CIV CASES

Republic of the PhilippinesSUPREME COURT

Baguio City

THIRD DIVISION

G.R. No. 143264               April 23, 2012

LISAM ENTERPRISES, INC. represented by LOLITA A. SORIANO, and LOLITA A. SORIANO, Petitioners, vs.BANCO DE ORO UNIBANK, INC. (formerly PHILIPPINE COMMERCIAL INTERNATIONAL BANK),* LILIAN S. SORIANO, ESTATE OF LEANDRO A. SORIANO, JR., REGISTER OF DEEDS OF LEGASPI CITY, and JESUS L. SARTE, Respondents.

D E C I S I O N

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Resolution1 of the Regional Trial Court of Legaspi City (RTC), dated November 11, 1999, dismissing petitioners’ complaint, and its Order2 dated May 15, 2000, denying herein petitioners’ Motion for Reconsideration and Motion to Admit Amended Complaint, be reversed and set aside.

The records reveal the following antecedent facts.

On August 13, 1999, petitioners filed a Complaint against respondents for Annulment of Mortgage with Prayer for Temporary Restraining Order & Preliminary Injunction with Damages with the RTC of Legaspi City. Petitioner Lolita A. Soriano alleged that she is a stockholder of petitioner Lisam Enterprises, Inc. (LEI) and a member of its Board of Directors, designated as its Corporate Secretary. The Complaint also alleged the following:

4. Sometime in 1993, plaintiff LEI, in the course of its business operation, acquired by purchase a parcel of residential land with improvement situated at Legaspi City, covered by Transfer Certificate of Title No. 37866, copy attached as Annex "A," which property is more particularly described as follows:

x x x x

5. On or about 28 March 1996, defendant Lilian S. Soriano and the late Leandro A. Soriano, Jr., as husband and wife (hereafter "Spouses Soriano"), in their personal capacity and for their own use and benefit, obtained a loan from defendant PCIB (Legaspi Branch) (now known as Banco de Oro Unibank, Inc.) in the total amount of P20 Million;

6. That as security for the payment of the aforesaid credit accommodation, the late Leandro A. Soriano, Jr. and defendant Lilian S. Soriano, as president and treasurer, respectively of plaintiff LEI, but without authority and consent of the board of said plaintiff and with the use of a falsified board resolution, executed a real estate mortgage on 28 March 1996, over the above-described property of plaintiff LEI in favor of defendant PCIB, and had the same registered with the Office of the Registry of Deeds, Legaspi City, copy of the Real Estate Mortgage is hereto attached and marked as Annex "B," and made part hereof, to the prejudice of plaintiffs;

7. That specifically, the Spouses Soriano, with intent to defraud and prejudice plaintiff LEI and its stockholders, falsified the signatures of plaintiff Lolita A. Soriano as corporate secretary and director of plaintiff LEI, in a document denominated as board resolution purportedly issued by the board of plaintiff LEI on 6 November 1995, making it appear that plaintiff LEI's Board met and passed a board resolution on said date authorizing the Spouses Soriano to mortgage or encumber all or substantially all of the properties of plaintiff LEI, when in fact and in truth, no resolution of that nature was ever issued by the board of plaintiff LEI, nor a meeting was called to that effect, copy of the resolution in question is hereto attached and marked as Annex "C," and made part hereof;

8. That plaintiff Lolita A. Soriano as Corporate Secretary of plaintiff LEI, had never signed a board resolution nor issued a Secretary's Certificate to the effect that on 6 November 1995 a resolution was passed and approved by plaintiff

LEI authorizing the Spouses Soriano as president and treasurer, respectively, to mortgage the above-described property of plaintiff LEI, neither did she appear personally before a notary public on 28 March 1996 to acknowledge or attest to the issuance of a supposed board resolution issued by plaintiff LEI on 6 November 1995;

9. That defendant PCIB, knowing fully well that the property being mortgaged by the Spouses Soriano belongs to plaintiff LEI, a corporation, negligently and miserably failed to exercise due care and prudence required of a banking institution. Specifically, defendant PCIB failed to investigate and to delve into the propriety of the issuance of or due execution of subject board resolution, which is the very foundation of the validity of subject real estate mortgage. Further, it failed to verify the genuineness of the signatures appearing in said board resolution nor to confirm the fact of its issuance with plaintiff Lolita A. Soriano, as the corporate secretary of plaintiff LEI. Furthermore, the height of its negligence was displayed when it disregarded or failed to notice that the questioned board resolution with a Secretary's Certificate was notarized only on 28 March 1996 or after the lapse of more than four (4) months from its purported date of issue on 6 November 1995. That these circumstances should have put defendant PCIB on notice of the flaws and infirmities of the questioned board resolution. Unfortunately, it negligently failed to exercise due care and prudence expected of a banking institution;

10. That having been executed without authority of the board of plaintiff LEI said real estate mortgage dated 28 March 1996 executed by the Spouses Soriano, as officers of plaintiff LEI in favor of defendant PCIB, is the null and void and has no legal effect upon said plaintiff. Consequently, said mortgage deed cannot be used nor resorted to by defendant PCIB against subject property of plaintiff LEI as no right or rights whatsoever were created nor granted thereunder by reason of its nullity;

11. Worst, sometime in August 1998, in order to remedy the defects in the mortgage transaction entered by the Spouses Soriano and defendant PCIB, the former, with the unlawful instigation of the latter, signed a document denominated as "Deed of Assumption of Loans and Mortgage Obligations and Amendment of Mortgage"; wherein in said document, plaintiff LEI was made to assume the P20 Million personal indebtedness of the Spouses Soriano with defendant PCIB, when in fact and in truth it never so assumed the same as no board resolution duly certified to by plaintiff Lolita A. Soriano as corporate secretary was ever issued to that effect, copy of said Deed is hereto attached and marked as Annex "D," and made part hereof;

12. Moreover, to make it appear that plaintiff LEI had consented to the execution of said deed of assumption of mortgage, the Spouses Soriano again, through the unlawful instigation and connivance of defendant PCIB, falsified the signature of plaintiff Lolita A. Soriano as corporate secretary of plaintiff LEI in a document denominated as "Corporate Resolution to Borrow," to make it appear that plaintiff LEI so authorized the Spouses Soriano to perform said acts for the corporation, when in fact and in truth no such authority or resolution was ever issued nor granted by plaintiff LEI, nor a meeting called and held for said purpose in accordance with its By-laws; copy of which is hereto attached and marked as Annex "E" and made part hereof;

13. That said irregular transactions of defendant Lilian S. Soriano and her husband Leandro A. Soriano, Jr., on one hand, and defendant PCIB, on the other, were discovered by plaintiff Lolita A. Soriano sometime in April 1999. That immediately upon discovery, said plaintiff, for herself and on behalf and for the benefit of plaintiff LEI, made demands upon defendants Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr., to free subject property of plaintiff LEI from such mortgage lien, by paying in full their personal indebtedness to defendant PCIB in the principal sum of P20 Million. However, said defendants, for reason only known to them, continued and still continue to ignore said demands, to the damage and prejudice of plaintiffs;

14. Hence, on 25 June 1999, plaintiffs commenced a derivative suit against defendants Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr., before the Securities and Exchange Commission, docketed as SEC Case No. 06-99-6339 for "Fraudulent Scheme and Unlawful Machination with Damages" in order to protect and preserve the rights of plaintiffs, copy of said complaint is hereto attached as Annex"F";

15. That plaintiffs, in order to seek complete relief from the unauthorized mortgage transaction between the Spouses Soriano and defendant PCIB, were further compelled to institute this instant case to seek the nullification of the real estate mortgage dated 28 March 1999. Consequently, plaintiffs were forced to retain the services of a lawyer with whom they contracted to pay P100,000.00 as and for attorney's fee;

16. That unfortunately, the plaintiffs learned that on 30 July 1999, defendant Sarte, in his capacity as Notary Public of Daraga, Albay and upon application of defendant PCIB, issued a notice of Auction/Foreclosure Sale of the property subject of the mortgage in question and has set the auction sale on 7 September 1999 x x x;

17. That by reason of the fraudulent and surreptitious schemes perpetrated by defendant Lilian S. Soriano and her husband, the late Leandro A. Soriano, Jr., in unlawful connivance and through the gross negligence of defendant PCIB, plaintiff Lolita A. Soriano, as stockholder, suffered sleepless nights, moral shock, wounded feeling, hurt pride and similar injuries, hence, should be awarded moral damages in the amount of P200,000.00.

After service of summons on all defendants, the RTC issued a temporary restraining order on August 25, 1990 and, after hearing, went on to issue a writ of preliminary injunction enjoining respondent PCIB (now known as Banco de Oro Unibank, Inc.) from proceeding with the auction sale of the subject property.

Respondents Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr. filed an Answer dated September 25, 1999, stating that the Spouses Lilian and Leandro Soriano, Jr. were duly authorized by LEI to mortgage the subject property; that proceeds of the loan from respondent PCIB were for the use and benefit of LEI; that all notarized documents submitted to PCIB by the Spouses Soriano bore the genuine signature of Lolita Soriano; and that although the Spouses Soriano indeed received demands from petitioner Lolita Soriano for them to pay the loan, they gave satisfactory explanations to the latter why her demands could not be honored. It was, likewise, alleged in said Answer that it was respondent Lilian Soriano who should be entitled to moral damages and attorney's fees.

On September 28, 1999, respondent PCIB filed a Motion to Dismiss the Complaint on grounds of lack of legal capacity to sue, failure to state cause of action, and litis pendencia. Petitioners filed an Opposition thereto, while PCIB's co-defendants filed a Motion to Suspend Action.

On November 11, 1999, the RTC issued the first assailed Resolution dismissing petitioners' Complaint. Petitioners then filed a Motion for Reconsideration of said Resolution. While awaiting resolution of the motion for reconsideration, petitioners also filed, on January 4, 2000, a Motion to Admit Amended Complaint, amending paragraph 13 of the original complaint to read as follows:

13. That said irregular transactions of defendant Lilian S. Soriano and her husband Leandro A. Soriano, Jr., on one hand, and defendant PCIB, on the other, were discovered by plaintiff Lolita A. Soriano sometime in April 1999. That immediately upon discovery, said plaintiff, for herself and on behalf and for the benefit of plaintiff LEI, made demands upon defendant Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr., to free subject property of plaintiff LEI from such mortgage lien, by paying in full their personal indebtedness to defendant PCIB in the principal sum of P20 Million. However, said defendants, for reason only known to them, continued and still continue to ignore said demands, to the damage and prejudice of plaintiffs; that plaintiff Lolita A. Soriano likewise made demands upon the Board of Directors of Lisam Enterprises, Inc., to make legal steps to protect the interest of the corporation from said fraudulent transaction, but unfortunately, until now, no such legal step was ever taken by the Board, hence, this action for the benefit and in behalf of the corporation;

On May 15, 2000, the trial court issued the questioned Order denying both the Motion for Reconsideration and the Motion to Admit Amended Complaint. The trial court held that no new argument had been raised by petitioners in their motion for reconsideration to address the fact of plaintiffs' failure to allege in the complaint that petitioner Lolita A. Soriano made demands upon the Board of Directors of Lisam Enterprises, Inc. to take steps to protect the interest of the corporation against the fraudulent acts of the Spouses Soriano and PCIB. The trial court further ruled that the Amended Complaint can no longer be admitted, because the same absolutely changed petitioners' cause of action.

Petitioners filed the present petition with this Court, alleging that what are involved are pure questions of law, to wit:

FIRST, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE ERROR WHEN IT DISMISSED THE ACTION ON THE GROUND THAT PETITIONER LOLITA A. SORIANO HAS NO LEGAL CAPACITY TO SUE AS SHE IS NOT A REAL PARTY-IN-INTEREST;

SECOND, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE ERROR WHEN IT DISMISSED THE ACTION ON THE GROUND THAT THERE IS ANOTHER ACTION PENDING BETWEEN THE SAME PARTIES FOR THE SAME CAUSE;

THIRD, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE ERROR WHEN IT DISMISSED THE ACTION ON THE GROUND THAT THE COMPLAINT STATES NO CAUSE OF ACTION;

FOURTH, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE ERROR WHEN IT DENIED THE ADMISSION OF PETITIONERS' AMENDED COMPLAINT FILED AS A MATTER OF RIGHT, AFTER THE ORDER OF DISMISSAL WAS ISSUED BUT BEFORE ITS FINALITY.

FIFTH, WHETHER OR NOT THE COURT ERRED IN DISMISSING THE ACTION, INSTEAD OF MERELY SUSPENDING THE SAME FOLLOWING THE DOCTRINE LAID DOWN IN UNION GLASS. 3

The petition is impressed with merit.

The Court shall first delve into the matter of the propriety of the denial of the motion to admit amended complaint. Pertinent provisions of Rule 10 of the Rules of Court provide as follows:

Sec. 2. Amendments as a matter of right. − A party may amend his pleadings once as a matter of right at any time before a responsive pleading is served x x x.

Sec. 3. Amendments by leave of court. − Except as provided in the next preceding section, substantial amendments may be made only upon leave of court. But such leave may be refused if it appears to the court that the motion was made with intent to delay. x x x

It should be noted that respondents Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr. already filed their Answer, to petitioners' complaint, and the claims being asserted were made against said parties. A responsive pleading having been filed, amendments to the complaint may, therefore, be made only by leave of court and no longer as a matter of right. However, in Tiu v. Philippine Bank of Communications,4 the Court discussed this rule at length, to wit:

x x x [A]fter petitioners have filed their answer, Section 3, Rule 10 of the Rules of Court specifically allows amendment by leave of court. The said Section states:

SECTION 3. Amendments by leave of court. - Except as provided in the next preceding section, substantial amendments may be made only upon leave of court. But such leave may be refused if it appears to the court that the motion was made with intent to delay. Orders of the court upon the matters provided in this section shall be made upon motion filed in court, and after notice to the adverse party, and an opportunity to be heard.

This Court has emphasized the import of Section 3, Rule 10 of the 1997 Rules of Civil Procedure in Valenzuela v. Court of Appeals, thus:

Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil Procedure amended the former rule in such manner that the phrase "or that the cause of action or defense is substantially altered" was stricken-off and not retained in the new rules. The clear import of such amendment in Section 3, Rule 10 is that under the new rules, "the amendment may (now) substantially alter the cause of action or defense." This should only be true, however, when despite a substantial change or alteration in the cause of action or defense, the amendments sought to be made shall serve the higher interests of substantial justice, and prevent delay and equally promote the laudable objective of the rules which is to secure a "just, speedy and inexpensive disposition of every action and proceeding."

