DENSO (PHILS.), INC., PETITIONER, VS. THE INTERMEDIATE APPELLATE COURT AND KAYAMANAN DEVELOPMENT CORPORATION, RESPONDENTS.

On June 23, 1984, at about 11 o’clock in the evening, a fire broke out at the
Nippondenso Building at Pasong Tamo Ext., Makati, Metro Manila.  The building
was owned by the Kayamanan Development Corporation (hereafter, simply referred
to as KAYAMANAN), and was then under lease to Denso (Phils.), Inc. (hereafter,
simply DENSO).  The fire caused extensive damage.  DENSO and its correspondent
firm in Japan, NIPPONDENSO, reportedly suffered losses amounting to
P6,131,976.65 and P682,212.58, respectively.  On the other hand, KAYAMANAN’s
loss was placed at P1,750,000.00.^[1]

A year or so later, KAYAMANAN
instituted an action against DENSO in the Regional Trial Court at Makati, which
was docketed as Civil Case No. 10768, for recovery of (a) unpaid rentals from
June, 1984 to March, 1985, amounting to an aggregate of P471,546.69; (b) the
cost of repairing the damage caused by the fire to the leased building, it being
alleged that DENSO was bound to bear said cost under their lease agreement; and
(c) unrealized monthly rents and attorney’s fees.^[2]

Summons was served on DENSO on June
10, 1985.  It would seem, however, that the summons (together with the
accompanying copy of the complaint) was not referred by DENSO to its counsel
until June 22, 1985.  This prompted the latter to file on June 25, 1985 a
“MOTION FOR EXTENSION OF TIME TO FILE ANSWER”, pleading the late referral, the
need to attend to other legal work of equal importance, as well as the time
requirement for study of the factual and legal points involved in the action,
and praying, in consequence, for an additional period of 15 days from June 25
within which to present the requisite responsive pleading.^[3] The motion closed with a “Notice of
Hearing” addressed to the Clerk of Court, asking that the motion be submitted to
the court for consideration and approval immediately upon its receipt; and a
notation that a copy of the motion had been furnished plaintiff KAYAMANAN’s
counsel.^[4] The copy of the motion was
actually received by KAYAMANAN’s counsel the following day, June 26, 1985.^[5]

The motion for extension was
however denied by Order of Judge Teofilo Guadiz, Jr. dated June 26,
1985, “considering”, according to His Honor, “that there was no proof of
service that plaintiff received a copy of said motion.”^[6] At 4 o’clock in the afternoon of that same
day, June 26, 1985, KAYAMANAN presented an “Ex-parte Motion to
Declare Defendant in Default” asserting that the reglementary period of 15 days
for DENSO to file answer had expired on June 25, 1985 without any
answer having been filed, but making no reference to DENSO’s motion for
extension which, as above stated, had been received by it on June 26,
1985.^[7] On the same day, June
26, 1985, Judge Guadiz promulgated an Order deeming the motion for default
to be “well-taken”, and accordingly declaring DENSO in default and setting the
reception of KAYAMANAN’s evidence ex-parte on the following day,
June 27, 1985, at 2 o’clock in the afternoon.^[8] At that appointed date and time, the Court
did receive KAYAMANAN’s evidence ex-parte; and four (4) days later, on
July 1, 1985, Judge Guadiz rendered judgment by default, sentencing
DENSO to pay to KAYAMANAN P471,546.69 as accumulated monthly rentals and cost of
services from June, 1984 to March, 1985; P2,856.000.30 as the reasonable cost of
repair of the “damage building” (sic); and 10% of the total amounts
awarded, as attorney’s fees.^[9]

While all this was happening, and
evidently in complete ignorance thereof, DENSO’s counsel drew up its answer to
the complaint, which was completed on July 5, 1985 and filed on July 8, 1985. 
To this pleading were appended copies of letters from DENSO to KAYAMANAN —
appealing for a 30% rental rebate due to the prejudicial consequences of the
fire of June 23, 1984; giving notice of the termination of the lease on May 12,
1985; and formally turning over the leased premises — as well as a copy of the
Police Arson Investigation Report of the fire.^[10]

Inevitably, DENSO learned of the
order of default and the judgment by default.  It then filed on August 2, 1985 a
verified motion for reconsideration of said order and judgment.^[11] Acting thereon, the Trial Court
promulgated an Order dated September 3, 1985, setting aside, “in the interest of
substantial justice”, the order of default dated June 26, 1985 as well as the
decision dated July 1, 1985; but hearing was re-scheduled only for the
presentation of defendant DENSO’s evidence, the Court explicitly stating that
the evidence already presented (by KAYAMANAN) would remain on record “without
the right of cross examination on the part of the defendant.”^[12] The hearing was set on October 2, 1985
but at DENSO’s instance, was re-scheduled on October 24, 1985.

