G.R. No. 174433. February 24, 2014.
* situation, the peculiarity being that the Spouses Manalo did not demand interest
PHILIPPINE NATIONAL BANK, petitioner, vs. SPOUSES ENRIQUE MANALO &
ROSALINDA JACINTO, ARNOLD J. MANALO, ARNEL J. MANALO, and ARMA
J. MANALO, respondents.
Remedial Law; Civil Procedure; Amendment of Pleadings; The failure of a
party to amend a pleading to conform to the evidence adduced during trial does not
preclude an adjudication by the court
_______________
* FIRST DIVISION.
255on the basis of such evidence which may embody new issues not raised in
the pleadings, or serve as a basis for a higher award of damages.—The RTC did not
need to direct the amendment of the complaint by the Spouses Manalo. Section 5,
Rule 10 of the Rules of Court specifically declares that the “failure to amend does not
affect the result of the trial of these issues.” According to Talisay-Silay Milling Co.,
Inc. v. Asociacion de Agricultores de Talisay-Silay, Inc., 247 SCRA 361 (1995): The
failure of a party to amend a pleading to conform to the evidence adduced during
trial does not preclude an adjudication by the court on the basis of such evidence
which may embody new issues not raised in the pleadings, or serve as a basis for a
higher award of damages. Although the pleading may not have been amended to
conform to the evidence submitted during trial, judgment may nonetheless be
rendered, not simply on the basis of the issues alleged but also on the basis of issues
discussed and the assertions of fact proved in the course of trial. The court may treat
the pleading as if it had been amended to conform to the evidence, although it had
not been actually so amended. Former Chief Justice Moran put the matter in this
way: When evidence is presented by one party, with the expressed or implied consent
of the adverse party, as to issues not alleged in the pleadings, judgment may be
rendered validly as regards those issues, which shall be considered as if they have
been raised in the pleadings. There is implied, consent to the evidence thus presented
when the adverse party fails to object thereto.” (Emphasis supplied) Clearly, a court
may rule and render judgment on the basis of the evidence before it even though the
relevant pleading had not been previously amended, so long as no surprise or
prejudice is thereby caused to the adverse party. Put a little differently, so long as
the basic requirements of fair play had been met, as where litigants were given full
opportunity to support their respective contentions and to object to or refute each
other’s evidence, the court may validly treat the pleadings as if they had been
amended to conform to the evidence and proceed to adjudicate on the basis of all the
evidence before it.
Civil Law; Contracts; Contract of Adhesion; A contract where there is no
mutuality between the parties partakes of the nature of a contract of adhesion, and
any obscurity will be construed against the party who prepared the contract, the latter
being presumed the stronger party to the agreement, and who caused the obscurity.—
The Court has declared that a contract where there is no mutuality be-
256tween the parties partakes of the nature of a contract of adhesion, and any
obscurity will be construed against the party who prepared the contract, the latter
being presumed the stronger party to the agreement, and who caused the obscurity.
PNB should then suffer the consequences of its failure to specifically indicate the
rates of interest in the credit agreement.
Same; Interest Rates; Interest should be computed from the time of the judicial
or extrajudicial demand.—Indeed, the Court said in Eastern Shipping Lines, Inc. v.
Court of Appeals, 234 SCRA 78 (1994), that interest should be computed from the
time of the judicial or extrajudicial demand. However, this case presents a peculiar
either judicially or extrajudicially. In the RTC, they specifically sought as the main
reliefs the nullification of the foreclosure proceedings brought by PNB, accounting of
the payments they had made to PNB, and the conversion of their loan into a long
term one. In its judgment, the RTC even upheld the validity of the interest rates
imposed by PNB. In their appellant’s brief, the Spouses Manalo again sought the
nullification of the foreclosure proceedings as the main relief. It is evident, therefore,
that the Spouses Manalo made no judicial or extrajudicial demand from which to
reckon the interest on any amount to be refunded to them. Such demand could only
be reckoned from the promulgation of the CA’s decision because it was there that the
right to the refund was first judicially recognized. Nevertheless, pursuant to Eastern
Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994), the amount to be
refunded and the interest thereon should earn interest to be computed from the
finality of the judgment until the full refund has been made.
Same; Same; Monetary Board Circular No. 799; The Supreme Court, in Nacar
v. Gallery Frames, 703 SCRA 439 (2013) and S.C. Megaworld Construction v.
Parada, 705 SCRA 584 (2013), already applied Monetary Board Circular No. 799 by
reducing the interest rates allowed in judgments from 12% per annum to 6% per
annum.—Anent the correct rates of interest to be applied on the amount to be
refunded by PNB, the Court, in Nacar v. Gallery Frames, 703 SCRA
439 (2013) and S.C. Megaworld Construction v. Parada, 705 SCRA 584
(2013) already applied Monetary Board Circular No. 799 by reducing the interest
rates allowed in judgments from 12% per annum to 6% per annum. According
to Nacar v. Gallery Frames, MB
257Circular No. 799 is applied prospectively, and judgments that became final
and executory prior to its effectivity on July 1, 2013 are not to be disturbed but
continue to be implemented applying the old legal rate of 12% per annum. Hence,
the old legal rate of 12% per annum applied to judgments becoming final and
executory prior to July 1, 2013, but the new rate of 6% per annum applies to
judgments becoming final and executory after said date.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
The Chief Legal Counsel for petitioner.
Bede S. Tabalingcos for respondents.
BERSAMIN, J.:
Although banks are free to determine the rate of interest they could impose on
their borrowers, they can do so only reasonably, not arbitrarily. They may not take
advantage of the ordinary borrowers’ lack of familiarity with banking procedures
and jargon. Hence, any stipulation on interest unilaterally imposed and increased
by them shall be struck down as violative of the principle of mutuality of contracts.
Antecedents
Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo)
applied for an All-Purpose Credit Facility in the amount of P1,000,000.00 with
Philippine National Bank (PNB) to finance the construction of their house. After
PNB granted their application, they executed a Real Estate Mortgage on November
3, 1993 in favor of PNB over their property covered by Transfer Certificate of Title
No. S-23191 as security for the loan.[1] The credit facility was re-
_______________
[1] Rollo, p. 59.
258newed and increased several times over the years. On September 20, 1996, the
credit facility was again renewed for P7,000,000.00. As a consequence, the parties
executed a Supplement to and Amendment of Existing Real Estate
Mortgage whereby the property covered by TCT No. 171859 was added as security
for the loan. The additional security was registered in the names of respondents
Arnold, Arnel, Anthony, and Arma, all surnamed Manalo, who were their
children.[2]
It was agreed upon that the Spouses Manalo would make monthly payments on
the interest. However, PNB claimed that their last recorded payment was made on
December, 1997. Thus, PNB sent a demand letter to them on their overdue account
and required them to settle the account. PNB sent another demand letter because
they failed to heed the first demand.[3]
After the Spouses Manalo still failed to settle their unpaid account despite the
two demand letters, PNB foreclosed the mortgage. During the foreclosure sale, PNB
was the highest bidder for P15,127,000.00 of the mortgaged properties of the Spouses
Manalo. The sheriff issued to PNB the Certificate of Sale dated November 13,
2000.[4]
After more than a year after the Certificate of Sale had been issued to PNB, the
Spouses Manalo instituted this action for the nullification of the foreclosure
proceedings and damages. They alleged that they had obtained a loan for
P1,000,000.00 from a certain Benito Tan upon arrangements made by Antoninus
Yuvienco, then the General Manager of PNB’s Bangkal Branch where they had
transacted; that they had been made to understand and had been assured that the
P1,000,000.00 would be used to update their account, and that their loan would be
restructured and converted into a
_______________
[2] Id., at p. 60.