The granting of leave to file amended pleading is a matter particularly addressed to the sound discretion of the trial court; and that discretion is broad, subject only to the limitations that the amendments should not substantially change the cause of action or alter the theory of the case, or that it was not made to delay the action. Nevertheless, as enunciated in Valenzuela, even if the amendment substantially alters the cause of action or defense, such amendment could still be allowed when it is sought to serve the higher interest of substantial justice, prevent delay, and secure a just, speedy and inexpensive disposition of actions and proceedings.

The courts should be liberal in allowing amendments to pleadings to avoid a multiplicity of suits and in order that the real controversies between the parties are presented, their rights determined, and the case decided on the merits without unnecessary delay. This liberality is greatest in the early stages of a lawsuit, especially in this case where the amendment was made before the trial of the case, thereby giving the petitioners all the time allowed by law to answer and to prepare for trial.1âwphi1

Furthermore, amendments to pleadings are generally favored and should be liberally allowed in furtherance of justice in order that every case, may so far as possible, be determined on its real facts and in order to speed up the trial of the case or prevent the circuitry of action and unnecessary expense. That is, unless there are circumstances such as inexcusable delay or the taking of the adverse party by surprise or the like, which might justify a refusal of permission to amend.5

Since, as explained above, amendments are generally favored, it would have been more fitting for the trial court to extend such liberality towards petitioners by admitting the amended complaint which was filed before the order dismissing the original complaint became final and executory. It is quite apparent that since trial proper had not yet even begun, allowing the amendment would not have caused any delay. Moreover, doing

so would have served the higher interest of justice as this would provide the best opportunity for the issues among all parties to be thoroughly threshed out and the rights of all parties finally determined. Hence, the Court overrules the trial court's denial of the motion to admit the amended complaint, and orders the admission of the same.

With the amendment stating "that plaintiff Lolita A. Soriano likewise made demands upon the Board of Directors of Lisam Enterprises, Inc., to make legal steps to protect the interest of the corporation from said fraudulent transaction, but unfortunately, until now, no such legal step was ever taken by the Board, hence, this action for the benefit and in behalf of the corporation," does the amended complaint now sufficiently state a cause of action? In Hi-Yield Realty, Incorporated v. Court of Appeals,6 the Court enumerated the requisites for filing a derivative suit, as follows:

a) the party bringing the suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit.7

A reading of the amended complaint will reveal that all the foregoing requisites had been alleged therein. Hence, the amended complaint remedied the defect in the original complaint and now sufficiently states a cause of action.

Respondent PCIB should not complain that admitting the amended complaint after they pointed out a defect in the original complaint would be unfair to them. They should have been well aware that due to the changes made by the 1997 Rules of Civil Procedure, amendments may now substantially alter the cause of action or defense. It should not have been a surprise to them that petitioners would redress the defect in the original complaint by substantially amending the same, which course of action is now allowed under the new rules.

The next question then is, upon admission of the amended complaint, would it still be proper for the trial court to dismiss the complaint? The Court answers in the negative.

Saura v. Saura, Jr.8 is closely analogous to the present case. In Saura,9 the petitioners therein, stockholders of a corporation, sold a disputed real property owned by the corporation, despite the existence of a case in the Securities and Exchange Commission (SEC) between stockholders for annulment of subscription, recovery of corporate assets and funds, etc. The sale was done without the knowledge of the other stockholders, thus, said stockholders filed a separate case for annulment of sale, declaration of nullity of deed of exchange, recovery of possession, etc., against the stockholders who took part in the sale, and the buyer of the property, filing said case with the regular court (RTC). Petitioners therein also filed a motion to dismiss the complaint for annulment of sale filed with the RTC, on the ground of forum shopping, lack of jurisdiction, lack of cause of action, and litis pendentiaamong others. The Court held that the complaint for annulment of sale was properly filed with the regular court, because the buyer of the property had no intra-corporate relationship with the stockholders, hence, the buyer could not be joined as party-defendant in the SEC case. To include said buyer as a party-defendant in the case pending with the SEC would violate the then existing rule on jurisdiction over intra-corporate disputes. The Court also struck down the argument that there was forum shopping, ruling that the issue of recovery of corporate assets and funds pending with the SEC is a totally different issue from the issue of the validity of the sale, so a decision in the SEC case would not amount to res judicata in the case before the regular court. Thus, the Court merely ordered the suspension of the proceedings before the RTC until the final outcome of the SEC case.

The foregoing pronouncements of the Court are exactly in point with the issues in the present case.1âwphi1 Here, the complaint is for annulment of mortgage with the mortgagee bank as one of the defendants, thus, as held inSaura,10 jurisdiction over said complaint is lodged with the regular courts because the mortgagee bank has no intra-corporate relationship with the stockholders. There can also be no forum shopping, because there is no identity of issues. The issue being threshed out in the SEC case is the due execution, authenticity or validity of board resolutions and other documents used to facilitate the execution of the mortgage, while the issue in the case filed by petitioners with the RTC is the validity of the mortgage itself executed between the bank and the corporation, purportedly represented by the spouses Leandro and Lilian Soriano, the President and Treasurer of petitioner LEI, respectively. Thus, there is no reason to dismiss the complaint in this case.

IN VIEW OF THE FOREGOING, the Resolution of the Regional Trial Court of Legaspi City, Branch 4, dated November 11, 1999, dismissing petitioners’ complaint in Civil Case No. 9729, and its Order dated May 15, 2000, denying herein petitioners’ Motion for Reconsideration and Motion to Admit Amended Complaint, are herebyREVERSED and SET ASIDE. The Regional Trial Court of Legaspi City, Branch 4, is hereby DIRECTED to ADMITthe Amended Complaint.

Considering further, that this case has been pending for some time and, under R.A. No. 8799, it is now the regular courts which have jurisdiction over intra-corporate disputes, the Regional Trial Court of Legaspi City, Branch 4 is hereby DIRECTED to PROCEED with dispatch in trying Civil Case No. 9729.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 151932               August 19, 2009

HENRY CHING TIU, CHRISTOPHER HALIN GO, and GEORGE CO, Petitioners, vs.PHILIPPINE BANK OF COMMUNICATIONS, Respondent.

D E C I S I O N

PERALTA, J.:

This is a petition for review on certiorari, under Rule 45 of the Rules of Court, seeking to annul and set aside the Decision1 dated September 28, 2001, rendered by the Court of Appeals (CA) in CA-G.R. SP No. 57732, dismissing the petition and affirming the assailed Orders of the Regional Trial Court (RTC) of Cagayan de Oro City, Branch 21 in Civil Case No. 99-352, dated December 14, 1999 and January 11, 2000.

The factual and procedural antecedents are as follows:

In June 1993, Asian Water Resources, Inc. (AWRI), represented by herein petitioners, applied for a real estate loan with the Philippine Bank of Communications (PBCOM) to fund its purified water distribution business. In support of the loan application, petitioners submitted a Board Resolution2 dated June 7, 1993. The loan was guaranteed by collateral over the property covered by Transfer Certificate of Title No. T-13020.3 The loan was eventually approved.4

In August 1996, AWRI applied for a bigger loan from PBCOM for additional capitalization using the same Board Resolution, but without any additional real estate collateral. Considering that the proposed additional loan was unsecured, PBCOM required all the members of the Board of Directors of AWRI to become sureties. Thus, on August 16, 1996, a Surety Agreement5 was executed by its Directors and acknowledged by a notary public on the same date. All copies of the Surety Agreement, except two, were kept by PBCOM. Of the two copies kept by the notary public,

one copy was retained for his notarial file and the other was sent to the Records Management and Archives Office, through the Office of the RTC Clerk of Court.6

Thereafter, on December 16, 1998, AWRI informed the bank of its desire to surrender and/or assign in its favor, all the present properties of the former to apply as dacion en pago for AWRI’s existing loan obligation to the bank.7 On January 11, 1999, PBCOM sent a reply denying the request. On May 12, 1999, PBCOM sent a letter to petitioners demanding full payment of its obligation to the bank.8

Its demands having remained unheeded, PBCOM instructed its counsel to file a complaint for collection against petitioners. The case was docketed as Civil Case No. 99-352.

On July 3, 1999, petitioners filed their Answer. It alleged, among other things, that they were not personally liable on the promissory notes, because they signed the Surety Agreement in their capacities as officers of AWRI. They claimed that the Surety Agreement attached to the complaint as Annexes "A" to "A-2"9 were falsified, considering that when they signed the same, the words "In his personal capacity" did not yet appear in the document and were merely intercalated thereon without their knowledge and consent.10

In support of their allegations, petitioners attached to their Answer a certified photocopy of the Surety Agreement issued on March 25, 1999 by the Records Management and Archives Office in Davao City,11 showing that the words "In his personal capacity" were not found at the foot of page two of the document where their signatures appeared.12

Because of this development, PBCOM’s counsel searched for and retrieved the file copy of the Surety Agreement. The notarial copy showed that the words "In his personal capacity" did not appear on page two of the Surety Agreement.13

Petitioners’ counsel then asked PBCOM to explain the alteration appearing on the agreement. PBCOM subsequently discovered that the insertion was ordered by the bank auditor. It alleged that when the Surety Agreement was inspected by the bank auditor, he called the attention of the loans clerk, Kenneth Cabahug, as to why the words "In his personal capacity" were not indicated under the signature of each surety, in accordance with bank standard operating procedures. The auditor then ordered Mr. Cabahug to type the words "In his personal capacity" below the second signatures of petitioners. However, the notary public was never informed of the insertion.14 Mr. Cabahug subsequently executed an affidavit15 attesting to the circumstances why the insertion was made.

PBCOM then filed a Reply and Answer to Counterclaim with Motion for Leave of Court to Substitute Annex "A" of the Complaint,16 wherein it attached the duplicate original copy retrieved from the file of the notary public. PBCOM also admitted its mistake in making the insertion and explained that it was made without the knowledge and consent of the notary public. PBCOM maintained that the insertion was not a falsification, but was made only to speak the truth of the parties’ intentions. PBCOM also contended that petitioners were already primarily liable on the Surety Agreement whether or not the insertion was made, having admitted in their pleadings that they voluntarily executed and signed the Surety Agreement in the original form. PBCOM, invoking a liberal application of the Rules, emphasized that the motion incorporated in the pleading can be treated as a motion for leave of court to amend and admit the amended complaint pursuant to Section 3, Rule 10 of the Rules of Court.

On December 14, 1999, the RTC issued an Order17 allowing the substitution of the altered document with the original Surety Agreement, the pertinent portion of which reads:

August 16, 1996 attached as Annexes "A" to "A-2" of the reply and answer Resolving the Motion to Substitute Annexes "A" to "A-2" of the complaint and the opposition thereto by the defendant, this Court, in the interest of justice, hereby allows the substitution of said Annexes "A" to "A-2" of the complaint with the duplicate original of notarial copy of the Agreement dated to counter-claim.

SO ORDERED.

Petitioners filed a motion for reconsideration,18 but it was denied in the Order19 dated January 11, 2000, to wit:

Resolving the motion for reconsideration and the opposition thereto, the Court finds the motion substantially a reiteration of the opposition to plaintiff’s motion.

Additionally, the instant motion for reconsideration treats on evidentiary matter which can be properly ventilated in the trial proper, hence, there is no cogent reason to disturb the Court’s order of December 14, 1999.

SO ORDERED.

Aggrieved, petitioners sought recourse before the CA via a petition for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 57732.

Petitioners claimed that the RTC acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction in denying their motion for reconsideration and in allowing PBCOM to substitute the altered copy of the Surety Agreement with the duplicate original notarial copy thereof considering that the latter’s cause of action was solely and principally founded on the falsified document marked as Annexes "A" to "A-2."20

On September 28, 2001, the CA rendered a Decision dismissing the petition for lack of merit, the decretal portion of which reads:

WHEREFORE, foregoing considered, the instant petition is hereby DENIED DUE COURSE and, accordingly, DISMISSED for lack of merit. The assailed Orders dated December 14, 1999 and January 11, 2000 of the Regional Trial Court of Cagayan de Oro City, Branch 21, are hereby AFFIRMED in toto.

SO ORDERED.21

Hence, the petition assigning the following errors:

I

The COURT committed a reversible error in affirming in toto the order of the lower court allowing the substitution of the falsified document by relying on the provision of section 3, rule 10 of the rules of Court.

II

Acting as the court on the petition for certiorari, the court committed a reversible error having no jurisdiction to rule on the obligation of the petitioners based on the falsified document

III

The court erred in giving credence to the allegation of respondent bank that from August 15 to December 9, 1997 asian water resources inc. obtained several availments of new bigger and additional loans totalLing p2,030,000.00 evidenced by 4 promissory notes marked as annexes "B," "B-1," "B-2" and "B-3."

IV

The court failed to consider the misapplication of the principle of equity committed by the lower court in ordering the substitution of the falsified document.22

Petitioners argue that the CA committed a reversible error in affirming the Order of the RTC allowing the substitution of the document by relying on Section 3, Rule 10 of the Rules of Court. Petitioners assert that the Rules do not allow the withdrawal and substitution of a "falsified document" once discovered by the opposing party.

Petitioners maintain that PBCOM’s cause of action was solely and principally founded on the alleged "falsified document" originally marked as

Annexes "A" to "A-2." Thus, the "withdrawal" of the document results in the automatic withdrawal of the whole complaint on the ground that there is no more cause of action to be maintained or enforced by plaintiff against petitioners. Also, petitioners argue that if the substitution will be allowed, their defenses that were anchored on

Annexes "A" to "A-2" would be gravely affected. Moreover, considering that the said document was already removed, withdrawn, and disregarded by the RTC, the withdrawal and substitution of the document would prevent petitioners from introducing the falsified documents during the trial as part of their evidence.23

Petitioners submit that the RTC misapplied the principle of equity when it allowed PBCOM to substitute the document with the original agreement. Petitioners also claim that the remedy of appeal after the termination of the case in the RTC would become ineffective and inadequate if the Order of the RTC allowing the "withdrawal" and "substitution" of the document would not be nullified, because the falsified document would no longer be found in the records of the case during the appeal.24

Petitioners contend that the CA went beyond the issue raised before it when it interpreted the provisions of the Surety Agreement, particularly paragraph 4 thereof, and then ruled on the obligations of the parties based on

the document. Petitioners posit that the CA prematurely ruled on petitioners’ obligations, considering that their obligations should be determined during trial on the merits, after the parties have been given the opportunity to present their evidence in support of their respective claims. Petitioners stress that the CA went into the merit of the case when it gave credence to the statement of fact of PBCOM that "From August 15 to December 9, 1997, Asian Water Resources, Inc. obtained several availments on its additional loans totalling P2,030,000.00 as evidenced by 4 promissory notes marked as Annexes B, B-1, B-2, and B-3. Thus, the conclusion of the CA in declaring the petitioners liable as sureties violated their right to due process.25

For its part, PBCOM argues that since the complaint is based on an actionable document, i.e., the surety agreement, the original or a copy thereof should be attached to the pleading as an exhibit, which shall be deemed part of the pleading. Considering that the surety agreement is annexed to the complaint, it is an integral part thereof and its substitution with another copy is in the nature of a substantial amendment, which is allowed by the Rules, but with prior leave of court.

