Momarco Import Company, Inc. vs. Villamena

A default judgment will not be vacated unless the defendant satisfactorily explains the failure to file the answer and shows that it has a meritorious defense; voluntary appearance by counsel constitutes service of summons equivalent to actual service and vests jurisdiction over the defendant; and while courts should generally be liberal in setting aside orders of default, they may refuse to do so where the defendant demonstrates inordinate delay, insincerity, and an intent to cause delay by failing to seek immediate relief from the order of default before judgment is rendered.

Felicidad Villamena discovered that her property in Caloocan City, registered under Transfer Certificate of Title No. 204755, had been transferred to Momarco Import Company, Inc. based on a Deed of Absolute Sale dated May 21, 1997, purportedly executed by her as attorney-in-fact for her late husband Dominador Villamena under a Special Power of Attorney also dated May 21, 1997. Dominador Villamena had died on June 22, 1991, rendering the Special Power of Attorney a forgery. Villamena claimed she had only executed a real estate mortgage for P100,000.00 to secure a loan, not a deed of absolute sale, and filed suit to nullify the transfer and reinstate her title.

• Felicidad Villamena is the registered owner of a parcel of land with improvements in Caloocan City covered by Transfer Certificate of Title No. 204755.
• On June 12, 1997, Momarco Import Company, Inc. sent a letter to Villamena informing her that TCT No. 204755 had been cancelled and TCT No. C-319464 was issued in its favor based on a purported Special Power of Attorney and Deed of Absolute Sale both dated May 21, 1997.
• Villamena's husband, Dominador Villamena, died on June 22, 1991, making the Special Power of Attorney dated May 21, 1997 a forgery since he could not have executed it.
• Villamena alleged that what she actually executed was a deed of real estate mortgage to secure a loan of P100,000.00, not a deed of absolute sale.
• Momarco claimed that Villamena and her daughter approached its president for a loan, offered the property as collateral, presented a Special Power of Attorney from her husband, and later offered to execute a deed of sale when unable to pay the accumulated principal and interest.
• Summons was allegedly served but no sheriff's return was filed; an alias summons was served on January 20, 1998.
• Counsel for Momarco filed an Entry of Appearance on May 4, 1998, but filed the Answer with Counterclaim only on September 10, 1998, more than four months after the voluntary appearance.
• Villamena filed a motion to declare Momarco in default on August 19, 1998, which the RTC granted on October 15, 1998, ordering the answer stricken from the records.
• Momarco did not file a motion to lift the order of default prior to the rendition of the default judgment on August 23, 1999, despite having received notice.
• The default judgment nullified the Deed of Absolute Sale and TCT No. C-319464, and ordered the reinstatement of Villamena's TCT No. 204755.

• The service of summons and copy of the complaint was defective due to the absence of a sheriff's return, and the service of the alias summons on January 20, 1998 was likewise defective, preventing the reglementary period to file an answer from commencing.
• The filing of the answer on September 10, 1998 before the declaration of default on October 15, 1998 should have been admitted by the RTC.
• The denial of its right to due process through the default judgment constituted grave error.
• It possessed a meritorious defense: the transaction was a loan secured by a real estate mortgage that transformed into a sale due to Villamena's inability to pay, and it relied on the Special Power of Attorney and deed presented by Villamena.

• The filing of the formal entry of appearance by counsel on May 4, 1998 constituted voluntary appearance under Rule 14, Section 20, which cured any defect in the service of summons and vested jurisdiction over the petitioner.
• The petitioner filed its answer only after more than four months from its voluntary appearance and almost a month after the motion to declare it in default was filed, demonstrating inordinate delay.
• The petitioner failed to move for the lifting of the order of default immediately after notice thereof or anytime before judgment, indicating it wagered on obtaining a favorable judgment rather than seeking the expeditious remedy available under the rules.
• The petitioner failed to substantiate its claim of meritorious defense or specify the circumstances of fraud, accident, mistake, or excusable negligence that prevented the timely filing of its answer.
• Liberal construction of procedural rules is intended to secure a just, speedy, and inexpensive disposition of actions, not to suit the convenience of a party who seeks to cause delay.

• Procedural:
  • Whether the Court of Appeals gravely erred in upholding the default judgment rendered by the Regional Trial Court
  • Whether the service of summons was defective such that jurisdiction over the person of the petitioner was not acquired
  • Whether the Regional Trial Court erred in ordering the petitioner's answer stricken from the records and in declaring it in default
  • Whether the Regional Trial Court erred in allowing the respondent to present evidence ex parte
• Substantive Issues:
  • Whether the petitioner satisfactorily explained its failure to file a timely answer and demonstrated a meritorious defense warranting the vacation of the default judgment

• Procedural:
  • The filing of the formal entry of appearance on May 4, 1998 indicated the petitioner's awareness of the complaint and constituted voluntary appearance equivalent to service of summons under Rule 14, Section 20 of the Rules of Court, which cured any defect in the service of summons and vested jurisdiction over the person of the petitioner.
  • The three requirements under Section 3, Rule 9 for declaring a party in default were satisfied: (1) the claiming party filed a motion praying that the court declare the defending party in default; (2) the defending party was notified of the motion; and (3) the claiming party proved that the defending party failed to answer within the period provided.
  • The Regional Trial Court appropriately directed the answer to be stricken from the records and declared the petitioner in default on October 15, 1998, and properly allowed the respondent to present evidence ex parte pursuant to the Rules of Court.
  • The petitioner's remedy was to move for the lifting of the declaration of default prior to the rendition of judgment, which it failed to do despite notice, rendering the default proper.
• Substantive:
  • The petitioner failed to satisfactorily explain its failure to file a timely answer or show a meritorious defense as required to vacate a default judgment under Section 3, Rule 9 and prevailing jurisprudence.
  • The petitioner merely insisted that it had filed an answer and possessed a meritorious defense without substantiation, and failed to specify the circumstances of fraud, accident, mistake, or excusable negligence that prevented the timely filing of its answer.
  • The petitioner's inordinate delay of more than four months from voluntary appearance to filing answer, coupled with its failure to seek immediate relief from the order of default before judgment, demonstrated insincerity and an intent to cause delay to the detriment of the respondent.
  • While courts should generally be liberal in setting aside orders of default to allow cases to be heard on the merits, they cannot ignore the abuse of procedural rules by litigants who demonstrate through their conduct that they only have themselves to blame for the default.
  • The default judgment nullifying the Deed of Absolute Sale and Transfer Certificate of Title No. C-319464, and ordering the reinstatement of respondent's Transfer Certificate of Title No. 204755, is affirmed.

