G.R. No. L-73421 November 29, 1988
GROUP DEVELOPERS AND FINANCIERS, INC., petitioner, vs. LUMEN POLICARPIO and THE INTERMEDIATE APPELLATE COURT, respondents.

FACTS

Petitioner Group Developers and Financiers, Inc. filed a complaint against private respondent Lumen Policarpio for rescission of contract and damages. The contracts involved a “Pre-need Purchase Agreement” for a burial lot and a “Supplemental Agreement” for the construction of a family court unit thereon. The agreements stipulated that time was of the essence and provided for automatic nullity and forfeiture of payments as liquidated damages upon 30 days of default. Policarpio paid the down payments but subsequently defaulted on all monthly installments despite repeated demands. Notably, the petitioner, upon Policarpio’s request, allowed the interment of her father in the subject lot in 1971, even though the installments were in arrears.
The trial court initially rendered a default judgment ordering rescission and forfeiture of Policarpio’s down payment. However, upon the petitioner’s motion for reconsideration, the court amended its decision to one for specific performance, ordering Policarpio to pay the entire balance. The Intermediate Appellate Court later set aside the default order, ruling that Policarpio had a meritorious defense, primarily citing the petitioner’s act of allowing the interment as inconsistent with a claim of rescission. The petitioner elevated the case to the Supreme Court.

ISSUE

Whether the Intermediate Appellate Court erred in setting aside the order of default and in finding that Policarpio presented a meritorious defense.

RULING

The Supreme Court ruled in favor of the petitioner, setting aside the decision of the Intermediate Appellate Court and reinstating the trial court’s original default judgment. The Court held that the Appellate Court erred in finding a meritorious defense. The purported defense—that the petitioner’s act of allowing the interment of Policarpio’s father negated the option to rescind—was not raised by Policarpio herself in any pleading and was merely advanced by the appellate court. The Court clarified that such an act constituted an act of magnanimity or accommodation by the petitioner and did not constitute a waiver of its rights under the contracts, nor did it prove that Policarpio had settled her obligations. The Court emphasized that Policarpio never denied her indebtedness in her pleadings.
Furthermore, the Supreme Court found that the trial court’s amended decision, which converted the action from rescission to specific performance, violated Section 5, Rule 18 of the Rules of Court, which states that a judgment by default “shall not exceed the amount or be different in kind from that prayed for.” The original complaint prayed solely for rescission and damages, not for specific performance. Therefore, the trial court’s amended decision granting specific performance was improper. The proper course was to reinstate the original default judgment strictly conforming to the relief sought in the complaint.