Lui Enterprises, Inc. vs. Zuellig Pharma Corporation and the Philippine Bank of Communications

A motion to set aside an order of default must be filed before judgment and must properly allege and prove that the failure to answer was due to fraud, accident, mistake, or excusable negligence, coupled with a meritorious defense; mere attribution of negligence to counsel without explanatory circumstances constitutes inexcusable negligence that will not justify setting aside the default.

Lui Enterprises, Inc. and Zuellig Pharma Corporation entered into a 10-year lease contract over a parcel of land in Davao City covered by Transfer Certificate of Title No. T-166476 registered under Eli L. Lui. In January 2003, the Philippine Bank of Communications (PBCom) claimed ownership of the property based on a new title (TCT No. 336962) derived from the original title, demanding that Zuellig Pharma pay rent directly to it. Lui Enterprises insisted on its right to collect the rent, creating a conflict that prompted Zuellig Pharma to file an interpleader complaint with the Regional Trial Court of Makati, consigning the rental payments in court.

• On March 9, 1995, Lui Enterprises, Inc. and Zuellig Pharma Corporation entered into a 10-year lease contract over a parcel of land located in Barrio Tigatto, Buhangin, Davao City, covered by Transfer Certificate of Title No. T-166476 registered under Eli L. Lui.
• On January 10, 2003, Zuellig Pharma received a letter from the Philippine Bank of Communications claiming to be the new owner of the leased property based on Transfer Certificate of Title No. 336962 (derived from T-166476), demanding that rent be paid directly to the bank.
• On January 28, 2003, Lui Enterprises wrote to Zuellig Pharma insisting on its right to collect the rental payments.
• Due to conflicting claims, Zuellig Pharma filed a complaint for interpleader with the Regional Trial Court of Makati, consigning P604,024.35 as rental payments and praying that it be allowed to consign succeeding monthly rentals and that Lui Enterprises and PBCom be ordered to litigate their conflicting claims.
• Lui Enterprises filed a motion to dismiss on the ground that Zuellig Pharma's representative lacked authority to file the complaint, and that a pending nullification of deed of dation in payment case in RTC Davao (filed by Lui Enterprises against PBCom) barred the interpleader case.
• Summons was served on Lui Enterprises on July 4, 2003, giving it until July 19, 2003 to file an answer or motion to dismiss; however, Lui Enterprises filed its motion to dismiss only on July 23, 2003.
• The RTC Davao had issued a writ of preliminary injunction dated July 2, 2003 ordering status quo with respect to the rent in the nullification case.
• The RTC Makati denied the motion to dismiss and declared Lui Enterprises in default in an Order dated October 6, 2003.
• Lui Enterprises did not move for reconsideration of the default order but filed a manifestation with prayer dated April 15, 2004 citing an RTC Davao order dated April 1, 2004 regarding status quo on rental payments.
• On October 21, 2004 (one year after the default order), Lui Enterprises filed a motion to set aside order of default alleging excusable negligence due to the negligence of its former counsel.
• On April 21, 2005, Lui Enterprises filed another manifestation and motion to dismiss citing an RTC Davao order dated April 18, 2005.
• The RTC Makati denied the manifestation and motion to dismiss on the ground that Lui Enterprises had already lost its standing in court, and subsequently rendered judgment on July 4, 2006 awarding the consigned amount to PBCom and ordering Lui Enterprises to pay P50,000.00 attorney's fees to Zuellig Pharma.

• The Court of Appeals applied the rules of procedure strictly and dismissed its appeal on technicalities; it should have taken a liberal stance and allowed the appeal despite the lack of subject index, page references, table of cases, textbooks and statutes cited, and statement of issues in the appellant's brief.
• The trial court should have set aside the order of default since the failure to file a motion to dismiss on time was due to excusable negligence attributable to former counsel.
• The pending nullification of deed of dation in payment case in RTC Davao barred the filing of the interpleader case in RTC Makati because both cases involved the same issue of which corporation had the better right to the rent; to avoid conflicting rulings, the subsequently filed interpleader case should be dismissed.
• No attorney's fees should have been awarded to Zuellig Pharma because it filed the interpleader case despite knowledge of the pending Davao case, constituting bad faith.

• Lui Enterprises failed to raise any error of law warranting review by the Supreme Court.
• The motion to dismiss was filed four days late, and the motion to set aside order of default was filed one year after the default order without proper showing of excusable negligence; mere negligence of counsel is not excusable negligence.
• The nullification case did not bar the interpleader case because Zuellig Pharma was not a party to the nullification case, and the reliefs prayed for were different.
• Zuellig Pharma was compelled to litigate to protect its interests from conflicting claims, justifying the award of attorney's fees.

• Procedural Issues:
  • Whether the Court of Appeals erred in dismissing Lui Enterprises' appeal for lack of subject index, page references to the record, table of cases, textbooks and statutes cited, and statement of issues in the appellant's brief.
  • Whether the Regional Trial Court erred in denying Lui Enterprises' motion to set aside order of default.
• Substantive Issues:
  • Whether the annulment of deed of dation in payment pending in the Regional Trial Court of Davao barred the subsequent filing of the interpleader case in the Regional Trial Court of Makati (litis pendentia).
  • Whether Zuellig Pharma was entitled to attorney's fees.

