**Facts**:
1. **Initial Complaint**: On August 20, 1970, Rafael Sumadchat filed a complaint with the Court of First Instance of Manila (CFI) against St. Louis Realty Corporation for recovery of charges related to a shipment of machinery and equipment, including attorney’s fees. This was docketed as Civil Case No. 80838.
2. **CFI Decision**: On September 10, 1976, the CFI ruled in favor of Sumadchat, ordering St. Louis Realty to pay P1,069,174.41 with 10% interest per annum plus P30,000 for attorney’s fees and costs. This judgment was increased to P1,214,363.54 in a subsequent order on December 8, 1976.
3. **Execution Pending Appeal**: Sumadchat filed for execution pending appeal. The CFI granted this request and issued the writ on February 4, 1977.
4. **Appeal and Certiorari**: St. Louis Realty’s motion for reconsideration was denied, prompting them to appeal to the Court of Appeals (CA), docketed as CA No. SP-06427, which was also denied. They then filed a petition for certiorari in the Supreme Court (docketed as G.R. No. L-46019).
5. **Amicable Settlement**: Both parties reached an amicable settlement, and St. Louis Realty withdrew its appeal and all pending motions and petitions. The settlement terms were for St. Louis Realty to pay P915,000 in two installments (P600,000 within 60 days and P300,000 within a further 60 days) plus P15,000 for attorney’s fees. In return, Sumadchat would release the levied machinery and properties and lift garnishments.
6. **Failure to Pay**: St. Louis Realty paid the attorney’s fees and the first installment but failed to pay the remaining P300,000. Sumadchat then filed a motion for an alias writ of execution in the CFI on April 15, 1978.
7. **Procedural Motions**: The CFI initially denied a motion by St. Louis Realty to reset the hearing of the motion for alias writ of execution on April 21, 1978, and later denied their motion for reconsideration on April 28, 1978.
8. **Appeal to the CA**: St. Louis Realty appealed to the CA in CA-G.R. No. SP-07953-R, which set aside the CFI orders.
**Issues**:
1. **Grave Abuse of Discretion**:
– Did the CFI commit grave abuse of discretion in issuing the orders dated April 21, 1978, and April 28, 1978?
2. **Equitable Considerations in Contract Violations**:
– Did the CA err in unduly emphasizing Sumadchat’s alleged violation of the compromise agreement while ignoring St. Louis Realty’s failure to pay the balance?
**Court’s Decision**:
1. **Grave Abuse of Discretion**:
– The Supreme Court disagreed with the CA and found no grave abuse of discretion by the CFI. The CFI properly followed legal procedures, including denying the motion to reset due to non-compliance with legal formalities (Section 26, Rule 138 of the Rules of Court).
– The denied reset motion was filed by a new counsel who had no formal appearance or agreement with the counsel of record, aligning with established jurisprudence.
– The Supreme Court reiterated that absence of previous notice is not a substantial defect as long as the right to be heard is eventually provided.
2. **Equitable Considerations in Contract Violations**:
– The CA incorrectly made factual determinations that were not adequately supported by evidence. St. Louis Realty did not substantiate claims of Sumadchat’s violations of the compromise agreement before the CFI.
– The Supreme Court determined that Sumadchat had substantially complied with the terms of the compromise agreement (lifting garnishments and levies and providing a certificate of redemption).
– St. Louis Realty was obliged to pay the remaining P300,000 plus legal interest from the due date as per the CA’s earlier finding.
**Doctrine**:
– **Substitution of Counsel**: Compliance with procedural requirements for substitution of counsel is mandatory.
– **Due Process**: Absence of prior notice is not a substantial defect as long as parties are given an opportunity to be heard.
– **Grave Abuse of Discretion**: Courts have discretionary powers that, unless clearly abused, should not be interfered with.
**Class Notes**:
– **Change of Attorneys**: Must comply with Rule 138, Sec. 26, RC (written consent, formal substitution notice).
– **Due Process**: Ensures parties are heard (application per Bermejo vs. Barrios).
– **Certiorari Jurisdiction**: Limited to grave abuse of discretion.
– **Execution of Judgments**: Courts must ensure compliance with procedural rules for execution.
**Historical Background**:
This case underscores the procedural rigor of the Philippine judicial system around the transition in the latter part of the 1970s, during a period characterized by legal formalism and stringent adherence to procedural norms. The decision demonstrates the importance of legal processes concerning substitutions and the execution of judgments, reflecting the judiciary’s role in maintaining legal stability and ensuring the equitable administration of justice despite potential procedural missteps by involved parties.
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