Civpro Rule 18

8/13/2019 Civpro Rule 18

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G.R. No. 135384 April 4, 2001

MARIANO DE GUIA and APOLONIA DE GUIA, petitioners,vs.CIRIACO, LEON, VICTORINA, TOMASA and PABLO, all surnamed DEGUIA, respondents.

PANGANIBAN, J. :

Under the pre-1997 Rules of Civil Procedure, a notice of pretrial must beserved separately on the counsel and the client. If served only on thecounsel, the notice must expressly direct the counsel to inform the client ofthe date, the time and the place of the pretrial conference. The absence ofsuch notice renders the proceedings void, and the judgment renderedtherein cannot acquire finality and may be attacked directly orcollaterally.1âwphi1.nêt

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court,assailing the February 17, 1998 Decision

1 of the Court of Appeals (CA) in

CA-GR CV No. 42971. The dispositive portion of the CA Decision reads asfollows:

"WHEREFORE, without anymore touching on the merit of the judgment, we hereby SET ASIDE the default Order of June 18,1992 which the lower court had improvidently issued as well as theensuing judgment which suffers from the same fatal infirmity. Letthe case be remanded to the lower court, which is directed topromptly set the case for pre-trial conference in accordance withthe present Rules, and for further proceedings."

2

Also assailed is the September 11, 1998 CA Resolution3 which denied

petitioners’ Motion for Reconsideration.

The Facts

The appellate court summarized the antecedents of the case as follows:

"The record shows that on October 11, 1990, plaintiffs Mariano DeGuia, Apolonia De Guia, Tomasa De Guia and Irene Manuel filed

with the court below a complaint for partition against defendantsCiriaco, Leon, Victorina and Pablo De Guia. They alleged x x x thatthe real properties therein described were inherited by plaintiffs anddefendants from their predecessors-in-interest, and that the latterunjustly refused to have the properties subdivided among them.Shortly after defendants filed their traverse, an amended complaint

was admitted by the lower court, in which plaintiff Tomasa De Guiawas impleaded as one of the defendants for the reason that shehad become an unwilling co-plaintiff.

"It is further shown in the record that on June 11, 1992, the BranchClerk of Court issued a Notice setting the case for pre-trialconference on June 18, 1992 at 8:30 a.m. Copies of said noticeswere sent by registered mail to parties and their counsel. It turnedout that both defendants and counsel failed to attend the pre-trialconference. Hence, upon plaintiffs’ motion, defendants weredeclared as in default and plaintiffs were allowed to present theirevidence ex-parte.

"It appears that on July 6, 1992, defendants filed their Motion forReconsideration of the June 16, 1992 Order which declared themas in default. They explained therein that they received the Noticeof pre-trial only in the afternoon of June 18, 1992, giving them nochance to appear for such proceeding in the morning of that day.The Motion was opposed by plaintiffs who pointed out that perPostal Delivery Receipt, defendants’ counsel actually received hiscopy of the Notice on June 17, 1992 or one day before the date ofpre-trial. Citing Section 2, Rule 13 of the Rules of Court, plaintiffsfurther urged that counsel’s receipt of the said notice on June 17,1992 was sufficient to bind defendants who received said notice onthe next day. Finally, they faulted defendants for failing to supporttheir Motion for Reconsideration with an affidavit of merit showing

among others that they had a meritorious defense.

"In an Order dated August 19, 1992, plaintiffs’ motion forreconsideration was denied and on June 11, 1993, judgment wasrendered ordering the partition of the controverted parcels of land."

4

The CA Ruling

The CA sustained respondents’ claim that the trial court had improperlydeclared them in default. It held that the Notice of pretrial received by theircounsel a day before the hearing did not bind the clients, because the Rules

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of Court in effect at the time mandated separate service of such Notice uponthe parties and their counsel. Said the appellate court:

"In fine, we hold that the lower court committed a reversible error indeclaring appellants as in default for their failure to attend the pre-trial conference [of] which they were not properly served x x xnotice and in subsequently rendering the herein appealed judgment. And while we commend the lower court for its apparentinterest in disposing of the case with dispatch, the imperatives ofprocedural due process constrain us to set aside the default orderand the appealed judgment, both of which were entered in violationof appellants’ right to notice of pre-trial as required by the Rules."

5

Hence, this Petition.6

Issues

Petitioners impute the following alleged errors to the CA:

"I

The Respondent Court of Appeals, with grave abuse of discretion,erred in not finding private respondents as in default despite theexistence of fraud, for being contrary to law, and for being contraryto the findings of the trial court.

"II

The Respondent Court, with grave abuse of discretion, erred inreversing the trial court’s Decision notwithstanding private

respondents’ violations of Rule 15, Sections 4 and 5 and Administrative Circular No. 04-94 and Revised Circular No. 28-91.

"III

The Respondent Court of Appeals, with grave abuse of discretion,erred in not affirming the compromise agreement which has theeffect and authority of res judicata even if not judicially approved.

"IV

The Respondent Court gravely erred in not applying Rule 135,Section 8 as warranted by the facts, admission and the evidence ofthe parties."

7

In the main, petitioners raise the following core issues: (1) the propriety ofthe trial court’s order declaring respondents in default; and (2) petitioners’allegation of procedural prejudice.

The Court’s Ruling

The Petition has no merit.

First Issue:The Propriety of t he Default Order

When the present dispute arose in 1992, the applicable rule was Section 1,Rule 20 of the pre-1997 Rules of Civil Procedure, which provided as follows:

"SECTION 1. Pre-trial mandatory. -- In any action after the lastpleading has been filed, the court shall direct the parties and theirattorneys to appear before it for a conference to consider:

x x x x x x x x x."

This provision mandated separate service of the notice of pretrial upon theparties and their lawyers.

8 In Taroma v. Sayo,

9 the Court explained:

"For the guidance of the bench and bar, therefore, the Court inreaffirming the ruling that notice of pre-trial must be servedseparately upon the party and his counsel of record, restates thatwhile service of such notice to party may be made directly to theparty, it is best that the trial courts uniformly serve such notice toparty through or care of his counsel at counsel’s address with theexpress imposition upon counsel of the obligation of notifying the party of the date, time and place of the pre-trial conference andassuring that the party either appear thereat or deliver counsel awritten authority to represent the party with power to compromisethe case, with the warning that a party who fails to do so may benon-suited or declared in default." (emphasis supplied)


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Hence, before being declared non-suited or considered in default, partiesand their counsel must be shown to have been served with notice of thepretrial conference.

