BANK OF THE PHILIPPINE ISLANDS, AS SUBSTITUTED BY PHILIPPINE ASSET MANAGEMENT, INC., PLAINTIFF-APPELLEE, VS. SPS. JERRY AND ASUNCION JARDIOLIN, DEFENDANTS-APPELLANTS.

Bank of the Philippine Islands versus Jardiolin

The Case

This is a collection suit. The Bank of the Philippine Islands, later substituted by Philippine Asset Management, Incorporated, sued Spouses Jerry and Asuncion Jardiolin to recover unpaid loans originally owed to Far East Bank and Trust Company, whose assets and liabilities the bank acquired through merger. The spouses defaulted in the payment of three promissory notes, and the bank sought the principal, interest, attorney's fees, and litigation expenses. The case matters for two reasons a reviewee must hold: it is a clean illustration of the drastic effect of a defendant's failure to appear at pre-trial, and it reminds us that a demand letter is dispensable when the debtor has waived demand in the promissory note itself.

Procedural History

The bank filed its complaint for collection before the Regional Trial Court of Makati City. After the answer was filed and the case was set for pre-trial, the trial court referred the parties to mediation. The defendants and their counsel failed to appear at the scheduled pre-trial and at the mediation proceedings despite notice. On the bank's oral motion, the trial court allowed the bank to present its evidence ex parte. The defendants moved for reconsideration, explaining that a motion for leave to file an amended answer was pending and that travel to Makati was expensive, and that the physical condition of Jerry Jardiolin prevented attendance at mediation. The trial court denied the motion, observing that the defendants had repeatedly failed to appear and that their absences were attempts to delay the proceedings. The trial court then rendered judgment in favor of the bank, holding the spouses jointly and solidarily liable for the principal amount with legal interest, plus attorney's fees and litigation expenses. Jerry Jardiolin appealed, assigning as errors the declaration allowing the bank to present evidence ex parte and the finding of liability. The appeal reached the Supreme Court, which denied it and affirmed the trial court in full.

Facts

Spouses Jardiolin borrowed a total of four million five hundred thousand pesos from Far East Bank and Trust Company on two different dates, evidenced by three promissory notes: one million pesos dated February 16, 1998; two million pesos dated August 17, 1998; and one million five hundred thousand pesos dated August 17, 1998. Each promissory note carried a waiver of demand.

On March 23, 2000, Far East Bank and Trust Company merged with the Bank of the Philippine Islands under articles of merger approved by the Bangko Sentral ng Pilipinas, with the latter as the surviving corporation. The bank thereby acquired all the assets and liabilities of Far East Bank, including the Jardiolin accounts. Upon review, the bank discovered that the spouses had failed to pay their obligations as they fell due. It sent a demand letter, the last dated July 9, 2002, and when the spouses did not pay, it filed the complaint.

In his answer, Jerry Jardiolin claimed that he had been paying the former bank, that any balance was less than what was demanded, and that the transfer of his account was made without notice to him. During the proceedings, the counsel for the defendants informed the court that Asuncion Jardiolin had already died in 2000. The defendants then failed to appear at the pre-trial and at mediation despite notice, prompting the trial court to allow the bank to present its evidence ex parte and, later, to render judgment against the spouses.

Issues

• Whether or not the trial court erred in allowing the bank to present its evidence ex parte after the defendants failed to appear at the pre-trial despite notice.
• Whether or not the trial court erred in holding the defendant-appellant liable for the amount awarded.

Applicable Provisions

Section 5 of Rule 18 of the Rules of Court, on the effect of failure to appear at pre-trial, provides:

Section 5. Effect of failure to appear. The failure of the plaintiff to appear when so required pursuant to the next preceding section shall be cause for the dismissal of the action. The dismissal shall be with prejudice, unless otherwise ordered by the court. A similar failure on the part of the defendant shall be cause to allow the plaintiff to present his evidence ex parte and the court to render judgment on the basis thereof.

This is the provision the Court applied in sustaining the trial court's order allowing the bank to present its evidence ex parte.

Ruling

On the first issue, the Court held that the trial court did not err. Pre-trial is mandatory, and the failure of a party to appear is deemed a waiver of his right to present evidence in his behalf. The defendant-appellant and his counsel failed to appear at the pre-trial held on October 20, 2003, believing that their pending motion to amend the answer would be granted. The Court found, however, that the amendments sought were not substantial, being mere general denials of the allegations in the complaint. Even if the motion were granted, the pre-trial could still proceed, and the parties could not presuppose that it would not push through because of a pending motion. As to the absence at mediation, the Court said that while the appellant's absence may be excused on account of his physical condition, he should have authorized his lawyer, through a special power of attorney, to attend the mediation in his behalf.

On the second issue, the Court held that the trial court was correct in declaring the defendant-appellant liable. The bank's witness testified that several demands were made, the last demand letter dated July 9, 2002. The bank failed to establish that the spouses actually received it, since it did not produce the registry return card, and the abstract of outgoing mail did not sufficiently establish that the letter was sent. But the Court held that demand was not necessary because the spouses signed the promissory notes with a waiver of any demand. The defendant-appellant did not deny the existence of the loan, which was transferred to the bank after the merger, but claimed that the amount was lower than that awarded. He attached no document to prove his claim, and the Court applied the fundamental rule that upon him who alleges rests the burden of proof.

Doctrine

First, pre-trial is mandatory, and the failure of a defendant to appear at pre-trial despite notice is cause to allow the plaintiff to present evidence ex parte and for the court to render judgment on the basis thereof, as Section 5 of Rule 18 provides. A pending motion for leave to amend the answer does not automatically cancel the pre-trial, especially where the proposed amendments are not substantial.

Second, a party who cannot personally attend mediation should authorize counsel through a special power of attorney to attend in his behalf.

Third, demand is not necessary to put the debtor in default where the promissory note contains a waiver of demand. And fourth, the burden of proof lies on the party who alleges; a bare claim that the amount awarded is too high, unsupported by any document, cannot prevail.

Disposition

The Supreme Court denied the appeal and affirmed the trial court's decision in full, holding the spouses liable to the bank.

Remember This

Memorize this line: the failure of a defendant to appear at pre-trial despite notice allows the plaintiff to present evidence ex parte and the court to render judgment thereon. Examiners use this case to test the mandatory character of pre-trial, the effect of non-appearance under Section 5 of Rule 18, and the rule that a waiver of demand in a promissory note dispenses with a demand letter.