Dionisio vs. Puerto

A party who fails to appear at a pre-trial conference despite due notice may be declared in default, and jurisdiction over a case is determined by the causes of action as alleged in the complaint, not by the amount ultimately substantiated and awarded by the trial court.

Plaintiff Federico Dionisio and defendants Esperanza Sioson Puerto, et al. were parties to a negotiable promissory note executed on October 24, 1966, with a maturity date of January 31, 1967, in the principal sum of P6,000. The note was non-interest bearing but stipulated penalties of P1,000 for attorney's fees and P1,000 for collection expenses. The action was filed in the Court of First Instance of Rizal at Quezon City, whose jurisdiction at the time extended to claims exceeding a prescribed minimum, making the total amount demanded determinative of the court's authority to hear the case.

On October 24, 1966, defendants Esperanza Sioson Puerto, et al. executed a negotiable promissory note in favor of plaintiff Federico Dionisio in the principal sum of P6,000, with a maturity date of January 31, 1967. The note was non-interest bearing but stipulated P1,000 for attorney's fees and P1,000 for collection expenses as penalties. When the note matured, defendants failed to pay; on August 16, 1967, they issued a rubber check as payment, which was dishonored.

On April 22, 1968, plaintiff filed a complaint in the Court of First Instance of Rizal at Quezon City seeking recovery of the P6,000 principal, P1,000 collection expenses, P1,000 attorney's fees, and P3,000 moral damages for defendants' bad faith and issuance of the rubber check, totaling P11,000. In their answer, defendants admitted their indebtedness but raised an affirmative defense of usury, alleging that the amount actually received by them was P5,500 — not P6,000 — and that the P500 difference represented payment of interest at 2-1/2% per month for three months. Plaintiff denied the usury charge in his reply, calling it "a figment of the imagination of the defendants devoid of color of truth, veracity and reality," though the reply was not made under oath.

Upon plaintiff's motion, the case was set for pre-trial on October 1, 1968, but for lack of proof of service it was reset to November 28, 1968. On November 27, the day before the rescheduled pre-trial, defendants filed a Manifestation and Motion seeking postponement and requesting that the trial court hold a preliminary hearing on their affirmative defense of usury as if it were raised in a motion to dismiss under Rule 16, Section 5, preferably on December 17, 1968. They asked the clerk to submit the pleading to the court when the case was called for pre-trial the next day.

When the case was called for pre-trial on November 28, 1968, neither defendants nor their counsel appeared despite due notice. The trial court declared them in default upon plaintiff's motion and directed the clerk to receive plaintiff's evidence ex parte. On January 11, 1969, the trial court rendered judgment in favor of plaintiff for P8,000 — P6,000 as the value of the promissory note, P1,000 for collection expenses, and P1,000 for attorney's fees — plus costs, after finding that plaintiff had failed to present evidence to prove his claim for moral damages. Defendants' motion for reconsideration was denied, and they appealed to the Court of Appeals, which certified the case to the Supreme Court as raising purely issues of law.

• Pre-trial Default: Whether the trial court properly declared defendants in default and allowed plaintiff to present evidence ex parte, where defendants had filed a motion for preliminary hearing the day before the scheduled pre-trial but failed to appear at the pre-trial itself despite due notice.
• Usury Defense and Oath Requirement: Whether the trial court should have dismissed the case outright because plaintiff's reply denying defendants' charge of usury was not made under oath.
• Jurisdiction: Whether the trial court lost jurisdiction over the case when the amount ultimately awarded — P8,000, after moral damages were excluded for lack of proof — fell below the jurisdictional threshold of the Court of First Instance.

• Pre-trial Default: Yes. The declaration of default was proper under Rule 20, Section 2, which authorizes non-suit or default for failure to appear at a pre-trial conference, and defendants' failure to submit an affidavit of merits was fatal to their cause.
• Usury Defense and Oath Requirement: No. The oath requirement for denying allegations of usury is a procedural rule subject to waiver, and defendants lost their right to object upon being declared in default.
• Jurisdiction: No. Jurisdiction is determined by the causes of action as alleged in the complaint — here P11,000 — not by the amount ultimately substantiated and awarded.

• Pre-trial Default: The trial court's declaration of default was expressly authorized by Rule 20, Section 2, which provides that a party who fails to appear at a pre-trial conference may be non-suited or considered as in default. Defendants had been duly served with notice of the November 28, 1968 pre-trial. Their last-hour Manifestation and Motion filed the day before sought postponement and a preliminary hearing on their affirmative defense of usury, but this did not excuse their non-appearance. Their explanation in the motion for reconsideration — that they acted on the "honest impression and belief" that their personal appearance could be dispensed with because of the pending motion — was rejected, particularly since the ground for postponement (treating the usury defense as a motion to dismiss) was something they could and should have properly raised at the scheduled pre-trial itself. Furthermore, their failure to submit an affidavit of merits showing a valid defense they could prove if a new trial were granted was fatal, as reiterated in Ferrer vs. Sepeng (L-39373, September 30, 1974): a new trial would serve no purpose if the defense is nil or ineffective.