10 Moreover, if served only on the counsel, the notice

must expressly direct him or her to inform the client of the date, the time andthe place of the pretrial conference. The absence of such notice renders theproceedings void, and the judgment rendered therein cannot acquire finality

and may be attacked directly or collaterally.11

In this case, respondents received the notice on the afternoon of June 18,1992, or after the pretrial scheduled on the morning of that day. Moreover,although the Notice was also sent to their counsel, it did not contain anyimposition or directive that he inform his clients of the pretrial conference.The Notice merely stated: "You are hereby notified that the above-entitledcase will be heard before this court on the 18

th day of June, 1992, at 8:30

a.m. for pre-trial."12

Such belated receipt of the notice, which was not attributable torespondents, amounted to a lack of notice. Thus, the lower court erred indeclaring them in default and in denying them the opportunity to fully

ventilate and defend their claim in court.

Of course, this situation would not have arisen under Section 3,13

Rule 18 ofthe 1997 Rules of Civil Procedure. It specifically provides that notice ofpretrial shall be served on counsel, who is charged with the duty of notifyingthe client. Considering the milieu of the present case, however, suchamended proviso is not applicable.

Second Issue: Allegation of Procedu ral Bias

Petitioners allege that, to their detriment, the appellate court disregarded

established procedural precepts in resolving the case, and that it did so forthree reasons. First, respondents’ Manifestation and Motion to Lift the Orderof Default, filed with the trial court, was merely pro forma because the formerlacked the requisite notice of hearing. Second , it also lacked an affidavit ofmerit. Third , respondents’ Appeal Brief did not contain a certificate of non-forum shopping.

Granting that respondents’ Manifestation and Motion to Lift the Order ofDefault was pro forma, this issue has become moot, not only because thetrial court had denied such Motion, but also because what was appealedwas the judgment rendered by the lower court. For the same reason, wemust also reject petitioners’ insistence that an affidavit of merit was absent.

In any case, there was no need to attach an affidavit of merit to the Motion,as the defenses of respondents had been set out in their Answer.1âwphi1.nêt

With regard to the absence of a certification of non-forum shopping,substantial justice behooves us to agree with the disquisition of the appellatecourt. We do not condone the shortcomings of respondents’ counsel, but wesimply cannot ignore the merits of their claim. Indeed, it has been held that"[i]t is within the inherent power of the Court to suspend its own rules in aparticular case in order to do justice."

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One last point. Petitioners fault the CA for remanding the case to the trialcourt, arguing that the appellate court should have resolved the case on itsmerit.

We understand petitioners’ apprehension at the prospect of re-hearing thecase; after all, it has been nine years since the filing of the Complaint.However, their claim and the evidence supporting it -- and respondents’ as

well -- can be best threshed out and justly resolved in the lower court. In thisregard, we cannot pass upon the validity of the Agreement of Partitionbetween Mariano de Guia and Ciriaco de Guia, for such action wouldamount to a prejudgment of the case.

WHEREFORE, the Petition is DENIED and the assailed Decision andResolution AFFIRMED . No pronouncement as to costs.

SO ORDERED.

Melo, Vitug, Gonzaga-Reyes, Sandoval-Gutierrez, JJ., concur.

Footnote

1 Rollo, pp. 34-38; penned by Justice Godardo A. Jacinto, with the

concurrence of Justices Artemon D. Luna (Division chairman) andRoberto A. Barrios.

2 CA Decision, p. 5; rollo, p. 38.

3 Rollo, p. 42.

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4 CA Decision, pp. 1-2; rollo, pp. 34-35.

5 Ibid., p. 37.

6 The case was deemed submitted for decision on October 4, 2000,

upon receipt by the Court of the Manifestation of respondents,signed by Atty. Edgardo V. Cruz, stating that they were adoptingtheir Brief (should be Comment) as their Memorandum. Petitioners’Memorandum, signed by Atty. Renato J. Santiago, was received bythe Court on October 15, 1999.

7 Petition, pp. 6-7; rollo, pp. 14-15; these are repeated in

petitioners’ Memorandum.

8 Ng v. Alfaro, 238 SCRA 486, December 1, 1994; Samson v. Court

of Appeals, 105 SCRA 786, July 24, 1981; Patalinhug v. Peralta, 90SCRA 51, May 5, 1979; Sagarino v. Pelayo, 77 SCRA 402, June20, 1977; Lim v. Animas, 63 SCRA 409, April 18, 1975.

9 67 SCRA 508, October 30, 1975, per Teehankee, J . (later CJ ).

See also Service Specialists v. Sheriff of Manila, 145 SCRA 139,October 17, 1986; Five Star Bus Co., Inc. v. Court of Appeals, 259SCRA 120, July 17, 1996; Agravante v. Patriarca, 183 SCRA 113,March 14, 1990.

10 Taroma v. Sayo, supra.

11 Barde v. Posiquit , 164 SCRA 304, August 15, 1988.

12 Rollo, p. 63.

13 It reads: "SEC. 3. Notice of pre-trial . – The notice of pre-trial shall

be served on counsel, or on the party who has no counsel. Thecounsel served with such notice is charged with the duty ofnotifying the party represented by him."

14 Anacleto v. Van Twest , GR No. 131411, August 29, 2000, per

Mendoza, J . See also Villanueva v. CA, 285 SCRA 180, January28, 1998; Ginete v. CA, 296 SCRA 38, September 24, 1998; Batarav. CA, 300 SCRA 237, December 16, 1998; Uy v. Land Bank of thePhilippines, GR No. 136100, July 24, 2000.

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FIRST DIVISION

G.R. No. 130699 May 12, 2000

SPOUSES BERNARDO MERCADER and FLORINA M. MERCADER, and

DR. JUAN Y. MADERAZO, petitioners,vs.DEVELOPMENT BANK OF THE PHILIPPINES (CEBU BRANCH),GELACIO, FELIPE, OSMUNDO all surnamed MANREAL, and RUFINAMANREAL VDA. DE ABALO, respondents.