[3] Id.
[4] Id., at p. 61.
259long-term loan;[5] that they had been surprised to learn, therefore, that they
had been declared in default of their obligations, and that the mortgage on their
property had been foreclosed and their property had been sold; and that PNB did not
comply with Section 3 of Act No. 3135, as amended.[6]
PNB and Antoninus Yuvienco countered that the P1,000,000.00 loan obtained
by the Spouses Manalo from Benito Tan had been credited to their account; that they
did not make any assurances on the restructuring and conversion of the Spouses
Manalo’s loan into a long-term one;[7] that PNB’s right to foreclose the mortgage
had been clear especially because the Spouses Manalo had not assailed the validity
of the loans and of the mortgage; and that the Spouses Manalo did not allege having
fully paid their indebtedness.[8]
Ruling of the RTC
After trial, the RTC rendered its decision in favor of PNB, holding thusly:
In resolving this present case, one of the most significant matters the court has
noted is that while during the pre-trial held on 8 September 2003, plaintiff-spouses
Manalo with the assistance counsel had agreed to stipulate that defendants had the
right to foreclose upon the subject properties and that the plaintiffs[‘] main thrust
was to prove that the foreclosure proceedings were invalid, in the course of the
presentation of their evidence, they modified their position and claimed [that] the
loan document executed were contracts of adhesion which were null and void
because they were prepared entirely under the defendant bank’s supervision. They
also questioned the interest rates and penalty charges imposed
_______________
[5] Id.
[6] Id., at p. 62.
[7] Id.
[8] Id., at pp. 62-63.
260arguing that these were iniquitous, unconscionable and therefore likewise void.
Not having raised the foregoing matters as issues during the pre-trial, plaintiff-
spouses are presumably estopped from allowing these matters to serve as part of
their evidence, more so because at the pre-trial they expressly recognized the
defendant bank’s right to foreclose upon the subject property (See Order, pp. 193-
195).
However, considering that the defendant bank did not interpose any objection to
these matters being made part of plaintiff’s evidence so much so that their
memorandum contained discussions rebutting plaintiff spouses arguments on these
issues, the court must necessarily include these matters in the resolution of the
present case.[9]
The RTC held, however, that the Spouses Manalo’s “contract of adhesion”
argument was unfounded because they had still accepted the terms and conditions
of their credit agreement with PNB and had exerted efforts to pay their
obligation;[10] that the Spouses Manalo were now estopped from questioning the
interest rates unilaterally imposed by PNB because they had paid at those rates for
three years without protest;[11] and that their allegation about PNB violating the
notice and publication requirements during the foreclosure proceedings was
untenable because personal notice to the mortgagee was not required under Act No.
3135.[12]
The Spouses Manalo appealed to the CA by assigning a singular error, as follows:
THE COURT A QUO SERIOUSLY ERRED IN DISMISSING PLAINTIFF-
APPELLANTS’ COMPLAINT FOR BEING (sic) LACK OF MERIT
NOTWITHSTAND-
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[9] Id., at p. 95.
[10] Id., at pp. 96-97.
[11] Id., at p. 97.
[12] Id., at pp. 97-98.
261ING THE FACT THAT IT WAS CLEARLY SHOWN THAT THE
FORECLOSURE PROCEEDINGS WAS INVALID AND ILLEGAL.[13]
The Spouses Manalo reiterated their arguments, insisting that: (1) the credit
agreements they entered into with PNB were contracts of adhesion;[14] (2) no
interest was due from them because their credit agreements with PNB did not
specify the interest rate, and PNB could not unilaterally increase the interest rate
without first informing them;[15] and (3) PNB did not comply with the notice and
publication requirements under Section 3 of Act 3135.[16] On the other hand, PNB
and Yuvienco did not file their briefs despite notice.[17]
Ruling of the CA
In its decision promulgated on March 28, 2006,[18] the CA affirmed the decision
of the RTC insofar as it upheld the validity of the foreclosure proceedings initiated
by PNB, but modified the Spouses Manalo’s liability for interest. It directed the RTC
to see to the recomputation of their indebtedness, and ordered that should the
recomputed amount be less than the winning bid in the foreclosure sale, the
difference should be immediately returned to the Spouses Manalo.
The CA found it necessary to pass upon the issues of PNB’s failure to specify the
applicable interest and the lack of mutuality in the execution of the credit
agreements considering the
_______________
[13] Id., at p. 108.
[14] Id.
[15] Id.
[16] Id., at pp. 108-128.
[17] CA Rollo, p. 87.
[18] Rollo, pp. 10-25; penned by Associate Justice Magdangal M. De Leon, and
concurred in by Associate Justice Conrado M. Vasquez, Jr. (later Presiding Justice,
but now retired) and Associate Justice Mariano C. Del Castillo (now a Member of
the Court).
262earlier cited observation made by the trial court in its decision. Applying Article
1956 of the Civil Code, the CA held that PNB’s failure to indicate the rate of interest
in the credit agreements would not excuse the Spouses Manalo from their
contractual obligation to pay interest to PNB because of the express agreement to
pay interest in the credit agreements. Nevertheless, the CA ruled that PNB’s
inadvertence to specify the interest rate should be construed against it because the
credit agreements were clearly contracts of adhesion due to their having been
prepared solely by PNB.
The CA further held that PNB could not unilaterally increase the rate of interest
considering that the credit agreements specifically provided that prior notice was
required before an increase in interest rate could be effected. It found that PNB did
not adduce proof showing that the Spouses Manalo had been notified before the
increased interest rates were imposed; and that PNB’s unilateral imposition of the
increased interest rate was null and void for being violative of the principle of
mutuality of contracts enshrined in Article 1308 of the Civil Code. Reinforcing its
“contract of adhesion” conclusion, it added that the Spouses Manalo’s being in dire
need of money rendered them to be not on an equal footing with PNB. Consequently,
the CA, relying on Eastern Shipping Lines, Inc. v. Court of Appeals,[19] fixed the
interest rate to be paid by the Spouses Manalo at 12% per annum, computed from
their default.
The CA deemed to be untenable the Spouses Manalo’s allegation that PNB had
failed to comply with the requirements for notice and posting under Section 3 of Act
3135. The CA stated that Sheriff Norberto Magsajo’s testimony was sufficient proof
of his posting of the required Notice of Sheriff’s Sale in three public places; that the
notarized Affidavit of Publication presented by Sheriff Magsajo was prima
facie proof of the publication of the notice; and that the Affidavit of
_______________
[19] G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95.
