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RULE 18 ₱2,962,500.00.

Such final demand


notwithstanding, petitioner LCK failed or refused
G.R. No. 170606 November 23, to pay its obligation.
2007
Consequently, respondent bank caused the
LCK INDUSTRIES INC., CHIKO LIM and extrajudicial foreclosure of the Baguio City
ELIZABETH T. LIM, Petitioners, property which was sold at the public auction for
vs. ₱2,625,000.00 as shown in the Certificate of
PLANTERS DEVELOPMENT Sale10 dated 29 January 1998. Since the
BANK, Respondent. proceeds of the foreclosed Baguio City property
were not enough to satisfy the entire loan
DECISION obligation which amounted to ₱2,962,500.00,
respondent bank further caused the extrajudicial
CHICO-NAZARIO, J.: foreclosure of the Quezon City property. As
evidenced by the Certificate of Sale11 dated 18
Before this Court is the Petition for Review March 1998, signed by Notary Public Atty. Allene
on Certiorari under Rule 45 of the Revised Rules Anigan (Atty. Anigan), the foreclosed Quezon
of Court filed by petitioners LCK Industries Inc. City property was sold at a public auction for
(LCK), Chiko Lim and Elizabeth Lim, seeking the ₱2,231,416.67. The respondent bank was the
reversal and the setting aside of the highest bidder on both occasions.
Decision1 dated 1 April 2005 and the
Resolution2 dated 29 November 2005 of the Prior to the auction sale of the Quezon City
Court of Appeals in CA-G.R. CV No. 73944. The property on 18 March 1998, petitioners, on 12
appellate court, in its assailed Decision and March 1998, filed with the RTC of Quezon City,
Resolution, reversed the Decision3 of the Branch 81, an action for Annulment of the
Regional Trial Court (RTC) of Quezon City, Foreclosure of Mortgage and Auction Sale of the
Branch 81, dated 3 September 2001, in Civil Quezon City property with Restraining
Case No. Q-98-33835, which found respondent Order/Preliminary Injunction and with Damages
Planters Development Bank (respondent bank) against respondent bank and Atty. Anigan.12 The
liable for the amount of ₱1,856,416.67, case was docketed as Civil Case No.
representing overpayment. Q-98-33835.

Petitioner LCK is a domestic corporation duly In their Complaint,13 petitioners alleged that
organized and existing as such under Philippine respondent bank failed to comply with the
laws.4 posting and publication requirements as well as
with the filing of the Petition for the Extrajudicial
Respondent bank is a banking institution duly Foreclosure of the Real Estate Mortgage with
authorized to engage in banking business under the Clerk of Court as required by Act No.
Philippine laws.5 3135.14 Petitioners prayed for the issuance of
temporary restraining order (TRO) in order to
On 1 September 1995, petitioner LCK obtained enjoin the respondent bank from conducting the
a loan from the respondent bank in the amount auction sale, and in the alternative, to enjoin the
of ₱3,000,000.00 as evidenced by two Registry of Deeds of Quezon City from
promissory notes.6 transferring the ownership of the Quezon City
property to the purchaser at the auction sale.
As a security for the loan obligation,
petitioners-spouses Chiko and Elizabeth Lim In its Answer with the Opposition to the Prayer
executed a Real Estate Mortgage over a parcel for the Issuance of Temporary Restraining Order
of land covered by Transfer Certificate of Title (TRO), respondent bank averred that it had fully
(TCT) No. T-138623, registered under their observed the posting and publication
names and located at Quezon City, with an area requirements of Act No. 3135. It insisted that the
of 68 square meters (Quezon City filing of the Petition for Extrajudicial Foreclosure
property).7 Later on, to secure the same of the Mortgage Property with the Notary Public
obligation, another Real Estate Mortgage was was sanctioned by the same statute.
executed over another parcel of land covered by Respondent bank thus prayed for the dismissal
TCT No. T-62773, also registered under the of petitioners’ complaint for lack of merit.15
names of the petitioner-spouses, with an area of
71 square meters located at Baguio City (Baguio For failure of the counsels for both petitioners
City property).8 and respondent bank to appear in the scheduled
hearing for the issuance of temporary restraining
Subsequently, petitioner LCK incurred default in order, the RTC, in an Order dated 15 May 1998,
its payment; thus, making the obligation due and deemed the prayer for TRO abandoned.16
demandable. Several demands were thereafter
made by the respondent bank to no avail.9 On 13 Thereafter, the RTC conducted a pre-trial
October 1997, a final letter-demand was sent by conference. In the Pre-Trial Order17 dated 8
respondent bank to petitioner LCK asking for the September 2000, the parties made the following
payment of its obligation in the amount of admissions and stipulations:
(1) the real estate mortgage executed by the In their Memorandum,20 petitioners, aside from
plaintiffs in favor of the defendant bank covers reiterating issues previously raised in their
the loan obligation in the total amount of Complaint, further claimed that there was an
₱3,000,000.00; overpayment of the loan obligation by
₱1,856,416.67. As shown in the letter-demand
(2) there were two promissory notes executed by dated 13 October 1997 received by petitioner
the plaintiffs: one for ₱2,700,000.00 and another LCK, its outstanding loan obligation amounted to
for ₱300,000.00; ₱2,962,500.00. The Baguio City property was
purchased by respondent bank at the public
(3) a demand letter dated 13 October 1997 was auction for ₱2,625,000.00, while the Quezon
sent to petitioner LCK by respondent bank City property was purchased for ₱2,231,416.67.
stating that the remaining balance of petitioner
LCK’s loan obligation was ₱2,962,500.00 as of For its part, respondent bank maintained in its
13 October 1997; Memorandum21 that the complaint filed by
petitioners is devoid of merit. It further
(4) a Notice of Auction Sale by Notary Public asseverated that petitioners’ claim for
was made by the respondent bank in foreclosing overpayment was not among the issues
the Baguio City property, and in the Certificate of submitted for the resolution of the RTC. It is clear
Sale issued by the Notary Public, the respondent from the Pre-Trial Order that the issues to be
bank bid ₱2,625,000.00 for the property; resolved are limited to whether the petition for
the foreclosure of the real estate mortgage was
(5) the respondent bank also foreclosed the real filed before the Clerk of Court and whether or not
estate mortgage over the petitioners’ Quezon the extrajudicial foreclosure of real estate
City property on 18 March 1998 and said mortgage was made by the respondent bank in
defendant bank bid ₱2,231,416.67 for the accordance with the provisions of Act No. 3135.
property; For failure of petitioners to promptly raise the
alleged overpayment, the RTC is now barred
(6) the foreclosure of petitioners’ Quezon City from adjudicating this issue.
property was made by a notary public;
On 3 September 2001, the RTC rendered its
(7) the petition for foreclosure was not included Decision22 declaring the foreclosure and the
in the raffle of judicial notice; auction sale of the Quezon City property legal
and valid, but ordered respondent bank to return
(8) the petitioners failed to fully pay their loan the overpayment made by petitioners in the
obligation as of 13 October 1997 in the amount amount of ₱1,856,416.67. The dispositive
of ₱962,500.00; and portion of the RTC Decision reads:

(9) despite the demands, petitioners failed to pay WHEREFORE, premises considered, judgment
their due obligations. is hereby rendered as follows:

The court further defined the issues as follows: 1. Declaring the extra-judicial foreclosure and
auction sale of the Quezon City property of
(1) whether or not the petition was filed with the plaintiffs LCK Industries, Inc., Chiko Lim and
Office of the Clerk of Court; Elizabeth Lim subject of this case legal and valid;

(2) whether or not the extra-judicial foreclosure 2. Ordering defendant Planters Development
of real estate mortgage by defendant bank was Bank to pay to plaintiffs the amount of
made in accordance with the provisions of Act ₱1,856,416.67 representing overpayment;
3135, as amended; and
3. Dismissing plaintiffs’ claim for attorney’s fees
(3) whether or not the parties are entitled to their and other litigation expenses;
respective claims for attorney’s fees and
damages.18 4. Dismissing the case against defendant Atty.
Allene M. Anigan; and
The parties were given 15 days from receipt of
the Pre-Trial Order to make amendments or 5. Dismissing the counterclaims of defendants
corrections thereon. Planters Development Bank and Atty. Arlene M.
Anigan.23
On 18 April 2001, the parties agreed to submit
the case for the decision of the RTC based on For lack of merit, the Motion for Reconsideration
the stipulations and admissions made at the filed by the respondent bank was denied by the
pre-trial conference. The parties further RTC in its Order dated 3 December 2001.24
manifested that they were waiving their
respective claims for attorney’s fees. On the Aggrieved, respondent bank elevated the matter
same day, the RTC required the parties to to the Court of Appeals by assailing the portion
submit their respective memoranda.19 of the RTC Decision ordering it to pay petitioners
the amount of ₱1,856,416.67 representing the
alleged overpayment. The respondent bank’s the matter in consonance with the primordial
appeal was docketed as CA-G.R. CV No. purpose of the pre-trial conference which is to
73944.25 delineate the issues necessary for the
disposition of the case. 32
On 1 April 2005, the Court of Appeals granted
the appeal of the respondent bank and partially The conduct of pre-trial in civil actions has been
reversed the RTC Decision insofar as it ordered mandatory as early as 1 January 1964 upon the
respondent bank to pay the overpaid amount of effectivity of the Revised Rules of
₱1,856,416.67 to petitioners. In deleting the 33
Court. Pre-trial is a procedural device intended
award of overpayment, the appellate court to clarify and limit the basic issues between the
emphasized that the primary purpose of pre-trial parties34 and to take the trial of cases out of the
is to make certain that all issues necessary for realm of surprise and maneuvering.35
the disposition of the case are properly raised in
order to prevent the element of surprise. Since Pre-trial is an answer to the clarion call for the
the alleged overpayment was only raised by the speedy disposition of cases. Hailed as the most
petitioners long after the pre-trial conference, the important procedural innovation in Anglo-Saxon
court a quo cannot dispose of such issue without justice in the nineteenth century,36 pre-trial is a
depriving the respondent bank of its right to due device intended to clarify and limit the basic
process.26 issues between the parties.37 It thus paves the
way for a less cluttered trial and resolution of the
The Motion for Reconsideration filed by case.38 Pre-trial seeks to achieve the following:
petitioners was denied by the Court of Appeals
in its Resolution27 dated 29 November 2005. (a) The possibility of an amicable settlement or
of a submission to alternative modes of dispute
Petitioners are now before this Court via a resolution;
Petition for Review on Certiorari,28 under Rule
45 of the Revised Rules of Court, assailing the (b) The simplification of the issues;
Court of Appeals Decision and raising the
following issues as grounds: (c) The necessity or desirability of amendments
to the pleadings;
I.
(d) The possibility of obtaining stipulations or
WHETHER OR NOT THE EXCESS AMOUNT admissions of facts and of documents to avoid
OF ₱1,893,916.67 WHICH THE RESPONDENT unnecessary proof;
BANK ACQUIRED FROM THE AUCTION SALE
OF THE PETITIONERS’ PROPERTIES SHALL (e) The limitation of the number of witnesses;
BE RETURNED TO THEM.
(f) The advisability of a preliminary reference of
II. issues to a commissioner;

WHETHER OR NOT THE ISSUE OF (g) The propriety of rendering judgment on the
OVERPAYMENT WAS RAISED BY THE pleadings, or summary judgment, or of
PARTIES AND INCLUDED IN THE PRE-TRIAL dismissing the action should a valid ground
ORDER.29 therefor be found to exist;

The petition centers on the claim propounded by (h) The advisability or necessity of suspending
petitioners that there was an overpayment of the the proceedings; and
loan obligation in the amount of ₱1,856,416.67.
Petitioners insist they are entitled to the (i) Such other matters as may aid in the prompt
reimbursement of the overpaid amount invoking disposition of the action.39
the elementary principle of in rem verso30 in
human relations and the rule on the disposition The purpose of entering into a stipulation of facts
of the proceeds of the sale providing that the is to expedite trial and to relieve the parties and
balance or the residue after deducting the cost of the court as well of the costs of proving facts
the sale and the payment of the mortgage debt which will not be disputed on trial and the truth of
due, shall be paid to the junior encumbrancers, which can be ascertained by reasonable inquiry.
and in the absence of junior encumbrancers, to Its main objective is to simplify, abbreviate and
the mortgagor or his duly authorized expedite the trial, or totally dispense with it.40
representative.31
The parties themselves or their representative
On the other hand, respondent bank counters with written authority from them are required to
that the question of overpayment, not being attend in order to arrive at a possible amicable
included in the issues stipulated in Pre-Trial settlement, to submit to alternative modes of
Order dated 8 September 2000, and totally dispute resolution, and to enter into stipulations
unrelated therein, cannot be considered by the or admissions of facts and documents. All of the
RTC. The belated ventilation of the alleged matters taken up during the pre-trial, including
overpayment precluded the RTC from ruling on the stipulation of facts and the admissions made
by the parties, are required to be recorded in a or may be taken up during the trial. Issues that
pre-trial order.41 are impliedly included therein or may be
inferable therefrom by necessary implication are
Thus, Section 7, Rule 18 of the Revised Rules of as much integral parts of the pre-trial order as
Court provides: those that are expressly stipulated.

