G.R. No. L-66183. May 4, 1988.
RICARDO O. MONTINOLA, JR. and RAMON MONFORT, petitioners, vs. REPUBLIC PLANTERS BANK, INTERMEDIATE APPELLATE COURT, AND REGIONAL TRIAL COURT (Branch XLVI) OF THE SIXTH JUDICIAL DISTRICT, respondents.

FACTS

Petitioners, sugar planters, filed a complaint against respondent Republic Planters Bank for the recovery of approximately four and a half million pesos, alleging that forged checks and promissory notes resulted in unauthorized withdrawals from their accounts. After the bank failed to file its answer within the extended periods granted, the trial court declared it in default and set the case for ex-parte presentation of petitioners’ evidence. The bank subsequently filed an urgent motion to lift the order of default, attributing its failure to answer to an honest mistake by its counsel and filing clerk and asserting it had meritorious defenses. The trial court granted the motion, lifting the default order in the interest of justice and considering the substantial amount involved. Petitioners then filed a petition for certiorari with the Intermediate Appellate Court, which was dismissed. They elevated the case to the Supreme Court via the present petition.

ISSUE

Whether the trial court gravely abused its discretion in lifting the order of default against the respondent bank.

RULING

The Supreme Court ruled that the trial court did not commit grave abuse of discretion. The legal logic is anchored on the principle that default judgments are disfavored, as they may result in a considerable injustice by precluding a defendant from presenting its case. The Court emphasized that a default order is a remedy of last resort to compel a defendant to join issue. A trial court is thus given broad discretion to set aside an order of default upon a showing of good cause, such as honest mistake or excusable negligence, and a meritorious defense, to serve the ends of substantial justice. In this case, the bank’s failure was attributed to an honest procedural oversight by its counsel, and it had alleged substantive defenses to the claim of forgery. The staggering amount of money involved further underscored the necessity for a full hearing on the merits rather than a technical adjudication. Since no judgment by default had yet been rendered and petitioners had not completed their evidence, lifting the default caused no substantial prejudice other than the loss of a unilateral advantage. The trial court’s action was a prudent exercise of discretion to ensure both parties received their day in court, aligning with the policy of deciding cases on their merits rather than on procedural technicalities. The petition was denied, and the case was remanded for continuation of trial.