G.R. No. L-39804. April 17, 1984.
LCC CORPORATION (Formerly Luzon Commodities Corporation), plaintiff-appellee, vs. JESUS FARRALES, defendant-appellant.

FACTS

LCC Corporation filed a complaint against Jesus Farrales in the City Court of Manila for the recovery of a sum representing the purchase price of cement. After being served with summons, Farrales sent by registered mail an Urgent Petition for a ten-day extension to file his Answer, which was mailed on October 15, 1969. He subsequently filed his Answer by registered mail on October 24, 1969, within the requested extension period, denying any privity of contract with LCC. However, the City Court, acting on LCC’s Motion, struck out the Answer and declared Farrales in default on November 15, 1969, for allegedly filing the Answer nine days late.
Farrales filed an Urgent Motion for Reconsideration, alleging that his original motion for extension sent to the Clerk of Court was returned unclaimed and that plaintiff’s counsel had received a copy. This motion, and a subsequent Supplemental Motion with an Affidavit of Merit reiterating grounds of accident, mistake, or excusable negligence and his meritorious defense of lack of privity, were denied by the City Court. After receiving the default judgment, Farrales appealed to the Court of First Instance (CFI). The CFI dismissed the appeal, ruling that no appeal lies from a default judgment of an inferior court and that the proper remedy was a petition for relief under Rule 38.

ISSUE

Whether the Court of First Instance erred in dismissing Farrales’s appeal from the City Court’s orders denying his motions for reconsideration and/or new trial of the default judgment.

RULING

Yes, the CFI erred. The Supreme Court reversed the CFI’s orders and remanded the case. The legal logic is anchored on the procedural doctrine that a party declared in default loses standing in court and cannot appeal until that standing is regained. To regain it, a defendant in an inferior court may: (1) move to set aside the order of default within one day under Rule 5, Section 13; (2) move for a new trial before judgment becomes final under Rule 5, Section 16; or (3) if the judgment is final, file a petition for relief under Rule 38.
The Court held that Farrales, by filing his Motion for Reconsideration and/or New Trial and a Supplemental Motion with an Affidavit of Merit before the City Court after the default judgment, substantially availed himself of the remedies to regain standing. His first motion was the functional equivalent of a motion for new trial under Rule 5, Section 16, and his supplemental motion, alleging accident and excusable negligence, was the substantive equivalent of a petition for relief under Rule 38. Therefore, his appeal to the CFI was not a direct appeal from the default judgment itself, but a permissible appeal from the City Court’s orders denying him relief. The CFI thus had jurisdiction to entertain the appeal. Furthermore, Farrales’s claim that his extension motion was returned unclaimed, if proven, affected the timeliness of his Answer, and his defense of lack of privity appeared meritorious, warranting a trial on the merits.