NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, PETITIONER, VS. HON. COURT OF APPEALS, HON. NICOLAS GALING, PRESIDING JUDGE OF BRANCH 166, REGIONAL TRIAL COURT, NATIONAL CAPITA…

The first impression this
case creates is one of shock and
disgust that the National Investment and Development Corporation (or NIDC), a
large government financial institution serviced
by a staff of government lawyers, was declared in default and thereby lost the right to contest the private
respondents-debtors’ action to write off the balance of their multi-million
debt because NIDC’s lawyers were chronically
incapable of meeting reglementary deadlines and habitually addicted to filing motions for extension of time.  However,
the untold story, which has now
come to light, reveals that this case was filed at an extremely
difficult time for NIDC when it was in the throes of being dissolved – in articulo mortis so to speak.  As generally happens in such a situation,
with employees and officers separated from the service, and records bundled up
and shipped to the PNB office in Manila, the task of preparing a timely answer
to the complaint was rendered unusually difficult.  The problem of locating the records of the
Victoria Poultry Farm’s account was compounded by the fact that the employees
and officers who were familiar with the account had been retired from the
service.  This fortuitous circumstance
was completely ignored by the trial court and the Court of Appeals when they
declared NIDC in default for failure to comply strictly with the reglementary period for filing its answer.

In the middle of 1979, Victoria Farms, Inc. applied to NIDC for a
P6.6 million loan to finance its poultry breeder/hatchery project in San
Pablo City.  On December 20, 1979, NIDC granted the
borrower a P7 million loan in the form of U.S. dollars at a conversion rate of
P7.297 to US$1.00 to be amortized according to an amortization table prepared
by NIDC, plus a sub-loan of P2,060,000, at interest
rates of 6% and 12% per annum, respectively, payable up to August 1986
according to the amortization schedule. 
To secure the loans, the debtors executed and delivered to the
petitioner on February 18, 1980 a Deed of Mortgage, Credit Agreement, Joint and
Solidary Agreement, Deed of Assignment of Voting
Rights, a Pledge Agreement, and on September 29, 1981, a Deed of Supplemental Mortgage and consolidated
Amendment/Supplement to Security/Device Agreement which were renewed on
November 19, 1984 upon restructuring the loans.

On July 30,
1986, the debtors
paid NIDC a total of P17,640,445.51 which, according
to them, fully covered Victoria Farms’ obligations and totally extinguished its
debts.  However, as NIDC’s
books of account still carried an outstanding indebtedness of Victoria Farms,
the private respondents on November 11, 1986, demanded in writing from NIDC
that their mortgages and surety contracts in favor of NIDC be cancelled.  Since NIDC ignored their demand, they filed
against NIDC on November 24, 1986, a complaint for rescission of contract and
annulment of mortgage with damages in the
Regional Trial Court, Branch 166, at Pasig, Metro Manila (Civil Case No. 54086).

On November
28, 1986, NIDC was
served with summons and a copy of the complaint through Corazon Mabilangan, a clerk typist. 
The deadline for filing its answer was December 13, 1986.

On December
11, 1986, its
counsel filed by registered mail a motion for extension of fifteen (15) days
from December 13, 1986 or up to December
28, 1986, to file a
motion to quash the improper service of summons and/or to dismiss the
complaint.

On December
19, 1986, the trial
court granted the extension prayed for.

On December 29, 1986 (December 28, 1986 being a Sunday), NIDC’s counsel mailed a motion to dismiss dated December
24, 1986 alleging that the court had not acquired jurisdiction over the
corporation because the summons and complaint were not served through the
president, manager, secretary, cashier, agent or director of the corporation as
provided in Section 13, Rule 14 of the
Rules of Court.  The motion was received by the Court on January 5, 1987.  The plaintiffs-debtors opposed it.

On January 19, 1987, the Court denied the motion to dismiss and
directed the defendant to answer the complaint within ten (10) days from receipt of the order, contrary to Section 4, Rule 16
of the Rules of Court which gives the movant fifteen (15) days (from notice of the denial of
his motion to dismiss), to answer the complaint.  The
order was received by NIDC on January 26, 1987.

