Omico Mining and Industrial Corporation vs. Judge Vallejos

A defendant illegally declared in default while a motion to dismiss remains pending may resort to certiorari to nullify both the order of default and the judgment by default, and a motion to dismiss that affords the opposing party sufficient notice of the time and place of hearing is not a "useless piece of paper" despite technical defects in the notice of hearing.

Alfredo Catolico was, at the relevant time, a judge of the Court of First Instance of Cavite and a stockholder of Omico Mining and Industrial Corporation. On October 13, 1968, while serving on the bench, Catolico entered into a contract of personal and professional services with Omico Mining and its president, Frederick G. Webber, under which he would head the corporation's legal department and render legal services after office hours in consideration of an annual salary and contingent commissions. Section 35 of Rule 138 of the Revised Rules of Court prohibits judges of courts of record from engaging in private practice of law. Catolico retired from the judiciary on January 12, 1974, during the pendency of the proceedings below.

On June 1, 1973, Alfredo Catolico, then a judge of the Court of First Instance of Cavite, filed a complaint in the same court, docketed as Civil Case No. N-1963 and assigned to Branch II presided by respondent Judge Amador T. Vallejos, against Omico Mining and Industrial Corporation and Frederick G. Webber, the latter in his personal capacity and as president and chairman of the board of the corporation. The complaint alleged two causes of action. The first sought the return of ten stock certificates (Nos. 13437 to 13446) representing 100,000 shares that Catolico alleged had been borrowed from him by the defendants for use as collateral in two failed transactions — a ₱10,000,000 loan negotiation with the Development Bank of the Philippines and a ₱2,000,000 purchase of Bunning and Company of Tuguegarao. Despite repeated demands, the defendants failed to return the certificates. The second cause of action sought payment for legal services rendered under a contract of personal and professional services dated October 13, 1968, under which Catolico was to head the corporation's legal department after office hours, for an annual salary of ₱35,000 and a ten percent commission on amounts saved or won in litigation. Catolico alleged he rendered services until the filing of the complaint severed the relationship, and that defendants refused to render an accounting or pay his emoluments.

Served with summons on June 8, 1973, the defendants filed a motion to dismiss on June 10, 1973 on two grounds: improper venue, Catolico being a resident of Quezon City where his permanent family home was located, and the contract having been entered into in Manila; and lack of cause of action, the stock certificates being in the name of Vicente Resonda, and the contract of professional services being void as Catolico, a judge of the Court of First Instance, was prohibited by Section 35 of Rule 138 from engaging in private practice. The notice of hearing in the motion was addressed to the Clerk of Court, not to plaintiff's counsel, though a copy was sent by registered mail and received by plaintiff's counsel, Atty. Jaime B. Lumasag, one day before the June 16, 1973 hearing date, as certified by the Quezon City Post Office. Neither party appeared on the hearing date. On June 18, 1973, the court issued an order postponing consideration of the motion until defendants showed proof of service upon plaintiff's counsel.

While the motion to dismiss remained pending and defendants had not yet submitted the required proof of service, Catolico filed on January 11, 1974 a petition to declare the defendants in default, arguing that the motion to dismiss was a "useless piece of paper" because its notice of hearing was addressed to the Clerk of Court rather than to opposing counsel, citing Philippine Advertising Counselors, Inc. vs. Revilla. The court granted the petition on January 15, 1974, received Catolico's evidence ex parte, and rendered judgment by default on January 29, 1974, ordering defendants to return the ten stock certificates or deliver equivalent replacements, to pay ₱1,186,435.11 with legal interest, ₱10,000 in attorney's fees, and costs. Defendants filed a motion for reconsideration on March 5, 1974, arguing that the notice of hearing requirements had been substantially complied with and that the motion to dismiss contained meritorious defenses. On May 31, 1974, while the motion for reconsideration was still pending, Catolico filed a motion for immediate execution of judgment. On June 18, 1974, the court simultaneously denied the motion for reconsideration and ordered the issuance of a writ of execution, appointing City Sheriff Leonardo Alcid to execute it. Defendants filed a notice of appeal on June 19, 1974, and the sheriff served a notice of garnishment the same day. On July 25, 1974, defendants filed the instant petition for certiorari with the Supreme Court.

• Improper Venue and Lack of Cause of Action: Petitioners argued that the complaint was filed in the wrong venue, Catolico being a resident of Quezon City and the contract having been entered into in Manila, and that the complaint stated no cause of action because the stock certificates were in the name of Vicente Resonda and the professional services contract was void, Catolico being a judge prohibited from private practice under Section 35 of Rule 138.
• Validity of Motion to Dismiss: Petitioners maintained that their motion to dismiss was not a "useless piece of paper" because they had complied with Section 10 of Rule 13 by furnishing plaintiff's counsel a copy by registered mail, which counsel received before the hearing date, and that they could not submit the return card because they had not received it from the post office.
• Irregularity of Default Order: Petitioners contended that the default order was irregular because the motion to dismiss was still pending and undisposed of, and that the ruling in Philippine Advertising Counselors, Inc. did not apply because the facts were at variance with those of the present case.
• Adequacy of Certiorari: Petitioners argued that appeal was an inadequate remedy to protect their rights, because without the restraining order issued by the Supreme Court, the respondents could have executed the decision and orders in question.

