CIV PRO Batch 2 Cases (Rule 10-14)

8/9/2019 CIV PRO Batch 2 Cases (Rule 10-14)

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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 Regiona

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

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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 againstsubject 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 ofP200,000.00.


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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. Sorianoand 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 absolutelychanged 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:

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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 vPhilippine 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 o

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 alte

the theory of the case, or that it was not made to delay the action. Nevertheless, as enunciated in Valenzuela, even if theamendment 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 thecircuitry 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.

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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 appropriaterelief 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 Civi

Procedure, amendments may now substantially alter the cause of action or defense. It should not have been a surprise to them tha

petitioners would redress the defect in the original complaint by substantially amending the same, which course of action is nowallowed 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 fo

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 joinedas 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 herebyREVERSED and SET ASIDE. The Regional Trial Court of Legasp

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.

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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 Agreemen t5 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 tha

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 unde

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.

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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 SuretyAgreement, 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 o

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 prin cipallyfounded 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 o

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

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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 sho uldbe 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 o

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, theauthority 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.

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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 t heianswer, 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 "o

that the cause of action or defense is substantially altered" was stricken-off and not retained in the new rules. The clear import ofsuch 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 alte

the theory of the case, or that it was not made to delay the action.28

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 rea

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, thebank 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 o

the notary public. PBCOM’s counsel had no idea that what it submitte d 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

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and obligations. In effect, the RTC merely allowed the amendment of the complaint, which consequently included the substitution o

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 thesubstituted 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, aboard 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 refusaleither 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 Appe als 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.

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G.R. No. 133657 May 29, 2002

REMINGTON INDUSTRIAL SALES CORPORATION, petitioner,

vs.

THE COURT OF APPEALS and BRITISH STEEL (ASIA), LTD., respondents.

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, 19981, which granted the petition for certiorari 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 resolution2 of the Court of Appeals denying petitioner’s motion for reconsideration.

The facts of the case, as culled from the records, are as follows:

On August 21, 1996, petitioner filed a complaint3 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.

ISL and respondent British Steel separately moved for the dismissal of the complaint on the ground that it failed to state a cause o

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 petitio ner’s legal rights. Apart from the allegation in the complaint’s "Jurisdictiona

Facts" that:

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 thedismissal 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 109 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 Motion11

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:

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:


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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:

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:

-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 complaintstill 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 1016

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 1018

. 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.

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 altered19

or affected by the amendmentof 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 dismiss20

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


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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 its 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.

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 isfurther ordered to ADMIT petitioner’s Amended Complaint in Civil Case No. 96-79674 and to conduct further proceedings in said

case.

SO ORDERED.


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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 Decision1 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 Provincia

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 followingcondition:

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


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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 balanceof 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 o

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


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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, THEAUTHORITY 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 wellentrenched 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 the factum 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 a prima facie proof o

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


17/73

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 C

Documents

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