S.C. JOHNSON & SON, INC., PETITIONER, VS. COURT OF APPEALS, COURT OF FIRST INSTANCE OF MISAMIS OCCIDENTAL, BRANCH II, OZAMIS CITY, ASUNCIANO LOMANTA, PROVINCIAL SHERIFF OF RIZAL…

Is a party who is declared in default entitled to notice of a
motion for execution pending appeal of a judgment by default? The defaulted party, herein petitioner S. C.
Johnson & Son, Inc., maintains that it is so entitled while private respondent
Asunciano Lomanta contends otherwise.

Petitioner S. C. Johnson & Son, Inc. is a Philippine
corporation engaged in the manufacture and marketing of certain products
bearing the “Johnson” brand, such as floor wax, floor polishers and
accessories, and other allied industrial products. On September 1, 1977, it appointed private respondent Asunciano
Lomanta, a businessman doing business under the name of “Solar Educational
Supply”, as distributor of its products in the cities of Ozamis, Iligan
and Cagayan de Oro for a period of one (1) year under terms and conditions
embodied in a Distributor Contract.^[1] The
Distributor Contract was renewed for another year, to expire on September 1,
1979.

However on January 5, 1979, petitioner wrote private respondent a
letter cancelling the Distributor Contract effective February 15, 1979 for
alleged failure of private respondent to fulfill certain requirements
thereunder. In said letter, private
respondent was informed that petitioner’s district manager and field representative
would confer with him shortly on the disposition of his current inventory and
liquidation of his outstanding account.^[2]

Apparently due to a disagreement on the amount due from one party
to the other, private respondent filed before the then Court of First Instance (CFI) of Misamis
Occidental a complaint dated May 10, 1979 against petitioner seeking
reformation or rescission of the Distributor Contract, accounting and
liquidation of accounts between him and petitioner and award of damages for
unrealized profits, moral and exemplary damages, attorney’s fees and expenses
of litigation.^[3]

Petitioner, as defendant therein, moved to dismiss the complaint
on the ground of improper venue^[4] but
was denied the relief sought upon a finding that the waiver of venue contained
in the Distributor Contract as well as the clauses relating to venue found at
the bottom of the delivery receipts and the credit memorandum were merely
permissive and not exclusive.^[5]
Petitioner’s recourse to the Court of Appeals proved unavailing as its petition
for prohibition with preliminary injunction, docketed as CA-G. R. No.
SP-09698-R, assailing the denial order, was dismissed in a decision dated
September 12, 1979.^[6]

Meanwhile in Civil Case No. 0Z-799, upon motion filed on
September 1, 1979 by private respondent, the trial court issued an order^[7]
declaring petitioner in default for failure to file its responsive pleading
within the reglementary period. Private
respondent was allowed to present his evidence ex parte.

The lower court thereafter rendered its decision dated October
29, 1979, disposing thus:

“WHEREFORE, judgment
is hereby rendered in favor of the plaintiff, Asunciano “Arce”
Lomanta and against S. C. Johnson & Son, Inc., the original contract (Exh.
“A”) as renewed is hereby ordered reformed in accordance with the
true agreement of the contracting parties and ultimately rescinded with damages against the defendant.

“The defendant is hereby ordered to pay the plaintiff:

(1)  the sum of P139,879.68 representing the
overpayment of the plaintiff with legal interest since the filing of the
complaint until fully paid;

(2)  the sum of P100,000.00 as the loss of expected
profit due to the unwarranted termination of the contract;

(3)  the sum of P75,000.00 as actual and
compensatory damages;

(4)  the sum of P50,000.00 as moral damages;

(5)  the sum of P25,000.00 as exemplary damages;

(6)  the sum of P50,000.00 as attorney’s fee; and

(7)  the cost
of the suit.

“SO ORDERED.”^[8]

Petitioner received a copy of the decision on November 8,
1979. It filed on November 26, 1979, a
notice of appeal, cash appeal bond and a complete record on appeal, which were
received by the trial court on December 3, 1979.

On the following day, December 4, 1979, private respondent filed
an ex-parte motion to
execute judgment pending appeal. Said
motion was granted by the trial judge on December 5, 1979.

On December 19, 1979, petitioner filed with the Court of Appeals
a petition for certiorari with preliminary injunction questioning the
issuance of the writ of execution and seeking to restrain its enforcement. On May 22, 1980, the Court of Appeals
rendered judgment dismissing said petition for lack of merit.^[9]
Hence, this petition.

We hold that a party declared in default is entitled to notice of
the motion for execution pending appeal. This interpretation is consistent with the nature and effects of being
in default as well as with what has been jurisprudentially laid down with
respect to executions pending appeal.