DAVIDE, JR.,C.J.:

In this petition for review, petitioners spouses Florina Maderazo-Mercaderand Bernardo Mercader (hereafter MERCADERs) and Juan Y. Mederazoimpugn the Court of Appeals' 5 February 1997 decision in CA-GR-CV No.21846 1 ordering them to deliver the possession of Lot No. 2985 to theDevelopment Bank of the Philippines, Cebu Branch (hereafter DBP) withoutright of reimbursements for the improvements introduced thereon, and the13 August 1997 resolution denying the motion for reconsideration. Saiddecision and resolution reversed and set aside the 6 September 1988decision

2 of the Regional Trial Court of Cebu, Branch 15, in Civil Case No.

R-18521. 3

Civil Case No. R-18521 was for specific performance filed on 28 September1979. In their complaint,

4 the MERCADERs alleged that:

(1) In 1966, Juan Maderazo applied for

a loan at the DBP secured by interiorLots Nos. 2993 and 2994 (Talisay-Minglanilla estate);

(2) The DPB required Maderazo toconstruct a five (5) — meter wide roadright of way over the adjoining Lot No.2985;

(3) The DBP approved Maderazo's loanapplication upon his submission of a

copy of the lease contract for a right ofway over the adjoining Lot No. 2985;

(4) The lease contract for the right ofway was for a twenty-year periodcommencing on 20 October 1966 whichMaderazo executed with the spousesGelacio and Vicenta Manreal, then theregistered owners of Lot No. 2985;

(5) Maderazo expended P10,000 for theconstruction of the five (5) — meter rightof way;

(6) This lease contract was however notregistered for Gelacio Manreal's failure,"for one reason or another," to deliverthe Certificate of Title (TCT) of Lot No.

2985 to Maderazo;

(7) About nine years later or on 6January 1976, Maderazo's children, thespouses Florina Maderazo-Mercaderand Bernardo Mercader executed acontract of lease with the Manreals for aperiod of twenty years and four monthsover the remaining portion of Lot No.2985;

(8) Despite repeated requests for thedelivery of the TCT of Lot No. 2985 for

the purpose of annotating the leasecontract, the Manreals, "for one reasonor another," failed to do so; however, theManreals assured the Mercaders "not toworry since nothing will go wrong";

(9) Believing in the Manreals'assurances, Bernardo Mercaderintensively cultivated Lot No. 2985,"planted in good faith 600 calamansifruit trees, fenced the lot with barbedwires, constructed canals and

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drainages, spent wages for several farmworkers and introduced severalimprovements including a vegetablegarden — all in the sum of not less thatP25,000";

(10) The MERCADERs subsequentlydiscovered that the reason why theManreals failed to deliver the TCT of LotNo. 2985 [now registered in the namesof spouses Felipe and FlorentinaManreal, children of Gelacio andVicenta Manreal] was because theyoffered said lot including theimprovements introduced by the formerthereon as "collateral" for a P150,000deep-sea fishing loan with the DBP;

(11) That despite the lack of registration

and/or annotation of the respectiveinterests of the MERCADERs on theTCT over Lot No. 2985, the DBP knewand should know of their existenceconsidering the several ocularinspection and investigation conductedover the property; the DBP's actualknowledge of these unregisteredinterests has the effect of registration.

5

Since the Manreals defaulted in the payment of their obligation to the DBP,and that the latter had taken steps to foreclose Lot No. 2985 including all theimprovements thereon, the MERCADERs prayed among others, for the DBP

to "respect their interests by excluding these from the foreclosureproceedings, or if the foreclosure takes place, declare the same null andvoid or in the alternative, order the DBP to reimburse them the cost of theimprovements and loss of expected income amounting to P210,000 for theduration of the unexpired term of their respective contracts." TheMERCADERs also prayed for the annotation of their interests in the TCT ofLot No. 2985.

In their answer, the Manreals only admitted the existence of the twounregistered contracts of lease and the calamansi trees planted on Lot No.2985. They then denied any knowledge or information sufficient to form a

belief on the other allegations of the MERCADERs. They then claimed thatFelipe Manreal informed Juan Maderazo of the intention to offer as securityLot No. 2985 for the deep sea-fishing loan with the DBP. They also justifiedtheir inability to present to the MERCADERs the TCT over Lot No. 2985 onthe fact that at the time the latter were soliciting the title's delivery, it was stillin the hands of the lawyer who was preparing the Extrajudicial Settlement

and Partition of the Estate left by the deceased Vicenta Manreal. TheManreals then prayed for the dismissal of the complaint for being utterlygroundless.

6

In its answer, the DBP admitted:

(1) the loan of spouses Juan and JuanaMaderazo; and

(2) the deep-sea fishing loan of spousesFelipe and Florentina Manreal whichwas secured among others, by a first

mortgage over Lot No. 2985 evidencedby a TCT already registered in theirnames, free from any lien orencumbrance.

It denied any knowledge or information of: (1) any f law or infirmity in the TCTover Lot No. 2985; (2) any interest in Lot No. 2985 other than and adverse tothe spouses Felipe and Florentina Manreal as registered owners andmortgagors; and (3) the existence of the lease contract for right of way overa portion of Lot No. 2985 because it was not registered and that the spousesGelacio and Vicenta Manreal were not the ones who mortgaged said Lot No.2985 to the DBP but their children, the spouses Felipe and FlorentinaManreal.

The DBP maintained that the alleged unregistered interests of theMERCADERs did not and could not bind the DBP per Art. 1648 of the CivilCode

7 and Section 64 of Act 496.

8 It then prayed for the dismissal of the

complaint for being premature and for lack of cause of action as it neverdealt with Gelacio Manreal and there was as yet no foreclosure. Besides, theDBP was a mortgagee in good faith.

9

In the meantime or on 26 November 1979, Lot No. 2985 was sold, amongthe other mortgaged lots, on public auction to the DBP as the highest bidder.10

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During the pre-trial stage, the trial court acknowledged the possibility of acompromise agreement, gave time to the parties to study their proposalsand counterproposals and ordered the documents pertinent thereto deemedparts of the record of the case.

