LUZON SURETY COMPANY, INC., PLAINTIFF-APPELLEE, VS. CORETTE S. MAGBANUA AND DANIEL Z. ROMUALDEZ, DEFENDANTS, ANTONIO V. RAQUIZA, DEFENDANT-APPELLANT.

Luzon Surety versus Magbanua

The Case

This is a collection suit brought by Luzon Surety Company, Incorporated against Corette Magbanua, Daniel Romualdez, and Antonio Raquiza to enforce an indemnity agreement said to have been signed in exchange for a personal bail bond. The case matters because it tests how far a defaulting defendant may lean on the answer of a co-defendant, and whether an appeal to the Court of First Instance revives a defendant who never filed an answer at all. The Supreme Court speaks through Justice Martin.

Procedural History

The complaint was filed before the City Court of Manila. Romualdez filed an answer; Magbanua and Raquiza did not, and were declared in default. The City Court rendered judgment against Magbanua and Raquiza, but dismissed the case against Romualdez because of his death. Raquiza moved for reconsideration; the motion was granted and he was allowed to answer, but he again failed to do so within the period given. He was declared in default a second time, and the City Court reiterated its judgment.

Raquiza appealed to the Court of First Instance of Manila, where he filed an answer. The Court of First Instance disallowed the answer and affirmed the City Court. It denied his motion for reconsideration. The appeal then went to the Court of Appeals, which certified the case to the Supreme Court for review on a question of law.

Facts

On or about April 14, 1961, at the request of the defendants, Luzon Surety executed a personal bail bond of Eight Thousand Pesos in behalf of Corette Magbanua, then an accused in two criminal cases. As consideration, the defendants bound themselves under an indemnity agreement to pay the premium jointly and severally, and to hold the surety harmless from all damages and expenses incurred by reason of the suretyship.

Magbanua failed to appear when required. The Court of First Instance of Manila ordered the bond confiscated and rendered judgment for the full amount. Luzon Surety paid the Sheriff of Manila the sum of Eight Thousand Fifty Seven Pesos in full satisfaction, and the defendants refused to reimburse it on demand.

Romualdez answered, denying that he executed the agreement, claiming that Magbanua had attempted to forge his signature, and assailing the agreement as void for fraud. Magbanua and Raquiza never answered. Raquiza was twice declared in default, and he never moved to set aside either order of default.

Issues

• Whether or not the appeal of a defendant declared in default to the Court of First Instance operates to vacate the judgment of the City Court and entitles him to a trial de novo on the basis of an answer filed for the first time on appeal.
• Whether or not the answer filed by a co-defendant may be treated as the answer of the defaulting defendant, so that the case may be tried on the merits as to him.

Applicable Provisions

Section 4, Rule 18 of the Rules of Court provides:

Section 4. Judgment when some defendants answer and others make default. When a complaint states a common cause of action against several defendants, some of whom answer, and the others fail to do so, the court shall try the case against all upon the answers thus filed and render judgment upon the evidence presented. The same procedure applies when a common cause of action is pleaded in a counter-claim, cross-claim and third-party claim.

This is the provision the Court applies: the City Court could try the case against all defendants upon the answers actually filed and render judgment on the evidence presented.

Section 9, Rule 40 of the Rules of Court, invoked by the appellant, provides:

A perfected appeal shall operate to vacate the judgment of the justice of the peace or the municipal court, and the action shall stand for trial de novo upon its merits in accordance with the regular procedure in that Court, as though the same had never been tried before and had been originally there commenced.

The Court holds that this rule cannot help a defendant who never filed an answer in the inferior court.

Section 7, Rule 40 of the Rules of Court provides:

Reproduction of pleadings on appeal. Except in summary proceedings under Section 17 of Rule 5, upon the docketing of the case under appeal, it shall be the duty of the clerk of the court to notify the parties of that fact by registered mail. Thereupon, the pleadings filed in the justice of the peace or municipal court shall be considered reproduced in the Court of First Instance.

This bears on the second issue: only pleadings actually filed below are reproduced on appeal.

Ruling

On the first issue, the Court rules against the appellant. The doctrine that an appealed judgment is tried anew presupposes that the defendant filed an answer in the inferior court. Here Raquiza filed none. He was declared in default twice, and he availed himself of none of the remedies open to a defaulting defendant: a motion to set aside the order of default, a petition for relief, or a motion to lift the default judgment before it became final. Having lost his standing in court, he lost the right to appeal from the judgment, and the answer he filed in the Court of First Instance could not cure that mistake.

On the second issue, the Court also rules against the appellant. Pleadings filed below are considered reproduced in the Court of First Instance, but Raquiza filed no answer below, so there was none to reproduce as far as he was concerned. The answer of Romualdez could not be deemed reproduced either, because Romualdez died before the case was tried and the case against him was dismissed on that ground. Even if it had been reproduced, the defense of forgery was personal to Romualdez; Raquiza had to allege for himself that his own signature was forged, and he did not.

Doctrine

A defendant declared in default loses his standing in court. He is not entitled to notice of subsequent proceedings, nor to take part in the trial, and he cannot appeal from the judgment rendered on the merits unless he first files a motion to set aside the order of default. To regain standing, he may move to set aside the order of default on grounds of fraud, accident, mistake, or excusable negligence; or, if the judgment has become final, file a petition for relief; or move to lift the default judgment before it becomes final.

Under Section 4, Rule 18, when a complaint states a common cause of action against several defendants and only some answer, the court tries the case against all upon the answers filed and renders judgment on the evidence presented. The answer of one defendant does not become the answer of a defaulting co-defendant, especially where the defense raised is personal to the one who pleaded it.

Disposition

The decision appealed from was affirmed, with costs against the defendant-appellant Antonio Raquiza.

Remember This

Memorize this line: a defendant in default loses his standing in court and cannot appeal unless he first moves to set aside the order of default. Examiners use this case to test the remedies of a defaulting defendant and whether a co-defendant's answer may be borrowed by one who never pleaded.