Under the Rules of Court, a defendant is declared in default if
he fails to answer the complaint
within the period provided therein. The
court makes the declaration of default upon motion of the plaintiff and proof
of defendant’s failure to answer.^[10] When
a defendant is declared in default, he loses his standing in court. He is considered out of the court. He cannot appear therein, adduce evidence
and be heard, and for that reason he is not entitled to notice of subsequent
proceedings or take part in the trial.^[11]

“Loss of standing” has been explained in Cavili vs. Florendo,^[12] to
mean “only the forfeiture of one’s right as a party litigant, contestant
or legal adversary. A party in default
loses his right to present his defense, control the proceedings, and examine or
cross-examine witnesses. He has no
right to expect that his pleadings would be acted upon by the court nor may he
object to or refute evidence or motions filed against him. x x x” But
“being declared in default does not constitute a waiver of rights except
that of being heard and of presenting evidence in the trial court. x x x In
other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be said that by
defaulting he leaves himself at the mercy of the court, the rules see to it
that any judgment against him must be in accordance with law.”^[13]

Furthermore, a defendant who has been declared in default is
entitled to service of substantially amended or supplemental pleadings and final orders or judgments of the
court, even if he fails to file a motion to set aside the order of default.^[14]

The remedy of the defaulted party is to file a motion to set
aside the order of default if no judgment has been rendered yet. If there is already judgment, the
defendant’s recourse is to file a motion for new trial, or a petition for relief from judgment, or appeal
the judgment, or file a special civil action for certiorari. This is the reason why a defaulted defendant
is entitled to notice of final orders or judgments.

Consistent with this right to notice of final order or judgment
is the right to notice of the motion for execution pending appeal of the
default judgment. Without such notice,
the various recourse available to the defaulted party after judgment would be
rendered illusory. For once a judgment
has been executed, restitution, although provided for in case of reversal, is
oftentimes incomplete and unsatisfactory as damages may arise which cannot be
fully compensated.^[15]

Moreover, in the same case of Aguilos vs. Barrios,^[16]
this Court held that “a party has a right to rely upon the rules of court
and to expect that she would be given notice as required thereby.” As
being in default does not imply a waiver of rights, as aforesaid, the defaulted
party has the right to expect compli­ance with the requisites for executing a
judgment pending appeal under Section 2 of Rule 39, thus:

“Sec. 2. Execution
pending appeal. – On motion of the prevailing party with notice to the adverse
party the court may, in its discretion, order
execution to issue even before the expiration of the time to appeal, upon good
reasons to be stated in a special order. If a record on appeal is filed thereafter, the motion and the special
order shall be included therein.”

More so when we consider that as early as the case of Monteverde vs. Jaranilla,^[17] involving defaulted defendants, this
Court has ruled “that the court abuses
its discretion in ordering the execution of a judgment from which an appeal is
pending, without previous notice to the adverse party and there being no
special ground therefor.” This doctrine was restated in the subsequent
case of Aguilos vs. Barrios,^[18]
where we emphatically said: “The requirement about motion by the
prevailing party and notice to the adverse party, which was not complied with
in the instant case, is mandatory and is precisely an innovation intro­duced
in the new rules to remove the doubt suggested in Gamay vs. Gutierrez David^[19]* and to
restate the doctrine laid down in Monteverde vs. Jaranilla.”^[20]

In view of the foregoing, we find a discussion of the other
issues raised unnecessary.

WHEREFORE, the instant petition is hereby GRANTED. The assailed decision of the Court of
Appeals in C. A.- G.R. No. 10160-SP and the order of December 5, 1979 in Civil
Case No. OZ-799 are reversed and set aside. No pronouncement as to costs.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin, and
Cortes, JJ., concur.

^[1]
p. 209, Rollo.

^[2]
p. 210, Rollo.

^[3]
Civil Case No. OZ-799, pp. 72-88, Rollo.

^[4]
pp. 243-253, Rollo.

^[5]
pp. 240-242, Rollo.

^[6]
Penned by Justice Edgardo L. Paras,
concurred in by Justices Ramon G. Gaviola, Jr. and Hugo E. Gutierrez, Jr., pp. 256-261, Rollo.

^[7]
pp. 89-91, Rollo.

^[8]
pp. 171-172, Rollo.

^[9]
CA G.R. No. 10160-SP, penned by Justice
Jorge R. Coquia and concurred in by Justices Samuel F. Reyes and Mariano
A. Zosa.

^[10]
Section 1, Rule 18.

^[11]
Section 2, Ibid.

^[12]
154 SCRA 610.

^[13]
Lim Tanhu vs. Ramolete, 66 SCRA
425.

^[14]
Section 9, Rule 13.

^[15]
Aguilos vs. Barrios, 72 Phil.
285.

^[16]
Ibid.

^[17]
60 Phil. 297.

^[18]
72 Phil. 285.

^[19]
48 Phil. 768.

* Gamay vs.
Gutierrez David gives the impression that the court may on its
own initiative order execution of a judgment pending appeal, thus: “To avoid misunderstanding, let it be
said that this decision does not decide that the court may not on its own
initiative order execution or grant a stay of execution.” (at p. 771)

^[20]
60 Phil. 297, 307. (Underscoring
supplied).