from filing until full payment, and attorneys fees of twenty percent (20%), plus costs of suit.

ALLIED’s Defenses in Answer

ALLIED denied the material allegations and argued that CHERRY VALLEY lacked legal capacity to sue.
ALLIED argued that Quintos’s letter could not bind the corporation because it was allegedly not authorized by ALLIED’s board.
ALLIED claimed the alleged amount of 51,245.12 did not represent the true and real obligation, if any.
ALLIED asserted that not all ducks and ducklings covered by CHERRY VALLEY’s invoices were actually ordered.
ALLIED alleged that CHERRY VALLEY had no cause of action.

Request for Admission

On 15 July 1988, CHERRY VALLEY served ALLIED with a Request for Admission to which it required sworn responses within ten days from receipt.
The request included admissions regarding corporate leadership and shareholding, including that Ricardo V. Quintos was chairman of the board and president, and that shares were allegedly owned by Quintos and by his wife Agnes dela Torre.
The request also sought admission that for a period of six months starting 1 September 1982, ALLIED ordered and received duck eggs and ducklings with total value 51,245.12 reflected on CHERRY VALLEY invoices.
The request sought admission that ALLIED received a lawyer’s demand letter dated 22 March 1985 for 52,245.12 for the purchases stated.
The request sought admission that Quintos, in his capacity as president, sent a letter dated 17 July 1985 proposing a new corporation and that CHERRY VALLEY refused acceptance.
The request sought admission that ALLIED received a letter dated 26 September 1985 from J. Cross rejecting the proposal.
The request sought admission that Quintos’s letter dated 8 October 1985 admitted indebtedness of English Sterling Pounds 51,245.12.
ALLIED filed Comments/Objections, contending that CHERRY VALLEY should prove matters through its own witness and that the shareholding admissions were immaterial and improper for not being pleaded in the complaint.

Trial Court Orders on Compliance

CHERRY VALLEY maintained that it need not produce a witness because the matters requested were incidents personal to and within ALLIED’s knowledge.
On 2 August 1988, CHERRY VALLEY moved to reso