8) Solidbank Corp vs. Gateway Electronics Corp, G.R. No. 164805, April 30, 2008

 SO LID B AN K C OR POR AT ION V S . G ATE WA Y E LE CTR ONIC S C OR POR AT ION 

(G.R. No. 164805| April 30, 2008) DOCTRINE/S:

 A motion for production production and inspection of of documents should not demand demand a roving inspection inspection of a promiscuous mass of documents. The inspection should be limited to those documents designated with sufficient particularity in the motion, such that the adverse party can easily identify the documents he is required to produce

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FACTS: 

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Gateway Electronics Corporation obtained from Solidbank Corporation 4 foreign currency denominated loans to be used as working capital for its manufacturing operations. The loans were covered by promissor y notes which provided an interest of eight and 75/100 percent (8.75%), but was allegedly increased to ten percent (10%) per annum, and a penalty of two percent (2%) per month based on the total amount due computed from the date of default until full payment of the total amount due. To secure the loans loans covered by by 2 promissory promissory notes , Gateway Gateway assigned to Solidbank Solidbank the proceeds of its Back-end Services Agreement with Alliance Semiconductor Semiconductor Corporation (Alliance). The following stipulations are common in both PNs: Gateway failed to comply with its loan obligations. Gateways outstanding outstanding debt amounted to US$1,975,835.58. Solidbanks numerous demands to pay were not heeded by Gateway. Thus, Solidbank filed a Complaint for collection of sum of money against Gateway. Solidbank filed an Amended Amended Complaint Complaint to implead the officers/stockholders officers/stockholders of Gateway, namely, Nand K. Prasad, Andrew S. Delos Reyes, Israel F. Maducdoc, Jaime M. Hidalgo and Alejandro S. Calderon who signed in their personal capacity a Continuing Guaranty to become sureties for any and all existing indebtedness of Gateway to Solidbank. The trial court admitted the amended complaint and impleaded the additional defendants. defendants. Earlier, Solidbank Solidbank filed a Motion for Production Production and Inspection of Documents Documents on the basis of an information received from Mr. David Eichler, Chief Financial Officer of Alliance, that Gateway has already received from Alliance the proceeds/payment of the Back-end Services Agreement. The trial court court issued an Order granting the motion for production and inspection inspection of documents Gateway filed a motion to reset the the production production and inspection of documents documents in order to give them enough time to gather and collate the documents in their possession. The trial court granted the motion Months after, after, Solidbank Solidbank filed a motion for issuance of a show cause cause order for Gateways failure to comply with the Order of the trial court. In response, Gateway filed a manifestation that they appeared before the trial court to present the documents in their possession, however, Solidbanks counsel failed to appear. In the manifestation, Gateway also expressed their willingness to make available for inspection at Gateways offices any requested document. The trial court issued an Order setting the productio n and inspectio n of documents on another date a nd in the premis es of Gateway. On t he said date, Gat eway presented the invoices representing the billings sent by Gateway to Alliance in relation to the Back-end Services Agreement Agreement Solidbank was not satisfie d with the documents documents produced by Gateway. Thus, they filed a motion to cite Gateway and its responsible officers in contempt for their refusal to produce the documents subject The trial court issued an Order denying the the motion to cite Gateway Gateway for contempt. However, the trial court chastised Gateway for exerting no diligent efforts to produce

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the documents evidencing the payments received by Gateway from Alliance in relation to the Back-end Services Agreement Agreement Gateway filed a partial motion for reconsideration. reconsideration. However, the same same was was denied. denied. Gateway filed a petition for certiorari before the Court of Appeals (CA). The CA nullifIED the Orders of the trial court, it ruled that both the Motion for Production of Documents and the Order of the trial court failed to comply with the provisions of Section 1, Rule 27 of the Rules of Court. It further held that the trial court committed grave abuse of discretion in ruling that the matters regarding the contents of the documents sought to be produced but which were not produced by Gateway shall be deemed established in accordance with Solidbanks claim. Solidbank filed a motion for reconsideration, reconsideration, which was was denied. denied. Thus, Thus, this petition.