11 Orders were further issued "giving the

parties more time to continue with their negotiations and re-setting thehearing of the case."

12 Several communications were thereafter exchanged,

to wit:

(1) a letter dated 24 June 1981 whereinthe MERCADERs proposed thatMaderazo's contract of lease for right ofway be registered, and respect beaccorded to the contract of lease theMERCADERs executed with theManreals, or as an alternative allow theMERCADERs to purchase Lot No. 2985on installment basis at the price ofP6.00 per square meter;

1

(2) a letter dated 22 July 1982 whereinthe DBP through its Manager (Mr.Manuel Roa) offered the MERCADERsthree options by which they couldamicably settle subject to the approvalof the Board of Governors of the Bank towit:

14

a. First Option — Sale

P96,200.00 — Purchase price

19,200.00 — Down payment

77,000.00 — Balance payable in 10years at 15%

interest per annum

1, 242.28 — Monthly amortization

b. Second Option — Lease-Purchase

P132,598.84 — Consideration

1,105.00 — Monthly lease-purchase for10 years

c. Third Option — Lease

P14,430.00 — Equivalent to 15%annual interest of P96,200

1,202.50 — Monthly lease

(3) a letter dated 18 November 1982whereby the MERCADERs chose option2 ( lease-purchase);

15

(4) a letter dated 23 November 1982

whereby the MERCADERs informed theDBP's Manager that they were"depositing P3,315.00 with the bank"pursuant to said Manager's proposalthat a three-month advance paymentshould be deposited while theMERCADERs await the final decision ofthe bank on the proposed settlement.

16

The DBP issued an official receipt for the payment of P3,315 as "earnestmoney, deposit to purchase lot 2985."

17

With this development, on 9 December 1982, the trial court directed the

parties to submit "their compromise agreement which required the approvalof the Board of Governors."

18

The DBP and the MERCADERs thereafter again exchanged a series ofcorrespondences. In his 13 January 1983 letter to the DBP (through Mr.Ruben Carpio), Bernardo Mercader requested for a grace period in thepayment of the amortization for the lease-purchase option.

19 In response,

the DBP wrote a letter dated 19 January 1983 informing Bernardo Mercaderthat it had already "prepared [its] recommendation to the head office, . . .rejected the request for a grace period but informed [him] to respond soon orvisit the bank for a possible conference."

20 Bernardo Mercader replied

through a letter dated 5 October 1983 reiterating his accord to the lease-

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purchase option but suggesting this time that the amortization be paid on aquarterly basis.

21 In its 29 February 1984 letter, the DBP "noted" Mercader's

suggestion as "counter-proposals or counter-offers which [it findun]acceptable and made dimmer the realization of [their] mutual desire foran early amicable settlement." The DBP reasoned that "the originalconditions packaged in [its] proposal [were] no longer applicable"

considering that the market value of the property increased. 22

With this, the trial court ordered the termination of the pre-trial and set thecase for hearing in its 18 September 1995 order, thus:

As manifested by the plaintiffs, they have alread[y] agreedwith the defendant bank that they will pay the property atP132, 598 payable in ten (10) years in quarterly basis.However, the counsel of defendant manifested that it wasonly a proposal. The plaintiff spouses requested for alonger period of fifteen (15) years which the bank did notagree.

The only issue[s] to be resolved in this case are asfollows:

1. Whether the plaintiff [are] entitled tospecific performance of said agreement;

2. Whether the defendant bank can becompelled to recognize the leasecontract entered into between thespouses plaintiff Bernardo Mercaderand Gelacio Manreal; and

3. Whether the foreclosure proceedingsof the contract between the defendantbank is null and void.

The pre-trial in this case is already closed and terminated.2

On 7 November 1985, the MERCADERs filed a Supplemental Pleadinginsisting the consummation of the lease-purchase option with the payment ofthe earnest money.

24 The DBP filed its Opposition to the Supplemental

Pleading. 25

Trial proceeded with the parties presenting evidence tending to establishtheir respective allegations. On 29 May 1987, the trial court ordered theManreals dropped from the case. The MERCADERs offered no objection.

In its decision of 6 September 1988, the trial court reiterated the three issuesascertained in the pre-trial order and resolved all of them in favor of theMERCADERs. On the first issue, the trial court found that the "DBP hadunnecessarily and unjustifiably made . . . [Bernardo] Mercader understandthat his second option [lease-purchase] would be more or less approved,except that the approval will come from Manila."

26 Anent the second issue,

the trial court also believed "quite firmly" that the "DBP could not haveescaped having a foreknowledge of the existence of the prior unrecordedlease" as the "possession and cultivation of Bernardo Mercader . . . [was] amatter of open, notorious and public knowledge in the area." In resolving thethird issue, the court first acknowledged that it is a "court of equity and notmerely a court of law" and the "DBP is not authorized to keep real propert[y]longer than ten years or so;" then the court "required [the] DBP to set asidethe area affected by the prior unregistered lease, known to [it], when [it]accepted the mortgage."

27 It then decreed as follows:

WHEREFORE, finding the preponderance of evidence tobe in favor of plaintiffs, judgment is hereby rendered asfollows:

1) ordering thedefendant DBP andits successors-in-interest to respect andpreserve theContracts of Leasebetween the Manrealsand the Mercaders

until December 31,1994;

2) ordering the DBP toexclude from theforeclosureproceedings the rightsof the plaintiffs ascovered by theContract of Lease;

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3) requiring thedefendant DBP tocause the annotationof the Contracts ofLease of plaintiffs onTCT No. T-40396 of .

. . Lot No. 2985 . . .and amend Entry No.4980-V-14-D-B, byexcluding theimprovements ofMercader asguarantee or collateralfor defendant FelipeManreal's deep-seafishing loan;

4) ordering the DBP toexecute the deed of

sale subject to theapproval of the ManilaOffice of the DBP asto the mode ofpayment, there beingno agreementthereon;

5) requiring thedefendant DBP to payattorney's fees ofP5,000, for making itnecessary for the

plaintiffs to litigate, inorder to protect theirrights to the LeaseContract with theManreals and tocompel DBP to act onthe proposals ofMercader as promisedby DBP.

