RULE 18
Such final demand
G.R. No. 170606 November 23,
2007
LCK INDUSTRIES INC., CHIKO LIM and
ELIZABETH T. LIM, Petitioners,
vs.
PLANTERS DEVELOPMENT
BANK, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is the Petition for Review
on Certiorari under Rule 45 of the Revised Rules
of Court filed by petitioners LCK Industries Inc.
(LCK), Chiko Lim and Elizabeth Lim, seeking the
reversal and the setting aside of the
Decision1 dated 1 April 2005 and the
Resolution2 dated 29 November 2005 of the
Court of Appeals in CA-G.R. CV No. 73944. The
appellate court, in its assailed Decision and
Resolution, reversed the Decision3 of the
Regional Trial Court (RTC) of Quezon City,
Branch 81, dated 3 September 2001, in Civil
Case No. Q-98-33835, which found respondent
Planters Development Bank (respondent bank)
liable for the amount of ₱1,856,416.67,
representing overpayment.
Petitioner LCK is a domestic corporation duly
organized and existing as such under Philippine
laws.4
Respondent bank is a banking institution duly
authorized to engage in banking business under
Philippine laws.5
On 1 September 1995, petitioner LCK obtained
a loan from the respondent bank in the amount
of ₱3,000,000.00 as evidenced by two
promissory notes.6
As a security for the loan obligation,
petitioners-spouses Chiko and Elizabeth Lim
executed a Real Estate Mortgage over a parcel
of land covered by Transfer Certificate of Title
(TCT) No. T-138623, registered under their
names and located at Quezon City, with an area
of 68 square meters (Quezon City
property).7 Later on, to secure the same
obligation, another Real Estate Mortgage was
executed over another parcel of land covered by
TCT No. T-62773, also registered under the
names of the petitioner-spouses, with an area of
71 square meters located at Baguio City (Baguio
City property).8
Subsequently, petitioner LCK incurred default in
its payment; thus, making the obligation due and
demandable. Several demands were thereafter
made by the respondent bank to no avail.9 On 13
October 1997, a final letter-demand was sent by
respondent bank to petitioner LCK asking for the
payment of its obligation in the amount of
₱2,962,500.00.
notwithstanding, petitioner LCK failed or refused
to pay its obligation.
Consequently, respondent bank caused the
extrajudicial foreclosure of the Baguio City
property which was sold at the public auction for
₱2,625,000.00 as shown in the Certificate of
Sale10 dated 29 January 1998. Since the
proceeds of the foreclosed Baguio City property
were not enough to satisfy the entire loan
obligation which amounted to ₱2,962,500.00,
respondent bank further caused the extrajudicial
foreclosure of the Quezon City property. As
evidenced by the Certificate of Sale11 dated 18
March 1998, signed by Notary Public Atty. Allene
Anigan (Atty. Anigan), the foreclosed Quezon
City property was sold at a public auction for
₱2,231,416.67. The respondent bank was the
highest bidder on both occasions.
Prior to the auction sale of the Quezon City
property on 18 March 1998, petitioners, on 12
March 1998, filed with the RTC of Quezon City,
Branch 81, an action for Annulment of the
Foreclosure of Mortgage and Auction Sale of the
Quezon City property with Restraining
Order/Preliminary Injunction and with Damages
against respondent bank and Atty. Anigan.12 The
case was docketed as Civil Case No.
Q-98-33835.
In their Complaint,13 petitioners alleged that
respondent bank failed to comply with the
posting and publication requirements as well as
with the filing of the Petition for the Extrajudicial
Foreclosure of the Real Estate Mortgage with
the Clerk of Court as required by Act No.
3135.14 Petitioners prayed for the issuance of
temporary restraining order (TRO) in order to
enjoin the respondent bank from conducting the
auction sale, and in the alternative, to enjoin the
Registry of Deeds of Quezon City from
transferring the ownership of the Quezon City
property to the purchaser at the auction sale.
In its Answer with the Opposition to the Prayer
for the Issuance of Temporary Restraining Order
(TRO), respondent bank averred that it had fully
observed the posting and publication
requirements of Act No. 3135. It insisted that the
filing of the Petition for Extrajudicial Foreclosure
of the Mortgage Property with the Notary Public
was sanctioned by the same statute.
Respondent bank thus prayed for the dismissal
of petitioners’ complaint for lack of merit.15
For failure of the counsels for both petitioners
and respondent bank to appear in the scheduled
hearing for the issuance of temporary restraining
order, the RTC, in an Order dated 15 May 1998,
deemed the prayer for TRO abandoned.16
Thereafter, the RTC conducted a pre-trial
conference. In the Pre-Trial Order17 dated 8
September 2000, the parties made the following
admissions and stipulations:
(1) the real estate mortgage executed by the
plaintiffs in favor of the defendant bank covers
the loan obligation in the total amount of
₱3,000,000.00;
(2) there were two promissory notes executed by
the plaintiffs: one for ₱2,700,000.00 and another
for ₱300,000.00;
(3) a demand letter dated 13 October 1997 was
sent to petitioner LCK by respondent bank
stating that the remaining balance of petitioner
LCK’s loan obligation was ₱2,962,500.00 as of
13 October 1997;
(4) a Notice of Auction Sale by Notary Public
was made by the respondent bank in foreclosing
the Baguio City property, and in the Certificate of
Sale issued by the Notary Public, the respondent
bank bid ₱2,625,000.00 for the property;
(5) the respondent bank also foreclosed the real
estate mortgage over the petitioners’ Quezon
City property on 18 March 1998 and said
defendant bank bid ₱2,231,416.67 for the
property;
(6) the foreclosure of petitioners’ Quezon City
property was made by a notary public;
(7) the petition for foreclosure was not included
in the raffle of judicial notice;
(8) the petitioners failed to fully pay their loan
obligation as of 13 October 1997 in the amount
of ₱962,500.00; and
(9) despite the demands, petitioners failed to pay
their due obligations.
The court further defined the issues as follows:
(1) whether or not the petition was filed with the
Office of the Clerk of Court;
(2) whether or not the extra-judicial foreclosure
of real estate mortgage by defendant bank was
made in accordance with the provisions of Act
3135, as amended; and
(3) whether or not the parties are entitled to their
respective claims for attorney’s fees and
damages.18
The parties were given 15 days from receipt of
the Pre-Trial Order to make amendments or
corrections thereon.
On 18 April 2001, the parties agreed to submit
the case for the decision of the RTC based on
the stipulations and admissions made at the
pre-trial conference. The parties further
manifested that they were waiving their
respective claims for attorney’s fees. On the
same day, the RTC required the parties to
submit their respective memoranda.19
In their Memorandum,20 petitioners, aside from
reiterating issues previously raised in their
Complaint, further claimed that there was an
overpayment of the loan obligation by
₱1,856,416.67. As shown in the letter-demand
dated 13 October 1997 received by petitioner
LCK, its outstanding loan obligation amounted to
₱2,962,500.00. The Baguio City property was
purchased by respondent bank at the public
auction for ₱2,625,000.00, while the Quezon
City property was purchased for ₱2,231,416.67.
For its part, respondent bank maintained in its
Memorandum21 that the complaint filed by
petitioners is devoid of merit. It further
asseverated that petitioners’ claim for
overpayment was not among the issues
submitted for the resolution of the RTC. It is clear
from the Pre-Trial Order that the issues to be
resolved are limited to whether the petition for
the foreclosure of the real estate mortgage was
filed before the Clerk of Court and whether or not
the extrajudicial foreclosure of real estate
mortgage was made by the respondent bank in
accordance with the provisions of Act No. 3135.
For failure of petitioners to promptly raise the
alleged overpayment, the RTC is now barred
from adjudicating this issue.
On 3 September 2001, the RTC rendered its
Decision22 declaring the foreclosure and the
auction sale of the Quezon City property legal
and valid, but ordered respondent bank to return
the overpayment made by petitioners in the
amount of ₱1,856,416.67. The dispositive
portion of the RTC Decision reads:
WHEREFORE, premises considered, judgment
is hereby rendered as follows:
1. Declaring the extra-judicial foreclosure and
auction sale of the Quezon City property of
plaintiffs LCK Industries, Inc., Chiko Lim and
Elizabeth Lim subject of this case legal and valid;
2. Ordering defendant Planters Development
Bank to pay to plaintiffs the amount of
₱1,856,416.67 representing overpayment;
3. Dismissing plaintiffs’ claim for attorney’s fees
and other litigation expenses;
4. Dismissing the case against defendant Atty.
Allene M. Anigan; and
5. Dismissing the counterclaims of defendants
Planters Development Bank and Atty. Arlene M.
Anigan.23
For lack of merit, the Motion for Reconsideration
filed by the respondent bank was denied by the
RTC in its Order dated 3 December 2001.24
Aggrieved, respondent bank elevated the matter
to the Court of Appeals by assailing the portion
of the RTC Decision ordering it to pay petitioners
the amount of ₱1,856,416.67 representing the
alleged overpayment. The respondent bank’s
appeal was docketed as CA-G.R. CV No.
73944.25
On 1 April 2005, the Court of Appeals granted
the appeal of the respondent bank and partially
reversed the RTC Decision insofar as it ordered
respondent bank to pay the overpaid amount of
₱1,856,416.67 to petitioners. In deleting the
award of overpayment, the appellate court
emphasized that the primary purpose of pre-trial
is to make certain that all issues necessary for
the disposition of the case are properly raised in
order to prevent the element of surprise. Since
the alleged overpayment was only raised by the
petitioners long after the pre-trial conference, the
court a quo cannot dispose of such issue without
depriving the respondent bank of its right to due
process.26
The Motion for Reconsideration filed by
petitioners was denied by the Court of Appeals
in its Resolution27 dated 29 November 2005.
Petitioners are now before this Court via a
Petition for Review on Certiorari,28 under Rule
45 of the Revised Rules of Court, assailing the
Court of Appeals Decision and raising the
following issues as grounds:
I.
WHETHER OR NOT THE EXCESS AMOUNT
OF ₱1,893,916.67 WHICH THE RESPONDENT
BANK ACQUIRED FROM THE AUCTION SALE
OF THE PETITIONERS’ PROPERTIES SHALL
BE RETURNED TO THEM.
II.
WHETHER OR NOT THE ISSUE OF
OVERPAYMENT WAS RAISED BY THE
PARTIES AND INCLUDED IN THE PRE-TRIAL
ORDER.29
The petition centers on the claim propounded by
petitioners that there was an overpayment of the
loan obligation in the amount of ₱1,856,416.67.
Petitioners insist they are entitled to the
reimbursement of the overpaid amount invoking
the elementary principle of in rem verso30 in
human relations and the rule on the disposition
of the proceeds of the sale providing that the
balance or the residue after deducting the cost of
the sale and the payment of the mortgage debt
due, shall be paid to the junior encumbrancers,
and in the absence of junior encumbrancers, to
the mortgagor or his duly authorized
representative.31
On the other hand, respondent bank counters
that the question of overpayment, not being
included in the issues stipulated in Pre-Trial
Order dated 8 September 2000, and totally
unrelated therein, cannot be considered by the
RTC. The belated ventilation of the alleged
overpayment precluded the RTC from ruling on
the matter in consonance with the primordial
purpose of the pre-trial conference which is to
delineate the issues necessary for the
disposition of the case. 32
The conduct of pre-trial in civil actions has been
mandatory as early as 1 January 1964 upon the
effectivity of the Revised Rules of
33
Court. Pre-trial is a procedural device intended
to clarify and limit the basic issues between the
parties34 and to take the trial of cases out of the
realm of surprise and maneuvering.35
Pre-trial is an answer to the clarion call for the
speedy disposition of cases. Hailed as the most
important procedural innovation in Anglo-Saxon
justice in the nineteenth century,36 pre-trial is a
device intended to clarify and limit the basic
issues between the parties.37 It thus paves the
way for a less cluttered trial and resolution of the
case.38 Pre-trial seeks to achieve the following:
(a) The possibility of an amicable settlement or
of a submission to alternative modes of dispute
resolution;
(b) The simplification of the issues;
(c) The necessity or desirability of amendments
to the pleadings;
(d) The possibility of obtaining stipulations or
admissions of facts and of documents to avoid
unnecessary proof;
(e) The limitation of the number of witnesses;
(f) The advisability of a preliminary reference of
issues to a commissioner;
(g) The propriety of rendering judgment on the
pleadings, or summary judgment, or of
dismissing the action should a valid ground
therefor be found to exist;
(h) The advisability or necessity of suspending
the proceedings; and
(i) Such other matters as may aid in the prompt
disposition of the action.39
The purpose of entering into a stipulation of facts
is to expedite trial and to relieve the parties and
the court as well of the costs of proving facts
which will not be disputed on trial and the truth of
which can be ascertained by reasonable inquiry.
