Naga Development Corporation v. Pacific Merchandising Corporation
REITERATIONFacts
The Antecedents: Pacific Merchandising Corporation (Pacific) and Naga Development Corporation (Naga) entered into a sales agreement on August 10, 1962, for the supply and installation of roofing materials for the Naga City public market. Pacific delivered materials and performed installation services from July 21, 1962, to October 19, 1962, with a total value of P250,312.76. Naga paid P107,030.00, leaving a balance of P143,282.76. Procedural History: Pacific filed a collection suit against Naga on July 19, 1963. Naga requested two extensions to file its answer, the first for 15 days and the second for 10 days, citing professional workload and the need for verification of facts. The trial court granted the first extension but denied the second. Naga filed a motion for reconsideration and a supplemental motion for admission of its answer, which were also denied. The trial court issued an order of default on August 23, 1963. Naga moved to set aside the default order, alleging valid defenses, including premature filing due to a pending GSIS loan release and lack of delivery and acceptance of installation work. The trial court denied this motion on September 20, 1963. After an ex parte reception of evidence, the trial court rendered judgment by default on October 10, 1963, ordering Naga to pay the principal amount, interest, attorney's fees, and costs. The Court of Appeals affirmed the trial court's orders and judgment. Naga appealed to the Supreme Court. The Petition: Naga sought to set aside the order of default and the judgment by default, arguing that the trial court erred in denying its motions for extension and reconsideration, and that the adjudication on the merits was incorrect.
Issue(s)
Whether the trial court's order of default and its order denying Naga's motion to set aside were correctly issued. Whether the adjudication made by the trial court on the merits is correct.
Ruling
The Supreme Court affirmed the Court of Appeals' decision. The order of default and the denial of the motion to set aside were upheld. The judgment by default was affirmed with qualifications regarding the computation of interest and the allowance for Naga to prove payments made during the execution phase.
Ratio Decidendi
On the first issue (Order of Default and Denial of Motion to Set Aside): The Court held that the granting of additional time to file an answer is a matter of sound judicial discretion. Naga was granted a substantial extension of 15 days, and its second request for a 10-day extension was denied. The reasons provided for the second extension, namely the need for verification of facts and amounts due to payments made, were deemed flimsy, especially since Naga was able to file a detailed answer within three days after learning of the default order. The Court noted that Naga's own complaint against GSIS admitted indebtedness to Pacific in the same amount, suggesting prior verification. Furthermore, the defense that the claim was not yet demandable due to the GSIS loan was considered a "lawyer's defense" that did not negate the express terms of the sales agreement, which did not make payment contingent on the GSIS loan release. The Court also found that the trial court did not err in denying the motion to set aside the default order. On the second issue (Adjudication on the Merits): The Court affirmed the P143,282.76 principal amount, noting that this was a factual finding by the lower courts based on evidence presented, which the Supreme Court generally does not disturb in a petition for certiorari. However, the Court qualified that Naga should be allowed to prove payments made during the execution phase to ensure no unjust enrichment. Regarding the interest at 1% per month, the Court found it binding based on the terms in the invoices, which Naga implicitly accepted by not objecting and using the materials. The Court modified the computation of interest, stating it should commence on the 46th day after the completion of installation work in January 1963, presuming completion on January 15, 1963, based on equity (de minimis non curat lex). The 12% attorney's fees were deemed fair and reasonable, to be computed on the outstanding obligation as of the filing of the complaint.
Main Doctrine
The granting of additional time to file an answer is a matter of sound judicial discretion, and substantial grounds must be shown to reverse an order of default. Failure to object to invoice terms constitutes implied acceptance of those terms, including interest on overdue accounts.