263Publication enjoyed the presumption of regularity, such that the Spouses
Manalo’s bare allegation of non-publication without other proof did not overcome the
presumption.
On August 29, 2006, the CA denied the Spouses Manalo’s Motion for
Reconsideration and PNB’s Partial Motion for Reconsideration.[20]
Issues
In its Memorandum,[21] PNB raises the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN
NULLIFYING THE INTEREST RATES IMPOSED ON RESPONDENT SPOUSES’
LOAN AND IN FIXING THE SAME AT TWELVE PERCENT (12%) FROM
DEFAULT, DESPITE THE FACT THAT (i) THE SAME WAS RAISED BY THE
RESPONDENTS ONLY FOR THE FIRST TIME ON APPEAL (ii) IT WAS NEVER
PART OF THEIR COMPLAINT (iii) WAS EXLUDED AS AN ISSUE DURING PRE-
TRIAL, AND WORSE, (iv) THERE WAS NO FORMALLY OFFERED PERTAINING
TO THE SAME DURING TRIAL.
II
WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT
THERE WAS NO MUTUALITY OF CONSENT IN THE IMPOSITION OF
INTEREST RATES ON THE RESPONDENT SPOUSES’ LOAN DESPITE THE
EXISTENCE OF FACTS AND CIRCUMSTANCES CLEARLY SHOWING
RESPONDENTS’ ASSENT TO THE RATES OF INTEREST SO IMPOSED BY PNB
ON THE LOAN.
Anent the first issue, PNB argues that by passing upon the issue of the validity
of the interest rates, and in nullifying the
_______________
[20] Id., at pp. 145-147.
[21] Rollo, pp. 212-234.
264rates imposed on the Spouses Manalo, the CA decided the case in a manner not
in accord with Section 15, Rule 44 of the Rules of Court, which states that only
questions of law or fact raised in the trial court could be assigned as errors on appeal;
that to allow the Spouses Manalo to raise an issue for the first time on appeal would
“offend the basic rules of fair play, justice and due process;”[22] that the resolution
of the CA was limited to the issues agreed upon by the parties during pre-
trial;[23] that the CA erred in passing upon the validity of the interest rates
inasmuch as the Spouses Manalo did not present evidence thereon; and that the
Judicial Affidavit of Enrique Manalo, on which the CA relied for its finding, was not
offered to prove the invalidity of the interest rates and was, therefore, inadmissible
for that purpose.[24]
As to the substantive issues, PNB claims that the Spouses Manalo’s continuous
payment of interest without protest indicated their assent to the interest rates
imposed, as well as to the subsequent increases of the rates; and that the CA erred
in declaring that the interest rates and subsequent increases were invalid for lack
of mutuality between the contracting parties.
Ruling
The appeal lacks merit.
1.
Procedural Issue
Contrary to PNB’s argument, the validity of the interest rates and of the
increases, and on the lack of mutuality between the parties were not raised by the
Spouses Manalo’s for the first time on appeal. Rather, the issues were impliedly
_______________
[22] Id., at pp. 220-222.
[23] Id., at pp. 222-225.
 [24] Id., at pp. 225-228.
265raised during the trial itself, and PNB’s lack of vigilance in voicing out a timely
objection made that possible.
It appears that Enrique Manalo’s Judicial Affidavit introduced the issues of the
validity of the interest rates and the increases, and the lack of mutuality between
the parties in the following manner, to wit:
5. True to his words, defendant Yuvienco, after several days, sent us a
document through a personnel of defendant PNB, Bangkal, Makati City Branch, who
required me and my wife to affix our signature on the said document;
6. When the document was handed over me, I was able to know that it was a
Promissory Note which was in ready made form and prepared solely by the
defendant PNB;
xxxx
21. As above-noted, the rates of interest imposed by the defendant bank were
never the subject of any stipulation between us mortgagors and the defendant PNB
as mortgagee;
22. The truth of the matter is that defendant bank imposed rate of interest
which ranges from 19% to as high as 28% and which changes from time to time;
23. The irregularity, much less the invalidity of the imposition of iniquitous
rates of interest was aggravated by the fact that we were not informed, notified, nor
the same had our prior consent and acquiescence therefor. x x x[25]
PNB cross-examined Enrique Manalo upon his Judicial Affidavit. There is no
showing that PNB raised any objection in the course of the cross
examination.[26] Consequently, the RTC rightly passed upon such issues in deciding
the case, and its
_______________
[25] Records, pp. 204, 207.
[26] See TSN, November 25, 2003, pp. 8-30.
266having done so was in total accord with Section 5, Rule 10 of the Rules of Court,
which states:
Section 5. Amendment to conform to or authorize presentation of evidence.—
When issues not raised by the pleadings are tried with the express or implied consent
of the parties, they shall be treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does not affect the
result of the trial of these issues. If evidence is objected to at the trial on the ground
that it is not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the presentation of the
merits of the action and the ends of substantial justice will be subserved thereby.
The court may grant a continuance to enable the amendment to be made.
In Bernardo, Sr. v. Court of Appeals,[27] we held that:
It is settled that even if the complaint be defective, but the parties go to trial
thereon, and the plaintiff, without objection, introduces sufficient evidence to
constitute the particular cause of action which it intended to allege in the original
complaint, and the defendant voluntarily produces witnesses to meet the cause of
action thus established, an issue is joined as fully and as effectively as if it had been
previously joined by the most perfect pleadings. Likewise, when issues not raised by
the pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings.
The RTC did not need to direct the amendment of the complaint by the Spouses
Manalo. Section 5, Rule 10 of the Rules
_______________
[27] G.R. No. 120730, October 28, 1996, 263 SCRA 660, 673-674.
267of Court specifically declares that the “failure to amend does not affect the result
of the trial of these issues.” According to Talisay-Silay Milling Co., Inc. v. Asociacion
de Agricultores de Talisay-Silay, Inc.:[28]
The failure of a party to amend a pleading to conform to the evidence adduced
during trial does not preclude an adjudication by the court on the basis of such
evidence which may embody new issues not raised in the pleadings, or serve as a
basis for a higher award of damages. Although the pleading may not have been
amended to conform to the evidence submitted during trial, judgment may
nonetheless be rendered, not simply on the basis of the issues alleged but also on the
basis of issues discussed and the assertions of fact proved in the course of trial. The
court may treat the pleading as if it had been amended to conform to the evidence,
although it had not been actually so amended. Former Chief Justice Moran put the
matter in this way:
When evidence is presented by one party, with the expressed or implied
consent of the adverse party, as to issues not alleged in the pleadings,
judgment may be rendered validly as regards those issues,which shall be
considered as if they have been raised in the pleadings. There is implied,
consent to the evidence thus presented when the adverse party fails to object
thereto.” (Emphasis supplied)
Clearly, a court may rule and render judgment on the basis of the evidence before
it even though the relevant pleading had not been previously amended, so long as
no surprise or prejudice is thereby caused to the adverse party. Put a little
differently, so long as the basic requirements of fair play had been met, as where
litigants were given full opportunity to support their respec-
_______________
[28] G.R. No. 91852, August 15, 1995, 247 SCRA 361, 377-378.
