NAGA DEVELOPMENT CORPORATION, PETITIONER, VS. THE COURT OF APPEALS AND PACIFIC MERCHANDISING CORPORATION, RESPONDENTS.

Appeal by certiorari from the decision of the Court of Appeals
in CA-G.R. 33126-R dated July 25, 1967, affirming (a) the order of default
issued by the Court of First Instance of Manila in a collection suit instituted
by the Pacific Merchandising Corporation (hereinafter referred to as the
Pacific) against the Naga Development Corporation
(hereinafter referred to as the Naga), and (b) the
judgment by default in the same case which ordered the Naga
to pay the Pacific the sum of
P143,282.76, with interest at the rate of 1% a month from July 21, 1962 until
fully paid, a sum equivalent to 12% of the principal obligation as attorney’s
fees, and the costs of suit.

A sales agreement dated August 10, 1962 was entered into by and
between the Naga and the Pacific, by virtue of which
the latter agreed to supply the former roofing and related materials and to be
responsible for their installation at the Naga City
public market, for a total cost of P238,447.76, exclusive of materials that may
be additionally required during construction.

Under the terms of payment specified in the mentioned agreement,
the Naga covenanted that it shall (a) deposit the sum of P106,300 with the Pacific upon the
signing of the con­tract; (b) pay the balance of the price, payable within 45
days after completion of the deliveries and installation of the roof­ing
materials, but not later than 95 days from the date of deli­very thereof to the
job site in case their installation is delayed due to the fault of the Naga; and (c) furnish the Pacific a deed of assignment,
properly acknowledged, recognized and/or accepted by the Government Service
Insurance System, providing direct payment to the Pacific in an amount equal to
P142,144.76, representing the balance of the amount involved, within 45 days
after completion of the installation of the roofing materials by the Pacific.

Several days before the date of the aforesaid agreement, or, on July 21, 1962, the Pacific already
made deliveries to the job site at Naga City
of roofing materials to be used in the construction of the mentioned Naga City
public market.  The total value of the
materials delivered plus the cost of installa­tion from July 21, 1962 to October 19, 1962 amounted to P250,312.76.

On July 19, 1963 the Pacific filed with the Court of First
Instance of Manila a complaint against the Naga
(docketed as civil case 54547), alleging in essence that only P107,030 of the total obligation of the Naga under their agreement had been paid and that the Naga refused to pay the balance thereof in the amount of
P143,282.76.

On August 5, 1963 the Naga filed a
motion with the trial court requesting for an extension of 15 days, to expire
on August 20, 1963, within which to file its answer, counsel stating that —

“The inability to prepare and finalize defendant’s answer on
time is due to the burden of other equally if not more urgent professional work
on the part of the undersigned counsel.”

The said motion was granted.

On August 16, 1963 the Naga filed
another motion for an additional extension of 10 days within which to file its
responsive pleading, counsel alleging this time that the extension —

“… is requested for the reason that counsel is presently
verifying certain material facts and information relative to the transaction
object of the plaintiff’s complaint, which are needed in order that they may be
able to intelligently prepare defendant’s answer, and such verification may not
be accomplished in time for the completion of the answer on or before the
aforesaid due date.”

The court a quo, however, denied
the foregoing motion.

On August 22, 1963,
a day after receipt of the said order of denial, counsel for the Naga moved for reconsideration.  On August
23, 1963 the Naga filed a supplemental
motion for the admission of its answer and for the denial of the Pacific’s
motion, filed the day before, to declare the Naga in
default.

The court below denied the Naga’s
motions and declared it in default in an order dated August 29, 1963.

On September 7, 1963,
the Naga filed a motion to set aside the default
order on the following grounds:

(a)
The court’s order was entered after the Naga had tendered its answer to the complaint, so that
judicial discretion should have been exercised in favor of its admission,
following the policy laid down in Coombs vs. Santos, 24 Phil. 446
(1913).

(b)  
In the process of drafting the answer to the complaint, counsel for
the Naga found it necessary to make further verifica­tion
and re-checking of the amount claimed as well as the articles alleged to have
been shipped to Naga City, considering that the total amount involved was more than
P100,000.  This took some doing as the data to be checked
were available only in Naga City.

(c)   The
order of default was issued merely on the strength of the Pacific’s
representation that the Naga does not have an office
in Naga City,
which is belied not only by the fact that the Naga’s
articles of incorporation state that its principal office is in Naga City but as well by the Pacific’s allegation in its
complaint that the materials in question were sold and delivered to the Naga at Naga City through the
Manila Railroad Company.