Moreover, PBCOM alleges that since the Rules provides that substantial amendments may be made upon leave of court, the authority of the RTC to allow the amendment is discretionary. Thus, the CA correctly held that the act of granting the said substitution was within the clear and proper discretion of the RTC.

The petition is without merit.

As to the substitution of the earlier surety agreement that was annexed to the complaint with the original thereof, this Court finds that the RTC did not err in allowing the substitution.

The pertinent rule on actionable documents is found in Section 7, Rule 8 of the Rules of Court, which provides that when the cause of action is anchored on a document, its substance must be set forth, and the original or a copy thereof "shall" be attached to the pleading as an exhibit and deemed a part thereof, to wit:

Section 7. Action or defense based on document. – Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading.

With respect to PBCOM’s right to amend its complaint, including the documents annexed thereto, after petitioners have filed their answer, Section 3, Rule 10 of the Rules of Court specifically allows amendment by leave of court. The said Section states:

SECTION 3. Amendments by leave of court. Except as provided in the next preceding section, substantial amendments may be made only upon leave of court. But such leave may be refused if it appears to the court that the motion was made with intent to delay. Orders of the court upon the matters provided in this section shall be made upon motion filed in court, and after notice to the adverse party, and an opportunity to be heard.

This Court has emphasized the import of Section 3, Rule 10 of the 1997 Rules of Civil Procedure in Valenzuela v. Court of Appeals,26 thus:

Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil Procedure amended the former rule in such manner that the phrase "or that the cause of action or defense is substantially altered" was stricken-off and not retained in the new rules. The clear import of such amendment in Section 3, Rule 10 is that under the new rules, "the amendment may (now) substantially alter the cause of action or defense." This should only be true, however, when despite a substantial change or alteration in the cause of action or defense, the amendments sought to be made shall serve the higher interests of substantial justice, and prevent delay and equally promote the laudable objective of the rules which is to secure a "just, speedy and inexpensive disposition of every action and proceeding."27

The granting of leave to file amended pleading is a matter particularly addressed to the sound discretion of the trial court; and that discretion is broad, subject only to the limitations that the amendments should not substantially change the cause of action or alter the theory of the case, or that it was not made to delay the action.28Nevertheless, as enunciated in Valenzuela, even if the amendment substantially alters the cause of action or defense, such amendment could still be allowed when it is sought to serve the higher interest of substantial justice; prevent delay; and secure a just, speedy and inexpensive disposition of actions and proceedings.

The courts should be liberal in allowing amendments to pleadings to avoid a multiplicity of suits and in order that the real controversies between the parties are presented, their rights determined, and the case decided on the merits without unnecessary delay. This liberality is greatest in the early stages of a lawsuit, especially in this case where the amendment was made before the trial of the case, thereby giving the petitioners all the time allowed by law to answer and to prepare for trial.29

Furthermore, amendments to pleadings are generally favored and should be liberally allowed in furtherance of justice in order that every case, may so far as possible, be determined on its real facts and in order to speed up the trial of the case or prevent the circuity of action and unnecessary expense. That is, unless there are circumstances such as inexcusable delay or the taking of the adverse party by surprise or the like, which might justify a refusal of permission to amend.30

In the present case, there was no fraudulent intent on the part of PBCOM in submitting the altered surety agreement. In fact, the bank admitted that it was a mistake on their part to have submitted it in the first place instead of the original agreement. It also admitted that, through inadvertence, the copy that was attached to the complaint was the copy wherein the words "IN HIS PERSONAL CAPACITY" were inserted to conform to the bank’s standard practice. This alteration was made without the knowledge of the notary public. PBCOM’s counsel had no idea that what it submitted was the altered document, thereby necessitating the substitution of the surety agreement with the original thereof, in order that the case would be judiciously resolved.

Verily, it is a cardinal rule of evidence, not just one of technicality but of substance, that the written document is the best evidence of its own contents. It is also a matter of both principle and policy that when the written contract is established as the repository of the parties’ stipulations, any other evidence is excluded, and the same cannot be used to substitute for such contract, or even to alter or contradict the latter.31 The original surety agreement is the best evidence that could establish the parties’ respective rights and obligations. In effect, the RTC merely allowed the amendment of the complaint, which consequently included the substitution of the altered surety agreement with a copy of the original.

It is well to remember at this point that rules of procedure are but mere tools designed to facilitate the attainment of justice. Their strict and rigid application that would result in technicalities that tend to frustrate rather than promote substantial justice must always be avoided.32 Applied to the instant case, this not only assures that it would be resolved based on real facts, but would also aid in the speedy disposition of the case by utilizing the best evidence possible to determine the rights and obligations of the party- litigants.

Moreover, contrary to petitioners’ contention, they could not be prejudiced by the substitution since they can still present the substituted documents, Annexes "A" to A-2," as part of the evidence of their affirmative defenses. The substitution did not prejudice petitioners or delay the action. On the contrary, it tended to expedite the determination of the controversy. Besides, the petitioners are not precluded from filing the appropriate criminal action against PBCOM for attaching the altered copy of the surety agreement to the complaint. The substitution of the documents would not, in any way, erase the existence of falsification, if any. The case before the RTC is civil in nature, while the alleged falsification is criminal, which is separate and distinct from another. Thus, the RTC committed no reversible error when it allowed the substitution of the altered surety agreement with that of the original.

A Petition for Certiorari under Rule 65 of the Rules of Court is intended for the correction of errors of jurisdiction only or grave abuse of discretion amounting to lack or excess of jurisdiction. Its principal office is only to keep the inferior court within the parameters of its jurisdiction or to prevent it from committing such a grave abuse of discretion amounting to lack or excess of jurisdiction.33

For a petition for certiorari to prosper, the essential requisites that have to concur are: (1) the writ is directed against a tribunal, a board or any officer exercising judicial or quasi-judicial functions; (2) such tribunal, board or officer has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.34

1avvphi1

The phrase without jurisdiction means that the court acted with absolute lack of authority or want of legal power, right or authority to hear and determine a cause or causes, considered either in general or with reference to a particular matter. It means lack of power to exercise authority. Excess of jurisdiction occurs when the court transcends its power or acts without any statutory authority; or results when an act, though within the general power of a tribunal, board or officer (to do) is not authorized, and is invalid with respect to the particular proceeding, because the conditions which alone authorize the exercise of the general power in respect of it are wanting. Grave abuse of discretion implies such capricious and whimsical exercise of judgment as to be equivalent to lack or excess of jurisdiction; simply put, power is exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal hostility; and such exercise is so patent or so gross as to amount to an evasion of a positive duty or to a virtual refusal either to perform the duty enjoined or to act at all in contemplation of law.35

The present case failed to comply with the above-stated requisites. In the instant case, the soundness of the RTC’s Order allowing the substitution of the document involves a matter of judgment and discretion, which cannot be the proper subject of a petition for certiorari under Rule 65. This rule is only intended to correct defects of jurisdiction and not to correct errors of procedure or matters in the trial court’s findings or conclusions.

However, this Court agrees with the petitioners’ contention that the CA should not have made determinations as regards the parties’ respective rights based on the surety agreement. The CA went beyond the issues brought before it and effectively preempted the RTC in making its own determinations. It is to be noted that the present case is still pending determination by the RTC. The CA should have been more cautious and not have gone beyond the issues submitted before it in the petition for certiorari; instead, it should have squarely addressed whether or not there was grave abuse of discretion on the part of the RTC in issuing the Orders dated December 14, 1999 and January 11, 2000.

WHEREFORE, premises considered, the petition is DENIED. Subject to the above disquisitions, the Decision of the Court of Appeals in CA-G.R. SP No. 57732, dated September 28, 2001, and the Orders of the Regional Trial Court of Cagayan de Oro City, Branch 21, in Civil Case No. 99-352, dated December 14, 1999 and January 11, 2000, are AFFIRMED.

SO ORDERED.

FIRST DIVISION

[G.R. No. 133657. May 29, 2002.]

REMINGTON INDUSTRIAL SALES CORPORATION, Petitioner, v. THE COURT OF APPEALS and BRITISH STEEL (ASIA), LTD., Respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

Before us is a petition for review under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals in CA-G.R. SP No. 44529 dated February 24, 1998, 1 which granted the petition forcertiorari filed by respondent British Steel Asia Ltd. (British Steel) and ordered the dismissal of petitioner Remington Industrial Sales Corporation’s (Remington) complaint for sum of money and damages. Also assailed in this petition is the resolution 2 of the Court of Appeals denying petitioner’s motion for reconsideration.

The facts of the case, as culled from the records, are as follows: chanrob1es virtual 1aw library

On August 21, 1996, petitioner filed a complaint 3 for sum of money and damages arising from breach of contract, docketed as Civil Case No. 96-79674, before the sala of Judge Marino M. De la Cruz of the Regional Trial Court of Manila, Branch 22. Impleaded as principal defendant therein was Industrial Steels, Ltd. (ISL), with Ferro Trading GMBH (Ferro) and respondent British Steel as alternative defendants.chanrobles virtual lawlibrary

ISL and respondent British Steel separately moved for the dismissal of the complaint on the ground that it failed to state a cause of action against them. On April 7, 1997, the RTC denied the motions to dismiss, 4 as well as the ensuing motion for reconsideration. 5 ISL then filed its answer to the complaint.

On the other hand, respondent British Steel filed a petition for certiorari and prohibition before the Court of Appeals, 6 docketed as CA-G.R. SP No. 44529. Respondent claimed therein that the complaint did not contain a single averment that respondent committed any act or is guilty of any omission in violation of petitioner’s legal rights. Apart from the allegation in the complaint’s "Jurisdictional Facts" that:chanrob1es virtual 1aw library

1.05. Defendants British Steel (Asia) Ltd. and Ferro Trading Gmbh, while understood by the plaintiff as mere suppliers of goods for defendant ISL, are impleaded as party defendants pursuant to Section 13, Rule 3 of the Revised Rules of Court. 7 

no other reference was made to respondent that would constitute a valid cause of action against it. Since petitioner failed to plead any cause of action against respondent as alternative defendant under Section 13, Rule 3, 8 the trial court should have ordered the dismissal of the complaint insofar as respondent was concerned.

Meanwhile, petitioner sought to amend its complaint by incorporating therein additional factual allegations constitutive of its cause of action against Respondent. Pursuant to Section 2, Rule 10 9 of the Rules of Court, petitioner maintained that it can amend the complaint as a matter of right because respondent has not yet filed a responsive pleading thereto. 10 

Subsequently, petitioner filed a Manifestation and Motion 11 in CA-G.R. SP No. 44529 stating that it had filed a Motion to Admit Amended Complaint together with said Amended Complaint before the trial court. Hence, petitioner prayed that the proceedings in the special civil action be suspended.

On January 29, 1998, the trial court ruled on petitioner’s Motion to Admit Amended Complaint thus: chanrob1es virtual 1aw library

WHEREFORE, the Amended Complaint is NOTED and further proceedings thereon and action on the other incidents as aforementioned are hereby held in abeyance until final resolution by the Honorable Court of Appeals (Special 6th Division) of the petition for certiorari and prohibition of petitioner (defendant British) and/or Manifestations and Motions of therein private respondent, herein plaintiff.

SO ORDERED. 12 

Thereafter, on February 24, 1998, the Court of Appeals rendered the assailed decision in CA-G.R. SP No. 44529 as follows: chanrob1es virtua1 1aw 1ibrary

WHEREFORE, this Court grants the writ of certiorari and orders the respondent judge to dismiss without prejudice the Complaint in Civil Case No. 96-79674 against petitioner British Steel (Asia) Ltd. Costs against private Respondent.

SO ORDERED. 13 

In the same decision, the Court of Appeals addressed petitioner’s prayer for suspension of proceedings in this wise: chanrob1es virtual 1aw library

The incident which transpired after the filing of the instant petition for certiorari and prohibition are immaterial in the resolution of this petition. What this Court is called upon to resolve is whether the lower court committed grave abuse of discretion when it denied petitioner’s motion to dismiss the complaint against it. The admission or rejection by the lower court of said amended

complaint will not, insofar as this Court is concerned, impinge upon the issue of whether or not said court gravely abused its discretion in denying petitioner’s motion to dismiss. 14 

Petitioner filed a motion for reconsideration of the appellate court’s decision, which was denied in a resolution dated April 28, 1998. Hence, this petition, anchored on the following grounds: chanrob1es virtual 1aw library

I

THE HON. COURT OF APPEALS ERRED IN ORDERING THE DISMISSAL OF THE COMPLAINT AGAINST THE PRIVATE RESPONDENT FOR LACK OF CAUSE OF ACTION UNDER THE ORIGINAL COMPLAINT EVEN AS SAID COMPLAINT WAS ALREADY AMENDED AS A MATTER OF RIGHT AND SUFFICIENT CAUSES OF ACTION ARE AVERRED IN THE AMENDED COMPLAINT, IN GROSS VIOLATION OF SEC. 2, RULE 10 OF THE 1997 RULES OF CIVIL PROCEDURE.

II

THE HON. COURT OF APPEALS ERRED IN HOLDING THAT IF THE PETITIONER WANTS TO PURSUE ITS CASE AGAINST THE PRIVATE RESPONDENT, IT HAS TO REFILE THE COMPLAINT, THUS PRE-EMPTING THE RIGHT OF THE LOWER COURT TO RULE ON THE AMENDED COMPLAINT AND COMPELLING THE PETITIONER TO LITIGATE ITS CAUSES OF ACTION AGAINST THE PRIVATE RESPONDENT AS AN ALTERNATIVE DEFENDANT IN A SEPARATE ACTION, THEREBY ABETTING MULTIPLICITY OF SUITS. 15

The basic issue in this case is whether or not the Court of Appeals, by granting the extraordinary writ of certiorari, correctly ordered the dismissal of the complaint for failure to state a cause of action, despite the fact that petitioner exercised its right to amend the defective complaint under Section 2, Rule 10 of the Rules of Court. Stated differently, the query posed before us is: can a complaint still be amended as a matter of right before an answer has been filed, even if there was a pending proceeding for its dismissal before the higher court?