268tive contentions and to object to or refute each other’s evidence, the court may
validly treat the pleadings as if they had been amended to conform to the evidence
and proceed to adjudicate on the basis of all the evidence before it.
There is also no merit in PNB’s contention that the CA should not have
considered and ruled on the issue of the validity of the interest rates because the
Judicial Affidavit of Enrique Manalo had not been offered to prove the same but only
“for the purpose of identifying his affidavit.”[29] As such, the affidavit was
inadmissible to prove the nullity of the interest rates.
We do not agree.
Section 5, Rule 10 of the Rules of Court is applicable in two situations. The first
is when evidence is introduced on an issue not alleged in the pleadings and no
objection is interposed by the adverse party. The second is when evidence is offered
on an issue not alleged in the pleadings but an objection is raised against the
offer.[30] This case comes under the first situation. Enrique Manalo’s Judicial
Affidavit would introduce the very issues that PNB is now assailing. The question of
whether the evidence on such issues was admissible to prove the nullity of the
interest rates is an entirely different matter. The RTC accorded credence to PNB’s
evidence showing that the Spouses Manalo had been paying the interest imposed
upon them without protest. On the other hand, the CA’s nullification of the interest
rates was based on the credit agreements that the Spouses Manalo and PNB had
themselves submitted.
Based on the foregoing, the validity of the interest rates and their increases, and
the lack of mutuality between the parties were issues validly raised in the RTC,
giving the
_______________
[29] Rollo, p. 226.
[30] Mercader v. Development Bank of the Philippines (Cebu Branch), G.R. No.
130699, May 12, 2000, 332 SCRA 82, 97.
269Spouses Manalo every right to raise them in their appeal to the CA. PNB’s
contention was based on its wrong appreciation of what transpired during the trial.
It is also interesting to note that PNB did not itself assail the RTC’s ruling on the
issues obviously because the RTC had decided in its favor. In fact, PNB did not even
submit its appellee’s brief despite notice from the CA.
2.
Substantive Issue
The credit agreement executed succinctly stipulated that the loan would be
subjected to interest at a rate “determined by the Bank to be its prime rate plus
applicable spread, prevailing at the current month.”[31] This stipulation was carried
over to or adopted by the subsequent renewals of the credit agreement. PNB thereby
arrogated unto itself the sole prerogative to determine and increase the interest
rates imposed on the Spouses Manalo. Such a unilateral determination of the
interest rates contravened the principle of mutuality of contracts embodied in Article
1308 of the Civil Code.[32]
The Court has declared that a contract where there is no mutuality between the
parties partakes of the nature of a contract of adhesion,[33] and any obscurity will
be construed against the party who prepared the contract, the latter being presumed
the stronger party to the agreement, and who
_______________
[31] Exhibits, pp. 14, 18.
[32] Article 1308. The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them. (1256a).
[33] Floirendo, Jr. v. Metropolitan Bank and Trust Company, G.R. No. 148325,
September 3, 2007, 532 SCRA 43, 51, citing Philippine National Bank v. Court of
Appeals, G.R. No. 88880, April 30, 1991, 196 SCRA 536, 545.
270caused the obscurity.[34] PNB should then suffer the consequences of its failure
to specifically indicate the rates of interest in the credit agreement. We spoke clearly
on this in Philippine Savings Bank v. Castillo,[35] to wit:
The unilateral determination and imposition of the increased rates is violative
of the principle of mutuality of contracts under Article 1308 of the Civil Code, which
provides that ‘[t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.’ A perusal of the Promissory
Note will readily show that the increase or decrease of interest rates hinges solely
on the discretion of petitioner. It does not require the conformity of the maker before
a new interest rate could be enforced. Any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to an unconscionable result, thus
partaking of the nature of a contract of adhesion, is void. Any stipulation
regarding the validity or compliance of the contract left solely to the will
of one of the parties is likewise invalid. (Emphasis supplied)
PNB could not also justify the increases it had effected on the interest rates by
citing the fact that the Spouses Manalo had paid the interests without protest, and
had renewed the loan several times. We rule that the CA, citing Philippine National
Bank v. Court of Appeals,[36] rightly concluded that “a borrower is not estopped from
assailing the unilateral increase in the interest made by the lender since no one who
receives a proposal to change a contract, to which he is a party, is obliged to answer
the same and said party’s silence cannot be construed as an acceptance thereof.”[37]
_______________
[34] Pilipino Telephone Corporation v. Tecson, G.R. No. 156966, May 7, 2004, 428
SCRA 378, 380.
[35] G.R. No. 193178, May 30, 2011, 649 SCRA 527, 533.
[36] G.R. No. 107569, November 8, 1994, 238 SCRA 20, 26.
[37] Rollo, p. 69.
271
Lastly, the CA observed, and properly so, that the credit agreements had
explicitly provided that prior notice would be necessary before PNB could increase
the interest rates. In failing to notify the Spouses Manalo before imposing the
increased rates of interest, therefore, PNB violated the stipulations of the very
contract that it had prepared. Hence, the varying interest rates imposed by PNB
have to be vacated and declared null and void, and in their place an interest rate of
12% per annum computed from their default is fixed pursuant to the ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals.[38]
The CA’s directive to PNB (a) to recompute the Spouses Manalo’s indebtedness
under the oversight of the RTC; and (b) to refund to them any excess of the winning
bid submitted during the foreclosure sale over their recomputed indebtedness was
warranted and equitable. Equally warranted and equitable was to make the amount
to be refunded, if any, bear legal interest, to be reckoned from the promulgation of
the CA’s decision on March 28, 2006.[39]Indeed, the Court said in Eastern Shipping
Lines, Inc. v. Court of Appeals[40] that interest should be computed from the time of
the judicial or extrajudicial demand. However, this case presents a peculiar
situation, the peculiarity being that the Spouses Manalo did not demand interest
either judicially or extrajudicially. In the RTC, they specifically sought as the main
reliefs the nullification of the foreclosure proceedings brought by PNB, accounting of
the payments they had made to PNB, and the conversion of their loan into a long
term one.[41] In its judgment, the RTC even upheld the validity of the interest rates
imposed by PNB.[42] In their appellant’s brief, the Spouses Manalo again sought the
nullification of the foreclosure proceedings as the
_______________
[38] Supra note 19.
[39] Supra note 18.
[40] Supra note 19.
[41] Rollo, pp. 81-82.
[42] Id., at p. 96.
272main relief.[43] It is evident, therefore, that the Spouses Manalo made no
judicial or extrajudicial demand from which to reckon the interest on any amount to
be refunded to them. Such demand could only be reckoned from the promulgation of
the CA’s decision because it was there that the right to the refund was first judicially
recognized. Nevertheless, pursuant to Eastern Shipping Lines, Inc. v. Court of
Appeals,[44] the amount to be refunded and the interest thereon should earn
interest to be computed from the finality of the judgment until the full refund has
been made.
