G.R. No. 170232 - Vette Industrial Sales Co., Inc. vs. Cheng

Case Summary (G.R. No. 170232)

Factual Background

The plaintiff in Civil Case No. 03-105691 was Sui Soan S. Cheng a.k.a. Cheng Sui Soan (hereafter Sui). Sui alleged that on October 24, 2001 he executed a Deed of Assignment transferring his forty thousand shares in Vette Industrial Sales Company, Inc. in favor of certain assignees among the petitioners. The company acknowledged in a Memorandum of Agreement (MOA) that it owed Sui P6.8 million, plus insurance proceeds of P760,000.00 and a signing bonus of P300,000.00. Sui alleged that he received forty-eight postdated checks but that only the first eleven were honored and the remainder were dishonored. He further alleged that petitioners failed to remit the insurance proceeds and that these breaches entitled him to specific performance, moral and exemplary damages, and attorney’s fees.

Trial Court Pleadings and Counterclaim

The petitioners answered and filed a compulsory counterclaim asserting, among other defenses, that Sui sold his shares for P1.00 per share which had been paid; that the MOA was unenforceable for lack of board authorization; that the MOA lacked consideration; and that Kenneth Tan executed the MOA after having been threatened by Sui. After joinder of issues, the case underwent mediation without settlement and returned to the trial court for pre-trial.

Pre-trial Events and Dismissal

Pre-trial was set and rescheduled several times. On May 21, 2004 the parties appeared but Sui and his counsel, Atty. Pedro M. Ferrer, failed to appear on time. The trial court dismissed the complaint without prejudice but allowed petitioners to present and prove their counterclaim and set the hearing on reception of evidence for June 22, 2004. Counsel for Sui later filed a Manifestation and Motion for Reconsideration explaining that he arrived late because he had to obtain the case folder after traveling from South Cotabato where he had duties as Chief Counsel in provincial election canvassing.

Motion for Reconsideration and Trial Court Ruling

The trial court required petitioners to comment on the manifestation and motion for reconsideration. Petitioners opposed, arguing among other points that the motion violated the three‑day notice requirement under Rule 15, Sec. 4 and Sec. 5, and that no proof of service consistent with Rule 15, Sec. 6 was attached. Petitioners further argued that counsel’s negligence bound the client and that counsel’s excuse was insufficient. In an Order dated December 16, 2004, the trial court granted Sui’s motion for reconsideration, lifted and set aside the dismissal order, and reset pre-trial for February 15, 2005, invoking the principle that procedural rules are tools to attain substantial justice and should not be applied rigidly to produce technicalities.

Petition for Certiorari to the Court of Appeals and Its Ruling

Petitioners sought relief by filing a petition for certiorari with the Court of Appeals. The Court of Appeals granted the petition in part, vacated and set aside the trial court’s orders, and issued another order dismissing the complaint but without prejudice, allowing the complaint to be reinstated and granting petitioners leave to present evidence on their counterclaim. The Court of Appeals reasoned that Sui and his counsel were not present at the pre-trial in a manner that would justify reinstatement; that Rule 18, Sec. 5 speaks only of a party’s failure to appear and is silent on counsel’s absence; and that the manifestation and motion for reconsideration did not show that counsel was fully authorized in writing to represent Sui at pre-trial. The Court of Appeals found dismissal proper under the circumstances.

Contentions Before the Supreme Court

In G.R. No. 170232 petitioners contended that the Court of Appeals erred in not dismissing Sui’s complaint with prejudice; that counsel’s negligence should bind Sui; that the motion for reconsideration was a “scrap of paper” for failure to comply with Rule 15, Sec. 4 and Sec. 6; and that established precedent compelled dismissal. In G.R. No. 170301 Sui asserted that his nonappearance at pre-trial was excusable for valid cause, that his counsel had been authorized to act on his behalf, and that the trial court’s reliance on Ace Navigation Co., Inc. v. Court of Appeals supported relief.

