Yujuico vs. United Resources Asset Management, Inc.

A party may be allowed to amend its pleading to correct mistaken judicial admissions when the amendment is sanctioned under Rule 10 of the Rules of Court, even without a showing of "palpable mistake" under Section 4 of Rule 129, provided the motion for leave is not made in bad faith or for the purpose of delaying the proceedings.

Strategic Alliance Development Corporation (STRADEC) is a domestic corporation engaged in business development and investment. In 2000, several STRADEC stockholders, including petitioner Aderito Z. Yujuico, executed Pledge Agreements over approximately four million STRADEC shares in favor of respondent United Resources Asset Management, Inc. (URAMI) to secure STRADEC's loan obligations under a Loan Agreement dated 28 December 2000. Respondent Atty. Richard J. Nethercott acted as attorney-in-fact for URAMI, while respondent Atty. Honorato R. Mataban was the notary public designated to conduct the auction sale of the pledged shares.

Strategic Alliance Development Corporation (STRADEC) is a domestic corporation operating as a business development and investment company. In December 2000, STRADEC entered into a Loan Agreement with United Resources Asset Management, Inc. (URAMI). To secure STRADEC's loan obligations, several stockholders—including petitioner Aderito Z. Yujuico—executed Pledge Agreements over approximately four million STRADEC shares in favor of URAMI.

STRADEC defaulted on its payment obligations, which then amounted to US $7,137,349.00. On 18 June 2004, the stockholders received a notice signed by Atty. Richard J. Nethercott, who claimed to be URAMI's attorney-in-fact, informing them of an impending public auction of the pledged shares scheduled for 23 June 2004 in front of the municipal building of Bayambang, Pangasinan, to be conducted by notary public Atty. Honorato R. Mataban. Petitioner questioned Atty. Nethercott's authority, asserting that under the Loan Agreement, URAMI's authorized representative was its Chief Operating Officer, Ms. Lorna P. Feliciano, and that no modification of that provision had been made.

On 21 June 2004, petitioner filed an injunction complaint before the RTC of Pasig City, docketed as Civil Case No. 70027, impleading URAMI, Atty. Nethercott, and Atty. Mataban. The RTC did not issue a temporary restraining order, so the auction proceeded on 23 June 2004, with URAMI emerging as the winning bidder for all pledged shares. On 5 July 2004, the RTC issued a writ of preliminary injunction preventing URAMI from appropriating the purchased stocks. Atty. Nethercott filed his answer denying the material allegations, but URAMI did not immediately file its own answer. On 21 April 2006, URAMI filed a motion for leave to file an answer, which the RTC granted on 5 September 2006.

In its original answer, URAMI agreed with petitioner that the 23 June 2004 auction sale was void, admitting that it never authorized Atty. Nethercott to cause the sale and asserting that any recourse should be solely against Atty. Nethercott. On 29 May 2007, petitioner filed a motion for summary judgment, arguing that URAMI's admissions left no genuine issue for trial. However, proceedings were suspended when the Supreme Court issued a TRO in G.R. No. 177068 on 25 July 2008, halting Civil Case No. 70027 for over a year until it was lifted on 13 October 2008.

After proceedings resumed, URAMI changed counsel on 26 January 2009, replacing the VGD law firm with Atty. Edward P. Chico. Under new counsel, URAMI filed an amended answer with compulsory counterclaim on 23 February 2009, reversing its prior position: it now claimed the auction sale was valid and that it had duly authorized Atty. Nethercott. Petitioner moved to strike out the amended answer as untimely, filed without leave of court, and prejudicial. The RTC initially denied admission on 18 August 2009 for lack of leave of court, but after URAMI filed a formal motion for leave on 21 September 2009—explaining that the original answer "does not bear truthful factual allegations and is indubitably not supported by evidence on record"—the RTC granted the motion on 10 November 2009. Petitioner's motion for reconsideration was denied on 27 September 2010. Among the evidence URAMI intended to present was a Board Resolution dated 21 June 2004 evidencing Atty. Nethercott's authority to cause the foreclosure, which had not been disclosed in the original answer prepared by prior counsel.

