CONTINENTAL CEMENT CORPORATION, PETITIONER, VS. COURT OF APPEALS AND MUNICIPALITY OF NORZAGARAY, RESPONDENTS.

Continental Cement versus Court of Appeals and Municipality of Norzagaray

The Case

This is a petition for review filed by Continental Cement Corporation against the Court of Appeals and the Municipality of Norzagaray. The Municipality sued the company in the Regional Trial Court of Malolos, Bulacan, to recover taxes it claimed were owed by the company as a manufacturer and distributor of cement. The company never got to answer the complaint because the trial court declared it in default, and the Court of Appeals affirmed that judgment. The case matters far beyond the tax dispute itself. It is the Supreme Court's occasion to restate, in plain numbered rules, the interplay between a motion to dismiss and the period to file a responsive pleading, and to remind bench and bar of the value of keeping abreast of the doctrines announced by the Court in the interpretation of its Rules.

Procedural History

On the first of February 1985, the Municipality of Norzagaray filed a complaint for recovery of taxes against Continental Cement in the Regional Trial Court of Malolos, Bulacan. Before the fifteen-day reglementary period to answer expired, the company filed two successive motions for extension of time to file responsive pleadings, and both were granted. The last day of the second extension was the twenty-eighth of May 1985. On the twenty-fifth of May 1985, the company filed a motion to dismiss on the ground of the plaintiff's lack of capacity to sue and lack of a cause of action. The trial court denied the motion on the sixteenth of July 1985, both for lack of merit and for having been improperly filed. On the twenty-fifth of July 1985, the Municipality moved to declare the company in default for having filed only the motion to dismiss and not a responsive pleading. The trial court granted the motion on the second of August 1985, received the plaintiff's evidence ex parte, and rendered judgment in favor of the Municipality on the fourth of February 1986. The Court of Appeals affirmed the judgment in its decision dated the seventh of April 1989. The company then asked the Supreme Court for an extension of thirty days within which to file a petition, which was granted up to the twenty-third of July 1989, and the petition for review was filed. The Supreme Court decided the case in April 1990.

Facts

The Municipality of Norzagaray sued Continental Cement for recovery of taxes. The company asked for, and was granted, two extensions of time to file its responsive pleadings, the last of which expired on the twenty-eighth of May 1985. Three days before that deadline, on the twenty-fifth of May 1985, the company filed a motion to dismiss, invoking the plaintiff's lack of capacity to sue and lack of a cause of action.

The trial court denied the motion on the sixteenth of July 1985, and notice of the denial reached the company on the twenty-ninth of July 1985. Counting fifteen days from that notice, the company had until the thirteenth of August 1985 to file its answer. But on the second of August 1985, with eleven days still left in that period, the trial court declared the company in default on the Municipality's motion. The court then received the plaintiff's evidence ex parte and rendered judgment in its favor.

The company challenged the judgment before the Court of Appeals, which affirmed it. The company brought the matter to the Supreme Court, raising both the validity of the default and the timeliness of its petition, since the Municipality argued that the petition had been filed out of time because the motion for reconsideration before the Court of Appeals was pro forma and did not suspend the period to appeal.

Issues

• Whether or not the trial court properly declared the petitioner in default for filing a motion to dismiss instead of a responsive pleading within the extended period.
• Whether or not the petitioner was bound to first file a motion to set aside the default order before challenging the judgment by default on appeal.
• Whether or not the petition before the Supreme Court was filed out of time, the private respondent claiming that the motion for reconsideration was pro forma and did not suspend the reglementary period.
• Whether or not the case should be remanded to the trial court for a full trial on the merits of the tax issue.

Applicable Provisions

Section 1 of Rule 16 of the Rules of Court provides:

Within the time for pleading, a motion to dismiss the action may be made.

This provision is the anchor of the ruling, because it expressly allows a motion to dismiss to be filed within the time for pleading, which includes any extension granted by the court.

Section 4 of Rule 16 of the Rules of Court provides:

Time to plead. If the motion to dismiss is denied or if determination thereof is deferred, the movant shall file his answer within the period prescribed by Rule 11, computed from the time he received notice of the denial or deferment, unless the court provides a different period.

This provision fixes the period to answer after a denial, counted from notice of the denial, and it is the basis for holding that the default order came too early.

Ruling

On the first issue, the Court held that the default order was clearly erroneous and should not have been sustained on appeal. The motion to dismiss was filed seasonably, within the period of the second extension. While a motion to dismiss is not a responsive pleading, Section 1 of Rule 16 expressly permits it to be made within the time for pleading. And under Section 4 of Rule 16, if the motion is denied, the movant shall file his answer within the period prescribed by Rule 11, computed from the time he received notice of the denial. Notice of the denial was served on the petitioner on the twenty-ninth of July 1985, so it had fifteen days, or until the thirteenth of August 1985, to answer. The default order was issued on the second of August 1985, when the petitioner still had eleven days left. The Court reiterated its rulings in Barraza versus Campos, Mandac versus Gumarad, and Acosta-Ofalia versus Sundiam, and recapitulated the rules: the trial court may in its discretion extend the fifteen-day reglementary period; during the original period or any extension, the defendant may file a motion to dismiss; and if the motion is denied, the defendant is allowed another fifteen days from notice of the denial, the full period starting all over again.

On the second issue, the Court disagreed with the Court of Appeals that the petitioner should have first filed a motion to set aside the default order. The evidence that the default order was not served on the petitioner was not refuted. At any rate, the default order was a total nullity and produced no legal effect whatsoever because it was issued before the petitioner could file its answer, a clear violation of due process.

On the third issue, the Court held that the motion for reconsideration was not pro forma and did suspend the reglementary period. The very purpose of a motion for reconsideration is to point out findings and conclusions not supported by law or the evidence, and the movant is often confined to amplifying the same issues already passed upon. Hence the petition was timely.

On the fourth issue, the Court held that the substantive question of whether the Municipality may impose business taxes on the petitioner involves legal and factual considerations not fully examined because the petitioner was not given its day in court. A fair resolution requires a hearing where both parties may present their sides, and no less than full compliance with procedural due process will suffice. The case must therefore be remanded for a full trial on the merits.

Doctrine

A motion to dismiss is the usual, proper, and ordinary method of testing the legal sufficiency of a complaint, and it may be filed within the time for pleading, including any extension granted by the court. When the motion is denied, the defendant is allowed another fifteen days from notice of the denial to file the responsive pleading, and the full fifteen-day reglementary period starts all over again. A default order issued before the expiration of that period is a total nullity, a violation of due process, and so are the reception of evidence ex parte, the judgment by default, and the writ of execution predicated on it. A motion for reconsideration that confines itself to amplifying the same issues already passed upon is not pro forma and suspends the reglementary period of appeal. These rules are tied to Section 1 and Section 4 of Rule 16, which the Court quoted and applied.

Disposition

The Court set aside the decision of the Court of Appeals, the default order of the trial court, and the judgment by default, and remanded the case to the Regional Trial Court of Malolos, Bulacan, for further proceedings, with costs against the Municipality of Norzagaray.

Remember This

Memorize the three-step recapitulation: the court may extend the fifteen-day period; a motion to dismiss may be filed within the original period or any extension; and if the motion is denied, the full fifteen days starts all over again from notice of the denial. Examiners use this case to test the interplay of Rule 16 and Rule 11, the nullity of a premature default order, and the rule that a motion for reconsideration confined to the same issues is not pro forma.