On February 5, 1987 (the
last day of the ten-day period), NIDC’s counsel asked
that he be given 30 days (instead
of 10) from January 26, 1987, or up
to February 25, 1987, to file
the answer because of his heavy volume of work.

Instead of 30 days, the court, in an order dated February 6,
1987, granted NIDC “a last
extension of fifteen (15) days from January 26,
1987″ (actually it was only
the reglementary period) or up to February 10, 1987, to file its answer.  In effect, the court unreasonably denied NIDC’s plea for a 15-day extension of time from the expiration of the reglementary period on February 10, 1987.  This
unexpected, irrational, and arbitrary action of the trial court completely
upset the defendant’s time schedule for filing its pleading, resulting in its
being improvidently declared in default.

Unaware of the court’s
February 6, 1987 order, NIDC’s counsel, Atty. Eduardo
D. Alfonso, Jr., “sought a second extension of time to file answer”
pleading his “difficulties in searching for the documents and other
papers” (p. 9, Rollo) of NIDC which had been
turned over to the PNB upon the dissolution of the corporation.  The court denied his motion on March 9,
1987.  In the same order, it granted the debtors’
“Urgent Ex Parte Motion
to Declare NIDC in Default,” and set the ex parte reception of the plaintiffs’ evidence on
March 16, 1987 at 8:30 A.M. and, on the basis of evidence presented ex parte by the plaintiffs-debtors on March 16, 1987,
a decision was rendered two days later (March 18, 1987), against NIDC as
follows:

“WHEREFORE, in view of the foregoing, judgment is hereby
rendered in favor of the plaintiffs and against the defendant, by:

“1. 
Declaring the indebtedness of the plaintiffs as extinguished,
fully paid, and satisfied by the
payment of P17,640,445.51;

“2. 
Directing defendant, its agent or principal to surrender
immediately to plaintiffs, through counsel, Transfer Certificate of Title No. T-19499, Registry of Deeds, San Pablo City,
covering Lot 3, of plan PSU-6215, with buildings and improvements that may
exist thereon; and directing the Register of Deeds of San Pablo City to cancel
immediately the mortgage or lien annotation over said TCT No. T-19499,
covering a parcel of land which has buildings and improvements existing
thereon, situated at Barrio San Rafael, San Pablo
City as found in the Deed of
Supplemental Mortgage (Exh. ‘UU’); and ordering the
release of the other properties of the plaintiffs and other Chattel Mortgage;

“3.  Declaring the Deed
of Mortgage, credit agreement, joint and solidary
agreement, deed of assignment of voting rights, a pledge agreement, all dated
February 18, 1980, and the deed of supplemental mortgage, and consolidated
[Amendment/Supplement] to security/device agreements of September 29, 1981, and
November 19, 1984 on the restructured loans, as null and void;

“4. 
Ordering defendant to pay plaintiffs the sum of P10,000.00 as
attorney’s fees;

“5.  Ordering defendant
to return immediately to plaintiffs the stock certificate of plaintiff
corporation bearing No. 003 with 70,000 shares in the name of Edward Howard G. Leong; stock certificate No. 004 in the name of Soledad M. Leong with 20,000 shares; stock certificate No. 005 in the name of Angelita
T. Alcantara with 20,000 shares; and stock
certificate No. 008 in the name of Edward Howard G. Leong
with 9,000 shares, which stock certificates were turned over to the defendant
on June 17, 1987; and

“6. 
Ordering defendant to pay the costs of suit.” (pp. 10-11, Rollo.)

NIDC’s counsel received the decision on March
23, 1987 (p. 50,
Record).

NIDC’s motion dated April 3, 1987 praying for reconsideration of the order of
default and of the court’s decision was filed by mail on April 8,
1987 (one day late)
and was denied by the court on April 29, 1987 for tardiness (p. 12, Rollo).  Before that, on April 24, 1987, NIDC filed a Motion for Leave to Admit its
Answer (with the Answer
attached) wherein it alleged the following defenses to the debtors’ action:

“1.  the contracts/mortgages
and security device agreements relative to the plaintiffs’ foreign currency
sub-loans are valid and legal; plaintiffs are estopped
to ask for rescission of said contracts after they had reaped benefits therefrom;

