March 12, 2014

G.R. No. 193494

LUI ENTERPRISES, INC., Petitioners,

vs.
ZUELLIG PHARMA CORPORATION and the PHILIPPINE BANK OF
COMMUNICATIONS, Respondents.

DECISION

LEONEN, J.:

There should be no inexplicable delay in the filing of a motion to set aside order of default. Even
when a motion is filed within the required period, excusable negligence must be properly alleged and
proven.

This is a petition for review on certiorari of the Court of Appeals' decision  dated May 24, 2010 and
1

resoluticm  dated August 13, 2010 in CA- G.R. CV No. 88023. The Court of Appeals affirmed in toto
2

the Regional

Trial Court of Makati’s decision  dated July 4, 2006.

3

The facts as established from the pleadings of the parties are as follows:

On March 9, 1995, Lui Enterprises, Inc. and Zuellig Pharma Corporation entered into a 10-year
contract of lease  over a parcel of land located in Barrio Tigatto, Buhangin, Davao City. The parcel of
4

land was covered by Transfer Certificate of Title No. T-166476 and was registered under Eli L. Lui. 5

On January 10, 2003, Zuellig Pharma received a letter  from the Philippine Bank of Communications.
6

Claiming to be the new owner of the leased property, the bank asked Zuellig Pharma to pay rent
directly to it. Attached to the letter was a copy of Transfer Certificate of Title No. 336962 under the
name of the Philippine Bank of Communications.  Transfer Certificate ofTitle No. 336962 was
7

derived fromTransfer Certificate ofTitle No.T-166476. 8

Zuellig Pharma promptly informed Lui Enterprises of the Philippine Bank of Communications’ claim.
On January 28, 2003, Lui Enterprises wrote to Zuellig Pharma and insisted on its right to collect the
leased property’srent. 9

Due to the conflicting claims of Lui Enterprises and the Philippine Bank of Communications over the
rental payments, Zuellig Pharma filed a complaint  for interpleader with the Regional Trial Court of
10

Makati. In its complaint, Zuellig Pharma alleged that it already consigned in court P604,024.35 as
rental payments. Zuellig Pharma prayed that it be allowed to consign in court its succeeding monthly
rental payments and that Lui Enterprises and the Philippine Bank of Communications be ordered to
litigate their conflicting claims.
11

The Philippine Bank of Communications filed its answer  to the complaint. On the other hand, Lui
12

Enterprises filed a motion to dismiss  on the ground that Zuellig Pharma’s alleged representative did
13

not have authority to file the complaint for interpleader on behalf of the corporation. Under the
secretary’s certificate  dated May 6, 2003 attached to the complaint, Atty. Ana L.A. Peralta was only
14

authorized to "initiate and represent [Zuellig Pharma] in the civil proceedings for consignation of
rental payments to be filed against Lui Enterprises, Inc. and/or [the Philippine Bank of
Communications]." 15

According to Lui Enterprises, an earlier filed nullification of deed of dation in payment case pending
with the Regional Trial Court of Davao barred the filing of the interpleader case.  Lui Enterprises
16

filed this nullification case against the Philippine Bank of Communications with respect to several
properties it dationed to the bank in payment of its obligations. The property leased by Zuellig
Pharma was among those allegedly dationed to the Philippine Bank of Communications. 17

In the nullification of deed of dation in payment case, Lui Enterprises raised the issue of which
corporation had the better right over the rental payments.  Lui Enterprises argued that the same
18

issue was involved in the interpleader case. To avoid possible conflicting decisions of the Davao trial
court and the Makati trial court on the same issue, Lui Enterprises argued that the subsequently filed
interpleader case be dismissed.

To support its argument, Lui Enterprises cited a writ of preliminary injunction  dated July 2, 2003
19

issued by the Regional Trial Court of Davao, ordering Lui Enterprises and the Philippine Bank of
Communications "[to maintain] status quo"  with respect to the rent. By virtue of the writ of
20

preliminary injunction, Lui Enterprises argued that it should continue collecting the rental payments
from its lessees until the nullification of deed of dation in payment case was resolved. The writ of
preliminary injunction dated July 2, 2003 reads:

WHEREAS, on June 30, 2003, the Court issued an Order, a portion of which is quoted:

WHEREFORE, PREMISES CONSIDERED, let a Writ of Preliminary Injunction issue, restraining and
enjoining [the Philippine Bank of Communications], its agents or [representative], the Office of the
Clerk of Court- Sheriff and all persons acting on their behalf, from conducting auction sale on the
properties of [Lui Enterprises] in EJF-REM Case No. 6272-03 scheduled on July 3, 2003 at 10:00
a.m. at the Hall of Justice, Ecoland, Davao City, until the final termination of the case, upon plaintiff
[sic] filing of a bond in the amount of P1,000,000.00 to answer for damages that the enjoined parties
may sustain by reason of the injunction if the Court should finally decide that applicant is not entitled
thereto.

WHEREAS, that plaintiff posted a bond of P1,000,000.00 duly approved by this Court.

IT IS HEREBY ORDERED by the undersigned Judge that, until further orders, [the Philippine Bank
of Communications] and all [its] attorneys, representatives, agents and any other persons assisting
[the bank], are directed to restrain from conducting auction sale on the Properties of [Lui Enterprises]
in EJF-REM Case No. 6272-03 scheduled on July 3, 2003 at 10:00 a.m. at the Hall of Justice,
Ecoland, Davao City, until the final termination of the case. 21

Zuellig Pharma filed its opposition  to the motion to dismiss. It argued that the motion to dismiss
22

should be denied for having been filed late. Under Rule 16, Section 1 of the 1997 Rules of Civil
Procedure, a motion to dismiss should be filed within the required time given to file an answer to the
complaint, which is 15 days from service of summons on the defendant.  Summons was served on
23

Lui Enterprises on July 4, 2003. It had until July 19, 2003 to file a motion to dismiss, but Lui
Enterprises filed the motion only on July23, 2003. 24

As to Lui Enterprises’ claim that the interpleader case was filed without authority, Zuellig Pharma
argued that an action interpleader "is a necessary consequence of the action for
consignation."  Zuellig Pharma consigned its rental payments because of "the clearly conflicting
25

claims of [Lui Enterprises] and [the Philippine Bank of Communications]."  Since Atty. Ana L.A.
26
Peralta was authorized to file a consignation case, this authority necessarily included an authority to
file the interpleader case.

