CIVIL PROCEDURE (Atty. Catherine Guerzo-Barrion)2ND EXAM COVERAGE – CASE ASSIGNMENT

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RULE 10, SEC. 2 and 3

LISAM v. BANCO DE ORO

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

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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

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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.

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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 pendentia among others. The Court held

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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 in Saura,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 hereby REVERSED and SET ASIDE. The Regional Trial Court of Legaspi City, Branch 4, is hereby DIRECTED to ADMIT the 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.

RULE 14, SEC. 11

ATIKO TRANS v. PRUDENTIAL

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 167545               August 17, 2011

ATIKO TRANS, INC. and CHENG LIE NAVIGATION CO., LTD., Petitioners, vs.PRUDENTIAL GUARANTEE AND ASSURANCE, INC., Respondent.

D E C I S I O N

DEL CASTILLO, J.:

Where service of summons upon the defendant principal is coursed thru its co-defendant agent, and the latter happens to be a domestic corporation, the rules on service of summons upon a domestic private juridical entity1 must be strictly complied with. Otherwise, the court cannot be said to have acquired jurisdiction over the person of both defendants. And insofar as the principal is concerned, such jurisdictional flaw cannot be cured by the agent’s subsequent voluntary appearance.

This Petition for Review on Certiorari assails the December 10, 2004 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 82547 which affirmed the April 8, 2003 Decision3 of the Regional Trial Court (RTC), Branch 150, Makati City. Said Decision of the RTC affirmed the August 6, 2002 Decision4 of the Metropolitan Trial Court (MeTC), Branch 63, Makati City, which disposed as follows:

WHEREFORE, judgment is rendered declaring defendants Cheng Lie Navigation Co., Ltd. and Atiko Trans, Inc. solidarily liable to pay plaintiff Prudential Guarantee & Assurance, Inc. the following amounts:

1. P205,220.97 as actual damages with interest of 1% per month from 14 December 1999 until full payment;

2. P10,000.00 as Attorney’s fees; and

3. Costs of suit.

SO ORDERED.5

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Likewise assailed is the CA’s Resolution6 dated March 16, 2005 which denied the Motion for Reconsideration of the said December 10, 2004 Decision.

Factual Antecedents

On December 11, 1998, 40 coils of electrolytic tinplates were loaded on board M/S Katjana in Kaohsiung, Taiwan for shipment to Manila. The shipment was covered by Bill of Lading No. KNMNI-151267 issued by petitioner Cheng Lie Navigation Co., Ltd. (Cheng Lie) with Oriental Tin Can & Metal Sheet Manufacturing Co., Inc. (Oriental) as the notify party. The cargoes were insured against all risks per Marine Insurance Policy No. 20RN-18749/99 issued by respondent Prudential Guarantee and Assurance, Inc. (Prudential).

On December 14, 1998, M/S Katjana arrived in the port of Manila. Upon discharge of the cargoes, it was found that one of the tinplates was damaged, crumpled and dented on the edges. The sea van in which it was kept during the voyage was also damaged, presumably while still on board the vessel and during the course of the voyage.

Oriental then filed its claim against the policy. Satisfied that Oriental’s claim was compensable, Prudential paid Oriental P205,220.97 representing the amount of losses it suffered due to the damaged cargo.

Proceedings before the Metropolitan Trial Court

On December 14, 1999, Prudential filed with the MeTC of Makati City a Complaint8 for sum of money against Cheng Lie and Atiko Trans, Inc. (Atiko). In addition to the above undisputed facts, Prudential alleged that:

1. Plaintiff (Prudential) is a domestic insurance corporation duly organized and existing under the laws of the Philippines with office address at Coyiuto House, 119 Carlos Palanca[,] Jr. St., Legaspi Village, Makati City;

2. Defendant Cheng Lie Navigation Co. Ltd., is [a] foreign shipping company doing business in the Philippines [thru] its duly authorized shipagent defendant Atiko Trans Inc. which is a domestic corporation duly established and created under the laws of the Philippines with office address at 7th Floor, Victoria Bldg., United Nation[s] Ave., Ermita, Manila, where both defendants may be served with summons and other court processes;

