Case Summary (G.R. No. 195466)
Factual Background — Loans and Security
Between May and June 1997 Gateway obtained four foreign-currency working capital loans from Solidbank, evidenced by promissory notes. The notes specified interest and penalty provisions. To secure two of the notes (PN 97-375 and PN 97-408), Gateway assigned to Solidbank the proceeds of its Back-end Services Agreement with Alliance Semiconductor Corporation, and undertook to course foreign exchange proceeds directly to Solidbank.
Default, Claim and Guaranty
Gateway defaulted on its loan obligations; by January 31, 2000, the outstanding debt reached US$1,975,835.58. Solidbank demanded payment without success and filed a complaint for collection on February 21, 2000. Solidbank later amended its complaint to implead certain officers/stockholders who had signed a Continuing Guaranty.
Motion for Production of Documents — Purpose and Scope
Acting on information from Alliance’s CFO that Gateway had received payments under the Back-end Services Agreement, Solidbank filed a motion for production and inspection of documents seeking "all documents pertaining to, arising from, in connection with or involving the Back-end Services Agreement" and related accounting and payment records. The motion also requested detailed instructions for responses and identification of locations or sources if documents were not in Gateway’s possession.
Trial Court Orders and Compliance Efforts
The trial court granted the production motion and set specific dates and locations for inspection. Gateway sought schedule adjustments and later presented invoices representing billings to Alliance. Solidbank contended the produced documents were insufficient and moved to cite Gateway for contempt. Gateway maintained it had produced everything it possessed and offered on-site inspection of its files.
Trial Court’s April 15, 2002 Ruling
The trial court denied the contempt motion but, invoking Rule 29, Section 3(a), found that Gateway had not exerted diligent efforts to produce the documents and ordered that the contents of the unproduced documents be "taken to be established in accordance with" Solidbank’s claim, but only for purposes of the action. Gateway’s partial motion for reconsideration was denied.
Court of Appeals Proceedings and Ruling
Gateway petitioned the CA by certiorari. The CA nullified the trial court’s April 15 and August 27, 2002 orders, holding that Solidbank’s motion and the trial court’s January 30, 2001 order did not comply with Section 1, Rule 27 of the Rules of Court because the motion failed to specify the requested documents with the required particularity. The CA also ruled that the trial court committed grave abuse in deeming material facts established against Gateway.
Issues Presented to the Supreme Court
- Whether Solidbank’s motion and the trial court’s January 30, 2001 order failed to comply with Section 1, Rule 27. 2) Whether the trial court committed grave abuse of discretion in applying Rule 29, Section 3(a) to deem the contents of unproduced documents established in Solidbank’s favor.
Governing Principles on Production and Inspection (Rule 27)
Rule 27 authorizes a court, upon a motion showing good cause, to order production and inspection of designated non-privileged documents or things that are material to the action and within the other party’s possession, custody or control. Discovery is remedial and intended to facilitate preparation for trial, prevent surprise and delay, and provide access to material evidence otherwise unavailable due to an opponent’s control. The modes of discovery are treated broadly, and Rule 27 permits inquiry into an opponent’s facts subject to limitations.
Requisites for Compelling Production
To compel production, the moving party must: (a) file a motion showing good cause; (b) serve notice on other parties; (c) designate with particularity the documents or things sought; (d) ensure requested items are not privileged; (e) show the items are material to the action; and (f) show the items are in the possession, custody or control of the party ordered to produce. Courts allow limited "fishing" but impose the particularity requirement to avoid promiscuous or roving inspections.
Application of Rule 27 to the Present Case — Particularity Requirement
The Supreme Court agreed with the CA that Solidbank’s motion was fatally defective for lack of particularity. The motion sought a blanket inspection of "all documents pertaining to, arising from, in connection with or involving the Back-end Services Agreement" — a sweeping and generalized request that did not narrowly designate documents so an adverse party could readily identify what to produce. Because the motion failed that essential requirement, it could not serve as a valid basis for imposing sanctions under Rule 29.
Burden of Proof Consideration
The Court noted that Solidbank, asserting that proceeds had been received by Gateway, bore the burden of proof to establish that fact. The burden of proof remains with the party on whom it is imposed throughout the trial until discharged. The defective motion did not relieve Solidbank from its evidentiary burden.
Rule 29 Sanctions and Trial Court’s Abuse of Discretion
Rule 29, Section 3(a) authorizes courts to enter various sanctions for refusal to o
...continue readingCase Syllabus (G.R. No. 195466)
Procedural Posture and Relief Sought
- Petition for review on certiorari under Rule 45 of the Rules of Court assailing:
- Decision dated June 2, 2004 of the Court of Appeals in CA-G.R. SP No. 73684.
- Resolution dated July 29, 2004 of the Court of Appeals denying a motion for reconsideration.
- The petition challenges:
- Whether Solidbank’s Motion for Production and Inspection of Documents and the trial court Order dated January 30, 2001 complied with Section 1, Rule 27 of the Rules of Court.
- Whether the trial court committed grave abuse of discretion in ruling that the matters regarding the contents of documents not produced by Gateway shall be deemed established in accordance with Solidbank’s claim.