SEC. 7. Record of pre-trial. – The proceedings in In fact, it would be absurd and inexplicable for
the pre-trial shall be recorded. Upon the the respondent company to knowingly disregard
termination thereof, the court shall issue an or deliberately abandon the issue of
order which shall recite in detail the matters non-payment of the premium on the policy
taken up in the conference, the action taken considering that it is the very core of its defense.
thereon, the amendments allowed to the Correspondingly, We cannot but perceive here
pleadings, and the agreements or admissions an undesirable resort to technicalities to evade
made by the parties as to any of the matters an issue determinative of a defense duly averred.
considered. Should the action proceed to trial, (Emphasis supplied).
the order shall explicitly define and limit the
issues to be tried. The contents of the order shall The case at bar falls under this particular
control the subsequent course of the action, exception. Upon scrupulous examination of the
unless modified before trial to prevent manifest Pre-Trial Order dated 8 September 2000, it can
injustice. be deduced that the parties stipulated that the
remaining sum of petitioner LCK’s obligation as
In the Pre-Trial Order dated 8 September 2000, of 13 October 1997 was ₱2,962,500.00. In the
the RTC defined the issues as follows: (1) same Pre-Trial Order, the parties likewise
whether or not the petition was filed with the stipulated that the Baguio City property was sold
Office of the Clerk of Court; (2) whether or not at the public auction for ₱2,625,000.00 and the
the extrajudicial foreclosure of real estate Quezon City property for ₱2,231,416.67. On
mortgage by defendant bank was made in both occasions, respondent bank emerged as
accordance with the provisions of Act No. 3135; the highest bidder. By applying simple
and (3) whether or not the parties are entitled to mathematical operation, the mortgaged
their respective claims for attorney’s fees and properties were purchased by the respondent at
damages. the public auctions for ₱4,856,416.67; thus, after
deducting therefrom the balance of petitioner
Based on the admissions and stipulations during LCK’s obligation in the amount of ₱2,962,500.00,
the pre-trial conference and the issues defined an excess in the sum of ₱1,893,916.67 remains.
by the court a quo as embodied in the Pre-Trial
Order, the parties agreed to submit the case for Needless to say, the fact of overpayment,
the resolution of the RTC. Both petitioners and though not expressly included in the issues
respondent also manifested that they would raised in the Pre-Trial Order dated 8 September
forego their respective claims for attorney’s fees, 2000, can be evidently inferred from the
leaving solely the issue of the validity of the stipulations and admissions made by the parties
foreclosure of mortgage and auction sale for the therein. Even only upon plain reading of the said
RTC’s disposition. However, in petitioners’ Pre-Trial Order, it can be readily discerned that
Memorandum filed after the case was submitted there was an overpayment.
for resolution, petitioners raised the question of
overpayment, a new issue that was included The pertinent provisions of the Revised Rules of
neither in their Complaint nor in the issues Court on extrajudicial foreclosure sale provide:
defined in the Pre-Trial Order issued by the RTC.
Rule 39. SEC. 21. Judgment obligee as
Generally, pre-trial is primarily intended to make purchaser. – When the purchaser is the
certain that all issues necessary to the judgment obligee, and no third-party claim has
disposition of a case are properly raised. Thus, been filed, he need not pay the amount of the bid
to obviate the element of surprise, parties are if it does not exceed the amount of the judgment.
expected to disclose at the pre-trial conference If it does, he shall pay only the excess.
all issues of law and fact they intend to raise at
the trial.42 However, in cases in which the issue Rule 68. SEC. 4. Disposition of proceeds of
may involve privileged or impeaching sale.- The amount realized from the foreclosure
43
matters, or if the issues are impliedly included sale of the mortgaged property shall, after
therein or may be inferable therefrom by deducting the costs of the sale, be paid to the
necessary implication to be integral parts of the person foreclosing the mortgage, and when
pre-trial order as much as those that are there shall be any balance or residue, after
expressly stipulated, the general rule will not paying off the mortgage debt due, the same shall
apply.44 Thus, in Velasco v. Apostol,45 this Court be paid to junior encumbrancers in the order of
highlighted the aforesaid exception and ruled in their priority, to be ascertained by the court, or if
this wise: there be no such encumbrancers or there be a
balance or residue after payment to them, then
A pre-trial order is not meant to be a detailed to the mortgagor or his duly authorized agent, or
catalogue of each and every issue that is to be to the person entitled to it. (Emphasis supplied.)
The renowned jurist Florenz Regalado, in Sulit v. We have held that there is unjust enrichment
Court of Appeals,46 underscored the obligation of when a person unjustly retains a benefit to the
the mortgagee with respect to the surplus money loss of another, or when a person retains the
resulting from a foreclosure sale of the money or property of another against the
mortgaged property: fundamental principles of justice, equity and
good conscience.48
The application of the proceeds from the sale of
the mortgaged property to the mortgagor’s Equity, as the complement of legal jurisdiction,
obligation is an act of payment, not payment by seeks to reach and complete justice where
dation; hence, it is the mortgagee’s duty to return courts of law, through the inflexibility of their
any surplus in the selling price to the rules and want of power to adapt their judgments
mortgagor. Perforce, a mortgagee who to the special circumstances of cases, are
exercises the power of sale contained in a incompetent to do so. Equity regards the spirit
mortgage is considered a custodian of the fund, and not the letter, the intent and not the form, the
and, being bound to apply it properly, is liable to substance rather than the circumstance, as it is
the persons entitled thereto if he fails to do variously expressed by different courts.49
so. And even though the mortgagee is not strictly
considered a trustee in a purely equitable sense, It is the policy of the Court to afford party-litigants
but as far as concerns the unconsumed balance, the amplest opportunity to enable them to have
the mortgagee is deemed a trustee for the their cases justly determined, free from
mortgagor or owner of the equity of constraints of technicalities. Since the rules of
redemption.1âwphi1 procedures are mere tools designed to facilitate
the attainment of justice, it is well recognized that
Commenting on the theory that a mortgagee, this Court is empowered to suspend its operation,
when he sells under a power, cannot be or except a particular case from its operation,
considered otherwise than as a trustee, the when the rigid application thereof tends to
vice-chancellor in Robertson v. Norris (1 Giff. frustrate rather promote the ends of justice.50
421) observed: "That expression is to be
understood in this sense: that with the power Court litigations are primarily for search of truth,
being given to enable him to recover the and a liberal interpretation of the rules by which
mortgage money, the court requires that he shall both parties are given the fullest opportunity to
exercise the power of sale in a provident way, adduce proofs is the best way to ferret such truth.
with a due regard to the rights and interests of The dispensation of justice and vindication of
the mortgagor in the surplus money to be legitimate grievances should not be barred by
produced by the sale. (Emphasis supplied.) technicalities.51

Petitioner LCK’s obligation with the respondent Given the foregoing discussion, this Court finds
bank was already fully satisfied after the the respondent bank liable not only for retaining
mortgaged properties were sold at the public the excess of the bid price or the surplus money
auction for more than the amount of petitioner in the sum of ₱1,893,916.67, but also for paying
LCK’s remaining debt with the respondent bank. the interest thereon at the rate of 6% per annum
As the custodian of the proceeds from the from the time of the filing of the complaint until
foreclosure sale, respondent bank has no legal finality of judgment. Once the judgment becomes
right whatsoever to retain the excess of the bid final and executory, the interest of 12% per
price in the sum of ₱1,893,916.67, and is under annum, should be imposed, to be computed
clear obligation to return the same to petitioners. from the time the judgment becomes final and
executory until fully satisfied.52
In any case, this Court would not allow
respondent bank to hide behind the cloak of WHEREFORE, premises considered, the instant
procedural technicalities in order to evade its Petition is GRANTED. The Court of Appeals
obligation to return the excess of the bid price, Decision dated 1 April 2005 and its Resolution
for such an act constitutes a violation of the dated 29 November 2005 in CA-G.R. CV No.
elementary principle of unjust enrichment in 73944 are hereby REVERSED. Respondent
human relations. Planters Development Bank is ORDERED to
return to the petitioners LCK Industries Inc.,
Under the principle of unjust enrichment - nemo Chiko Lim and Elizabeth Lim, the sum of
cum alterius detrimento locupletari potest - no ₱1,893,916.67 with interest computed at 6% per
person shall be allowed to enrich himself unjustly annum from the time of the filing of the complaint
at the expense of others.47 This principle of until its full payment before finality of judgment.
equity has been enshrined in our Civil Code, Thereafter, if the amount adjudged remains
Article 22 of which provides: unpaid, the interest rate shall be 12% per annum
computed from the time the judgment became
Art. 22. Every person who through an act of final and executory until fully satisfied. Costs
performance by another, or any other means, against respondent Planters Development Bank.
acquires or comes into possession of something
at the expense of the latter without just or legal SO ORDERED.
ground, shall return the same to him.
G.R. No. 103185 January 22, 1993 On November 27, 1981, defendant Arca filed a
Motion to Dismiss which necessitated the filing
CONRADO CALALANG, petitioner, of various pleadings in relation thereto by
vs. respondent bank herein, and defendant Arca.
THE COURT OF APPEALS and FILIPINAS
MANUFACTURERS BANK, respondents. On May 25, 1983, a hearing was scheduled
under Judge Florentino Dela Peña of the Makati
Fernando C. Conjuanco for petitioner. Regional Trial Court, Branch 134. But then, the
case was transferred to the Makati Regional
Crisostomo J. Danguila for private respondent. Trial Court, Branch 150, presided over by Judge
Benigno M. Puno who, on August 8, 1985,
issued an Order to wit:

CAMPOS, JR., J.: After a careful and thorough study of the


defendant Calalang's (petitioner herein) motion
This is a petition for review on certiorari seeking to dismiss, dated May 31, 1980 and the Counter
to annul the Manifestation and motion to dismiss dated
decision ** of the Court of Appeals which set November 25, 1981, filed by defendant Arca,
aside the order of dismissal issued by the lower together with the plaintiff's opposition, defendant
court, *** in Civil Case No. 36907 entitled movants' replies or rejoinder, the Court finds that
"Filipinas Manufacturers Bank, plaintiff, versus the matters relied upon by said movants for the
Hugo Arca, Conrado Calalang, Rio Arturo R. dismissal of the Complaint are evidentiary in
Salceda and Acropolis Trading Corporation, character, the truth or veracity of which are
defendants". better determined at the hearing on the merits
and, therefore, said motions are DENIED for lack
The antecedent facts, as culled from the records, of merit.
are as follows:
WHEREFORE, defendants are hereby ordered
On April 29, 1980, respondent Filipinas to file their answers to the Complaint within the
Manufacturers Bank filed a complaint for reglementary period.
collection of a sum of money1against petitioner
Conrado Calalang and 3 other defendants SO ORDERED.2
namely, Hugo M. Arca, Rio Arturo Salceda and
the Acropolis Trading Corporation with the Court On October 3, 1986, Gella Reyes Vergara Alcala
of First Instance of Rizal, 7th Judicial District, and Associates entered its appearance as
Branch 36, Makati under Judge Segundo M. counsel for respondent bank.
Zosa.
On October 30, 1985, defendant Arca filed his
Petitioner, after having been served with answer with compulsory counterclaim to the
summons on May 19, 1980, filed a Motion to complaint which was received by respondent
Dismiss on June 2, 1980. The other summoned bank 's former counsel, Emerito M. Salva and
defendant, Hugo M. Arca, filed a Motion for Bill Associates on November 4, 1985.
of Particulars on June 5, 1980. The two other
defendants namely, the Acropolis Trading It appears that this case has been set several
Corporation and Rio Arturo Salceda were also times for pre-trial (November 29, 1985, January
summoned but only a clerk-employee of the 29, 1986, May 12,1986, November 19, 1986,
Acropolis Trading Corporation received the January 14, 1987 and February 27, 1987). For
summons while Arturo R. Salceda was no longer the first two scheduled hearings, respondent
residing at his given address. bank's counsel failed to appear causing the
dismissal without prejudice of the case which
Over a year after, the Motion for Bill of was nevertheless set aside upon respondent
Particulars was granted on August 24, 1981 by bank's motion for reconsideration of the
Judge Zosa. Meanwhile, the Motion to Dismiss dismissal. The November 19, 1986 hearing was
filed by petitioner Calalang was left unresolved. transferred to January 14, 1987 upon agreement
The last pleading filed regarding the Motion to by both counsels. For the last two scheduled
Dismiss was the reply of petitioner Calalang to dates counsel for the defendant Hugo Arca failed
the opposition to the motion to dismiss by to appear.
respondent bank which was filed on August 5,
1980. Judge Benigno M. Puno was replaced by Judge
Federico Y. Alikpala, Jr. as the presiding judge of
On August 10, 1981, Batas Pambansa Blg. 129 the Makati Regional Trial Court, Branch 150 who,
(The Judiciary Reorganization Act) was passed on March 6, 1987, issued an Order, quoted
by the Batasang Pambansa and subsequently hereunder as follows:
approved by then President Marcos on August
14, 1981. The records of this case show that among the
defendants herein are: (a) Rio Arturo R. Salceda;
and (b) Acropolis Trading Corporation. The
Sheriff's Return, dated June 4, 1980 (Records 2. Pursuant to this, counsel has requested the
Page 33) show the following report on the Credit Investigation Department of plaintiff to
service of summons thereto: verify the correct address of said defendants
including all necessary facts for the proper
As to defendant Acropolis Trading Corporation: service of summons on them;
"Served upon the defendant thru Miss BETH
REYES, Clerk-employee, employed thereat, who 3. Upon verification, plaintiff will then move for
signed for the receipt thereof. the issuance of Alias Summons on the said
defendants.5
As to defendant Rio Arturo Salceda: "Not serve
(sic), defendant is not residing at the given Thereafter, on March 24, 1987, petitioner
address, occupant is Leonito Acuron. Calalang moved to dismiss the complaint on the
ground that respondent bank failed to prosecute
The Court hereby informs the plaintiff that it shall the case for an unreasonable length of time.6
not consider defendant Acropolis Trading
Corporation as having been properly brought On April 3, 1987, the trial court issued another
under the jurisdiction of this Court in view of the Order, to wit:
improper service of summons on said
corporation (Sec. 13 of Rule 14, Revised Rules Before this Court is plaintiff's "Manifestation"
of Court). filed on March 18, 1987 stating that plaintiff is
interested in prosecuting its complaint against
In view of the foregoing, plaintiff is hereby defendants Acropolis Trading and Rio Arturo R.
directed to inform the Court, within ten (10) days Salceda; this manifestation was made as a
from its receipt hereof, what steps plaintiff consequence of the directives set out in the
intends to take with respect to the said two second paragraph of the Order dated March 6,
defendants so that the Court will know whether 1987.
plaintiff is still interested in the prosecution
and/or outcome of this case. Since the Court cannot let an unreasonable
period pass for plaintiff to cause service of alias
With respect to defendants Conrado T. Calalang, summons on the aforesaid defendants, the
the latter had filed a motion to dismiss which, Court hereby resolves that if plaintiff shall still be
however, was denied by the Court per Order unable to cause service of alias summons on the
dated August 8, 1985. The records of this case said defendants within thirty (30) days from
do not, however, show whether a copy of the plaintiff's receipts hereof, then this Court will
said Order was transmitted to, or received by, dismiss the complaint as against said
counsel for the said defendant. In any event, defendants and proceedings herein shall be
said defendant had not filed any motion for the limited to the defendants on whom summons
reconsideration of the said Order, nor had said had been served as of the lapse of said 30-days'
defendant filed his answer in this case. Let, period.7
therefore, a copy of the Order dated August 8,
1985 be sent to the defendant Conrado T. Thereafter, on May 8, 1987, respondent bank
Calalang, through his counsel of record, Attys. moved for the issuance of alias summons on
N.J. Quisumbing & Associates of the Lawyers' defendant Acropolis Trading Corporation
Inn. through its President/Director Conrado T.
Calalang or through its director Hugo M. Arca.8
Inasmuch as it would appear that the setting of
this case for pre-trial was premature, since Judge Zosimo Z. Angeles of the Makati Regional
issues herein do not appear to have been really Trial Court, Branch 58, to whom the case was
joined, the pre-trial conference scheduled in this assigned after Judge Federico Y. Alikpala, Jr.,
case for April 8, 1987 is cancelled until further then issued an Order, dated July 16, 1987,
assignment or until any of the parties herein shall denying the Motion to Dismiss filed by petitioner
make the appropriate steps in connection for lack of merit. The motion for alias summons
therewith. was granted. Entry of appearance of Atty.
Crisostomo J. Danguilan as counsel for
xxx xxx xxx3 respondent bank was noted in the same order.9

The above Order was received by petitioner's Petitioner then filed his answer only on
counsel on March 13, 1987.4 November 10, 1987.10

On March 17, 1987, respondent bank, in On November 16, 1987, the trial court issued an
response to the Order dated March 6, 1987, filed Order setting the
a manifestation stating that: pre-trial of the case for January 7, 1988 at 8:30
a.m.11
1. It is very much interested in prosecuting the
complaint against the defendants Acropolis At the pre-trial conference, respondent bank's
Trading and Salceda; counsel arrived 15 minutes late or at 8:45 a.m..
However, the case had already been dismissed.
Thus, in the Order of January 7, 1988, the court among the answering defendants. However,
declared: though it is within the discretion of the trial court
to declare a party non-suited for
For failure of plaintiff's counsel to appear inspite non-appearance in the pre-trial conference, such
of notice and considering that this case has been discretion must not be abused. The precipitate
pending for seven (7) years, without plaintiff haste of the lower court in declaring the
having taken positive steps to prosecute the respondent bank non-suited was uncalled for
same, it is hereby DISMISSED pursuant to and deserved a second look. Considering the
Section 3, Rule 17, Rules of Court. Defendants' fact that the counsel for the plaintiff/respondent
counterclaim is likewise dismissed.12 bank did arrive for the pre-trial conference,
though a bit late and that counsel for the
On January 12, 1988, counsel for the defendant was himself also late, the trial court
respondent bank filed a Motion for should have called the case again. An
Reconsideration of the order of dismissal citing admonition to both counsels to be more prompt
as reason for his late arrival "the unusually in appearing before the Court as scheduled
heavy traffic he encountered along Kamias Road would have sufficed, instead of having dismissed
in Quezon City, which was caused by a stalled the complaint outright.
jeepney along the main thoroughfare."13 The
motion was denied on January 26, 1988. The Unless a party's conduct is so negligent,
respondent bank appealed the dismissal to the irresponsible, contumacious, or dilatory as to
respondent Court. On October 25, 1991, the provide substantial grounds for dismissal for
respondent Court promulgated the assailed non-appearance, the courts should consider
decision, the dispositive portion of which is lesser sanctions which would still amount into
quoted hereunder: achieving the desired end.16

WHEREFORE, the Order of the court a Inconsiderate dismissals, even if without


quo dated January 9, 1988 dismissing this case prejudice, do not constitute a panacea nor a
and its Order dated January 26, 1988 denying solution to the congestion of court dockets; while
reconsideration of the first order are hereby SET they lend a deceptive aura of efficiency to
ASIDE, and this case is ordered remanded to the records of individual judges, they merely
court of origin for further proceedings. postpone the ultimate reckoning between the
parties. In the absence of clear lack of merit or
No pronouncement as to costs. intention to delay, justice is better served by a
brief continuance, trial on the merits, and final
SO ORDERED.14 disposition of the cases before the court.17

The petitioner's Motion for Reconsideration And there is authority that an order dismissing a
having been denied by the Court of Appeals, he plaintiff's complaint without prejudice for failure
filed this instant petition with this Court alleging of his counsel to appear at a pre-trial conference
that the respondent Court erred in: must be reversed as too severe a sanction to
visit on a litigant where the record is devoid of
1.) absolving respondent bank for the delay in evidence reflecting the litigant's willful or flagrant
the pursuit of the case; disregard for the Court's authority.18

