G.R. No. 124267 . August 18, 2004.
NATIONAL COMMERCIAL BANK OF SAUDI ARABIA, petitioner, vs. COURT OF APPEALS AND PHILIPPINE BANKING CORPORATION, respondents.

FACTS

Petitioner National Commercial Bank of Saudi Arabia (NCBSA) filed a collection case against private respondent Philippine Banking Corporation (PBC) before the Regional Trial Court (RTC) of Makati on December 4, 1985, to recover a duplicate payment on a letter of credit. The RTC rendered a decision in favor of NCBSA on August 24, 1993, received by PBC on September 3, 1993. On September 15, 1993 (the 12th day of the 15-day appeal period), PBC filed a Motion for Reconsideration which lacked a notice of hearing. On September 27, 1993 (24 days from receipt of the decision and 9 days after the appeal period had expired), PBC filed a “Motion to Set ‘Motion for Reconsideration’ for Hearing.” The RTC, by Order dated February 1, 1994, declared the Motion for Reconsideration a “useless piece of paper” for failure to comply with the 3-day notice rule and struck it from the records. PBC’s Motion for Reconsideration of this order was denied. PBC then filed a Petition for Certiorari with the Court of Appeals (CA). The CA initially dismissed the petition but, upon PBC’s motion for reconsideration, issued an Amended Decision directing the RTC to resolve PBC’s Motion for Reconsideration on the merits, citing a too harsh application of procedural rules. NCBSA filed a Petition for Review before the Supreme Court. In a Decision dated January 31, 2003, the Supreme Court set aside the CA’s Amended Decision, declaring PBC’s Motion for Reconsideration pro forma for lack of a notice of hearing and for raising issues already passed upon, and reinstated the finality of the RTC decision. PBC filed the instant Motion for Reconsideration.

ISSUE

Whether there exists a persuasive reason to justify the relaxation of the Rules of Procedure to allow the consideration of PBC’s Motion for Reconsideration and address a substantive error in the RTC decision.

RULING

The Supreme Court GRANTED PBC’s Motion for Reconsideration, thereby setting aside its Decision of January 31, 2003. The Court found a compelling reason to relax procedural rules due to a substantive error in the trial court’s decision that resulted in manifest injustice.
The Court held that while the requirement of a notice of hearing under the Rules is mandatory and its absence generally renders a motion a mere scrap of paper, procedural rules may be relaxed for the most persuasive reasons to serve substantial justice. In this case, PBC raised, for the first time in its motion for reconsideration, the propriety of the RTC’s imposition of 12% per annum interest on the principal amount from 1975—the alleged year of duplicate payment—when NCBSA’s earliest demand was made only in October 1985. Although this issue would ordinarily be deemed waived under the rule on omnibus motions, the Court considered the vital government interest in the banking industry, the apparent error of the trial court, and the substantial amount involved.
Citing Article 1169 of the Civil Code and the rules formulated in Eastern Shipping Lines, Inc. v. Court of Appeals, the Court noted that interest should generally run only from the time of judicial or extrajudicial demand, absent any stipulation. The RTC’s decision ordering interest to run from 1975, a period of approximately nine years before any demand, constituted a clear error. To prevent a manifest injustice from the execution of this erroneous award, the Court exercised its equity jurisdiction to relax procedural technicalities and allow a review of the substantive merits of the interest award. The parties were directed to file memoranda on this specific issue.