Nevertheless, Zuellig Pharma filed in court the secretary’s certificate dated August 28, 2003,  which
27

expressly stated that Atty. Ana L.A. Peralta was authorized to file a consignation and interpleader
case on behalf of Zuellig Pharma. 28

With respect to the nullification of deed of dation in payment case, Zuellig Pharma argued that its
pendency did not bar the filing of the interpleader case. It was not a party to the nullification case. 29

As to the writ of preliminary injunction issued by the Regional Trial Court of Davao, Zuellig Pharma
argued that the writ only pertained to properties owned by Lui Enterprises. Under the writ of
preliminary injunction, the Regional Trial Court of Davao enjoined the July 3, 2003 auction sale of Lui
Enterprises’ properties, the proceeds of which were supposed to satisfy its obligations to the
Philippine Bank of Communications. As early as April 21, 2001, however, the Philippine Bank of
Communications already owned the leased property as evidenced by Transfer Certificate of Title No.
336962. Thus, the writ of preliminary injunction did not apply to the leased property. 30

Considering that Lui Enterprises filed its motion to dismiss beyond the 15-day period to file an
answer, Zuellig Pharma moved that Lui Enterprises be declared in default. 31

In its compliance  dated September 15, 2003, the Philippine Bank of Communications "[joined
32

Zuellig Pharma] in moving to declare [Lui Enterprises] in default, and in [moving for] the denial of [Lui
Enterprises’] motion to dismiss." 33

The Regional Trial Court of Makati found that Lui Enterprises failed to file its motion to dismiss within
the reglementary period. Thus, in its order  dated October 6, 2003, the trial court denied Lui
34

Enterprises’motion to dismiss and declared it in default. 35

Lui Enterprises did not move for the reconsideration of the order dated October 6, 2003. Thus, the
Makati trial court heard the interpleader case without Lui Enterprises’participation.

Despite having been declared in default, Lui Enterprises filed the manifestation with prayer  dated
36

April 15, 2004. It manifested that the Regional Trial Court of Davao allegedly issued the order  dated 37

April 1, 2004, ordering all of Lui Enterprises’ lessees to "observe status quo with regard to the rental
payments"  and continue remitting their rental payments to Lui Enterprises while the nullification of
38

deed of dation in payment case was being resolved. The order dated April 1, 2004 of the Regional
Trial Court of Davao reads:

ORDER

Posed for Resolution is the Motion for Amendment of Order filed by [Lui Enterprises] on September
23, 2003 seeking for the preservation of status quo on the payment/remittance of rentals to [it] and
the disposal/construction of the properties subject matter of this case.

xxxx

As elsewhere stated, [the Philippine Bank of Communications] did not oppose the instant motion up
to the present. In fact, during the hearing held on March 15, 2004, [the bank’s] counsel manifested in
open court that except for the rentals due from [Zuellig Pharma] which are the subject of a
consignation suit before a Makati Court, the other rental payments are continuously received by [Lui
Enterprises].

There being no objection from [the Philippine Bank of Communications], and in order to protect the
right of [Lui Enterprises] respecting the subject of the action during the pendency of this case, this
Court, in the exercise of its discretion hereby grants the motion.

Accordingly, consistent with the order of this Court dated June 30, 2003, the parties are hereby
directed to further observe status quo with regard to the rental payments owing or due from the
lessees of the properties subject of the first set of deeds of dacion and that the defendants are
enjoined from disposing of the properties located at Green Heights Village, Davao City until the case
is finally resolved.

With the order dated April 1, 2004 issued by the Regional Trial Court of Davao as basis, Lui
Enterprises argued that Zuellig Pharma must remit its rental payments to it and prayed that the
interpleader case be dismissed.

The Regional Trial Court of Makati only noted the manifestation with prayer dated April 15, 2004. 39

It was only on October 21, 2004, or one year after the issuance of the order of default, that Lui
Enterprises filed a motion to set aside order of default  in the Makati trial court on the ground of
40

excusable negligence. Lui Enterprises argued that its failure to file a motion to dismiss on time "was
caused by the negligence of [Lui Enterprises’] former counsel."  This negligence was allegedly
41

excusable because "[Lui Enterprises] was prejudiced and prevented from fairly presenting [its]
case."42

For its allegedly meritorious defense, Lui Enterprises argued that the earlier filed nullification of deed
of dation in payment case barred the filing of the interpleader case. The two actions allegedly
involved the same parties and the same issue of which corporation had the better right over the
rental payments. To prevent "the possibility of two courts x x x rendering conflicting rulings [on the
same issue],"  Lui Enterprises argued that the subsequently filed interpleader case be dismissed.
43

Zuellig Pharma filed its opposition  to the motion to set aside order of default. It argued that a
44

counsel’s failure to file a timely answer was inexcusable negligence which bound his client.