2.) declaring the January 7, 1988 pre-trial as Petitioner's contention that the respondent Court
premature; erred in absolving respondent bank for the delay
in the resolution of this case, maintaining that
3.) holding that respondent bank "did not entirely "the case was dismissed out of its inordinate
fail to appear; refusal to heed the warnings of the court", is not
borne out by the records of this case. The
4.) invoking the liberal application of the rules of seven-year delay is not attributable to the
procedure in favor of the respondent bank; respondent bank alone but to circumstances
beyond its control. The respondent Court found
5.) not having found abuse in the dismissal by that:
the lower court of the case at bar, there is no
basis for the respondent court to reverse the While it is true that the case had been pending
order of dismissal. for that length of time we find that the delay is not
to be attributed entirely to the plaintiff in this case.
The pre-trial conference scheduled for January 8, The records show that various incidents were
1987 was not premature. A pre-trial cannot raised by the defendants Calalang and Arca who
validly be held until the last pleading has been filed separate pleadings and were represented
filed, which last pleading may be the plaintiff's by different counsels.
reply, except where the period to file the last
pleading has lapsed.15 The period to appear and Calalang filed a motion for the dismissal of the
file the necessary pleading having expired on the case on the ground that the plaintiff had no
Acropolis Trading Corporation, the lower court cause of action against him. This necessitated
can direct that a pre-trial conference be held the filing of an opposition from the plaintiff, a
reply to said opposition from the defendant case, but such delay, We hold, is not the delay
Calalang, and a rejoinder to the said reply. The warranting dismissal. To be a sufficient ground
defendant Arca, on the other hand, initially for dismissal, delay must not only be lengthy but
sought an extension of time to file a responsive also unnecessary and dilatory resulting in the
pleading, then filed a motion for a bill of trifling of judicial processes.
particulars, then later also a motion to dismiss
the case. After his motion to dismiss was denied In Marahay vs. Melicor,21 the Court set forth the
Arca filed a motion for reconsideration. In all test for dismissal of a case due to failure to
these incidents pleadings and counter-pleadings prosecute, to wit:
were filed and hearings held on the motions,
which resulted in the case dragging on for a While a court can dismiss a case on the ground
considerable time. of non prosequitur, the real test for the exercise
of such power is whether, under the
The case was set for pre-trial several times when, circumstances, plaintiff is chargeable with want
as aforestated, the issues were not yet joined for of due diligence in failing to proceed with
only Arca had initially filed his answer to the reasonable promptitude. In the absence of a
complaint. The case was ordered dismissed at pattern or scheme to delay the disposition of the
least two (2) times when the plaintiff's counsel case or a wanton failure to observe the
failed to appear at these pre-trials but the mandatory requirement of the rules on the part of
dismissals were reconsidered and the class set the plaintiff, as in the case at bar, courts should
anew. decide to dispense with rather than wield their
authority to dismiss.
Another factor that contributed to the confusion
in the proceedings and the delay in the case is Dismissal of a case for failure to prosecute is a
the fact that the case was assigned from one matter addressed to the sound discretion of the
judge to another due probably to the judicial court. That discretion, however, must not be
reorganization that took place. The records show abused. Thus, courts may not enter a dismissal
that there were no less than four (4) judges who which is not warranted by the circumstances of
handled the case — Judges Segundo Zosa, the case.22 The availability of this recourse must
Benigno M. Puno, Federico Alikpala, Jr., and be determined according to each case's
Zosimo Angeles. procedural history, situation at the time of the
dismissal and whether, and under the
The answer of defendant Arca to the complaint circumstances of the particular case, the plaintiff
was filed only on October 30, 1985 while that of is chargeable with want of due diligence in failing
defendant Calalang was filed only on November to proceed with reasonable promptitude.23
10, 1987.19
. . . The desideratum of a speedy disposition of
Again, petitioner's contention that the fact that cases should not, if at all possible, result in the
respondent bank had not caused service of precipitate loss of a party's right to present
summons on the two other defendants, the evidence and either in plaintiff's being non-suited
Acropolis Trading Corporation and Rio Arturo or the defendant's being pronounced liable
Salceda, for almost seven years after the under an ex-parte judgment.
complaint was filed on April 29, 1980 indicated
"abuse of judicial leniency and tolerance" is . . (T)rial courts have . . the duty to dispose of
bereft of merit. Summons is issued by the clerk controversies after trial on the merits whenever
of court upon the filing of the complaint. When it possible. It is deemed an abuse of discretion for
was informed later on by Judge Alikpala, Jr. in them, on their own motion, "to enter a dismissal
his Order dated March 6, 1987 that there was an which is not warranted by the circumstances of
improper service on defendants Acropolis the case" (Municipality of Dingras v. Bonoan, 85
Trading Corporation and Rio Arturo Salceda, Phil. 458-59 [1950]). While it is true that the
respondent bank, in compliance therewith, filed dismissal of an action on grounds specified
a motion for alias summons, as permitted by the under Section 3, Rule 17 of the Revised Rules of
law. Court is addressed to their discretion (Flores v.
Phil. Alien Property Administrator, 107 Phil. 778
Considering the judicial reorganization which [1960]; Montelibano v. Benares, 103 Phil. 110
took place during the pendency of this case and [1958]; Adorable v. Bonifacio, 105 Phil. 1269
the numerous instances raised by both petitioner [1959]; Inter-Island Gas Service, Inc. v. De la
and respondent bank as contributing to the delay, Gerna, L-17631, October 19, 1966, 18 SCRA
petitioner cannot now claim that respondent 390), such discretion must be exercised soundly
bank's "abuse of judicial leniency and tolerance with a view to the circumstances surrounding
is the single greatest component of this delay".20 each particular case (Vernus-Sanciangco v.
Sanciangco,
The acts of the respondent bank do not manifest L-12619, April 28, 1962, 4 SCRA 1209). If facts
lack of interest to prosecute, in the absence of obtain that serve as mitigating circumstances for
proof that it indeed abandoned or intended to the delay, the same should be considered and
abandon its case against petitioner and the other dismissal denied or set aside (Rudd v. Rogerson,
defendants. Admittedly there was delay in this 15 ALR 2d 672; Cervi v. Greenwood, 147 Colo
190, 362 P. 2d 1050 [1961]), especially where CONFERRED. — Corporate powers may be
the suit appears to be meritorious and the directly conferred upon corporate officers or
plaintiff was not culpably negligent and no injury agents by statute, the articles of incorporation,
results to defendant (27 C.J.S. 235-36, 15 ALR the by-laws or by resolution or other act of the
3rd 680)." (Abinales vs. Court of First Instance of board of directors. In addition, an officer who is
Zamboanga City, Br. I, 70 SCRA 590, 595). not a director may also appoint other agents
when so authorized by the by-laws or by the
It is true that the allowance or denial of petitions board of directors. Such are referred to as
for postponement and the setting aside of orders express powers. There are also powers
previously issued, rest principally upon the incidental to express powers conferred. It is a
sound discretion of the judge to whom they are fundamental principle in the law of agency that
addressed, but always predicated on the every delegation of authority, whether general or
consideration that more than the mere special, carries with it, unless the contrary be
convenience of the courts or of the parties of the expressed, implied authority to do all of those
case, the ends of justice and fairness would be acts, naturally and ordinarily done in such cases,
served thereby (Camara Vda. de Zubiri v. Zubiri, which are reasonably necessary and proper to
et al., L-16745, December 17, 1966). . . . .24 be done in order to carry into effect the main
authority conferred. Since the by-laws are a
IN VIEW OF THE FOREGOING, the petition is source of authority for corporate officers and
DISMISSED. The decision of the Court of agents of the corporation, a resolution of the
Appeals dated October 25, 1991 and its Board of Directors of Citibank appointing an
Resolution of December 12, 1991 are both attorney in fact to represent and bind it during
AFFIRMED. Costs against petitioner. the pre-trial conference of the case at bar is not
necessary because its by-laws allow its officers,
SO ORDERED. the Executing Officer and the Secretary Pro-Tem,
to execute a power of attorney to a designated
G.R. No. 102300. March 17, 1993. bank officer, William W. Ferguson in this case,
clothing him with authority to direct and manage
CITIBANK, N.A., petitioner, vs. HON. corporate affairs.
SEGUNDINO G. CHUA, SANTIAGO M.
KAPUNAN and LUIS L. VICTOR, ASSOCIATE 3. ID.; ID.; ADOPTION OF BY-LAWS;
JUSTICES OF THE HON. COURT OF PROVISION OF SECTION 46 OF
APPEALS, THIRD DIVISION, MANILA, HON. CORPORATION CODE REFERRING TO
LEONARDO B. CANARES, Judge of Regional, EFFECTIVITY OF CORPORATE BY-LAWS
Trial Court of Cebu, Branch 10, and SPOUSES APPLICABLE ONLY TO DOMESTIC
CRESENCIO AND ZENAIDA VELEZ, CORPORATIONS. — A corporation can submit
respondents. its by-laws, prior to incorporation, or within one
month after receipt of official notice of the
SYLLABUS issuance of its certificate of incorporation by the
SEC. When the third paragraph of the above
1. COMMERCIAL LAW; PRIVATE provision mentions "in all cases", it can only refer
CORPORATIONS; LEVELS OF CONTROL IN to these two options; i.e., whether adopted prior
CORPORATE HIERARCHY; BOARD OF to incorporation or within one month after
DIRECTORS MAY VALIDLY DELEGATE SOME incorporation, the by-laws shall be effective only
FUNCTIONS TO INDIVIDUAL OFFICERS OR upon the approval of the SEC. But even more
AGENTS. — In the corporate hierarchy, there important, said provision starts with the phrase
are three levels of control: (1) the board of "Every corporation formed under this Code",
directors, which is responsible for corporate which can only refer to corporations incorporated
policies and the general management of the in the Philippines. Hence, Section 46, in so far as
business affairs of the corporation; (2) the it refers to the effectivity of corporate by-laws,
officers, who in theory execute the policies laid applies only to domestic corporations and not to
down by the board, but in practice often have foreign corporations.
wide latitude in determining the course of
business operations; and (3) the stockholders 4. ID.; FOREIGN CORPORATIONS; ISSUANCE
who have the residual power over fundamental OF LICENSE TO TRANSACT BUSINESS IN
corporate changes, like amendments of the THE PHILIPPINES; REQUISITES; GRANT OF
articles of incorporation. However, just as a LICENSE IN EFFECT APPROVAL BY SEC OF
natural person may authorize another to do FOREIGN CORPORATION'S BY-LAWS. —
certain acts in his behalf, so may the board of Section 125 of the same Code requires that a
directors of a corporation validly delegate some foreign corporation applying for a license to
of its functions to individual officers or agents transact business in the Philippines must submit,
appointed by it. among other documents, to the SEC, a copy of
its articles of incorporation and by-laws, certified
2. ID.; ID.; HOW CORPORATE POWERS in accordance with law. Unless these documents
CONFERRED UPON CORPORATE OFFICERS are submitted, the application cannot be acted
OR AGENTS; EXERCISE OF POWERS upon by the SEC. In the following section, the
INCIDENTAL TO EXPRESS POWERS Code specifies when the SEC can grant the
license applied for. Section 126 provides in part: 7. REMEDIAL LAW; CIVIL PROCEDURE;
"SEC. 126. Issuance of a license. — If the PRECIPITATE ORDERS OF DEFAULT
Securities and Exchange Commission is FROWNED UPON BY SUPREME COURT;
satisfied that the applicant has complied with all REASON THEREFOR; WHEN PARTY MAY BE
the requirements of this Code and other special PROPERLY DEFAULTED. — We reiterate the
laws, rules and regulations, the Commission previous admonitions of this Court against
shall issue a license to the applicant to transact "precipitate orders of default as these have the
business in the Philippines for the purpose or effect of denying the litigant the chance to be
purposes specified in such license . . ." Since the heard. While there are instances, to be sure,
SEC will grant a license only when the foreign when a party may be properly defaulted, these
corporation has complied with all the should be the exceptions rather than the rule
requirements of law, it follows that when it and should be allowed only in clear cases of an
decides to issue such license, it is satisfied that obstinate refusal or inordinate neglect to comply
the applicant's by-laws, among the other with the orders of the court. Absent such a
documents, meet the legal requirements. This, in showing, the party must be given every
effect, is an approval of the foreign corporations reasonable opportunity to present his side and to
by-laws. It may not have been made in express refute the evidence of the adverse party in
terms, still it is clearly an approval. Therefore, deference to due process of law".
petitioner bank's by-laws, though originating
from a foreign jurisdiction, are valid and effective 8. LEGAL ETHICS; AUTHORITY OF
in the Philippines. ATTORNEYS TO BIND CLIENTS. — Under
Rule 138, Section 23 of the Rules of Court, an
5. CIVIL LAW; AGENCY; SPECIAL POWER OF attorney has authority to bind his client in any
ATTORNEY; WHEN POWER OF ATTORNEY case by an agreement in relation thereto made
COMPREHENSIVE ENOUGH TO INCLUDE in writing, and this authority would include taking
AUTHORITY TO APPEAR AT PRE-TRIAL appeals and all matters of ordinary judicial
CONFERENCE. — It is also error on the part of procedure. But he cannot, without special
the Court of Appeals to state that the power of authority, compromise his client's litigation or
attorney given to the four (4) Citibank employees receive anything in discharge of a client's claim
is not a special power of attorney as required in but the full amount in cash. The special powers
paragraph 3, Article 1878 of the Civil Code and of attorney separately executed by Florencia
Section 1 (a), Rule 20 of the Rules of Court. In Tarriela and William W. Ferguson granted to J.P.
the case of Tropical Homes, Inc. vs. Villaluz, the Garcia & Associates are very explicit in their
special power of attorney executed by petitioner terms as to the counsel's authority in the case at
bank therein contained the following pertinent bar.
terms — "to appear for and in its behalf in the
above-entitled case in all circumstances where DECISION
its appearance is required and to bind it in all
said instances". The court ruled that: "Although CAMPOS, JR., J p:
the power of attorney in question does not
specifically mention the authority of petitioner's Petitioner is a foreign commercial banking
counsel to appear and bind the petitioner at the corporation duly licensed to do business in the
pre-trial conference, the terms of said power of Philippines. Private respondents, spouses
attorney are comprehensive enough as to Cresencio and Zenaida Velez, were good clients
include the authority to appear for the petitioner of petitioner bank's branch in Cebu until March
at the pre-trial conference." 14, 1986 when they filed a complaint for specific
performance and damages against it in Civil
6. ID.; ID.; ID.; LEGAL COUNSEL APPOINTED Case No. CEB-4751 before the Regional Trial
TO REPRESENT BANK IN COURT Court of Cebu, Branch 10.
PURSUANT TO BY-LAW PROVISION
CONSIDERED AN EMPLOYEE FOR A Private respondents alleged in their complaint
SPECIAL PURPOSE. — Attorney was sufficient that the petitioner bank extended to them credit
under the by-law provision authorizing Ferguson lines sufficiently secured with real estate and
to delegate any of his functions to any one or chattel mortgages on equipment. They claim that
more employees of the petitioner bank. A petitioner offered them special additional
reasonable interpretation of this provision would accommodation of Five Million Pesos
include an appointment of a legal counsel to (P5,000,000.00) to be availed of in the following
represent the bank in court, for, under the manner:
circumstances, such legal counsel can be
considered, and in fact was considered by the "a. Defendant would and did purchase check or
petitioner bank, an employee for a special checks from the plaintiffs by exchanging it with
purpose. Furthermore, Ferguson, who heads the defendant's manager's check on a regular daily
Philippine office thousands of miles away from basis as reflected in the defendant's own ledger
its main office in the United States, must be furnished to plaintiffs;
understood to have sufficient powers to act
promptly in order to protect the interests of his b. It was further agreed that on the following day,
principal. defendant CITIBANK would again purchase from
the plaintiffs, check or checks, by exchanging construction business was doing very well and
the same with defendant's manager's check, that he was one big client who could be trusted.
which check, however, will be deposited by the This deceptive and criminal scheme he did every
plaintiffs with their other banks to cover the banking day without fail from September 4, 1985
check or checks previously issued by the up to March 11, 1986. The amounts that he was
plaintiffs mentioned above; depositing and withdrawing during this period
(September 4, 1985 to March 11, 1986)
c. The same regular and agreed activity would progressively became bigger. It started at
be undertaken by the plaintiffs and defendant P46,000.00 on September 4, 1985 and on March
CITIBANK herein every banking day thereafter;" 11, 1986 the amount of deposit and withdrawal
1 already reached over P3,000,000.00. At this
point in time (March 11, 1986), the private
This arrangement started on September 4, 1985 respondent Cresencio Velez presumably already
until March 11, 1986, when private respondents feeling that sooner or later he would be caught
tried to exchange with petitioner bank six checks and that he already wanted to cash in on his evil
amounting to P3,095,000.00 but petitioner bank scheme, decided to run away with petitioner's
allegedly refused to continue with the money. On March 11, 1986, he deposited
arrangement even after repeated demands. various unfunded personal checks totalling
Instead, petitioner bank suggested to private P3,095,000.00 and requested a bank officer that
respondents that the total amount covered by the same be credited as cash and after securing
the "arrangement be restructured to thirty (30) the approval of said bank officer, deposited his
months with prevailing interest rate on the various personal checks in the amount of
diminishing balance". 2 Private respondents P3,095,000.00 with his current account and at
agreed to such a proposal. Then as a sign of the same time withdrew the sum of
good faith, they issued and delivered a check for P3,244,000.00 in the form of petitioner's
P75,000.00 in favor of petitioner bank which was manager's check. Instead of using the proceeds
refused by the latter demanding instead full of his withdrawals to cover his unfunded
payment of the entire amount. personal checks, he ran away with petitioner
bank's money. Thus, private respondent
For the failure of petitioner bank to comply with Cresencio Velez's personal checks deposited
this restructuring agreement private respondents with petitioner bank on March 11, 1986 in the
sued for specific performance and damages. total aggregate amount of P3,095,000.00
bounced. The checks bounced after said
Petitioner bank has a different version of the personal checks were made the substantial
business relationship that existed between it and basis of his withdrawing the sum of
private respondents. Thus: P3,244,000.00 from his current account with
petitioner bank." 3
". . . starting sometime on September 4 of 1985,
he (private respondent Crescencio Velez) Subsequently, on August 19, 1986, petitioner
deposited his unfunded personal checks with his bank filed a criminal complaint against private
current account with the petitioner. But prior to respondents for violation of Batas Pambansa Blg.
depositing said checks, he would present his 22 (Bouncing Checks Law) and estafa (six
personal checks to a bank officer asking the counts) under Article 315 par. 2(d) of the
latter to have his personal checks immediately Revised Penal Code. On April 28, 1988, the
credited as if it were a cash deposit and at the investigating fiscal recommended the filing of an
same time assuring the bank officer that his information against private respondents for
personal checks were fully funded. Having violations of the mentioned laws.
already gained the trust and confidence of the
officers of the bank because of his past On June 13, 1989, petitioner bank submitted its
transactions, the bank's officer would always answer to the complaint filed by private
accommodate his request. After his requests are respondents. In the Order dated February 20,
granted which is done by way of the bank officer 1990, the case was set for pre-trial on March 30,
affixing his signature on the personal checks, 1990 and petitioner bank was directed to submit
private respondent Cresencio Velez would then its pre-trial brief at least 3 days before the
deposit his priorly approved personal checks to pre-trial conference. Petitioner bank only filed its
his current account and at the same time pre-trial brief on March 30, 1990.
withdraw sums of money from said current
account by way of petitioner bank's manager's On March 30, 1990, the date of the pre-trial
check. Private respondent would then deposit conference, counsel for petitioner bank
petitioner bank's manager's check to his various appeared, presenting a special power of
current accounts in other commercial banks to attorney executed by Citibank officer Florencia
cover his previously deposited unfunded Tarriela in favor of petitioner bank's counsel, the
personal checks with petitioner bank. Naturally, J.P. Garcia & Associates, to represent and bind
petitioner bank and its officers never discovered petitioner bank at the pre-trial conference of the
that his personal check deposits were unfunded. case at bar.
On the contrary, it gave the petitioner bank the
false impression that private respondent's
Inspite of this special power of attorney, counsel Directors of such power could only be valid if it
for private respondents orally moved to declare bears the approval of the majority of the Board
petitioner bank as in default on the ground that (Sec. 25, par. 2, Corporation Code). The records
the special power of attorney was not executed does not show the requisite document. The
by the Board of Directors of Citibank. Petitioner alleged authority (Special Power of Attorney,
bank was then required to file a written Annex "A") executed by Mr. William W.
opposition to this oral motion to declare it as in Ferguson in favor of the alleged Citibank
default. In said opposition petitioner bank employees, assuming the same to be a
attached another special power of attorney delegable authority, to represent the defendant
made by William W. Ferguson, Vice President in the pre-trial conference, made no mention of
and highest ranking officer of Citibank, J.P. Garcia & Associates as one of the
Philippines, constituting and appointing the J.P. employees of the defendant.
Garcia & Associates to represent and bind the
BANK at the pre-trial conference and/or trial of It stands to reason therefore, that the
the case of "Cresencio Velez, et al. vs. Citibank, defendant-bank has no proper representation
N.A.". 4 In an Order dated April 23, 1990, during the pre-trial conference on May 2, 1990
respondent judge denied private respondents' for purposes of Sec. 2, Rule 20 of the Rules of
oral motion to declare petitioner bank as in Court." 7
default and set the continuation of the pre-trial
conference for May 2, 1990. On October 1, 1990, petitioner bank filed a
motion for reconsideration of the above order but
On the scheduled pre-trial conference, private it was denied on December 10, 1990.
respondents reiterated, by way of asking for
reconsideration, their oral motion to declare Petitioner bank then filed a petition for certiorari,
petitioner bank as in default for its failure to prohibition and mandamus with preliminary
appear through an authorized agent and that the injunction and/or temporary restraining order
documents presented are not in accordance with with the Court of Appeals. On June 26, 1991, the
the requirements of the law. Petitioner bank Court of Appeals dismissed the petition on the
again filed on May 14, 1990 its opposition following grounds:
thereto, stating as follows:
". . . In the first place, petitioner admitted that it
". . . While it has been the practice of Citibank to did not and could not present a Board resolution
appoint its counsels as its attorney-in-fact in civil from the bank's Board of Directors appointing its
cases because it considers said counsels counsel, Atty. Julius Z. Neri, as its
equivalent to a Citibank employee, yet, in order attorney-in-fact to represent and bind it during
to avoid further arguments on the matter, the the pre-trial conference of this case. This
defendant Citibank will secure another power of admission is contained on pages 12 and 13 of
attorney from Mr. William W. Ferguson in favor the instant petition.
of its employee/s who will represent the
defendant Citibank in the pre-trial conferences of In the second place, the "By-Laws" of petitioner
this case. As soon as the said special power of which on its face authorizes (sic) the
attorney is secured, the defendant will present it appointment of an attorney-in-fact to represent it
before this Honorable Court and in pursuance in any litigation, has not been approved by the
therewith, the defendant hereby makes a Securities and Exchange Commission, as
reservation to present such document as soon required by Section 46 of the Corporation Code
as available." 5 of the Philippines. Apparently, the "By-Laws" in
question was (sic) approved under the laws of
In compliance with the above promise, petitioner the United States, but there is no showing that
bank filed a manifestation, dated May 23, 1990, the same was given the required imprimatur by
attaching therewith a special power of attorney the Securities and Exchange Commission. Since
executed by William W. Ferguson in favor of petitioner is a foreign corporation doing business
Citibank employees to represent and bind in the Philippines, it is bound by all laws, rules
Citibank on the pre-trial conference of the case and regulations applicable to domestic
at bar. 6 corporations (Sec. 129, Corporation Code).