(d)  
The Naga has good and
substantial defenses, such as that the claim was prematurely filed, it being the express agreement of the parties
that payments after the completion and acceptance of the work will be satisfied
out of the releases of the loan applied for by the Naga to the
GSIS which, due to the latter’s refusal to release, prompted the Naga to file a complaint against the GSIS to obtain release of payments
(civil case 52637 of the Court of First
Instance of Manila).  In the said
litigation, the Pacific even filed a motion for intervention, but later
withdrew the same.

(e)   There
has been no delivery to, and
acceptance by, the Naga of the complete installation
work made by the Pacific.

The Naga, through an affidavit of merit
executed by its president and attached to the motion to set aside the order of default, stated additionally that —

“… the result of the complete verification and re-checking
conducted shows that there were several amounts advanced and paid for by the Naga Development Corporation for the account of the
plaintiff Pacific Merchandising Corporation, such as the sum of P600.00 which
was paid some­time in May, 1963 to sub-contractor Marquez upon the request of
the plaintiff, which advances should be taken into account of and considered in
the final accounting.”

The trial court, however, in an order dated September 20, 1963, denied the motion to set
aside the order of default, for the following reasons:

(a)  
The Naga does not have
a valid defense.  It does not dis­pute
the completion of the delivery and the installation of the materials in
question.  The sales agreement provides
that payment for the services and materials should be made within 45 days after
the materials are installed.  Moreover,
there is no provision in the agreement in question which makes the right of the
Pacific to collect the balance of the price agreed upon dependent on the re­lease
of the GSIS loan aforementioned.

(b)  
The failure of the Naga
to file its answer within the ex­tended period was due to its fault and
negligence.  For while in its first
motion for extension, counsel for the Naga said that
the res­ponsive pleading could not be prepared and finalized due to the
pressure of urgent professional commitments, in its second motion for
extension, the Naga’s counsel alleged that more time
was needed to verify the truth of the allegations in the complaint.  The reason adduced by the Naga
in its first request for extension, according to the lower court, gave the lie
to the second request for extension.

(c)  
There was no real need to verify the truth of
the aver­ments contained in the Pacific’s complaint.  In the complaint filed by the Naga against the GSIS on January 3, 1963, it was therein expressly averred that the
Naga was indebted to the Pacific in the amount of
P143,282.76 — a sum identical to the amount of the claim of the Pacific in
the instant suit.  Considering the large
amount involved, there must have been a thorough inquiry made about the said
debt before the complaint against the GSIS was filed, as in fact, said the court,
the president of the Naga admitted that several
conferences were held with representatives of the Pacific relative thereto.

(d)   The
answer which the Naga belatedly submitted for
admission admitted the correctness of the Pacific’s claim to the last centavo,
but the Naga sought avoidance thereof solely upon the
grounds that the same was not
yet demandable on account of the GSIS’s refusal to release the mentioned loan and that there
was as yet no delivery and acceptance of the installation work performed by the
Pacific at the Naga City public market.  These grounds, how­ever, according to the
court, cannot be sustained under the express terms of the sales agreement in
question.

On October 10, 1963,
after the ex parte reception of the evidence
submitted by the Pacific, the trial court rendered its decision, the dispositive portion of which reads as follows:

“WHEREFORE, judgment is hereby ren­dered sentencing the
defendant to pay the plain­tiff the sum of P143, 282.76, with interest thereon
at the rate of 1% per month from July
21, 1962, until full payment is made, and a sum equivalent to 12%
of the unpaid obligation as attorney’s fees and expenses of litigation,
together with costs.”

The Naga appealed the foregoing decision as well as the orders refusing it
recognition to participate in the trial below to the Court of Appeals; the
latter court, in a decision rendered on July 25, 1967, ruled in favor of the Pacific.  It also denied the Naga’s
motion for reconsideration in a resolution dated September 26, 1967.

Hence, the present
recourse.

This appeal raises the following issues:  (a) whether the trial court’s order of
default and its order denying the Naga’s motion to
set aside were correctly issued, and (b) whether the adjudication made by the
trial court on the merits is correct.

1.     
Anent the first issue, we are in agreement with
the Court of Appeals’ affirmance of the questioned
orders of the trial court.

The granting of additional time within which to file an answer to
a complaint is a matter largely addressed to the sound discretion of a trial
court.  While trial courts are persuaded,
as a matter of policy, to adopt a basically flexible attitude in favor of the
defendant in this area of our adjective law, the defense should never be lulled
into the belief that whenever trial courts refuse a second request for extension to file an answer, the appellate courts will
grant relief.  Where, as in the case at
bar, another full period of 15 days to file the answer had been granted,
substantial grounds must be shown by the party declared in default in order
that the questioned order of the trial court may be reversed.

The Naga,
in its second request for extension to
file its answer, pleaded that a verification of the truth of the averments
contained in the complaint would be needed because it had made certain
payments, such as the amount of P600, which should be deducted from the claim
of the Pacific.