Further, Zuellig Pharma argued that the pending case for nullification of deed of dation in payment
"[did] not preclude [Zuellig Pharma] from seeking the relief prayed for in the [interpleader case]." 45

While the motion to set aside order of default was still pending for resolution, Lui Enterprises filed the
manifestation and motion to dismiss  dated April 21, 2005 in the Makati trial court. It manifested that
46

the Davao trial court issued another order  dated April 18, 2005 in the nullification of deed of dation
47

in payment case. In this order, the Davao trial court directed the Philippine Bank of Communications
to inform Zuellig Pharma to pay rent to Lui Enterprises while the Davao trial court’s order dated April
1, 2004 was subsisting. The order datedApril 18, 2005 of the Davao trial court reads:

ORDER

Plaintiffs move for execution or implementation of the Order dated September 14, 2004. In
substance, [Lui Enterprises] seek[s] to compel the remittance in their favor of the rentals from
[Zuellig Pharma], one of the lessees alluded to in the September 14, 2004 Order whose rental
payments "must be remitted to and collected by [Lui Enterprises]." [The Philippine Bank of
Communications] did not submit any opposition.

It appears from the records that sometime in February 2003, after being threatened with a lawsuit
coming from [the Philippine Bank of Communications], [Zuellig Pharma] stopped remitting its rentals
to [Lui Enterprises] and instead, has reportedly deposited the monthly rentals before a Makati court
for consignation.

As aptly raised by the plaintiffs, a possible impasse may insist should the Makati Court’s ruling be
contrary to or in conflict with the status quo order issued by this Court. To preclude this spectacle,
Zuellig Pharma should accordingly be advised with the import of the Order dated September 14,
2004, the salient portion of which is quoted:

x x x prior to the institution of the instant case and by agreement of the parties, plaintiffs were given
as they did exercise the right to collect, receive and enjoy rental payments x x x.

Since the April 1, 2004 status quo order was a necessary implement of the writ of preliminary
injunction issued on June 30, 2003, it follows that plaintiff's right to collect and receive rental
payments which he enjoyed prior to the filing of this case, must be respected and protected and
maintained until the case is resolved. As such, all rentals due from the above-enumerated lessees
must be remitted to and collectedby the Plaintiffs.

Status quo simply means the last actual peaceable uncontested status that preceded the actual
controversy. (Searth Commodities Corp. v. Court ofAppeals, 207 SCRA 622).

As such, the [Philippine Bank of Communications] [is] hereby directed to forthwith inform [Zuellig
Pharma] of the April 1, 2004 status quo order and the succeeding September 14, 2004 Order, and
consequently, for the said lessee to remit all rentals due from February 23, 2003 and onwards to [Lui
Enterprises] in the meanwhile that the status quo order is subsisting.

In its manifestation and motion to dismiss, Lui Enterprises reiterated its prayer for the dismissal of
the interpleader case to prevent "the possibility of [the Regional Trial Court, Branch 143, Makati City]
and [the Regional Trial Court, Branch 16, Davao City] rendering conflicting rulings [on the same
issue of which corporation has the better right to the rental payments]." 48

Without resolving the motion to set aside order of default, the Makati trial court denied the
manifestation with motion to dismiss dated April 21, 2005 on the ground that Lui Enterprises already
lost its standing in court.
49

Lui Enterprises did not file any motion for reconsideration of the denial of the manifestation and
motion to dismiss dated April 21, 2005.

In its decision  dated July 4, 2006, the Regional Trial Court of Makati ruled that Lui Enterprises
50

"[was] barred from any claim in respect of the [rental payments]"  since it was declared in default.
51

Thus, according to the trial court, there was no issue as to which corporation had the better right
over the rental payments.  The trial court awarded the total consigned amount of P6,681,327.30 to
52

the Philippine Bank of Communications and ordered Lui Enterprises to pay Zuellig Pharma
P50,000.00 in attorney’s fees. 53

Lui Enterprises appealed to the Court of Appeals. 54

The Court of Appeals found Lui Enterprises’ appellant’s brief insufficient. Under Rule 44, Section 13
of the 1997 Rules of Civil Procedure, an appellant’s brief must contain a subject index, page
references to the record, table of cases, textbooks and statutes cited, and the statement of issues,
among others. However, Lui Enterprises’ appellant’s brief did not contain these requirements. 55

As to the denial of Lui Enterprises’ motion to dismiss, the Court of Appeals sustained the trial court.
The Court of Appeals found that Lui Enterprises filed its motion to dismiss four days late. 56

With respect to Lui Enterprises’ motion to set aside order of default, the Court ofAppeals found that
Lui Enterprises failed to show the excusable negligence that prevented it from filing its motion to
dismiss on time. On its allegedly meritorious defense, the Court of Appeals ruled that the nullification
of deed of dation in payment case did not bar the filing of the interpleader case, with Zuellig Pharma
not being a party to the nullification case.57

On the award of attorney’s fees, the Court of Appeals sustained the trial court since "Zuellig Pharma
x x x was constrained to file the action for interpleader with consignation inorder to protect its
interests x x x."
58

Thus, in its decision  promulgated on May 24, 2010, the Court of Appeals dismissed Lui
59

Enterprises’appeal and affirmed in toto the Regional Trial Court of Makati’s decision.

