NELSON L. YOUNG AND VIOLETA YOUNG, PETITIONERS, VS. THE HONORABLE COURT OF APPEALS AND INDUSTRIAL FINANCE CORPORATION, RESPONDENTS.

Young versus Industrial Finance Corporation

The Case

This is a petition for review on certiorari brought by Nelson Young and Violeta Young against the Court of Appeals and Industrial Finance Corporation. The spouses were sued for a sum of money arising from a promissory note executed in connection with their installment purchase of a cargo truck, and the case reached the Supreme Court on the question of whether a trial court's order dismissing a complaint for the plaintiff's failure to appear at a scheduled pre-trial had already become final and executory. The case matters because it marks the outer limit of the doctrine that a second pre-trial is not allowed: the Court holds that while the Rules do not authorize a second pre-trial, the parties may by agreement validly hold one, and such agreement takes the case out of the prohibition.

Procedural History

Industrial Finance Corporation, as assignee of a deed of sale with chattel mortgage and the accompanying promissory note, filed a complaint for payment against the Young spouses before the then Court of First Instance of Rizal, sitting at Pasig. The spouses were initially declared in default, but the default order was later reconsidered and set aside, with the court expressly stating that the plaintiff's evidence stands. The case was subsequently transferred to Branch 135 of the Regional Trial Court of Makati, where it was docketed as a new civil case. On the second of September 1983, for the failure of the plaintiff and its counsel to appear despite due notice, the Makati court dismissed the complaint. The plaintiff received a copy of that order on the twentieth of September 1983 but filed no motion for reconsideration and took no appeal. Almost a year later, on the twenty-seventh of September 1984, the plaintiff filed a manifestation and motion asking that the dismissal be set aside and the case decided on the evidence it had earlier presented. The Makati court granted the motion, and on the third of May 1985 it rendered judgment in favor of the plaintiff. The spouses appealed to the Court of Appeals, which affirmed the trial court's decision in full. Their motion for reconsideration having been denied, the spouses came to the Supreme Court by petition for review.

Facts

The Young spouses bought a cargo truck on installment from Baroq Motor Sales, Incorporated, and executed a promissory note in its favor. The note, together with the deed of sale with chattel mortgage, was assigned to Industrial Finance Corporation, which later sued the spouses for the total amount that became due by reason of the note's acceleration clause, plus interest and attorney's fees.

The case passed through several courts and several settings. At one point the spouses were declared in default, and the plaintiff was allowed to present its evidence ex parte before a commissioner; it did so on the thirtieth of March 1982 and rested its case. The default order was later set aside, but the court expressly ruled that the plaintiff's evidence stands. When the case reached the Makati court, a notice styled as a notice of hearing and pre-trial conference set the case for the twenty-fourth of June 1983; because the third-party defendant was absent, the parties agreed to reset the pre-trial to the second of September 1983. On that date the plaintiff, its counsel, and the third-party defendant all failed to appear, and the court dismissed the complaint. The plaintiff received the order on the twentieth of September 1983 but neither moved for reconsideration nor appealed. Nearly a year later it moved to set aside the dismissal, and the trial court, after directing the stenographer to submit the transcripts of the earlier proceedings, rendered judgment against the spouses.

Issues

• Whether or not the order of the Makati court dated the second of September 1983 dismissing the complaint had become final and executory for the plaintiff's failure to move for reconsideration or to appeal within the reglementary period.
• Whether or not the trial court erred in setting aside that dismissal order and in rendering judgment on the basis of the evidence earlier presented.
• Whether or not the doctrine barring a second pre-trial applies where the parties themselves agreed to hold a new pre-trial after the lifting of a default or non-suit order.

Applicable Provisions

Section 2 of Rule 20 of the Rules of Court provides:

Section 2. Failure to appear at pre-trial conference. A party who fails to appear at a pre-trial conference may be non-suited or considered as in default.

This is the provision under which the trial court dismissed the complaint when the plaintiff failed to appear on the second of September 1983.

Section 3 of Rule 17 of the Rules of Court provides:

Section 3. Failure to prosecute. If plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable length of time, or to comply with these rules or any order of the court, the action may be dismissed upon motion of the defendant or upon the court's own motion. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise provided by court.

This is the provision on which the spouses relied in arguing that the dismissal had the effect of an adjudication on the merits and therefore became final.

Ruling

On the first issue, the Court held that the dismissal order was valid and therefore became final. The plaintiff received the order on the twentieth of September 1983, and under the law it had fifteen days, or until the fifth of October 1983, within which to move for reconsideration or to appeal. It did neither. A valid order, once the period lapses, becomes final and executory. The Court rejected the plaintiff's claim that the order was void and therefore never became final.

On the second issue, however, the Court held that the trial court did not err in setting the dismissal aside. The controlling doctrine comes from the Pioneer Insurance case and the Development Bank of the Philippines case: after a party has been non-suited or declared in default, the pre-trial stage is terminated, and the lifting of that order does not revert the action to the pre-trial stage nor authorize a second pre-trial. But the Court drew a distinction. Here, the parties themselves voluntarily agreed to reset the pre-trial to the second of September 1983, and the trial court yielded to that agreement. The Court explained that neither the Rules nor the doctrine bars the parties from agreeing, after the lifting of a default or non-suit order, to hold a pre-trial and to accomplish its objectives, which could not have been done at the first pre-trial because of the absence of a party. The necessity for a second pre-trial may have been felt because the defendant had a third-party complaint.

On the third issue, the Court held that this voluntary agreement brings the case out of the doctrine of the Pioneer and Development Bank cases and ingrafts an exception to it. The Court also noted that the plaintiff's explanation for its failure to prosecute, namely the occasional substitution of counsel and the transfer of the case from Pasig to Makati, was satisfactory.

Doctrine

A valid order of dismissal becomes final and executory upon the lapse of the reglementary period to move for reconsideration or to appeal, and it is the duty of the aggrieved party to take those steps within the period fixed by law.

The pre-trial stage of an action is terminated once a party is non-suited or declared in default, and the subsequent lifting of that order does not revert the action to the pre-trial stage nor authorize, much less render mandatory, a second pre-trial.

However, neither the Rules nor that doctrine bars the parties from agreeing, after the lifting of a default or non-suit order, to hold a new pre-trial and to accomplish its objectives. Such a voluntary agreement constitutes an exception to the rule against a second pre-trial.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, which had affirmed in full the judgment of the Makati trial court ordering the spouses to pay the plaintiff.

Remember This

The single line worth memorizing is this: a second pre-trial is not authorized by the Rules, but the parties may validly agree to hold one, and that agreement is an exception to the doctrine. Examiners like to use this case to test the distinction between a dismissal that has become final and a dismissal that is set aside by agreement, and to test the rule that the lifting of a default does not reopen the pre-trial stage.