Section 2, Rule 10 16 of the Revised Rules of Court explicitly states that a pleading may be amended as a matter of right before a responsive pleading is served. This only means that prior to the filing of an answer, the plaintiff has the absolute right to amend the complaint whether a new cause of action or change in theory is introduced. 17 The reason for this rule is implied in the subsequent Section 3 of Rule 10. 18 Under this provision, substantial amendment of the complaint is not allowed without leave of court after an answer has been served, because any material change in the allegations contained in the complaint could prejudice the rights of the defendant who has already set up his defense in the answer. chanrob1es virtua1 1aw 1ibrary

Conversely, it cannot be said that the defendant’s rights have been violated by changes made in the complaint if he has yet to file an answer thereto. In such an event, the defendant has not presented any defense that can be altered 19 or affected by the amendment of the complaint in accordance with Section 2 of Rule 10. The defendant still retains the unqualified opportunity to address the allegations against him by properly setting up his defense in the answer. Considerable leeway is thus given to the plaintiff to amend his complaint once, as a matter of right, prior to the filing of an answer by the defendant.

The right granted to the plaintiff under procedural law to amend the complaint before an answer has been served is not precluded by the filing of a motion to dismiss 20 or any other proceeding contesting its sufficiency. Were we to conclude otherwise, the right to amend a pleading under Section 2, Rule 10 will be rendered nugatory and ineffectual, since all that a defendant has to do to foreclose this remedial right is to challenge the adequacy of the complaint before he files an answer.

Moreover, amendment of pleadings is favored and should be liberally allowed in the furtherance of justice in order to determine every case as far as possible on its merits without regard to technicalities. This principle is generally recognized to speed up trial and save party litigants from incurring unnecessary expense, so that a full hearing on the merits of every case may be had and multiplicity of suits avoided. 21 

In this case, the remedy espoused by the appellate court in its assailed judgment will precisely result in multiple suits, involving the same set of facts and to which the defendants would likely raise the same or, at least, related defenses. Plainly stated, we find no practical advantage in ordering the dismissal of the complaint against respondent and for petitioner to re-file the same, when the latter can still clearly amend the complaint as a matter of right. The amendment of the complaint would not prejudice respondents or delay the action, as this would, in fact, simplify the case and expedite it disposition.

The fact that the other defendants below has filed their answers to the complaint does not bar petitioner’s right to amend the complaint as against Respondent. Indeed, where some but not all the defendants have answered, the plaintiff may still amend its complaint once, as a matter of right, in respect to claims asserted solely against the non-answering defendant, but not as to claims asserted against the other defendants. 22 

Furthermore, we do not agree with respondent’s claim that it will be prejudiced by the admission of the Amended Complaint because it had spent time, money and effort to file its petition before the appellate court. 23 We cannot see how the result could be any different for respondent, if petitioner merely re-filed the complaint instead of being allowed to amend it. As adverted to earlier, amendment would even work to respondent’s advantage since it will undoubtedly speed up the proceedings before the trial court. Consequently, the amendment should be allowed in the case at bar as a matter of right in accordance with the rules. chanrob1es virtua1 1aw 1ibrary

WHEREFORE, the petition is GRANTED. The assailed decision and resolution of the Court of Appeals in CA-G.R. SP No. 44529 dated February 24, 1998 and April 28, 1998, respectively, are REVERSED and SET ASIDE. The Regional Trial Court of Manila, Branch 22 is further ordered to ADMIT petitioner’s Amended Complaint in Civil Case No. 96-79674 and to conduct further proceedings in said case.

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan and Austria-Martinez, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. L-41621 February 18, 1999

PASTORA VALMONTE, JOSE DE LEON, AND JOAQUIN VALMONTE, petitioners, vs.THE HON. COURT OF APPEALS, PHILIPPINE NATIONAL BANK, ARTEMIO VALENTON, AND AREOPAGITA J. JOSON, renpondents.

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking a review of the Decision 1 of the Court of Appeals which affirmed the decision of the then Court of First Instance of Cabanatuan City, Branch III 2 in Civil Case No. 2950, entitled "Pastora Valmonte, Jose de Leon and Joaquin Valmonte versus Philippine National Bank, Artemio Valenton and Areopagita J. Joson", dismissing plaintiffs' complaint as well as defendants' counterclaim.

As culled in the Decision of the Court of Appeals sought for review, the facts of the case that matter are, as follows:

. . . On November 5, 1951, plaintiff-appellant Joaquin Valmonte sold to his daughter co-appellant Pastora, three (3) parcels of land, situated in the Municipality of Jaen, Province of Nueva Ecija, containing a total area of 70.6 hectares (Exhs. 31-Bank, 1-Valenton). A few days later, or on Nov. 12, 1951, plaintiff-appellant Pastora obtained a crop loan of P16,000.00 from defendant-appellee Philippine National Bank and as security for payment thereof, she executed a Real Estate Mortgage, dated November 12, 1951, in favor of appellee bank involving the same parcels of land (Exh. J) as covered by Transfer Certificate of Title No. NT-10423 in the name of said appellant Pastora (Exh. Q-1).

On September 19, 1952, appellant Pastora, then single, executed a Special Power of Attorney in favor of one Virginia V. del Castelo for the purpose of borrowing money in the amount of P5,000.00 from appellee bank with authority to mortgage the same parcels of land hereinabove mentioned (Exh. A). As a result thereof, a loan of P5,000.00 payable on demand was granted by appellee bank and Virginia Castelo executed a Real Estate Mortgage in its favor (Exhs. 6 and 7-Bank, and B).

On June 14, 1954, appellee bank sent a "Notice of Extra-Judicial Sale of Mortgaged Properties" to the Provincial Sheriff of Nueva Ecija for publication (Exh. 39-Bank).

On June 20, 1954, appellant Pastora executed a Deed of Sale in favor of her father co-appellant Joaquin Valmonte selling unto the latter the same three (3) parcels of land covered by TCT No. NT-10423 with the following condition:

These lands are at present mortgaged to the Philippine National Bank, and this obligation shall be the subject of future arrangement between the vendor and vendee herein on the one hand and the Philippine National Bank on the other before this deed of Sale shall be operative. (Exh. 2-Valenton)

On July 19, 26 and August 2, 1954, the notice of extrajudicial sale on Augerst 19, 1954 to be held in the City Hall of Cabanatuan City, for the satisfaction of appellant Pastora's debt of P5,000.00 plus interests due thereon, was published in a newspaper called Nueva Era (Exh. 56-Bank). The same notice was posted in three (3) public and conspicuous places in the City of Cabanatuan where the scheduled auction sale will take place and in three (3) public and conspicuous places in the Municipality of Jaen, Nueva Ecija where the properties are located (Exh. 38-Bank).

On August 19, 1954, the auction sale was conducted and appellee bank was the sole and only bidder for P5,524.40. On the same date, the Provincial Sheriff Ex-Officio issued the corresponding Minutes of Auction Sale and Certificate of Sale (Exh.C, 55 and 54-Bank).

The period of redemption expired on August 19, 1955 (Exh. 65-Bank). Appellee bank received a letter-offer, dated August 31, 1955 from a certain Jose Talens to purchase the properties in question for P27,000.00, P4,000.00 down and the balance payable in five (5) yearly amortizations (Exh. 40-Bank). In a letter dated September 28, 1955, appellee Artemio Valenton offered to purchase said properties for P35,000.00 payable upon execution of the contract in his favor and deposited P1,000.00 as earnest money therefor (Exh. 41-Bank, 7-Valenton). On October 10, 1955, appellant Joaquin Valmonte sent a letter-request to appellee bank for additional time within which he may repurchase the properties in question for P35,000.00 (Exh 33-Bank; 8-Valenton). In view thereof and by reason of the request of Congressman Celestino C. Juan, appellants were given up to December 31, 1955, to purchase in cash the properties concerned in the amount of the bank's total claim. As of September 7, 1955, the Bank's total claims amounted to P26,926.38, including the P16,000.00 loan obtained by appellant Pastora in 1951 (Exhs. 66-Bank and 9-Valenton; J; 43-Bank and 58-Valenaon).

On December 7, 1955, appellant Pastora designated her father, co-appellant Joaquin Valmonte as her attorney-in-fact for the purpose of repurchasing the land from the appellee bank (Exh. H). Appellants failed to purchase the properties on or before December 31, 1955. Hence, on January 3, 1956, appellee Valenton deposited the balance of P34,000.00 which the bank accepted [Exhs 47-B (Bank) and 62-B (Valenton)]. On Jan. 4, 1956, appellee bank executed the Deed of Absolute Sale in favor of appellee Valenton (Exhs. 47-Bank, 11-Valenton and 47-C (Bank) as well as an Affidavit of Consolidation of Ownership (Exh. D-1).

To enable the registration of the properties in the name of appellee Valenton, appellee Bank, as attorney-in-fact of the mortgagor under the Real Estate Mortgagor, dated September 30, 1952 (Exh. B), had to execute a Deed of Sale in its favor on January 5, 1956 (Exh. E). On January 6, 1956, a "Deed of Confirmation of Sale" was executed by appellee bank for the main purpose of asserting that the existing certificate of title covering the parcels of land in question at that time was TCT No. - NT 18899 of the land registry of Nueva Ecija in the name of appellee bank (Exh. F). Appellee Valenton obtained the cancellation of TCT No. NT 18899 and the issuance of the Registry of Deeds of Nueva Ecija of TCT No. NT-18901 in his name (Exhs. S and S-1).

xxx xxx xxx

. . . The present complaint was filed on August 1, 1958; and, after joining the issues and trial on the merits, the complaint was dismissed on January 27, 1968. 3

The trial court of origin, as earlier alluded to, dismissed the entire case, disposing, thus:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the defendants against the plaintiffs, dismissing the complaint with costs against the said plaintiffs.

The counterclaims of the defendants are hereby dismissed.

SO ORDERED. 4

Therefrom, plaintiffs Pastora Valmonte, Jose de Leon and Joaquin Valmonte appealed to the Court of Appeals, which came out with a judgment of affirmance promulgated on March 24, 1975.

Undaunted, the said plaintiffs found their way to this court via the present Petition, theorizing that:

A

THIS IS AS CLEAR A CASE AS ANY WHERE PERSONS HAVE BEEN DEPRIVED OF THEIR PROPERTY WITHOUT DUE PROCESS·OF LAW.

B

THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT HELD, AS DID THE TRIAL COURT, THAT THE TWO MORTGAGES (P16,000.00 AND P5,000.00) WERE SEPARATE AND DISTINCT FROM ONE ANOTHER; WORSE STILL, THAT ONE WAS "JUNIOR"AND THE OTHER WAS "SENIOR"; THAT THE "MERGER" CAME ABOUT AFTER THE FORECLOSURE OF THE P5,000.00 PORTION OF THE MORTGAGE SUCH THAT THE PNB BECAME CREDITOR AND DEBTOR AT THE SAME TIME.

C

THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT DID NOT HOLD THAT, FROM THE VERY EXPRESS PROVISIONS OF THE TWO DOCUMENTS — THE P16,000.00 MORTGAGE, EXH. 'J", AND THE P5,000.00 MORTGAGE, EXH. "B" — THE TWO MORTGAGES MUTUALLY AND IMMEDIATELY MERGED INTO EACH OTHER AS SECURITY FOR THE SAME TOTALITY OF ALL OF PETITIONERS' OBLIGATIONS TO RESPONDENT PNB AT THE MOMENT THE LATER DOCUMENT WAS EXECUTED ON SEPTEMBER 30, 1952, SO THAT THE RESULT WAS AN INDIVISIBLE, INSEPARABLE, SINGLE MORTGAGE WHICH CANNOT BE FORECLOSED PARTIALLY; HENCE FORECLOSURE OF THE P5,000.00 MORTGAGE ALONE DID NOT VEST TITLE OVER THE PROPERTY IN THE PNB.

D

THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT GAVE ITS IMPRIMATUR TO THE TRANSFER FROM RESPONDENT PNB TO RESPONDENTS VALENTON OF PASTORA'S PROPERTY WHICH HAD NOT BEEN VALIDLY FORECLOSED.

E

THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN IT FAILED TO HOLD THAT THE EXTRA JUDICIAL FORECLOSURE OF THE P5,000.00 PORTION OF THE MORTGAGE WAS NULL AND VOID BECAUSE OF FATAL DEFECTS IN THE PUBLICATION OF THE NOTICE OF FORECLOSURE, THE DAY OF THE FORECLOSURE, THE PLACE OF THE

FORECLOSURE, THE AUTHORITY OF THE PERSON CONDUCTING FORECLOSURE, AND THE REALITY OF THE FORECLOSURE SALE.

F

THE RESPONDENT COURT OF APPEALS ERRED IN UPHOLDING THE TRIAL COURT'S DENIAL OF THE PETITIONERS MOTION FOR LEAVE TO AMEND COMPLAINT TO CONFORM TO THE EVIDENCE AND FOR ADMISSION OF THIRD AMENDED COMPLAINT.

The petition is not impressed with merit.

To begin with, succinct and unmistakable is the consistent pronouncement that the Supreme Court is not a trier of facts. And well entrenched is the doctrine that pure questions of fact may not be the proper subject of appeal bycertiorari under Rule 45 of the Revised Rules of Court, as this mode of appeal is generally confined to questions of law. 5

Anent the first error, petitioners theorize: (1) That there was insufficient publication of the notice of sale; (2) That the posting of the notice was not in accordance with law; (3) That the price obtained during the auction sale was unconscionably low; (4) That the Sheriff who conducted the sale had no authority to do so; and (5) That the auction sale was void as it was conducted on a declared holiday.