Lui Enterprises filed a motion for reconsideration. 60

The Court of Appeals denied Lui Enterprises’ motion for reconsideration in its resolution promulgated
on August 13, 2010.  Hence, this petition.
61

In this petition for review on certiorari,  Lui Enterprises argued that the Court of Appeals applied "the
62

rules of procedure strictly"  and dismissed its appeal on technicalities. According to Lui Enterprises,
63

the Court of Appeals should have taken a liberal stance and allowed its appeal despite the lack of
subject index, page references to the record, table of cases, textbooks and statutes cited, and the
statement of issues in its appellant’s brief.64

Lui Enterprises also claimed that the trial court should have set aside the order of default since its
failure to file a motion to dismiss on time was due to excusable negligence. 65

For its allegedly meritorious defense, Lui Enterprises argued that the pending nullification of deed of
dation in payment case barred the filing of the interpleader case.The nullification of deed of dation in
payment case and the interpleader case allegedly involved the same issue of which corporation had
the better right to the rent. To avoid conflicting rulings on the same issue, Lui Enterprises argued that
the subsequently filed interpleader case be dismissed. 66

No attorney’s fees should have been awarded to Zuellig Pharma as argued by Lui Enterprises.
Zuellig Pharma filed the interpleader case despite its knowledge of the nullification of deed of dation
in payment case filed in the Davao trial court where the same issue of which corporation had the
better right over the rental payments was being litigated. Thus, Zuellig Pharma filed the interpleader
case in bad faith for which it was not entitled to attorney’s fees. 67

The Philippine Bank of Communications filed its comment  on the petition for review on certiorari. It
68

argued that Lui Enterprises failed to raise any error of law and prayed that we affirm in toto the Court
of Appeals’ decision.
For Zuellig Pharma, it manifested that it was adopting the Philippine Bank of
Communications’arguments in its comment. 69

The issues for our resolution are:

I. Whether the Court of Appeals erred in dismissing Lui Enterprises’ appeal for lack of subject
index, page references to the record, table of cases, textbooks and statutes cited, and the
statement of issues in Lui Enterprises’appellant’s brief;

II. Whether the Regional Trial Court of Makati erred in denying Lui Enterprises’motion to set
aside order of default;

III. Whether the annulment of deed of dation in payment pending in the Regional Trial Court
of Davao barred the subsequent filing of the interpleader case in the Regional Trial Court of
Makati; and

IV. Whether Zuellig Pharma was entitled to attorney’s fees.

Lui Enterprises’ petition for review on certiorari is without merit. However, we delete the award of
attorney’s fees.

Lui Enterprises did not comply with the rules on the contents of the appellant’s brief

Under Rule 50, Section 1, paragraph (f) of the 1997 Rules of Civil Procedure, the Court of Appeals
may, on its own motion or that of the appellee, dismiss an appeal should the appellant’s brief lack
specific requirements under Rule 44, Section 13, paragraphs (a), (c), (d), and (f):

Section 1. Grounds for dismissal of appeal. – An appeal may be dismissed by the Court of Appeals,
on its own motion or on that of the appellee, on the following grounds:

xxxx

(f) Absence of specific assignment of errors in the appellant’s brief, or of page references to the
record as required in Section 13, paragraphs (a), (c), (d), and (f) of Rule 44.

These requirements are the subject index of the matter in brief, page references to the record, and a
table of cases alphabetically arranged and with textbooks and statutes cited:

Section 13. Contents of the appellant’s brief. – The appellant’s brief shall contain, in the order herein
indicated, the following:

(a) A subject index of the matter in brief with a digest of the arguments and page references, and a
table of cases alphabetically arranged, textbooks and statutes cited with references to the pages
where they are cited;

xxxx
(c) Under the heading "Statement of the Case," a clear and concise statement of the nature of the
action, a summary of the proceedings, the appealed rulings and orders of the court, the nature of the
controversy, with page references to the record;

(d) Under the heading "Statement of Facts," a clear and concise statement in a narrative form of the
facts admitted by both parties and of those in controversy, together with the substance of the proof
relating thereto in sufficient detail to make it clearly intelligible, with page references to the record;

xxxx

(f) Under the heading "Argument," the appellant’s arguments on each assignment of error with page
references to the record. The authorities relied upon shall be cited by the page of the report at which
the case begins and the page of the report on which the citation isfound;

xxxx

Lui Enterprises’ appellant’s brief lacked a subject index, page references to the record, and table of
cases, textbooks and statutes cited. Under Rule 50, Section 1 of the 1997 Rules of Civil Procedure,
the Court of Appeals correctly dismissed Lui Enterprises’ appeal.

Except for cases provided in the Constitution,  appeal is a "purely statutory right."  The right to
70 71

appeal "must be exercised in the manner prescribed by law"  and requires strict compliance with the
72

Rules of Court on appeals.  Otherwise, the appeal shall be dismissed, and its dismissal shall not be
73

a deprivation of due process of law.

In Mendoza v. United Coconut Planters Bank, Inc.,  this court sustained the Court of Appeals’
74

dismissal of Mendoza’s appeal. Mendoza’s appellant’s brief lacked a subject index, assignment of
errors, and page references to the record. In De Liano v. Court of Appeals,  this court also sustained
75

the dismissal of De Liano’s appeal. De Liano’s appellant’s brief lacked a subject index, a table of
cases and authorities, and page references to the record.

There are exceptions to this rule. In Philippine Coconut Authority v. Corona International, Inc.,  the
76

Philippine Coconut Authority’s appellant’s brief lacked a clear and concise statement of the nature of
the action, a summary of the proceedings, the nature of the judgment, and page references to the
record. However, this court found that the Philippine Coconut Authority substantially complied with
the Rules. Its appellant’s brief "apprise[d] [the Court of Appeals] of the essential facts and nature of
the case as well as the issues raised and the laws necessary [to dispose of the case]."  This court
77

"[deviated] from a rigid enforcement of the rules"  and ordered the Court of Appeals to resolve the
78

Philippine Coconut Authority’s appeal.

In Go v. Chaves,  Go’s 17-page appellant’s brief lacked a subject index. However, Go subsequently
79

filed a subject index. This court excused Go’s procedural lapse since the appellant’s brief
"[consisted] only of 17 pages which [the Court of Appeals] may easily peruse to apprise it of [the
case] and of the relief sought."  This court ordered the Court of Appeals to resolve Go’s appeal "in
80

the interest of justice."

81

In Philippine Coconut Authority and Go, the appellants substantially complied with the rules on the
contents of the appellant’s brief. Thus, this court excused the appellants’procedural lapses.