- The Supreme Court’s disposition: the petition was DENIED for lack of merit; the assailed orders of the trial court previously nullified by the Court of Appeals were affirmed as to the outcome, and the petition was denied.
Parties and Roles
- Petitioner: Solidbank Corporation (now known as Metropolitan Bank and Trust Company).
- Respondents: Gateway Electronics Corporation (GEC), and individual officers/stockholders including Jaime M. Hidalgo and Israel F. Maducdoc (other named officers/stockholders impleaded later: Nand K. Prasad, Andrew S. Delos Reyes, Alejandro S. Calderon).
- Additional factual actor: Alliance Semiconductor Corporation (Alliance), counterparty to the Back-end Services Agreement with Gateway; David Eichler identified as Alliance’s Chief Financial Officer who provided information to Solidbank.
Facts — Loans, Instruments, and Security
- In May and June 1997 Gateway obtained four (4) foreign currency-denominated loans from Solidbank to be used as working capital.
- Loans were evidenced by promissory notes (PNs) that provided:
- An interest provision of eight and 75/100 percent (8.75%), allegedly increased to ten percent (10%) per annum.
- A penalty of two percent (2%) per month based on the total amount due computed from date of default until full payment.
- Particulars of the four promissory notes:
- PN 97-375: Date of Loan 20 May 1997; Amount US$190,000.00; Date Due 11 Nov. 1998.
- PN 97-408: Date of Loan 29 May 1997; Amount US$570,000.00; Date Due 11 Nov. 1998.
- PN 97-435: Date of Loan 09 June 1997; Amount US$1,150,000.00; Date Due 04 June 1998.
- PN 97-458: Date of Loan 15 June 1997; Amount US$130,000.00; Date Due 15 June 1998.
- To secure PN 97-375 and PN 97-408, Gateway assigned to Solidbank the proceeds of its Back-end Services Agreement dated June 25, 1996 with Alliance Semiconductor Corporation.
- Common stipulations in the relevant promissory notes (as quoted in the source) included:
- Payment from foreign exchange proceeds of Letters of Credit, Purchase Orders or Sales Contracts described (specifically the Back-end Services Agreement dated 06-25-96 between Gateway and Alliance).
- An assignment, transfer and conveyance to Solidbank of all title and interest to the proceeds of such Letters of Credit to the extent necessary to satisfy obligations under the note.
- Gateway’s undertaking to remit foreign exchange proceeds directly to Solidbank; failure to comply would render Gateway in default without need of demand.
- A provision that if proceeds prove insufficient to pay outstanding liabilities, Gateway remains liable for the deficiency.
Default, Amount Due, and Court Action
- Gateway failed to comply with its loan obligations.
- By January 31, 2000, Gateway’s outstanding debt to Solidbank amounted to US$1,975,835.58.
- Solidbank’s demands were not heeded; Solidbank filed a Complaint for collection of sum of money on February 21, 2000.
- Solidbank filed an Amended Complaint on June 16, 2002 to implead officers/stockholders who had signed a Continuing Guaranty to become sureties for Gateway’s indebtedness; the trial court admitted the amended complaint and impleaded the additional defendants on June 20, 2002.
Motion for Production and Inspection of Documents — Scope and Content
- On October 11, 2000, Solidbank filed a Motion for Production and Inspection of Documents based on information from Alliance’s CFO that Gateway had received proceeds under the Back-end Services Agreement.
- The motion demanded that Gateway, through specified corporate officers, bring for inspection and copying:
- Originals, duplicate originals and copies of all documents pertaining to, arising from, in connection with or involving the Back-end Services Agreement with Alliance.
- Originals, duplicate originals and copies of all books of account, financial statements, receipts, checks, vouchers, invoices, ledgers and other financial/accounting records pertaining to or evidencing transactions arising from the Back-end Services Agreement.
- Originals, duplicate originals and copies of all documents from whatever source pertaining to the proceeds/payments received by GEC from Alliance.
- The motion defined “documents” in expansive terms—writings of any kind, originals and non-identical copies, correspondence, memoranda, notes, ledgers, computer records, electronic records, photographs, recordings, CD-ROMs, e-mails, etc.
- The motion also included specific instructions to the producing officer in the event documents were not in possession or could not be produced (describing efforts to locate, identifying who has control, providing substitute documents, explaining inability to furnish originals, identifying source of produced documents).
Trial Court Orders, Compliance Timeline, and Production
- On January 30, 2001, the trial court (Judge Renato G. Quilala, RTC Makati, Branch 57) issued an Order granting the motion and ordering Gateway to bring all non-privileged records and documents arising from or involving the Back-end Services Agreement, particularly those pertaining to payments by Alliance, for inspection and copying on February 27, 2001 before the Officer-In-Charge, Branch Clerk of Court at 9:00 a.m.
- Gateway sought a reset to March 29, 2001 to gather and collate documents; the trial court granted the motion.
- Solidbank later filed a Motion for issuance of a show cause order for Gateway’s alleged failure to comply; Gateway manifested it had appeared on March 29, 2001 to present documents but claimed Solidbank’s counsel failed to appear, an