Its main objective is to simplify, abbreviate and
expedite the trial, or totally dispense with it.40
The parties themselves or their representative
with written authority from them are required to
attend in order to arrive at a possible amicable
settlement, to submit to alternative modes of
dispute resolution, and to enter into stipulations
or admissions of facts and documents. All of the
matters taken up during the pre-trial, including
the stipulation of facts and the admissions made
by the parties, are required to be recorded in a
pre-trial order.41
Thus, Section 7, Rule 18 of the Revised Rules of
Court provides:
SEC. 7. Record of pre-trial. – The proceedings in
the pre-trial shall be recorded. Upon the
termination thereof, the court shall issue an
order which shall recite in detail the matters
taken up in the conference, the action taken
thereon, the amendments allowed to the
pleadings, and the agreements or admissions
made by the parties as to any of the matters
considered. Should the action proceed to trial,
the order shall explicitly define and limit the
issues to be tried. The contents of the order shall
control the subsequent course of the action,
unless modified before trial to prevent manifest
injustice.
In the Pre-Trial Order dated 8 September 2000,
the RTC defined the issues as follows: (1)
whether or not the petition was filed with the
Office of the Clerk of Court; (2) whether or not
the extrajudicial foreclosure of real estate
mortgage by defendant bank was made in
accordance with the provisions of Act No. 3135;
and (3) whether or not the parties are entitled to
their respective claims for attorney’s fees and
damages.
Based on the admissions and stipulations during
the pre-trial conference and the issues defined
by the court a quo as embodied in the Pre-Trial
Order, the parties agreed to submit the case for
the resolution of the RTC. Both petitioners and
respondent also manifested that they would
forego their respective claims for attorney’s fees,
leaving solely the issue of the validity of the
foreclosure of mortgage and auction sale for the
RTC’s disposition. However, in petitioners’
Memorandum filed after the case was submitted
for resolution, petitioners raised the question of
overpayment, a new issue that was included
neither in their Complaint nor in the issues
defined in the Pre-Trial Order issued by the RTC.
Generally, pre-trial is primarily intended to make
certain that all issues necessary to the
disposition of a case are properly raised. Thus,
to obviate the element of surprise, parties are
expected to disclose at the pre-trial conference
all issues of law and fact they intend to raise at
the trial.42 However, in cases in which the issue
may involve privileged or impeaching
43
matters, or if the issues are impliedly included
therein or may be inferable therefrom by
necessary implication to be integral parts of the
pre-trial order as much as those that are
expressly stipulated, the general rule will not
apply.44 Thus, in Velasco v. Apostol,45 this Court
highlighted the aforesaid exception and ruled in
this wise:
A pre-trial order is not meant to be a detailed
catalogue of each and every issue that is to be
or may be taken up during the trial. Issues that
are impliedly included therein or may be
inferable therefrom by necessary implication are
as much integral parts of the pre-trial order as
those that are expressly stipulated.
In fact, it would be absurd and inexplicable for
the respondent company to knowingly disregard
or deliberately abandon the issue of
non-payment of the premium on the policy
considering that it is the very core of its defense.
Correspondingly, We cannot but perceive here
an undesirable resort to technicalities to evade
an issue determinative of a defense duly averred.
(Emphasis supplied).
The case at bar falls under this particular
exception. Upon scrupulous examination of the
Pre-Trial Order dated 8 September 2000, it can
be deduced that the parties stipulated that the
remaining sum of petitioner LCK’s obligation as
of 13 October 1997 was ₱2,962,500.00. In the
same Pre-Trial Order, the parties likewise
stipulated that the Baguio City property was sold
at the public auction for ₱2,625,000.00 and the
Quezon City property for ₱2,231,416.67. On
both occasions, respondent bank emerged as
the highest bidder. By applying simple
mathematical operation, the mortgaged
properties were purchased by the respondent at
the public auctions for ₱4,856,416.67; thus, after
deducting therefrom the balance of petitioner
LCK’s obligation in the amount of ₱2,962,500.00,
an excess in the sum of ₱1,893,916.67 remains.
Needless to say, the fact of overpayment,
though not expressly included in the issues
raised in the Pre-Trial Order dated 8 September
2000, can be evidently inferred from the
stipulations and admissions made by the parties
therein. Even only upon plain reading of the said
Pre-Trial Order, it can be readily discerned that
there was an overpayment.
The pertinent provisions of the Revised Rules of
Court on extrajudicial foreclosure sale provide:
Rule 39. SEC. 21. Judgment obligee as
purchaser. – When the purchaser is the
judgment obligee, and no third-party claim has
been filed, he need not pay the amount of the bid
if it does not exceed the amount of the judgment.
If it does, he shall pay only the excess.
Rule 68. SEC. 4. Disposition of proceeds of
sale.- The amount realized from the foreclosure
sale of the mortgaged property shall, after
deducting the costs of the sale, be paid to the
person foreclosing the mortgage, and when
there shall be any balance or residue, after
paying off the mortgage debt due, the same shall
be paid to junior encumbrancers in the order of
their priority, to be ascertained by the court, or if
there be no such encumbrancers or there be a
balance or residue after payment to them, then
to the mortgagor or his duly authorized agent, or
to the person entitled to it. (Emphasis supplied.)
The renowned jurist Florenz Regalado, in Sulit v.
Court of Appeals,46 underscored the obligation of
the mortgagee with respect to the surplus money
resulting from a foreclosure sale of the
mortgaged property:
The application of the proceeds from the sale of
the mortgaged property to the mortgagor’s
obligation is an act of payment, not payment by
dation; hence, it is the mortgagee’s duty to return
any surplus in the selling price to the
mortgagor. Perforce, a mortgagee who
exercises the power of sale contained in a
mortgage is considered a custodian of the fund,
and, being bound to apply it properly, is liable to
the persons entitled thereto if he fails to do
so. And even though the mortgagee is not strictly
considered a trustee in a purely equitable sense,
but as far as concerns the unconsumed balance,
the mortgagee is deemed a trustee for the
mortgagor or owner of the equity of
redemption.1âwphi1
Commenting on the theory that a mortgagee,
when he sells under a power, cannot be
considered otherwise than as a trustee, the
vice-chancellor in Robertson v. Norris (1 Giff.
421) observed: "That expression is to be
understood in this sense: that with the power
being given to enable him to recover the
mortgage money, the court requires that he shall
exercise the power of sale in a provident way,
with a due regard to the rights and interests of
the mortgagor in the surplus money to be
produced by the sale. (Emphasis supplied.)
Petitioner LCK’s obligation with the respondent
bank was already fully satisfied after the
mortgaged properties were sold at the public
auction for more than the amount of petitioner
LCK’s remaining debt with the respondent bank.
As the custodian of the proceeds from the
foreclosure sale, respondent bank has no legal
right whatsoever to retain the excess of the bid
price in the sum of ₱1,893,916.67, and is under
clear obligation to return the same to petitioners.
In any case, this Court would not allow
respondent bank to hide behind the cloak of
procedural technicalities in order to evade its
obligation to return the excess of the bid price,
for such an act constitutes a violation of the
elementary principle of unjust enrichment in
human relations.
Under the principle of unjust enrichment - nemo
cum alterius detrimento locupletari potest - no
person shall be allowed to enrich himself unjustly
at the expense of others.47 This principle of
equity has been enshrined in our Civil Code,
Article 22 of which provides:
Art. 22. Every person who through an act of
performance by another, or any other means,
acquires or comes into possession of something
at the expense of the latter without just or legal
ground, shall return the same to him.
We have held that there is unjust enrichment
when a person unjustly retains a benefit to the
loss of another, or when a person retains the
money or property of another against the
fundamental principles of justice, equity and
good conscience.48
Equity, as the complement of legal jurisdiction,
seeks to reach and complete justice where
courts of law, through the inflexibility of their
rules and want of power to adapt their judgments
to the special circumstances of cases, are
incompetent to do so. Equity regards the spirit
and not the letter, the intent and not the form, the
substance rather than the circumstance, as it is
variously expressed by different courts.49
It is the policy of the Court to afford party-litigants
the amplest opportunity to enable them to have
their cases justly determined, free from
constraints of technicalities. Since the rules of
procedures are mere tools designed to facilitate
the attainment of justice, it is well recognized that
this Court is empowered to suspend its operation,
or except a particular case from its operation,
when the rigid application thereof tends to
frustrate rather promote the ends of justice.50
Court litigations are primarily for search of truth,
and a liberal interpretation of the rules by which
both parties are given the fullest opportunity to
adduce proofs is the best way to ferret such truth.
The dispensation of justice and vindication of
legitimate grievances should not be barred by
technicalities.51
Given the foregoing discussion, this Court finds
the respondent bank liable not only for retaining
the excess of the bid price or the surplus money
in the sum of ₱1,893,916.67, but also for paying
the interest thereon at the rate of 6% per annum
from the time of the filing of the complaint until
finality of judgment. Once the judgment becomes
final and executory, the interest of 12% per
annum, should be imposed, to be computed
from the time the judgment becomes final and
executory until fully satisfied.52
WHEREFORE, premises considered, the instant
Petition is GRANTED. The Court of Appeals
Decision dated 1 April 2005 and its Resolution
dated 29 November 2005 in CA-G.R. CV No.
73944 are hereby REVERSED. Respondent
Planters Development Bank is ORDERED to
return to the petitioners LCK Industries Inc.,
Chiko Lim and Elizabeth Lim, the sum of
₱1,893,916.67 with interest computed at 6% per
annum from the time of the filing of the complaint
until its full payment before finality of judgment.
Thereafter, if the amount adjudged remains
unpaid, the interest rate shall be 12% per annum
computed from the time the judgment became
final and executory until fully satisfied. Costs
against respondent Planters Development Bank.
SO ORDERED.
G.R. No. 103185 January 22, 1993
CONRADO CALALANG, petitioner,
vs.
THE COURT OF APPEALS and FILIPINAS
MANUFACTURERS BANK, respondents.
Fernando C. Conjuanco for petitioner.
Crisostomo J. Danguila for private respondent.
CAMPOS, JR., J.:
This is a petition for review on certiorari seeking
to annul the
decision ** of the Court of Appeals which set
aside the order of dismissal issued by the lower
court, *** in Civil Case No. 36907 entitled
"Filipinas Manufacturers Bank, plaintiff, versus
Hugo Arca, Conrado Calalang, Rio Arturo R.
Salceda and Acropolis Trading Corporation,
defendants".
The antecedent facts, as culled from the records,
are as follows:
On April 29, 1980, respondent Filipinas
Manufacturers Bank filed a complaint for
collection of a sum of money1against petitioner
Conrado Calalang and 3 other defendants
namely, Hugo M. Arca, Rio Arturo Salceda and
the Acropolis Trading Corporation with the Court
of First Instance of Rizal, 7th Judicial District,
Branch 36, Makati under Judge Segundo M.
Zosa.
Petitioner, after having been served with
summons on May 19, 1980, filed a Motion to
Dismiss on June 2, 1980. The other summoned
defendant, Hugo M. Arca, filed a Motion for Bill
of Particulars on June 5, 1980. The two other
defendants namely, the Acropolis Trading
Corporation and Rio Arturo Salceda were also
summoned but only a clerk-employee of the
Acropolis Trading Corporation received the
summons while Arturo R. Salceda was no longer
residing at his given address.
Over a year after, the Motion for Bill of
Particulars was granted on August 24, 1981 by
Judge Zosa. Meanwhile, the Motion to Dismiss
filed by petitioner Calalang was left unresolved.
The last pleading filed regarding the Motion to
Dismiss was the reply of petitioner Calalang to
the opposition to the motion to dismiss by
respondent bank which was filed on August 5,
1980.
On August 10, 1981, Batas Pambansa Blg. 129
(The Judiciary Reorganization Act) was passed
by the Batasang Pambansa and subsequently
approved by then President Marcos on August
14, 1981.