In this case, Lui Enterprises did not substantially comply with the rules on the contents of the
appellant’s brief. It admitted that its appellant’s brief lacked the required subject index, page
references to the record, and table of cases, textbooks, and statutes cited. However, it did not even
correct its admitted "technical omissions"  by filing an amended appellant’s brief with the required
82

contents.  Thus, this case does not allow a relaxation of the rules. The Court of Appeals did not err
83

in dismissing Lui Enterprises’ appeal.

Rules on appeal "are designed for the proper and prompt disposition of cases before the Court
ofAppeals."  With respect to the appellant’s brief, its required contents are designed "to minimize the
84

[Court ofAppeals’] labor in [examining]the record uponwhich the appeal is heard and determined." 85

The subject index serves as the brief’s table of contents.  Instead of "[thumbing] through the
86

[appellant’s brief]"  every time the Court of Appeals Justice encounters an argument or citation, the
87

Justice deciding the case only has to refer to the subject index for the argument or citation he or she
needs.  This saves the Court ofAppeals time in reviewing the appealed case. Efficiency allows the
88

justices of the appellate court to substantially attend to this case as well as other cases.

Page references to the record guarantee that the facts stated in the appellant’s brief are supported
by the record.  Astatement of fact without a page reference to the record creates the presumption
89

that it is unsupported by the record and, thus, "may be stricken or disregarded altogether." 90

As for the table of cases, textbooks, and statutes cited, this is required so that the Court of Appeals
can easily verify the authorities cited "for accuracy and aptness." 91

Lui Enterprises’ appellant’s brief lacked a subject index, page references to the record, and a table
of cases, textbooks, and statutes cited. These requirements "were designed to assist the appellate
court in the accomplishment of its tasks, and, overall, to enhance the orderly administration of
justice."  This court will not disregard rules on appeal "in the guise of liberal construction."  For this
92 93

court to liberally construe the Rules, the party must substantially comply with the Rules and correct
its procedural lapses.  Lui Enterprises failed to remedy these errors.
94

All told, the Court of Appeals did not err in dismissing Lui Enterprises’ appeal. It failed to comply with
Rule 44, Section 13, paragraphs (a), (c), (d), and (f) of the 1997 Rules of Civil Procedure on the
required contents of the appellant’s brief.

II

Lui Enterprises failed to show that its failure to answer the complaint within the required
period was due to excusable negligence

When a defendant is served with summons and a copy of the complaint, he or she is required to
answer within 15 days from the day he or she was served with summons.  The defendant may also
95

move to dismiss the complaint "[w]ithin the time for but before filing the answer." 96

Fifteen days is sufficient time for a defendant to answer with good defenses against the plaintiff’s
allegations in the complaint. Thus, a defendant who fails to answer within 15 days from service of
summons either presents no defenses against the plaintiff’s allegations in the complaint or was
prevented from filing his or her answer within the required period due to fraud, accident, mistake or
excusable negligence. 97

In either case, the court may declare the defendant in default on plaintiff’s motion and notice to
defendant.  The court shall then try the case until judgment without defendant’s participation  and
98 99

grant the plaintiff such relief as his or her complaint may warrant. 100
A defendant declared in default loses his or her standing in court.  He or she is "deprived of the right
101

to take part in the trial and forfeits his [or her] rights as a party litigant,"  has no right "to present
102

evidence [supporting his or her] allegations,"  and has no right to "control the proceedings [or]
103

cross-examine witnesses."  Moreover, he or she "has no right to expect that [the court] would [act]
104

upon [his or her pleadings]"  or that he or she "may [oppose]motions filed against him [or her]."
105 106

However, the defendant declared in default "does not [waive] all of [his or her] rights."  He or she
107

still has the right to "receive notice of subsequent proceedings."  Also, the plaintiff must still present
108

evidence supporting his or her allegations "despite the default of [the defendant]." 109

Default, therefore, is not meant to punish the defendant but to enforce the prompt filing of the answer
to the complaint. For a defendant without good defenses, default saves him or her "the
embarrassment of openly appearing to defend the indefensible."  As this court explained
110

in Gochangco v. The Court of First Instance of Negros Occidental, Branch

IV:
111

It does make sense for a defendant without defenses, and who accepts the correctness of
the specific relief prayed for in the complaint, to forego the filing of the answer or any sort of
intervention in the action at all. For even if he did intervene, the result would be the same: since he
would be unable to establish any good defense, having none in fact, judgment would inevitably go
against him. And this would be an acceptable result, if not being in his power to alter or prevent it,
provided that the judgment did not go beyond or differ from the specific relief stated in the complaint.
x x x.  (Emphasis in the original)
112

On the other hand, for a defendant with good defenses, "it would be unnatural for him [or her] not to
set x x x up [his or her defenses] properly and timely."  Thus, "it must be presumed that some
113

insuperable cause prevented him [or her] from [answering the complaint]."  In which case, his or her
114

proper remedy depends on when he or she discovered the default and whether the default judgment
was already rendered by the trial court.

After notice of the declaration of default but before the court renders the default judgment, the
defendant may file, under oath, a motion to set aside order of default. The defendant must properly
show that his or her failure to answer was due to fraud, accident,  mistake  or excusable
115 116

negligence.  The defendant must also have a meritorious defense. Rule 9, Section 3, paragraph (b)
117

of the1997 Rules of Civil Procedure provides:

Section 3. Default; declaration of. – x x x x

(b) Relief from order of default. – A party declared in default may at any time after notice thereof and
before judgment file a motion under oath to set aside the order of default upon proper showing that
his failure to answer was due to fraud, accident, mistake or excusable negligence and that he has a
meritorious defense. In such case, the order of default may be set aside on such terms and
conditions as the judge may impose in the interest of justice.