28

On appeal, the Court of Appeals found that the trial court erred in treatingthe lease-purchase option as a controversial issue considering that it was

"outside the parties' pleadings." But invoking the Supreme Court's decisionin Castro v. Court of Appeals

29 in that "the improvements introduced [into

the mortgaged property] are to be considered so incorporated [in themortgage] only if so owned by the mortgagor," the Court of Appeals declaredthat the improvements introduced on Lot No. 2985 had been improperlyincluded in the foreclosure sale since they were not owned by the

mortgagors. But since the improvements were already included in theforeclosure sale and the MERCADERs continued the possession andcollection of income from the lot, the Court of Appeals, as already earlieradverted to, reversed and set aside the appealed judgment. It entered a newone declaring that the MERCADERs were not entitled to any compensationfrom the DBP. It also ordered the MERCADERs to immediately turn over thepossession of Lot No. 2985 to the DBP.

30

In this petition for review, the MERCADERs assert that in issuing thechallenged decision, the Court of Appeals contravened Section 4, Rule 20and Section 5, Rule 10 of the Rules of Court by holding that the trial courtshould not have taken cognizance of the lease-purchase option as acontroversial issue since it was not raised in the pleadings. They maintain

that the trial court correctly took cognizance of the lease-purchase optionbecause it was part and parcel of the pre-trial stages, the determination ofwhich will prevent future litigation thereon. They also pray that in the event ofa favorable judgment, this Court should refer the case back to the Court of Appeals for a determination of whether the trial court erred in finding that thelease-purchase option was already consummated.

For its part, the DBP contends that the MERCADERs raise questions offacts which are not reviewable on appeal and that it had opposed andobjected to in and at all stages of the trial, all attempts by the MERCADERsto introduce evidence on the lease-purchase option.

This Court agrees with the MERCADERs and finds that the Court of Appeals

erred in disregarding as material the lease-purchase option on the groundthat it was not raised in the pleadings. If the Court of Appeals adverts to thelack of reference to the lease-purchase option in the initiatory pleadings, thiscan be simply explained by the fact that the trial court only took cognizancethereof when it became an integral component of the pre-trial proceedings.That is why the lease-purchase option was included firstly, in the pre-trialorder as one of the issues to be resolved at trial and secondly, in thesupplemental pleading subsequently filed by the MERCADERs on 7November 1985.

31 As a supplemental pleading, it served to aver

supervening facts which were then not ripe for judicial relief when theoriginal pleading was filed. As such, it was meant to supply deficiencies inaid of the original pleading, and not to dispense with the latter.

32 Hence, it

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There is no showing that it has beenadmitted by the court.

COURT

It has been admitted by the court.

34

(Emphasis supplied)

The records also show that not only did the DBP's counsel began torigorously cross-examine Bernardo Mercader on the lease-purchase option,he also subjected his witness Mr. Ruben Carpio, then Chief of the CollectionDepartment, DBP to an intensive direct examination covering said subjectmatter.

35 He also offered as evidence the DBP's letter indicating the three

options to the MERCADERs as Exhibit "1" and the lease-purchase optioncontained therein as Exhibit "1-A."

36

The DBP is undoubtedly estopped from questioning the trial court's inclusionof the lease-purchase option as a controversial issue. This action of the trial

court finds anchor on Section 4, Rule 20 of the Rules of Court which reads:

Sec. 4. Record of pre-trial results. — After the pre-trial thecourt shall make an order which recites the action taken atthe conference, the amendments allowed to the pleadings,and the agreements made by the parties as to any of thematters considered. Such order shall limit the issues fortrial to those not disposed of by admissions or agreementsof counsel and when entered controls the subsequentcourse of the action, unless modified before trial to preventmanifest injustice.

Indeed, the pre-trial is primarily intended to make certain that all issues

necessary to the disposition of a case are properly raised. The purpose is toobviate the element of surprise, hence, the parties are expected to discloseat the pre-trial conference all issues of law and fact which they intend toraise at the trial, except such as may involve privileged or impeachingmatter.

37 In the case at bar, the pre-trial order included as integral to the

complete adjudication of the case the issue of whether the MERCADERscan demand specific performance from the DBP relative to the lease-purchase option. Thus, the element of surprise that the provision on pre-trialattempts to preclude was satisfied. The surprise factor was furthereliminated, as already earlier mentioned and merely to reiterate here, withthe DBP's (1) motion to oppose the supplemental pleading, (2) objection tothe introduction of evidence connected thereto, (3) later information from the

trial court of its definitive ruling admitting the supplemental pleading, (4) ownintroduction of evidence related thereto, and finally, by its (5) intensiveparticipation in the direct and cross-examination of witnesses whosetestimonies included said topic. In any case, the f iling and consequentadmission of the supplemental pleading by the trial court validated theissues embraced in the pre-trial order.

Assuming arguendo that the MERCADERs failed to file the supplementalpleading, evidence relative to the lease-purchase option may be legitimatelyadmitted by the trial court in conformity with Section 5, Rule 10 of the Rulesof Court which states: —

Sec. 5. Amendment to conform to or authorize presentation of evidence. — When issues not raised bythe pleadings are tried by express or implied consent ofthe parties, they shall be treated in all respects, as if theyhad been raised in the pleadings. Such amendment of thepleadings as may be necessary to cause them to conformto the evidence and to raise these issues may be made

upon motion of any party at any time, even after judgment;but failure so to amend does not affect the result of thetrial of these issues. If evidence is objected to at the trialon the ground that it is not within the issues made by thepleadings, the court may allow the pleadings to beamended and shall do so freely when the presentation ofthe merits of the action will be subserved thereby and theobjecting party fails to satisfy the court that the admissionof such evidence would prejudice him in maintaining hisaction or defense upon the merits. The court may grant acontinuance to enable the objecting party to meet suchevidence. (emphasis supplied).