This excuse, in our opinion, is flimsy.  In its belated answer filed with the trial
court for admission, the Naga explicitly denied that
the claim asserted in the complaint was already due and demandable at that
time, the Naga saying that the GSIS loan (the release
of which was claimed to be a pre-condition to the payment of the Paci­fic’s
claim) had not yet been released and that the installation work done by the
Pacific had not yet been accepted.  A
written denial of this nature will not, in our view, take long to make, as,
indeed, the Naga, after it came to know of the
default order, was able to make the said answer in less than three days.  The said belatedly filed answer, as we read
it, sufficiently joined issues with the material allegations of the Pacific’s
complaint.

But even if it is true, as the Naga
asserts, that it had made certain payments to the Pacific which should be deducted
from the amount of the claim, it would likewise have been a very simple matter
to allege that the complaint does not reflect the true amount due to the
Pacific because of payments made.  These
payments could then be proved at the trial, or, possibly, admitted at the
pre-trial conference.  The essential
purpose of a responsive pleading is to secure a joinder
of the issues and not to lay down evidentiary matter.

There is also another aspect of this case which, in our opinion,
should be counted as a factor in determining whether the trial court exercised
its discretion soundly in declaring the Naga in
default and denying its motion to set aside.

The Pacific claims, as one of its defenses against the grant­ing
of the petition at bar, that the Naga
City public market has been
operating since 1965 and that the questioned GSIS loan had already been
released as early as in March, 1966.  The
Naga’s sole answer to this is:  “Just because a debt will fall due in
the future does not mean that it can be filed now…  For, settled is the rule that a com­plaint
that states no valid cause of action at the time it is filed cannot be cured by
the subsequent accrual of one (Surigao Mine
Exportation Co., Inc. v. Harris, et al., 68 Phil. 113, 119).”

The correctness of the foregoing legal postulate is conceded, but the very fact of its assertion in
the case at bar demonstrates that the Naga intends
solely to bank upon the trenches of what may perhaps be called a pure and
simple “lawyer’s defense.” A
defense of this nature serves precisely
to affect adversely, rather than enhance, the cause of the Naga.

Adverting next to the Naga’s claim that
it has valid and meritorious defenses, we concur in the conclusion reached
below that the payment of the amount agreed upon in the sales agreement
aforementioned did not depend upon the availability of funds from the GSIS.

Under the said agreement,
it was the obligation of the Pacific to supply and install the roofing materials needed for the construction
of the Naga City public market; and for those materials
supplied and the services rendered, it was the reciprocal duty of the Naga to pay the price agreed upon.  The GSIS, which was not a party to the said
contract, and, consequently, not bound by its terms, can­not be made to assume the obligation of the Naga thereunder with­out its
consent.  In its desire to speed up
payments to the Pacific, the Naga could make arrangements, as it apparently attempted to do, so that the GSIS
would make its treasury warrants payable directly in favor of the Pacific on
the basis of the amounts the Naga would certify to
the GSIS, but such an arrangement obviously cannot destroy or modify the direct
legal responsibility of the Naga to the Pacific to
pay for what the latter gave and rendered to the former.

With reference to its other allegedly valid and meritorious
defense – that the materials in question had not yet been delivered and that the alleged installation job had
not yet been accepted by the Naga – suffice it to
state that this defense involves a factual determination with which this Court is not concerned
in the instant appeal.  The determination
made by the Court of Appeals on such factual matters is binding upon us.

2.  We now turn to the second issue.

The Naga contends that the Court of
Appeals erred in affirm­ing the judgment by default rendered by the trial court
ordering the Naga to pay (a) the sum of P143,282.76, representing the unpaid balance of the
price of the materials delivered and services ren­dered by the Pacific; (b)
interest thereon at the rate of 1% per month from July 21, 1962 until the
principal is fully paid; (c) a sum equivalent to 12% of the unpaid principal as
attorney’s fees; and (d) the costs of suit.

Bearing in mind the nature of the instant suit and considering
that the Court of Appeals’ concurrence in the trial court’s assessment of the
amount of P143,282.76 is in the nature of a factual finding, this Court cannot
now pass upon its correctness.  The two
courts below had before them the sales agreement between the parties, and to
what extent the parties complied with their respective prestations thereunder was
purely a matter of evidence.

However, although we
cannot pass upon the correctness of the said assessment, it is quite obvious that in the execution of
its judgment as affirmed by the
Court of Appeals, the trial
court cannot compel the Naga to pay more than what it
actually owes the Pacific under the terms of their covenant.  Deeply imbedded in our legal system are the principles that no man may unjustly enrich himself at the expense of another, and that every person must,
in the exercise of his rights, act with justice, give everyone his due,
and observe honesty and good faith.  Upon
these sacred legal postulates, the Naga should,
therefore, be allowed, during the execution phase of the judgment, to present
proof of payments made by it to the Pacific which constitute proper deductions
from the principal amount it owes.

