Defaulted parties NOT actually thrown out of court

In a nutshell, the ultimate issue is: Did the court commit grave abuse of discretion amounting to lack or excess of jurisdiction in granting respondents motion for a bill of particulars as executor of former President Marcos estates considering that the deceased defendant was then a defaulting defendant when the motion was filed?

The Supreme Court rules in the negative, and dismiss the instant petition for utter lack of merit.

Under the Rules of Court, a defending party may be declared in default, upon motion and notice, for failure to file an answer within the allowable period. As a result, the defaulting party cannot take part in the trial albeit he is entitled to notice of subsequent proceedings.

The remedies against a default order are: (1) a motion to set aside the order of default at any time after discovery thereof and before judgment on the ground that the defendants failure to file an answer was due to fraud, accident, mistake or excusable neglect and that the defendant has a meritorious defense; (2) a motion for new trial within 15 days from receipt of judgment by default, if judgment had already been rendered before the defendant discovered the default, but before said judgment has become final and executory; (3) an appeal within 15 days from receipt of judgment by default; (4) a petition for relief from judgment within 60 days from notice of judgment and within 6 months from entry thereof; and (5) a petition for certiorari in exceptional circumstances.

In this case, former President Marcos was declared in default for failure to file an answer. He died in Hawaii as an exile while this case was pending, since he and his family fled to Hawaii in February 1986 during a people-power revolt in Metro Manila. His representatives failed to file a motion to lift the order of default. Nevertheless, respondent, as executor of his fathers estate, filed a motion for leave to file a responsive pleading, three motions for extensions to file an answer, and a motion for bill of particulars all of which were granted by the anti-graft court.

Given the existence of the default order then, what is the legal effect of the granting of the motions to file a responsive pleading and bill of particulars? In our view, the effect is that the default order against the former president is deemed lifted.
Considering that a motion for extension of time to plead is not a litigated motion but an ex parte one, the granting of which is a matter addressed to the sound discretion of the court; that in some cases the Supreme Court has allowed defendants to file their answers even after the time fixed for their presentation; that the Supreme Court has set aside orders of default where defendants failure to answer on time was excusable; that the pendency of the motion for a bill of particulars interrupts the period to file a responsive pleading; and considering that no real injury would result to the interests of petitioner with the granting of the motion for a bill of particulars, the three motions for extensions of time to file an answer, and the motion with leave to file a responsive pleading, the anti-graft court has validly clothed respondent with the authority to represent his deceased father. The only objection to the action of said court would be on a technicality. But on such flimsy foundation, it would be erroneous to sacrifice the substantial rights of a litigant. Rules of procedure should be liberally construed to promote their objective in assisting the parties obtain a just, speedy and inexpensive determination of their case.

While it is true that there was no positive act on the part of the court to lift the default order because there was no motion nor order to that effect, the anti-graft courts act of granting respondent the opportunity to file a responsive pleading meant the lifting of the default order on terms the court deemed proper in the interest of justice. It was the operative act lifting the default order and thereby reinstating the position of the original defendant whom respondent is representing, founded on the courts discretionary power to set aside orders of default.

It is noteworthy that a motion to lift a default order requires no hearing; it need be under oath only and accompanied by an affidavit of merits showing a meritorious defense. And it can be filed at any time after notice thereof and before judgment. Thus, the act of the court in entertaining the motions to file a responsive pleading during the pre-trial stage of the proceedings effectively meant that respondent has acquired a locus standi in this case. That he filed a motion for a bill of particulars instead of an answer does not pose an issue because he, as party defendant representing the estate, is allowed to do so under the Rules of Court to be able to file an intelligent answer. It follows that petitioners filing of a bill of particulars in this case is merely a condition precedent to the filing of an answer.

Indeed, failure to file a motion to lift a default order is not procedurally fatal as a defaulted party can even avail of other remedies mentioned above.

As default judgments are frowned upon, the Supreme Court has been advising the courts below to be liberal in setting aside default orders to give both parties every chance to present their case fairly without resort to technicality. Judicial experience shows, however, that resort to motions for bills of particulars is sometimes intended for delay or, even if not so intended, actually result in delay since the reglementary period for filing a responsive pleading is suspended and the subsequent proceedings are likewise set back in the meantime. As understood under Section 1 of Rule 12, mentioned above, a motion for a bill of particulars must be filed within the reglementary period for the filing of a responsive pleading to the pleading sought to be clarified. This contemplates pleadings which are required by the Rules to be answered under pain of procedural sanctions, such as default or implied admission of the facts not responded to.

But as defaulted defendants are not actually thrown out of court because the Rules see to it that judgments against them must be in accordance with the law and competent evidence, this Court prefers that the lifting of default orders be effected before trial courts could receive plaintiffs evidence and render judgments. This is so since judgments by default may result in considerable injustice to defendants, necessitating careful and liberal examination of the grounds in motions seeking to set them aside. The inconvenience and complications associated with rectifying resultant errors, if defendant justifies his omission to seasonably answer, far outweigh the gain in time and dispatch of immediately trying the case. The fact that former President Marcos was in exile when he was declared in default, and that he later died still in exile, makes the belated filing of his answer in this case understandably excusable.

