Shimizu Philippines Contractors, Inc. vs. Magsalin

An order of dismissal for failure to prosecute that fails to state the facts and law on which it is based is null and void for violation of due process, as it does not conform to Section 1, Rule 36 of the Rules of Court, which requires that judgments and final orders determining the merits state clearly and distinctly the facts and the law on which they are based.

Shimizu Philippines Contractors, Inc. entered into a subcontract agreement with Leticia Magsalin, doing business as "Karen's Trading," for the supply, delivery, installation, and finishing of parquet tiles for floors in the petitioner's Makati City condominium project called "The Regency at Salcedo." FGU Insurance Corporation issued surety and performance bonds for the subcontract. Reynaldo Baetiong, Godofredo Garcia, and Concordia Garcia had executed counter-guaranties over those bonds, making them potential third-party defendants in the event FGU Insurance was held liable.

Shimizu Philippines Contractors, Inc. entered into a subcontract agreement with Leticia Magsalin, doing business as "Karen's Trading," for the supply, delivery, installation, and finishing of parquet tiles for certain floors in the petitioner's Makati City condominium project called "The Regency at Salcedo." FGU Insurance Corporation had issued surety and performance bonds for the subcontract. When Magsalin allegedly breached the agreement, triggering its termination, the petitioner demanded the return of its unliquidated advance payment and an accounting of other monetary liabilities. Magsalin refused despite demand. The petitioner then sent a notice to FGU Insurance demanding damages pursuant to the surety and performance bonds.

On April 30, 2002, the petitioner filed a complaint docketed as Civil Case No. 02-488 against Magsalin and FGU Insurance before Branch 61 of the RTC of Makati City, seeking ₱2,329,124.60 as actual damages for breach of contract. FGU Insurance was duly served with summons, but the officer's return declared that Magsalin and "Karen's Trading" could not be located at their given addresses and that their new addresses could not be determined despite further efforts. In August 2002, FGU Insurance filed a motion to dismiss, which the RTC denied along with the ensuing motion for reconsideration, obliging FGU Insurance to file an answer. In October 2002, the petitioner filed a motion for leave to serve summons on Magsalin by publication. In January 2003, the petitioner filed its reply to FGU Insurance's answer.

In February 2003, FGU Insurance filed a motion for leave to file a third-party complaint against Reynaldo Baetiong, Godofredo Garcia, and Concordia Garcia, who had allegedly executed counter-guaranties over the surety and performance bonds. The RTC admitted the third-party complaint but denied the motion to serve summons by publication on Magsalin, holding that the action against her was in personam. In May 2003, the RTC issued a notice setting the case for hearing on June 20, 2003. FGU Insurance moved to cancel the hearing on the ground that the third-party defendants had not yet filed their answers; the motion was granted. In June 2003, Baetiong filed his answer to the third-party complaint, denying personal knowledge of the bonds. Of the three third-party defendants, only Baetiong filed an answer; the officer's returns on the summons to the Garcias stated that both could not be located at their given addresses. The petitioner claims, and Baetiong does not dispute, that it was not served with a copy of Baetiong's answer.

On December 16, 2003, the RTC issued an order dismissing Civil Case No. 02-488, stating only: "For failure of [petitioner] to prosecute, the case is hereby DISMISSED." The RTC denied the petitioner's motion for reconsideration, prompting the latter to elevate the case to the CA via a Rule 41 petition for review. The CA dismissed the appeal on the ground of lack of jurisdiction, agreeing with FGU Insurance that the appeal raised a pure question of law, and denied the subsequent motion for reconsideration. The petitioner then filed the present petition for review on certiorari before the Supreme Court.

• CA Jurisdiction: Petitioner argued that the CA had jurisdiction to determine the merits of the appeal as the matters therein involved both questions of law and fact.
• Non-Receipt of Baetiong's Answer: Petitioner maintained that the lower court erred in declaring failure to prosecute despite the fact that petitioner never received a copy of the answer of third-party defendant Baetiong.
• No Joinder of Indispensable Parties: Petitioner argued that there was no joinder of indispensable parties and issues yet because Magsalin and the Garcias' whereabouts were unknown, hence no service of summons on them.
• FGU Caused Hearing Cancellation: Petitioner maintained that it was respondent FGU which caused the cancellation of the hearing.
• Denial of Due Process: Petitioner argued that the lower court's dismissal of the case was a clear denial of due process.