3. At all times material to the cause of action of this complaint, plaintiff was and still is engaged in, among others, marine insurance business; Whereas Defendant Cheng Lie Navigation Co. Ltd. was and still is engaged in, among others, shipping, transportation and freight/cargo forwarding business, and as such, owned, operated and/or chartered the ocean going vessel M/S "Katjana" as common carrier to and from any Philippine [port] in international trade [thru] its duly authorized shipagent defendant Atiko Trans Inc. (Both defendants are hereinafter referred to as the "CARRIER");

x x x x

9. Plaintiff, as cargo-insurer and upon finding that the consignee’s insurance claim was in order and compensable, paid the latter’s claim in the amount of P205,220.97 under and by virtue of the aforesaid insurance policy, thereby subrogating herein plaintiff to all the rights and causes of action appertaining to the consignee against the defendants;9

On March 20, 2000, Prudential filed a Motion to Declare Defendant in Default,10 alleging among others that on March 1, 2000 a copy of the summons was served upon petitioners thru cashier Cristina Figueroa and that despite receipt thereof petitioners failed to file any responsive pleading. Acting on the motion, the MeTC issued an Order11 declaring Cheng Lie and Atiko in default and allowing Prudential to present its evidence ex-parte.

On August 6, 2002, the MeTC rendered its judgment by default. Atiko then filed a Notice of Appeal12 dated November 4, 2002.

Proceedings before the Regional Trial Court and the Court of Appeals

In its Memorandum of Appeal,13 Atiko argued that Prudential failed to prove the material allegations of the complaint. Atiko asserted that Prudential failed to prove by preponderance of evidence that it is a domestic corporation with legal personality to file an action; that Cheng Lie is a private foreign juridical entity operating its shipping business in the Philippines thru Atiko as its shipagent; that Cheng Lie is a common carrier, which owns and operates M/S Katjana; that Prudential was subrogated to the rights of Oriental; and, that Atiko can be held solidarily liable with Cheng Lie.

Although assisted by the same counsel, Cheng Lie filed its own Memorandum of Appeal14 maintaining that the MeTC never acquired jurisdiction over its person.

On April 8, 2003, the RTC rendered its Decision dismissing the appeal and affirming the Decision of the MeTC. Atiko and Cheng Lie challenged the RTC Decision before the CA via a Petition for Review15 under Rule 42 of the Rules of Court but the appellate court affirmed the RTC’s Decision.

Hence, this petition.

Issues

In their Memorandum,16 petitioners raised the following issues:

1. WHETHER X X X THE DECISION OF MAKATI [MeTC] WHICH WAS AFFIRMED BY MAKATI RTC AND THE COURT OF APPEALS IS NULL AND VOID FOR FAILURE TO ACQUIRE JURISDICTION OVER THE PERSONS OF THE PETITIONERS-DEFENDANTS CONSIDERING THAT

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THE SUMMONS WERE NOT PROPERLY SERVED ON THEM AS REQUIRED BY RULE 14 OF THE RULES OF COURT.

2. WHETHER X X X THE RESPONDENT-PLAINTIFF IS REQUIRED TO PROVE THE MATERIAL ALLEGATIONS IN THE COMPLAINT EVEN IN DEFAULT JUDGMENT OR WHETHER OR NOT IN DEFAULT JUDGMENT, ALL ALLEGATIONS IN THE COMPLAINT ARE DEEMED CONTROVERTED, HENCE, MUST BE PROVED BY COMPETENT EVIDENCE.

2.1. WHETHER X X X RESPONDENT-PLAINTIFF IS OBLIGED TO PROVE ITS LEGAL PERSONALITY TO SUE EVEN IN DEFAULT JUDGMENT.

2.2. WHETHER X X X RESPONDENT-PLAINTIFF IS OBLIGED TO PROVE THAT PETITIONER-DEFENDANT ATIKO IS THE SHIPAGENT OF PETITIONER-DEFENDANT CHENG LIE EVEN IN DEFAULT JUDGMENT.

2.3. WHETHER X X X THE TESTIMONIES OF THE WITNESSES AND THE DOCUMENTARY EXHIBITS CAN BE CONSIDERED FOR PURPOSES OTHER THAN THE PURPOSE FOR WHICH THEY WERE OFFERED.