It is well-settled that non-compliance with the notice and publication requirements of an extrajudicial foreclosure sale is a factual issue. Compliance with the statutory requirements is a proven fact and not a matter of presumption. A mortgagor who alleges absence of any of such requisites has the burden of establishing thefactum probandum. 6

Following the ruling in Sadang vs. GSIS 7, the Court of Appeals upheld the validity of the publication of the notice of extrajudicial foreclosure, holding that the customary affidavit of the editor of a newspaper, duly introduced in evidence, is aprima facie proof of said fact. The party alleging non-compliance with the requisite publication the onus probandi. Absent any proof to the contrary, lack of publication has not been substantiated. What is more, the affidavit of the editor of Nueva Era, to the effect that the notice of sale had been published in said newspaper of general circulation once a week for three (3) consecutive weeks, and what Basilio Castro (letter carrier in the province of Nueva Ecija) and Eugenio de Guzman (former Justice of the Peace and Mayor of Jaen) testified and attested to constitute enough evidence of publication. 8

Petitioners' reliance on the cases of Tan Ten Koc vs. Republic 9; Tan Sen vs. Republic 10 and Tan Khe Shing vs. Republic 11 is misplaced. In the said cases, in ruling that Nueva Era was not shown to be a newspaper of general circulation, the Court considered the failure of the applicants to come forward with positive evidence other than the editor's affidavit. As they were naturalization cases, the purpose of the publication requirement was to inform the officers concerned and the public in general of the filing of subject petitions, to the end that the Solicitor General or the Provincial Fiscal (now provincial prosecutor) could be furnished whatever derogatory information and evidence there may be against the applicants or petitioners. There is no such objective in the publication requirement for extrajudicial foreclosures. Consequently, the petitioners here cannot rely on the aforecited cases of different nature to buttress their stance.

The alleged failure to comply with the posting requirement in that: (1) it was not posted in three (3) public conspicuous places, and (2) the posting was not in the municipality where the properties involved or part thereof are located, was negated by the certificate of posting, dated July 15, 1954, and the testimony of Deputy Sheriff Jose N. Mendoza. (Exh. 38 — Bank; pp. 561-563, t.s.n., Feb. 22, 1963) 12

On the issue of unconscionably low price paid by the bank for the mortgaged properties, the purchase price of P5,524.40 was found by the respondent court to suffice. It is well settled that when there is a right to redeem, inadequacy of price of no moment for the reason that the judgment debtor has always the chance to redeem and reacquire the property. In fact, the property may be sold for less than its fair market value precisely because the lesser the price the easier for the owner to effect a redemption. 13

Petitioners further theorized that the foreclosure sale in question should be invalidated since it was conducted on a holiday. They rely on Section 31 of the Revised Administrative Code, which provides that where the act required or permitted by law falls on a holiday, the act may be done on the next succeeding business day. In the case under scrutiny, the auction sale was made on August 19, 1954, which was declared a holiday by the late Pres. Ramon Magsaysay. In upholding the validity of the sale, the Court of Appeals opined "that since the law used the word 'may', it is merely discretionary and cannot be given a prohibitive meaning." 14 The Court is of the same conclusion on the validity of the sale.

Said the court in the case of Rural Bank of Caloocan, Inc. vs. Court of Appeals 15, in holding that Section 31 of the Revised Administrative Code is not applicable to auction sales:

. . . The pretermission of a holiday applies only where the day or the last day for doing any act required or permitted by law falls on a holiday, or when the last day of a given period for doing an act falls on a holiday. It does not apply to a day fixed by an office or officer of the government for an act to be done, as distinguished from a period of time within which an act should be done, which may be on any day within that specified period. For example, if a party is required by law to file his answer to a complaint, within fifteen (15) days from receipt of the summons and the last day falls on a holiday, the last day is deemed moved to the next succeeding business day. But, if the court fixes the trial of a case on a certain day but the said date is subsequently declared a public holiday, the trial thereof is not automatically transferred to the next succeeding business day. Since April 10, 1961 was not the day or the last day set by law for the extrajudicial foreclosure sale, nor the last day of a given period, but a date fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next succeeding business day without the notices of the sale on that day being posted as prescribed in Sec. 9, Act. No. 3135. 16

Conformably, the extrajudicial foreclosure conducted on August 19, 1954 was valid, notwithstanding the fact that the said date was declared a public holiday. Act 3135 merely requires that sufficient publication and posting of the notice of sale be caused, as required by law.

The issue concerning the authority of the sheriff to conduct the sale is factual. This Court is bound by the findings by the trial court, and affirmed by the respondent court, that the signing by Provincial Sheriff of the Minutes of Auction Sale (Exh. 55-Bank) and the Certificate of Sale evinced that the auction sale was conducted by the Deputy Sheriff under the direction of the Provincial Sheriff. 17

Another basis for the Court to uphold the regularity of the extrajudicial foreclosure under controversy is the equitable principle of estoppel. Petitioners's admission that as mortgagors, they had asked for an extension of time to redeem subject properties estopped them from impugning the regularity of the conduct of the sale. It bears stressing that on October 10, 1955, appellant Joaquin Valmonte (one of the herein petitioners) sent a letter-request to the appellee bank for additional time within which to exercise the right of redemption over the properties at P35,000.00 (Exh. 33-Bank; 8-Valenton). In view of such request and of the similar request from Congressman Celestino C. Juan, the Bank, through its Board of directors (BOD) Resolution No. 1096, extended the redemption period until December 31, 1955 for the appellants (the petitioners here) to purchase in cash their properties in the amount of the total claim of the bank. 18

Did the aforesaid act of seeking an extension of the redemption period constitute an act of ratification within legal contemplation, thus rendering the petitioners in estoppel? The answer to this important and pertinent question is in the affirmative. If a party in interest enters into a law agreement, stipulation, compromise or arrangement calculated to benefit him in connection with a mortgage foreclosure sale, he inevitably affirms thereby the validity, force and effect of the sale. Similarly, a party cannot later on rely upon the supposed defects of the sale. 19 The act of plaintiffs in asking for an extension of time to redeem the foreclosed properties estopped them from questioning the foreclosure sale thereafter. 20

Since the findings by the trial court are supported by the evidence and the law and the party theorizing upon the alleged irregularities afflicting the extrajudicial foreclosure sale was unable to prove their imputation; affirmance of the finding of respondent court is indicated.

Neither is there any sustainable basis for the second assignment of errors relied upon by petitioners.

Petitioners contend that the respondent court erred in applying the principle of merger. Mortgagors averred that the two loans should be considered as one mortgage credit inasmuch as they were constituted between the same parties and on the same properties. Being a single and indivisible obligation, the foreclosure sale in connection with the P5,000.00 loan necessarily included the other loan of P16,000.00. Therefore, there was no outstanding mortgage credit for the P16,000.00 loan, and PNB being the purchaser at the auction sale, was not subrogated to answer for any encumbrance on subject properties.

The Court of Appeals erred not on the application of the principle of merger. Merger as one of the means of extinguishing an obligation has the following elements: (1) the merger of the characters of the creditor and debtor must be in the same person; (2) it must take place in the person of either the principal creditor or the principal debtor; and (3) it must be complete and definite.

As can be gleaned from the attendant facts and circumstances, there were two mortgages constituted on subject properties by the appelants. The first mortgage was for a loan of P16,000.00 and the second one was for a loan of P5,000.00, by and between petitioners and the PNB. What the Bank did was to foreclose the second mortgage embodied in a separate mortgage contract.

Under ordinary circumstances, if a person has a mortgage credit over a property which was sold in an auction sale, the only right left to him was to collect its mortgage credit from the purchaser thereof during the sale conducted. This is so because a mortgage directly and immediately subjects the property on which it is constituted, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created. 21 However, these steps need not be taken in the present case because PNB was the purchaser of subject properties and it did so with full knowledge that it has a mortgage thereon. Obligations are extinguished by the merger of the rights of the creditor and debtor.

In the case under consideration, the merger took place in the person of PNB, the principal creditor in the case. The merger was brought about during the auction sale, PNB purchased the properties on which it had another subsisting mortgage credit. This court is bound by the finding of respondent court that the two loans referred to are separate and distinct and the mere allegation by petitioners that said loans constitute a single indivisible obligation should be stricken off as the said is not supported by evidence. In effect, the mortgage for the P16,000.00 loan was deemed extinguished. While it is true that there was still an annotation on the Transfer Certificate of Title issued to respondent Artemio Valenton, the said annotation or encumbrance was already discharged by operation of law. Consequently, petitioners' contention that said title issued to Valenton was not valid by reason of the said annotation, is devoid of any legal basis.

As aptly held by respondent court:

. . . The purchaser in the extrajudicial sale is appellee bank itself. As such purchaser, it acquired the right to pay off the claim of the senior mortgage. However, the senior mortgagee is also appellee bank. In such a case, Art. 1275 of the New Civil Code as invoked by defendants-appellees in their respective briefs, to wit:

Art. 1275. The obligation is extinguished from the time characters of creditor and debtor are merged in the same person.

applies. The rights pertaining to the personalities of the debtor (mortgagor) and of the creditor (mortgagee) are merged and therefor, in case where the mortgagees of both the senior and junior mortgages are one and the same (herein appellee bank), and especially where the mortgagors of said encumbrances are also one and the same (herein appellant Pastora Valmonte de Leon), the sale to appellee bank operated to divest the rights of the mortgagor (appellant Pastora) of her rights and to vest her rights with respect to the senior mortgage, in the purchaser (appellee bank), subject to such rights of redemption as may be required by law. Records show however that appellant mortgagor failed to redeem the property within the one-year period provided by Act No. 3135, asamended. 22

With respect to the third assignment of errors, untenable is petitioners' contention that the failure of PNB to foreclose the first mortgage for the loan of P16,000.00 was in actuality a pactum commissorium, which is prohibited by law, and the subsequent transfer by PNB to Valenton of the said property is a nullity.

Pactum Commissorium takes place when in a mortgage contract, it is stipulated that the ownership of the property would automatically pass to the vendee in case no redemption is made within a given period, thus enabling the mortgagee to acquire ownership of the mortgaged property without need of foredosure. 23 It is not so in the present case where there was foreclosure of the mortgage.

When PNB opted to foreclose only the second mortgage for the loan of P5,000.00, it was well within its right to do so. The only condition the law requires in extrajudicial foreclosure is that the loan is already due and demandable and there was failure on the part of mortgagor to pay the mortgage debt. The law does not prohibit a mortgagee from choosing which of the mortgages in his favor to foreclose. It msut be borne in mind that the power to decide whether to foreclose or not resides in the mortgagee. 24

The next pivotal issue to resolve is whether PNB could transfer a valid title to respondent Artemio Valenton despite the existence of a duly annotated unforeclosed mortgage between PNB and the appellants.

The court resolves this issue in the affirmative.

Since the appellants failed to redeem within the redemption period and during the extension agreed upon, the effect of such failure to redeem was to vest absolute ownership over subject properteis purchased. 25 The annotation of the unforeclosed mortgage even if appearing on the title of Artemio Valenton did not in any way affect the sale between the latter and PNB. In fact, since there was merger on the part of PNB prior to the sale to said Valenton, any lien which the petitioners were claiming as subsisting was already extinguished.

Granting ex gratia argumenti that there was no merger and the unforeclosed mortgage subsisted, PNB still had the right to sell subject properties and the party who purchased the same shall only be subjected to the said encumbrance. Indubitably, petitioners are not the proper parties to insist that there be a foreclosure because as earlier stated, the prerogative to decide whether or not to foreclose is the mortgagee and not with the mortgagor.

In light of the foregoing, it is decisively obvious that PNB did not acquire the mortgaged properties by pactum commissorium, but for failure of the petitioners to redeem the same. As to the lien which, they claim, should have hindered the transfer of the certificate of title to the name of Artemio Valenton, the merger of rights on the part of PNB extinguished whatever encumbrance there was over the deeded out and there is no more lien to speak of. The transfer of the certificate of title to Artemio Valenton who was a purchaser for value was valid and the petitioners cannot effectively defeat the title of Artemio Valenton by claiming otherwise.

WHEREFORE, for lack of merit, the petition is DENIED and the decision of the Court of Appeals AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Romero, Vitug, Panganiban and Gonzaga-Reyes, JJ. concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 131724           February 28, 2000

MILLENIUM INDUSTRIAL COMMERCIAL CORPORATION, petitioner, vs.JACKSON TAN, respondent.

MENDOZA, J.:

In December 1994, Millenium Industrial Commercial Corporation, petitioner herein, executed a Deed of Real Estate Mortgage1 over its real property covered by TCT No. 24069 in favor of respondent Jackson Tan. The mortgage was executed to secure payment of petitioner's indebtedness to respondent in the amount of P2 million, without monthly interest, but which, at maturity date on June 10, 1995, was payable in the amount of P4 million. 1âwphi1.nêt

On November 9, 1995, respondent filed against petitioner a complaint for foreclosure of mortgage in the Regional Trial Court, Branch 6, Cebu City. On November 21, 1995, summons and a copy of the complaint were served upon petitioner through a certain Lynverd Cinches, described in the sheriff's return, dated November 23, 1995, as "a Draftsman, a person of sufficient age and (discretion) working therein, he is the highest ranking officer or Officer-in-Charge of defendant's Corporation, to receive processes of the Court."2

Petitioner moved for the dismissal of the complaint on the ground that there was no valid service of summons upon it, as a result of which the trial court did not acquire jurisdiction over it. Petitioner invoked Rule 14, §13 of the 1964 Rules of Court and contended that service on Lynverd Cinches, as alleged in the sheriff's return, was invalid as he is not one of the authorized persons on whom summons may be served and that, in fact, he was not even its employee.3

Petitioner also sought the dismissal of the complaint against it on the ground that it had satisfied its obligation to respondent when the latter opted to be paid in shares of stock under the following stipulation in the mortgage contract:

That in the remote possibility of failure on the part of the mortgagor to pay the mortgage obligation and interest in cash, the MORTGAGEE at his option may demand that payment be made in the form of shares of stock of Millenium Industrial Commercial Corporation totaling at least 4,000,000 shares.4

Petitioner further prayed for "other reliefs just and equitable under the premises."5

On December 15, 1995, the trial court denied petitioner's Motion to Dismiss. Its order stated:

This refers to the Motion to Dismiss, dated December 4, 1995, by defendant anchored on the following grounds:

1. That the Court had not acquired jurisdiction over the person of the defendant corporation because summons was served upon a person who is not known to or an employee of the defendant corporation.

2. That the obligation sought to be collected was already paid and extinguished.

By interposing the second ground, the defendant has availed of an affirmative defense on the basis of which the Court has to hear and receive evidence. For the Court to validly decide the said plea of the defendant it necessarily had to acquire jurisdiction over the person of the defendant. Thus, defendant is considered to have then abandoned its first ground and is deemed to have voluntarily submitted itself to the jurisdiction of the Court. It is a legal truism that voluntary appearance cures the defect of the summons, if any. The defendant's filing of the motion to dismiss by pleading therein the second ground amount to voluntary appearance and it indeed cured the defeat.