• Voluntary Appearance — Under Rule 14, Section 20 of the Rules of Court, a defendant's voluntary appearance in the action is equivalent to service of summons. The Court held that the filing of a formal entry of appearance by counsel, when not made for the purpose of objecting to the jurisdiction of the court over the person of the defendant, constitutes voluntary appearance that cures any defect in the service of summons and vests jurisdiction over the person of the defendant.
• Declaration of Default (Section 3, Rule 9) — The three mandatory requirements before a defending party can be declared in default are: (1) the claiming party must file a motion praying that the court declare the defending party in default; (2) the defending party must be notified of the motion to declare it in default; and (3) the claiming party must prove that the defending party failed to answer the complaint within the period provided by the rule. Default cannot be declared motu proprio.
• Philosophy of Default — As discussed in Gochangco v. CFI Negros Occidental, the underlying philosophy of the doctrine of default is that a defendant's failure to answer is attributable to either: (a) realization of having no defenses and resolving not to oppose the complaint, or (b) having good defenses but being prevented by fraud, accident, mistake, or excusable negligence. In the latter case, the defendant must seek relief through proper motions before judgment.
• Vacating Default Judgments — A default judgment will not be vacated unless the defendant satisfactorily explains the failure to file the answer and shows that it has a meritorious defense. The defendant must allege a suitable explanation for the failure or delay through a motion to lift the order of default under oath, specifying the circumstances of fraud, accident, mistake, or excusable negligence, and must do so before the default judgment is rendered to avert the judgment.

• "A default judgment is frowned upon because of the policy of the law to hear every litigated case on the merits. But the default judgment will not be vacated unless the defendant satisfactorily explains the failure to file the answer, and shows that it has a meritorious defense."
• "A default judgment does not pretend to be based upon the merits of the controversy. Its existence is justified on the ground that it is the one final expedient to induce defendant to join issue upon the allegations tendered by the plaintiff, and to do so without unnecessary delay. A judgment by default may amount to a positive and considerable injustice to the defendant; and the possibility of such serious consequences necessitates a careful examination of the grounds upon which the defendant asks that it be set aside."
• "The underlying philosophy of the doctrine of default is that the defendant's failure to answer the complaint despite receiving copy thereof together with summons, is attributable to one of two causes: either (a) to his realization that he has no defenses to the plaintiff's cause and hence resolves not to oppose the complaint, or, (b) having good defenses to the suit, to fraud, accident, mistake or excusable negligence which prevented him from seasonably filing an answer setting forth those defenses."
• "Procedural rules are not to be disregarded as mere technicalities that may be ignored at will to suit the convenience of a party. x x x. It cannot be overemphasized that procedural rules have their own wholesome rationale in the orderly administration of justice. Justice has to be administered according to the rules in order to obviate arbitrariness, caprice and whimsicality."

• Coombs v. Santos — Cited for the principle that a default judgment does not pretend to be based upon the merits of the controversy and requires careful examination of the grounds upon which the defendant asks that it be set aside due to the possibility of serious injustice to the defendant.
• Gochangco v. CFI Negros Occidental — Cited for the underlying philosophy of the doctrine of default regarding the two causes for failure to answer and the liberal reliefs available to defendants who have valid reasons for their default.
• Cezar v. Ricafort-Bautista — Cited for the principle that voluntary appearance vests jurisdiction over the person of the defendant and cures any defect in the service of summons.
• Delos Santos v. Carpio — Cited for the three requirements under Section 3, Rule 9 for properly declaring a party in default.
• Trajano v. Cruz — Cited for the principle that the default of the defending party cannot be declared motu proprio.
• Montinola, Jr. v. Republic Planters Bank — Cited for the requirement that a motion to lift the order of default must be verified and must show that the movant has a meritorious defense.
• Cathay Pacific Airways, Ltd. v. Romillo, Jr. — Cited for the principle that courts may admit answers filed beyond the reglementary period but before the declaration of default, and for the discretion of courts in refusing to set aside default orders where no justification exists for the delay.
• Malipod v. Tan — Cited for the principle that courts have discretion to permit the filing of an answer beyond the reglementary period or to refuse to set aside the default order where they find no justification for the delay in the filing of the answer.
• Acance v. Court of Appeals — Cited for the principle that while courts should avoid orders of default, they should be, as a rule, liberal in setting aside orders of default.

• Rule 14, Section 20 of the Rules of Court — Provides that the defendant's voluntary appearance in the action shall be equivalent to service of summons, and that the inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.
• Section 3, Rule 9 of the Rules of Court — Governs the declaration of default, requiring a motion by the claiming party with notice to the defending party, proof of failure to answer, and providing that the court shall proceed to render judgment granting the claimant such relief as the pleading may warrant unless the court requires the claimant to submit evidence.