This provision envisions two scenarios — first, when evidence is introducedon an issue not alleged in the pleadings and no objection was interjectedand second, when evidence is offered again, on an issue not alleged in thepleadings but this time an objection was interpolated. We are concerned withthe second scenario. In Co Tiamco v. Diaz , the Court held that "whenevidence is offered on a matter not alleged in the pleadings, the court mayadmit it even against the objection of the adverse party, where the latter failsto satisfy the court that the admission of the evidence would prejudice him inmaintaining his defense upon the merits, and the court may grant him acontinuance to enable him to meet the new situation created by theevidence. Of course, the court, before allowing the evidence, as a matter offormality, should allow an amendment of the pleading, . . . And, furthermore,

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where the failure to order an amendment does not appear to have causedsurprise or prejudice to the objecting party, it may be allowed as a harmlesserror. Well-known is the rule that departures from procedure may be forgivenwhere they do not appear to have impaired the substantial rights of theparties."

38

More recently, in Bank of America v. American Realty Corporation 39 citingTalisay-Silay Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay,Inc .,

40 the Court reinforces the Co Tiamco ruling on the application of

Section 5, Rule 10 of the Rules of Court in this wise:

The failure of a party to amend a pleading to conform tothe evidence adduced during trial does not precludeadjudication by the court on the basis of such evidencewhich may embody new issues not raised in thepleadings. . . . Although, the pleading may not have beenamended to conform to the evidence submitted duringtrial, judgment may nonetheless be rendered, not simplyon the basis of the issues alleged but also on the issues

discussed and the assertions of fact proved in the courseof the trial. The court may treat the pleading as if it hadbeen amended to conform to the evidence, although it hadnot been actually amended. . . . Clearly, a court may ruleand render judgment on the basis of the evidence before iteven though the relevant pleading had not been previouslyamended, so long as no surprise or prejudice is therebycaused to the adverse party. Put a little differently, so longas the basic requirements of fair play had been met, aswhere the litigants were given full opportunity to supporttheir respective contentions and to object to or refute eachother's evidence, the court may validly treat the pleadingsas if they had been amended to conform to the evidence

and proceed to adjudicate on the basis of all the evidencebefore it.

As already enunciated, the DBP was not and would not be prejudiced by theincorporation of the lease-purchase option as one of the controverted issues.Moreover, it had been afforded ample opportunity to refute and object to theevidence germane thereto, thus, the rudiments of fair play had been properlyobserved.

Since we agree with the MERCADERs' contention that the Court of Appealscontravened Section 4, Rule 20 and Section 5, Rule 10 of the Rules of Court

in promulgating the questioned decision, we have to grant their prayer torefer the matter back to said court for a determination of the question ofwhether the lease-purchase option was already consummated and for acomplete ascertainment of the rights and obligations of the parties.

WHEREFORE, IN VIEW OF ALL THE FOREGOING, the instant petition is

GRANTED DUE COURSE and the 5 February 1997 judgment and 13 August 1995 resolution of the Court of Appeals in CA-GR-CV No. 21846 arehereby SET ASIDE. The case is REFERRED BACK to the Court of Appealsfor a determination of whether the lease-purchase option was consummatedwith the end view of ascertaining the rights and obligations of the parties.

SO ORDERED.

Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.

Footnotes

1 Per Gutierrez, A., J., with Purisima, F. and Vasquez, Jr.,C. JJ., concurring. Rollo, 19-32.

2 Per Judge German G. Lee, Jr.

3 Entitled Spouses Bernardo Mercader and Florina M.

Mercader, and Dr. Juan Y. Maderazo v. DevelopmentBank of the Philippines (Cebu Branch), FELIPE,GELACIO, OSMUNDO, all surnamed MANREAL, andRufina Manreal vda. de Abalo.

4 Original Record (OR), 1-7.

5 OR, 2-7.

6 OR, 28-31.

7 Every lease of real estate may be recorded in the

Registry of Property. Unless a lease is recorded, it shallnot be binding upon third persons.

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8 Sec. 64. Lease of registered land shall be registered in

the manner provided in section fifty-two of this Act, in lieuof recording. A lessee's duplicate certificate may be issuedto the lessee upon his request subject to the provisionshereinbefore made in regard to a mortagee's duplicatecertificate, as far as the same are applicable. (The

issuance of mortgagee's or lessee's duplicate copy hasbeen done away with under Sec. 60 of P.D. 1529).

9 OR, 17-19.

10 See Sheriff's Certificate of Sale, Exh. "9," OR, 328.

11 See RTC order dated 24 July 1981, OR, 64.

12 Order dated 29 April 1982, OR, 98; See also the orders

issued on 30 June 1982, OR, 111; 11 August 1982, OR,114; 30 September 1982, OR, 119; 15 October 1982, OR,

126; 16 November 1982, OR, 131; 14 March 1985, OR,173.

13 OR, 61-62.

14 Id ., 22, 178.

15 Id ., 179.

16 Id ., 180.

17 OR, 181.

18 Id ., 134.

19 Id ., 188.

20 Id ., 189.

21 Id ., 190.

22 Rollo, 191.

23 Rollo, 160.

24 See OR, 204-205.

25 Id ., 209-210.

26 Rollo, 157.

27 Rollo, 157-159.

28 Id ., 159.

29 250 SCRA 661, 665-666 [1995].

30 Rollo, 30-31.

31 See OR, 204-205.

32 See Shoemart, Inc. v. Court of Appeals, 190 SCRA 189,

196 [1990] citing Pasay City Government v. CFI of Manila,Br. X, 132 SCRA 156 [1984]; British Traders' InsuranceCo., Ltd. v. Commissioner of Internal Revenue, 13 SCRA719 [1965].

33 See OR, 209-210.

34 TSN, 27 March 1987, 55-58.

35 See TSN, 13 May 1987, 3-29.

36 TSN, 7 April 1987, 4.

37 See De la Paz v. Panis, 245 SCRA 242, 248-249

[1995], citing Permanent Concrete Products, Inc. v.Teodoro, 26 SCRA 332, 336 [1968].

38 75 Phil. 672, 679-680 [1946] citing Alonso v. Villamor,

16 Phil., 315; Banco Español Filipino v. Palanca, 37 Phil.921.

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39 G.R. No. 133876, 29 December 1999.

