G.R. No. 117174 - Capitol Wireless, Inc. vs. Confesor

On February 27, 1985, Delbros Hotel Corporation (DELBROS) filed a complaint before the Regional Trial Court of Manila seeking termination of its management and lease agreement with Hilton Hotels International (later Hilton International Company) and Richard Chapman, alleging mismanagement and breach of contract.
The complaint was based on agreements originally entered on June 2, 1964, later amended by a Management Agreement on June 9, 1966 and supplemental amendments in March 1973 and November 1976.
DELBROS alleged that it had financed, built, furnished, and equipped the “Manila Hilton” (a 400‑room hotel) in return for a share of the gross operating profit while Hilton was to receive a fixed management fee and an incentive fee.
Specific allegations included:

Hilton’s failure to remit DELBROS’ share of the gross operating profit, which as of December 31, 1984, amounted to P2,591,165.00.
Unauthorized transfer of reserve funds to operating funds and subsequent misuse of such funds for capital expenditures without DELBROS’ prior consent.
Gross mismanagement causing DELBROS to default on its amortizations to the General Services Loans.

The complaint was docketed as Civil Case No. 85-29489 and assigned to Judge Abelardo M. Dayrit in Branch XXXIX of the RTC of Manila.
On March 21, 1985, Judge Dayrit issued a writ of preliminary injunction against Hilton and Chapman, directing them not to dispose, conceal, or tamper with hotel records and properties, and restraining certain disbursements and fund transfers.
A clarificatory order followed on March 28, 1985, reinforcing the injunction’s instructions.

Implead Flaviano Mosquera, Jr. (in his capacity as Comptroller) as an additional defendant.
Seek judicial confirmation of the termination of the Management Agreement along with payment for months January through February 1985 and further damages.

The RTC admitted the supplemental complaint on June 14, 1985, ordering defendants to answer within five days.
Although all defendants eventually filed an Answer on July 18, 1985, after DELBROS moved to declare Hilton and Chapman in default for failing to respond to the supplemental complaint, a default order and subsequent default judgment were rendered on July 9 and July 15, 1985 respectively.
A Special Order dated September 3, 1985, was issued authorizing the execution of the default judgment by ordering Hilton and Mosquera to surrender control of the hotel, a process corroborated by a Partial Sheriff’s Return and subsequent notices of takeover by DELBROS.

In response to the execution of the default judgment, Hilton, et al. filed a petition for certiorari (AC-G.R. No. SP-07020) before the Intermediate Appellate Court (now Court of Appeals) seeking:

A temporary restraining order (TRO) and/or a writ of preliminary injunction to nullify the orders—including those dated September 5, 11, and 24, 1985—affecting the execution of the default judgment.
Relief on the ground that the default order and judgment, as well as the order of execution, were void for being rendered with grave abuse of discretion, given the procedural irregularities in handling the supplemental complaint.

The issuance of a TRO on September 5, 1985 by the First Special Cases Division of the IAC, later replaced by a preliminary injunction on August 21, 1985 and subsequently reaffirmed by resolutions on September 11 and 24, 1985.
The conflicting actions of DELBROS (seeking execution) and Hilton (challenging the execution and the validity of the default judgment) set the stage for legal controversies regarding the proper exercise of jurisdiction and adherence to procedural rules.

The default judgment was erroneously rendered since the original answer to the complaint should suffice to address the principal issue, and the supplemental complaint did not present a new cause of action but merely altered the relief sought.
The conduct of the trial court in declaring Hilton and Chapman in default, without waiting for the additional answer of Mosquera, unjustifiably prejudiced the respondents and deprived them of a genuine opportunity to defend themselves.

DELBROS failed to comply with the five‑day notice requirement before termination of the contract.
Their failure to answer the supplemental complaint justified the default, and they further sought moral and exemplary damages as counterclaims.
They also raised the issue of the applicability of the legislative twenty‑day limitation on temporary restraining orders under the Interim Rules and Guidelines relative to the Judiciary Reorganization Act of 1981.

Whether a temporary restraining order or preliminary injunction can proscribe an act that has already been performed, such as the take-over of the hotel management by DELBROS.
Whether a party in legal and actual control of an asset (here, the hotel) may be deprived of possession by the issuance of a temporary restraining order.
Whether the twenty‑day limitation on the effectivity of temporary restraining orders, as set forth in paragraph 8 of the Interim Rules and Guidelines and B.P. Big. 224, applies to the Intermediate Appellate Court (now Court of Appeals).
Whether the trial court committed reversible error by declaring Hilton and Chapman in default, given that the supplemental complaint:

Merely altered the relief sought without substituting the original claims.
Was answered by the defendants in their prior submission to the original complaint.

Whether the execution of the default judgment and the subsequent Special Order amounted to grave, irreparable prejudice to the respondents.