• Judicial Admissions Bar Amendment: Petitioner argued that URAMI is precluded from contradicting the admissions in its original answer because it failed to show such admissions were made through "palpable mistake," as required by Section 4 of Rule 129 of the Rules of Court.
• Dilatory Intent: Petitioner maintained that the amended answer was merely a ploy by URAMI to further delay the proceedings in Civil Case No. 70027, and that the considerable lapse of time between the original answer and the motion for leave supported this characterization.

• Mistaken Admissions: URAMI explained that its original answer, prepared by prior counsel, "does not bear truthful factual allegations and is indubitably not supported by evidence on record," and that a Board Resolution dated 21 June 2004 evidenced Atty. Nethercott's authority to conduct the foreclosure.
• Liberal Treatment of Amendments: URAMI relied on the judicial policy of liberally allowing amendments to pleadings, particularly before trial, in the interest of substantial justice.

• Governing Provision for Amendment: Whether Section 4 of Rule 129 of the Rules of Court bars URAMI from filing an amended answer that contradicts its prior judicial admissions.
• Dilatory Character: Whether URAMI's amended answer was filed for the purpose of delaying the proceedings in Civil Case No. 70027.
• Propriety of Grant of Leave: Whether the RTC and CA correctly granted URAMI's motion for leave to file an amended answer.

• Governing Provision for Amendment: No. Section 4 of Rule 129 does not preclude amendment; matters involving amendment of pleadings are primarily governed by Rule 10, which allows amendments upon leave of court, and even under Rule 129 the admissions were demonstrably mistaken.
• Dilatory Character: No. The amended answer aimed to correct crucial factual allegations, and the perceived delay was partly attributable to the Supreme Court's TRO suspending proceedings for over a year, not to URAMI's bad faith.
• Propriety of Grant of Leave: Yes. The grant of leave was consistent with the judicial policy of liberal treatment of amendments to pleadings, especially before trial, and no abuse of discretion was shown.

• Governing Provision for Amendment: Section 4 of Rule 129, which prohibits a party from contradicting judicial admissions absent a showing of "palpable mistake," does not set the controlling standard for amendments to pleadings. That matter is governed primarily by Rule 10, which permits amendments upon leave of court. Allegations and admissions in a pleading—even if not shown to be made through "palpable mistake"—can still be corrected or amended provided the amendment is sanctioned under Rule 10. Nevertheless, even applying Section 4 of Rule 129, the admissions in URAMI's original answer were a product of clear and patent mistake: URAMI intended to present a Board Resolution dated 21 June 2004 evidencing Atty. Nethercott's authority to cause the foreclosure, which rendered the original answer's statement on lack of authority mistaken, if not entirely baseless. It was therefore right and fair to allow URAMI to rectify such mistakes through an amended answer.

• Dilatory Character: The amended answer aimed to correct certain allegations of fact in the original answer that are crucial to a full and proper disposition of Civil Case No. 70027, making it in the best interest of justice and equity to allow its filing. The considerable lapse of time between the original answer and the motion for leave was not purely attributable to URAMI: the Supreme Court had issued a TRO in G.R. No. 177068 that suspended proceedings for more than a year, during which URAMI could not have filed a motion for leave. After the TRO was lifted, it took URAMI only a little over three months to replace counsel and file the amended answer. No evidence of bad faith or intent to delay was shown.

• Propriety of Grant of Leave: The grant of leave was consistent with the time-honored judicial policy of affording liberal treatment to amendments to pleadings, especially those made before the conduct of trial. Bona fide amendments should be allowed in the interest of justice so that every case may be determined on its real facts and multiplicity of suits prevented. Rules of procedure are mere tools designed to facilitate the attainment of justice, and their application should never be allowed to frustrate the truth and the promotion of substantial justice. No abuse of discretion was found in the RTC's grant or the CA's affirmance thereof.