• Motion to Dismiss as "Useless Piece of Paper": Respondent Judge justified his refusal to act on the motion to dismiss by arguing that its notice of hearing was addressed to the Clerk of Court, not to the party concerned, rendering it a "useless piece of paper" without legal standing, pursuant to the ruling in Philippine Advertising Counselors, Inc. vs. Revilla.
• Unavailability of Certiorari: Private respondent Catolico argued that the remedy of certiorari and prohibition was no longer available because petitioners had already perfected their appeal, making ordinary appeal the proper and exclusive remedy.

• Validity of Default Order: Whether the respondent Judge acted without or in excess of jurisdiction or with grave abuse of discretion in declaring the defendants in default, receiving plaintiff's evidence ex parte, and rendering judgment thereon while the motion to dismiss remained pending.
• Propriety of Certiorari: Whether ordinary appeal, rather than certiorari and prohibition, is the proper remedy available to petitioners.

• Validity of Default Order: Yes. The respondent Judge committed grave abuse of discretion in declaring defendants in default while their motion to dismiss remained pending and undisposed of, as the period for filing an answer had not yet commenced to run anew under Section 4 of Rule 16.
• Propriety of Certiorari: No. Certiorari was the proper remedy, not ordinary appeal, because the default order was a patent nullity and the trial court had already ordered the issuance of a writ of execution, rendering appeal inadequate.

• Validity of Default Order: The notice of hearing in the motion to dismiss, though addressed to the Clerk of Court rather than to opposing counsel, stated the time and place of hearing, and a copy was sent by registered mail and actually received by plaintiff's counsel one day before the hearing date. What is decisive is that the opposing party had sufficient notice of the time and place of hearing. The Court invoked Manila Surety and Fidelity Co., Inc. vs. Bath Construction, which held that unless the movant sets the time and place of hearing, the court would have no way to determine whether the party agrees or objects, but where notice is sufficient, technical defects may be cured. Circumstances may be "substantive enough to truncate the adverse literal application of the pertinent rules violated." Because the motion to dismiss was pending and undisposed of when the default order was issued, the declaration of default was irregular. Under Section 4 of Rule 16, the period for filing an answer commences to run anew only from receipt of notice of the denial or deferment of the motion to dismiss. Since petitioners were declared in default before their motion to dismiss was resolved, their time to answer had not yet begun to run, making the default order, the ex parte reception of evidence, and the judgment patent nullities amounting to a denial of due process. The Court further noted the respondent Judge's ambivalence: he was unduly strict with defendants' motion but unduly liberal with plaintiff's motions, which lacked notices of hearing or proof of service, yet were readily granted — conduct falling short of the requirement that a judge's conduct be free not only from impropriety but also from the appearance of impropriety.

• Propriety of Certiorari: A defendant validly declared in default is limited to the remedy of appeal under Section 2, paragraph 3 of Rule 41, contesting only the judgment on the ground that it is contrary to evidence or law. A defendant illegally declared in default, however, retains the right to participate in the trial and may resort to certiorari to nullify both the order of default and the judgment by default as intrinsically void. The petitioners correctly chose certiorari because they challenged the judgment not on evidentiary or legal grounds but on the ground that it was rendered pursuant to a patently invalid order of default. Moreover, even assuming appeal was available, it was no longer adequate and speedy because the trial court had already ordered the issuance of a writ of execution, invoking Vda. de Saludes vs. Pajarillo and Bautista, which held that appeal is not adequate where an order of execution has issued. The Court additionally observed that the underlying contract of professional services was void under Article 1409 of the Civil Code, as its cause and purpose were contrary to law and public policy — specifically Section 35 of Rule 138, which prohibits judges from engaging in private practice of law. The inhibitory rule is based on sound public policy: it obliges judicial officers to devote full time to their duties, prevents them from favoring private interests, and assures the public of their impartiality.

• Pending Motion to Dismiss Bars Default Order — It is generally irregular to enter an order of default while a motion to dismiss remains pending and undisposed of. Under Section 4 of Rule 16, the movant's period to file an answer commences to run anew only from receipt of notice of the denial or deferment of the motion to dismiss. A default order issued before the motion to dismiss is resolved is a patent nullity, as the defendant's time to answer has not yet begun to run.