On August 15, 1990, respondent judge issued In the third place, no special power of attorney
an order declaring petitioner bank as in default. was presented authorizing petitioner's counsel of
This order, received by petitioner bank on record, Atty. Julius Neri and/or J.P. Garcia
September 27, 1990, cited the following as Associates, to appear for and in behalf of
reason for the declaration of default: petitioner during the pre-trial.

"Defendant-bank, although a foreign corporation, What petitioner exhibited to the court a quo was
is bound by Philippine laws when doing and a general power of attorney given to one William
conducting business in the Philippines (Sec. 129, W. Ferguson who in turn executed a power of
B.P. Blg. 68), and its corporate powers could attorney in favor of five (5) (sic) Citibank
only be exercised by its Board of Directors (Sec. employees to act as attorney-in-fact in Civil Case
23, B.P. Blg. 68). The exercise by the Board of No. CEB-4751. Yet, during the pre-trial not one
of said employees appeared, except counsel power over fundamental corporate changes, like
who is not even a bank employee. amendments of the articles of incorporation.
However, just as a natural person may authorize
Furthermore, even assuming the validity of the another to do certain acts in his behalf, so may
power of attorney issued by petitioner in favor of the board of directors of a corporation validly
Ferguson as well as the power of attorney he delegate some of its functions to individual
issued to five (5) (sic) Citibank employees, said officers or agents appointed by it.
power of attorney has not been shown to be a
Special Power of Attorney precisely intended not Section 23 of the Corporation Code of the
only to represent the bank at the pre-trial of the Philippines in part provides:
case on a certain date but also to enter into any
compromise as required in paragraph 3, Article "SEC. 23. The board of directors or trustees.
1878 of the Civil Code and Section 1 (a), Rule 20, Unless otherwise provided in this Code, the
Rules of Court." 8 corporate powers of all corporations formed
under this Code shall be exercised, all business
Hence, this instant petition. conducted and all property of such corporations
controlled and held by the board of directors or
Petitioner bank contends that no board trustees to be elected from among the holders of
resolution was necessary for its legal counsel, stocks, or where there is no stock, from among
Atty. Julius Z. Neri, or Citibank employees to act the members of the corporation, who shall hold
as its attorney-in-fact in the case at bar because office for one (1) year and until their successors
petitioner bank's by-laws grant to its Executing are elected and qualified.
Officer and Secretary Pro-Tem the power to
delegate to a Citibank officer, in this case William xxx xxx xxx" (Emphasis supplied).
W. Ferguson, the authority to represent and
defend the bank and its interests. Thus, although as a general rule, all corporate
powers are to be exercised by the board of
Furthermore, it contends that the Court of directors, exceptions are made where the Code
Appeals erred in holding that the by-laws of provides otherwise.
petitioner bank cannot be given effect because it
did not have the imprimatur of the Securities and Section 25 of said Code provides that the
Exchange Commission (SEC) as required by directors of the corporation shall elect its
Section 46 of the Corporation Code of the corporate officers, and further provides as
Philippines. follows:

Private respondents refute both contentions. "SEC. 25. Corporate officers; quorum. — . . . The
They assail the authority of petitioner bank's directors or trustees and officers to be elected
legal counsel to appear at the pre-trial shall perform the duties enjoined on them by law
conference on two grounds, namely: first, that and by the by-laws of the corporation . . ."
the authority did not come from the Board of
Directors which has the exclusive right to Furthermore, Section 47 of the same Code
exercise corporate powers; and second, that the enumerates what may be contained in the
authority granted to the Executing Officer in the by-laws, among which is a provision for the
by-laws was ineffective because the same were "qualifications, duties and compensation of
not submitted to, nor approved by, the SEC. directors or trustees, officers and employees".
(Emphasis supplied.)
There are thus two issues in this case. First,
whether a resolution of the board of directors of Taking all the above provisions of law together, it
a corporation is always necessary for granting is clear that corporate powers may be directly
authority to an agent to represent the corporation conferred upon corporate officers or agents by
in court cases. And second, whether the by-laws statute, the articles of incorporation, the by-laws
of the petitioner foreign corporation which has or by resolution or other act of the board of
previously been granted a license to do business directors. In addition, an officer who is not a
in the Philippines, are effective in this jurisdiction. director may also appoint other agents when so
If the by-laws are valid and a board resolution is authorized by the by-laws or by the board of
not necessary as petitioner bank claims, then the directors. Such are referred to as express
declaration of default would have no basis. powers. 9 There are also powers incidental to
express powers conferred. It is a fundamental
In the corporate hierarchy, there are three levels principle in the law of agency that every
of control: (1) the board of directors, which is delegation of authority, whether general or
responsible for corporate policies and the special, carries with it, unless the contrary be
general management of the business affairs of expressed, implied authority to do all of those
the corporation; (2) the officers, who in theory acts, naturally and ordinarily done in such cases,
execute the policies laid down by the board, but which are reasonably necessary and proper to
in practice often have wide latitude in be done in order to carry into effect the main
determining the course of business operations; authority conferred. 10
and (3) the stockholders who have the residual
Since the by-laws are a source of authority for constitutes a valid delegation of Ferguson's
corporate officers and agents of the corporation, express power (under paragraph XVII above) to
a resolution of the Board of Directors of Citibank represent petitioner bank in the pre-trial
appointing an attorney in fact to represent and conference in the lower court.
bind it during the pre-trial conference of the case
at bar is not necessary because its by-laws allow This brings us to the second query: whether
its officers, the Executing Officer and the petitioner bank's by-laws, which constitute the
Secretary Pro-Tem, ** to execute a power of basis for Ferguson's special power of attorney in
attorney to a designated bank officer, William W. favor of petitioner bank's legal counsel are
Ferguson in this case, clothing him with authority effective, considering that petitioner bank has
to direct and manage corporate affairs. The been previously granted a license to do business
relevant provision in the general power of in the Philippines.
attorney granted to him are as follows:
The Court of Appeals relied on Section 46 of the
"A. That the Executing Officer and the Secretary Corporation Code to support its conclusion that
Pro-Tem are of full age, competent to act in the the by-laws in question are without effect
premises, to me personally known, and that they because they were not approved by the SEC.
are authorized to execute this instrument by Said section reads as follows:
virtue of the powers granted to them pursuant to
the By-Laws of the Bank and the laws of the "SEC. 46. Adoption of by-laws. — Every
United States of America, and that the Executing corporation formed under this Code must, within
Officer said that he, on the one hand, hereby one (1) month after receipt of official notice of the
revokes and cancels any instrument of power of issuance of its certificate of incorporation by the
attorney previously executed on behalf of the Securities and Exchange Commission, adopt a
Bank for use in the PHILIPPINES, in favor of code of by-laws for its government not
WILLIAM W. FERGUSON (hereinafter referred inconsistent with this Code. For the adoption of
to as the "Attorney-in-fact"), of legal age, a by-laws by the corporation, the affirmative vote
Banker, and now residing in the PHILIPPINES, of the stockholders representing at least a
and that he (the Executing Officer), on the other majority of the outstanding capital stock, or of at
hand, does hereby authorize and empower the least a majority of the members in the case of
Attorney-in-fact, acting in the name or on behalf non-stock corporations, shall be necessary. The
of the Bank, or any of its Branches, or any by-laws shall be signed by the stockholders or
interest it or they may have or represent, said members voting for them and shall be kept in the
revocation and authorization to be effective as of principal office of the corporation, subject to the
this date as follows: inspection of the stockholders or members
during office hours; and a copy thereof, duly
xxx xxx xxx certified to by a majority of the directors or
trustees and countersigned by the secretary of
XVII. To represent and defend the Bank and its the corporation, shall be filed with the Securities
interest before any and all judges and courts, of and Exchange Commission which shall be
all classes and jurisdictions, in any action, suit or attached to the original articles of incorporation.
proceeding in which the Bank may be a party or
may be interested in administrative, civil, criminal, Notwithstanding the provisions of the preceding
contentious or contentious-administrative paragraph, by-laws may be adopted and filed
matters, and in all kinds of lawsuits, recourses or prior to incorporation; in such case, such by-laws
proceedings of any kind or nature, with complete shall be approved and signed by all the
and absolute representation of the Bank, incorporators and submitted to the Securities
whether as plaintiff or defendant, or as an and Exchange Commission, together with the
interested party for any reason whatsoever . . . articles of incorporation.

xxx xxx xxx In all cases, by-laws shall be effective only upon
the issuance by the Securities and Exchange
XXI. To substitute or delegate this Power of Commission of a certification that the by-laws
Attorney in whole or in part in favor of such one are not inconsistent with this Code."
or more employees of the Bank, as he may
deem advisable, but without divesting himself of A careful reading of the above provision would
any of the powers granted to him by this Power show that a corporation can submit its by-laws,
of Attorney; and to grant and execute in favor of prior to incorporation, or within one month after
any one or more such employees, powers of receipt of official notice of the issuance of its
attorney containing all or such authorizations, as certificate of incorporation by the SEC. When the
he may deem advisable. . . " 11 third paragraph of the above provision mentions
"in all cases", it can only refer to these two
Since paragraph XXI above specifically allows options; i.e., whether adopted prior to
Ferguson to delegate his powers in whole or in incorporation or within one month after
part, there can be no doubt that the special incorporation, the by-laws shall be effective only
power of attorney in favor, first, of J.P. Garcia & upon the approval of the SEC. But even more
Associates and later, of the bank's employees, important, said provision starts with the phrase
"Every corporation formed under this Code", a special power of attorney executed by then
which can only refer to corporations incorporated Citibank Officer Florencio (sic) J. Tarriela which
in the Philippines. Hence, Section 46, in so far as was marked as Exhibit "1" in the pre-trial of this
it refers to the effectivity of corporate by-laws, case . . . This is precisely the reason why the
applies only to domestic corporations and not to court denied, in an Order dated April 23, 1990 . . .
foreign corporations. the private respondent's oral motion to declare
the defendant in fault. The said special power of
On the other hand, Section 125 of the same attorney executed by Florencio (sic) J. Tarriela
Code requires that a foreign corporation was granted by Mr. Rafael B. Buenaventura,
applying for a license to transact business in the who was then the Senior Vice-President of
Philippines must submit, among other Citibank and the highest ranking office of
documents, to the SEC, a copy of its articles of Citibank in the Philippines. Considering that at
incorporation and by-laws, certified in the time of the presentation of the said special
accordance with law. Unless these documents power of attorney Rafael B. Buenaventura was
are submitted, the application cannot be acted no longer connected with Citibank, the petitioner
upon by the SEC. In the following section, the again presented another special power of
Code specifies when the SEC can grant the attorney executed by William W. Ferguson in
license applied for. Section 126 provides in part: favor of J.P. Garcia & Associates, . . .

"SEC. 126. Issuance of a license. — If the Finding that the authority of William W. Ferguson
Securities and Exchange Commission is to delegate his authority to act for and in behalf
satisfied that the applicant has complied with all of the bank in any civil suit is limited to
the requirements of this Code and other special individuals who are employees of the bank the
laws, rules and regulations, the Commission petitioner again on May 23, 1990 presented
shall issue a license to the applicant to transact another special power of attorney dated May 16,
business in the Philippines for the purpose or 1990 wherein William W. Ferguson appointed as
purposes specified in such license . . ." attorney-in-fact the following employees of
petitioner, namely: Roberto Reyes, Nemesio
Since the SEC will grant a license only when the Solomon, Aimee Yu and Tomas Yap. The said
foreign corporation has complied with all the special power of attorney was filed and
requirements of law, it follows that when it presented by the petitioner through its
decides to issue such license, it is satisfied that Manifestation filed in the Trial Court on May 23,
the applicant's by-laws, among the other 1990, . . ." 12
documents, meet the legal requirements. This, in
effect, is an approval of the foreign corporations Under Rule 138, Section 23 of the Rules of Court,
by-laws. It may not have been made in express an attorney has authority to bind his client in any
terms, still it is clearly an approval. Therefore, case by an agreement in relation thereto made
petitioner bank's by-laws, though originating in writing, and this authority would include taking
from a foreign jurisdiction, are valid and effective appeals and all matters of ordinary judicial
in the Philippines. procedure. But he cannot, without special
authority, compromise his client's litigation or
In pursuance of the authority granted to him by receive anything in discharge of a client's claim
petitioner bank's by-laws, its Executing Officer but the full amount in cash. The special powers
appointed William W. Ferguson, a resident of the of attorney separately executed by Florencia
Philippines, as its Attorney-in-Fact empowering Tarriela and William W. Ferguson granted to J.P.
the latter, among other things, to represent Garcia & Associates are very explicit in their
petitioner bank in court cases. In turn, William W. terms as to the counsel's authority in the case at
Ferguson executed a power of attorney in favor bar. We quote the relevant provisions of the
of J.P. Garcia & Associates (petitioner bank's special powers of attorney showing sufficient
counsel) to represent petitioner bank in the compliance with the requirements of Section 23,
pre-trial conference before the lower court. This Rule 138, to wit:
act of delegation is explicity authorized by
paragraph XXI of his own appointment, which we "That the BANK further authorized the said J.P.
have previously cited. GARCIA & ASSOCIATES to enter into an
amicable settlement, stipulation of facts and/or
It is also error for the Court of Appeals to insist compromise agreement with the party or parties
that the special power of attorney, presented by involved under such terms and conditions which
petitioner bank authorizing its counsel, Atty. the said J.P. GARCIA & ASSOCIATES may
Julius Neri and/or J.P. Garcia & Associates, to deem reasonable (under parameters previously
appear for and in behalf of petitioner bank during defined by the principal) and execute and sign
the pre-trial, is not valid. The records do not said documents as may be appropriate.
sustain this finding. We quote with approval the
contention of petitioner bank as it is borne by the HEREBY GIVING AND GRANTING unto J.P.
records, to wit: GARCIA & ASSOCIATES full power and
authority whatsoever requisite necessary or
". . . The records of this case would show that at proper to be done in or about the premises, as
the start, the petitioner, thru counsel, presented fully to all intents and purposes as the BANK
might or could lawfully do or cause to be done presenting not just one, but three, special
under and by virtue of these presents." 13 powers of attorney. Initially, the special power of
attorney was executed by Florencia Tarriela in
It is also error on the part of the Court of Appeals favor of J.P. Garcia & Associates, petitioner
to state that the power of attorney given to the bank's counsel. Private respondents insisted that
four (4) Citibank employees is not a special this was not proper authority required by law. To
power of attorney as required in paragraph 3, avoid further argument, a second special power
Article 1878 of the Civil Code and Section 1 (a), of attorney was presented by petitioner bank,
Rule 20 of the Rules of Court. In the case of executed by William W. Fersugon, the highest
Tropical Homes, Inc. vs. Villaluz, 14 the special ranking officer of Citibank in the Philippines, in
power of attorney executed by petitioner bank favor of its counsel J.P. Garcia & Associates. But
therein contained the following pertinent terms since the authority to delegate of William A.
— "to appear for and in its behalf in the Fersugon in favor of an agent is limited to bank
above-entitled case in all circumstances where employees, another special power of attorney
its appearance is required and to bind it in all from Wiliam W. Fersugon in favor of the Citibank
said instances". The court ruled that: employees was presented. But the respondent
trial court judge disregarded all these and issued
"Although the power of attorney in question does the assailed default order. There is nothing to
not specifically mention the authority of show that petitioner bank "miserably failed to
petitioner's counsel to appear and bind the oblige"; on the contrary, three special powers of
petitioner at the pre-trial conference, the terms of attorney manifest prudence and diligence on
said power of attorney are comprehensive petitioner bank's part.
enough as to include the authority to appear for
the petitioner at the pre-trial conference." In fact, there was no need for the third power of
attorney because we believe that the second
In the same manner, the power of attorney power of attorney was sufficient under the by-law
granted to petitioner bank's employees should provision authorizing Fersugon to delegate any
be considered a special power of attorney. The of his functions to any one or more employees of
relevant portion reads: the petitioner bank. A reasonable interpretation
of this provision would include an appointment of
"WHEREAS, the Bank is the Defendant in Civil a legal counsel to represent the bank in court, for,
Case No. CEB-4751, entitled "Cresencio Velez, under the circumstances, such legal counsel can
et al. vs. Citibank, N.A.," pending before the be considered, and in fact was considered by the
Regional Trial Court of Cebu City, Branch X; petitioner bank, an employee for a special
purpose. Furthermore, Fersugon, who heads the
NOW, THEREFORE, under and by virtue of Philippine office thousands of miles away from
Article XXI of the Power of Attorney executed by its main office in the United States, must be
the Bank in favor of the Attorney-in-Fact (Annex understood to have sufficient powers to act
"A"), which provision is quoted above, the promptly in order to protect the interests of his
Attorney-in-Fact has nominated, designated and principal.
appointed, as by these presents he nominates,
designates and appoints, as his substitutes and We reiterate the previous admonitions of this
delegates, with respect to the said Power of Court against "precipitate orders of default as
Attorney, ROBERTO REYES, Vice President these have the effect of denying the litigant the
and/or NEMESIO SOLOMON, JR., Manager, chance to be heard. While there are instances,
AIMEE YU, Assistant Vice President and/or to be sure, when a party may be properly
TOMAS YAP, Assistant Manager (hereinafter defaulted, these should be the exceptions rather
referred to as the "DELEGATES"), all of legal than the rule and should be allowed only in clear
age, citizens of the Republic of the Philippines cases of an obstinate refusal or inordinate
and with business address at Citibank Center, neglect to comply with the orders of the court.
Paseo de Roxas, Makati, Metro Manila, Absent such a showing, the party must be given
Philippines, the Attorney-in-Fact hereby granting, every reasonable opportunity to present his side
conferring and delegating such authorities and and to refute the evidence of the adverse party in
binding the Bank in the Pre-Trial Conference deference to due process of law". 16
and/or Trial of the abovementioned case,
pursuant to Rule 20 of the Revised Rules of Considering further that petitioner bank has a
Court, to the DELEGATES. The attorney-in-Fact meritorious defense and that the amount in
furthermore hereby ratifying and confirming all contest is substantial, the litigants should be
that the DELEGATES shall lawfully do or cause allowed to settle their claims on the arena of the
to be done under and by virtue of these court based on a trial on the merits rather than
presents." 15 on mere technicalities.

