Title
Vlason Enterprises Corp. vs. Court of Appeals
Case
G.R. No. 121662-64
Decision Date
Jul 6, 1999
A salvage dispute led to improper summons, invalid default judgment, and wrongful execution against Vlason Enterprises, reversed by the Supreme Court.

Case Summary (G.R. No. 121662-64)

Background and Facts of the Case

The dispute arose when the vessel M/V Star Ace, operated by Omega and handled locally by Poro Point Shipping Services, docked in the Philippines with approval from the Bureau of Customs to unload cargo at the PPA compound in San Fernando, La Union. Customs personnel seized the vessel on suspicion of smuggling, pursuant to the Tariff and Customs Code. A warrant of seizure was lifted by the District Collector, but later Customs Commissioner Mison overruled this and forfeited the vessel and cargo. Duraproof Services filed a Petition for Certiorari with the Regional Trial Court (RTC) of Manila to enforce its salvor’s lien on the vessel following a salvage agreement entered into with Omega’s authorized representative. Multiple amended petitions were filed by private respondent (Duraproof), impleading several respondents including petitioner VEC, though initially no specific allegations or prayers against VEC were made. Summons was served on the secretary of VEC’s president who was, however, an employee of another corporation. Despite multiple motions for entry of default by Duraproof, no order declaring VEC in default was ever issued by the RTC, yet the trial court proceeded with ex parte presentation of evidence and rendered a default judgment against VEC awarding damages.

Proceedings in the RTC and Court of Appeals

The RTC rendered a Decision on February 18, 1991, holding VEC liable and ordering payment of damages, salaries, salvage fees, among other amounts to Duraproof. A compromise agreement was entered into by some parties but not VEC. Execution of the judgment followed with the levying and auctioning of VEC’s assets. VEC moved for reconsideration, arguing lack of jurisdiction, defective summons, absence of order of default against it, and that relief awarded exceeded the prayers in the petition. The RTC initially reversed its default judgment against VEC and declared the levy and execution null and void as to it. Nonetheless, the Court of Appeals (CA), upon petition by Duraproof, reinstated the finality of the RTC Decision and allowed enforcement except as to parties who had appealed or modified the case. The CA ruled the petition for certiorari proper only to correct jurisdictional errors, and since VEC failed to allege such, the CA refused to reconsider the validity of the default judgment.

Issues Raised

  1. Whether the RTC Decision of February 18, 1991 had become final and executory as to petitioner VEC.
  2. Whether the RTC acquired jurisdiction over petitioner VEC.
  3. Whether the default judgment rendered against VEC was valid without a prior declaration of default.
  4. Whether the trial court’s award of damages against VEC was procedurally proper, particularly considering non-payment of filing fees and the absence of prayer for such relief.
  5. Whether Duraproof was entitled to a writ of execution against petitioner’s properties.

Finality of the RTC Decision Against Petitioner

A judgment becomes final and executory when the reglementary period to appeal lapses without an appeal being filed. Here, the ruling distinguished between defendants who compromised and those who did not. Petitioner VEC timely filed a Motion for Reconsideration within the appeal period, which tolls the running of the appeal period. Therefore, as to VEC, the decision had not become final and executory. The Court emphasized that a compromise agreement with some defendants did not extend to VEC, and hence the judgment was not final for petitioner.

Notice of Hearing on Motion for Reconsideration and Procedural Due Process

The CA held that VEC’s Motion for Reconsideration was defective or a scrap of paper because the notice of hearing was improperly served on a deceased previous counsel and not on the current counsel. The Supreme Court rejected this rigid application, explaining that procedural rules on notices must be liberally construed to avoid manifest injustice. It found that VEC did not receive notice of any cause of action against it until unjust enforcement measures were taken, that petitioner reasonably relied on the counsel known from prior pleadings, and that the intended purpose of notice—to afford opportunity to be heard—was substantially achieved. Thus, the Court ruled that the Motion for Reconsideration was valid and tolled the appeal period.

Jurisdiction Over Petitioner and Validity of Service of Summons

Service of summons on a corporation must be on an officer, agent, or employee with sufficient responsibility expected to notify the corporation. Summons served on the secretary of VEC’s president was invalid because the secretary was an employee of a different corporation (Vlason Shipping, Inc.) distinct and separate from petitioner VEC. Piercing the corporate veil to cure this defect was disallowed due to absence of fraud, evasion, or crime. Further, although amended petitions superseded earlier ones, no new summons was served on VEC for such amendments. Since the initial service was invalid, jurisdiction over petitioner was never validly acquired by the RTC. The Court also found that failure to include VEC’s name in the title of the petition was not fatal provided it appeared in the body of pleadings, but the pleadings attributed representation to a different entity, thus prejudicing VEC. Substantial justice requires proper joinder and notice.

Invalidity of Default Judgment Against Petitioner

Under Rules of Court, a party must first be declared in default before a default judgment can be rendered against it. The RTC denied the initial motion to declare all defendants in default and never declared VEC in default at any time. The ex parte presentation of evidence was allowed only against foreign defendants declared in default, not VEC. The Court held that a default judgment without a prior order of default is null and void. Moreover, a defaulting party does not admit plaintiff’s facts; the plaintiff must still substantiate claims, but the relief must not exceed what was prayed fo

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