G.R. No. L-75000 February 27, 1987
DENSO (PHILS.), INC., petitioner, vs. THE INTERMEDIATE APPELLATE COURT AND KAYAMANAN DEVELOPMENT CORPORATION, respondents.

FACTS

Petitioner Denso (Phils.), Inc. was the lessee of a building owned by respondent Kayamanan Development Corporation. A fire damaged the premises. Kayamanan filed a complaint for unpaid rentals and the cost of repairs. Summons was served on Denso on June 10, 1985. Denso’s counsel, having received the complaint late, filed a Motion for Extension of Time to File Answer on June 25, 1985, within the reglementary period. The motion contained a notice of hearing addressed to the clerk of court and stated that a copy was furnished to Kayamanan’s counsel, who received it the next day. The trial court denied the motion for lack of proof of service on the same day Kayamanan received it. Immediately, Kayamanan moved to declare Denso in default, which the court granted, leading to an ex-parte presentation of evidence and a judgment by default against Denso.
Denso eventually filed its answer and moved for reconsideration. The trial court, in the interest of justice, set aside the default order and judgment but issued a highly irregular ruling: it reinstated the case but decreed that Kayamanan’s ex-parte evidence would remain on record without granting Denso the right to cross-examine the witnesses. Denso’s motion seeking this right was denied. The Intermediate Appellate Court affirmed this denial, prompting Denso to elevate the case to the Supreme Court via certiorari.

ISSUE

Whether the trial court gravely abused its discretion in denying Denso’s Motion for Extension of Time to File Answer, declaring it in default, and subsequently in setting aside the default but depriving Denso of the fundamental right to cross-examine the adverse party’s witnesses.

RULING

Yes, the trial court committed grave abuse of discretion. The Supreme Court reversed the appellate court’s decision. On the procedural aspect, Denso’s Motion for Extension was filed on time and complied with the rules; the notice of hearing, while addressed to the clerk of court, substantially met the requirement of serving the adverse party, who in fact received it. The trial court’s hyper-technical denial and immediate declaration of default were unjustified. More critically, the court’s subsequent order lifting the default but perpetuating the evidence taken ex-parte without cross-examination was a fundamental error. This procedure created a hybrid situation that violated due process. A judgment by default, once set aside, is completely vacated. The case must be returned to the status quo ante, as if no default had occurred. Allowing previously presented evidence to stand without affording the party a chance to test it through cross-examination renders the setting aside of the default an empty formality and denies the party a genuine opportunity to defend itself. The Supreme Court ordered the admission of Denso’s answer, vacated all contested orders and the default judgment, and directed that the case proceed de novo from the filing of the complaint and answer.