Siayngco vs. Costibolo

A defendant who files a demurrer to the plaintiff’s evidence does not waive the right to present evidence if the demurrer is denied; the right is lost only when the demurrer is granted by the trial court and the dismissal is reversed on appeal. In an independent action to annul a judgment of an inferior court based on extrinsic fraud, the trial court must conduct two hearings: first, to determine whether the judgment should be set aside for fraud; and second, if an affirmative finding is made, to hear the merits of the principal case. The defendant’s demurrer at the first hearing does not constitute a waiver of the right to present evidence at the second.

Martin Costibolo and his wife obtained a P200.00 loan from Encarnacion Siayngco in 1950. In 1954, the Siayngco spouses filed a collection suit against Costibolo in the Justice of the Peace Court of Dagami, Leyte. Costibolo confessed judgment, allegedly in reliance on the Siayngcos’ promise not to execute the judgment for five years. After the judgment became final, the Siayngcos immediately applied for and obtained a writ of execution, and Costibolo’s properties were levied upon. Costibolo’s subsequent petition for relief from judgment under Rule 38 was dismissed for having been filed beyond the six-month reglementary period. He then initiated a separate action in the Court of First Instance of Leyte to annul the judgment on the ground of extrinsic fraud.

• The Loan and Alleged Payment: Martin Costibolo and his wife Constancia Pasagui obtained an P200.00 loan from Encarnacion Siayngco on August 29, 1950, at 14% interest. Costibolo alleged that during 1952, he and his wife fully paid the debt and interest, totaling P312.00, through four installments. Each payment was annotated on the back of a receipt; the annotations were signed by Constancia Pasagui and witnessed by her brother Apolonio Pasagui. Encarnacion Siayngco repeatedly assured them that no separate receipt was needed because they were relatives and there was mutual trust.

• The Justice of the Peace Case and Confession of Judgment: Despite the alleged full payment, the Siayngco spouses filed a collection suit in the Justice of the Peace Court of Dagami, Leyte (Civil Case No. 46) on March 1, 1954, seeking P418.00 (P200.00 principal, P98.00 interest, P120.00 damages). Costibolo answered, claiming full payment. Before trial, Costibolo sent his brother-in-law, Apolonio Pasagui (by then a lawyer), to negotiate. Julio Siayngco proposed that if Costibolo confessed judgment, the Siayngcos would not execute the judgment for five years, giving Costibolo time to pay the P418.00 gradually. Costibolo agreed and confessed judgment. The Justice of the Peace Court rendered judgment for the P418.00.

• Execution and Prior Relief Denied: After the judgment became final, the Siayngcos secured a writ of execution in September 1954, and the sheriff levied upon Costibolo’s properties. Costibolo was surprised; he had relied on the promise. Apolonio Pasagui filed a motion to set aside the judgment on April 9, 1955, alleging fraud in inducing the confession of judgment. The Justice of the Peace Court denied it, and the Court of First Instance on appeal (Civil Case No. 1935) also denied the petition for relief because it was filed beyond the six-month period under Rule 38.

• The Annulment Action in the CFI: On August 30, 1955, Costibolo filed a separate complaint in the CFI of Leyte (Civil Case No. 1993) to annul the Justice of the Peace Court judgment on the ground of extrinsic fraud, reiterating that the confession of judgment was induced by the Siayngcos’ false promise not to execute within five years. The Siayngcos answered, denying fraud and pleading res judicata.

• Trial and Ruling on Demurrer: At trial, Costibolo presented evidence tending to show the full payment of the loan, the promise, the confession of judgment, and the execution. He demanded production of the receipt with the annotations; Julio Siayngco denied its existence or possession. After Costibolo rested, the Siayngcos orally moved for dismissal on the ground that the alleged fraud occurred in 1955, after the 1954 judgment, and therefore could not have influenced it. They expressly reserved the right to present evidence should the motion be denied. The trial court informed them it could not allow the reservation and reserved its ruling. It subsequently issued a decision denying the motion to dismiss, annulling both the Justice of the Peace judgment and the CFI judgment in the prior relief case, and awarding Costibolo P3,000.00 moral damages, P500.00 actual damages, and P500.00 attorney’s fees—all without receiving evidence from the Siayngcos. The trial court’s factual findings included that the original loan was fully paid, that the confession of judgment was induced by fraud, and that Costibolo suffered damages.

• Denial of Day in Court on Demurrer: Petitioners argued that upon the denial of their motion to dismiss (demurrer to evidence), they should have been allowed to present their evidence in accordance with their express reservation, consistent with the rule eventually codified in Rule 35, Section 1.

• Failure to Follow Two-Hearing Procedure: Petitioners contended that in actions seeking annulment of judgment on the ground of fraud, prevailing jurisprudence and Rule 38 required two hearings: a first hearing to determine whether the judgment should be set aside for fraud, and a second hearing on the merits of the principal case only after an affirmative finding. They argued that the trial court erroneously merged the two stages and decided the merits without first making a proper determination of fraud and without affording them the opportunity to adduce evidence on the merits.

• Waiver of Right to Present Evidence: Respondent Costibolo maintained, and the Court of Appeals agreed, that under then-prevailing jurisprudence a defendant who moved for dismissal after the plaintiff had completed his evidence and elected to stand on the insufficiency of that case was deemed to have waived the right to present evidence, regardless of any reservation.

• Sufficiency of Evidence on Fraud: Respondent argued that his evidence, which the trial court found to be uncontradicted and credible, sufficiently established extrinsic fraud and warranted the annulment of the judgment and the award of damages.