From the outset, petitioner bank showed a WHEREFORE, in view of the foregoing, the
willingness, if not zeal, in pursuing and petition is hereby GRANTED. The decision of
defending this case. It even acceded to private the Court of Appeals dated June 26, 1991 and its
respondent's insistence on the question of resolution denying the motion for reconsideration
proper representation during the pre-trial by of petitioner bank dated September 26, 1991 are
both REVERSED and SET ASIDE. The order of Subsequent to the answer, petitioners filed a
default issued on August 15, 1990 in Civil Case motion to dismiss on the ground of lack of cause
CEB-4751 of the Regional Trial Court of Cebu is of action.6 The trial court, presided by Judge
ANNULLED and SET ASIDE and the case is Bethany G. Kapili, denied the motion to
hereby REMANDED to the court of origin for dismiss.7 Petitioners elevated the order of denial
further proceedings. to the Court of Appeals and thereafter to this
Court, both to no avail.8
SO ORDERED.
Petitioners asked Judge Kapili to inhibit himself
G.R. No. 164375 October 12, 2006 from the case. The judge denied the motion.9

RODOLFO PAREDES, TITO ALAGO AND Pre-trial was initially set for 24 April 2003, but
AGRIPINO BAYBAY, SR., petitioners, this was reset to 3 June 2003 on motion of
vs. respondents' counsel. But the pre-trial set on 3
ERNESTO VERANO and COSME June 2003 did not push through either because
HINUNANGAN, respondent. none of the parties appeared.

So, pre-trial was reset to 11 November 2003.


Petitioner Baybay's counsel moved to reset it to
DECISION another date on account of a conflicting hearing.
However, petitioner Baybay, who is the father of
the counsel for petitioners, was present in court
along with the other defendants, when the case
TINGA, J.: was called on 11 November 2003. The RTC was
informed then of a proposed settlement between
The central issue in this case is whether the the parties, although respondent Baybay
absence of the counsel for defendants at the qualified his reaction by telling the court
pre-trial, with all defendants themselves present,
is a ground to declare defendants in default and that he would first have to inform his lawyer and
to authorize plaintiffs to present evidence ex the co-defendants of the said proposal. The RTC
parte. then commented unfavorably on the absence of
petitioners' counsel, expressing disappointment
The relevant facts are uncomplicated. towards his attitude, even making note of the fact
that not once had the counsel appeared before
The protracted legal battle between the parties the RTC, even though the case had already
began with a complaint for the establishment of a reached the Supreme Court over the denial of
right of way filed by petitioners herein as the motion to dismiss.10 At the same time, the
plaintiffs against respondents as RTC acceded and reset the pre-trial for 23
1
defendants. The complaint, docketed as Civil January 2004.11
Case No. 2767 of the Regional Trial Court (RTC)
of Maasin City, Southern Leyte, Branch 24, Shortly before the new pre-trial date, counsel for
culminated in a judgment by compromise dated petitioners filed a Manifestation of Willingness to
26 April 1994.2 In the Compromise Agreement, Settle With Request for Cancellation dated 5
respondent Cosme Hinunangan granted a two (2) January 2004.12 Apart from manifesting his
meter-wide right of way in favor of petitioners in willingness to settle the complaint, petitioners'
consideration of the amount of P6,000.00 which counsel through the Manifestation suggested to
petitioners agreed to pay.3 the opposing counsel that he be informed of the
terms of the proposed settlement.
Alleging that petitioners had blocked the Correspondingly, petitioners' counsel requested
passage way in violation of the Compromise the cancellation of the 23 January 2004 hearing.
Agreement, on 28 September 1999,
respondents filed a complaint for specific However, the hearing did push through on 23
performance with damages against petitioners. It January 2004. The private respondents and their
was docketed as Civil Case No. R-3111 also of counsel were present. So were petitioners
the RTC of Maasin City, Southern Leyte, Branch Baybay and Paderes, and co-defendant Alago,
24.4 but not their counsel.