2.4. WHETHER X X X A MOTION TO DECLARE DEFENDANT IN DEFAULT ADDRESSED AND SENT TO ONLY ONE OF THE DEFENDANTS WOULD BIND THE OTHER DEFENDANT TO WHOM THE MOTION WAS NOT ADDRESSED AND NOT SENT.17

Our Ruling

The petition is partly meritorious. We shall first tackle the factual matters involved in this case, then proceed with the jurisdictional issues raised.

Petitioners raised factual matters which are not the proper subject of this appeal.

Petitioners contend that the lower courts grievously erred in granting the complaint because, even if they were declared in default, the respondent still has the burden of proving the material allegations in the complaint by preponderance of evidence. Petitioners further argue that respondent miserably failed to discharge this burden because it failed to present sufficient proof that it is a domestic corporation. Hence, respondent could not possibly maintain the present action because only natural or juridical persons or entities authorized by law can be parties to a civil action. Petitioners also claim that respondent failed to present competent proof that Cheng Lie is a foreign shipping company doing business in the Philippines thru its duly authorized shipagent Atiko. Lastly, petitioners assert that respondent failed to prove that Cheng Lie is a common carrier which owned, operated and/or chartered M/S Katjana thru its duly authorized shipagent Atiko. Petitioners emphasize that there is no proof, testimonial or otherwise, which would support the material

allegations of the complaint. They also insist that respondent’s witnesses do not have personal knowledge of the facts on which they were examined.

Respondent, for its part, assails the propriety of the remedy taken by the petitioners. It posits that petitioners advanced factual matters which are not the proper subject of a petition for review on certiorari. Besides, the lower courts consistently held that the allegations in respondent’s complaint are supported by sufficient evidence.

We agree with respondent.

A cursory reading of the issues raised readily reveals that they involve factual matters which are not within the province of this Court to look into. Well-settled is the rule that in petitions for review on certiorari under Rule 45, only questions of law can be raised. While there are recognized exceptions to this rule,18 none is present in this case. "[A]s a matter of x x x procedure, [this] Court defers and accords finality to the factual findings of trial courts, [especially] when such findings were [affirmed by the RTC and the CA. These] factual determination[s], as a matter of long and sound appellate practice, deserve great weight and shall not be disturbed on appeal x x x. [I]t is not the function of the Court to analyze and weigh all over again the evidence or premises supportive of the factual holding of the lower courts."19

MeTC properly acquired jurisdiction over the person of Atiko.

Petitioners also argue that the MeTC did not acquire jurisdiction over the person of Atiko as the summons was received by its cashier, Cristina Figueroa. They maintain that under Section 11, Rule 14 of the Rules of Court, when the defendant is a domestic corporation like Atiko, summons may be served only upon its president, general manager, corporate secretary, treasurer or in-house counsel.

We are not persuaded. True, when the defendant is a domestic corporation, service of summons may be made only upon the persons enumerated in Section 11, Rule 14 of the Rules of Court.20 However, jurisdiction over the person of the defendant can be acquired not only by proper service of summons but also by defendant’s voluntary appearance without expressly objecting to the court’s jurisdiction, as embodied in Section 20, Rule 14 of the Rules of Court, viz:

SEC. 20. Voluntary appearance. – The defendant’s voluntary appearance in the action shall be equivalent to service of summons. 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.

In the case at bench, when Atiko filed its Notice of Appeal,21

Memorandum of Appeal,22 Motion for Reconsideration23 of the April 8, 2003 Decision of the RTC, and Petition for Review,24 it never questioned the jurisdiction of the MeTC over its person. The filing of these pleadings seeking affirmative relief amounted to voluntary appearance and,

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hence, rendered the alleged lack of jurisdiction moot. In Palma v. Galvez,25 this Court reiterated the oft-repeated rule that "the filing of motions seeking affirmative relief, such as, to admit answer, for additional time to file answer, for reconsideration of a default judgment, and to lift order of default with motion for reconsideration, are considered voluntary submission to the jurisdiction of the court."