At the
hearing on October 24, 1985, DENSO orally asked the Court to reconsider its
Order of September 3, 1985 and accord it the opportunity to cross-examine
KAYAMANAN’s witnesses, who had given their testimony ex-parte.  The
Court opted to give DENSO time to move formally for reconsideration^[13] and reset the hearing to November 21,
1985 (which was again reset on January 9, 1986 because the Judge was on official
leave in November).^[14]

DENSO
submitted its formal motion for reconsideration dated November 4, 1985 — praying
for the right to cross-examine KAYAMANAN’s witnesses — on November 6, 1985.^[15] The record does not show that any
opposition to the motion was ever filed.  Two days later, however, on November
8, 1985, DENSO received notice of the Order of the Court dated October 24, 1985
(the date of the hearing), denying its (DENSO’s) motion to be allowed to
cross-examine KAYAMANAN’s witnesses, and scheduling the initial hearing for the
presentation of the defense witnesses on November 21, 1985.^[16] Four days afterwards, on November 12,
1985, the Court promulgated another Order, denying DENSO’s motion for
reconsideration of November 4, 1985 for lack of merit.  According to the
Court:

“What is important is that defendant is afforded the opportunity to
present its evidence and thus enable the Court to see the other side of the
coin, the defendant being offered a chance to present its evidence in the Order
dated September 3, 1985.”^[17]

DENSO did not however receive a copy of this Order of November 12, 1985 until
January 9, 1986, the day finally set (by the Court) for the reception of its
evidence.  At this time, DENSO drew the Court’s attention to its motion for
reconsideration of November 4, 1985 which, as far as it knew, was yet
unresolved.  DENSO was thereupon furnished with a copy of the Order of November
12, 1985.  DENSO then asked for deferment of the hearing so that it might
elevate this adverse ruling to a higher court.^[18] This was denied, and when DENSO declared
itself as not ready to proceed with the presentation of evidence, the Court
dictated an Order stating that “this being the third time that defendant failed
to present its evidence notwithstanding the chance given to it, the ‘Decision’
dated July 1, 1985 is revived.”^[19]

Without awaiting service of the
Order dictated on January 9, 1986, DENSO filed on January 15, 1986 a petition
for certiorari with the Intermediate Appellate Court, docketed as
AC-G.R. SP No. 08150, praying for the annulment of the series of orders of Judge
Guadiz already referred to, starting with the order of default of June 26, 1985
and culminating in the order of January 9, 1986 reviving the judgment by
default.

The Intermediate Appellate Court (Fourth Special Cases Division)
considered the crucial issue to be “the propriety or impropriety” of the order
of September 3, 1985 which, while setting aside the previous order of default
and the judgment by default, prescribed that the evidence already presented
would remain in the record and denied petitioner the right to cross-examine the
respondent’s witnesses who had testified at the ex-parte hearing.  It
declared unnecessary further consideration of the order of default and judgment
by default thus set aside, and limited its review of the proceedings to the
question of whether or not the petitioner was properly denied the right of
cross-examination.^[20]

On that
question the Appellate Court ruled that the right of cross-examination, while a
part of due process so that denial thereof amounts to depriving a party of his
day in court, is nonetheless waivable; that since petitioner received on
September 16, 1985 copy of the order of September 3, 1985 — setting the judgment
by default aside and scheduling the case for hearing only for reception of
defendant’s evidence without right to cross-examine plaintiff’s witnesses — but
did not move for its reconsideration until October 24, 1985, or after a lapse of
38 days, such inaction amounted to a waiver of the claimed right to
cross-examine; and, moreover, said motion for reconsideration came too late
because the order sought to be reconsidered was by then already final, the
applicable period of appeal being only fifteen (15) days from notice of said
order,^[21] and that (in any event) DENSO
was guilty of laches.^[22]

The
error in these pronouncements is immediately apparent.  They assume that the
order in question is a final — and appealable — order, when it is in fact
interlocutory.  The distinction between final and interlocutory orders is a
well-settled one.