“2.  as stipulated in the
contracts, billings for the loan amortizations sent 30 days before due date
shall be subject to adjustment in the event of a change in the rate of exchange
between the Philippine peso and the U.S. dollar (par. 3.02);

“3.  the
rate of conversion per US$1 in 1979 when plaintiffs’ loan was granted by NIDC
was approximately P7.29 which rose to P18.32 when the loan was restructured in
July 1984, and P21 in 1986;

“4.  the
total foreign currency sub-loans granted by NIDC to plaintiff
corporation to finance a breeder farm and hatchery in San
Pablo City in 1975 and 1980 is US $1,218,015.05;

“5.  plaintiffs’ remittances
on their sub-loans were not sufficient to cover maturing amortizations due to
peso devaluation, thus when they requested for restructuring of their
indebtedness as of December 23, 1983 their total account with defendant was
P19.32M of which P11.16M was current and P8.16M past due;

“6.  NIDC
restructured the plaintiffs’ accounts at their own request; and

“7.  NIDC
has the right to recover its huge investment in plaintiff corporation and minimize government losses.” (pp. 64-71, Record.)

But the court did not act on NIDC’s
answer.  Instead, on July 13, 1987, it ordered the execution of its
decision, as prayed for by the debtors, Victoria Poultry Farms, Inc., et al.
(p. 84, Record).

NIDC promptly sought relief by a petition for certiorari
with preliminary injunction in the Court of Appeals which temporarily
restrained the execution of the trial court’s decision (CA-G.R. SP No. 12332).

However, on December
16, 1987, the Court
of Appeals denied NIDC’s petition for certiorari
for lack of merit, and lifted the restraining order which it had earlier issued (Annex A, p. 25, Rollo).

On January 19, 1988,
the Court of Appeals denied petitioner’s motion for reconsideration of the
decision (Annex B, p. 35, Rollo), hence, this
petition for review.

The only issue in this case is whether NIDC was given its day in
court before the default judgment was rendered against it.  After deliberating on the records of the
case, we are persuaded that it was a victim of an overspeeding
administration of justice by the
trial court which, with inordinate
haste, denied it due process of law which would have enabled it to present its
defenses to the plaintiffs’ action, foreclosed its right to prove the balance
of the plaintiffs’ indebtedness, and effectively extinguished its right to
collect the same.

A motion for extension of
the reglementary period for filing a pleading
is addressed to the sound discretion of the court.  Generally, a first motion for
extension, stating a valid ground therefor, is not
denied.  Considering that, in this case,
the defendant is a government financial institution which had granted a
multi-million-peso loan to the plaintiffs, that its records were disorganized
and its personnel had dispersed as a result of the dissolution of the
corporation (presumably from having extended too many bad loans), that its defense was
being handled by overworked government lawyers, and, that the Government stands
to lose a sizable chunk of the multi­-million-peso debt if only the debtors’
side were heard, the court should have been reasonably liberal, instead of
unduly strict, in dealing with NIDC’s motion for
extension of time to file its answer (Lina vs. CA,
135 SCRA 637; Roque vs. Gunigundo,
89 SCRA 178; Amante vs. Suñga,
64 SCRA 192).

We, therefore, hold that
the trial court acted with grave abuse of discretion resulting in the loss of NIDC’s right to answer and assert its defenses to the
complaint.  The court’s error in
computing the reglementary period for filing NIDC’s answer, and its arbitrariness in denying NIDC’s reasonable motion for extension of that period,
tainted all the proceedings, as well as the default judgment that followed thereafter.  NIDC’s
one-day-delay in seeking a reconsideration of the judgment is inconsequential
because the judgment is a nullity.

WHEREFORE, the petition for review is granted.  The decision of the Court of Appeals in
CA-G.R. SP No. 12332, the judgment by default and the order of execution issued
by the trial court in Civil Case No. 54086 are hereby annulled and set
aside.  The trial court is ordered to
admit the answer of NIDC and thereafter to conduct a pre-trial and trial on the
merits of the case in accordance with the Rules of Court.  Costs against the private
respondents.

SO ORDERED.

Narvasa, (Chairman), Cruz, Gancayco, and Medialdea, JJ., concur.