ISSUE/S:

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Whether or not Solidbanks motion for productio n and inspecti on of documents and the Order of the trial court failed to comply with Section 1, Rule 27 of the Rules of Court; and Whether or not the trial court committed grave abuse of discreti on in holding that the matters subject of the documents sought sought to be produced but which were not produced by Gateway shall be deemed established in accordance with Solidbanks claim.

HELD: ISSUE #1

Section 1, Rule 27 of the Rules of Court provides the mechanics for the production of documents and the inspection of things during the pendency of a case. It also deals with the inspection of sources of evidence other than documents, such as land or other property in the possession or control of the other party. This remedial measure is intended to assist in the administration of  justice by facilitating and expediting the preparation of cases for trial and guarding against undesirable surprise and delay; and it is designed to simplify procedure and obtain admissions of facts and evidence, thereby shortening costly and time-consuming trials. It is based on ancient principles of equity. More specifically, the purpose of the statute is to enable a partylitigant to discover material information which, by reason of an opponent's control, would otherwise be unavailable for judicial scrutiny, and to provide a convenient and summary method of obtaining material and competent documentary evidence in the c ustody or under the control of an adversary. It is a further extension of the concept of pretrial The modes of discovery are accorded a broad and liberal treatment. Rule 27 of the Revised Rules of Court permits fishing for evidence, the only limitation being that the documents, papers, etc., sought to be produced are not privileged, that they are in the possession of the party ordered to produce them and that they are material to any matter involved in the action. The lament against a fishing expedition no longer precludes a party from prying into the facts underlying his opponents case. Mutual knowledge of all relevant facts gathered by both parties is essential to proper litigation. To that end, either party may compel the other to disgorge whatever facts he has in his possession However, fishing for evidence that is allowed under the rules is not without limitations. In Security Bank Corporation v. Court of Appeals, the Court enumerated the requisites in order that a party may compel the other party to produce or allow the inspection of documents or things, viz. : (a) The party must file a motion for the production or inspection of documents or things, showing good cause therefor; (b) Notice of the motion must be served to all other parties of the case; (c) The motion must designate the documents, papers, books, accounts, letters, photographs, objects objects or tangible things which the party wishes to be produced and inspected; (d) Such documents, etc., are not privileged;

 (e) Such documents, etc., constitute or contain evidence material to any matter involved in the action, and (f) Such documents, etc., are in the possession, custody or control of the other party. Solidbank was able to show good cause for the production of the documents. It had also shown that the said documents are material or contain evidence relevant to an issue involved in the action. However, Solidbanks motion was fatally defective and must be struck down because of its failure to specify with particularity the documents it required Gateway to produce. Solidbanks motion for production and inspection of documents called for a blanket inspection. Solidbanks request for inspection of all documents pertaining to, arising from, in connection with or involving the Back-end Services Agreement  was simply too broad and too generalized in scope. ISSUE #2

The trial court held that as a consequence of Gateways failure to exert diligent effort in producing the documents subject of the Order in accordance with Section 3(a), Rule 29 of the Rules of Court, the matters regarding the contents of the documents sought to be produced but which were not produced by Gateway, shall be considered as having been established in accordance with Solidbanks claim. We hold that the trial court committed grave abuse of discretion in issuing the aforesaid Order. It is not fair to penalize Gateway for not complying with the request of Solidbank for the production and inspection of documents, considering that the documents sought were not particularly described. Gateway and its officers can only be held liable for unjust refusal to comply with the modes of discovery if it is shown that the documents sought to be produced were specifically described, material to the action and in the possession, custody or control of Gateway. Neither can it be said that Gateway did not exert effort in complying with the order for production and inspection of documents since it presented the invoices representing the billings sent by Gateway to Alliance in relation to the Back-end Services Agreement. WHEREFORE, in view of the foregoing, the instant petition is DENIED for lack of merit.