Anent the correct rates of interest to be applied on the amount to be refunded by
PNB, the Court, in Nacar v. Gallery Frames[45] and S.C. Megaworld Construction
v. Parada,[46] already applied Monetary Board Circular No. 799 by reducing the
interest rates allowed in judgments from 12% per annum to 6% per
annum.[47]According to Nacar v. Gallery Frames, MB Circular No. 799 is applied
prospectively, and judgments that became final and executory prior to its effectivity
on July 1, 2013 are not to be disturbed but continue to be implemented applying the
old legal rate of 12% per annum. Hence, the old legal rate of 12% per annum applied
to judgments becoming final and executory prior to July 1, 2013, but the new rate of
6% per annum applies to judgments becoming final and executory after said date.
Conformably with Nacar v. Gallery Frames and S.C. Megaworld Construction v.
Parada, therefore, the proper interest rates to be imposed in the present case are as
follows:
_______________
[43] Id., at p. 128.
[44] Supra note 19.
[45] G.R. No. 189871, August 13, 2013, 703 SCRA 439.
[46] G.R. No. 183804, September 11, 2013, 705 SCRA 584.
[47] Section 1. The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an express
contract as to such rate of interest, shall be six percent (6%) per annum.
273
1. Any amount to be refunded to the Spouses Manalo shall bear interest of
12% per annum computed from March 28, 2006, the date of the promulgation
of the CA decision, until June 30, 2013; and 6% per annum computed from
July 1, 2013 until finality of this decision; and
2. The amount to be refunded and its accrued interest shall earn interest of
6% per annum until full refund.
WHEREFORE, the Court AFFIRMS the decision promulgated by the Court of
Appeals on March 28, 2006 in CA-G.R. CV No. 84396, subject to
the MODIFICATION that any amount to be refunded to the respondents shall bear
interest of 12% per annum computed from March 28, 2006 until June 30, 2013, and
6% per annum computed from July 1, 2013 until finality hereof; that the amount to
be refunded and its accrued interest shall earn interest at 6% per annum until full
refund; and DIRECTS the petitioner to pay the costs of suit.
SO ORDERED.
Sereno (CJ.), Leonardo-De Castro, Villarama, Jr. and Reyes, JJ., concur.
Judgment affirmed with modification.
Notes.—Section 14 of Rule 110 of the Rules of Court provides that an
information may be amended, in form or in substance, without leave of court, at any
time before the accused enters his plea. (Dabalos vs. Regional Trial Court, Branch
59, Angeles City [Pampanga], 688 SCRA 64 [2013])
Section 14, Rule 110 of the Rules of Court permits a formal amendment of a
complaint even after the plea but only if it is made with leave of court and provided
that it can be done without causing prejudice to the rights of the accused. (Kummer
vs. People, 705 SCRA 490 [2013])
——o0o——
G.R. No. 136426. August 6, 1999.*
E. B. VILLAROSA & PARTNER CO., LTD., petitioner, vs. HON. HERMINIO I.
BENITO, in his capacity as Presiding Judge, RTC, Branch 132, Makati City and
IMPERIAL DEVELOPMENT CORPORATION, respondents.
Remedial Law; Civil Procedure; Summons; Jurisdiction; The designation of
persons or officers who are authorized to accept summons for a domestic corporation
or partnership is now limited and more clearly specified in Section 11, Rule 14 of the
1997 Rules of Civil Procedure.–The designation of persons or officers who are
authorized to accept summons for a domestic corporation or partnership is now
limited and more clearly specified in Section 11, Rule 14 of the 1997 Rules of Civil
Procedure. The rule now states “general manager– instead of only “manager–;
“corporate secretary– instead of “secretary–; and “treasurer– instead of “cashier.–
The phrase “agent, or any of its directors– is conspicuously deleted in the new rule.
Same; Same; Same; Same; Strict compliance with the rules has been
enjoined; The liberal construction rule cannot be invoked and utilized as a substitute
for the plain legal requirements as to the manner in which summons should be served
on a domestic corporation.–It should be noted that even prior to the effectivity of the
1997 Rules of Civil Procedure, strict compliance with the rules has been enjoined. In
the case of Delta Motor Sales Corporation vs. Mangosing, the Court held: “A strict
compliance with the mode of service is necessary to confer jurisdiction of the court
over a corporation. The officer upon whom service is made must be one who is named
in the statute; otherwise the service is insufficient. x x x. The purpose is to render it
reasonably certain that the corporation will receive prompt and proper notice in an
action against it or to insure that the summons be served on a representative so
integrated with the corporation that such person will know what to do with the legal
papers served on him. In other words, ‘to bring home to the corporation notice of the
filing of the action.’ x x x. The liberal construction rule cannot be invoked and utilized
as a substitute for the plain legal
________________
*THIRD DIVISION.
66
66 SUPREME COURT REPORTS ANNOTATED
E.B. Villarosa & Partner Co., Ltd. vs. Benito
requirements as to the manner in which summons should be served on a
domestic corporation. x x x.– (italics supplied).
Same; Same; Same; Same; Service of summons upon persons other than those
mentioned in Section 13 of Rule 14 (old rule) has been held as improper.–Service of
summons upon persons other than those mentioned in Section 13 of Rule 14 (old
rule) has been held as improper. Even under the old rule, service upon a general
manager of a firm’s branch office has been held as improper as summons should have
been served at the firm’s principal office. In First Integrated Bonding & Ins. Co., Inc.
vs. Dizon, it was held that the service of summons on the general manager of the
insurance firm’s Cebu branch was improper; default order could have been obviated
had the summons been served at the firm’s principal office.
Same; Same; Same; Same; Court rules that the service of summons upon the
branch manager of petitioner at its branch office at Cagayan de Oro, instead of upon
the general manager at its principal office at Davao City is improper; Trial court did
not acquire jurisdiction over the person of the petitioner.–Accordingly, we rule that
the service of summons upon the branch manager of petitioner at its branch office
at Cagayan de Oro, instead of upon the general manager at its principal office at
Davao City is improper. Consequently, the trial court did not acquire jurisdiction
over the person of the petitioner.
Same; Same; Same; Same; 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.–Before, the rule was that a party may challenge the
jurisdiction of the court over his person by making a special appearance through a
motion to dismiss and if in the same motion, the movant raised other grounds or
invoked affirmative relief which necessarily involves the exercise of the jurisdiction
of the court, the party is deemed to have submitted himself to the jurisdiction of the
court. This doctrine has been abandoned in the case of La Naval Drug Corporation
vs. Court of Appeals, et al., which became the basis of the adoption of a new provision
in the former Section 23, which is now Section 20 of Rule 14 of the 1997 Rules.
Section 20 now provides that “the inclusion in a motion to dismiss of other grounds
aside from lack of jurisdiction over the person of the defendant shall not be deemed
a voluntary appearance.– The emplacement of this rule clearly underscores the
67
VOL. 312, AUGUST 6, 1999 67
E.B. Villarosa & Partner Co., Ltd. vs. Benito
purpose to enforce strict enforcement of the rules on summons. Accordingly,
the filing of a motion to dismiss, whether or not belatedly filed by the defendant, his
authorized agent or attorney, precisely objecting to the jurisdiction of the court over
the person of the defendant can by no means be deemed a submission to the
jurisdiction of the court. There being no proper service of summons, the trial court
cannot take cognizance of a case for lack of jurisdiction over the person of the
defendant. Any proceeding undertaken by the trial court will consequently be null
and void.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and Prohibition.