Legal Standard on Certiorari and Review of Trial Court Discretion

The Supreme Court recited the settled rule that a petition for certiorari under Rule 65 lies only when a tribunal acted without or in excess of jurisdiction or with grave abuse of discretion. The Court observed that an error of judgment within jurisdiction does not constitute grave abuse. The Court emphasized that rules of procedure are tools to secure substantial justice and may be relaxed where rigid application would produce manifest failure or miscarriage of justice.

Analysis: Excuse for Nonappearance and Notice Requirements

The Supreme Court found no grave abuse in the trial court’s exercise of discretion when it granted the motion for reconsideration and set aside the dismissal. The Court noted that Rule 18, Sec. 4 permits excuse of a party’s nonappearance where a valid cause is shown or where a representative fully authorized in writing appears. The Court observed that the trial court did not ignore the absence but considered Atty. Ferrer’s explanation that he was late and that Sui had executed a special power of attorney. The Court held that the circumstances warranted relaxation of procedural rules in the interest of substantial justice.

On the asserted defects in notice, the Court reviewed authority including Vlason Enterprises Corporation v. Court of Appeals, Republic of the Philippines v. Court of Appeals, and other precedents. The Court explained that the three‑day notice and proof of service requirements under Rule 15 are mandatory but that exceptions exist where rigid compliance would cause manifest failure of justice, where substantial justice requires, or where the adverse party actually received the motion

Case Syllabus (G.R. No. 170232)

Parties and Posture

Vette Industrial Sales Co., Inc., Kenneth Tan, Estrella Cheng, Luisito Ramos, Yvette Tan, Kessenth Cheng, Vevette Cheng and Felesavette Cheng were the petitioners in the consolidated proceedings.
Sui Soan S. Cheng a.k.a. Cheng Sui Soan was the plaintiff in the trial court and the respondent before the Court of Appeals.
The consolidated petitions assailed the Decision dated September 22, 2005 and the Resolution dated October 27, 2005 of the Court of Appeals in CA-G.R. SP No. 88863.
The trial court matter was docketed as Civil Case No. 03-105691 and involved a Complaint for specific performance and damages filed by Sui against the petitioners.

Key Facts

Sui alleged that on October 24, 2001 he executed a Deed of Assignment transferring his 40,000 shares to four assignees named in the complaint.
Sui alleged that the company acknowledged indebtedness in a Memorandum of Agreement to the amount of P6.8 million plus insurance proceeds of P760,000 and a signing bonus of P300,000.
Sui averred that he received forty-eight postdated checks but that checks after the eleventh were dishonored.
Petitioners countered that the shares were sold at P1.00 per share and paid for, that the MOA lacked board authorization and consideration, and that Kenneth Tan executed the MOA under duress.

Pretrial and Trial Events

Pre-trial was initially set for July 3, 2003 and the case was submitted to mediation before being returned to the court for further proceedings.
A Motion to Set Pre-trial was filed by Sui on December 16, 2003 and petitioners did not attend a pre-trial they contended lacked court notice.
The trial court issued an ex-parte order permitting Sui to present evidence but later revoked that order and reset pre-trial to January 15, 2004 and ultimately to May 21, 2004.
On May 21, 2004 the trial court dismissed the complaint for plaintiff’s failure to appear, and later denied immediate reconsideration but accepted a Manifestation and Motion for Reconsideration explaining counsel’s late arrival.
On December 16, 2004 the trial court granted Sui’s motion for reconsideration, set aside the dismissal, and ordered a new pre-trial to promote substantial justice.

Court of Appeals Decision

The Court of Appeals granted the petition for certiorari and vacated the trial court’s orders and again dismissed the complaint but stated the dismissal was without prejudice and allowed petitioners to present evidence on their counterclaim.
The Court of Appeals concluded that absence of Sui and his counsel at pre-trial justified dismissal and characterized the motion for reconsideration as deficient and thus a "mere scrap of paper."

Issues Presented

Whether the Court of Appeals erred in dismissing Sui’s complaint only without prejudice and in setting asi