Wherefore, Motion to Dismiss is hereby denied for lack of merit.6

Petitioner moved for reconsideration, but its motion was denied by the trial court in its order, dated January 16, 1996, for failure of petitioner to raise any new ground. Petitioner then filed a petition for certiorari in the Court of Appeals, assailing the aforesaid orders of the trial court.

On September 18, 1997, the Court of Appeals dismissed the petition.7 The appellate court ruled that although petitioner denied Lynverd Cinches' authority to receive summons for it, its actual receipt of the summons could be inferred from its filing of a motion to dismiss, hence, the purpose for issuing summons had been substantially achieved. Moreover, it was held, by including the affirmative defense that it had already paid its obligation and praying for other reliefs in its Motion to Dismiss, petitioner voluntarily submitted to the jurisdiction of the court.8

Hence, this petition for review. Petitioner raises the following issues:

I. WHETHER OR NOT SERVICE OF SUMMONS UPON A MERE DRAFTSMAN WHO IS NOT ONE OF THOSE UPON WHOM SUMMONS MAY BE SERVED IN CASE OF A DEFENDANT CORPORATION AS MENTIONED IN THE RULES IS VALID.

II. WHETHER OR NOT THE INCLUSION OF ANOTHER AFFIRMATIVE RELIEF IN A MOTION TO DISMISS ABANDONS AND WAIVES THE GROUND OF LACK OF JURISDICTION OVER THE PERSON OF THE DEFENDANT THEREIN ALSO PLEADED UNDER PREVAILING LAW AND JURISPRUDENCE.

III. WHETHER OR NOT THERE IS A LEGAL GROUND TO GRANT PETITIONER'S MOTION TO DISMISS THE COMPLAINT BELOW.

First. Petitioner objects to the application of the doctrine of substantial compliance in the service of summons for two reasons: (1) the enumeration of persons on whom service of summons on a corporation may be effected in Rule 14, §13, is exclusive and mandatory; and (2) even assuming that substantial compliance is allowed, its alleged actual receipt of the summons is based on an unfounded speculation because there is nothing in the records to show that Lynverd Cinches actually turned over the summons to any of the officers of the corporation.9Petitioner contends that it was able to file a motion to dismiss only because of its timely discovery of the foreclosure suit against it when it checked the records of the case in the trial court.

The contention is meritorious.

Summons is the means by which the defendant in a case is notified of the existence of an action against him and, thereby, the court is conferred jurisdiction over the person of the defendant.10 If the defendant is a corporation, Rule 14, §13 requires that service of summons be made upon the corporation's president, manager, secretary, cashier, agent, or any of its directors.11 The rationale of the rule is that service must be made on a representative so integrated with the corporation sued as to make it a priori presumable that he will realize his responsibilities and know what he should do with any legal papers received by him.12

Petitioner contends that the enumeration in Rule 14, §13 is exclusive and that service of summons upon one who is not enumerated therein is invalid. This is the general rule.13 However, it is settled that substantial compliance by serving summons on persons other than those mentioned in the above rule may be justified. In G & G Trading Corporation v. Court of Appeals,14 we ruled that although the service of summons was made on a person not enumerated in Rule 14, §13, if it appears that the summons and complaint were in fact received by the corporation, there is substantial compliance with the rule as its purpose has been attained.

In Porac Trucking, Inc. v. Court of Appeals,15 this Court enumerated the requisites for the application of the doctrine of substantial compliance, to wit: (a) there must be actual receipt of the summons by the person served,i.e., transferring possession of the copy of the summons from the Sheriff to the person served; (b) the person served must sign a receipt or the sheriff's return; and (c) there must be actual receipt of the summons by the corporation through the person on whom the summons was actually served.16 The third requisite is the most important for it is through such receipt that the purpose of the rule on the service of summons is attained.

In this case, there is no dispute that the first and second requisites were fulfilled. With respect to the third, the appellate court held that petitioner's filing of a motion to dismiss the foreclosure suit is proof that it received the copy of the summons and the complaint. There is, however, no direct proof of this or that Lynverd Cinches actually turned over the summons to any of the officers of the corporation. In contrast, in our cases applying the substantial compliance rule,17 there was direct evidence, such as the admission of the corporation's officers, of receipt of summons by the corporation through the person upon whom it was actually served. The question is whether it is allowable to merely infer actual receipt of summons by the corporation through the person on whom summons was served. We hold that it cannot be allowed. For there to be substantial compliance, actual receipt of summons by the corporation through the person served must be shown. Where a corporation only learns of the service of summons

and the filing of the complaint against it through some person or means other than the person actually served, the service of summons becomes meaningless. This is particularly true in the present case where there is serious doubt if Lynverd Cinches, the person on whom service of summons was effected, is in fact an employee of the corporation. Except for the sheriff's return, there is nothing to show that Lynverd Cinches was really a draftsman employed by the corporation.

Respondent casts doubt on petitioner's claim that it came to know about the summons and the complaint against it only after it learned that there was a pending foreclosure of its mortgage. There is nothing improbable about this claim. Petitioner was in default in the payment of its loan. It had received demand letters from respondent. Thus, it had reason to believe that a foreclosure suit would be filed against it. The appellate court was, therefore, in error in giving weight to respondent's claims. Receipt by petitioner of the summons and complaint cannot be inferred from the fact that it filed a Motion to Dismiss the case.

Second. We now turn to the issue of jurisdiction by estoppel. Both the trial court and the Court of Appeals held that by raising the affirmative defense of payment and by praying for other reliefs in its Motion to Dismiss, petitioner in effect waived its objection to the trial court's jurisdiction over it. We think this is error.

Our decision in La Naval Drug Corporation v. Court of Appeals18 settled this question. The rule prior to La Navalwas that if a defendant, in a motion to dismiss, alleges grounds for dismissing the action other than lack of jurisdiction, he would be deemed to have submitted himself to the jurisdiction of the court.19 This rule no longer holds true. Noting that the doctrine of estoppel by jurisdiction must be unequivocal and intentional, we ruled in La Naval:

Jurisdiction over the person must be seasonably raised, i.e., that it is pleaded in a motion to dismiss or by way of an affirmative defense. Voluntary appearance shall be deemed a waiver of this defense. The assertion, however, of affirmative defenses shall not be construed as an estoppel or as a waiver of such defense.20

Third. Finally, we turn to the effect of petitioner's prayer for "other reliefs" in its Motion to Dismiss. In De Midgely v.Fernandos,21 it was held that, in a motion to dismiss, the allegation of grounds other than lack of jurisdiction over the person of the defendant, including a prayer "for such other reliefs as" may be deemed "appropriate and proper" amounted to voluntary appearance. This, however, must be deemed superseded by the ruling in La Naval that estoppel by jurisdiction must be unequivocal and intentional. It would be absurd to hold that petitioner unequivocally and intentionally submitted itself to the jurisdiction of the court by seeking other reliefs to which it might be entitled when the only relief that it can properly ask from the trial court is the dismissal of the complaint against it. 1âwphi1.nêt

WHEREFORE, the decision of the Court of Appeals is REVERSED and the complaint against petitioner is DISMISSED.

SO ORDERED.

Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 136426           August 6, 1999

E. B. VILLAROSA & PARTNER CO., LTD., petitioner, vs.HON. HERMINIO I. BENITO, in his capacity as Presiding Judge, RTC, Branch 132, Makati City and IMPERIAL DEVELOPMENT CORPORATION, respondent.

GONZAGA-REYES, J.:

Before this Court is a petition for certiorari and prohibition with prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction seeking to annul and set aside the Orders dated August 5, 1998 and November 20, 1998 of the public respondent Judge Herminio I. Benito of the Regional Trial Court of Makati City, Branch 132 and praying that the public respondent court be ordered to desist from further proceeding with Civil Case No. 98-824.

Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office address at 102 Juan Luna St., Davao City and with branch offices at 2492 Bay View Drive, Tambo, Parañaque, Metro Manila and Kolambog, Lapasan, Cagayan de Oro City. Petitioner and private respondent executed a Deed of Sale with Development Agreement wherein the former agreed to develop certain parcels of land located at Barrio Carmen, Cagayan de Oro belonging to the latter into a housing subdivision for the construction of low cost housing units. They further agreed that in case of litigation regarding any dispute arising therefrom, the venue shall be in the proper courts of Makati.

On April 3, 1998, private respondent, as plaintiff, filed a Complaint for Breach of Contract and Damages against petitioner, as defendant, before the Regional Trial Court of Makati allegedly for failure of the latter to comply with its contractual obligation in that, other than a few unfinished low cost houses, there were no substantial developments therein.1

Summons, together with the complaint, were served upon the defendant, through its Branch Manager Engr. Wendell Sabulbero at the stated address at Kolambog, Lapasan, Cagayan de Oro City2 but the Sheriff's Return of Service3 stated that the summons was duly served "upon defendant E.B. Villarosa & Partner Co., Ltd. thru its Branch Manager Engr. WENDELL SALBULBERO on May 5, 1998 at their new office Villa Gonzalo, Nazareth, Cagayan de Oro City, and evidenced by the signature on the face of the original copy of the summons. 1âwphi1.nêt

On June 9, 1998, defendant filed a Special Appearance with Motion to Dismiss4 alleging that on May 6, 1998, "summons intended for defendant" was served upon Engr. Wendell Sabulbero, an employee of defendant at its branch office at Cagayan de Oro City. Defendant prayed for the dismissal of the complaint on the ground of improper service of summons and for lack of jurisdiction over the person of the defendant. Defendant contends that the trial court did not acquire jurisdiction over its person since the summons was improperly served upon its employee in its branch office at Cagayan de Oro City who is not one of those persons named in Section 11, Rule 14 of the 1997 Rules of Civil Procedure upon whom service of summons may be made.

Meanwhile, on June 10, 1998, plaintiff filed a Motion to Declare Defendant in Default5 alleging that defendant has failed to file an Answer despite its receipt allegedly on May 5, 1998 of the summons and the complaint, as shown in the Sheriffs Return.

On June 22, 1998, plaintiff filed an Opposition to Defendant's Motion to Dismiss6 alleging that the records show that defendant, through its branch manager, Engr. Wendell Sabulbero actually received the summons and the complaint on May 8, 1998 as evidenced by the signature appearing on the copy of the summons and not on May 5, 1998 as stated in the Sheriffs Return nor on May 6, 1998 as stated in the motion to dismiss; that defendant has transferred its office from Kolambog, Lapasan, Cagayan de Oro to its new office address at Villa Gonzalo, Nazareth, Cagayan de Oro; and that the purpose of the rule is to bring home to the corporation notice of the filing of the action.

On August 5, 1998, the trial court issued an Order7 denying defendant's Motion to Dismiss as well as plaintiffs Motion to Declare Defendant in Default. Defendant was given ten (10) days within which to file a responsive pleading. The trial court stated that since the summons and copy of the complaint were in fact received by the corporation through its branch manager Wendell Sabulbero, there was substantial compliance with the rule on service of summons and consequently, it validly acquired jurisdiction over the person of the defendant.

On August 19, 1998, defendant, by Special Appearance, filed a Motion for Reconsideration8 alleging that Section 11, Rule 14 of the new Rules did not liberalize but, on the contrary, restricted the service of summons on persons enumerated therein; and that the new provision is very specific and clear in that the word "manager" was changed to "general manager", "secretary" to "corporate secretary", and excluding therefrom agent and director.

On August 27, 1998, plaintiff filed an Opposition to defendant's Motion for Reconsideration9 alleging that defendant's branch manager "did bring home" to the defendant-corporation the notice of the filing of the action and by virtue of

which a motion to dismiss was filed; and that it was one (1) month after receipt of the summons and the complaint that defendant chose to file a motion to dismiss.

On September 4, 1998, defendant, by Special Appearance, filed a Reply10 contending that the changes in the new rules are substantial and not just general semantics.

Defendant's Motion for Reconsideration was denied in the Order dated November 20, 1998.11

Hence, the present petition alleging that respondent court gravely abused its discretion tantamount to lack or in excess of jurisdiction in denying petitioner's motions to dismiss and for reconsideration, despite the fact that the trial court did not acquire jurisdiction over the person of petitioner because the summons intended for it was improperly served. Petitioner invokes Section 11 of Rule 14 of the 1997 Rules of Civil Procedure.

Private respondent filed its Comment to the petition citing the cases Kanlaon Construction Enterprises Co., Inc.vs. NLRC12 wherein it was held that service upon a construction project manager is valid and in Gesulgon vs.NLRC13 which held that a corporation is bound by the service of summons upon its assistant manager.

The only issue for resolution is whether or not the trial court acquired jurisdiction over the person of petitioner upon service of summons on its Branch Manager.

When the complaint was filed by Petitioner on April 3, 1998, the 1997 Rules of Civil Procedure was already in force.14

Sec. 11, Rule 14 of the 1997 Rules of Civil Procedure provides that:

When the defendant is a corporation, partnership or association organized under the laws of the Philippines with a juridical personality, service may be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel. (emphasis supplied).

This provision revised the former Section 13, Rule 14 of the Rules of Court which provided that:

Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its directors. (emphasis supplied).

Petitioner contends that the enumeration of persons to whom summons may be served is "restricted, limited and exclusive" following the rule on statutory construction expressio unios est exclusio alterius and argues that if the Rules of Court Revision Committee intended to liberalize the rule on service of summons, it could have easily done so by clear and concise language.

We agree with petitioner.

Earlier cases have uphold service of summons upon a construction project manager15; a corporation's assistant manager16; ordinary clerk of a corporation17; private secretary of corporate executives18; retained counsel19; officials who had charge or control of the operations of the corporation, like the assistant general manager20; or the corporation's Chief Finance and Administrative Officer21. In these cases, these persons were considered as "agent" within the contemplation of the old rule.22 Notably, under the new Rules, service of summons upon an agent of the corporation is no longer authorized.

The cases cited by private respondent are therefore not in point.

