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G.R. No.

72566 April 12, 1988


FLAVIANO MOSQUERA JR., the latter two in their respective capacities as former General
Manager and Comptroller of the Manila Hilton International Hotel, respondents.


Petitioner and private respondent entered into an Agreement and Lease on June 2,1964. Pursuant
to the said agreement, petitioner financed, built, furnished and equipped a first-class hotel of
approximately 400 rooms, now known as the "Manila Hilton," the operation and management of
which was granted to petitioner. For their respective undertakings, petitioner was to receive a share
in the gross operating profit [GOP] of the hotel while private respondent was entitled to a
management fee equivalent to five percent [5%] of the gross revenues and an incentive fee
equivalent to ten percent [10%] of the GOP of the hotel. Private respondent refused to remit to the
petitioner its share in the GOP and used those funds without petitioner’s prior approval. Petitioner
alleged private respondent grossly mismanaged the hotel and breached the trust and confidence
reposed upon it by DELBROS and caused petitioner to default in its amortizations to the GSIS.

Petitioner filed a complaint for termination of agreement and damages, with prayer for the issuance
of a restraining order and/or writ of preliminary mandatory injunction against private respondents.
Private respondent countered that petitioner's cause or causes of action, if any, were barred by
estoppel or laches and its claims or demands had been waived or abandoned. Judge Dayrit issued a
writ of preliminary injunction, enjoining the private respondent from disposing corporate stocks,
evidences and remitting funds to foreign banks. The parties presented their respective pleadings.
Because private respondent failed to file the motion for extension of 12 days to answer the
supplemental complaint, petitioner filed a motion to declare defendants in default with respect to the
supplemental complaint. This was granted and petitioner presented its evidence ex-parte in support
of its supplemental complaint.

The trial court rendered a judgment by default, confirming as legal and valid the termination as of
March 31, 1985 of the Management Agreement. Consequently, a writ of execution was issued and
served upon defendants. By petition for certiorari with prayer for a restraining order/preliminary
injunction, the appellate court ruled in favor of private respondents. Hence, this appeal.


Whether or not the trial court erred in rendering the default judgment based on failure to answer
the supplemental pleading

Yes. The Court ruled that the Special Order of September 3, 1985 which granted petitioner's
motion for execution pending appeal is null and void, having as its basis an invalid judgment by

The Court further ruled that a supplemental pleading is not like an amended pleading —
substitute for the original one. It does not supersede the original, but assumes that the original
pleading is to stand, and the issues joined under the original pleading remain as issues to be
tried in the action.

According to the Court, A default judgment does not pretend to be based on the merits of the
controversy. Its existence is justified by expediency. It may, however, amount to a positive and
considerable injustice to the defendant. The possibility of such serious consequences
necessarily requires a careful examination of the circumstances under which a default order was
issued. And when no real injury would result to the interests of the plaintiff by the reopening of
the case, the only objection to such action would, therefore, be solely on a technicality. On such
an infirm foundation, it would be a grevious error to sacrifice the substantial rights of a litigant.

Hence, the petition is dismissed.