G.R. No. 164805 ; April 30, 2008
SOLIDBANK CORPORATION (now METROPOLITAN BANK AND TRUST COMPANY), petitioner, vs. GATEWAY ELECTRONICS CORPORATION, JAIME M. HIDALGO AND ISRAEL MADUCDOC, respondents.

FACTS

Petitioner Solidbank Corporation extended four foreign currency loans to respondent Gateway Electronics Corporation, secured by promissory notes. Two loans were further secured by an assignment of the proceeds from Gateway’s Back-end Services Agreement with Alliance Semiconductor Corporation. Gateway defaulted on its obligations. Solidbank filed a collection suit and later amended its complaint to implead corporate officers who had signed a Continuing Guaranty.
During pre-trial, Solidbank filed a Motion for Production and Inspection of Documents, seeking comprehensive records related to the Back-end Services Agreement and its proceeds, alleging information that Gateway had received payments from Alliance. The trial court granted the motion. Gateway’s officers, respondents Hidalgo and Maducdoc, failed to comply, asserting the documents were not in their possession but with a foreign-based majority stockholder. The trial court found them in contempt and dismissed their Answer with Counterclaim, declaring them in default. The Court of Appeals reversed, ruling the discovery order was too broad and the dismissal too severe a sanction.

ISSUE

Whether the Court of Appeals erred in reversing the trial court’s orders which dismissed the Answer with Counterclaim and declared respondents in default for non-compliance with the discovery order.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. The trial court’s discovery order was improperly broad and oppressive. A motion for production under Rule 27 of the Rules of Court must specify documents with reasonable particularity. Solidbank’s request for “all documents” of “whatever source” pertaining to the Agreement was a prohibited “fishing expedition,” not a precise demand for identifiable items. The order essentially compelled Gateway to create a detailed inventory of all its records, which is beyond the scope of discovery.
Furthermore, the sanction of dismissal and default was disproportionately harsh. Discovery sanctions must be commensurate with the resisting party’s failure. The respondents demonstrated a good-faith effort to comply by explaining the documents were under the control of a non-party foreign stockholder, against whom no subpoena was sought. There was no showing of willful refusal or bad faith warranting the ultimate penalty of default, which deprived them of their right to due process and a hearing on the merits. The proper recourse was for the trial court to impose lesser sanctions under Rule 29, Section 3, not to foreclose the respondents’ defense entirely.