In the Kanlaon case, this Court ruled that under the NLRC Rules of Procedure, summons on the respondent shall be served personally or by registered mail on the party himself; if the party is represented by counsel or any other authorized representative or agent, summons shall be served on such person. In said case, summons was served on one Engr. Estacio who managed and supervised the construction project in Iligan City (although the principal address of the corporation is in Quezon City) and supervised the work of the employees. It was held that as manager, he had sufficient responsibility and discretion to realize the importance of the legal papers served on him and to relay the same to the president or other responsible officer of petitioner such that summons for petitioner was validly served on

him as agent and authorized representative of petitioner. Also in the Gesulgon case cited by private respondent, the summons was received by the clerk in the office of the Assistant Manager (at principal office address) and under Section 13 of Rule 14 (old rule), summons may be made upon the clerk who is regarded as agent within the contemplation of the rule.

The designation of persons or officers who are authorized to accept summons for a domestic corporation or partnership is now limited and more clearly specified in Section 11, Rule 14 of the 1997 Rules of Civil Procedure. The rule now states "general manager" instead of only "manager"; "corporate secretary" instead of "secretary"; and "treasurer" instead of "cashier." The phrase "agent, or any of its directors" is conspicuously deleted in the new rule.

The particular revision under Section 11 of Rule 14 was explained by retired Supreme Court Justice Florenz Regalado, thus:23

. . . the then Sec. 13 of this Rule allowed service upon a defendant corporation to "be made on the president, manager, secretary, cashier, agent or any of its directors." The aforesaid terms were obviously ambiguous and susceptible of broad and sometimes illogical interpretations, especially the word "agent" of the corporation. The Filoil case, involving the litigation lawyer of the corporation who precisely appeared to challenge the validity of service of summons but whose very appearance for that purpose was seized upon to validate the defective service, is an illustration of the need for this revised section with limited scope and specific terminology. Thus the absurd result in the Filoil case necessitated the amendment permitting service only on the in-house counsel of the corporation who is in effect an employee of the corporation, as distinguished from an independent practitioner. (emphasis supplied).

Retired Justice Oscar Herrera, who is also a consultant of the Rules of Court Revision Committee, stated that "(T)he rule must be strictly observed. Service must be made to one named in (the) statute . . . .24

It should be noted that even prior to the effectivity of the 1997 Rules of Civil Procedure, strict compliance with the rules has been enjoined. In the case of Delta Motor Sales Corporation vs. Mangosing,25 the Court held:

A strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. The officer upon whom service is made must be one who is named in the statute; otherwise the service is insufficient. . . .

The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal papers served on him. In other words, "to bring home to the corporation notice of the filing of the action." . . . .

The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal requirements as to the manner in which summons should be served on a domestic corporation. . . . . (emphasis supplied).

Service of summons upon persons other than those mentioned in Section 13 of Rule 14 (old rule) has been held as improper.26 Even under the old rule, service upon a general manager of a firm's branch office has been held as improper as summons should have been served at the firm's principal office. In First Integrated Bonding & Inc.Co., Inc. vs. Dizon,27 it was held that the service of summons on the general manager of the insurance firm's Cebu branch was improper; default order could have been obviated had the summons been served at the firm's principal office.

And in the case of Solar Team Entertainment, Inc. vs. Hon. Helen Bautista Ricafort, et al.28 the Court succinctly clarified that, for the guidance of the Bench and Bar, "strictest" compliance with Section 11 of Rule 13 of the 1997 Rules of Civil Procedure (on Priorities in modes of service and filing) is mandated and the Court cannot rule otherwise, lest we allow circumvention of the innovation by the 1997 Rules in order to obviate delay in the administration of justice.

Accordingly, we rule that the service of summons upon the branch manager of petitioner at its branch office at Cagayan de Oro, instead of upon the general manager at its principal office at Davao City is improper. Consequently, the trial court did not acquire jurisdiction over the person of the petitioner.

The fact that defendant filed a belated motion to dismiss did not operate to confer jurisdiction upon its person. There is no question that the defendant's voluntary appearance in the action is equivalent to service of summons.29 Before, the rule was that a party may challenge the jurisdiction of the court over his person by making a special appearance through a motion to dismiss and if in the same motion, the movant raised other grounds or invoked affirmative relief which necessarily involves the exercise of the jurisdiction of the court.30 This doctrine has been abandoned in the case of La Naval Drug Corporation vs. Court of Appeals, et al.,31 which became the basis of the adoption of a new provision in the former Section 23, which is now Section 20 of Rule 14 of the 1997 Rules. Section 20 now provides that "the inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance." The emplacement of this rule clearly underscores the purpose to enforce strict enforcement of the rules on summons. Accordingly, the filing of a motion to dismiss, whether or not belatedly filed by the defendant, his authorized agent or attorney, precisely objecting to the jurisdiction of the court over the person of the defendant can by no means be deemed a submission to the jurisdiction of the court. There being no proper service of summons, the trial court cannot take cognizance of a case for lack of jurisdiction over the person of the defendant. Any proceeding undertaken by the trial court will consequently be null and void.32

WHEREFORE, the petition is hereby GRANTED. The assailed Orders of the public respondent trial court are ANNULLED and SET ASIDE. The public respondent Regional Trial Court of Makati, Branch 132 is declared without jurisdiction to take cognizance of Civil Case No. 98-824, and all its orders and issuances in connection therewith are hereby ANNULLED and SET ASIDE. 1âwphi1.nêt

SO ORDERED.

Melo, Vitug, Panganiban and Purisima, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 144294            March 11, 2003

SOLEDAD CHANLIONGCO RAMOS, FRANCISCO D. CHANLIONGCO, ADELBERTO D. CHANLIONGCO, ARMANDO D. CHANLIONGCO and FLORENCIO D. CHANLIONGCO, petitioners, vs.TERESITA D. RAMOS, Spouses TERESITA and EDMUNDO S. MUYOT, Spouses VEDASTA and FLORENCIO M. DATO, LORETO MUYOT, Spouses TERESITA and ELMER SOLIS, LICERIA TORRES, Spouses CORAZON and VICENTE MACATUNGAL, Spouses PRECILLA and CRISOSTOMO MUYOT, and Spouses CARIDAD and SALVADOR PINGOL, respondents.

PANGANIBAN, J.:

Well-settled is the rule that a final judgment is immutable and unalterable. The only exceptions to this rule are (1) the correction of clerical errors, (2) the so-called nunc pro tunc entries which cause no prejudice to any party, and (3) void judgments.

The Case

Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to set aside the July 31, 2000 Resolution2 of the Court of Appeals (CA) in CA-GR CV No. 29507 which denied petitioners’ Motion to Set Aside the CA Decision3 dated September 28, 1995. The assailed Resolution disposed as follows:

"Finding the opposition of [respondents] to be well-taken, the [Court hereby DENIES the Motion."4

The Facts

Petitioners are children of the late Paulino V. Chanliongco Jr., who was the co-owner of a parcel of land known as Lot No. 2-G of Subdivision Plan SWO No. 7308. Situated in Tondo, Manila, it was co-owned by him, his sister Narcisa, and his brothers Mario and Antonio. By virtue of a Special Power of Attorney executed by the co-owners in favor of Narcisa, her daughter Adoracion C. Mendoza had sold the lot to herein respondents on different days in September 1986. Because of conflict among the heirs of the co-owners as to the validity of the sale, respondents filed with the Regional Trial Court (RTC)5 a Complaint6 for interpleader to resolve the various ownership claims.

The RTC upheld the sale insofar as the share of Narcisa was concerned. It ruled that Adoracion had no authority to sell the shares of the other co-owners, because the Special Power of Attorney had been executed in favor only of her mother, Narcisa.

On appeal, the CA modified the ruling of the RTC. It held that while there was no Special Power of Attorney in favor of Adoracion, the sale was nonetheless valid, because she had been authorized by her mother to be the latter’s sub-agent. There was thus no need to execute another special power of attorney in her favor as sub-agent. This CA Decision was not appealed, became final and was entered in favor of respondents on August 8, 1996.7

On April 10, 1999, petitioners filed with the CA a Motion to Set Aside the Decision. They contended that they had not been served a copy of either the Complaint or the summons. Neither had they been impleaded as parties to the case in the RTC. As it was, they argued, the CA Decision should be set aside because it adversely affected their respective shares in the property without due process.

In denying the Motion of petitioners, the CA cited the grounds raised in respondents’ Opposition: (a) the Motion was not allowed as a remedy under the 1997 Rules of Civil Procedure; (b) the Decision sought to be set aside had long become final and executory; (c) the movants did not have any legal standing; and (d) the Motion was purely dilatory and without merit.8

Hence, this Petition.9

The Issue

In their Memorandum, petitioners raise this sole issue for the Court’s consideration:

"x x x [W]hether the Court of Appeals erred in denying petitioners’ Motion and allowing its Decision dated September 25, 1995 to take its course, inspite of its knowledge that the lower court did not acquire jurisdiction over the person of petitioners and passing petitioners property in favor of respondents, hence without due process of law."10

The Court’s Ruling

The Petition is unmeritorious.

Main Issue:Entitlement to Summons

It is well settled that a decision that has acquired finality becomes immutable and unalterable. A final judgment may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact or law;11 and whether it will be made by the court that rendered it or by the highest court in the land.12 The only exceptions to this rule are the correction of (1) clerical errors, (2) the so-called nunc pro tunc entries which cause no prejudice to any party, and (3) void judgments.13 To determine whether the CA Decision of September 28, 1995 is void, the failure to implead and to serve summons upon petitioners will now be addressed.14

To be able to rule on this point, the Court needs to determine whether the action is in personam, in rem or quasi in rem. The rules on the service of summons differ depending on the nature of the action.

An action in personam is lodged against a person based on personal liability; an action in rem is directed against the thing itself instead of the person;15 while an action quasi in rem names a person as defendant, but its object is to subject that person’s interest in a property to a corresponding lien or obligation.16

The Complaint filed by respondents with the RTC called for an interpleader to determine the ownership of the real property in question.17 Specifically, it forced persons claiming an interest in the land to settle the dispute among themselves as to which of them owned the property. Essentially, it sought to resolve the ownership of the land and was not directed against the personal liability of any particular person. It was therefore a real action, because it affected title to or possession of real property.18 As such, the Complaint was brought against the deceased registered co-owners: Narcisa, Mario, Paulino and Antonio Chanliongco, as represented by their respective estates.

Clearly, petitioners were not the registered owners of the land, but represented merely an inchoate interest thereto as heirs of Paulino. They had no standing in court with respect to actions over a property of the estate, because the latter was represented by an executor or administrator.19 Thus, there was no need to implead them as defendants in the case, inasmuch as the estates of the deceased co-owners had already been made parties.

Furthermore, at the time the Complaint was filed, the 1964 Rules of Court were still in effect. Under the old Rules, specifically Section 3 of Rule 3,20 an executor or administrator may sue or be sued without joining the party for whose benefit the action is prosecuted or defended.21 The present rule,22 however, requires the joinder of the beneficiary or the party for whose benefit the action is brought. Under the former Rules, an executor or administrator is allowed to either sue or be sued alone in that capacity. In the present case, it was the estate of petitioners’ father Paulino Chanliongco, as represented by Sebrio Tan Quiming and Associates, that was included as defendant23 and served summons.24 As it was, there was no need to include petitioners as defendants. Not being parties, they were not entitled to be served summons.

Petitioner Florencio D. Chanliongco, on the other hand, was impleaded in the Complaint, but not served summons. However, the service of summons upon the estate of his deceased father was sufficient, as the estate appeared for and on behalf of all the beneficiaries and the heirs of Paulino Chanliongco, including Florencio.

We also note that the counsel of petitioners, Atty. Felino V. Quiming Jr., is a partner of the law firm that represented the estate of the deceased father. Hence, it can reasonably be expected that the service upon the law firm was sufficient notice to all the beneficiaries of the estate, including Petitioner Florencio D. Chanliongco.

WHEREFORE, the Petition is hereby DENIED and the assailed Resolution AFFIRMED. Costs against petitioners.

SO ORDERED.

Puno, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 163749               September 26, 2008

SPOUSES JULIAN SANTIAGO, SR. and LEONILA SANTIAGO and SPOUSES LIM JOSE ONG and MIMI ONG LIM, Petitioners, vs.BANK OF THE PHILIPPINE ISLANDS as successor in interest of Far East Bank & Trust Co., substituted by Investments 2234 Philippines Fund I (SPV-AMC), Inc.,1 Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari filed by Spouses Julian Santiago, Sr. and Leonila Santiago (Spouses Santiago) and Spouses Lim Jose Ong and Mimi Ong Lim (Spouses Lim), seeking to reverse and set aside the Decision2 dated November 14, 2003 and the Resolution3 dated June 2, 2004 issued by the Court of Appeals (CA) in CA-G.R. SP No. 73110.

Petitioners Spouses Santiago were the original owners of three parcels of land covered by TCT Nos. 3943, 9797 and 15131, all situated in Barrio Piapi, Dumaguete City. They mortgaged the said properties to spouses Bienvenido and Theresa Deloria (spouses Deloria) as security for their loan in the amount of P2,370,000.00. On August 24, 1994, Far East Bank and Trust Company (FEBTC) wrote a letter4 addressed to spouses Deloria stating that the bank had approved a term loan facility in favor of petitioner Lim Jose Ong, and among the conditions for the approval of the facility was that the entire proceeds shall be exclusively used to purchase the three parcels of land, with its improvement mortgaged to them; and that the amount of P2,370,000.00 shall be delivered to spouses Deloria in consideration of their release of the mortgage.

Subsequently, a deed of sale over the three parcels of land was executed by Spouses Santiago in favor of Spouses Lim; and new TCT Nos. 23276, 23277 and 23278 were issued to Spouses Lim.

On September 29, 1994, Spouses Lim executed in favor of FEBTC a real estate mortgage over the three parcels of land to secure the amount of P2,500,000.00 loaned from the bank; the mortgage was made to stand as a security for the payment of the loan, as well as those loans that the mortgagee may extend to the mortgagor, including interest and expenses or any other obligation owed to the mortgagee whether direct or indirect, principal or secondary, as appearing in the accounts, books and records of the mortgagee. Petitioner Lim Jose Ong was also an officer of Marichris Development Corporation (MDC), one of FEBTC's valued clients, which has a credit line with the bank. However due to the business slow-down brought about by the economic crisis, MDC through petitioner Lim Jose Ong requested a restructuring of its loan term, which was granted by the FEBTC.

Meanwhile, FEBTC merged with the Bank of the Philippine Islands (private respondent), with the latter as the surviving corporation. Thus, private respondent assumed all the rights, privileges and obligations of FEBTC.