• Defective Petition: FGU Insurance alleged that the present petition was "fatally defective" for being unaccompanied by material portions of the record.
• Wrong Mode of Appeal: FGU Insurance reiterated that the appeal in CA-G.R. CV No. 83096 was improperly filed under Rule 41 and should have been filed directly with the Supreme Court under Rule 45 of the Rules of Court.
• Proper Dismissal: Baetiong asserted that the dismissal of the appeal was in accord with existing laws and applicable jurisprudence.

• Validity of Dismissal Order: Whether the RTC's December 16, 2003 dismissal order is valid despite its failure to state the facts and law on which it is based.
• Propriety of Appeal Under Rule 41: Whether the appeal from the dismissal order was properly filed under Rule 41 of the Rules of Court.
• Factual Basis for Dismissal: Whether the dismissal of Civil Case No. 02-488 for failure to prosecute is supported by the facts of the case.

• Validity of Dismissal Order: No. The dismissal order is null and void for violation of due process, having failed to conform with Section 1, Rule 36 of the Rules of Court, which requires judgments and final orders to state clearly and distinctly the facts and the law on which they are based.
• Propriety of Appeal Under Rule 41: Yes. The appeal was properly filed under Rule 41 as it necessarily involved questions of fact, the dismissal order not even indicating the factual basis for the dismissal.
• Factual Basis for Dismissal: No. The dismissal was not warranted, as none of the events proximate to the dismissal satisfied the grounds specified under Section 3, Rule 17 for motu proprio dismissal.

• Validity of Dismissal Order: The December 16, 2003 dismissal order was an unqualified dismissal, deemed to be with prejudice and thus an adjudication on the merits. As an adjudication on the merits, it was required to conform with Section 1, Rule 36, which mandates that judgments and final orders state clearly and distinctly the facts and the law on which they are based. The order merely stated the legal conclusion of non prosequitur without disclosing the factual basis — whether the petitioner had failed to appear at a scheduled trial date, failed to take appropriate actions for an unreasonable length of time, failed to comply with the rules, or failed to obey any court order. This absence of stated reasons left the petitioner and the reviewing court unable to determine the justification for the dismissal, constituting a denial of elementary due process. A decision that does not state the facts and law on which it is based has absolutely nothing to support it and is a nullity. A void decision is open to collateral attack, and the Supreme Court may review unassigned errors when indispensable for a just decision, as the interests of substantial justice warranted review of the obviously void dismissal order.
• Propriety of Appeal Under Rule 41: The CA's reliance on Joaquin vs. Navarro was misplaced. The operative principle in Joaquin applies where the facts are stated in the judgment and the issue is the correctness of the conclusions drawn therefrom. Here, the facts supporting the trial court's conclusion of non prosequitur were not stated in the judgment, defeating the application of Joaquin. Applying Olave vs. Mistas, the Court held that even where facts are undisputed, the CA must still delve into the records to determine whether facts justifying a prejudicial dismissal exist — a factual inquiry. Since the dismissal order did not disclose its factual basis and appeared to have been issued motu proprio, the CA had to examine the grounds under Section 3, Rule 17, which are matters of fact. The appeal was therefore properly filed under Rule 41.
• Factual Basis for Dismissal: The events chronologically proximate to the dismissal — admission of the third-party complaint on March 24, 2003, cancellation of the June 20, 2003 hearing upon FGU Insurance's motion, and Baetiong's filing of his answer on June 16, 2003 without service on the petitioner — did not satisfy any of the grounds under Section 3, Rule 17 for motu proprio dismissal: failure to appear on the date of presentation of evidence in chief, failure to prosecute for an unreasonable length of time, failure to comply with the Rules of Court, or failure to obey any order of the court. The fundamental test for non prosequitur is whether the plaintiff is chargeable with want of due diligence in failing to proceed with reasonable promptitude, requiring unwillingness on the part of the plaintiff to prosecute. The parties' own narrations demonstrated the petitioner's willingness to prosecute, and neither FGU Insurance nor Baetiong pointed to any specific act justifying dismissal. Dismissals should be made with care, as they may forever bar a litigant from pursuing judicial relief; technicality should not prevail over substantial justice.