“The concept of ‘final’ judgment, as distinguished from one which
has ‘become final’ (or ‘executory’ as of right [final and executory]), is
definite and settled.  A ‘final’ judgment or order is one that finally disposes
of a case, leaving nothing more to be done by the Court in respect thereto,
e.g., an adjudication on the merits which, on the basis of the evidence
presented at the trial, declares categorically what the rights and obligations
of the parties are and which party is in the right; or a judgment or order that
dismisses an action on the ground, for instance, of res judicata or
prescription.  Once rendered, the task of the Court is ended, as far as deciding
the controversy or determining the rights and liabilities of the litigants is
concerned.  Nothing more remains to be done by the Court except to await the
parties’ next move (which among others, may consist of the filing of a motion
for new trial or reconsideration, or the taking of an appeal) and ultimately, of
course, to cause the execution of the judgment once it becomes ‘final’ or, to
use the established and more distinctive term, ‘final and executory.’

“Conversely, an order that does not finally dispose of the case, and does not
end the Court’s task of adjudicating the parties’ contentions and determining
their rights and liabilities as regards each other, but obviously indicates that
other things remain to be done by the Court, is ‘interlocutory’,
e.g., an order denying a motion to dismiss under Rule 16 of
the Rules, or granting a motion for extension of time to file a pleading, or
authorizing amendment thereof, or granting or denying applications for
postponement, or production or inspection of documents or things,
etc. Unlike a ‘final’ judgment or order, which is appealable,
as above pointed out, an ‘interlocutory’ order may not be questioned on appeal
except only as part of an appeal that may eventually be taken from the final
judgment rendered in the case.”^[23]

That the order of September 3, 1985 was interlocutory in character is beyond
cavil.  In setting aside the order of default and the succeeding judgment by
default, it left the case open for further proceedings before the Trial Court,
not the least of which was the reception of evidence for the petitioner. 
Therefore, it could not become final in the sense that final judgments become
“final and executory”.  No appeal therefrom would lie except in the context and
as part of an appeal from a subsequent final judgment on the merits, and a
motion for reconsideration thereof was not subject to the limiting fifteen-day
period of appeal prescribed for final judgments or orders.

Neither will
the Court consider laches as having set in by reason of petitioner’s allowing
thirty-eight (38) days to pass before seeking a reconsideration of the order,
having in mind not only that such a relatively brief period cannot by any
reckoning be deemed an unreasonable length of time, but also the fact that while
laches is a defense which operates independently of the statute of limitations
and is subject to no fixed periods, it is also founded on equity and may be
invoked only if the delay in asserting a claim has worked a change in the
conditions such as would render unjust or inequitable grant of the relief
sought.

“In order that the defense of laches may prosper, the following
elements must be present:  (1) conduct on the part of defendant, or one under
whom he claims, giving rise to the situation complained of, (2) delay in
asserting complainant’s right after knowledge or notice of defendant’s conduct
and an opportunity to sue, (3) lack of knowledge or notice on the part of the
defendant that complainant would assert the right on which he bases suit, and
(4) injury or prejudice to defendant in the event relief is accorded.  ***^[24]

“*** (I)t must be realized that,
unlike prescription, the defense of laches is not dependent on the existence of
a statutory period of limitation.  It can be invoked without reckoning any
specific or fixed period; it is sufficient that there be an unreasonable and
unexplained delay in bringing the action that its maintenance would already
constitute inequity or injustice to the party claiming it.  ***”^[25]

No perceivable prejudice would attach to the respondent if the petitioner
were allowed to cross-examine the witnesses it has presented.  If said witnesses
told the truth, respondent has nothing to fear from their cross-examination, the
effect of which would only be to enhance their credibility.