On November 27, 1981, defendant Arca filed a
Motion to Dismiss which necessitated the filing
of various pleadings in relation thereto by
respondent bank herein, and defendant Arca.
On May 25, 1983, a hearing was scheduled
under Judge Florentino Dela Peña of the Makati
Regional Trial Court, Branch 134. But then, the
case was transferred to the Makati Regional
Trial Court, Branch 150, presided over by Judge
Benigno M. Puno who, on August 8, 1985,
issued an Order to wit:
After a careful and thorough study of the
defendant Calalang's (petitioner herein) motion
to dismiss, dated May 31, 1980 and the Counter
Manifestation and motion to dismiss dated
November 25, 1981, filed by defendant Arca,
together with the plaintiff's opposition, defendant
movants' replies or rejoinder, the Court finds that
the matters relied upon by said movants for the
dismissal of the Complaint are evidentiary in
character, the truth or veracity of which are
better determined at the hearing on the merits
and, therefore, said motions are DENIED for lack
of merit.
WHEREFORE, defendants are hereby ordered
to file their answers to the Complaint within the
reglementary period.
SO ORDERED.2
On October 3, 1986, Gella Reyes Vergara Alcala
and Associates entered its appearance as
counsel for respondent bank.
On October 30, 1985, defendant Arca filed his
answer with compulsory counterclaim to the
complaint which was received by respondent
bank 's former counsel, Emerito M. Salva and
Associates on November 4, 1985.
It appears that this case has been set several
times for pre-trial (November 29, 1985, January
29, 1986, May 12,1986, November 19, 1986,
January 14, 1987 and February 27, 1987). For
the first two scheduled hearings, respondent
bank's counsel failed to appear causing the
dismissal without prejudice of the case which
was nevertheless set aside upon respondent
bank's motion for reconsideration of the
dismissal. The November 19, 1986 hearing was
transferred to January 14, 1987 upon agreement
by both counsels. For the last two scheduled
dates counsel for the defendant Hugo Arca failed
to appear.
Judge Benigno M. Puno was replaced by Judge
Federico Y. Alikpala, Jr. as the presiding judge of
the Makati Regional Trial Court, Branch 150 who,
on March 6, 1987, issued an Order, quoted
hereunder as follows:
The records of this case show that among the
defendants herein are: (a) Rio Arturo R. Salceda;
and (b) Acropolis Trading Corporation. The
Sheriff's Return, dated June 4, 1980 (Records
Page 33) show the following report on the
service of summons thereto:
As to defendant Acropolis Trading Corporation:
"Served upon the defendant thru Miss BETH
REYES, Clerk-employee, employed thereat, who
signed for the receipt thereof.
As to defendant Rio Arturo Salceda: "Not serve
(sic), defendant is not residing at the given
address, occupant is Leonito Acuron.
The Court hereby informs the plaintiff that it shall
not consider defendant Acropolis Trading
Corporation as having been properly brought
under the jurisdiction of this Court in view of the
improper service of summons on said
corporation (Sec. 13 of Rule 14, Revised Rules
of Court).
In view of the foregoing, plaintiff is hereby
directed to inform the Court, within ten (10) days
from its receipt hereof, what steps plaintiff
intends to take with respect to the said two
defendants so that the Court will know whether
plaintiff is still interested in the prosecution
and/or outcome of this case.
With respect to defendants Conrado T. Calalang,
the latter had filed a motion to dismiss which,
however, was denied by the Court per Order
dated August 8, 1985. The records of this case
do not, however, show whether a copy of the
said Order was transmitted to, or received by,
counsel for the said defendant. In any event,
said defendant had not filed any motion for the
reconsideration of the said Order, nor had said
defendant filed his answer in this case. Let,
therefore, a copy of the Order dated August 8,
1985 be sent to the defendant Conrado T.
Calalang, through his counsel of record, Attys.
N.J. Quisumbing & Associates of the Lawyers'
Inn.
Inasmuch as it would appear that the setting of
this case for pre-trial was premature, since
issues herein do not appear to have been really
joined, the pre-trial conference scheduled in this
case for April 8, 1987 is cancelled until further
assignment or until any of the parties herein shall
make the appropriate steps in connection
therewith.
xxx xxx xxx3
The above Order was received by petitioner's
counsel on March 13, 1987.4
On March 17, 1987, respondent bank, in
response to the Order dated March 6, 1987, filed
a manifestation stating that:
1. It is very much interested in prosecuting the
complaint against the defendants Acropolis
Trading and Salceda;
2. Pursuant to this, counsel has requested the
Credit Investigation Department of plaintiff to
verify the correct address of said defendants
including all necessary facts for the proper
service of summons on them;
3. Upon verification, plaintiff will then move for
the issuance of Alias Summons on the said
defendants.5
Thereafter, on March 24, 1987, petitioner
Calalang moved to dismiss the complaint on the
ground that respondent bank failed to prosecute
the case for an unreasonable length of time.6
On April 3, 1987, the trial court issued another
Order, to wit:
Before this Court is plaintiff's "Manifestation"
filed on March 18, 1987 stating that plaintiff is
interested in prosecuting its complaint against
defendants Acropolis Trading and Rio Arturo R.
Salceda; this manifestation was made as a
consequence of the directives set out in the
second paragraph of the Order dated March 6,
1987.
Since the Court cannot let an unreasonable
period pass for plaintiff to cause service of alias
summons on the aforesaid defendants, the
Court hereby resolves that if plaintiff shall still be
unable to cause service of alias summons on the
said defendants within thirty (30) days from
plaintiff's receipts hereof, then this Court will
dismiss the complaint as against said
defendants and proceedings herein shall be
limited to the defendants on whom summons
had been served as of the lapse of said 30-days'
period.7
Thereafter, on May 8, 1987, respondent bank
moved for the issuance of alias summons on
defendant Acropolis Trading Corporation
through its President/Director Conrado T.
Calalang or through its director Hugo M. Arca.8
Judge Zosimo Z. Angeles of the Makati Regional
Trial Court, Branch 58, to whom the case was
assigned after Judge Federico Y. Alikpala, Jr.,
then issued an Order, dated July 16, 1987,
denying the Motion to Dismiss filed by petitioner
for lack of merit. The motion for alias summons
was granted. Entry of appearance of Atty.
Crisostomo J. Danguilan as counsel for
respondent bank was noted in the same order.9
Petitioner then filed his answer only on
November 10, 1987.10
On November 16, 1987, the trial court issued an
Order setting the
pre-trial of the case for January 7, 1988 at 8:30
a.m.11
At the pre-trial conference, respondent bank's
counsel arrived 15 minutes late or at 8:45 a.m..
However, the case had already been dismissed.
Thus, in the Order of January 7, 1988, the court
declared:
For failure of plaintiff's counsel to appear inspite
of notice and considering that this case has been
pending for seven (7) years, without plaintiff
having taken positive steps to prosecute the
same, it is hereby DISMISSED pursuant to
Section 3, Rule 17, Rules of Court. Defendants'
counterclaim is likewise dismissed.12
On January 12, 1988, counsel for the
respondent bank filed a Motion for
Reconsideration of the order of dismissal citing
as reason for his late arrival "the unusually
heavy traffic he encountered along Kamias Road
in Quezon City, which was caused by a stalled
jeepney along the main thoroughfare."13 The
motion was denied on January 26, 1988. The
respondent bank appealed the dismissal to the
respondent Court. On October 25, 1991, the
respondent Court promulgated the assailed
decision, the dispositive portion of which is
quoted hereunder:
WHEREFORE, the Order of the court a
quo dated January 9, 1988 dismissing this case
and its Order dated January 26, 1988 denying
reconsideration of the first order are hereby SET
ASIDE, and this case is ordered remanded to the
court of origin for further proceedings.
No pronouncement as to costs.
SO ORDERED.14
The petitioner's Motion for Reconsideration
having been denied by the Court of Appeals, he
filed this instant petition with this Court alleging
that the respondent Court erred in:
1.) absolving respondent bank for the delay in
the pursuit of the case;
2.) declaring the January 7, 1988 pre-trial as
premature;
3.) holding that respondent bank "did not entirely
fail to appear;
4.) invoking the liberal application of the rules of
procedure in favor of the respondent bank;
5.) not having found abuse in the dismissal by
the lower court of the case at bar, there is no
basis for the respondent court to reverse the
order of dismissal.
The pre-trial conference scheduled for January 8,
1987 was not premature. A pre-trial cannot
validly be held until the last pleading has been
filed, which last pleading may be the plaintiff's
reply, except where the period to file the last
pleading has lapsed.15 The period to appear and
file the necessary pleading having expired on the
Acropolis Trading Corporation, the lower court
can direct that a pre-trial conference be held
among the answering defendants. However,
though it is within the discretion of the trial court
to declare a party non-suited for
non-appearance in the pre-trial conference, such
discretion must not be abused. The precipitate
haste of the lower court in declaring the
respondent bank non-suited was uncalled for
and deserved a second look. Considering the
fact that the counsel for the plaintiff/respondent
bank did arrive for the pre-trial conference,
though a bit late and that counsel for the
defendant was himself also late, the trial court
should have called the case again. An
admonition to both counsels to be more prompt
in appearing before the Court as scheduled
would have sufficed, instead of having dismissed
the complaint outright.
Unless a party's conduct is so negligent,
irresponsible, contumacious, or dilatory as to
provide substantial grounds for dismissal for
non-appearance, the courts should consider
lesser sanctions which would still amount into
achieving the desired end.16
Inconsiderate dismissals, even if without
prejudice, do not constitute a panacea nor a
solution to the congestion of court dockets; while
they lend a deceptive aura of efficiency to
records of individual judges, they merely
postpone the ultimate reckoning between the
parties. In the absence of clear lack of merit or
intention to delay, justice is better served by a
brief continuance, trial on the merits, and final
disposition of the cases before the court.17
And there is authority that an order dismissing a
plaintiff's complaint without prejudice for failure
of his counsel to appear at a pre-trial conference
must be reversed as too severe a sanction to
visit on a litigant where the record is devoid of
evidence reflecting the litigant's willful or flagrant
disregard for the Court's authority.18
Petitioner's contention that the respondent Court
erred in absolving respondent bank for the delay
in the resolution of this case, maintaining that
"the case was dismissed out of its inordinate
refusal to heed the warnings of the court", is not
borne out by the records of this case. The
seven-year delay is not attributable to the
respondent bank alone but to circumstances
beyond its control. The respondent Court found
that:
While it is true that the case had been pending
for that length of time we find that the delay is not
to be attributed entirely to the plaintiff in this case.
The records show that various incidents were
raised by the defendants Calalang and Arca who
filed separate pleadings and were represented
by different counsels.
Calalang filed a motion for the dismissal of the
case on the ground that the plaintiff had no
cause of action against him. This necessitated
the filing of an opposition from the plaintiff, a
reply to said opposition from the defendant
Calalang, and a rejoinder to the said reply. The
defendant Arca, on the other hand, initially
sought an extension of time to file a responsive
pleading, then filed a motion for a bill of
particulars, then later also a motion to dismiss
the case. After his motion to dismiss was denied
Arca filed a motion for reconsideration. In all
these incidents pleadings and counter-pleadings
were filed and hearings held on the motions,
which resulted in the case dragging on for a
considerable time.
The case was set for pre-trial several times when,
as aforestated, the issues were not yet joined for
only Arca had initially filed his answer to the
complaint. The case was ordered dismissed at
least two (2) times when the plaintiff's counsel
failed to appear at these pre-trials but the
dismissals were reconsidered and the class set
anew.
Another factor that contributed to the confusion
in the proceedings and the delay in the case is
the fact that the case was assigned from one
judge to another due probably to the judicial
reorganization that took place. The records show
that there were no less than four (4) judges who
handled the case — Judges Segundo Zosa,
Benigno M. Puno, Federico Alikpala, Jr., and
Zosimo Angeles.