If the defendant discovers his or her default after judgment but prior to the judgment becoming final
and executory, he or she may file a motion for new trial under Rule 37, Section 1, paragraph (a) of
the 1997 Rules of Civil Procedure.  If he or she discovers his or her default after the judgment has
118

become final and executory, a petition for relief from judgment under Rule 38, Section 1 of the 1997
Rules of Civil Procedure may be filed. 119
Appeal is also available to the defendant declared in default. He or she may appeal the judgment for
being contrary to the evidence or to the law under Rule 41, Section 2 of the 1997 Rules of Civil
Procedure.  He or she may do so even if he or she did not file a petition to set aside order of
120

default.121

A petition for certiorari may also be filed if the trial court declared the defendant in default with grave
abuse of discretion. 122

The remedies of the motion to set aside order of default, motion for new trial, and petition for relief
from judgment are mutually exclusive, not alternative or cumulative. This is to compel defendants to
remedy their default at the earliest possible opportunity. Depending on when the default was
discovered and whether a default judgment was already rendered, a defendant declared in default
may avail of onlyone of the three remedies.

Thus, if a defendant discovers his or her default before the trial court renders judgment, he or she
shall file a motion to set aside order of default. If this motion to set aside order of default is denied,
the defendant declared in default cannot await the rendition of judgment, and he or she cannot file a
motion for new trial before the judgment becomes final and executory, or a petition for relief from
judgment after the judgment becomes final and executory.

Also, the remedies against default become narrower and narrower as the trial nears judgment. The
defendant enjoys the most liberality from this court with a motion to set aside order of default, as he
or she has no default judgment to contend with, and he or she has the whole period before judgment
to remedy his or her default.

With a motion for new trial, the defendant must file the motion within the period for taking an
appeal  or within 15 days from notice of the default judgment. Although a default judgment has
123

already been rendered, the filing of the motion for new trial tolls the reglementary period of appeal,
and the default judgment cannot be executed against the defendant.

A petition for relief from judgment is filed after the default judgment has become final and executory.
Thus, the filing of the petition for relief from judgment does not stay the execution of the default
judgment unless a writ of preliminary injunction is issued pending the petition’s resolution. 124

Upon the grant of a motion to set aside order of default, motion for new trial, or a petition for relief
from judgment, the defendant is given the chance to present his or her evidence against that of
plaintiff’s. With an appeal, however, the defendant has no right to present evidence on his or her
behalf and can only appeal the judgment for being contrary to plaintiff’s evidence or the law.

Similar to an appeal, a petition for certiorari does not allow the defendant to present evidence on his
or her behalf. The defendant can only argue that the trial court committed grave abuse of discretion
in declaring him or her in default.

Thus, should a defendant prefer to present evidence on his or her behalf, he or she must file either a
motion to set aside order of default, motion for new trial, or a petition for relief from judgment.

In this case, Lui Enterprises had discovered its default before the Regional Trial Court of Makati
rendered judgment. Thus, it timely filed a motion to set aside order of default, raising the ground of
excusable negligence.
Excusable negligence is "one which ordinary diligence and prudence could not have guarded
against."  The circumstances should be properly alleged and proved. In this case, we find that Lui
125

Enterprises’ failure to answer within the required period is inexcusable.

Lui Enterprises’ counsel filed its motion to dismiss four days late. It did not immediately take steps to
remedy its default and took one year from discovery of default to file a motion to set aside order of
default. In its motion to set aside order of default, Lui Enterprises only "conveniently blamed its x x x
counsel [for the late filing of the answer]"  without offering any excuse for the late filing. This is not
126

excusable negligence under Rule 9, Section 3, paragraph (b)  of the 1997 Rules of Civil Procedure.
127

Thus, the Regional Trial Court of Makati did not err in refusing to set aside the order of default.

Lui Enterprises argued that the Regional Trial Court of Makati should have been liberal in setting
aside its order of default. After it had been declared in default, Lui Enterprises filed several
manifestations informing the Makati trial court of the earlier filed nullification of deed of dation in
payment case which barred the filing of the interpleader case. Lui Enterprises’ president, Eli L. Lui,
and counsel even flew in from Davao to Makati to "formally [manifest that] a [similar] action between
[Lui Enterprises] and [the Philippine Bank of Communications]"  was already pending in the
128

Regional Trial Court of Davao. However, the trial court did not recognize Lui Enterprises’standing
incourt.

The general rule is that courts should proceed with deciding cases on the merits and set aside
orders of default as default judgments are "frowned upon."  As much as possible, cases should be
129

decided with both parties "given every chance to fight their case fairly and in the open, without resort
to technicality."
130

However, the basic requirements of Rule 9, Section 3, paragraph (b) of the 1997 Rules of Civil
Procedure must first be complied with.  The defendant’s motion to set aside order of default must
131

satisfy three conditions. First is the time element. The defendant must challenge the default order
before judgment. Second, the defendant must have been prevented from filing his answer due to
fraud, accident, mistake or excusable negligence. Third, he must have a meritorious defense. As this
court held in SSS v. Hon. Chaves: 132

Procedural rules are not to be disregarded or dismissed simply because their non-observance may
have resulted in prejudice to a party’s substantive rights. Like all rules[,] they are to be followed,
except only when for the most persuasive of reasons they may be relaxed to relieve a litigant of an
injustice not commensurate with the degree of his thoughtlessness in not complying with the
procedure prescribed. x x x. 133

As discussed, Lui Enterprises never explained why its counsel failed to file the motion to dismiss on
time. It just argued that courts should be liberal in setting aside orders of default. Even assuming that
it had a meritorious defense and that its representative and counsel had to fly in from Davao to
Makati to personally appear and manifest in court its meritorious defense, Lui Enterprises must first
show that its failure to answer was due to fraud, accident, mistake or excusable negligence. This Lui
Enterprises did not do.