As Spouses Lim failed to pay their indebtedness with the bank in the total amount of P18,630,011.96, private respondent filed on August 2, 2002 an application for extra-judicial foreclosure of real estate mortgage5 with the Office of the Clerk of Court, Dumaguete City, and the case was raffled to sheriff Ramoneto Hedriana. The public auction was scheduled on September 13, 2002 at 9 o'clock in the morning.6

Petitioners filed with the Regional Trial Court (RTC) of Negros Oriental, Dumaguete City, a complaint7for injunction, damages and accounting with prayer for preliminary injunction and/or temporary restraining order against private respondent as successor-in-interest of FEBTC. They also filed together with the complaint a motion for special raffle in view of the urgency of the relief sought and for the issuance of an ex-parte temporary restraining order (TRO). In their complaint, petitioners alleged that since petitioners Spouses Santiago, as the original owners of the three parcels of land, could not pay their mortgage loan with the spouses Deloria, they tried to apply for a loan with FEBTC but was told that they should be accommodated by a person with a good credit standing with the bank; that the titles to their land should be transferred to the accommodating party; that Spouses Santiago sought the help of petitioner Lim, who had a good reputation and credit facility with the bank, and who accommodated them; that titles to the three parcels of land were transferred to Spouses Lim who subsequently executed a real estate mortgage over the three parcels of land in favor of FEBTC to secure the P2.5 million loan of petitioners Spouses Lim; that the fact of accommodation was with prior approval of FEBTC officials, since they had been directly transacting with the original mortgagees for the release of the mortgage; that petitioners Spouses Santiago, being the real borrowers, have been paying the loan after the execution of the mortgage, as appearing on various FEBTC official receipts, in which it was stated: "Julian Santiago for the account (FAO) of Lim Jose Ong"; that they had asked for, apart from the mortgage, a detailed statement of account, which was unheeded; thus, the obligation being claimed by private respondent is unliquidated.

On September 12, 2002, Executive Judge Eleuterio E. Chiu issued a TRO8 valid for 72 hours ordering the bank or any person acting on its behalf from conducting the scheduled auction sale of the subject three parcels of land.

Summons, together with a copy of the complaint, was served on private respondent through the managers of its branches located in San Jose Street and Percedes Street, Dumaguete City. The case was raffled to Branch 33,9 and a hearing for the issuance of the TRO was scheduled on September 13, 2002.

During the hearing, counsel for private respondent raised the issue of the RTC's lack of jurisdiction over private respondent, as the summons was served on its branch manager in Dumaguete City, and not on any one of those persons enumerated under Section 11, Rule 14 of the 1997 Rules of Civil Procedure. Petitioners' counsel had argued that service of summons even to a substation of the corporation was valid, as it was in effect served on a principal of the corporation. The RTC judge continued with the reception of petitioners' evidence and ruled that he would include in his resolution for the issuance of a TRO whether the court had jurisdiction when the summons was served only on the manager of BPI, Dumaguete Branch.10 The continuation of the hearing was set on September 16, 2002.

On September 16, 2002, private respondent filed a memorandum11 in support of the opposition to the petition for preliminary injunction or TRO. It moved for the dismissal of the complaint on the following grounds:

1. that the court has no jurisdiction over the person of the defending party;

2. the court has no jurisdiction over the subject matter of the claim because the proper docketing fees have not been paid;

3. that Julian Santiago, Sr. and Leonila Santiago are not the real party [sic] in interest to file this claim;

4. that this court has no jurisdiction or authority to issue injunction against extrajudicial foreclosure under Art. 3135.12

In the hearing of even date, petitioners argued that the memorandum was in reality a motion to dismiss; thus, it should comply with the three-day notice rule. The RTC, however, stated that petitioners' counsel was aware that during the last hearing, private respondent had insisted that the RTC had no jurisdiction over the case because of improper service of summons; that the motion was only a follow up, as counsel for private respondent could not cite authorities; that with or without authority, Rule 14 enumerated the persons on whom service of summons may be served.13 The RTC also stated that even

without the motion, it would resolve whether a TRO should be issued, and whether the court had jurisdiction over the case.14

On the same day, the RTC issued its Order,15 the dispositive portion of which reads:

WHEREFORE, on the ground that this Court did not acquire jurisdiction over the defendant because of improper service of summons, the prayer for the issuance of the restraining order is hereby dismissed and this case is likewise dismissed on the same ground.16

Petitioners filed with the CA a petition for certiorari with prayer for the issuance of a TRO and injunction.

In a Resolution17 dated October 17, 2002, the CA issued a TRO effective for 60 days, restraining private respondent from conducting the foreclosure sale of the subject properties.

On January 8, 2003, the CA issued another Resolution18 for the issuance of a writ of preliminary injunction upon petitioners' filing of a bond in the amount of one million pesos.

On November 14, 2003, the CA issued its assailed Decision, the dispositive portion of which reads:

WHEREFORE, the instant petition is hereby DISMISSED and consequently the order decreeing the issuance of a writ of preliminary injunction dated 08 January 2003 [is] set aside.

Petitioners' motion for reconsideration was denied in a Resolution dated June 2, 2004.

The CA found that the RTC did not commit any grave abuse of discretion in finding that summons served on the branch managers of BPI Dumaguete City was not valid and therefore the RTC did not acquire jurisdiction over the person of private respondent. The CA upheld the RTC's application of this Court’s ruling in E.B. Villarosa & Partner Co., Ltd v. Benito,19 in which it was held that the designation of persons or officers who were authorized to accept summons for a domestic corporation or partnership was now limited and more clearly specified in Section 11, Rule 14 of the 1997 Rules of Civil Procedure.

The CA found no merit in private respondent's contention that the CA failed to acquire jurisdiction over it, since no copy of the petition for certiorari and motion for reconsideration were furnished to the bank through any of the persons enumerated under Section 11, Rule 14; that counsel was not one of the in-house counsels of private respondent, but was the counsel on record of the Dumaguete branch only. The CA ruled that there was no requirement of service of summons in the manner provided for under Section 11, Rule 14, relative to a special civil action of certiorari under Rule 65.

Hence herein petition raising the following issues:

I. WHETHER OR NOT SERVICE OF SUMMONS UPON TWO (2) BRANCH MANAGERS OF BPI IN DUMAGUETE IS A SUBSTANTIAL COMPLIANCE OF THE RULES.

II. WHETHER OR NOT BPI'S MOTION TO DISMISS VIOLATES THE THREE-DAY NOTICE RULE.

III. WHETHER OR NOT THERE IS SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW AVAILABLE FOR THE PETITIONERS WHEN CA G.R. SP NO. 73110 WAS FILED. 20

Petitioners filed a Motion for Leave of Court to admit the urgent motion for issuance of TRO since the notice of extra-judicial sale set the auction sale of the subject properties on September 7, 2003.

On September 6, 2004, the Court issued a TRO21 and ordered petitioners to post a bond in the amount of two million five hundred thousand pesos which petitioners did.

The main issue for resolution is whether or not the service of summons on the branch managers of private respondent's two separate branches in Dumaguete City constitutes substantial compliance with Section 11, Rule 14 of the 1997 Rules of Civil Procedure.

The complaint was filed by petitioners in 2002 when the 1997 Rules of Civil Procedure was already in force.

Section 11, Rule 14 of the 1997 Rules of Civil Procedure provides:

SECTION 11. Service upon domestic private juridical entity - When the defendant is a corporation, partnership or association organized under the

laws of the Philippines with a juridical personality, service may be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel.

This provision revised the former Section 13, Rule 14 of the Rules of Court, which provided that:

SECTION 13. Service upon private domestic corporation or partnership. - If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its directors.

The designation of persons or officers who are authorized to accept summons for a domestic corporation or partnership is now limited and more clearly specified in Section 11, Rule 14 of the 1997 Rules of Civil Procedure.22 The rule now states "general manager" instead of only "manager"; "corporate secretary" instead of "secretary"; and "treasurer" instead of "cashier." The phrase "agent, or any of its directors" is conspicuously deleted from the new rule.23

Basic is the rule that a strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation.24 The officer upon whom service is made must be one who is named in the statute; otherwise, the service is insufficient.25 The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal papers served on him.26

Petitioners contend that the summons were received by two branch managers of BPI's San Jose Street and Perdeces Street, Dumaguete City on September 12, 2002; that the branch manager is the chief executive officer of the branch and the alter ego of the management within his/her jurisdiction and oversees the overall operations of the branch; that for certain, the two branch managers, upon receipt of summons, have sufficient responsibility and discretion to realize the importance of the legal papers served on them and are expected to relay to the president, or other responsible officer of the company, the complaint filed against it; that in Millenium Industrial Commercial Corporation v. Tan,27it was held that service of summons upon a defendant corporation must be made on a representative so integrated with the corporation sued as to make it a priori presumable that he would realize his responsibilities and know what he should do with any legal papers

received by him; that clearly then, there is in this case substantial compliance with the rule on service of summons; and that the need for speedy justice must prevail over technicality.

We are not persuaded.

The matter of whether petitioners can invoke substantial compliance with Section 11, Rule 14 of the 1997 Rules of Civil Procedure, has been settled in Mason v. Court of Appeals,28 thus:

The question of whether the substantial compliance rule is still applicable under Section 11, Rule 14 of the 1997 Rules of Civil Procedure has been settled in Villarosa which applies squarely to the instant case. In the said case, petitioner E.B. Villarosa & Partner Co. Ltd. (hereafter Villarosa) with principal office address at 102 Juan Luna St., Davao City and with branches at 2492 Bay View Drive, Tambo, Parañaque, Metro Manila and Kolambog, Lapasan, Cagayan de Oro City, entered into a sale with development agreement with private respondent Imperial Development Corporation. As Villarosa failed to comply with its contractual obligation, private respondent initiated a suit for breach of contract and damages at the Regional Trial Court of Makati. Summons, together with the complaint, was served upon Villarosa through its branch manager at Kolambog, Lapasan, Cagayan de Oro City. Villarosa filed a Special Appearance with Motion to Dismiss on the ground of improper service of summons and lack of jurisdiction. The trial court denied the motion and ruled that there was substantial compliance with the rule, thus, it acquired jurisdiction over Villarosa. The latter questioned the denial before us in its petition for certiorari. We decided in Villarosa's favor and declared the trial court without jurisdiction to take cognizance of the case. We held that there was no valid service of summons on Villarosa as service was made through a person not included in the enumeration in Section 11, Rule 14 of the 1997 Rules of Civil Procedure, which revised the Section 13, Rule 14 of the 1964 Rules of Court. We discarded the trial court's basis for denying the motion to dismiss, namely, private respondent's substantial compliance with the rule on service of summons, and fully agreed with petitioner's assertions that the enumeration under the new rule is restricted, limited and exclusive, following the rule in statutory construction that expressio unios est exclusio alterius. Had the Rules of Court Revision Committee intended to liberalize the rule on service of summons, we said, it could have easily done so by clear and concise language. Absent a manifest intent to liberalize the rule, we stressed strict compliance with Section 11, Rule 14 of the 1997 Rules of Civil Procedure.

Neither can herein petitioners invoke our ruling in Millennium to support their position for said case is not on all fours with the instant case. We must stress that Millennium was decided when the 1964 Rules of Court were still in force and effect, unlike the instant case which falls under the new rule. Hence, the cases cited by petitioners where we upheld the doctrine of substantial compliance must be deemed overturned by Villarosa, which is the later case.1awphi1.net

At this juncture, it is worth emphasizing that notice to enable the other party to be heard and to present evidence is not a mere technicality or a trivial matter in any administrative or judicial proceedings. The service of summons is a vital and indispensable ingredient of due process.29

Moreover, in the recent case of Bank of Philippine Islands v. Santiago,30 it was ruled that service of the original summons upon the branch manager of BPI's Sta. Cruz, Laguna branch did not bind the corporation, for the branch manager was not included in the enumeration in the statute of the persons upon whom service can be validly made in behalf of the corporation; thus, such service was therefore void and ineffectual. It was only upon the issuance and proper service of new summons validly served on BPI's corporate secretary that the RTC acquired jurisdiction to issue the Order granting the application for the issuance of a writ of preliminary injunction filed by the plaintiffs therein.

Petitioners further contend that the motion to dismiss filed by private respondent came as a surprise, as they were not notified three days prior to the hearing thereon, and petitioners were made to oppose the motion on the same day it was filed; that a motion that does not comply with requirements of Sections 431 and 5,32 Rule 15 of the Rules of Court, is a worthless piece of paper which the clerk has no right to receive, and which the court has no authority to act upon.

This time, the Court does not agree.

Private respondent filed a memorandum in support of its opposition to the petition for preliminary injunction or TRO and moved for the dismissal of the complaint claiming, among others, that the court had no jurisdiction over the person of BPI. Even if it would appear that the memorandum was a motion to dismiss, which was filed on the same day where the court's hearing for the issuance of TRO was set, the non-observance of the three-day notice rule would not affect the RTC's Order dismissing the case for lack of jurisdiction over the person of private respondent.

The purpose of the law in requiring the filing of motions at least three days before the hearing thereof is to avoid surprises upon the opposite party and to give the latter time to study and meet the arguments of the movant.33 In this case, during the initial hearing for the issuance of the TRO on September 13, 2002, counsel of private respondent had already raised the issue of the court's lack of jurisdiction over the private respondent, since the summons was not served on any of the persons enumerated under Section 11, Rule 14. Notably, in that same hearing, petitioners' counsel presented arguments and even cited jurisprudence to prove the validity of the service of summons on private respondent's branch managers in Dumaguete City. Thus, when BPI filed its memorandum/motion to dismiss on September 16, 2002, there was no element of surprise to speak of, as petitioners knew that private respondent was already questioning the jurisdiction of the court over it, but this time it had jurisprudence cited in its memorandum to support its argument.

Procedural due process is not based solely on a mechanistic and literal application of a rule, such that any deviation is inexorably fatal.34 Rules of procedure, and these include the three-day notice requirement, are liberally construed to promote their object and to assist the parties in obtaining just, speedy and inexpensive determination of every action and proceeding.35 Lapses in the literal observance of a rule of procedure may be overlooked when they have not prejudiced the adverse party and have not deprived the court of its authority.36

Moreover, as the RTC correctly observed, it would still resolve the issue of jurisdiction over the person of private respondent even without taking into consideration the memorandum as the issue of jurisdiction was already raised during the initial hearing for the issuance of the TRO on September 13, 2002, which must be ruled upon before the RTC could issue the TRO.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated November 14, 2003 and the Resolution dated June 2, 2004 issued by the Court of Appeals in CA-G.R. SP No. 73110 are AFFIRMED.

Costs against petitioners.

SO ORDERED.