The payment of interest on the principal sum ordered by the trial
court, on the other hand, presents certain aspects of law which properly lie
within the compass of the present appeal.

That portion of the decision of the trial court awarding inte­rest
appears to have been based upon a clause, contained in the invoices receipted
for by the Naga’s agents at Naga City
evidencing delivery of the materials contracted for, which states:

“Terms:  All bills are
payable on demand unless otherwise agreed upon. 
Interest at 1% per month will be charged on overdue accounts. …  The parties expressly submit to the
jurisdiction of the courts of the City of Manila
on any legal action arising out of this transaction and an additional 25%
representing attorney’s fees and cost of collection will be charged by the
vendor.”

In Pan Pacific Company (Phil.) vs. Philippine Advertising
Corporation (L-22050, June 13, 1968, 23 SCRA 977), we recognized the
binding effect of an identical provision appearing in the invoice slips issued
by the seller on the ground that since the buyer never expressed any objection
thereto, and, further, accepted and made use of the goods, the buyer is deemed
to have given its implied conformity to the terms of the said invoices.^[1]
In that case, the terms and conditions of sale were embodied in a
letter-agreement.

Following the ruling laid down in the said case, it is our
opinion that the Naga’s failure to interpose any
objection to the invoices issued to it by the Pacific to evidence delivery of
the materials ordered as per their agreement and which contained the clause in
question on the payment of interest, should be deemed as an implied acceptance
by the Naga of the said condition.

Nonetheless, while we hold that the foregoing clause is bind­ing
upon the Naga, it is also our view that the courts
below erred in determining the time from
which the said interest to be paid should
be computed.

By the express terms of
the sales agreement, the Naga was to make a deposit
with the Pacific of a certain amount upon the signing of the agreement, and the balance of the price, to
include the value of additional materials, was to be paid within 45 days after completion of the
installation work.

The record of this case shows that the installation of the
roofing materials was finished in “January, 1963.” Hence, the
interest should be computed starting on the 46th day after the completion of the installation
work as it was only on this date that the Naga’s
account became due.  There being no
definite statement in the record
of the exact day in January, 1963, we shall presume, for purposes of computing
the interest due, that the installation
of the roofing materials was completed in the middle of January, 1963,
that is, on January 15, 1963.  This
presumption we base solely on equity, there being nothing in the record to show
exactly when the said installation work was completed.  Should there be any inaccuracy in this
presumption, vis–a-vis the actual
completion date, it is our considered opinion that the difference involves a
trifling amount which, in law, may be overlooked.  De minimis non curat lex.

Concerning the payment of the attorney’s fees which were fixed at
12% of the principal obligation to be paid by the Naga to the Pacific, it is our view that the said adjudication is
fair and reasonable, considering the various stages that the instant case has
passed and now reached.  This 12% award
of attorney’s fees should be computed on the basis of the outstanding
obligation of the Naga to the Pacific as of the date
of the filing of the complaint.

ACCORDINGLY, the judgment of the Court of Appeals
affirming the questioned orders of the trial court declaring the Naga Development Corporation in default and denying its
motion to set aside the said default order, is hereby affirmed.

The judgment by default, rendered by the trial court and affirmed
by the Court of Appeals, ordering the Naga
Development Corporation to pay the Pacific Merchandising Corporation the amount
of P143,282.76 is hereby affirmed, with the qualification that the Naga Development Corporation shall be allowed to prove,
during the process of execution of the said judgment, whatever payments it had
made to the Pacific Merchandising Corporation, either before or after the
filing of the complaint, which constitute a proper deduction from the principal
sum ordered to be paid.

The interest ordered to be paid by the said judgment by default
shall be computed on the basis of the total amount due an outstanding as of the
46th day after January 15, 1963,
at the rate of 1% per month until fully paid.

The award of attorney’s fees shall be computed on the basis of
the total amount of the obligation of the Naga
Development Corporation outstanding as of the date of the filing of the
complaint.

Costs against the Naga Development Corporation.

Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Fernando, Teehankee, Villamor, and Makasiar, JJ., concur.

Barredo, J., concurs in separate opinion.

Makalintal, J., no part.

^[1]
Cf. Royal Shirt Factory, Inc. vs. Co Bon Tic, L-6313, May 14, 1954, 94
Phil. 995, where the provision in the invoice slip concerning the payment of
interest and attorney’s fees was not considered binding upon the buyer because
he did not sign the slip, and because even if the buyer accepted and made use
of the goods sold, he had placed a written notation on the printed slip which
was construed as a demurrer to the printed provision on the payment of interest
and attorney’s fees.

Clean
Clean

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