• Demurrer to Evidence and Waiver: Whether the trial court and the Court of Appeals erred in holding that the Siayngcos, who filed a demurrer to Costibolo’s evidence with an express reservation, waived their right to present evidence upon denial of that motion, thereby depriving them of their day in court.

• Procedure in Annulment of Judgment: Whether the trial court erred in rendering a single decision that simultaneously determined the existence of fraud and resolved the merits of the original loan claim, without first conducting a separate hearing on the fraud issue and a subsequent hearing on the merits, as required by Rule 38 and relevant jurisprudence.

• Demurrer to Evidence and Waiver: The denial of the demurrer did not constitute a waiver of the right to present evidence. Under the rule stated in Director of Lands v. Ceniza and subsequently codified in Rule 35, Section 1, a defendant may move for dismissal on demurrer to the plaintiff’s evidence without waiving the right to offer evidence if the motion is denied. The right is forfeited only when the demurrer is granted and the order of dismissal is reversed on appeal. Because the trial court denied the demurrer, it was bound to receive the defendant’s evidence to complete the record for both trial and appellate review. The Siayngcos’ express reservation merely reinforced this right, but even without it, the rule itself preserved their opportunity to be heard.

• Procedure in Annulment of Judgment: The trial court erred by not adhering to the two-hearing procedure mandated for actions to annul a judgment on the ground of fraud. Although Costibolo’s action was an independent suit rather than a petition under Rule 38, the Court applied Sections 6 and 7 of Rule 38 by analogy, because the Court of First Instance was exercising appellate jurisdiction over the inferior court’s judgment. As held in Villanueva v. Alcoba, two hearings are required: first, to determine whether the allegations of fraud are true and whether the judgment should be set aside; and second, only if the first hearing results in an affirmative finding, to hear and determine the merits of the principal case. The trial court prematurely received and weighed evidence on the merits of the loan during the first hearing, effectively prejudging the fraud issue. Even if a demurrer could waive the right to present evidence at the first hearing, it could not operate as a waiver of evidence at the not-yet-scheduled second hearing on the merits.

• Rule on Demurrer to Evidence (Rule 35, Section 1) — After the plaintiff completes the presentation of evidence, the defendant may move for dismissal on the ground that the plaintiff has shown no right to relief, without waiving the right to offer evidence if the motion is denied. If the motion is granted and the dismissal is reversed on appeal, the movant loses the right to present evidence. The rule serves to avoid unnecessary remands and enables appellate courts to resolve cases on complete records. Applied here to reverse the trial court’s denial of the defendant’s right to adduce evidence after an unsuccessful demurrer.

• Two-Hearing Rule in Actions for Annulment of Judgment (Rule 38, Sections 6–7; Villanueva v. Alcoba) — In proceedings to set aside a judgment on the ground of fraud, accident, mistake, or excusable negligence, the trial court must conduct: (1) a hearing to determine whether the allegations of fraud are true and whether the judgment should be set aside; and (2) if the judgment is set aside, a second hearing on the merits of the principal case. The merits are not to be inquired into until after the court has decided to annul the judgment. This rule applies equally to independent actions for annulment of an inferior court’s judgment.

• “Simply restated, a defendant who presents a demurrer to plaintiff’s evidence retains the right to present his own evidence, if the trial court disagrees with him; but if the trial court agrees with him and on appeal, the appellate court disagrees with both of them and reverses the dismissal order, he has lost the right to present his own evidence.”

• “It is clear from these provisions that in proceedings for relief from judgment under said Rule 38, there may be two (2) hearings, namely: (1) a hearing to determine whether the judgment or order complained of should be set aside, and (2) if the decision thereon is in the affirmative, a hearing on the merits of the principal case. … the merits of the principal case … should not be inquired into until the court has decided, after the first hearing, to set aside the judgment complained of.” (quoting Villanueva v. Alcoba)

• Director of Lands v. Ceniza, G.R. No. L-18527, June 29, 1963 — Collated and clarified the prevailing rule on demurrer to evidence that a defendant who moves to dismiss after the plaintiff rests does not waive the right to present evidence if the motion is denied; waiver occurs only when a granted dismissal is reversed on appeal. Followed as controlling.

• Villanueva v. Alcoba, 101 Phil. 277 — Established the two-hearing procedure in petitions for relief from judgment under Rule 38: a hearing on the existence of fraud and, if affirmative, a second hearing on the merits. Applied to the independent annulment action by analogy.

• Nicolas de los Santos v. Court of Appeals, G.R. No. L-18682, June 30, 1965 — Distinguished; in that case the demurrer was filed without reservation and the judgment was rendered before the effectivity of the new Rules, whereas here petitioners expressly reserved their right and the new Rule 35 governed further proceedings.

• Rule 35, Section 1, Rules of Court — Judgment on Demurrer to Evidence. After plaintiff rests, defendant may move to dismiss without waiving the right to offer evidence; if the motion is granted and reversed on appeal, the right to present evidence is lost. The Court applied this rule to hold that the denial of the demurrer preserved petitioners’ right to present evidence.

• Rule 38, Sections 6 and 7, Rules of Court — Proceedings after answer and procedure where judgment is set aside. Section 6 requires a hearing on the truth of the allegations and, if proven, an order setting aside the judgment. Section 7 provides that where an inferior court’s judgment is set aside, the case shall be tried in the Court of First Instance as if regularly brought by appeal. The Court used these sections to require two separate hearings.

• Rule 144, Rules of Court — Provides that the new Rules govern all further proceedings in pending cases. The Court noted that Rule 35, which took effect on January 1, 1964, applied to the ongoing appeal.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, and Barredo, JJ., concurred. Sanchez, Castro, and Capistrano, JJ., took no part.