Asian Construction and Development Corporation vs. Sannaedle Co., Ltd.

Judgment on the pleadings is proper where the defending party's answer admits the material allegations of the adverse party's pleading or fails to comply with the requirements of a specific denial under Sections 8 and 10 of Rule 8, and affirmative defenses that do not specifically deny the genuineness and due execution of the instrument upon which the action is founded cannot bar recovery.

Petitioner Asian Construction and Development Corporation ("ASIAKONSTRUKT") is a Philippine corporation, while respondent Sannaedle Co., Ltd. is a foreign corporation engaged to supply and erect insulated panel systems at the Philippine Centennial Exposition Theme Park. The parties executed a Memorandum of Agreement dated February 17, 1998, under which respondent was to design and install INSUPANEL SYSTEMS at various pavilions for the Phase I Project at an agreed contract price of US$3,745,287.94. The dispute arose from petitioner's failure to pay the remaining balance under that agreement.

Asian Construction and Development Corporation ("ASIAKONSTRUKT") and Sannaedle Co., Ltd. executed a Memorandum of Agreement dated February 17, 1998, in Makati City, under which respondent was engaged as contractor to design and install INSUPANEL SYSTEMS at various pavilions at the Philippine Centennial Exposition Theme Park, specifically for the Phase I Project, at an agreed contract price of US$3,745,287.94. Pursuant to the agreement, petitioner made various payments totaling US$3,129,667.32, leaving an unpaid balance of US$615,620.33.

Respondent made several written demands for payment of the balance, including a letter dated February 2, 2000. In reply, petitioner acknowledged being obligated to the amount but stated it lacked the capability to pay because its financial position had been severely affected by the government's freezing of all its collectibles on EXPO projects, including approximately ₱80 million from the DPWH intended to cover the cost increment of reverting to the use of Sannaedle in Phase I. Petitioner explained that the partial payments already made came from its own sources and initiatives, which reduced the balance due to US$615,620.33.

When respondent filed a complaint for sum of money before the RTC of Makati City, petitioner filed an answer with counterclaim. In its answer, petitioner admitted paragraphs 4 and 5 of the complaint — which alleged the execution of the Memorandum of Agreement and the unpaid balance — but raised affirmative defenses: (a) defect in the certification of non-forum shopping, (b) respondent's lack of legal capacity to sue as a foreign corporation doing business in the Philippines without a valid license, and (c) fortuitous event arising from the default of First Centennial Clark Corporation (FCCC) on its obligations to petitioner due to a Senate Blue Ribbon Committee investigation, which petitioner claimed suspended or extinguished its obligation. Petitioner did not, however, specifically deny the perfection of the Memorandum of Agreement or contest the genuineness and due execution of that instrument.

Respondent moved for judgment on the pleadings, arguing that the answer admitted all material allegations of the complaint and failed to tender an issue. The RTC granted the motion and rendered judgment in favor of respondent on October 6, 2000, ordering petitioner to pay US$615,620.33 with 12% interest per annum from February 2, 2000 until fully paid. Petitioner's motion for reconsideration was denied on December 13, 2000. On appeal, the CA affirmed the RTC judgment on April 25, 2006, and denied reconsideration on February 6, 2008.

• Judgment on the Pleadings Improper: Petitioner contended that judgment on the pleadings was not proper because it raised special and affirmative defenses in its answer, including defect in the certification of non-forum shopping, respondent's lack of legal capacity to sue, and fortuitous event. It asserted that with these defenses and its specific denial, a genuine issue of fact had been joined such that judgment on the pleadings could not be rendered.
• Fortuitous Event: Petitioner justified its refusal to pay the balance by characterizing the default of First Centennial Clark Corporation (FCCC) on its obligations — triggered by a Senate Blue Ribbon Committee investigation — as a fortuitous event that suspended, if not extinguished, its obligation to respondent.

• Admission of Material Allegations: Respondent countered that petitioner's answer admitted the material allegations of the complaint regarding the cause of action for collection of sum of money, including the execution of the Memorandum of Agreement and the unpaid balance of US$615,620.33.
• Affirmative Defenses Do Not Bar Recovery: Respondent emphasized that even assuming petitioner's defense of respondent's lack of capacity to sue had merit, the same could not prevent respondent from seeking collection of the unpaid balance, as the express terms of the Memorandum of Agreement — whose genuineness and due execution were not denied — established petitioner's liability.

• Judgment on the Pleadings: Whether judgment on the pleadings is proper when the defending party's answer admits the material allegations of the complaint but raises affirmative defenses that do not specifically deny the genuineness and due execution of the instrument upon which the action is founded.

• Judgment on the Pleadings: Yes. Judgment on the pleadings was proper because petitioner's answer admitted the material allegations of the complaint — the execution of the Memorandum of Agreement and the unpaid balance of US$615,620.33 — and failed to tender a genuine issue by specifically denying the genuineness and due execution of the agreement.