The answer of defendant Arca to the complaint
was filed only on October 30, 1985 while that of
defendant Calalang was filed only on November
10, 1987.19
Again, petitioner's contention that the fact that
respondent bank had not caused service of
summons on the two other defendants, the
Acropolis Trading Corporation and Rio Arturo
Salceda, for almost seven years after the
complaint was filed on April 29, 1980 indicated
"abuse of judicial leniency and tolerance" is
bereft of merit. Summons is issued by the clerk
of court upon the filing of the complaint. When it
was informed later on by Judge Alikpala, Jr. in
his Order dated March 6, 1987 that there was an
improper service on defendants Acropolis
Trading Corporation and Rio Arturo Salceda,
respondent bank, in compliance therewith, filed
a motion for alias summons, as permitted by the
law.
Considering the judicial reorganization which
took place during the pendency of this case and
the numerous instances raised by both petitioner
and respondent bank as contributing to the delay,
petitioner cannot now claim that respondent
bank's "abuse of judicial leniency and tolerance
is the single greatest component of this delay".20
The acts of the respondent bank do not manifest
lack of interest to prosecute, in the absence of
proof that it indeed abandoned or intended to
abandon its case against petitioner and the other
defendants. Admittedly there was delay in this
case, but such delay, We hold, is not the delay
warranting dismissal. To be a sufficient ground
for dismissal, delay must not only be lengthy but
also unnecessary and dilatory resulting in the
trifling of judicial processes.
In Marahay vs. Melicor,21 the Court set forth the
test for dismissal of a case due to failure to
prosecute, to wit:
While a court can dismiss a case on the ground
of non prosequitur, the real test for the exercise
of such power is whether, under the
circumstances, plaintiff is chargeable with want
of due diligence in failing to proceed with
reasonable promptitude. In the absence of a
pattern or scheme to delay the disposition of the
case or a wanton failure to observe the
mandatory requirement of the rules on the part of
the plaintiff, as in the case at bar, courts should
decide to dispense with rather than wield their
authority to dismiss.
Dismissal of a case for failure to prosecute is a
matter addressed to the sound discretion of the
court. That discretion, however, must not be
abused. Thus, courts may not enter a dismissal
which is not warranted by the circumstances of
the case.22 The availability of this recourse must
be determined according to each case's
procedural history, situation at the time of the
dismissal and whether, and under the
circumstances of the particular case, the plaintiff
is chargeable with want of due diligence in failing
to proceed with reasonable promptitude.23
. . . The desideratum of a speedy disposition of
cases should not, if at all possible, result in the
precipitate loss of a party's right to present
evidence and either in plaintiff's being non-suited
or the defendant's being pronounced liable
under an ex-parte judgment.
. . (T)rial courts have . . the duty to dispose of
controversies after trial on the merits whenever
possible. It is deemed an abuse of discretion for
them, on their own motion, "to enter a dismissal
which is not warranted by the circumstances of
the case" (Municipality of Dingras v. Bonoan, 85
Phil. 458-59 [1950]). While it is true that the
dismissal of an action on grounds specified
under Section 3, Rule 17 of the Revised Rules of
Court is addressed to their discretion (Flores v.
Phil. Alien Property Administrator, 107 Phil. 778
[1960]; Montelibano v. Benares, 103 Phil. 110
[1958]; Adorable v. Bonifacio, 105 Phil. 1269
[1959]; Inter-Island Gas Service, Inc. v. De la
Gerna, L-17631, October 19, 1966, 18 SCRA
390), such discretion must be exercised soundly
with a view to the circumstances surrounding
each particular case (Vernus-Sanciangco v.
Sanciangco,
L-12619, April 28, 1962, 4 SCRA 1209). If facts
obtain that serve as mitigating circumstances for
the delay, the same should be considered and
dismissal denied or set aside (Rudd v. Rogerson,
15 ALR 2d 672; Cervi v. Greenwood, 147 Colo
190, 362 P. 2d 1050 [1961]), especially where
the suit appears to be meritorious and the
plaintiff was not culpably negligent and no injury
results to defendant (27 C.J.S. 235-36, 15 ALR
3rd 680)." (Abinales vs. Court of First Instance of
Zamboanga City, Br. I, 70 SCRA 590, 595).
It is true that the allowance or denial of petitions
for postponement and the setting aside of orders
previously issued, rest principally upon the
sound discretion of the judge to whom they are
addressed, but always predicated on the
consideration that more than the mere
convenience of the courts or of the parties of the
case, the ends of justice and fairness would be
served thereby (Camara Vda. de Zubiri v. Zubiri,
et al., L-16745, December 17, 1966). . . . .24
IN VIEW OF THE FOREGOING, the petition is
DISMISSED. The decision of the Court of
Appeals dated October 25, 1991 and its
Resolution of December 12, 1991 are both
AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 102300. March 17, 1993.
CITIBANK, N.A., petitioner, vs. HON.
SEGUNDINO G. CHUA, SANTIAGO M.
KAPUNAN and LUIS L. VICTOR, ASSOCIATE
JUSTICES OF THE HON. COURT OF
APPEALS, THIRD DIVISION, MANILA, HON.
LEONARDO B. CANARES, Judge of Regional,
Trial Court of Cebu, Branch 10, and SPOUSES
CRESENCIO AND ZENAIDA VELEZ,
respondents.
SYLLABUS
1. COMMERCIAL LAW; PRIVATE
CORPORATIONS; LEVELS OF CONTROL IN
CORPORATE HIERARCHY; BOARD OF
DIRECTORS MAY VALIDLY DELEGATE SOME
FUNCTIONS TO INDIVIDUAL OFFICERS OR
AGENTS. — In the corporate hierarchy, there
are three levels of control: (1) the board of
directors, which is responsible for corporate
policies and the general management of the
business affairs of the corporation; (2) the
officers, who in theory execute the policies laid
down by the board, but in practice often have
wide latitude in determining the course of
business operations; and (3) the stockholders
who have the residual power over fundamental
corporate changes, like amendments of the
articles of incorporation. However, just as a
natural person may authorize another to do
certain acts in his behalf, so may the board of
directors of a corporation validly delegate some
of its functions to individual officers or agents
appointed by it.
2. ID.; ID.; HOW CORPORATE POWERS
CONFERRED UPON CORPORATE OFFICERS
OR AGENTS; EXERCISE OF POWERS
INCIDENTAL TO EXPRESS POWERS
CONFERRED. — Corporate powers may be
directly conferred upon corporate officers or
agents by statute, the articles of incorporation,
the by-laws or by resolution or other act of the
board of directors. In addition, an officer who is
not a director may also appoint other agents
when so authorized by the by-laws or by the
board of directors. Such are referred to as
express powers. There are also powers
incidental to express powers conferred. It is a
fundamental principle in the law of agency that
every delegation of authority, whether general or
special, carries with it, unless the contrary be
expressed, implied authority to do all of those
acts, naturally and ordinarily done in such cases,
which are reasonably necessary and proper to
be done in order to carry into effect the main
authority conferred. Since the by-laws are a
source of authority for corporate officers and
agents of the corporation, a resolution of the
Board of Directors of Citibank appointing an
attorney in fact to represent and bind it during
the pre-trial conference of the case at bar is not
necessary because its by-laws allow its officers,
the Executing Officer and the Secretary Pro-Tem,
to execute a power of attorney to a designated
bank officer, William W. Ferguson in this case,
clothing him with authority to direct and manage
corporate affairs.
3. ID.; ID.; ADOPTION OF BY-LAWS;
PROVISION OF SECTION 46 OF
CORPORATION CODE REFERRING TO
EFFECTIVITY OF CORPORATE BY-LAWS
APPLICABLE ONLY TO DOMESTIC
CORPORATIONS. — A corporation can submit
its by-laws, prior to incorporation, or within one
month after receipt of official notice of the
issuance of its certificate of incorporation by the
SEC. When the third paragraph of the above
provision mentions "in all cases", it can only refer
to these two options; i.e., whether adopted prior
to incorporation or within one month after
incorporation, the by-laws shall be effective only
upon the approval of the SEC. But even more
important, said provision starts with the phrase
"Every corporation formed under this Code",
which can only refer to corporations incorporated
in the Philippines. Hence, Section 46, in so far as
it refers to the effectivity of corporate by-laws,
applies only to domestic corporations and not to
foreign corporations.
4. ID.; FOREIGN CORPORATIONS; ISSUANCE
OF LICENSE TO TRANSACT BUSINESS IN
THE PHILIPPINES; REQUISITES; GRANT OF
LICENSE IN EFFECT APPROVAL BY SEC OF
FOREIGN CORPORATION'S BY-LAWS. —
Section 125 of the same Code requires that a
foreign corporation applying for a license to
transact business in the Philippines must submit,
among other documents, to the SEC, a copy of
its articles of incorporation and by-laws, certified
in accordance with law. Unless these documents
are submitted, the application cannot be acted
upon by the SEC. In the following section, the
Code specifies when the SEC can grant the
license applied for. Section 126 provides in part:
"SEC. 126. Issuance of a license. — If the
Securities and Exchange Commission is
satisfied that the applicant has complied with all
the requirements of this Code and other special
laws, rules and regulations, the Commission
shall issue a license to the applicant to transact
business in the Philippines for the purpose or
purposes specified in such license . . ." Since the
SEC will grant a license only when the foreign
corporation has complied with all the
requirements of law, it follows that when it
decides to issue such license, it is satisfied that
the applicant's by-laws, among the other
documents, meet the legal requirements. This, in
effect, is an approval of the foreign corporations
by-laws. It may not have been made in express
terms, still it is clearly an approval. Therefore,
petitioner bank's by-laws, though originating
from a foreign jurisdiction, are valid and effective
in the Philippines.
5. CIVIL LAW; AGENCY; SPECIAL POWER OF
ATTORNEY; WHEN POWER OF ATTORNEY
COMPREHENSIVE ENOUGH TO INCLUDE
AUTHORITY TO APPEAR AT PRE-TRIAL
CONFERENCE. — It is also error on the part of
the Court of Appeals to state that the power of
attorney given to the four (4) Citibank employees
is not a special power of attorney as required in
paragraph 3, Article 1878 of the Civil Code and
Section 1 (a), Rule 20 of the Rules of Court. In
the case of Tropical Homes, Inc. vs. Villaluz, the
special power of attorney executed by petitioner
bank therein contained the following pertinent
terms — "to appear for and in its behalf in the
above-entitled case in all circumstances where
its appearance is required and to bind it in all
said instances". The court ruled that: "Although
the power of attorney in question does not
specifically mention the authority of petitioner's
counsel to appear and bind the petitioner at the
pre-trial conference, the terms of said power of
attorney are comprehensive enough as to
include the authority to appear for the petitioner
at the pre-trial conference."
6. ID.; ID.; ID.; LEGAL COUNSEL APPOINTED
TO REPRESENT BANK IN COURT
PURSUANT TO BY-LAW PROVISION
CONSIDERED AN EMPLOYEE FOR A
SPECIAL PURPOSE. — Attorney was sufficient
under the by-law provision authorizing Ferguson
to delegate any of his functions to any one or
more employees of the petitioner bank. A
reasonable interpretation of this provision would
include an appointment of a legal counsel to
represent the bank in court, for, under the
circumstances, such legal counsel can be
considered, and in fact was considered by the
petitioner bank, an employee for a special
purpose. Furthermore, Ferguson, who heads the
Philippine office thousands of miles away from
its main office in the United States, must be
understood to have sufficient powers to act
promptly in order to protect the interests of his
principal.
7. REMEDIAL LAW; CIVIL PROCEDURE;
PRECIPITATE ORDERS OF DEFAULT
FROWNED UPON BY SUPREME COURT;
REASON THEREFOR; WHEN PARTY MAY BE
PROPERLY DEFAULTED. — We reiterate the
previous admonitions of this Court against
"precipitate orders of default as these have the
effect of denying the litigant the chance to be
heard. While there are instances, to be sure,
when a party may be properly defaulted, these
should be the exceptions rather than the rule
and should be allowed only in clear cases of an
obstinate refusal or inordinate neglect to comply
with the orders of the court. Absent such a
showing, the party must be given every
reasonable opportunity to present his side and to
refute the evidence of the adverse party in
deference to due process of law".
8. LEGAL ETHICS; AUTHORITY OF
ATTORNEYS TO BIND CLIENTS. — Under
Rule 138, Section 23 of the Rules of Court, an
attorney has authority to bind his client in any
case by an agreement in relation thereto made
in writing, and this authority would include taking
appeals and all matters of ordinary judicial
procedure. But he cannot, without special
authority, compromise his client's litigation or
receive anything in discharge of a client's claim
but the full amount in cash. The special powers
of attorney separately executed by Florencia
Tarriela and William W. Ferguson granted to J.P.