The facts are stated in the opinion of the Court.
Capuyan, Quimpo & Salazar for petitioner.
Ermitano, Sangco, Manzano & Associates for private respondent.
GONZAGA-REYES, J.:
Before this Court is a petition for certiorari and prohibition with prayer for the
issuance of a temporary restraining order and/or writ of preliminary injunction
seeking to annul and set aside the Orders dated August 5, 1998 and November 20,
1998 of the public respondent Judge Herminio I. Benito of the Regional Trial Court
of Makati City, Branch 132 and praying that the public respondent court be ordered
to desist from further proceeding with Civil Case No. 98-824.
Petitioner E. B. Villarosa & Partner Co., Ltd. is a limited partnership with
principal office address at 102 Juan Luna St., Davao City and with branch offices at
2492 Bay View Drive, Tambo, Parañaque, Metro Manila and Kolambog, Lapasan,
Cagayan de Oro City. Petitioner and private respondent executed a Deed of Sale
with Development Agreement wherein the former agreed to develop certain parcels
of land located at Barrio Carmen, Cagayan de Oro belonging to the latter into a
housing subdivision for the construction of low cost housing units. They further
agreed that in case of litiga-
68
68 SUPREME COURT REPORTS ANNOTATED
E.B. Villarosa & Partner Co., Ltd. vs. Benito
tion regarding any dispute arising therefrom, the venue shall be in the proper courts
of Makati.
On April 3, 1998, private respondent, as plaintiff, filed a Complaint for Breach
of Contract and Damages against petitioner, as defendant, before the Regional Trial
Court of Makati allegedly for failure of the latter to comply with its contractual
obligation in that, other than a few unfinished low cost houses, there were no
substantial developments therein.1
Summons, together with the complaint, were served upon the defendant,
through its Branch Manager Engr. Wendell Sabulbero at the stated address at
Kolambog, Lapasan, Cagayan de Oro City2 but the Sheriff’s Return of
Service3 stated that the summons was duly served “upon defendant E. B. Villarosa
& Partner Co., Ltd. thru its Branch Manager Engr. WENDELL SALBULBERO on
May 5, 1998 at their new office Villa Gonzalo, Nazareth, Cagayan de Oro City, and
evidenced by the signature on the face of the original copy of the summons.–
On June 9, 1998, defendant filed a Special Appearance with Motion to
Dismiss4 alleging that on May 6, 1998, “summons intended for defendant– was
served upon Engr. Wendell Sabulbero, an employee of defendant at its branch office
at Cagayan de Oro City. Defendant prayed for the dismissal of the complaint on the
ground of improper service of summons and for lack of jurisdiction over the person
of the defendant. Defendant contends that the trial court did not acquire jurisdiction
over its person since the summons was improperly served upon its employee in its
branch office at Cagayan de Oro City who is not one of those persons named in
Section 11, Rule 14 of the 1997 Rules of Civil Procedure upon whom service of
summons may be made.
_______________
1 Annexes “C– to “C-6– of the Petition, pp. 23-29, Rollo.
2 Annex “D– of the Petition, p. 41, Rollo.
3 Annex “F-2– of the Petition, p. 46, Rollo.
4 Annexes “E– to “E-1– of the Petition, pp. 42-43, Rollo.
69
VOL. 312, AUGUST 6, 1999 69
E.B. Villarosa & Partner Co., Ltd. vs. Benito
Meanwhile, on June 10, 1998, plaintiff filed a Motion to Declare Defendant in
Default5 alleging that defendant has failed to file an Answer despite its receipt
allegedly on May 5, 1998 of the summons and the complaint, as shown in the
Sheriff’s Return.
On June 22, 1998, plaintiff filed an Opposition to Defendant’s Motion to
Dismiss6 alleging that the records show that defendant, through its branch
manager, Engr. Wendell Sabulbero actually received the summons and the
complaint on May 8, 1998 as evidenced by the signature appearing on the copy of
the summons and not on May 5, 1998 as stated in the Sheriff’s Return nor on May
6, 1998 as stated in the motion to dismiss; that defendant has transferred its office
from Kolambog, Lapasan, Cagayan de Oro to its new office address at Villa Gonzalo,
Nazareth, Cagayan de Oro; and that the purpose of the rule is to bring home to the
corporation notice of the filing of the action.
On August 5, 1998, the trial court issued an Order7 denying defendant’s Motion
to Dismiss as well as plaintiff’s Motion to Declare Defendant in Default. Defendant
was given ten (10) days within which to file a responsive pleading. The trial court
stated that since the summons and copy of the complaint were in fact received by
the corporation through its branch manager Wendell Sabulbero, there was
substantial compliance with the rule on service of summons and consequently, it
validly acquired jurisdiction over the person of the defendant.
On August 19, 1998, defendant, by Special Appearance, filed a Motion for
Reconsideration8 alleging that Section 11, Rule 14 of the new Rules did not liberalize
but, on the contrary, restricted the service of summons on persons enumerated
therein; and that the new provision is very specific and clear in that the word
“manager– was changed to “general
_______________
5 Annexes “F– to “F-1– of the Petition, pp. 44-45, Rollo.
6 Annexes “G– to “G-3– of the Petition, pp. 47-50, Rollo.
7 Annexes “A– to “A-1– of the Petition, pp. 20-21, Rollo.
8 Annexes “H– to “H-3– of the Petition, pp. 51-54, Rollo.
70
70 SUPREME COURT REPORTS ANNOTATED
E.B. Villarosa & Partner Co., Ltd. vs. Benito
manager,– “secretary– to “corporate secretary,– and excluding therefrom agent and
director.
On August 27, 1998, plaintiff filed an Opposition to defendant’s Motion for
Reconsideration9 alleging that defendant’s branch manager “did bring home– to the
defendant-corporation the notice of the filing of the action and by virtue of which a
motion to dismiss was filed; and that it was one (1) month after receipt of the
summons and the complaint that defendant chose to file a motion to dismiss.
On September 4, 1998, defendant, by Special Appearance, filed a
Reply10 contending that the changes in the new rules are substantial and not just
general semantics.
Defendant’s Motion for Reconsideration was denied in the Order dated
November 20, 1998.11
Hence, the present petition alleging that respondent court gravely abused its
discretion tantamount to lack or in excess of jurisdiction in denying petitioner’s
motions to dismiss and for reconsideration, despite the fact that the trial court did
not acquire jurisdiction over the person of petitioner because the summons intended
for it was improperly served. Petitioner invokes Section 11 of Rule 14 of the 1997
Rules of Civil Procedure.
Private respondent filed its Comment to the petition citing the cases of Kanlaon
Construction Enterprises Co., Inc. vs. NLRC 12wherein it was held that service upon
a construction project manager is valid and in Gesulgon vs. NLRC 13which held that
a corporation is bound by the service of summons upon its assistant manager.