• Judgment on the Pleadings: Section 1, Rule 34 of the 1997 Rules of Civil Procedure authorizes judgment on the pleadings where an answer fails to tender an issue or otherwise admits the material allegations of the adverse party's pleading. An answer fails to tender an issue if it does not comply with the requirements of a specific denial under Sections 8 and 10 of Rule 8, resulting in the admission of the material allegations of the adverse party's pleadings. Applying this rule, petitioner's answer categorically admitted paragraphs 4 and 5 of the complaint, which alleged the execution of the Memorandum of Agreement and the unpaid balance. While petitioner raised affirmative defenses — defective certification of non-forum shopping, lack of legal capacity to sue, and fortuitous event — none of these constituted a specific denial that the Memorandum of Agreement was perfected, nor did they contest the genuineness and due execution of that instrument. Because the action was founded on a written instrument whose genuineness and due execution were deemed admitted under Section 8, Rule 8, the affirmative defenses could not prevent respondent from seeking collection of the unpaid balance. The essential question in a motion for judgment on the pleadings is whether the pleadings generate any issue; here, no ostensible issue existed because the answer admitted the material allegations and failed to raise a valid denial. The CA's findings and conclusions were sustained, as the express terms of the Memorandum of Agreement, not denied by petitioner, clearly established liability for the payment of the balance.

• Judgment on the Pleadings — Judgment on the pleadings is proper when an answer fails to tender an issue or otherwise admits the material allegations of the adverse party's pleading. An answer fails to tender an issue if it does not comply with the requirements of a specific denial under Sections 8 and 10 of Rule 8 of the 1997 Rules of Civil Procedure. The answer admits the material allegations not only where it expressly confesses the truthfulness thereof but also if it omits to deal with them at all. In this case, petitioner's answer admitted the execution of the Memorandum of Agreement and the unpaid balance without specifically denying the genuineness and due execution of the instrument, and its affirmative defenses could not bar recovery on the admitted obligation.
• Specific Denial of Genuineness and Due Execution of Written Instruments (Section 8, Rule 8) — When an action or defense is founded upon a written instrument copied in or attached to the pleading, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts. Petitioner did not comply with this requirement; it never denied under oath the genuineness and due execution of the Memorandum of Agreement, so the instrument was deemed admitted.

• "Judgment on the pleadings is proper when an answer fails to tender an issue, or otherwise admits the material allegations of the adverse party's pleading. An answer fails to tender an issue if it does not comply with the requirements of a specific denial as set out in Sections 8 and 10, Rule 8 of the 1997 Rules of Civil Procedure, resulting in the admission of the material allegations of the adverse party's pleadings." — This passage states the controlling rule for judgment on the pleadings and links it to the specific denial requirements of Rule 8, forming the ratio decidendi of the case.

• "The answer would fail to tender an issue, of course, if it does not comply with the requirements for a specific denial set out in Section 10 (or Section 8) of Rule 8; and it would admit the material allegations of the adverse party's pleadings not only where it expressly confesses the truthfulness thereof but also if it omits to deal with them at all." — Quoted from Mongao vs. Pryce Properties Corporation, this formulation defines the two ways an answer admits material allegations — express confession and omission — and is the canonical statement of the doctrine applied here.

• "While petitioner allegedly raised affirmative defenses, i.e., defect in the certification of non-forum shopping, no legal capacity to sue and fortuitous event, the same cannot still bar respondent from seeking the collection of the unpaid balance. Other than these affirmative defenses, petitioner's denial neither made a specific denial that a Memorandum of Agreement was perfected nor did it contest the genuineness and due execution of said agreement." — This passage applies the rule to the facts, explaining why the affirmative defenses were insufficient to prevent judgment on the pleadings.

• Mongao vs. Pryce Properties Corporation, 504 Phil. 472 (2005) — Followed. The Court relied on this case for the rule that judgment on the pleadings is governed by Section 1, Rule 34, and that an answer fails to tender an issue if it does not comply with the specific denial requirements of Sections 8 and 10 of Rule 8. The case's formulation that an answer admits material allegations by express confession or by omission was quoted and applied.
• First Leverage and Services Group, Inc. vs. Solid Builders, Inc., G.R. No. 155680, July 2, 2012, 675 SCRA 407 — Followed. Cited for the principle that the essential question in a motion for judgment on the pleadings is whether the pleadings generate any issue, and that in a proper case there is no ostensible issue because the defending party's answer fails to raise one.
• Government Service Insurance System vs. Prudential Guarantee and Assurance, Inc., G.R. Nos. 165585 and 176982, November 20, 2013 — Cited in a footnote as supporting authority for the rule that an answer fails to tender an issue if it does not comply with the requirements of a specific denial under Sections 8 and 10 of Rule 8.

• Section 1, Rule 34, 1997 Rules of Civil Procedure — Governs judgment on the pleadings. Provides that where an answer fails to tender an issue or otherwise admits the material allegations of the adverse party's pleading, the court may, on motion, direct judgment on such pleading. This provision was the primary basis for the ruling.
• Section 8, Rule 8, 1997 Rules of Civil Procedure — Governs how to contest documents upon which an action or defense is founded. Provides that the genuineness and due execution of a written instrument copied in or attached to a pleading shall be deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts. Petitioner failed to comply, so the Memorandum of Agreement was deemed admitted.
• Section 10, Rule 8, 1997 Rules of Civil Procedure — Governs specific denial. Requires a defendant to specify each material allegation of fact the truth of which he does not admit and, whenever practicable, to set forth the substance of the matters upon which he relies to support his denial. Petitioner's answer did not meet this standard as to the existence of the agreement or the unpaid balance.
• Section 5, Rule 7, 1997 Rules of Civil Procedure — Referred to in petitioner's answer regarding the alleged defect in the certification of non-forum shopping. This defense was raised but found insufficient to bar judgment on the pleadings.

Presbitero J. Velasco, Jr. (Chairperson), Martin S. Villarama, Jr., Jose Catral Mendoza, and Marvic Mario Victor F. Leonen concurred.