Petitioner’s
motion for reconsideration of the order of September 3, 1985, therefore, hardly
deserved the short shrift that it received from the Intermediate Appellate Court
because it was in no sense untimely, and neither lapse of a statutory period nor
laches could correctly be invoked to justify the summary refusal to inquire into
the antecedents of said order.  What that Court considered to be moot and
academic — an inquiry into the merits of Judge Guadiz’s separate orders of June
26, 1985 denying the motion for extension of time to file answer and declaring
the petitioner in default — lay precisely at the heart of the matter before it
and now before this Court.  Both orders were premised on what the Judge
perceived to be a failure to comply with the rule that notice of motions must be
served by the movant on all parties concerned at least three (3) days prior to
the hearing thereof.^[26] What His Honor
evidently overlooked — and this was error — was that the rule on notice is not
unqualifiedly applicable to all motions, and that there are motions which may be
heard ex-parte, as the Rules themselves clearly acknowledge.^[27] Among the latter class of motions are
precisely those seeking extension of time to plead, and the reason these are not
strictly held to the requirement of notice is that they are non-contentious and
do not as a rule involve the substantial rights of the other parties in the
suit.

“*** The motion for extension of time within which a party may plead
is not a litigated motion where notice to the adverse party is necessary to
afford the latter an opportunity to resist the application, but an
ex-parte motion ‘made to the court in behalf of one or the other of the
parties to the action, in the absence and usually without the knowledge of the
other party or parties.’ As ‘a general rule, notice of motion is required where
a party has a right to resist the relief sought by the motion and principles of
natural justice demand that his rights be not affected without an opportunity to
be heard …’

“It has been said that ‘ex-parte motions are
frequently permissible in procedural matters, and also in situations and under
circumstances of emergency; and an exception to a rule requiring notice is
sometimes made where notice or the resulting delay might tend to defeat the
objection (sic) of the motion.'”^[28]

Upon similar premises, this Court has consistently held,
since as early as in 1946,^[29] that
motions for extension of time to file record on appeal may be filed and passed
upon ex-parte, and the rulings on that point are applicable, without
differentiation, to motions for extension of time to file
answer.

Petitioner’s motion for extension of time to file answer was,
therefore, improperly denied for lack of proof of service on the respondent,
said motion having been seasonably filed and, as already fully shown, there
being no impediment to its being heard ex-parte.  No pretense is made
that the motion was denied as having been filed merely for delay, but even if
that ground were read into the otherwise clear terms of the order of denial
which do not even hint thereat, it would still be belied by the fact that what
was sought was only an extension of the original reglementary period as
well as that prima facie meritorious reasons were pleaded for the
desired extension.  The petitioner’s answer, alleging defenses^[30] which, if established, could defeat the
respondent’s claim, wholly or in part, was filed well within the period of
extension prayed for.  All these considered, the order declaring petitioner in
default for alleged failure to timely file answer was clearly arbitrary; it
ought not to have been issued and should be struck down.

While the order
of default was in fact set aside by the Trial Judge on motion of the petitioner,
he failed to afford petitioner the complete relief that the arbitrary and
improper issuance of said order and of the earlier order denying the motion for
extension clearly called for.  Ideally, the slate should have been wiped clean
by setting aside also the hearing at which the respondent presented its evidence
ex-parte, so that the parties would stand on even terms with neither
having the advantage of the other.  Instead, the Judge prescribed that the
evidence presented by the KAYAMANAN would remain in the record without right
on the part of DENSO to cross-examine the witnesses who had already
testified, and by necessary implication, also denied DENSO the right to
object to the documentary evidence submitted by respondent.  This, too, was
abuse of discretion.  If a defendant is improperly declared in default — his
time to answer not having expired because of a timely ex-parte motion
for extension — he should be entitled to relief which should consist not only in
the admission of his responsive pleading, but of the right to cross-examine the
witnesses presented and to object to the exhibits offered in his absence, if not
indeed to have trial commence all over again.  He should not, under these
circumstances, be penalized by loss of the right to cross-examine.  This would
be grossly unwarranted and unfair; it would amount to a denial of due
process.

The Appellate Court’s observation that “*** it cannot be denied
that the petitioner had other remedies at hand after the court a quo
had set aside the questioned Order of default and Default Judgment ***”^[31] is somewhat perplexing.  Given the
character of said orders, particularly of the order of default, this Court is
hard put to conceive how DENSO could have acted to protect its rights otherwise
than as it did here, namely:  by exhausting all recourse toward a
reconsideration before the Trial Court and then applying for corrective relief
in the Intermediate Appellate Court.