Lui Enterprises argued that Zuellig Pharma filed the interpleader case to compel Lui Enterprises and
the Philippine Bank of Communications to litigate their claims. Thus, "[d]eclaring the other claimant
in default would ironically defeat the very purpose of the suit."  The RegionalTrial Court of Makati
134

should not have declared Lui Enterprises in default.

Under Rule 62, Section 1 of the 1997 Rules of Civil Procedure, a person may file a special civil
action for interpleader if conflicting claims are made against him or her over a subject matter in
which he or she has no interest. The action is brought against the claimants to compel them to
litigate their conflicting claims among themselves. Rule 62, Section 1 of the 1997 Rules of Civil
Procedure provides:

Section 1. When interpleader proper. – Whenever conflicting claims upon the same subject matter
are or may be made against a person who claims no interest whatever in the subject matter, or an
interest which in whole or in part is not disputed bythe claimants, he may bring an action against the
conflicting claimants to compel them to interplead and litigate their several claims among
themselves.

An interpleader complaint may be filed by a lessee against those who have conflicting claims over
the rent due for the property leased.  This remedy is for the lessee to protect him or her from
135

"double vexation in respect of one liability."  He or she may file the interpleader case to extinguish
136

his or her obligation to pay rent, remove him or her from the adverse claimants’dispute, and compel
the parties with conflicting claims to litigate among themselves.

In this case, Zuellig Pharma filed the interpleader case to extinguish its obligation to pay rent. Its
purpose in filing the interpleader case "was not defeated"  when the Makati trial court declared Lui
137

Enterprises in default.

At any rate, an adverse claimant in an interpleader case may be declared in default. Under Rule 62,
Section 5 of the 1997 Rules of Civil Procedure, a claimant who fails to answer within the required
period may, on motion, be declared in default. The consequence of the default is that the court may
"render judgment barring [the defaulted claimant] from any claim in respect to the subject
matter."  The Rules would not have allowed claimants in interpleader cases to be declared in
138

default if it would "ironically defeat the very purpose of the suit."

139

The Regional Trial Court of Makati declared Lui Enterprises in default when it failed to answer the
complaint within the required period. Lui Enterprises filed a motion to set aside order of default
without an acceptable excuse why its counsel failed to answer the complaint. It failed to prove the
excusable negligence. Thus, the Makati trial court did not err in refusing to set aside the order of
default.

III

The nullification of deed in dation in payment case did not bar the filing of the interpleader
case. Litis pendentia is not present in this case.

Lui Enterprises allegedly filed for nullification of deed of dation in payment with the Regional Trial
Court of Davao. It sought to nullify the deed of dation in payment through which the Philippine Bank
of Communications acquired title over the leased property. Lui Enterprises argued that this pending
nullification case barred the Regional Trial Court of Makati from hearing the interpleader case. Since
the interpleader case was filed subsequently to the nullification case, the interpleader case should
be dismissed.

Under Rule 16, Section 1, paragraph (e) of the 1997 Rules of Civil Procedure, a motion to dismiss
may be filed on the ground of litis pendentia:

Section 1. Grounds. – Within the time for but before filing the answer to the complaint or pleading
asserting a claim, a motion to dismiss may be made on any of the following grounds:
 xxxx

(e)That there is another action pending between the same parties for the same cause;

xxxx

Litis pendentia is Latin for "a pending suit."  It exists when "another action is pending between the
140

same parties for the same cause of actionx x x."  The subsequent action is "unnecessary and
141

vexatious"  and is instituted to "harass the respondent [in the subsequent action]."
142 143

The requisites of litis pendentia are:

(1)Identity of parties or at least such as represent the same interest in both actions;

(2)Identity of rights asserted and reliefs prayed for, the reliefs being founded on the same
facts; and

(3)The identity in the two cases should be such that the judgment that may be rendered in
one would, regardless of which party is successful, amount to res judicata in the other. 144

All of the requisites must be present.  Absent one requisite, there is no litis pendentia.
145 146

In this case, there is no litis pendentia since there is no identity of parties in the nullification of deed
of dation in payment case and the interpleader case. Zuellig Pharma is not a party to the nullification
case filed in the Davao trial court.

There is also no identity of rights asserted and reliefs prayed for. Lui Enterprises filed the first case
to nullify the deed of dation in payment it executed in favor of the Philippine Bank of
Communications. Zuellig Pharma subsequently filed the interpleader case to consign in court the
rental payments and extinguish its obligation as lessee. The interpleader case was necessary and
was not instituted to harass either Lui Enterprises or the Philippine Bank of Communications.

Thus, the pending nullification case did not bar the filing of the interpleader case.

Lui Enterprises cited Progressive Development Corporation, Inc. v. Court of Appeals  as authority to
147

set aside the subsequently filed interpleader case. In this cited case, petitioner Progressive
Development Corporation, Inc. entered into a lease contract with Westin Seafood Market, Inc. The
latter failed to pay rent. Thus, Progressive Development Corporation, Inc. repossessed the leased
premises, inventoried the movable properties inside the leased premises, and scheduled the public
sale of the inventoried properties as they agreed upon in their lease contract.

Westin Seafood Market, Inc. filed for forcible entry with damages against Progressive Development
Corporation, Inc. It subsequently filed an action for damages against Progressive Development
Corporation for its "forcible takeover of the leased premises." 148

This court ordered the subsequently filed action for damages dismissed as the pending forcible entry
with damages case barred the subsequently filed damages case.

