(JOESTEEL CONTAINER CORPORATION VS. COMMONWEALTH FINANCING CORPORATION).

Joesteel Container versus Commonwealth Financing

The Case

This is a petition arising from a simple money claim. Commonwealth Financing Corporation sued Joesteel Container Corporation before the City Court of Manila to recover a deficiency — the shortfall between the debt owed and the amount realized from an extrajudicial foreclosure of mortgage that Joesteel had executed in the creditor's favor. The case matters far beyond the sum involved: it is a compact lesson on the recklessness of a default order, and on the rule that a defendant who appears on the very day set for trial and asks for time to answer has not yet lost his day in court. The Supreme Court, speaking through a per curiam opinion, set aside both the order of default and the judgment by default, and remanded the case for further proceedings.

Procedural History

Commonwealth Financing Corporation commenced the action in the City Court of Manila. Summons and a copy of the complaint were served on Joesteel through its General Manager on July 13, 1965, and the summons required the defendant to answer and to appear for trial on August 12, 1965. On that trial date, counsel for Joesteel appeared and moved for an extension of time to file an answer. The City Court denied the motion. On the plaintiff's motion, the City Court then declared Joesteel in default and commissioned its Deputy Clerk of Court to receive the plaintiff's evidence. Joesteel moved to lift the order of default on August 13, 1965, but that motion was denied, and on August 21, 1965, the City Court rendered judgment by default against Joesteel.

Joesteel appealed, but the Court of First Instance of Manila denied the petition for relief. The case then reached the Supreme Court, which resolved to set aside the order of default and the judgment of the City Court and to remand the case to the court of origin for further proceedings.

Facts

Commonwealth Financing Corporation held a mortgage executed by Joesteel Container Corporation. After the mortgage was extrajudicially foreclosed, the proceeds fell short of the secured debt, and the creditor sued Joesteel in the City Court of Manila to recover that deficiency.

Summons and the complaint were served on Joesteel through its General Manager on July 13, 1965. The summons directed the defendant to answer the complaint and to enter trial on August 12, 1965. The plaintiff later took the position that the defendant had twenty days from service of summons, counted from July 13, 1965, within which to answer, and that this period expired on August 2, 1965.

On August 12, 1965, the date set for the hearing, counsel for Joesteel appeared and asked for an extension of time to answer. The court denied the motion, declared Joesteel in default on the plaintiff's motion, and commissioned the Deputy Clerk of Court to receive the plaintiff's evidence. Joesteel's motion to lift the default, filed on August 13, 1965, was denied, and a judgment by default followed on August 21, 1965.

Issues

• Whether or not the City Court gravely abused its discretion in declaring the defendant in default when the defendant appeared on the date set for trial and moved for an extension of time to file its answer.
• Whether or not the order of default and the judgment by default should be set aside and the case remanded to the court of origin for further proceedings.

Applicable Provisions

The decision does not quote any statutory provision. It rests instead on the rule of procedure applied in the cited precedent, Zenith Films versus Herrera, which the Court treats as governing the period to answer:

The defendant had up to the date set for trial of the case within which to file an answer to the complaint.

This rule bears directly on the case: because the answer could still be filed on the trial date itself, the defendant was not yet in default when it appeared and asked for time.

Ruling

On the first issue, the Court held that the City Court gravely abused its discretion in declaring the defendant in default. The Court reasoned that the defendant had up to the date set for trial — August 12, 1965 — within which to file an answer to the complaint, and that on that very day the defendant filed a motion for extension of time within which to file an answer. The Court anchored this on the rule it stated in the cited precedent:

Considering that the defendant had up to the date set for trial of the case within which to file an answer to the complaint or on August 12, 1965, on which day the defendant filed a motion for extension of time within which to file an answer, so that the City Court gravely abused its discretion in declaring the defendant in default.

On the second issue, because the default was improperly declared, the Court resolved to set aside the order of default and the judgment rendered by the City Court, and to remand the case to the court of origin for further proceedings.

Doctrine

A defendant is not in default while the period to answer has not yet lapsed, and where the rules allow the answer to be filed up to the date set for trial, an appearance and a motion for extension on that date come before any default may validly be declared. Declaring such a defendant in default is a grave abuse of discretion, correctible by the Supreme Court. The doctrine ties directly to the rule quoted above: the answer period ran to the trial date, so the default order had no legal ground. A default judgment built on an invalid default order cannot stand and must be set aside, with the case remanded for further proceedings.

Disposition

The Supreme Court set aside the order of default and the judgment by default of the City Court of Manila and remanded the case to the court of origin for further proceedings, in favor of Joesteel Container Corporation.

Remember This

Memorize the line: the defendant had up to the date set for trial to file its answer, so a default declared on that date is a grave abuse of discretion. Examiners use this case to test the timeliness of a default and the remedy against a default judgment entered without a valid order of default.