Tanchan v. Court of Appeals
REITERATIONFacts
1. The Antecedents: The underlying dispute arose from a hauling agreement between petitioner Henry Tanchan, doing business as Foremost Industrial Sales, and respondent Phil. Rock Products Inc. Petitioner sought to collect P1,177,367.27 for hauling services rendered from March 1990 to September 1990, plus penalties, interest, and attorney's fees. 2. Procedural History: Petitioner filed a collection case in the Regional Trial Court (RTC) of Cebu. Respondent moved to dismiss based on improper venue, citing a contract clause stipulating jurisdiction in Rizal. The RTC denied this motion. Subsequently, respondent filed a Petition for Certiorari and Prohibition with the Court of Appeals (CA) to annul the RTC's order. The RTC declared respondent in default for failing to file an answer. The CA dismissed respondent's petition, and the RTC proceeded to receive petitioner's evidence ex parte. The RTC later rendered a decision in favor of the petitioner. On appeal, the CA reversed the RTC's decision and remanded the case for further proceedings. 3. The Petition: Petitioner filed a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, assailing the CA's decision. Petitioner argues that the CA erred in not holding that the motion to lift the order of default was filed late and improperly, that respondent obstinately refused to file an answer, and that respondent's defense was sham. Petitioner further contends that the CA gravely abused its discretion in remanding the case instead of deciding it on the merits, thereby prejudicing petitioner's substantial rights.
Issue(s)
Whether the Court of Appeals erred in not holding that the motion to lift the order of default was filed late and not in the proper form. Whether the Court of Appeals erred in not holding that the private respondent obstinately refused to file its answer to the complaint for eight and a half (8 1/2) months. Whether the Court of Appeals erred in not holding that the private respondent's defense was sham and false. Whether the Court of Appeals gravely abused its discretion in remanding the case to the lower court for further proceedings instead of deciding the case on the merits.
Ruling
The Supreme Court denied the petition for review on certiorari and affirmed the decision of the Court of Appeals in toto. The case was remanded to the court of origin for further proceedings.
Ratio Decidendi
On the timeliness and form of the motion to lift the order of default: The Court held that the private respondent's motion to set aside the order of default was seasonably filed, as it was presented before the trial court rendered its decision. Furthermore, while not formally verified or accompanied by a separate affidavit of merit, the motion, which included the answer, set forth the reasons for the failure to answer and the grounds for a meritorious defense. Citing Lim Tanhu vs. Ramolete, the Court ruled that when a motion to lift an order of default contains the reasons for the failure to answer and the facts constituting the prospective defense, and it is sworn to, a formal verification or separate affidavit of merit is not necessary. The Court found the private respondent's failure to file an answer on time to be excusable. On the obstinate refusal to file an answer: The Court found the private respondent's perception that filing an answer while its Petition for Certiorari and Prohibition was pending before the Court of Appeals would constitute a voluntary submission to the jurisdiction of the trial court and render the issue moot, to be a reasonable one. The Court of Appeals correctly sustained this theory, noting that while mistakes of law are generally not grounds for lifting an order of default, a reasonable mistake of law under the circumstances can be excusable. This prevented the private respondent from waiving its objection to the venue. On the alleged sham and false defense: The Court found the defense relied upon by the private respondent to be meritorious. The respondent admitted its indebtedness but averred that certain bills, which should have been charged to a subcontractor (IPM Construction), were included in its account. The Court reasoned that if the trial court had lifted the order of default and allowed the private respondent to present its evidence, the case could have been properly threshed out, avoiding unnecessary delays. On the grave abuse of discretion in remanding the case: The Court reiterated the well-settled rule that courts should be liberal in setting aside orders of default, as judgments by default are frowned upon. Unless it clearly appears that reopening the case is for delay, it is best to give both parties every chance to fight their case fairly. Remanding the case for further proceedings was deemed necessary to serve substantial justice, allowing both parties to present their evidence and arguments fully.
Main Doctrine
A motion to lift an order of default, if filed before judgment and accompanied by the answer, may be considered as sufficient compliance with the requirements of Section 3(b), Rule 9 of the Revised Rules of Court, even if not formally verified or accompanied by a separate affidavit of merit, provided the answer itself sets forth the reasons for the failure to answer and the grounds for a meritorious defense. The court should be liberal in setting aside orders of default to afford parties their day in court and ensure substantial justice.