WHEREFORE, the
petition is granted.  The Decision of the Intermediate Appellate Court under
review is reversed and set aside.  Petitioner’s answer to the respondent’s
complaint in Civil Case No. 10768 is ordered admitted.  All the orders issued in
said case and complained of in the petition, the judgment by default rendered
therein, and the ex-parte proceeding of June 27, 1985 at which the
respondent presented its evidence are vacated.  Civil Case No. 10768 shall stand
for proceedings de novo as if only complaint and answer had been filed therein. 
Costs against the respondent.

SO ORDERED.

Yap, (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco,
and Sarmiento, JJ., concur.

^[2] Id., pp.
49-53.

^[3] Rollo, p.
59.

^[4] Id., p.
60.

^[5] Id., p.
61.

^[6] Id., p.
62.

^[7] Id., p.
63.

^[8] Rollo, p.
65.

^[9] Id., pp.
81-82.

^[10] Id., pp.
66-80.

^[11] Rollo, pp.
83-103.

^[12] Id., p.
104.

^[13] Id., p.
202.

^[14] Rollo, pp. 12,
234; KAYAMANAN for its part claims that the Court orally denied DENSO’s plea to
be allowed to cross-examine the former’s witnesses.  (Comment of March 1, 1980;
Rollo, p. 180).

^[15]
Id., pp. 105-122.

^[16]
Id., pp. 11, 123.

^[17]
Id., p. 124.

^[18]
Rollo, pp. 12-13, 141, 142.

^[19] Id., pp. 125, 234.

^[20] Annex “B”, Petition; Rollo, pp.
45-48.

^[21] Rollo, p. 47,
citing Sec. 19(a), Interim Rules.

^[22] Id., p. 48.

^[23] Investments, Inc. vs. Court of
Appeals, G.R. No. 60036, Jan. 27, 1987; PLDT Employees’ Union v. PLDT
Co. Free Tel. Workers’ Union, 97 Phil. 424, citing Moran, Comments on the
Rules, 1952 ed., Vol. 1, pp. 894-895, Nico v. Blanco, 81 Phil. 213 and
Hodges v. Villanueva, 90 Phil. 255; Mejia v. Alimorong, 4
Phil. 572; Rios v. Ros, 79 Phil. 243; Kapisanan ng mga Manggagawa
sa MRR Co. vs. Yard Crew Union, et al., 109 Phil. 1150; Antonio v.
Samonte, 1 SCRA 1072; Acting Director, National Bureau of Investigation
vs. Hon. Caluag, et al., 2 SCRA 541; Bairan v. Tan Siu Lay, et
al., 18 SCRA 1239; Dela Cruz v. Hon. Paras and San Miguel, 69 SCRA
556; Valdez v. Hon. Bagaso, et al., 82 SCRA 22.

^[24] Abraham vs. Recto-Kasten, 4 SCRA
298, citing Villoria vs. Secretary of Agriculture and Natural
Resources, 107 Phil. 879; see also Mejia de Lucas vs. Gamponia,
100 Phil. 277.

^[25] San Miguel
Corporation vs. Cruz, 31 SCRA 819.

^[26] Rule 15, Sec. 4, Rules of
Court.

^[27] Rule 13, Sec. 2,
id.

^[28] “objection”
should read “object”; Amante vs. Suñga, 64 SCRA 192, citing Sturz
v. Fisher, 36 N.Y.S. 893, 15 Mis. 410; 25 N.Y. Civ. Proc. 202, 2 N.Y. Ann.
Code, 365; 60 C.J.S. 5, 16; Hunderfold vs. Cushing, 2 Wis. 411;
McDonald v. Severy, 59 P. 2d 98, 6 Cal. 2d 629; Petition of
Volpe, 66 N.E. ed 146; Dougherty v. Manhattan Rubber Mfg. Co., 29
S.W. 2d 126, cited in 60 C.J.S. 15.

^[29] In Moya vs. Barton, 76 Phil.
831; see also Yap vs. Court of Appeals, 115 SCRA 104, citing Que
Tiac vs. Republic, 43 SCRA 56, and Commercial Union Assurance Company
Limited vs. Lepanto Consolidated Mining Company, 86 SCRA 79, 98; E
& L Mercantile, Inc. vs. Intermediate Appellate Court, 142 SCRA 386;
and Corsino vs. Nicolas, 87 SCRA 58.

^[30] Rollo, pp. 68-72.

^[31]
Rollo, p. 47.