In their answer, petitioners denied having An order of even date formalized what had
violated the Compromise Agreement. They transpired during the hearing. The RTC allowed
alleged that like them, respondents were not respondents to present their evidence ex parte,
actual residents of Barangay Tagnipa where the "for failure of the defendants['] counsel to appear
"road right of way" was established and that before [the RTC]".13 Petitioners filed a motion for
respondent Cosme Hinunangan had already reconsideration, but this was denied by the
sold his only remaining lot in the vicinity to RTC.14
petitioner Rodolfo Paderes.5
Thus, petitioners filed a petition for certiorari with
the Court of Appeals, assailing the orders of the
RTC. However, on 28 April 2004, the Court of A preliminary observation. The Court of Appeals
Appeals dismissed the petition outright,15 for had initially dismissed the petition lodged by
failure to attach duplicate original copies of the petitioners on account of their failure to attach
annexes to the petition other than the RTC several relevant pleadings, citing Section 3, Rule
Orders dated 23 January 2004 and 17 February 46 of the 1997 Rules of Civil Procedure. Before
2004 (attaching photocopies instead), as well as this Court, petitioners devote some effort in
for failure to submit such other pleadings arguing that the Court of Appeals erred in
relevant and pertinent to the petition. Petitioners dismissing the petition on that procedural ground,
filed a Motion for Reconsideration with Motion to while respondents in their comment similarly
Admit Additional Exhibits, adverting to the undertook to defend the appellate court's action
documents previously missing from the petition on that point. We do not doubt that under
but attached to the motion. Section 3, Rule 46 of the 1997 Rules of Civil
Procedure, the Court of Appeals has sufficient
On 13 July 2004, the Court of Appeals issued a discretion to dismiss the petition for failure of
Resolution denying the motion for petitioner to comply with the requirements
reconsideration. In doing so, the Court of enumerated in the section, including "such
Appeals resolved the petition on its merits, as it material portions of the record as are referred to
ruled that "even with the submission by [in the petition], and other documents relevant or
petitioners of the required pleadings and pertinent thereto."20 At the same time,
documents, the instant petition must "[d]ismissal of appeals purely on technical
nevertheless fail."16 The appellate court quoted grounds is frowned upon and the rules of
extensively from the transcripts of the hearings procedure ought not to be applied in a very rigid,
of 11 November 2003 and 23 January 2004. It technical sense, for they are adopted to help
conceded that under Section 5, Rule 18 of the secure, not override, substantial justice, and
1997 Rules of Civil Procedure, it is the failure of thereby defeat their very aims."21 Thus, the
the defendant, and not defendant's counsel, to Court has not hesitated to view Section 3 of Rule
appear at the pre-trial that would serve cause to 46 with a liberal outlook, ruling for example that it
allow plaintiff to present evidence ex parte. was not necessary to attach certified true copies
Nevertheless, the Court of Appeals noted that of such material portions of the record as
petitioner Baybay had made it clear that he referred to therein.22
would never enter into any amicable settlement
without the advice of his counsel. Thus, the The situation in this case bears similarity to that
Court of Appeals concluded that Judge Kapili's which transpired in Cortez-Estrada v. Heirs of
"hands were tied," explaining, thus: "He was held Samut.23 Therein, the petitioner had failed to
hostage by the blatant display of arrogance attach material documents to her petition before
exhibited by petitioner's counsel in assiduously the Court of Appeals. The Court of Appeals held
failing to appear before the trial court. Were he to the petition was dismissible for such procedural
close his eyes to the reprehensible scheme of infirmities, yet it nonetheless proceeded to rule
Atty. Baybay in delaying the disposition of the against the petitioner on the merits. The
main case, the resulting impassé would only Supreme Court agreed with the appellate court
strain further the meager resources of the court that the petition was procedurally infirm, yet
and prejudice the rights of private found partial merit in its arguments and
respondents."17 consequently granted partial relief in favor of the
petitioner. In this case, the Court of Appeals, in
The Court of Appeals then cited Sps. resolving the motion for reconsideration,
Ampeloquio, Sr. v. Court of Appeals,18 wherein proceeded to make a judgment on the merits.
the Court held that if every error committed by Similarly, this Court finds ample basis to review
the trial court were to be a proper object of the decision of the trial court as affirmed by the
review by certiorari, then trial would never come appellate court, notwithstanding the procedural
to an end and the appellate court dockets would flaw that originally accompanied the petition—a
be clogged with petitions challenging every flaw which petitioners did seek to remedy when
interlocutory order of the trial court. It concluded they belatedly attached the relevant documents
that the acts of Judge Kapili did not constitute to their motion for reconsideration.
grave abuse of discretion equivalent to lack of
jurisdiction. Ultimately, there are important reasons to
consider the case on the merits. This case
Finally, the trial court admonished petitioners' affords the Court the opportunity to clarify the
counsel to "bear in mind that as an officer of the authority granted to a trial judge in relation to
court, he is tasked to observe the rules of pre-trial proceedings.
procedure, not to unduly delay a case and defeat
the ends of justice but to promote respect for the The order of the RTC allowing respondents to
law and legal processes."19 present evidence ex parte was undoubtedly to
the detriment of petitioners. Since the RTC
We reverse the trial court and the Court of would only consider the evidence presented by
Appeals. respondents, and not that of petitioners, the
order strikes at the heart of the case, disallowing
as it does any meaningful defense petitioners
could have posed. A judgment of default against be excused only if a valid cause is shown
a defendant who failed to attend pre-trial, or therefor or if a representative shall appear in his
even any defendant who failed to file an answer, behalf fully authorized in writing to enter into an
implies a waiver only of their right to be heard amicable settlement, to submit to alternative
and to present evidence to support their modes of dispute resolution, and to enter into
allegations but not all their other rights.24 stipulations or admissions of facts and of
documents.
The Constitution guarantees that no person shall
be deprived of property without due process of SEC. 5. Effect of failure to appear. – The failure
law. One manner by which due process is of the plaintiff to appear when so required
assured is through the faithful adherence to the pursuant to the next preceding section shall be
procedural rules that govern the behavior of the cause for dismissal of the action. The dismissal
party-litigants. The Rules of Court do sanction, shall be with prejudice, unless otherwise ordered
on several instances, penalties for violation of by the court. A similar failure on the part of the
the Rules that causes the termination of an defendant shall be cause to allow the plaintiff to
action without a ruling on the merits, or bars one present his evidence ex parte and the court to
party from litigating the same while permitting render judgment on the basis thereof.
the other to do so. We noted earlier that Section
3, Rule 46 authorizes the dismissal of an original Section 4 imposes the duty on litigating parties
petition before the Court of Appeals for failure to and their respective counsel during pre-trial. The
append material portions of the record. Pursuant provision also provides for the instances where
to Section 5, Rule 17, the failure of the plaintiff to the non-appearance of a party may be excused.
appear on the date of the presentation of his/her Nothing, however, in Section 4 provides for a
evidence in chief on the complaint is ground for sanction should the parties or their respective
the court to dismiss the complaint, without counsel be absent during pre-trial. Instead, the
prejudice to the right of the defendant to penalty is provided for in Section 5. Notably,
prosecute the counterclaim in the same or in a what Section 5 penalizes is the failure to appear
separate action. And under Section 5, Rule 18, of either the plaintiff or the defendant, and not
the failure of the plaintiff or defendant to appear their respective counsel.
during pre-trial authorizes the court to either
dismiss the complaint, if the plaintiff were absent; Indeed, the Court has not hesitated to affirm the
or to allow the plaintiff to present evidence ex dismissals of complaints or the allowance of
parte, if the defendant were absent. plaintiffs to present evidence ex parte on
account of the absence of a party during pre-trial.
The operation of the above-cited provisions may In United Coconut Planters Bank v.
defeat the cause of action or the defense of the Magpayo,27 the complaint was dismissed
party who violated the procedural rule. Yet it because although the counsel for complainant
could not be said that any resultant adverse was present during the pre-trial hearing, the
judgment would contravene the due process Court affirmed such dismissal on account of said
clause, as the parties are presumed to have counsel's failure to present any special power of
known the governing rules and the attorney authorizing him to represent the
consequences for the violation of such rules. In complainant during pre-trial.28 In Jonathan
contrast, the same presumption could not attach Landoil International Co. v. Mangudadatu,29 the
if a party were condemned to the same outcome defendant and its counsel failed to appear during
even if the party did not violate a prescribed rule pre-trial, and the complainants were allowed to
of procedure. Any ruling that disposes of an present evidence ex parte. After an adverse
action or precludes a party from presenting decision was rendered against the defendant, it
evidence in support or against thereof must have filed a motion for new trial in which it cited the
basis in law,25 and any ruling so intentioned illness of defendant's counsel as the reason for
without legal basis is deemed as issued with his non-appearance during pre-trial. While the
grave abuse of discretion.26 In the end, a person Court acknowledged that such argument was not
who is condemned to suffer loss of property a proper ground for a motion for new trial, it also
without justifying legal basis is denied due noted that the appearance of the defendant
process of law. during pre-trial was also mandatory, and that the
defendant failed to justify its own absence during
Simply put, nothing in the Rules of Court pre-trial.30
authorizes a trial judge to allow the plaintiff to
present evidence ex parte on account of the There are two cases which, at first blush, may
absence during pre-trial of the counsel for seem to affirm the action of the RTC. In the
defendant. disbarment case of Miwa v. Medina,31 a lawyer
was suspended from the practice for one (1)
Sections 4 and 5 of Rule 18 warrant month for, among others, failing to appear during
examination: pre-trial, thus leading to the declaration of his
client, the defendant, in default. At the same time,
SEC. 4. Appearance of Parties. – It shall be the the Court in Miwadid take the defendant herself
duty of the parties and their counsel to appear at to task for also failing to appear during pre-trial,
the pre-trial. The non-appearance of a party may observing that "the failure of a party to appear at
pre-trial, given its mandatory character, may Still, it would not be proper to consider Africa as
cause her to be non-suited or considered as in the governing precedent herein, influential as it
default."32 may be to our disposition. It was not clear from
the narration in Africa whether the defendant
In Social Security System v. Chaves,33 the himself was absent during the pre-trial, a
Social Security System (SSS) itself was named circumstance which is determinative to this
as the defendant in a complaint filed with the petition. Moreover, the Court's tone
RTC of Cagayan de Oro City. The pre-trial brief in Africa indicated that it was animated by a
was filed by the acting assistant branch manager liberal philosophy towards the procedural rule,
of the SSS in Cagayan de Oro City, who implying that the trial court's reversed action was
happened to be a lawyer and who also entered nonetheless adherent to the strict letter of the
his appearance as counsel for the SSS. rule. Whether or not the trial court in Africa acted
However, said lawyer was not present during conformably with the rules depends upon the
pre-trial, and the SSS was declared in default presence or absence of the defendant therein
and the complainants allowed to present their during pre-trial. It can no longer be discerned
evidence ex parte. The Court affirmed such whether the Court so ruled
order of default, noting other procedural in Africa notwithstanding the presence or
violations on the part of SSS, such as the fact absence of the defendant therein. It would be
that the motion for reconsideration to lift the disingenuous though to assume, as a means of
order of default lacked verification, notice of applying that case as precedent herein, that the
hearing and affidavit of merit. defendant was actually present during the
pre-trial in Africa.
Notwithstanding, the Court is not convinced
that SSS is ample precedent to affirm an order of Hence, we pronounce that the absence of
default where even though the defendant was counsel for defendants at pre-trial does not ipso
present during pre-trial, defendant's counsel facto authorize the judge to declare the
failed to appear for the same hearing. The Court defendant as in default and order the
in SSS did not make any categorical declaration presentation of evidence ex parte. It bears
to this effect. Moreover, it can be observed that stressing that nothing in the Rules of Court
in SSS, the counsel himself, the acting assistant sanctions the presentation of evidence ex
branch manager of the SSS, would have been in parte upon instances when counsel for
addition, the representative of the SSS itself, a defendant is absent during pre-trial. The Rules
juridical person which can only make an do not countenance stringent construction at the
appearance during pre-trial through a natural expense of justice and equity.37As the Court has
person as its duly authorized representative. The previously enunciated:
Court of Appeals decision upheld in SSS, cited
extensively in our decision therein, expressly We cannot look with favor on a course of action
affirmed the order of default on the ground that which would place the administration of justice in
"it is the discretion of the trial judge to declare a a straightjacket for then the result would be a
party-defendant as in default for failure to appear poor kind of justice if there would be justice at all.
at a pre-trial conference." However, in SSS, Verily, judicial orders, such as the one subject of
neither the Court of Appeals nor this Court this petition, are issued to be obeyed,
expressly laid relevance to the fact that the nonetheless a non-compliance is to be dealt with
counsel himself, as opposed to the defendant, as the circumstances attending the case may
had not attended the pre-trial. warrant. What should guide judicial action is
the principle that a party-litigant is to be
Upon the other hand, Africa v. Intermediate given the fullest opportunity to establish the
Appellate Court34 illuminates the proper merits of his complaint or defense rather
standard within which to view the instant petition. than for him to lose life, liberty or properties
It appeared therein that on the day of the pre-trial, on technicalities.38
counsel for the defendant (therein petitioner) had
arrived ten minutes after the case was called. Due process dictates that petitioners be deprived
Within that ten-minute span, the trial court had of their right to be heard and to present evidence
issued an order in open court declaring the to support their allegations if, and only if, there
defendant in default and authorizing the plaintiff exists sufficient basis in fact and in law to do
to present its evidence ex parte. A mere two so.39 There being a manifest lack of such basis
days later, the trial court rendered judgment in in this case, petitioners would be unjustly denied
favor of plaintiff. The Court reversed the trial of the opportunity to fully defend themselves
court, holding that the order of default was should the Court affirm the questioned orders
issued with grave abuse of discretion. The which were evidently issued by the RTC with
reasoning of the Court was grounded primarily grave abuse of discretion. The better and
on the doctrinal rule that frowned against "the certainly more prudent course of action in every
injudicious and often impetuous issuance of judicial proceeding is to hear both sides and
default orders,"35 which led in that case to "a decide on the merits rather than dispose of a
deni[al of the defendant's] basic right to be heard, case on technicalities.40
even after his counsel had promptly explained
the reason for his tardiness at the pre-trial."36
While counsel is somewhat to blame for his
non-attendance at pre-trial, incidentally the
operative act which gave birth to the controversy
at bar, it would be most unfair to penalize
petitioners for what may be the deficiency of their
lawyer when the consequent penalty has no
basis in law. Particularly mitigating in the instant
case is the fact that the counsel for private
respondents intimated, at an earlier hearing, a
possibility of an amicable settlement to the case.
Then, counsel for petitioners submitted a
manifestation41 requesting therein that the
parties be given ample time to respectively
discuss their proposals and counter-proposals
and that the hearing for 23 January 2004 be
moved to a later date as may be agreed upon by
the parties for submission of their possible
compromise agreement. It may well have been
that counsel for petitioners labored under the
false understanding that a compromise
agreement was an imminent possibility. The
Court nonetheless notes that counsel was
remiss in assuming that his motion to reset the
scheduled hearing would necessarily be granted
by the court a quo.

Be that as it may, there is no clear demonstration


that the acts of the counsel of petitioners were
intended to perpetuate delay in the litigation of
the case. Assuming arguendo that the trial court
correctly construed the actions of the counsel of
petitioners to be dilatory, it cannot be said that
the court was powerless and virtually without
recourse but to order the ex parte presentation
of evidence by therein plaintiffs. We are in some
sympathy with the judge who was obviously
aggrieved that the case was dragging on for an
undue length of time. But even so, there were
other remedies available to the court.

Among the inherent powers of the courts


expressly recognized by the Rules include the
authority to enforce order in proceedings before
it,42 to compel obedience to its judgments,
orders and processes,43 and to amend and
control its process and orders so as to make
them conformable to law and justice.44 Moreover,
the Code of Judicial Conduct empowers the
courts to judiciously take or initiate disciplinary
measures against lawyers for unprofessional
conduct.45 A show cause order to counsel would
have been the more cautious and reasonable
course of action to take under the circumstances
then prevailing. In failing to do so, the trial court
impetuously deprived petitioners of the
opportunity to meaningfully present an effective
defense and to adequately adduce evidence in
support of their contentions.

WHEREFORE, the instant petition is hereby


GRANTED and the resolutions of the Court of
Appeals affirming the Orders of the Regional
Trial Court in Civil Case No. R-3111 dated 23
January 2004 and 17 February 2004 are
REVERSED. No costs.

SO ORDERED.