A.M. No. CA-18-35-P - Re: Ricky R. Regala

In May and June 1997, Gateway Electronics Corporation obtained four (4) foreign currency-denominated loans from Solidbank Corporation to be used as working capital for its manufacturing operations.
The loans were evidenced by promissory notes (PNs) which initially provided for an interest of 8.75% per annum but were allegedly increased to 10%, with a penalty of 2% per month on total due amounts from default date until full payment.
Details of the promissory notes:

To secure PNs 97-375 and 97-408, Gateway assigned to Solidbank the proceeds of its Back-end Services Agreement with Alliance Semiconductor Corporation dated June 25, 2000.
The assignment stipulated that payments received from Alliance would be remitted directly to Solidbank to satisfy Gateway’s debt obligations.
Gateway undertook that failure to truthfully account and remit the payments would constitute default without the need for demand.

Gateway failed to comply with loan obligations, and by January 31, 2000, owed Solidbank US$1,975,835.58.
Solidbank filed a Complaint for collection of sum of money against Gateway on February 21, 2000.
On June 16, 2002, Solidbank amended the complaint to implead Gateway’s officers/stockholders who had signed a Continuing Guaranty for the loan.

Solidbank, based on information from Alliance’s CFO, filed a Motion for Production and Inspection of Documents on October 11, 2000, seeking documents evidencing payments Gateway received from Alliance under the Back-end Services Agreement.
The motion broadly requested all documents “pertaining to, arising from, in connection with or involving” the Agreement and payment receipts and other financial records. It also included instructions for the officers to detail any inability to produce such documents.
The trial court issued an Order on January 30, 2001, commanding Gateway to produce the specified documents for inspection and copying before the Branch Clerk of Court.
Gateway requested and was granted a reset for production from February 27 to March 29, 2001, to prepare the documents.
Gateway appeared on March 29, 2001, stating it presented all documents in its possession but alleged Solidbank’s counsel failed to appear. Gateway expressed willingness to make documents available at their premises.
The court rescheduled production and inspection to June 7 and then to July 24, 2001, with Gateway producing invoices showing billings to Alliance related to the Agreement.

Solidbank filed a motion to cite Gateway and responsible officers in contempt on December 13, 2001, alleging refusal to produce documents subject to the January 30, 2001 Order.
Gateway opposed, asserting compliance through produced invoices, which were the only pertinent documents they had.
On April 15, 2002, the trial court denied the contempt motion but found Gateway exerted no diligent effort to produce documents evidencing payments received from Alliance.
Pursuant to Section 3(a), Rule 29 of the Rules of Court, the court deemed established the matters regarding the contents of the documents not produced, in favor of Solidbank’s claims, for purposes of the action.
Gateway’s partial reconsideration of this order was denied on August 27, 2002.

Gateway petitioned for certiorari before the Court of Appeals to nullify the trial court’s April 15 and August 27, 2002 orders.
On June 2, 2004, the CA nullified the trial court orders, ruling that the motion for production and the January 30, 2001 Order did not comply with Section 1, Rule 27 of the Rules of Court because of insufficient specificity.
The CA held the trial court gravely abused its discretion in treating non-produced document contents as established facts.
The CA’s decision allowed Solidbank to file a new motion for production in accordance with the Rules.
Solidbank’s motion for reconsideration was denied by the CA on July 29, 2004.

Solidbank filed a petition for review on certiorari assailing the CA’s decision and resolution denying reconsideration.

Whether Solidbank’s motion for production and inspection of documents and the trial court’s January 30, 2001 Order failed to comply with Section 1, Rule 27 of the Rules of Court.
Whether the trial court committed grave abuse of discretion in ordering that matters related to the contents of the documents not produced by Gateway be deemed established in accordance with Solidbank’s claim.