G.R. No. 81788 December 15, 1989
NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS, HON. NICOLAS GALING, Presiding Judge of Branch 166, Regional Trial Court, National Capital Judicial Region, Pasig, Metro Manila, VICTORIA FARMS, INC., SPOUSES EDWARD HOWARD LEONG and SOLEDAD M. LEONG, SPOUSES JESUS Q. TAN and EUFROSINA G. TAN, and SPOUSES RAUL ALCANTARA and ANGELITA T. ALCANTARA, respondents.

FACTS

Private respondents Victoria Farms, Inc. and its sureties obtained multi-million peso loans from petitioner NIDC, a government financial institution. In 1986, the debtors claimed full payment and demanded the cancellation of their mortgage contracts. Upon NIDC’s refusal, they filed a complaint for rescission and annulment of mortgage. NIDC was served summons on November 28, 1986. During the period to plead, NIDC was undergoing dissolution, with its records in disarray and familiar personnel retired, complicating its defense preparation. Its counsel filed motions for extension of time, first to file a motion to dismiss (which was denied), and subsequently to file an answer. The trial court, however, granted only a restrictive extension, effectively requiring an answer by February 10, 1987. Unaware of this order due to the logistical difficulties, counsel sought a further extension, which was denied. Consequently, the trial court declared NIDC in default, received evidence ex parte, and rendered a judgment declaring the debt fully extinguished.

ISSUE

Whether the trial court acted with grave abuse of discretion in declaring NIDC in default, thereby depriving it of due process.

RULING

Yes. The Supreme Court annulled the default judgment, ruling that the trial court committed grave abuse of discretion. The legal logic centers on the proper exercise of judicial discretion in procedural deadlines, balanced against the paramount right to due process. While compliance with reglementary periods is mandatory, courts must consider compelling circumstances warranting liberality, especially to prevent a miscarriage of justice. Here, NIDC’s situation was exceptional: it was a government entity in the throes of dissolution, with dispersed personnel and disorganized records, handling a substantial financial claim. Its motions for extension cited valid and compelling grounds beyond mere lawyerly neglect. The trial court’s arbitrary denial of a reasonable extension, coupled with an error in computing the reglementary period, was unduly strict and deprived NIDC of its day in court. The Court emphasized that where a default judgment would result in the forfeiture of a multi-million peso claim without a hearing, and the delay is satisfactorily explained, liberal procedural rules should prevail to afford parties the opportunity to present their case on the merits. The subsequent one-day delay in seeking reconsideration was deemed inconsequential as the judgment was a nullity for violating due process. The case was remanded for trial on the merits.