The anti-graft court required the Marcos siblings through its January 11, 1999 Order to substitute for their father without informing them that the latter was already declared in default. They were unaware, therefore, that they had to immediately tackle the matter of default. Respondent, who stands as the executor of their fathers estate, could assume that everything was in order as far as his standing in court was concerned. That his motion for leave to file a responsive pleading was granted by the court gave him credible reason not to doubt the validity of his legal participation in this case. Coupled with his intent to file an answer, once his motion for a bill of particulars is sufficiently answered by petitioner, the circumstances abovementioned warrant the affirmation of the anti-graft courts actions now being assailed.

As to the propriety of the granting of the motion for a bill of particulars, the Supreme Court finds for respondent as the allegations against former President Marcos appear obviously couched in general terms. They do not cite the ultimate facts to show how the Marcoses acted in unlawful concert with Cruz in illegally amassing assets, property and funds in amounts disproportionate to Cruzs lawful income, except that the former President Marcos was the president at the time.

The pertinent allegations in the expanded complaint subject of the motion for a bill of particulars read as follows:

11. Defendant Roman A. Cruz, Jr. served as public officer during the Marcos administration. During his . . . incumbency as public officer, he acquired assets, funds and other property grossly and manifestly disproportionate to his salaries, lawful income and income from legitimately acquired property.

12. . . . Cruz, Jr., in blatant abuse of his position as Chairman and General Manager of the Government Service Insurance System (GSIS), as President and Chairman of the Board of Directors of the Philippine Airlines (PAL), and as Executive Officer of the Commercial Bank of Manila, by himself and/or in unlawful concert with defendants Ferdinand E. Marcos and Imelda R. Marcos, among others:

(a) purchased through Arconal N.V., a Netherland-Antilles Corporation, a lot and building located at 212 Stockton St., San Francisco, California, for an amount much more than the value of the property at the time of the sale to the gross and manifest disadvantageous (sic) to plaintiff.

GSIS funds in the amount of $10,653,350.00 were used for the purchase when under the right of first refusal by PAL contained in the lease agreement with Kevin Hsu and his wife, the owners of the building, a much lower amount should have been paid.

For the purchase of the building, defendant Cruz allowed the intervention of Sylvia Lichauco as broker despite the fact that the services of such broker were not necessary and even contrary to existing policies of PAL to deal directly with the seller. The broker was paid the amount of $300,000.00 resulting to the prejudice of GSIS and PAL.

(b) Converted and appropriated to . . . own use and benefit funds of the Commercial Bank of Manila, of which he was Executive Officer at the time.

He caused the disbursement from the funds of the bank of among others, the amount of P81,152.00 for personal services rendered to him by one Brenda Tuazon.

(c) Entered into an agency agreement on behalf of the Government Service Insurance System with the Integral Factors Corporation (IFC), to solicit insurance, and effect reinsurance on behalf of the GSIS, pursuant to which agreement, IFC effected a great part of its reinsurance with INRE Corporation, which, was a non-insurance company registered in London[,] with defendant . . . Cruz, Jr., as one of its directors.

IFC was allowed to service accounts emanating from government agencies like the Bureau of Buildings, Philippine National Oil Corporation, National Power Corporation, Ministry of Public Works and Highways which under the laws are required to insure with and deal directly with the GSIS for their insurance needs. The intervention of IFC to service these accounts caused the reduction of premium paid to GSIS as a portion thereof was paid to IFC.

(d) Entered into an agreement with the Asiatic Integrated Corporation (AIC) whereby the GSIS ceded, transferred, and conveyed property consisting of five (5) adjoining parcels of land situated in Manila covered by Transfer Certificates of Title (TCT) Nos. 49853, 49854, 49855 and 49856 to AIC in exchange for AIC property known as the Pinugay Estate located at Tanay, Rizal, covered by TCT No. 271378, under terms and conditions grossly and manifestly disadvantageous to the government.

The appraised value of the GSIS parcels of land was P14,585,600.00 as of June 25, 1971 while the value of the Pinugay Estate was P2.00 per square meter or a total amount of P15,219,264.00. But in the barter agreement, the Pinugay Estate was valued at P5.50 per square meter or a total of P41,852,976.00, thus GSIS had to pay AIC P27,287,976.00, when it was GSIS which was entitled to payment from AIC for its failure to pay the rentals of the GSIS property then occupied by it.

(e) purchased three (4) (sic) additional Airbus 300 in an amount much more than the market price at the time when PAL was in deep financial strain, to the gross and manifest disadvantage of Plaintiff.

On October 29, 1979, defendant Cruz, as President and Chairman of the Board of Directors of... (PAL) authorized the payment of non-refundable deposit of U.S. $200,000.00 even before a meeting of the Board of Directors of PAL could deliberate and approve the purchase.

In his motion for a bill of particulars, respondent wanted clarification on the specific nature, manner and extent of participation of his father in the acquisition of the assets cited above under Cruz; particularly whether former President Marcos was a beneficial owner of these properties; and the specific manner in which he acquired such beneficial control. (G.R. No. 148154; December 17, 2007)