Moreover, petitioners’ contention is a mere afterthought. It was only in their Memorandum26 filed with this Court where they claimed, for the first time, that Atiko was not properly served with summons. In La Naval Drug Corporation v. Court of Appeals,27 it was held that the issue of jurisdiction over the person of the defendant must be seasonably raised. Failing to do so, a party who invoked the jurisdiction of a court to secure an affirmative relief cannot be allowed to disavow such jurisdiction after unsuccessfully trying to obtain such relief.28

It may not be amiss to state too that in our February 13, 2006 Resolution,29 we reminded the parties that they are not allowed to interject new issues in their memorandum.

MeTC did not acquire jurisdiction over the person of Cheng Lie.

Petitioners likewise challenge the validity of the service of summons upon Cheng Lie, thru Atiko. They claim that when the defendant is a foreign private juridical entity which has transacted business in the Philippines, service of summons may be made, among others, upon its resident agent. In this case, however, there is no proof that Atiko is the local agent of Cheng Lie.

On this score, we find for the petitioners. Before it was amended by A.M. No. 11-3-6-SC,30 Section 12 of Rule 14 of the Rules of Court reads:

SEC. 12. Service upon foreign private juridical entity. – When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines.

Elucidating on the above provision of the Rules of Court, this Court declared in Pioneer International, Ltd. v. Guadiz, Jr.31

that when the defendant is a foreign juridical entity, service of summons may be made upon:

1. Its resident agent designated in accordance with law for that purpose;

2. The government official designated by law to receive summons if the corporation does not have a resident agent; or,

3. Any of the corporation’s officers or agents within the Philippines.

In the case at bench, no summons was served upon Cheng Lie in any manner prescribed above. It should be recalled that Atiko was not properly served with summons as the person who received it on behalf of Atiko, cashier Cristina Figueroa, is not one of the corporate officers enumerated in Section 11 of Rule 14 of the Rules of Court. The MeTC acquired jurisdiction over the person of Atiko not thru valid service of summons but by the latter’s voluntary appearance. Thus, there being no proper service of summons upon Atiko to speak of, it follows that the MeTC never acquired jurisdiction over the person of Cheng Lie. To rule otherwise would create an absurd situation where service of summons is valid upon the purported principal but not on the latter’s co-defendant cum putative agent despite the fact that service was coursed thru said agent. Indeed, in order for the court to acquire jurisdiction over the person of a defendant foreign private juridical entity under Section 12, Rule 14 of the Rules of Court, there must be prior valid service of summons upon the agent of such defendant.1avvphi1

Also, the records of this case is bereft of any showing that cashier Cristina Figueroa is a government official designated by law to receive summons on behalf of Cheng Lie or that she is an officer or agent of Cheng Lie within the Philippines. Hence, her receipt of summons bears no significance insofar as Cheng Lie is concerned. At this point, we emphasize that the requirements of the rule on summons must be strictly followed,32 lest we ride roughshod on defendant’s right to due process.33

With regard to Cheng Lie’s filing of numerous pleadings, the same cannot be considered as voluntary appearance. Unlike Atiko, Cheng Lie never sought affirmative relief other than the dismissal of the complaint on the ground of lack of jurisdiction over its person. From the very beginning, it has consistently questioned the validity of the service of summons and the jurisdiction of the MeTC over its person.

It does not escape our attention though that Cheng Lie’s pleadings do not indicate that the same were filed by way of special appearance. But these, to our mind, are mere inaccuracies in the title of the pleadings. What is important are the allegations contained therein which consistently resisted the jurisdiction of the trial court. Thus, Cheng Lie cannot be considered to have submitted itself to the jurisdiction of the courts.34

In fine, since the MeTC never acquired jurisdiction over the person of Cheng Lie, its decision insofar as Cheng Lie is concerned is void.35

Cheng Lie was improperly declared in default.

Applying the above disquisition, the MeTC likewise erred in declaring Cheng Lie in default. Settled is the rule that a defendant cannot be declared in default unless such declaration is preceded by a valid service of summons.36

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WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed December 10, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 82547 is AFFIRMED with the MODIFICATION that the judgment insofar as Cheng Lie Navigation Co., Ltd. is concerned is declared VOID for failure to acquire jurisdiction over its person as there was improper service of summons.

SO ORDERED.