• Distinction Between Validly and Illegally Declared Default — A defendant validly declared in default irreparably loses the right to participate in the trial and is limited to appealing the judgment on the ground that it is contrary to evidence or law. A defendant illegally declared in default retains the right to participate and may resort to certiorari to nullify both the order of default and the judgment by default as intrinsically void, even before promulgation of judgment or thereafter.

• Sufficient Notice Cures Technical Defects in Motion Practice — Where the opposing party has sufficient notice of the time and place of hearing of a motion, technical defects in the form of the notice (e.g., the notice being addressed to the Clerk of Court rather than to opposing counsel) may be disregarded. Circumstances may be "substantive enough to truncate the adverse literal application of the pertinent rules violated."

• Prohibition on Judges Engaging in Private Practice of Law — Section 35 of Rule 138 prohibits judges of courts of record from engaging in private practice of law. A contract of professional legal services entered into by a sitting judge is void from the beginning under Article 1409 of the Civil Code, as its cause and purpose are contrary to law and public policy. The rule ensures full devotion to judicial duties, prevents conflicts of interest, and assures public impartiality.

• Certiorari Available Despite Appeal When Execution Looms — The general rule that certiorari does not lie when appeal is available is relaxed where the trial court has already ordered the issuance of a writ of execution, rendering appeal an inadequate and speedy remedy.

• "The motion to dismiss was pending before the court when such declaration was made, and it is generally irregular to enter an order of default while a motion to dismiss remains pending and undisposed of." — This passage states the ratio decidendi on the procedural impropriety of declaring default while a motion to dismiss is unresolved, a principle frequently cited in subsequent procedural jurisprudence.

• "A defendant who is properly declared in default is differently situated from one who is improvidently declared in default. The former irreparably loses his right to participate in the trial, while the latter retains such right and may exercise the same after having the order of default and the subsequent judgment by default annulled and the case remanded to the court of origin." — This passage articulates the canonical distinction between valid and illegal default declarations, establishing the doctrinal basis for certiorari as a remedy against void default orders.

• "Private respondent should have known or ought to know, that when he was elevated to the Bench of the Court of First Instance as a judge thereof, his right to practice law as an attorney was suspended and continued to be suspended as long as he occupied the judicial position." — This passage defines the scope and effect of the prohibition on judges engaging in private practice, grounding the nullity of the professional services contract on public policy.

• Philippine Advertising Counselors, Inc. vs. Revilla, G.R. No. L-31869 (1973) — Cited by respondent Judge as basis for treating the motion to dismiss as a "useless piece of paper." The Court distinguished this case, holding that its literal application was truncated by the circumstance that plaintiff's counsel had actually received sufficient notice of the hearing.
• Manila Surety and Fidelity Co., Inc. vs. Bath Construction and Company, 14 SCRA 435 — Followed for the proposition that unless the movant sets the time and place of hearing, the court cannot determine whether the party agrees or objects, but where notice is sufficient, the purpose of the rule is served.
• Matute vs. Court of Appeals, 26 SCRA 768 — Followed for the distinction between a validly and an illegally declared default, and for the proposition that certiorari is available to a defendant improvidently declared in default.
• Vda. de Saludes vs. Pajarillo and Bautista, 78 Phil. 754 — Followed for the doctrine that appeal is not an adequate remedy where the trial court has already ordered the issuance of a writ of execution.
• Mapua vs. Mendoza, 45 Phil. 424 — Cited for the proposition that it is irregular to enter an order of default while a motion to dismiss remains pending.

• Section 35, Rule 138, Revised Rules of Court — Prohibits judges of courts of record from engaging in private practice of law. Applied to hold that the contract of professional services entered into by Catolico while serving as a judge of the Court of First Instance was void as contrary to law and public policy.
• Section 4, Rule 16, Revised Rules of Court — Provides that if a motion to dismiss is denied or its determination deferred, the movant shall file his answer within the period prescribed by Rule 11, computed from receipt of notice of the denial or deferment. Applied to establish that the defendants' period to answer had not yet commenced to run when they were declared in default.
• Article 1409, Civil Code of the Philippines — Provides that contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are inexistent and void from the beginning. Applied to declare the professional services contract void.
• Section 4, Rule 15, Revised Rules of Court — Requires that notice of a motion be served on all parties concerned at least three days before the hearing. Discussed in the context of the notice-of-hearing requirements, but the Court held that substantial compliance sufficed where the opposing party received actual notice.
• Section 2, paragraph 3, Rule 41, Revised Rules of Court — Allows a defendant declared in default to appeal from the judgment on the ground that it is contrary to evidence or law. Distinguished as applying only to validly declared defaults, not to illegally declared ones.

Makalintal, C.J., Fernando, Teehankee, Barredo, Makasiar, Esguerra, Fernandez, and Aquino, JJ., concurred. Castro, J., concurred in the result. Muñoz Palma, J., was on leave.