Garcia & Associates are very explicit in their
terms as to the counsel's authority in the case at
bar.
DECISION
CAMPOS, JR., J p:
Petitioner is a foreign commercial banking
corporation duly licensed to do business in the
Philippines. Private respondents, spouses
Cresencio and Zenaida Velez, were good clients
of petitioner bank's branch in Cebu until March
14, 1986 when they filed a complaint for specific
performance and damages against it in Civil
Case No. CEB-4751 before the Regional Trial
Court of Cebu, Branch 10.
Private respondents alleged in their complaint
that the petitioner bank extended to them credit
lines sufficiently secured with real estate and
chattel mortgages on equipment. They claim that
petitioner offered them special additional
accommodation of Five Million Pesos
(P5,000,000.00) to be availed of in the following
manner:
"a. Defendant would and did purchase check or
checks from the plaintiffs by exchanging it with
defendant's manager's check on a regular daily
basis as reflected in the defendant's own ledger
furnished to plaintiffs;
b. It was further agreed that on the following day,
defendant CITIBANK would again purchase from
the plaintiffs, check or checks, by exchanging
the same with defendant's manager's check,
which check, however, will be deposited by the
plaintiffs with their other banks to cover the
check or checks previously issued by the
plaintiffs mentioned above;
c. The same regular and agreed activity would
be undertaken by the plaintiffs and defendant
CITIBANK herein every banking day thereafter;"
1 already reached over P3,000,000.00. At this
This arrangement started on September 4, 1985
until March 11, 1986, when private respondents
tried to exchange with petitioner bank six checks
amounting to P3,095,000.00 but petitioner bank
allegedly refused to continue with the
arrangement even after repeated demands.
Instead, petitioner bank suggested to private
respondents that the total amount covered by
the "arrangement be restructured to thirty (30)
months with prevailing interest rate on the
diminishing balance". 2 Private respondents
agreed to such a proposal. Then as a sign of
good faith, they issued and delivered a check for
P75,000.00 in favor of petitioner bank which was
refused by the latter demanding instead full
payment of the entire amount.
For the failure of petitioner bank to comply with
this restructuring agreement private respondents
sued for specific performance and damages.
Petitioner bank has a different version of the
business relationship that existed between it and
private respondents. Thus:
". . . starting sometime on September 4 of 1985,
he (private respondent Crescencio Velez)
deposited his unfunded personal checks with his
current account with the petitioner. But prior to
depositing said checks, he would present his
personal checks to a bank officer asking the
latter to have his personal checks immediately
credited as if it were a cash deposit and at the
same time assuring the bank officer that his
personal checks were fully funded. Having
already gained the trust and confidence of the
officers of the bank because of his past
transactions, the bank's officer would always
accommodate his request. After his requests are
granted which is done by way of the bank officer
affixing his signature on the personal checks,
private respondent Cresencio Velez would then
deposit his priorly approved personal checks to
his current account and at the same time
withdraw sums of money from said current
account by way of petitioner bank's manager's
check. Private respondent would then deposit
petitioner bank's manager's check to his various
current accounts in other commercial banks to
cover his previously deposited unfunded
personal checks with petitioner bank. Naturally,
petitioner bank and its officers never discovered
that his personal check deposits were unfunded.
On the contrary, it gave the petitioner bank the
false impression that private respondent's
construction business was doing very well and
that he was one big client who could be trusted.
This deceptive and criminal scheme he did every
banking day without fail from September 4, 1985
up to March 11, 1986. The amounts that he was
depositing and withdrawing during this period
(September 4, 1985 to March 11, 1986)
progressively became bigger. It started at
P46,000.00 on September 4, 1985 and on March
11, 1986 the amount of deposit and withdrawal
point in time (March 11, 1986), the private
respondent Cresencio Velez presumably already
feeling that sooner or later he would be caught
and that he already wanted to cash in on his evil
scheme, decided to run away with petitioner's
money. On March 11, 1986, he deposited
various unfunded personal checks totalling
P3,095,000.00 and requested a bank officer that
the same be credited as cash and after securing
the approval of said bank officer, deposited his
various personal checks in the amount of
P3,095,000.00 with his current account and at
the same time withdrew the sum of
P3,244,000.00 in the form of petitioner's
manager's check. Instead of using the proceeds
of his withdrawals to cover his unfunded
personal checks, he ran away with petitioner
bank's money. Thus, private respondent
Cresencio Velez's personal checks deposited
with petitioner bank on March 11, 1986 in the
total aggregate amount of P3,095,000.00
bounced. The checks bounced after said
personal checks were made the substantial
basis of his withdrawing the sum of
P3,244,000.00 from his current account with
petitioner bank." 3
Subsequently, on August 19, 1986, petitioner
bank filed a criminal complaint against private
respondents for violation of Batas Pambansa Blg.
22 (Bouncing Checks Law) and estafa (six
counts) under Article 315 par. 2(d) of the
Revised Penal Code. On April 28, 1988, the
investigating fiscal recommended the filing of an
information against private respondents for
violations of the mentioned laws.
On June 13, 1989, petitioner bank submitted its
answer to the complaint filed by private
respondents. In the Order dated February 20,
1990, the case was set for pre-trial on March 30,
1990 and petitioner bank was directed to submit
its pre-trial brief at least 3 days before the
pre-trial conference. Petitioner bank only filed its
pre-trial brief on March 30, 1990.
On March 30, 1990, the date of the pre-trial
conference, counsel for petitioner bank
appeared, presenting a special power of
attorney executed by Citibank officer Florencia
Tarriela in favor of petitioner bank's counsel, the
J.P. Garcia & Associates, to represent and bind
petitioner bank at the pre-trial conference of the
case at bar.
Inspite of this special power of attorney, counsel
for private respondents orally moved to declare
petitioner bank as in default on the ground that
the special power of attorney was not executed
by the Board of Directors of Citibank. Petitioner
bank was then required to file a written
opposition to this oral motion to declare it as in
default. In said opposition petitioner bank
attached another special power of attorney
made by William W. Ferguson, Vice President
and highest ranking officer of Citibank,
Philippines, constituting and appointing the J.P.
Garcia & Associates to represent and bind the
BANK at the pre-trial conference and/or trial of
the case of "Cresencio Velez, et al. vs. Citibank,
N.A.". 4 In an Order dated April 23, 1990,
respondent judge denied private respondents'
oral motion to declare petitioner bank as in
default and set the continuation of the pre-trial
conference for May 2, 1990.
On the scheduled pre-trial conference, private
respondents reiterated, by way of asking for
reconsideration, their oral motion to declare
petitioner bank as in default for its failure to
appear through an authorized agent and that the
documents presented are not in accordance with
the requirements of the law. Petitioner bank
again filed on May 14, 1990 its opposition
thereto, stating as follows:
". . . While it has been the practice of Citibank to
appoint its counsels as its attorney-in-fact in civil
cases because it considers said counsels
equivalent to a Citibank employee, yet, in order
to avoid further arguments on the matter, the
defendant Citibank will secure another power of
attorney from Mr. William W. Ferguson in favor
of its employee/s who will represent the
defendant Citibank in the pre-trial conferences of
this case. As soon as the said special power of
attorney is secured, the defendant will present it
before this Honorable Court and in pursuance
therewith, the defendant hereby makes a
reservation to present such document as soon
as available." 5
In compliance with the above promise, petitioner
bank filed a manifestation, dated May 23, 1990,
attaching therewith a special power of attorney
executed by William W. Ferguson in favor of
Citibank employees to represent and bind
Citibank on the pre-trial conference of the case
at bar. 6
On August 15, 1990, respondent judge issued
an order declaring petitioner bank as in default.
This order, received by petitioner bank on
September 27, 1990, cited the following as
reason for the declaration of default:
"Defendant-bank, although a foreign corporation,
is bound by Philippine laws when doing and
conducting business in the Philippines (Sec. 129,
B.P. Blg. 68), and its corporate powers could
only be exercised by its Board of Directors (Sec.
23, B.P. Blg. 68). The exercise by the Board of
Directors of such power could only be valid if it
bears the approval of the majority of the Board
(Sec. 25, par. 2, Corporation Code). The records
does not show the requisite document. The
alleged authority (Special Power of Attorney,
Annex "A") executed by Mr. William W.
Ferguson in favor of the alleged Citibank
employees, assuming the same to be a
delegable authority, to represent the defendant
in the pre-trial conference, made no mention of
J.P. Garcia & Associates as one of the
employees of the defendant.
It stands to reason therefore, that the
defendant-bank has no proper representation
during the pre-trial conference on May 2, 1990
for purposes of Sec. 2, Rule 20 of the Rules of
Court." 7
On October 1, 1990, petitioner bank filed a
motion for reconsideration of the above order but
it was denied on December 10, 1990.
Petitioner bank then filed a petition for certiorari,
prohibition and mandamus with preliminary
injunction and/or temporary restraining order
with the Court of Appeals. On June 26, 1991, the
Court of Appeals dismissed the petition on the
following grounds:
". . . In the first place, petitioner admitted that it
did not and could not present a Board resolution
from the bank's Board of Directors appointing its
counsel, Atty. Julius Z. Neri, as its
attorney-in-fact to represent and bind it during
the pre-trial conference of this case. This
admission is contained on pages 12 and 13 of
the instant petition.
In the second place, the "By-Laws" of petitioner
which on its face authorizes (sic) the
appointment of an attorney-in-fact to represent it
in any litigation, has not been approved by the
Securities and Exchange Commission, as
required by Section 46 of the Corporation Code
of the Philippines. Apparently, the "By-Laws" in
question was (sic) approved under the laws of
the United States, but there is no showing that
the same was given the required imprimatur by
the Securities and Exchange Commission. Since
petitioner is a foreign corporation doing business
in the Philippines, it is bound by all laws, rules
and regulations applicable to domestic
corporations (Sec. 129, Corporation Code).
In the third place, no special power of attorney
was presented authorizing petitioner's counsel of
record, Atty. Julius Neri and/or J.P. Garcia
Associates, to appear for and in behalf of
petitioner during the pre-trial.
What petitioner exhibited to the court a quo was
a general power of attorney given to one William
W. Ferguson who in turn executed a power of
attorney in favor of five (5) (sic) Citibank
employees to act as attorney-in-fact in Civil Case
No. CEB-4751. Yet, during the pre-trial not one
of said employees appeared, except counsel
who is not even a bank employee.
Furthermore, even assuming the validity of the
power of attorney issued by petitioner in favor of
Ferguson as well as the power of attorney he
issued to five (5) (sic) Citibank employees, said
power of attorney has not been shown to be a
Special Power of Attorney precisely intended not
only to represent the bank at the pre-trial of the
case on a certain date but also to enter into any
compromise as required in paragraph 3, Article
1878 of the Civil Code and Section 1 (a), Rule 20,
Rules of Court." 8
Hence, this instant petition.
Petitioner bank contends that no board
resolution was necessary for its legal counsel,
Atty. Julius Z. Neri, or Citibank employees to act
as its attorney-in-fact in the case at bar because
petitioner bank's by-laws grant to its Executing
Officer and Secretary Pro-Tem the power to
delegate to a Citibank officer, in this case William
W. Ferguson, the authority to represent and
defend the bank and its interests.
Furthermore, it contends that the Court of
Appeals erred in holding that the by-laws of
petitioner bank cannot be given effect because it
did not have the imprimatur of the Securities and
Exchange Commission (SEC) as required by
Section 46 of the Corporation Code of the
Philippines.
Private respondents refute both contentions.
They assail the authority of petitioner bank's
legal counsel to appear at the pre-trial
conference on two grounds, namely: first, that
the authority did not come from the Board of
Directors which has the exclusive right to
exercise corporate powers; and second, that the
authority granted to the Executing Officer in the
by-laws was ineffective because the same were
not submitted to, nor approved by, the SEC.
There are thus two issues in this case. First,
whether a resolution of the board of directors of
a corporation is always necessary for granting
authority to an agent to represent the corporation
in court cases. And second, whether the by-laws
of the petitioner foreign corporation which has
previously been granted a license to do business
in the Philippines, are effective in this jurisdiction.