40 247 SCRA 375, 377-378 [1995]; See also Northern

Cement Corporation v. Intermediate Appellate Court, 158SCRA 408, 417 [1988]; Cruz v. Court of Appeals, 192SCRA 209, 222-223 [1990]; Jacinto v. Court of Appeals,

198 SCRA 211, 217-218 [1991]; Pilapil v. Court of Appeals, 216 SCRA 33, 49 [1992]; Universal MotorsCorporation v. Court of Appeals, 205 SCRA 449, 456[1992].

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G.R. No. 152202 July 28, 2006

CRISOSTOMO ALCARAZ, petitioner,vs.

COURT OF APPEALS and EQUITABLE CREDIT CARDNETWORK, INC., respondents.

D E C I S I O N

PUNO, J .:

Assailed before this Court in a Petition for Review onCertiorari is the decision of the Court of Appeals in CA-G.R.CV No. 65911, entitled "Equitable Credit Card Network, Inc.v. Crisostomo Alcaraz," affirming the decision of Branch 147of the Regional Trial Court of Makati City. The case stemmedfrom an action for the collection of sum of money.

The facts of this case are undisputed.

Private respondent, Equitable Credit Card Network, Inc.(Equitable), is a company engaged in the business of extendingcredit accommodations/facilities through the use of the creditcards issued to its clientele. Through these credit cards, cashadvances may be availed from automated teller machines orATMs, and goods or services may be purchased on credit fromaccredited merchant shops.

1

In May 1995, private respondent Equitable issued a credit card,Equitable Visa Gold International Card with card number4921-0100-0743-2013 and account base number 4921-0100-0743-2005 with peso and dollar accounts/facilities, to petitioner Crisostomo Alcaraz. The petitioner through the use

of the said credit card secured cash advances and purchasedgoods and services on credit with private respondentEquitable's affiliated merchant establishments.2 Thus, the petitioner accumulated unpaid credit with private respondentand despite the receipt of several demand letters, failed to payhis outstanding obligations.3

In its complaint before the lower court, private respondentEquitable sought the payment of the accumulated outstanding balance including interest of 2.5% per month as well as amonthly late penalty/surcharge of 1.5% for the peso account,and 1.5% monthly interest and 1% late penalty/surcharge permonth for the dollar account until full payment thereof as provided in the "Terms and Conditions Governing the Issuanceand Use of Equitable Visa Card" (hereinafter referred to as theTerms and Conditions). The private respondent also prayed forliquidated damages of 25% of the total amount of bothaccounts and attorney's fees at the same rate allegedly also inaccordance with the Terms and Conditions.4 Private respondentEquitable claims petitioner Alcaraz has an accumulatedoutstanding balance of US$8,970.54 in his dollar account as ofFebruary 18, 1999, and P192,500.00 on his peso account as ofFebruary 28, 1999 inclusive of interest and surcharges.5

The petitioner admitted he had made use of the credit cardissued in his name by private respondent Equitable, butcontested the amount of his liability. Petitioner alleged that hewas issued the credit card as an "honorary member." As such,he was not required to submit any application or sign anydocument prior to the issuance of the card and he was entitledto pay on an installment basis without any interest. He deniedsigning the document Terms and Conditions Governing theIssuance and Use of Equitable Visa Card. Petitioner Alcaraz

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further alleged that prior to the filing of the complaint, heformally requested for a reconciliation of his accounts with the private respondent but the same has remained unanswered untilthe present day. Thus, the case filed against him was premature.

After several postponements of the pretrial conference, the trialcourt declared petitioner Alcaraz as in default upon motion of private respondent Equitable and allowed the latter to presentits evidence ex parte.6 After the private respondent's presentation of evidence which included the testimony of itssole witness, one of its collection officers, and the submissionof documents, the court ruled in favor of private respondentEquitable. It, however, rejected private respondent Equitable'sclaim for liquidated and exemplary damages.7 PetitionerAlcaraz filed a Motion for New Trial which was denied.8 The petitioner elevated the case to the appellate court.

The Court of Appeals partially affirmed the decision of the trialcourt. It modified the trial court's judgment by ordering petitioner Alcaraz to pay private respondent Equitable "the principal amount of P81,000.00, on his peso account, and theamount of US$4,397.34 or its peso equivalent, on his dollaraccount" with 12% annual interest from June 25, 1996 until full payment thereof. The appellate court likewise reduced theamount of attorney's fees to P20,000.00.9

Undaunted, petitioner comes to this Court via a petition forreview on certiorari raising the following issues: (1) whetherthe trial court violated the petitioner's right to due processwhen the private respondent was allowed to present itsevidence ex parte; and (2) whether the monetary award ordered

by the Court of Appeals is in accord with the evidence, andapplicable law and jurisprudence.

The petition is without merit.

Petitioner Alcaraz laments that the trial court did not postponeand reschedule the pretrial conference on February 23, 1999despite the manifestation of petitioner's wife that petitionerAlcaraz suffered a stroke which rendered him paralyzed whileAtty. Ben Ibuyan, the petitioner's counsel, suffered from a"lingering gall bladder ailment." Instead, upon motion of private respondent Equitable, the trial court declared the petitioner as in default and allowed the private respondent to present its evidence ex-parte.10 Petitioner Alcaraz also chargethe trial court with arbitrariness and of depriving him of theright to have the case against him heard before an impartial judge or tribunal. In support of his allegations, he maintainsthat, aside from brushing aside the clearly meritorious reasonsfor his and his counsel's absence on the February 23, 1999 pretrial conference, the trial court judge and its personnel haveshown their bias against him in several occasions such as thealleged difficulty his counsel encountered in filing a Motion for New Trial.11

With regard to the first issue, it is well-settled that this Court isnot a trier of facts. This Court accords due respect to thefindings of the trial court and the appellate court save in clearlyexceptional cases.