• Usury Defense and Oath Requirement: The rule that allegations of usury are deemed admitted if not denied specifically and under oath (Rule 9, Section 1) is a procedural rule, and the lack of an oath in a pleading is a defect subject to waiver — just as a defective or imperfect verification may be waived. The reglementary admission arising from failure to deny under oath may, like any other admission, be withdrawn with leave of court under Rule 10, Sections 2 and 3, which permit substantial amendments of pleadings. Here, defendants were declared in default and thereby lost their right to object to the reception of plaintiff's evidence, which established his cause of action and negated the usury charge. The Court also noted the dubious nature of the usury allegation: the promissory note was non-interest bearing and provided only for fixed penalties, and stretching the alleged P500 interest over the nearly eight-year period that plaintiff had been unable to collect yielded only an insignificant little over one percent per year — hardly usurious by any standard.

• Jurisdiction: Plaintiff's claim, including moral damages of P3,000, totaled P11,000, which was manifestly within the jurisdiction of the Court of First Instance. The mere fact that plaintiff failed to present proof of moral damages and that the trial court accordingly rendered judgment in the lesser sum of P8,000 did not divest the court of jurisdiction. Jurisdiction is determined by the cause or causes of action as alleged in the complaint and not by the amount ultimately substantiated and awarded by the trial court — an established principle that controls regardless of the gap between the amount demanded and the amount actually proven.

• Pre-trial Default Doctrine — Under Rule 20, Section 2 of the Rules of Court, a party who fails to appear at a pre-trial conference despite due notice may be non-suited or declared in default. A last-hour motion for postponement does not excuse non-appearance, particularly when the grounds for postponement could properly have been raised at the pre-trial itself. The Court applied this doctrine to affirm the trial court's declaration of default and its reception of plaintiff's evidence ex parte.

• Affidavit of Merits Requirement — A party seeking to set aside an ex parte judgment and obtain a new trial must submit an affidavit of merits demonstrating a valid defense that may be proven. Without such an affidavit, the motion is fatal to the party's cause, because a new trial would serve no purpose if the defense is nil or ineffective. The Court relied on Ferrer vs. Sepeng in finding defendants' failure to submit an affidavit of merits dispositive.

• Waivable Procedural Rules — Oath Requirement in Usury Defenses — The rule that allegations of usury are deemed admitted if not denied specifically and under oath is a procedural rule, and the lack of an oath is a defect subject to waiver, analogous to defective or imperfect verification. The reglementary admission may also be withdrawn with leave of court under the rules on amendment of pleadings. The Court held that defendants, having been declared in default, lost their right to object to the absence of an oath in plaintiff's reply.

• Jurisdiction Determined by Allegations in the Complaint — Jurisdiction over a case is determined by the causes of action as alleged in the complaint, including the total amount claimed, and not by the amount ultimately substantiated and awarded by the trial court. The Court applied this principle to reject defendants' argument that the P8,000 award divested the Court of First Instance of jurisdiction, since the complaint had claimed P11,000.

• "A party who fails to appear at a pre-trial conference may be non-suited or considered as in default." — This passage quotes the controlling provision of Rule 20, Section 2, which the Court applied to affirm the trial court's declaration of default against defendants who failed to appear despite due notice.

• "Jurisdiction is determined by the cause(s) of action as alleged in the complaint and not by the amount ultimately substantiated and awarded by the trial court." — This is the canonical formulation of the jurisdiction-by-allegation principle as applied in this case, frequently cited in subsequent jurisprudence on jurisdictional amount.

• "a new trial would serve no purpose and would just waste the time of the court as well as the parties if the complaint is after all groundless or the defense is nil or ineffective" — This passage, quoted from Ferrer vs. Sepeng, articulates the rationale for the affidavit-of-merits requirement in default proceedings.

• Ferrer vs. Sepeng, L-39373, September 30, 1974 — Followed. Cited for the proposition that an affidavit of merits is essential when seeking to set aside an ex parte judgment and obtain a new trial, because a new trial would serve no purpose if the defense is nil or ineffective.

• Rule 20, Section 2, Rules of Court — Provides that a party who fails to appear at a pre-trial conference may be non-suited or considered as in default. Applied to uphold the trial court's declaration of default against defendants who did not appear at the November 28, 1968 pre-trial despite due notice.

• Rule 9, Section 1, Rules of Court — Provides that allegations of usury are deemed admitted if not denied specifically and under oath. The Court treated the oath requirement as a waivable procedural defect rather than a jurisdictional bar, since defendants had been declared in default and lost the right to object.

• Rule 16, Section 5, Rules of Court — Allows an affirmative defense in the answer to be heard preliminarily as if raised in a motion to dismiss. Defendants invoked this provision in their last-hour motion for postponement, but the Court held it did not excuse their non-appearance at the scheduled pre-trial.

• Rule 10, Sections 2 and 3, Rules of Court — Permit substantial amendments of pleadings as a matter of right before the action is placed on the trial calendar, and upon leave of court thereafter. Cited to support the proposition that the reglementary admission arising from failure to deny usury under oath may be withdrawn with leave of court.

Castro (Chairman), Makasiar, Esguerra, and Muñoz Palma, JJ., concurred.