If the by-laws are valid and a board resolution is
not necessary as petitioner bank claims, then the
declaration of default would have no basis.
In the corporate hierarchy, there are three levels
of control: (1) the board of directors, which is
responsible for corporate policies and the
general management of the business affairs of
the corporation; (2) the officers, who in theory
execute the policies laid down by the board, but
in practice often have wide latitude in
determining the course of business operations;
and (3) the stockholders who have the residual
power over fundamental corporate changes, like
amendments of the articles of incorporation.
However, just as a natural person may authorize
another to do certain acts in his behalf, so may
the board of directors of a corporation validly
delegate some of its functions to individual
officers or agents appointed by it.
Section 23 of the Corporation Code of the
Philippines in part provides:
"SEC. 23. The board of directors or trustees.
Unless otherwise provided in this Code, the
corporate powers of all corporations formed
under this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among
the members of the corporation, who shall hold
office for one (1) year and until their successors
are elected and qualified.
xxx xxx xxx" (Emphasis supplied).
Thus, although as a general rule, all corporate
powers are to be exercised by the board of
directors, exceptions are made where the Code
provides otherwise.
Section 25 of said Code provides that the
directors of the corporation shall elect its
corporate officers, and further provides as
follows:
"SEC. 25. Corporate officers; quorum. — . . . The
directors or trustees and officers to be elected
shall perform the duties enjoined on them by law
and by the by-laws of the corporation . . ."
Furthermore, Section 47 of the same Code
enumerates what may be contained in the
by-laws, among which is a provision for the
"qualifications, duties and compensation of
directors or trustees, officers and employees".
(Emphasis supplied.)
Taking all the above provisions of law together, it
is clear that corporate powers may be directly
conferred upon corporate officers or agents by
statute, the articles of incorporation, the by-laws
or by resolution or other act of the board of
directors. In addition, an officer who is not a
director may also appoint other agents when so
authorized by the by-laws or by the board of
directors. Such are referred to as express
powers. 9 There are also powers incidental to
express powers conferred. It is a fundamental
principle in the law of agency that every
delegation of authority, whether general or
special, carries with it, unless the contrary be
expressed, implied authority to do all of those
acts, naturally and ordinarily done in such cases,
which are reasonably necessary and proper to
be done in order to carry into effect the main
authority conferred. 10
Since the by-laws are a source of authority for
corporate officers and agents of the corporation,
a resolution of the Board of Directors of Citibank
appointing an attorney in fact to represent and
bind it during the pre-trial conference of the case
at bar is not necessary because its by-laws allow
its officers, the Executing Officer and the
Secretary Pro-Tem, ** to execute a power of
attorney to a designated bank officer, William W.
Ferguson in this case, clothing him with authority
to direct and manage corporate affairs. The
relevant provision in the general power of
attorney granted to him are as follows:
"A. That the Executing Officer and the Secretary
Pro-Tem are of full age, competent to act in the
premises, to me personally known, and that they
are authorized to execute this instrument by
virtue of the powers granted to them pursuant to
the By-Laws of the Bank and the laws of the
United States of America, and that the Executing
Officer said that he, on the one hand, hereby
revokes and cancels any instrument of power of
attorney previously executed on behalf of the
Bank for use in the PHILIPPINES, in favor of
WILLIAM W. FERGUSON (hereinafter referred
to as the "Attorney-in-fact"), of legal age, a
Banker, and now residing in the PHILIPPINES,
and that he (the Executing Officer), on the other
hand, does hereby authorize and empower the
Attorney-in-fact, acting in the name or on behalf
of the Bank, or any of its Branches, or any
interest it or they may have or represent, said
revocation and authorization to be effective as of
this date as follows:
xxx xxx xxx
XVII. To represent and defend the Bank and its
interest before any and all judges and courts, of
all classes and jurisdictions, in any action, suit or
proceeding in which the Bank may be a party or
may be interested in administrative, civil, criminal,
contentious or contentious-administrative
matters, and in all kinds of lawsuits, recourses or
proceedings of any kind or nature, with complete
and absolute representation of the Bank,
whether as plaintiff or defendant, or as an
interested party for any reason whatsoever . . .
xxx xxx xxx
XXI. To substitute or delegate this Power of
Attorney in whole or in part in favor of such one
or more employees of the Bank, as he may
deem advisable, but without divesting himself of
any of the powers granted to him by this Power
of Attorney; and to grant and execute in favor of
any one or more such employees, powers of
attorney containing all or such authorizations, as
he may deem advisable. . . " 11
Since paragraph XXI above specifically allows
Ferguson to delegate his powers in whole or in
part, there can be no doubt that the special
power of attorney in favor, first, of J.P. Garcia &
Associates and later, of the bank's employees,
constitutes a valid delegation of Ferguson's
express power (under paragraph XVII above) to
represent petitioner bank in the pre-trial
conference in the lower court.
This brings us to the second query: whether
petitioner bank's by-laws, which constitute the
basis for Ferguson's special power of attorney in
favor of petitioner bank's legal counsel are
effective, considering that petitioner bank has
been previously granted a license to do business
in the Philippines.
The Court of Appeals relied on Section 46 of the
Corporation Code to support its conclusion that
the by-laws in question are without effect
because they were not approved by the SEC.
Said section reads as follows:
"SEC. 46. Adoption of by-laws. — Every
corporation formed under this Code must, within
one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a
code of by-laws for its government not
inconsistent with this Code. For the adoption of
by-laws by the corporation, the affirmative vote
of the stockholders representing at least a
majority of the outstanding capital stock, or of at
least a majority of the members in the case of
non-stock corporations, shall be necessary. The
by-laws shall be signed by the stockholders or
members voting for them and shall be kept in the
principal office of the corporation, subject to the
inspection of the stockholders or members
during office hours; and a copy thereof, duly
certified to by a majority of the directors or
trustees and countersigned by the secretary of
the corporation, shall be filed with the Securities
and Exchange Commission which shall be
attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding
paragraph, by-laws may be adopted and filed
prior to incorporation; in such case, such by-laws
shall be approved and signed by all the
incorporators and submitted to the Securities
and Exchange Commission, together with the
articles of incorporation.
In all cases, by-laws shall be effective only upon
the issuance by the Securities and Exchange
Commission of a certification that the by-laws
are not inconsistent with this Code."
A careful reading of the above provision would
show that a corporation can submit its by-laws,
prior to incorporation, or within one month after
receipt of official notice of the issuance of its
certificate of incorporation by the SEC. When the
third paragraph of the above provision mentions
"in all cases", it can only refer to these two
options; i.e., whether adopted prior to
incorporation or within one month after
incorporation, the by-laws shall be effective only
upon the approval of the SEC. But even more
important, said provision starts with the phrase
"Every corporation formed under this Code",
which can only refer to corporations incorporated
in the Philippines. Hence, Section 46, in so far as
it refers to the effectivity of corporate by-laws,
applies only to domestic corporations and not to
foreign corporations.
On the other hand, Section 125 of the same
Code requires that a foreign corporation
applying for a license to transact business in the
Philippines must submit, among other
documents, to the SEC, a copy of its articles of
incorporation and by-laws, certified in
accordance with law. Unless these documents
are submitted, the application cannot be acted
upon by the SEC. In the following section, the
Code specifies when the SEC can grant the
license applied for. Section 126 provides in part:
"SEC. 126. Issuance of a license. — If the
Securities and Exchange Commission is
satisfied that the applicant has complied with all
the requirements of this Code and other special
laws, rules and regulations, the Commission
shall issue a license to the applicant to transact
business in the Philippines for the purpose or
purposes specified in such license . . ."
Since the SEC will grant a license only when the
foreign corporation has complied with all the
requirements of law, it follows that when it
decides to issue such license, it is satisfied that
the applicant's by-laws, among the other
documents, meet the legal requirements. This, in
effect, is an approval of the foreign corporations
by-laws. It may not have been made in express
terms, still it is clearly an approval. Therefore,
petitioner bank's by-laws, though originating
from a foreign jurisdiction, are valid and effective
in the Philippines.
In pursuance of the authority granted to him by
petitioner bank's by-laws, its Executing Officer
appointed William W. Ferguson, a resident of the
Philippines, as its Attorney-in-Fact empowering
the latter, among other things, to represent
petitioner bank in court cases. In turn, William W.
Ferguson executed a power of attorney in favor
of J.P. Garcia & Associates (petitioner bank's
counsel) to represent petitioner bank in the
pre-trial conference before the lower court. This
act of delegation is explicity authorized by
paragraph XXI of his own appointment, which we
have previously cited.
It is also error for the Court of Appeals to insist
that the special power of attorney, presented by
petitioner bank authorizing its counsel, Atty.
Julius Neri and/or J.P. Garcia & Associates, to
appear for and in behalf of petitioner bank during
the pre-trial, is not valid. The records do not
sustain this finding. We quote with approval the
contention of petitioner bank as it is borne by the
records, to wit:
". . . The records of this case would show that at
the start, the petitioner, thru counsel, presented
a special power of attorney executed by then
Citibank Officer Florencio (sic) J. Tarriela which
was marked as Exhibit "1" in the pre-trial of this
case . . . This is precisely the reason why the
court denied, in an Order dated April 23, 1990 . . .
the private respondent's oral motion to declare
the defendant in fault. The said special power of
attorney executed by Florencio (sic) J. Tarriela
was granted by Mr. Rafael B. Buenaventura,
who was then the Senior Vice-President of
Citibank and the highest ranking office of
Citibank in the Philippines. Considering that at
the time of the presentation of the said special
power of attorney Rafael B. Buenaventura was
no longer connected with Citibank, the petitioner
again presented another special power of
attorney executed by William W. Ferguson in
favor of J.P. Garcia & Associates, . . .
Finding that the authority of William W. Ferguson
to delegate his authority to act for and in behalf
of the bank in any civil suit is limited to
individuals who are employees of the bank the
petitioner again on May 23, 1990 presented
another special power of attorney dated May 16,
1990 wherein William W. Ferguson appointed as
attorney-in-fact the following employees of
petitioner, namely: Roberto Reyes, Nemesio
Solomon, Aimee Yu and Tomas Yap. The said
special power of attorney was filed and
presented by the petitioner through its
Manifestation filed in the Trial Court on May 23,
1990, . . ." 12
Under Rule 138, Section 23 of the Rules of Court,
an attorney has authority to bind his client in any
case by an agreement in relation thereto made
in writing, and this authority would include taking
appeals and all matters of ordinary judicial
procedure. But he cannot, without special
authority, compromise his client's litigation or
receive anything in discharge of a client's claim
but the full amount in cash. The special powers
of attorney separately executed by Florencia
Tarriela and William W. Ferguson granted to J.P.
Garcia & Associates are very explicit in their
terms as to the counsel's authority in the case at
bar. We quote the relevant provisions of the
special powers of attorney showing sufficient
compliance with the requirements of Section 23,
Rule 138, to wit:
"That the BANK further authorized the said J.P.
GARCIA & ASSOCIATES to enter into an
amicable settlement, stipulation of facts and/or
compromise agreement with the party or parties
involved under such terms and conditions which
the said J.P. GARCIA & ASSOCIATES may
deem reasonable (under parameters previously
defined by the principal) and execute and sign
said documents as may be appropriate.
HEREBY GIVING AND GRANTING unto J.P.
GARCIA & ASSOCIATES full power and
authority whatsoever requisite necessary or
proper to be done in or about the premises, as
fully to all intents and purposes as the BANK
might or could lawfully do or cause to be done
under and by virtue of these presents." 13
It is also error on the part of the Court of Appeals
to state that the power of attorney given to the
four (4) Citibank employees is not a special
power of attorney as required in paragraph 3,
Article 1878 of the Civil Code and Section 1 (a),
Rule 20 of the Rules of Court. In the case of
Tropical Homes, Inc. vs. Villaluz, 14 the special
power of attorney executed by petitioner bank
therein contained the following pertinent terms
— "to appear for and in its behalf in the
above-entitled case in all circumstances where
its appearance is required and to bind it in all
said instances". The court ruled that:
"Although the power of attorney in question does
not specifically mention the authority of
petitioner's counsel to appear and bind the
petitioner at the pre-trial conference, the terms of
said power of attorney are comprehensive
enough as to include the authority to appear for
the petitioner at the pre-trial conference."