• Liberal Treatment of Amendments to Pleadings — Courts are impelled to treat motions for leave to file amended pleadings with liberality, especially when filed during the early stages of proceedings or before trial. Bona fide amendments should be allowed in the interest of justice so that every case may, so far as possible, be determined on its real facts and the multiplicity of suits thus be prevented. As long as it does not appear that the motion for leave was made with bad faith or with intent to delay the proceedings, courts are justified in granting leave. Once granted, the same becomes binding and will not be disturbed on appeal unless it appears that the court abused its discretion.

• Judicial Admissions vs. Amendment of Pleadings — Section 4 of Rule 129, governing judicial admissions, does not set the controlling standard for whether amendments to pleadings may be allowed. Amendment of pleadings is primarily governed by Rule 10. Allegations and admissions in a pleading—even if not shown to be made through "palpable mistake"—can still be corrected or amended provided the amendment is sanctioned under Rule 10. Even under Rule 129, however, admissions may be contradicted if shown to be a product of clear and patent mistake, as where documentary evidence (e.g., a board resolution) reveals the admission to be mistaken or entirely baseless.

• Procedural Rules as Tools of Justice — Rules of procedure are mere tools designed to facilitate the attainment of justice. Their application should never be allowed to frustrate the truth and the promotion of substantial justice.

• "Matters involving the amendment of pleadings are primarily governed by the pertinent provisions of Rule 10 and not by Section 4 of Rule 129 of the Rule of Court. Hence, allegations (and admissions) in a pleading—even if not shown to be made through 'palpable mistake'—can still be corrected or amended provided that the amendment is sanctioned under Rule 10 of the Rules of Court." — This passage articulates the ratio decidendi: that the judicial-admissions rule in Rule 129 does not control the amendment of pleadings, which falls under Rule 10's more liberal framework.

• "We should always remember that our rules of procedure are mere tools designed to facilitate the attainment of justice. Their application should never be allowed to frustrate the truth and the promotion of substantial justice." — This is the canonical formulation frequently cited in Philippine jurisprudence for the principle that procedural rules must yield to substantial justice.

• "As long as it does not appear that the motion for leave was made with bad faith or with intent to delay the proceedings, courts are justified to grant leave and allow the filing of an amended pleading." — This states the operative standard for granting leave to amend: the absence of bad faith or dilatory intent.

• Torres vs. Tomacruz, 49 Phil. 913 (1927) — Cited for the proposition that once a court grants leave to file an amended pleading, the same becomes binding and will not be disturbed on appeal unless it appears that the court had abused its discretion.

• Ching Tiu vs. Philippine Bank of Communications, 613 Phil. 56 (2009) — Cited for the principle that courts are impelled to treat motions for leave to file amended pleadings with liberality, especially when filed during the early stages of proceedings or before trial.

• Quirao vs. Quirao, 460 Phil. 605 (2003) — Cited for the doctrine that bona fide amendments to pleadings should be allowed in the interest of justice so that every case may be determined on its real facts and the multiplicity of suits prevented; also cited for the principle that procedural rules should not frustrate substantial justice, drawing from Samala vs. Court of Appeals.

• Section 2, Rule 10, Rules of Court — Allows a party to amend a pleading once as a matter of right before a responsive pleading is served. Applied to frame the general framework for amendments as of right.
• Sections 3 and 4, Rule 10, Rules of Court — Govern amendments by leave of court and provide that amendments may be allowed at any stage of the proceedings, with the caveat that they should not be made with intent to delay. Applied as the primary basis for allowing URAMI's amended answer.
• Section 4, Rule 129, Rules of Court — Provides that judicial admissions do not require proof and may be contradicted only by showing they were made through palpable mistake or that no such admission was made. The Court held this provision does not control amendments to pleadings, which are governed by Rule 10, but even if applied, the admissions were shown to be mistaken given the board resolution.

Chief Justice Maria Lourdes P.A. Sereno (Chairperson), Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Lucas P. Bersamin, and Associate Justice Estela M. Perlas-Bernabe concurred.