G.R. No. L-48564 August 20, 1979
RUPERTO MERCADER and SEVERINA MERCADER, petitioners, vs. HON. AQUILINO P. BONTO, Judge of the Court of First Instance of Sorsogon, Branch 11, ARSENIO OLIQUINO, BENJAMIN REVILLA and JOAQUINA VDA. DE PALANCA, respondents.

FACTS

Petitioners Ruperto and Severina Mercader were defendants in an interpleader suit filed by respondent Arsenio Oliquino. The complaint sought to determine the rightful owner of a parcel of land Oliquino was leasing, as multiple parties, including the Mercaders and other respondents, asserted conflicting claims of ownership. The Mercaders were served with summons, the complaint, and a court order to interplead on September 2, 1975. Instead of filing an answer, they moved to dismiss the complaint on October 7, 1975. The trial court denied their motion to dismiss on January 6, 1976, and this order was received by their counsel on January 16, 1976. The Mercaders failed to file an answer within the reglementary period thereafter. On February 9, 1976, Oliquino moved to declare them in default. On February 20, 1976, before the hearing on the motion, the Mercaders filed an opposition to the motion for default and attached their verified answer with an affidavit of merit. Despite this, the trial court issued an order on February 25, 1976, declaring them in default. The Mercaders promptly moved to set aside the default order, but the court denied their motion and subsequent motions for reconsideration.

ISSUE

Whether the respondent judge committed a grave abuse of discretion in declaring the petitioners in default and in refusing to set aside the order of default.

RULING

Yes, the Supreme Court granted the petition, finding grave abuse of discretion. The legal logic centers on the principle that default judgments are disfavored, and courts must be liberal in setting them aside to afford parties a full opportunity to litigate their claims on the merits. The Court held that the respondent judge should have considered the petitioners’ circumstances more equitably. Their failure to file a timely answer after the denial of their motion to dismiss constituted excusable negligence, not a willful disregard of court processes. Crucially, they filed their verified answer, which included a sworn statement of merit outlining a prima facie valid defense concerning ownership, before the court actually issued the default order. This demonstrated a clear intent to defend the case substantively. Furthermore, they acted with promptitude in moving to lift the default. The Court emphasized that no prejudice would befall the plaintiff from allowing the answer, as the purpose of an interpleader is precisely to have all claimants litigate their claims. Under these conditions—excusable negligence, a meritorious defense presented prior to default, immediate action to rectify the lapse, and absence of prejudice to the opposing party—the refusal to set aside the default order constituted an arbitrary and capricious exercise of discretion. The orders of default and the denials of the motions to set it aside were therefore annulled and set aside.