In the same manner, the power of attorney
granted to petitioner bank's employees should
be considered a special power of attorney. The
relevant portion reads:
"WHEREAS, the Bank is the Defendant in Civil
Case No. CEB-4751, entitled "Cresencio Velez,
et al. vs. Citibank, N.A.," pending before the
Regional Trial Court of Cebu City, Branch X;
NOW, THEREFORE, under and by virtue of
Article XXI of the Power of Attorney executed by
the Bank in favor of the Attorney-in-Fact (Annex
"A"), which provision is quoted above, the
Attorney-in-Fact has nominated, designated and
appointed, as by these presents he nominates,
designates and appoints, as his substitutes and
delegates, with respect to the said Power of
Attorney, ROBERTO REYES, Vice President
and/or NEMESIO SOLOMON, JR., Manager,
AIMEE YU, Assistant Vice President and/or
TOMAS YAP, Assistant Manager (hereinafter
referred to as the "DELEGATES"), all of legal
age, citizens of the Republic of the Philippines
and with business address at Citibank Center,
Paseo de Roxas, Makati, Metro Manila,
Philippines, the Attorney-in-Fact hereby granting,
conferring and delegating such authorities and
binding the Bank in the Pre-Trial Conference
and/or Trial of the abovementioned case,
pursuant to Rule 20 of the Revised Rules of
Court, to the DELEGATES. The attorney-in-Fact
furthermore hereby ratifying and confirming all
that the DELEGATES shall lawfully do or cause
to be done under and by virtue of these
presents." 15
From the outset, petitioner bank showed a
willingness, if not zeal, in pursuing and
defending this case. It even acceded to private
respondent's insistence on the question of
proper representation during the pre-trial by
presenting not just one, but three, special
powers of attorney. Initially, the special power of
attorney was executed by Florencia Tarriela in
favor of J.P. Garcia & Associates, petitioner
bank's counsel. Private respondents insisted that
this was not proper authority required by law. To
avoid further argument, a second special power
of attorney was presented by petitioner bank,
executed by William W. Fersugon, the highest
ranking officer of Citibank in the Philippines, in
favor of its counsel J.P. Garcia & Associates. But
since the authority to delegate of William A.
Fersugon in favor of an agent is limited to bank
employees, another special power of attorney
from Wiliam W. Fersugon in favor of the Citibank
employees was presented. But the respondent
trial court judge disregarded all these and issued
the assailed default order. There is nothing to
show that petitioner bank "miserably failed to
oblige"; on the contrary, three special powers of
attorney manifest prudence and diligence on
petitioner bank's part.
In fact, there was no need for the third power of
attorney because we believe that the second
power of attorney was sufficient under the by-law
provision authorizing Fersugon to delegate any
of his functions to any one or more employees of
the petitioner bank. A reasonable interpretation
of this provision would include an appointment of
a legal counsel to represent the bank in court, for,
under the circumstances, such legal counsel can
be considered, and in fact was considered by the
petitioner bank, an employee for a special
purpose. Furthermore, Fersugon, who heads the
Philippine office thousands of miles away from
its main office in the United States, must be
understood to have sufficient powers to act
promptly in order to protect the interests of his
principal.
We reiterate the previous admonitions of this
Court against "precipitate orders of default as
these have the effect of denying the litigant the
chance to be heard. While there are instances,
to be sure, when a party may be properly
defaulted, these should be the exceptions rather
than the rule and should be allowed only in clear
cases of an obstinate refusal or inordinate
neglect to comply with the orders of the court.
Absent such a showing, the party must be given
every reasonable opportunity to present his side
and to refute the evidence of the adverse party in
deference to due process of law". 16
Considering further that petitioner bank has a
meritorious defense and that the amount in
contest is substantial, the litigants should be
allowed to settle their claims on the arena of the
court based on a trial on the merits rather than
on mere technicalities.
WHEREFORE, in view of the foregoing, the
petition is hereby GRANTED. The decision of
the Court of Appeals dated June 26, 1991 and its
resolution denying the motion for reconsideration
of petitioner bank dated September 26, 1991 are
both REVERSED and SET ASIDE. The order of
default issued on August 15, 1990 in Civil Case
CEB-4751 of the Regional Trial Court of Cebu is
ANNULLED and SET ASIDE and the case is
hereby REMANDED to the court of origin for
further proceedings.
SO ORDERED.
G.R. No. 164375 October 12, 2006
RODOLFO PAREDES, TITO ALAGO AND
AGRIPINO BAYBAY, SR., petitioners,
vs.
ERNESTO VERANO and COSME
HINUNANGAN, respondent.
DECISION
TINGA, J.:
The central issue in this case is whether the
absence of the counsel for defendants at the
pre-trial, with all defendants themselves present,
is a ground to declare defendants in default and
to authorize plaintiffs to present evidence ex
parte.
The relevant facts are uncomplicated.
The protracted legal battle between the parties
began with a complaint for the establishment of a
right of way filed by petitioners herein as
plaintiffs against respondents as
1
defendants. The complaint, docketed as Civil
Case No. 2767 of the Regional Trial Court (RTC)
of Maasin City, Southern Leyte, Branch 24,
culminated in a judgment by compromise dated
26 April 1994.2 In the Compromise Agreement,
respondent Cosme Hinunangan granted a two (2)
meter-wide right of way in favor of petitioners in
consideration of the amount of P6,000.00 which
petitioners agreed to pay.3
Alleging that petitioners had blocked the
passage way in violation of the Compromise
Agreement, on 28 September 1999,
respondents filed a complaint for specific
performance with damages against petitioners. It
was docketed as Civil Case No. R-3111 also of
the RTC of Maasin City, Southern Leyte, Branch
24.4
In their answer, petitioners denied having
violated the Compromise Agreement. They
alleged that like them, respondents were not
actual residents of Barangay Tagnipa where the
"road right of way" was established and that
respondent Cosme Hinunangan had already
sold his only remaining lot in the vicinity to
petitioner Rodolfo Paderes.5
Subsequent to the answer, petitioners filed a
motion to dismiss on the ground of lack of cause
of action.6 The trial court, presided by Judge
Bethany G. Kapili, denied the motion to
dismiss.7 Petitioners elevated the order of denial
to the Court of Appeals and thereafter to this
Court, both to no avail.8
Petitioners asked Judge Kapili to inhibit himself
from the case. The judge denied the motion.9
Pre-trial was initially set for 24 April 2003, but
this was reset to 3 June 2003 on motion of
respondents' counsel. But the pre-trial set on 3
June 2003 did not push through either because
none of the parties appeared.
So, pre-trial was reset to 11 November 2003.
Petitioner Baybay's counsel moved to reset it to
another date on account of a conflicting hearing.
However, petitioner Baybay, who is the father of
the counsel for petitioners, was present in court
along with the other defendants, when the case
was called on 11 November 2003. The RTC was
informed then of a proposed settlement between
the parties, although respondent Baybay
qualified his reaction by telling the court
that he would first have to inform his lawyer and
the co-defendants of the said proposal. The RTC
then commented unfavorably on the absence of
petitioners' counsel, expressing disappointment
towards his attitude, even making note of the fact
that not once had the counsel appeared before
the RTC, even though the case had already
reached the Supreme Court over the denial of
the motion to dismiss.10 At the same time, the
RTC acceded and reset the pre-trial for 23
January 2004.11
Shortly before the new pre-trial date, counsel for
petitioners filed a Manifestation of Willingness to
Settle With Request for Cancellation dated 5
January 2004.12 Apart from manifesting his
willingness to settle the complaint, petitioners'
counsel through the Manifestation suggested to
the opposing counsel that he be informed of the
terms of the proposed settlement.
Correspondingly, petitioners' counsel requested
the cancellation of the 23 January 2004 hearing.
However, the hearing did push through on 23
January 2004. The private respondents and their
counsel were present. So were petitioners
Baybay and Paderes, and co-defendant Alago,
but not their counsel.
An order of even date formalized what had
transpired during the hearing. The RTC allowed
respondents to present their evidence ex parte,
"for failure of the defendants['] counsel to appear
before [the RTC]".13 Petitioners filed a motion for
reconsideration, but this was denied by the
RTC.14
Thus, petitioners filed a petition for certiorari with
the Court of Appeals, assailing the orders of the
RTC. However, on 28 April 2004, the Court of
Appeals dismissed the petition outright,15 for
failure to attach duplicate original copies of the
annexes to the petition other than the RTC
Orders dated 23 January 2004 and 17 February
2004 (attaching photocopies instead), as well as
for failure to submit such other pleadings
relevant and pertinent to the petition. Petitioners
filed a Motion for Reconsideration with Motion to
Admit Additional Exhibits, adverting to the
documents previously missing from the petition
but attached to the motion.
On 13 July 2004, the Court of Appeals issued a
Resolution denying the motion for
reconsideration. In doing so, the Court of
Appeals resolved the petition on its merits, as it
ruled that "even with the submission by
petitioners of the required pleadings and
documents, the instant petition must
nevertheless fail."16 The appellate court quoted
extensively from the transcripts of the hearings
of 11 November 2003 and 23 January 2004. It
conceded that under Section 5, Rule 18 of the
1997 Rules of Civil Procedure, it is the failure of
the defendant, and not defendant's counsel, to
appear at the pre-trial that would serve cause to
allow plaintiff to present evidence ex parte.
Nevertheless, the Court of Appeals noted that
petitioner Baybay had made it clear that he
would never enter into any amicable settlement
without the advice of his counsel. Thus, the
Court of Appeals concluded that Judge Kapili's
"hands were tied," explaining, thus: "He was held
hostage by the blatant display of arrogance
exhibited by petitioner's counsel in assiduously
failing to appear before the trial court. Were he to
close his eyes to the reprehensible scheme of
Atty. Baybay in delaying the disposition of the
main case, the resulting impassé would only
strain further the meager resources of the court
and prejudice the rights of private
respondents."17
The Court of Appeals then cited Sps.
Ampeloquio, Sr. v. Court of Appeals,18 wherein
the Court held that if every error committed by
the trial court were to be a proper object of
review by certiorari, then trial would never come
to an end and the appellate court dockets would
be clogged with petitions challenging every
interlocutory order of the trial court. It concluded
that the acts of Judge Kapili did not constitute
grave abuse of discretion equivalent to lack of
jurisdiction.
Finally, the trial court admonished petitioners'
counsel to "bear in mind that as an officer of the
court, he is tasked to observe the rules of
procedure, not to unduly delay a case and defeat
the ends of justice but to promote respect for the
law and legal processes."19
We reverse the trial court and the Court of
Appeals.
A preliminary observation. The Court of Appeals
had initially dismissed the petition lodged by
petitioners on account of their failure to attach
several relevant pleadings, citing Section 3, Rule
46 of the 1997 Rules of Civil Procedure. Before
this Court, petitioners devote some effort in
arguing that the Court of Appeals erred in
dismissing the petition on that procedural ground,
while respondents in their comment similarly
undertook to defend the appellate court's action
on that point. We do not doubt that under
Section 3, Rule 46 of the 1997 Rules of Civil
Procedure, the Court of Appeals has sufficient
discretion to dismiss the petition for failure of
petitioner to comply with the requirements
enumerated in the section, including "such
material portions of the record as are referred to
[in the petition], and other documents relevant or
pertinent thereto."20 At the same time,
"[d]ismissal of appeals purely on technical
grounds is frowned upon and the rules of
procedure ought not to be applied in a very rigid,
technical sense, for they are adopted to help
secure, not override, substantial justice, and
thereby defeat their very aims."21 Thus, the
Court has not hesitated to view Section 3 of Rule
46 with a liberal outlook, ruling for example that it
was not necessary to attach certified true copies
of such material portions of the record as
referred to therein.22
The situation in this case bears similarity to that
which transpired in Cortez-Estrada v. Heirs of
Samut.23 Therein, the petitioner had failed to
attach material documents to her petition before
the Court of Appeals. The Court of Appeals held
the petition was dismissible for such procedural
infirmities, yet it nonetheless proceeded to rule
against the petitioner on the merits. The
Supreme Court agreed with the appellate court
that the petition was procedurally infirm, yet
found partial merit in its arguments and
consequently granted partial relief in favor of the
petitioner. In this case, the Court of Appeals, in
resolving the motion for reconsideration,
proceeded to make a judgment on the merits.
