FACTS:

– Parties Behn, Meyer & Co., Ltd. (plaintiff‑appellee) sued Arnalot Hermanos, Sociedad en Comandita (defendant‑appellant) to recover ₱23,993.24 with legal interest.
– Procedural posture The defendant failed to file an appearance or answer within the period prescribed by law; the trial court entered a judgment by default in favor of the plaintiff.
– Motion to set aside The very next day the defendant filed a motion to set aside the judgment, alleging fraud. The motion was supported by an affidavit of Ignacio Arnalot, the defendant’s agent, who claimed that he was misled by false representations of the plaintiff that the suit was a collective action with other creditors and that the plaintiff’s sole purpose was to obtain a single judgment covering all claims.
– Opposing affidavits The plaintiff filed counter‑affidavits denying the alleged misrepresentations.
– Trial‑court ruling The trial court found that the alleged fraud was unsupported, that the affidavit of the defendant’s agent did not establish a good defense, and therefore denied the motion to set aside. The default judgment therefore remained.
– Appeal The defendant appealed, raising (1) that the fraud allegation was not properly considered, (2) that a formal demand for payment under Articles 313 and 316 of the Code of Commerce was required before instituting the action, and (3) that the default judgment was entered prematurely, i.e., before the period for filing an answer had expired.

ISSUE:

1. Whether the trial court erred in rejecting the defendant’s motion to set aside the default judgment on the ground of alleged fraud.
2. Whether a formal notarized demand for payment (as required by Articles 313 and 316 of the Code of Commerce) was a prerequisite to the institution of the action.
3. Whether the default judgment was entered in violation of the time limits for the defendant to file an appearance or answer, contrary to Section 128 of the Code of Civil Procedure.

RULING:

1. Fraud allegation The Supreme Court held that the plaintiff’s affidavits and the testimony of its attorney categorically denied the existence of any fraud. The unsupported statements of the defendant’s agent were insufficient to overturn the trial court’s finding. Consequently, the motion to set aside on the basis of fraud was properly denied.

2. Demand under the Code of Commerce The Court observed that the complaint alleged a balance due based on a “promise to pay” rather than the original commercial loan itself. The trial court had found, and the Supreme Court was bound to accept, that this factual finding established a valid cause of action without the need for a prior formal demand. Thus, the absence of a notarized demand did not invalidate the suit.

3. Default judgment timing Section 128 of the Code of Civil Procedure authorizes entry of judgment by default when a defendant fails to appear at the time required by the summons or fails to answer within the period fixed by the rules. The default judgment was entered the day after the deadline for the defendant’s appearance had elapsed; therefore, the entry complied with the statute. No jurisdictional defect existed.

Disposition The Supreme Court affirmed the trial court’s judgment of ₱23,993.24 with legal interest in favor of Behn, Meyer & Co., Ltd., denied the defendant’s motion to set aside, and ordered the costs of the appeal to be borne by the appellant (Arnalot Hermanos).

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Key Takeaways

– A default judgment may be entered as soon as the statutory deadline for the defendant’s appearance expires, even if the defendant has not yet become “in default” on his answer.
– Allegations of fraud must be substantiated by competent evidence; mere unsupported statements of an agent are insufficient.
– When a complaint is anchored on a specific “promise to pay” (i.e., a demand for performance) rather than on the existence of the original loan, a separate formal demand under Articles 313‑316 of the Code of Commerce is not a condition precedent to suit.