Philippine Pryce Assurance Corporation vs. Court of Appeals and Gegroco, Inc.

A party who fails to appear at a mandatory pre-trial conference despite due notice may be declared in default, and a third-party complaint on which no docket fees have paid is considered not filed and confers no jurisdiction on the court.

Gegroco, Inc. filed a complaint for a sum of money against Interworld Assurance Corporation (later Philippine Pryce Assurance Corporation) to collect on two surety bonds (P500,000 and P1,000,000) issued by the petitioner on behalf of its principal, Sagum General Merchandise. The petitioner admitted issuing the bonds but denied liability, alleging that the premium checks had bounced and that excussion was necessary. During pre-trial proceedings, the petitioner repeatedly failed to appear, leading to a declaration of default and an ex-parte presentation of evidence for the respondent. The petitioner also filed a third-party complaint against its principal but did not pay the corresponding docket fees.

• Nature of the Action: Gegroco, Inc. filed a complaint for collection of a sum of money against petitioner Philippine Pryce Assurance Corporation to enforce two surety bonds (Nos. 0029 and 0037) issued on behalf of Sagum General Merchandise.
• Petitioner's Defense: In its Answer, petitioner admitted issuing the bonds but denied liability, claiming the premium checks bounced (voiding the contract) and that excussion against the principal was required.
• Pre-trial Defaults: Petitioner's counsel appeared at the first pre-trial on September 29, 1988, but without the required "special authority" from the client. The pre-trial was reset. On the new dates (December 1, 1988, and February 1, 1989), neither petitioner nor its counsel appeared despite notice.
• Third-Party Complaint: Petitioner filed a third-party complaint against its principal but failed to pay the required docket fees.
• Lower Court Rulings: The RTC declared petitioner in default, allowed ex-parte evidence, and ruled in favor of Gegroco, Inc. The Court of Appeals affirmed.

• Ripeness for Pre-trial: Petitioner argued that the case was not yet ripe for pre-trial because the third-party defendant's answer (the last pleading) had not been filed.
• Docket Fees Jurisdiction: Petitioner contended that the Court of Appeals erred by applying the strict Manchester doctrine on non-payment of docket fees instead of the more liberal Sun Insurance doctrine.
• Meritorious Defense: Petitioner asserted that remand was necessary because it had a meritorious defense (no contract due to unpaid premiums and lack of authority to issue bonds).

• Mandatory Pre-trial: Respondent countered that pre-trial is mandatory and petitioner's non-appearance, without valid justification, warranted a declaration of default.
• Jurisdiction over Third-Party Complaint: Respondent argued that non-payment of docket fees for the third-party complaint meant the court never acquired jurisdiction over it, rendering it a "mere scrap of paper."
• No Valid Defense: Respondent maintained that petitioner's defenses were unmeritorious, as the Insurance Code (Sec. 177) provides that a bond is valid and enforceable once accepted by the obligee, irrespective of premium payment.

• Pre-trial Default: Whether the petitioner's non-appearance at the pre-trial conference justified its being declared in default.
• Docket Fees and Jurisdiction: Whether the failure to pay docket fees for the third-party complaint deprived the trial court of jurisdiction over it.
• Applicability of Doctrines: Whether the Manchester or Sun Insurance doctrine should apply to the non-payment of docket fees.
• Propriety of Remand: Whether the case should be remanded for further proceedings due to the petitioner's alleged meritorious defense.

• Pre-trial Default: The declaration of default was proper. Pre-trial is mandatory under the Rules of Court, and a party's failure to appear may result in being non-suited or declared in default. Petitioner's repeated absence, despite notice, and its counsel's lack of special authority to bind the client at the first pre-trial, justified the default order.
• Docket Fees and Jurisdiction: The third-party complaint was correctly treated as not filed. Jurisdiction over the subject matter of a complaint, including third-party complaints, is acquired only upon payment of the prescribed docket fees. Since petitioner never paid, the court never acquired jurisdiction over that pleading.
• Applicability of Doctrines: The distinction between Manchester and Sun Insurance was irrelevant. Both reiterate the fundamental rule that payment of docket fees is jurisdictional. Unlike in those cases, petitioner here made no attempt to pay any fee, so the strict rule applied.
• No Basis for Remand: Remand was unnecessary. Petitioner's defenses were found to be without merit. Its claim of no contract due to unpaid premiums was negated by Section 177 of the Insurance Code, as the obligee (respondent) had accepted the bonds. Its claim of lack of authority to issue bonds was an admission of fraud and could not be used to escape liability.

• Mandatory Nature of Pre-trial — Pre-trial is intended to simplify, abbreviate, and expedite trial. Non-appearance by a party or its authorized representative may result in a declaration of default or non-suit.
• Jurisdictional Nature of Docket Fees — The payment of the prescribed docket fees is what vests a trial court with jurisdiction over the subject matter of an action or a pleading. This rule applies to original complaints, permissive counterclaims, and third-party complaints. A pleading on which no fees are paid is considered not filed.
• Estoppel by Representation — Under Article 1431 of the Civil Code, a representation made is conclusive upon the person making it and cannot be denied against the person relying on it. A party cannot benefit from its own misrepresentation (e.g., issuing a bond without authority).

• "The pre-trial is mandatory in any action, the main objective being to simplify, abbreviate and expedite trial, if not to fully dispense with it."
• "Unless and until the corresponding docket fees are paid, the trial court would not acquire jurisdiction over the third-party complaint (Manchester Development Corporation vs. Court of Appeals, 149 SCRA 562)."
• "A third-party complaint on which no docket fees have paid is considered not filed and confers no jurisdiction on the court."
• "No person can claim benefit from the wrong he himself committed."

• Manchester Development Corporation v. Court of Appeals, G.R. No. L-75919, 149 SCRA 562 (1987) — Applied for the strict rule that payment of docket fees is jurisdictional and that a pleading is not considered filed until fees are paid.
• Sun Insurance Office, Ltd. (SIOL) v. Asuncion, G.R. No. 79937, 170 SCRA 274 (1989) — Discussed and distinguished; its liberal application was not warranted as petitioner herein made no effort to pay fees.
• Development Bank of the Philippines v. Court of Appeals, G.R. No. 49410, 169 SCRA 409 (1989) — Cited for the rule that a party's failure to appear at pre-trial may result in being declared in default.
• Home Insurance Co. v. U.S. Lines Co., G.R. No. L-25593, 21 SCRA 863 — Cited for the requirement that a representative at pre-trial must have "special authority" to enter into binding agreements.

• Section 1, Rule 20, Rules of Court — Makes pre-trial mandatory.
• Section 5, Rule 141, Rules of Court — Mandates the collection of docket fees for various pleadings, including third-party complaints.
• Section 177, Insurance Code — Provides that a contract of suretyship is valid and binding irrespective of the payment of the premium if the obligee has accepted the bond.
• Article 1431, New Civil Code — Establishes the principle of estoppel by representation.

• Chief Justice Narvasa
• Justice Padilla
• Justice Regalado
• Justice Puno

N/A — The decision was unanimous.