Similarly, this Court finds ample basis to review
the decision of the trial court as affirmed by the
appellate court, notwithstanding the procedural
flaw that originally accompanied the petition—a
flaw which petitioners did seek to remedy when
they belatedly attached the relevant documents
to their motion for reconsideration.
Ultimately, there are important reasons to
consider the case on the merits. This case
affords the Court the opportunity to clarify the
authority granted to a trial judge in relation to
pre-trial proceedings.
The order of the RTC allowing respondents to
present evidence ex parte was undoubtedly to
the detriment of petitioners. Since the RTC
would only consider the evidence presented by
respondents, and not that of petitioners, the
order strikes at the heart of the case, disallowing
as it does any meaningful defense petitioners
could have posed. A judgment of default against
a defendant who failed to attend pre-trial, or
even any defendant who failed to file an answer,
implies a waiver only of their right to be heard
and to present evidence to support their
allegations but not all their other rights.24
The Constitution guarantees that no person shall
be deprived of property without due process of
law. One manner by which due process is
assured is through the faithful adherence to the
procedural rules that govern the behavior of the
party-litigants. The Rules of Court do sanction,
on several instances, penalties for violation of
the Rules that causes the termination of an
action without a ruling on the merits, or bars one
party from litigating the same while permitting
the other to do so. We noted earlier that Section
3, Rule 46 authorizes the dismissal of an original
petition before the Court of Appeals for failure to
append material portions of the record. Pursuant
to Section 5, Rule 17, the failure of the plaintiff to
appear on the date of the presentation of his/her
evidence in chief on the complaint is ground for
the court to dismiss the complaint, without
prejudice to the right of the defendant to
prosecute the counterclaim in the same or in a
separate action. And under Section 5, Rule 18,
the failure of the plaintiff or defendant to appear
during pre-trial authorizes the court to either
dismiss the complaint, if the plaintiff were absent;
or to allow the plaintiff to present evidence ex
parte, if the defendant were absent.
The operation of the above-cited provisions may
defeat the cause of action or the defense of the
party who violated the procedural rule. Yet it
could not be said that any resultant adverse
judgment would contravene the due process
clause, as the parties are presumed to have
known the governing rules and the
consequences for the violation of such rules. In
contrast, the same presumption could not attach
if a party were condemned to the same outcome
even if the party did not violate a prescribed rule
of procedure. Any ruling that disposes of an
action or precludes a party from presenting
evidence in support or against thereof must have
basis in law,25 and any ruling so intentioned
without legal basis is deemed as issued with
grave abuse of discretion.26 In the end, a person
who is condemned to suffer loss of property
without justifying legal basis is denied due
process of law.
Simply put, nothing in the Rules of Court
authorizes a trial judge to allow the plaintiff to
present evidence ex parte on account of the
absence during pre-trial of the counsel for
defendant.
Sections 4 and 5 of Rule 18 warrant
examination:
SEC. 4. Appearance of Parties. – It shall be the
duty of the parties and their counsel to appear at
the pre-trial. The non-appearance of a party may
be excused only if a valid cause is shown
therefor or if a representative shall appear in his
behalf fully authorized in writing to enter into an
amicable settlement, to submit to alternative
modes of dispute resolution, and to enter into
stipulations or admissions of facts and of
documents.
SEC. 5. Effect of failure to appear. – The failure
of the plaintiff to appear when so required
pursuant to the next preceding section shall be
cause for dismissal of the action. The dismissal
shall be with prejudice, unless otherwise ordered
by the court. A similar failure on the part of the
defendant shall be cause to allow the plaintiff to
present his evidence ex parte and the court to
render judgment on the basis thereof.
Section 4 imposes the duty on litigating parties
and their respective counsel during pre-trial. The
provision also provides for the instances where
the non-appearance of a party may be excused.
Nothing, however, in Section 4 provides for a
sanction should the parties or their respective
counsel be absent during pre-trial. Instead, the
penalty is provided for in Section 5. Notably,
what Section 5 penalizes is the failure to appear
of either the plaintiff or the defendant, and not
their respective counsel.
Indeed, the Court has not hesitated to affirm the
dismissals of complaints or the allowance of
plaintiffs to present evidence ex parte on
account of the absence of a party during pre-trial.
In United Coconut Planters Bank v.
Magpayo,27 the complaint was dismissed
because although the counsel for complainant
was present during the pre-trial hearing, the
Court affirmed such dismissal on account of said
counsel's failure to present any special power of
attorney authorizing him to represent the
complainant during pre-trial.28 In Jonathan
Landoil International Co. v. Mangudadatu,29 the
defendant and its counsel failed to appear during
pre-trial, and the complainants were allowed to
present evidence ex parte. After an adverse
decision was rendered against the defendant, it
filed a motion for new trial in which it cited the
illness of defendant's counsel as the reason for
his non-appearance during pre-trial. While the
Court acknowledged that such argument was not
a proper ground for a motion for new trial, it also
noted that the appearance of the defendant
during pre-trial was also mandatory, and that the
defendant failed to justify its own absence during
pre-trial.30
There are two cases which, at first blush, may
seem to affirm the action of the RTC. In the
disbarment case of Miwa v. Medina,31 a lawyer
was suspended from the practice for one (1)
month for, among others, failing to appear during
pre-trial, thus leading to the declaration of his
client, the defendant, in default. At the same time,
the Court in Miwadid take the defendant herself
to task for also failing to appear during pre-trial,
observing that "the failure of a party to appear at
pre-trial, given its mandatory character, may
cause her to be non-suited or considered as in
default."32
In Social Security System v. Chaves,33 the
Social Security System (SSS) itself was named
as the defendant in a complaint filed with the
RTC of Cagayan de Oro City. The pre-trial brief
was filed by the acting assistant branch manager
of the SSS in Cagayan de Oro City, who
happened to be a lawyer and who also entered
his appearance as counsel for the SSS.
However, said lawyer was not present during
pre-trial, and the SSS was declared in default
and the complainants allowed to present their
evidence ex parte. The Court affirmed such
order of default, noting other procedural
violations on the part of SSS, such as the fact
that the motion for reconsideration to lift the
order of default lacked verification, notice of
hearing and affidavit of merit.
Notwithstanding, the Court is not convinced
that SSS is ample precedent to affirm an order of
default where even though the defendant was
present during pre-trial, defendant's counsel
failed to appear for the same hearing. The Court
in SSS did not make any categorical declaration
to this effect. Moreover, it can be observed that
in SSS, the counsel himself, the acting assistant
branch manager of the SSS, would have been in
addition, the representative of the SSS itself, a
juridical person which can only make an
appearance during pre-trial through a natural
person as its duly authorized representative. The
Court of Appeals decision upheld in SSS, cited
extensively in our decision therein, expressly
affirmed the order of default on the ground that
"it is the discretion of the trial judge to declare a
party-defendant as in default for failure to appear
at a pre-trial conference." However, in SSS,
neither the Court of Appeals nor this Court
expressly laid relevance to the fact that the
counsel himself, as opposed to the defendant,
had not attended the pre-trial.
Upon the other hand, Africa v. Intermediate
Appellate Court34 illuminates the proper
standard within which to view the instant petition.
It appeared therein that on the day of the pre-trial,
counsel for the defendant (therein petitioner) had
arrived ten minutes after the case was called.
Within that ten-minute span, the trial court had
issued an order in open court declaring the
defendant in default and authorizing the plaintiff
to present its evidence ex parte. A mere two
days later, the trial court rendered judgment in
favor of plaintiff. The Court reversed the trial
court, holding that the order of default was
issued with grave abuse of discretion. The
reasoning of the Court was grounded primarily
on the doctrinal rule that frowned against "the
injudicious and often impetuous issuance of
default orders,"35 which led in that case to "a
deni[al of the defendant's] basic right to be heard,
even after his counsel had promptly explained
the reason for his tardiness at the pre-trial."36
Still, it would not be proper to consider Africa as
the governing precedent herein, influential as it
may be to our disposition. It was not clear from
the narration in Africa whether the defendant
himself was absent during the pre-trial, a
circumstance which is determinative to this
petition. Moreover, the Court's tone
in Africa indicated that it was animated by a
liberal philosophy towards the procedural rule,
implying that the trial court's reversed action was
nonetheless adherent to the strict letter of the
rule. Whether or not the trial court in Africa acted
conformably with the rules depends upon the
presence or absence of the defendant therein
during pre-trial. It can no longer be discerned
whether the Court so ruled
in Africa notwithstanding the presence or
absence of the defendant therein. It would be
disingenuous though to assume, as a means of
applying that case as precedent herein, that the
defendant was actually present during the
pre-trial in Africa.
Hence, we pronounce that the absence of
counsel for defendants at pre-trial does not ipso
facto authorize the judge to declare the
defendant as in default and order the
presentation of evidence ex parte. It bears
stressing that nothing in the Rules of Court
sanctions the presentation of evidence ex
parte upon instances when counsel for
defendant is absent during pre-trial. The Rules
do not countenance stringent construction at the
expense of justice and equity.37As the Court has
previously enunciated:
We cannot look with favor on a course of action
which would place the administration of justice in
a straightjacket for then the result would be a
poor kind of justice if there would be justice at all.
Verily, judicial orders, such as the one subject of
this petition, are issued to be obeyed,
nonetheless a non-compliance is to be dealt with
as the circumstances attending the case may
warrant. What should guide judicial action is
the principle that a party-litigant is to be
given the fullest opportunity to establish the
merits of his complaint or defense rather
than for him to lose life, liberty or properties
on technicalities.38
Due process dictates that petitioners be deprived
of their right to be heard and to present evidence
to support their allegations if, and only if, there
exists sufficient basis in fact and in law to do
so.39 There being a manifest lack of such basis
in this case, petitioners would be unjustly denied
of the opportunity to fully defend themselves
should the Court affirm the questioned orders
which were evidently issued by the RTC with
grave abuse of discretion. The better and
certainly more prudent course of action in every
judicial proceeding is to hear both sides and
decide on the merits rather than dispose of a
case on technicalities.40
While counsel is somewhat to blame for his
non-attendance at pre-trial, incidentally the
operative act which gave birth to the controversy
at bar, it would be most unfair to penalize
petitioners for what may be the deficiency of their
lawyer when the consequent penalty has no
basis in law. Particularly mitigating in the instant
case is the fact that the counsel for private
respondents intimated, at an earlier hearing, a
possibility of an amicable settlement to the case.
Then, counsel for petitioners submitted a
manifestation41 requesting therein that the
parties be given ample time to respectively
discuss their proposals and counter-proposals
and that the hearing for 23 January 2004 be
moved to a later date as may be agreed upon by
the parties for submission of their possible
compromise agreement. It may well have been
that counsel for petitioners labored under the
false understanding that a compromise
agreement was an imminent possibility. The
Court nonetheless notes that counsel was
remiss in assuming that his motion to reset the
scheduled hearing would necessarily be granted
by the court a quo.

Be that as it may, there is no clear demonstration

that the acts of the counsel of petitioners were
intended to perpetuate delay in the litigation of
the case. Assuming arguendo that the trial court
correctly construed the actions of the counsel of
petitioners to be dilatory, it cannot be said that
the court was powerless and virtually without
recourse but to order the ex parte presentation
of evidence by therein plaintiffs. We are in some
sympathy with the judge who was obviously
aggrieved that the case was dragging on for an
undue length of time. But even so, there were
other remedies available to the court.

Among the inherent powers of the courts

expressly recognized by the Rules include the
authority to enforce order in proceedings before
it,42 to compel obedience to its judgments,
orders and processes,43 and to amend and
control its process and orders so as to make
them conformable to law and justice.44 Moreover,
the Code of Judicial Conduct empowers the
courts to judiciously take or initiate disciplinary
measures against lawyers for unprofessional
conduct.45 A show cause order to counsel would
have been the more cautious and reasonable
course of action to take under the circumstances
then prevailing. In failing to do so, the trial court
impetuously deprived petitioners of the
opportunity to meaningfully present an effective
defense and to adequately adduce evidence in
support of their contentions.

WHEREFORE, the instant petition is hereby

GRANTED and the resolutions of the Court of
Appeals affirming the Orders of the Regional
Trial Court in Civil Case No. R-3111 dated 23
January 2004 and 17 February 2004 are
REVERSED. No costs.

SO ORDERED.