• Void Judgment Doctrine — A judgment or final order that does not clearly and distinctly state the facts and the law on which it is based is a nullity, as it has absolutely nothing to support it. Such a void decision is open to collateral attack. The Court applied this to the RTC's December 16, 2003 dismissal order, which merely stated the legal conclusion of non prosequitur without any factual basis, rendering it void for denial of due process.
• Dismissal with Prejudice for Failure to Prosecute — Dismissals of actions under Section 3, Rule 17 that do not expressly state whether they are with or without prejudice are deemed to be with prejudice. As a prejudicial dismissal, it is deemed a judgment on the merits so that the complaint can no longer be refiled on the principle of res judicata. The Court applied this to characterize the unqualified December 16, 2003 order as an adjudication on the merits, triggering the requirements of Section 1, Rule 36.
• Test for Non Prosequitur — The fundamental test for failure to prosecute is whether, under the circumstances, the plaintiff is chargeable with want of due diligence in failing to proceed with reasonable promptitude. There must be unwillingness on the part of the plaintiff to prosecute. The Court found that the petitioner's actions demonstrated willingness to prosecute, and no specific act justified the dismissal.
• Review of Unassigned Errors — The Supreme Court is vested with ample authority to review an unassigned error if it finds that consideration and resolution are indispensable or necessary in arriving at a just decision. The Court invoked this principle to review the validity of the dismissal order under Section 1, Rule 36 despite the issue not having been raised by the petitioner.

• "Where the reasons are absent, a decision (such as the December 16, 2003 dismissal order) has absolutely nothing to support it and is thus a nullity." — This passage articulates the ratio decidendi for declaring the dismissal order void: the absence of stated reasons renders a decision unsupported and therefore null.
• "The fundamental test for non prosequitur is whether, under the circumstances, the plaintiff is chargeable with want of due diligence in failing to proceed with reasonable promptitude." — This defines the canonical test for failure to prosecute, frequently cited in subsequent jurisprudence on Rule 17 dismissals.
• "A trial court should always specify the reasons for a complaint's dismissal so that on appeal, the reviewing court can readily determine the prima facie justification for the dismissal." — This establishes the procedural requirement for dismissal orders to state their factual basis, ensuring meaningful appellate review.

• Olave vs. Mistas, 486 Phil. 708 (2004) — Controlling precedent on the propriety of filing an ordinary appeal under Rule 41 from a prejudicial order of dismissal even where the facts are undisputed. The Court followed Olave in holding that the CA must still examine the records to determine whether facts justifying dismissal exist, making the appeal one involving questions of fact.
• Joaquin vs. Navarro, 93 Phil. 257 (1953) — Distinguished. The CA relied on Joaquin for the proposition that pleading undisputed facts equates to a prohibited appeal raising pure questions of law. The Court found this reliance misplaced because Joaquin applies only where the facts are stated in the judgment, which was not the case here.
• Vallangca vs. Court of Appeals, G.R. No. 55336, May 4, 1989, 173 SCRA 42 — Cited for the rule that dismissals under Section 3, Rule 17 that do not expressly state whether they are with or without prejudice are deemed to be with prejudice.
• Air France vs. Carrascoso, No. L-21438, September 28, 1966, 18 SCRA 155 — Cited for the doctrine that a decision without stated reasons is a nullity.

• Section 3, Rule 17, Rules of Court — Authorizes dismissal of actions for failure to prosecute on grounds including failure to appear on the date of presentation of evidence in chief, failure to prosecute for an unreasonable length of time, failure to comply with the Rules of Court, or failure to obey any order of the court. The Court examined whether any of these grounds were satisfied and found none.
• Section 1, Rule 36, Rules of Court — Requires that judgments and final orders determining the merits of a case be in writing, personally and directly prepared by the judge, stating clearly and distinctly the facts and the law on which they are based. The Court held that the dismissal order, being an adjudication on the merits, violated this provision.
• Rule 41, Rules of Court — Governs ordinary appeals from the RTC to the CA. The Court held that the appeal was properly filed under Rule 41 as it involved questions of fact.
• Rule 45, Rules of Court — Governs petitions for review on certiorari. FGU Insurance argued the appeal should have been filed under Rule 45, but the Court rejected this contention.

Carpio (Chairperson), Perez, Sereno, and Reyes, JJ., concurred.