Progressive Development Corporation, Inc. does not apply in this case. The action for forcible entry
with damages and the subsequent action for damages were filed by the same plaintiff against the
same defendant. There is identity of parties in both cases.
In this case, the nullification of deed of dation in payment case was filed by Lui Enterprises against
the Philippine Bank of Communications. The interpleader case was filed by Zuellig Pharma against
Lui Enterprises and the Philippine Bank of Communications. A different plaintiff filed the interpleader
case against Lui Enterprises and the Philippine Bank of Communications. Thus, there is no identity
of parties, and the first requisite of litis pendentia is absent.

As discussed, Lui Enterprises filed the nullification of deed of dation in payment to recover
ownership of the leased premises. Zuellig Pharma filed the interpleader case to extinguish its
obligation to pay rent.There is no identity of reliefs prayed for, and the second requisite of litis
pendentia is absent.

Since two requisites of litis pendentia are absent, the nullification of deed of dation in payment case
did not bar the filing of the interpleader case.

Lui Enterprises alleged that the Regional Trial Court of Davao issued a writ of preliminary injunction
against the Regional Trial Court of Makati. The Regional Trial Court of Davao allegedly enjoined the
Regional Trial Court of Makati from taking cognizance of the interpleader case. Lui Enterprises
argued that the Regional Trial Court of Makati "should have respected the orders issued by the
Regional Trial Court of Davao."  Lui Enterprises cited Compania General de Tabacos de Filipinas v.
149

Court of Appeals  where this court allegedly held:

150

x x x [T]he issuance of the said writ by the RTC ofAgoo, La Union not only seeks to enjoin Branch 9
of the RTC of Manila from proceeding with the foreclosure case but also has the effect of pre-
empting the latter’s orders. x x x. 151

Compania General de Tabacos de Filipinas is not an authority for the claim that a court can issue a
writ of preliminary injunction against a co- equal court.  The cited sentence was taken out of context.
1âwphi1

In Compania General de Tabacos de Filipinas, this court held that the Regional Trial Court ofAgoo
had no power to issue a writ of preliminary injunction against the Regional Trial Court of
Manila.  Acourt cannot enjoin the proceedings of a co-equal court.
152

Thus, when this court said that the Regional Trial Court of Agoo’s writ of preliminary injunction "not
only seeks to enjoin x x x [the Regional Trial Court of Manila] from proceeding with the foreclosure
case but also has the effect of pre-empting the latter’s orders,"  this court followed with "[t]his we
153

cannot countenance." 154

At any rate, the Regional Trial Court of Davao’s order datedApril 18, 2005 was not a writ of
preliminary injunction. It was a mere order directing the Philippine Bank of Communications to inform
Zuellig Pharma to pay rent to Lui Enterprises while the status quo order between Lui Enterprises and
the Philippine Bank of Communications was subsisting. The Regional Trial Court of Davao did not
enjoin the proceedings before the Regional Trial Court of Makati.The order datedApril 18, 2005
provides:

As such, [the Philippine Bank of Communications] [is] hereby directed to forthwith inform Zuellig
Pharma Corp., of the April 1, 2004 status quo order and the succeeding September 14, 2004 Order,
and consequently, for the said lessee to remit all rentals due from February 23, 2003 and onwards to
plaintiff Lui Enterprises, Inc., in the meanwhile that the status quo order is subsisting. 155

Thus, the Regional Trial Court of Davao did not enjoin the Regional Trial Court of Makati
fromhearing the interpleader case.
All told, the trial court did not err in proceeding with the interpleader case. The nullification of deed of
dation in payment case pending with the Regional Trial Court of Davao did not bar the filing of the
interpleader case with the RegionalTrial Court of Makati.

IV

The Court of Appeals erred in awarding attorney’s fees

In its ordinary sense, attorney’s fees "represent the reasonable compensation [a client pays his or
her lawyer] [for legal service rendered]."  In its extraordinary sense, attorney’s fees "[are] awarded x
156

x x as indemnity for damages [the losing party pays the prevailingparty]." 157

The award of attorney’s fees is the exception rather than the rule.  It is not awarded to the prevailing
158

party "as a matter of course."  Under Article 2208 of the Civil Code, attorney’s fees cannot be
159

recovered in the absence of stipulation, except under specific circumstances:

(1)When exemplary damages are awarded;

(2)When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(3)In criminal cases of malicious prosecution against the plaintiff;

(4)In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5)Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff’s plainly valid, just and demandable claim;

(6)In actions for legal support;

(7)In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8)In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9)In a separate civil action to recover civil liability arising froma crime;

(10)When at least double judicial costs are awarded;

(11)In any other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered. 160

Even if a party is "compelled to litigate with third persons or to incur expenses to protect his [or her]
rights,"  attorney's fees will not be awarded if no bad faith "could be reflected in a party's
161

persistence in a case." 162

To award attorney's fees, the court must have "factual, legal, [and] equitable justification."  The
163

court must state the award's basis in its decision. These rules are based on the policy that "no
164

premium should be placed.on the right to litigate." 165

In this case, the Court of Appeals awarded attorney's fees as "[Zuellig Pharma] was compelled to
litigate with third persons or to incur expenses to protect [its] interest[s]."  This is not a compelling
166

reason to award attorney's fees. That Zuellig Pharma had to file an interpleader case to consign its
rental payments did not mean that Lui Enterprises was in bad faith in insisting that rental payments
be paid to it. Thus, the Court. of Appeals erred in awarding attorney's fees to Zuellig Pharma.

All told, the Court of Appeals' award of P50,000.00 as attorney's fees must be deleted.

WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED. The Court of
Appeals' decision and resolution in CA- G.R. CV No. 88023 are AFFIRMED with MODIFICATION.
The award of PS0,000.00 attorney's fees to Zuellig Pharma Corporation is DELETED.

SO ORDERED.

MARVIC MARIO VICTOR F. LEONEN

Associate Justice