BPI FAMILY SAVINGS BANK, INC., PLAINTIFF-APPELLEE, VS. GREGORIO D. CANEDA, JR., CHERRY L. CANEDA AND JOHN DOE, DEFENDANTS-APPELLANTS.

BPI Family Savings Bank versus Caneda

The Case

This is a lecture on BPI Family Savings Bank versus Caneda, a civil action for replevin and damages. The bank sued the spouses Gregorio and Cherry Caneda, together with an unknown defendant styled John Doe, to recover the balance of an auto loan and to seize the mortgaged motor vehicle. The case matters for two reasons. First, it is a clean illustration of what happens to a defendant who is declared in default and who sleeps on his remedies. Second, it teaches the rule that a defendant's voluntary appearance is equivalent to service of summons, and that the lack of jurisdiction over the person may be waived. For the Bar candidate, this is a procedural case dressed as a collection suit.

Procedural History

The bank filed its complaint for replevin and damages before the Regional Trial Court of Manila, Branch 1. The first summons was returned unserved because the defendants were said to be always out of town. An alias summons was then served through a caretaker. No answer was filed. On the bank's motion, the trial court declared the defendants in default in an order dated 07 March 2012 and allowed the bank to present its evidence ex parte. The defendants filed a manifestation opposing the default only in May 2012, two months after the declaration. Gregorio later appeared, asked for time to settle, and obtained a suspension of the proceedings, but no compromise agreement ever materialized. The trial court then rendered judgment in favor of the bank on 10 March 2014. The defendants filed a notice of appeal, which was given due course, and the case was elevated to the Supreme Court under Rule 41 of the Rules of Court.

Facts

On 01 August 2006, the Canedas executed a Promissory Note with Chattel Mortgage in favor of Citimotors, obligating themselves jointly and severally to pay 1,081,920 pesos in monthly installments of 18,032 pesos over sixty months. The obligation was secured by a chattel mortgage over a 2006 Mitsubishi Adventure. Citimotors later assigned all its rights to BPI Family Savings Bank.

The Canedas stopped paying. They failed to pay the ten consecutive installments falling due from 03 May 2009 to 03 February 2010. The bank sent a demand letter dated 28 January 2010, demanding the outstanding balance of 491,893 pesos plus interest and charges, or the return of the vehicle. The Canedas neither paid nor surrendered the chattel, so the bank sued on 23 February 2010.

After the alias summons was served through a caretaker named Ronaldo Tanalgo, the Canedas still filed no answer. They were declared in default. Gregorio, who is himself a lawyer, appeared in court and asked for time to settle, and the trial court suspended proceedings for three months. He even asked for more time, citing poor health, but no settlement was ever reached. The trial court then decided in favor of the bank, ordering the Canedas to pay the balance with penalty interest and attorney's fees.

Issues

• Whether or not the trial court erred in declaring the defendants in default and in conducting an ex parte hearing, thereby depriving them of their day in court.
• Whether or not the trial court erred in not passing upon the arguments raised in the defendants' manifestation opposing the motion for default.
• Whether or not the service of summons through a caretaker was valid, and whether or not the trial court acquired jurisdiction over the persons of the defendants.

Applicable Provisions

Rule 14, Section 20 of the Rules of Court on voluntary appearance provides:

Section 20. Voluntary appearance. The defendant's voluntary appearance in the action shall be equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.

This is the provision that defeats the defendants' claim of lack of jurisdiction, because Gregorio appeared and sought settlement.

Rule 9, Section 3 of the Rules of Court on the effect of an order of default provides:

Section 3. Effect of order of default. A party declared in default shall not be entitled to notice of subsequent proceedings, but the court shall not consider the same as a waiver of any of his rights. The party declared in default shall still be entitled to notice of subsequent proceedings and the court shall render judgment granting the claimant such relief as his pleading may warrant, unless the court in its discretion requires the claimant to submit evidence. Such reception of evidence may be delegated to the clerk of court.

This governs what a defaulted defendant loses and what he retains, and explains why the ex parte hearing was proper.

Ruling

On the first issue, the Court held that the defendants were not deprived of their day in court. A defendant declared in default loses his standing in court. He is deprived of the right to take part in the trial, forfeits his rights as a party litigant, cannot present evidence, and cannot cross-examine witnesses. But the plaintiff must still present evidence despite the default. The defendants never moved to set aside the order of default, and their opposition came two months too late. Gregorio's voluntary appearance and request for time to settle only confirmed that they had their chance.

On the second issue, the Court found no error in the trial court's treatment of the manifestation. Having been declared in default, the defendants had no right to expect that the court would act upon their pleadings. The trial court acted correctly in ordering the continuation of the ex parte presentation of evidence.

On the third issue, the Court held that the defendants could no longer belatedly question the service of summons. The process server's return is prima facie evidence of the facts stated therein, fortified by the presumption of regularity of official duty. To overcome it, the evidence must be clear and convincing. More importantly, the defendants submitted to the jurisdiction of the trial court by their voluntary appearance. The Court quoted the rule:

Section 20. Voluntary appearance. The defendant's voluntary appearance in the action shall be equivalent to service of summons.

The lack of jurisdiction over the person may be waived, expressly or impliedly, and the defendants did not seasonably object.

Doctrine

Three rules must be memorized. First, a defendant declared in default loses his standing in court, but the plaintiff must still prove his case, because default is not an admission of the allegations. Second, the remedy of a defaulted defendant is a sworn motion to set aside the order of default, filed after notice and before judgment, showing fraud, accident, mistake, or excusable negligence, plus a meritorious defense. Third, a defendant's voluntary appearance is equivalent to service of summons under Rule 14, Section 20, and the defense of lack of jurisdiction over the person is waived if not timely raised.

Disposition

The Supreme Court denied the appeal and affirmed the decision of the trial court in favor of BPI Family Savings Bank.

Remember This

The one line to memorize: a defendant's voluntary appearance is equivalent to service of summons, and default forfeits the right to be heard but not the plaintiff's duty to prove his case. Examiners use this case to test default procedure and the waiver of jurisdiction over the person.