12 This case, however, does not fall within

those exceptions. The trial court clearly has the discretion onwhether to grant or deny a motion to postpone and/orreschedule the pretrial conference in accordance with thecircumstances then obtaining in the case.13 This must be so as itis the trial court which was able to witness firsthand the events

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as they unfolded in the trial of a case. Postponements, while permissible, must not be countenanced except for clearlymeritorious grounds and in light of the attendantcircumstances.14 The trial court's discretion on this matter,however, is not unbridled. The trial courts are well advised toreasonably and wisely exercise such discretion. This Court willnot hesitate to strike down clearly arbitrary acts or orders of thelower court. This, however, is not the situation in this case.While it is true that private respondent Equitable and inclementweather have on occasion caused the postponement of the pretrial conference, the repeated resetting of the pretrialconference was primarily due to the petitioner.

As to the reasons proffered by the petitioner's wife at theFebruary 23, 1999 pretrial conference, we agree with thefindings of the trial court and the Court of Appeals. Under theRules of Court, both the parties and their counsels aremandated to appear in the pretrial conference.

15 If the parties

opt not to be present, their counsel must be armed with aspecial power of attorney specifically for the purpose. Thismust be so as the pretrial conference is primarily for the purpose of exploring the possibility of a compromise, or on thefailure thereof, for the parties to make certain admissions andstipulations in order to facilitate a more efficient proceeding atthe trial proper .16 In the case at bar, both petitioner Alcaraz and

his counsel did not appear at the scheduled pretrial. Instead, itwas the petitioner's wife alone who made the verbalmanifestation on behalf of her husband and his counsel while presenting an unverified medical certificate on the latter's behalf. As correctly observed by the Court of Appeals, therecords are bereft of any medical certificate, verified orunverified, in the name of petitioner Alcaraz to establish thecause of his absence at the pretrial conference.17 Even

assuming arguendo that petitioner Alcaraz and Atty. Ibuyan'sabsence on the February 23, 1999 pretrial conference is due to justifiable causes, the petitioner is represented by a law firmand not by Atty. Ibuyan alone. As such, any of the latter's partners or associates could have appeared before the court and participate in the pretrial or at least make the proper motion for postponement if necessary.

A charge of arbitrariness and bias against the trial court, in thiscase against the judge as well as all the court personnel, is aserious charge that must be substantiated. Bare allegations of partiality will not suffice. It must be shown that the trial courtcommitted acts or engaged in conduct clearly indicative of biasor pre-judgment against a party. The petitioner failed to do soin this case. The disallowance of a motion for postponement isnot sufficient to show arbitrariness and partiality of the trialcourt. As this Court ruled in the case of Gochan v. Gochan,

18 to wit:

. . . . A motion for continuance or postponement is

not a matter of right, but a request addressed to thesound discretion of the court. Parties asking for postponement have absolutely no right to assume thattheir motions would be granted. Thus, they must be prepared on the day of the hearing.

Given this rule, the question of the correctness of the

denial of respondents' requests for postponements

was addressed to the sound discretion of JudgeDicdican. His action thereon cannot be disturbed by

appellate courts in the absence of any clear and

manifest abuse of discretion resulting in a denial ofsubstantial justice. Since there was no such finding

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with regard to the disallowance of the requests for postponement, the CA [Court of Appeals] cannotoverturn the decision of the judge. Much less can it

assume his bias and partiality based merely on thedenial of the requests for postponement.

19

With regard to the second issue, the petitioner never disputedhis use of the credit card issued to him by the privaterespondent. While he maintains that there is a "great disparity" between the amount of credit he availed of and what wasactually being collected from him by the private respondent,nowhere in the records of this case, however, did petitionerAlcaraz contest any specific purchase or cash advance chargedto the credit card, whether the peso or the dollar account. Whilethe petitioner did request the private respondent in writing for acomputation of his outstanding balance, the petitioner likewisein the very same letter offered to pay his outstandingobligations in twelve (12) equal monthly installments.

20 Private

respondent Equitable responded by proposing that the amountdue as stated in the statement of accounts sent to the petitionerinstead be paid in six (6) equal monthly installments.

21

Petitioner Alcaraz likewise made partial payments before andafter he made the proposed payment scheme to the privaterespondent. Clearly, what the petitioner contests is theapplication of the interests, penalties and other charges as

provided for in the Terms and Conditions when he neversigned nor conformed to the said document. Petitioner Alcarazlikewise claims that the contested provisions are not applicableto him because he was considered an honorary member who isentitled to pay for his credit purchases and cash advances on aninstallment basis free of any interest. The petitioner asserts thatthe "honorary" status given to him was evidenced by the factthat private respondent Equitable issued the credit card in his

name without the necessity of any application or documentsubmitted and signed by him prior to such issuance.

22

Private respondent Equitable, on the other hand, avers thatwhile petitioner Alcaraz did not file or sign an application forthe credit card, this did not exempt him from the provisions ofthe Terms and Conditions. Petitioner's claim of honorarymembership which allegedly entitles him to pay his obligationson an interest-free installment basis is fallacious andgroundless.23 Private respondent Equitable contends that thewaiver of the filing of an application simply means that petitioner Alcaraz has been pre-screened. Such a status isconferred on a person by virtue of his good credit standing orupon recommendation of a reputable client or officer of privaterespondent Equitable. It is private respondent Equitable'sassertion that by signing the credit card and subsequently usingthe same, the petitioner has agreed to the Terms and Conditionsand any amendment thereto as stated in the back of the creditcard itself .24 Except from his bare assertions that the non-filingof application entitles him to pay for his credit card obligationsfree of interest on an installment basis, the petitioner was notable to show that it was in fact the agreement between him andthe private respondent or that the same is the policy and/or practice of the latter.

The evidence sustains the claim of private respondentEquitable that petitioner Alcaraz is what is known as a pre-screened client. When a client is classified as pre-screened, theusual screening procedures of prospective cardholders, such asthe filing of an application form and submission of otherrelevant documents prior to the issuance of a credit card, aredispensed with and the credit card is issued outright. Uponreceipt of the card, the pre-screened client has the option of

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accepting or rejecting the credit card. In the case at bar, petitioner Alcaraz signified his acceptance of the credit card bysigning and subsequently using the same. This, however,without more, does not confer "honorary membership" status tothe petitioner.

We come now to the application of the provisions of the Termsand Conditions, particularly the interest rates, penalties andsurcharges, to petitioner Alcaraz. It is the petitioner'scontention that since he never signed an applic

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