The only issue for resolution is whether or not the trial court acquired
jurisdiction over the person of petitioner upon service of summons on its Branch
Manager.
_______________
9 Annexes “I– to “I-4– of the Petition, pp. 55-59, Rollo.
10 Annexes “J– to “J-4– of the Petition, pp. 60-64, Rollo.
11 Annex “B– of the Petition, p. 22, Rollo.
12 279 SCRA 337.
13 219 SCRA 561.
71
VOL. 312, AUGUST 6, 1999 71
E.B. Villarosa & Partner Co., Ltd. vs. Benito
When the complaint was filed by Petitioner on April 3, 1998, the 1997 Rules of Civil
Procedure was already in force.14 Section 11, Rule 14 of the 1997 Rules of Civil
Procedure provides that:
“When the defendant is a corporation, partnership or association organized under
the laws of the Philippines with a juridical personality, service may be made on the
president, managing partner, general manager, corporate secretary, treasurer, or in-
house counsel.– (italics supplied).
This provision revised the former Section 13, Rule 14 of the Rules of Court which
provided that:
“SEC. 13. Service upon private domestic corporation or partnership.–If the defendant
is a corporation organized under the laws of the Philippines or a partnership duly
registered, service may be made on the president, manager, secretary, cashier,
agent, or any of its directors.– (italics supplied).
Petitioner contends that the enumeration of persons to whom summons may be
served is “restricted, limited and exclusive– following the rule on statutory
construction expressio unios est exclusio alterius and argues that if the Rules of
Court Revision Committee intended to liberalize the rule on service of summons, it
could have easily done so by clear and concise language.
We agree with petitioner.
Earlier cases have uphold service of summons upon a construction project
manager;15 a corporation’s assistant manager;16ordinary clerk of a
corporation;17 private secretary of
________________
14 It was approved by this Court in its Resolution dated April 8, 1998 in Bar
Matter No. 803 to take effect on July 1, 1997.
15 Kanlaon Construction Enterprises Co., Inc. vs. NLRC, 279 SCRA 337 [1997].
16 Gesulgon vs. NLRC, 219 SCRA 561 [1993].
17 Golden Country Farms, Inc. vs. Sanvar Development Corporation, 214 SCRA
295 [1992]; G & G Trading Corporation vs. Court of Appeals, 158 SCRA 466 [1988].
72
72 SUPREME COURT REPORTS ANNOTATED
E.B. Villarosa & Partner Co., Ltd. vs. Benito
corporate executives;18 retained counsel;19 officials who had charge or control of the
operations of the corporation, like the assistant general manager; 20 or the
corporation’s Chief Finance and Administrative Officer.21 In these cases, these
persons were considered as “agent– within the contemplation of the old
rule.22Notably, under the new Rules, service of summons upon an agent of the
corporation is no longer authorized.
The cases cited by private respondent are therefore not in point.
 In the Kanlaon case, this Court ruled that under the NLRC Rules of Procedure,
summons on the respondent shall be served personally or by registered mail on the
party himself; if the party is represented by counsel or any other authorized
representative or agent, summons shall be served on such person. In said case,
summons was served on one Engr. Estacio who managed and supervised the
construction project in Iligan City (although the principal address of the corporation
is in Quezon City) and supervised the work of the employees. It was held that as
manager, he had sufficient responsibility and discretion to realize the importance of
the legal papers served on him and to relay the same to the president or other
responsible officer of petitioner such that summons for petitioner was validly served
on him as agent and authorized representative of petitioner. Also in the Gesulgon
case cited by private respondent, the summons was received by the clerk in the office
of the Assistant Manager (at principal office address) and under Section 13 of Rule
14 (old rule),
________________
18 Summit Trading and Development Corporation vs. Avendaño, 135 SCRA
397[1985].
19 Republic vs. Ker & Co., Ltd., 18 SCRA 207 [1966].
20 Villa Rey Transit, Inc. vs. Far East Motor Corporation, 81 SCRA 298 [1978].
21 Far Corporation vs. Francisco, 146 SCRA 197 [1986].
22 See also, Filoil Marketing Corporation vs. Marine Development Corporation
of the Philippines, 177 SCRA 86 [1982].
73
VOL. 312, AUGUST 6, 1999 73
E.B. Villarosa & Partner Co., Ltd. vs. Benito
summons may be made upon the clerk who is regarded as agent within the
contemplation of the rule.
The designation of persons or officers who are authorized to accept summons for
a domestic corporation or partnership is now limited and more clearly specified in
Section 11, Rule 14 of the 1997 Rules of Civil Procedure. The rule now states “general
manager– instead of only “manager–; “corporate secretary– instead of “secretary–;
and “treasurer– instead of “cashier.– The phrase “agent, or any of its directors– is
conspicuously deleted in the new rule.
The particular revision under Section 11 of Rule 14 was explained by retired
Supreme Court Justice Florenz Regalado, thus:23
“x x x the then Sec. 13 of this Rule allowed service upon a defendant corporation to
‘be made on the president, manager, secretary, cashier, agent or any of its
directors.’ The aforesaid terms were obviously ambiguous and susceptible of broad
and sometimes illogical interpretations, especially the word ‘agent’ of the
corporation. The Filoil case, involving the litigation lawyer of the corporation who
precisely appeared to challenge the validity of service of summons but whose very
appearance for that purpose was seized upon to validate the defective service, is an
illustration of the need for this revised section with limited scope and specific
terminology. Thus the absurd result in the Filoil case necessitated the amendment
permitting service only on the in-house counsel of the corporation who is in effect an
employee of the corporation, as distinguished from an independent practitioner.–
(italics supplied)
Retired Justice Oscar Herrera, who is also a consultant of the Rules of Court
Revision Committee, stated that “(T)he rule must be strictly observed. Service must
be made to one named in (the) statute x x x.–24
It should be noted that even prior to the effectivity of the 1997 Rules of Civil
Procedure, strict compliance with the rules
________________
23 p. 224, Remedial Law Compendium, Vol. 1, 1997. He is also Vice-Chairman of
the Rules of Court Revision Committee.
24 p. 147, Remedial Law, Vol. VII, 1997 Edition.
74
74 SUPREME COURT REPORTS ANNOTATED
E.B. Villarosa & Partner Co., Ltd. vs. Benito
has been enjoined. In the case of Delta Motor Sales Corporation vs. Mangosing,25 the
Court held:
“A strict compliance with the mode of service is necessary to confer jurisdiction of
the court over a corporation. The officer upon whom service is made must be one who
is named in the statute; otherwise the service is insufficient. x x x.
The purpose is to render it reasonably certain that the corporation will receive
prompt and proper notice in an action against it or to insure that the summons be
served on a representative so integrated with the corporation that such person will
know what to do with the legal papers served on him. In other words, ‘to bring home
to the corporation notice of the filing of the action.’ x x x.
The liberal construction rule cannot be invoked and utilized as a substitute for
the plain legal requirements as to the manner in which summons should be served on
a domestic corporation. x x x.– (italics supplied).