• Procedural:
  • The Court of Appeals did not err in dismissing the appeal. Under Rule 50, Section 1(f) and Rule 44, Section 13 of the 1997 Rules of Civil Procedure, the appellant's brief must contain a subject index, page references to the record, and a table of cases, textbooks and statutes cited. Lui Enterprises admitted these omissions and failed to correct them by filing an amended brief. Unlike in cases where substantial compliance was found, Lui Enterprises completely failed to comply with these mandatory requirements, which are designed to assist the appellate court and enhance the orderly administration of justice.
  • The Regional Trial Court did not err in denying the motion to set aside order of default. Under Rule 9, Section 3(b), a party declared in default may file a motion to set aside the order upon proper showing that failure to answer was due to fraud, accident, mistake, or excusable negligence, and that the party has a meritorious defense. Lui Enterprises merely attributed the delay to counsel's negligence without explaining the circumstances surrounding such negligence. Filing the motion to dismiss four days late and waiting one year to file the motion to set aside default, coupled with the failure to explain why counsel was negligent, constitutes inexcusable negligence.
• Substantive:
  • The nullification of deed of dation in payment case did not bar the interpleader case. The requisites of litis pendentia are: (1) identity of parties or at least such as represent the same interest; (2) identity of rights asserted and reliefs prayed for, founded on the same facts; and (3) identity such that judgment in one would amount to res judicata in the other. Here, there was no identity of parties because Zuellig Pharma was not a party to the nullification case. There was also no identity of reliefs: the nullification case sought to recover ownership of the property, while the interpleader case sought to extinguish the lessee's obligation to pay rent. Thus, litis pendentia was not present.
  • Zuellig Pharma was not entitled to attorney's fees. Under Article 2208 of the Civil Code, attorney's fees are the exception rather than the rule and cannot be recovered absent stipulation except under specific circumstances, such as when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. However, the fact that Zuellig Pharma had to file an interpleader case to consign rental payments did not mean Lui Enterprises acted in bad faith in insisting on its right to collect rent. The award lacked factual, legal, and equitable justification and was deleted.

• Excusable Negligence — Negligence that ordinary diligence and prudence could not have guarded against; to set aside an order of default, the circumstances constituting excusable negligence must be properly alleged and proved, not merely attributed to counsel without explanation.
• Litis Pendentia — A ground for dismissal when another action is pending between the same parties for the same cause; requires identity of parties, identity of rights asserted and reliefs prayed for founded on the same facts, and identity such that judgment in one would be res judicata in the other.
• Substantial Compliance with Appellate Rules — While courts may relax strict compliance with procedural rules in the interest of justice, this applies only when the party has substantially complied with the rules and has corrected procedural lapses; complete non-compliance with mandatory requirements for an appellant's brief warrants dismissal.
• Attorney's Fees as Exception — Attorney's fees are not awarded as a matter of course to the prevailing party; they require factual, legal, and equitable justification, and the court must state the basis for the award in its decision.

• "There should be no inexplicable delay in the filing of a motion to set aside order of default. Even when a motion is filed within the required period, excusable negligence must be properly alleged and proven."
• "Excusable negligence is 'one which ordinary diligence and prudence could not have guarded against.' The circumstances should be properly alleged and proved."
• "Procedural rules are not to be disregarded or dismissed simply because their non-observance may have resulted in prejudice to a party's substantive rights. Like all rules[,] they are to be followed, except only when for the most persuasive of reasons they may be relaxed to relieve a litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed."
• "A court cannot enjoin the proceedings of a co-equal court."

• Mendoza v. United Coconut Planters Bank, Inc. — Cited as precedent for upholding dismissal of appeal where appellant's brief lacked subject index, assignment of errors, and page references; appeal is a statutory right requiring strict compliance with rules.
• De Liano v. Court of Appeals — Cited for the rule that the right to appeal must be exercised in the manner prescribed by law and requires strict compliance with the Rules of Court.
• Philippine Coconut Authority v. Corona International, Inc. — Distinguished; case where substantial compliance with appellant's brief requirements was found, justifying relaxation of rules.
• Go v. Chaves — Distinguished; case where procedural lapse was excused because appellant subsequently filed subject index and brief was only 17 pages.
• Gochangco v. The Court of First Instance of Negros Occidental, Branch IV — Cited for the rationale behind default: it is not meant to punish the defendant but to enforce prompt filing of answer; for a defendant with good defenses, it would be unnatural not to set them up properly and timely.
• SSS v. Hon. Chaves — Cited for the principle that procedural rules are not to be disregarded simply because non-observance resulted in prejudice, and may only be relaxed for persuasive reasons to relieve injustice not commensurate with the litigant's thoughtlessness.
• Progressive Development Corporation, Inc. v. Court of Appeals — Distinguished; involved same plaintiff and defendant in both actions, unlike the present case where Zuellig Pharma was not a party to the nullification case.
• Compania General de Tabacos de Filipinas v. Court of Appeals — Cited to establish that a court cannot issue a writ of preliminary injunction against a co-equal court; the cited portion in the petition was taken out of context.

• Rule 9, Section 3(b) of the 1997 Rules of Civil Procedure — Governs relief from order of default upon showing of fraud, accident, mistake, or excusable negligence and meritorious defense.
• Rule 16, Section 1(e) of the 1997 Rules of Civil Procedure — Grounds for motion to dismiss, including litis pendentia (another action pending between same parties for same cause).
• Rule 44, Section 13 of the 1997 Rules of Civil Procedure — Mandatory contents of appellant's brief, including subject index, page references, and table of cases.
• Rule 50, Section 1(f) of the 1997 Rules of Civil Procedure — Grounds for dismissal of appeal, including absence of specific assignment of errors or page references as required by Rule 44.
• Rule 62, Section 1 of the 1997 Rules of Civil Procedure — When interpleader is proper; allows a person with no interest or undisputed interest in subject matter to bring action against conflicting claimants.
• Rule 62, Section 5 of the 1997 Rules of Civil Procedure — Effect of failure to answer in interpleader; court may render judgment barring claimant from any claim.
• Article 2208 of the Civil Code — Circumstances when attorney's fees may be awarded as indemnity for damages.