Service of summons upon persons other than those mentioned in Section 13 of Rule
14 (old rule) has been held as improper.26 Even under the old rule, service upon a
general manager of a firm’s branch office has been held as improper as summons
should have been served at the firm’s principal office. In First Integrated Bonding &
Ins. Co., Inc. vs. Dizon,27 it was held that the service of summons on the general
manager of the insurance firm’s Cebu branch was improper; default order could have
been obviated had the summons been served at the firm’s principal office.
And in the case of Solar Team Entertainment, Inc. vs. Hon. Helen Bautista
Ricafort, et al.,28 the Court succinctly clarified
_______________
70 SCRA 598 (1976).
25
Talsan Enterprises, Inc., et al. vs. Baliwag Transit, Inc. and Angeles
26
Ramos, G.R. 126258, July 8, 1999, 310 SCRA 156; R. Transport Corporation vs.
Court of Appeals, 241 SCRA 77; ATM Trucking, Inc. vs. Buencamino, 124 SCRA
434; Delta Motors Sales Corporation vs. Mangosing, supra.
27 125 SCRA 440; also cited in Regalado, Remedial Law Compendium, Vol. 1,
1997 at p. 223.
28 G.R. No. 132007, August 5, 1998, 293 SCRA 661.
75
VOL. 312, AUGUST 6, 1999 75
E.B. Villarosa & Partner Co., Ltd. vs. Benito
that, for the guidance of the Bench and Bar, “strictest– compliance with Section 11 ––o0o––
of Rule 13 of the 1997 Rules of Civil Procedure (on priorities in modes of service and
filing) is mandated and the Court cannot rule otherwise, lest we allow circumvention ________________
of the innovation by the 1997 Rules in order to obviate delay in the administration
of justice. 32 Gan Hock vs. Court of Appeals, 197 SCRA 223 [1991]; Keister vs. Navarro, 77
Accordingly, we rule that the service of summons upon the branch manager of SCRA 209 [1997].
petitioner at its branch office at Cagayan de Oro, instead of upon the general
manager at its principal office at Davao City is improper. Consequently, the trial
G.R. No. 144568. July 3, 2007.*
court did not acquire jurisdiction over the person of the petitioner.
GUILLERMA S. SABLAS, joined by her husband, PASCUAL LUMANAS,
The fact that defendant filed a belated motion to dismiss did not operate to confer
petitioners, vs. ESTERLITA S. SABLAS and RODULFO S. SABLAS, respondents.
jurisdiction upon its person. There is no question that the defendant’s voluntary
Actions; Default; Elements; An order of default can be made only upon motion
appearance in the action is equivalent to service of summons.29 Before, the rule was
of the claiming party.—The elements of a valid declaration of default are: 1. the court
that a party may challenge the jurisdiction of the court over his person by making a
has validly acquired jurisdiction over the person of the defending party either by
special appearance through a motion to dismiss and if in the same motion, the
service of summons or voluntary appearance; 2. the defending party failed to file the
movant raised other grounds or invoked affirmative relief which necessarily involves
answer within the time allowed therefor and 3. a motion to declare the defending
the exercise of the jurisdiction of the court, the party is deemed to have submitted
party in default has been filed by the claiming party with notice to the defending
himself to the jurisdiction of the court. 30 This doctrine has been abandoned in the
party. An order of default can be made only upon motion of the claiming party. It
case of La Naval Drug Corporation vs. Court of Appeals, et al.,31which became the
can be properly issued against the defending party who failed to file the answer
basis of the adoption of a new provision in the former Section 23, which is now
within the prescribed period only if the claiming party files a motion to that effect
Section 20 of Rule 14 of the 1997 Rules. Section 20 now provides that “the inclusion
with notice to the defending party.
in a motion to dismiss of other grounds aside from lack of jurisdiction over the person
of the defendant shall not be deemed a voluntary appearance.– The emplacement of
this rule clearly underscores the purpose to enforce strict enforcement of the rules _______________
on summons. Accordingly, the filing of a
__________________
*FIRST DIVISION.
293
Section 20 (formerly Section 23), Rule 14.
29 VOL. 526, JULY 3, 2007 293
De Midgely vs. Fernando, 64 SCRA 23 [1975]; Busuego vs. Court of
30
Sablas vs. Sablas
Appeals, 151 SCRA 376 [1987].
31 236 SCRA 78 [1994], also cited in pp. 244-245, Regalado, Remedial Law
Same; Same; The trial court cannot motu proprio declare a defendant in
default as the rules leave it up to the claiming party to protect his or its interests.—
Compendium, 1997 and p. 157, Herrera, Remedial Law; Vol. VII, 1997 Edition.
Three requirements must be complied with before the court can declare the
76
defending party in default: (1) the claiming party must file a motion asking the court
76 SUPREME COURT REPORTS ANNOTATED to declare the defending party in default; (2) the defending party must be notified of
E.B. Villarosa & Partner Co., Ltd. vs. Benito the motion to declare him in default and (3) the claiming party must prove that the
motion to dismiss, whether or not belatedly filed by the defendant, his authorized defending party has failed to answer within the period provided by the Rules of
agent or attorney, precisely objecting to the jurisdiction of the court over the person Court. The rule on default requires the filing of a motion and notice of such motion
of the defendant can by no means be deemed a submission to the jurisdiction of the to the defending party. It is not enough that the defendant fails to answer the
court. There being no proper service of summons, the trial court cannot take complaint within the reglementary period. The trial court cannot motu
cognizance of a case for lack of jurisdiction over the person of the defendant. Any proprio declare a defendant in default as the rules leave it up to the claiming party
proceeding undertaken by the trial court will consequently be null and void.32 to protect his or its interests. The trial court should not under any circumstances act
WHEREFORE, the petition is hereby GRANTED. The assailed Orders of the as counsel of the claiming party.
public respondent trial court are ANNULLED and SETASIDE. The public Same; Same; Where there is no declaration of default, the answer may be
respondent Regional Trial Court of Makati, Branch 132 is declared without admitted even if filed out of time—the rule is that the defendant’s answer should be
admitted where it is filed before a declaration of default and no prejudice is caused
jurisdiction to take cognizance of Civil Case No. 98-824, and all its orders and
to the plaintiff.—It is within the sound discretion of the trial court to permit the
issuances in connection therewith are hereby ANNULLED andSET ASIDE.
SO ORDERED. defendant to file his answer and to be heard on the merits even after the
reglementary period for filing the answer expires. The Rules of Court provides for
Melo (Chairman), Vitug, Panganiban and Purisima, JJ.,concur.
discretion on the part of the trial court not only to extend the time for filing an
Petition granted; Assailed orders annulled and set aside.
answer but also to allow an answer to be filed after the reglementary period. Thus,
Note.–Voluntary appearance could cure a defect in the service of summons.
(Tuason vs. Court of Appeals, 268 SCRA 42 [1997]) the appellate court erred when it ruled that the trial court had no recourse but to
declare petitioner spouses in default when they failed to file their answer on or before
November 5, 1999. The rule is that the defendant’s answer should be admitted where
it is filed before a declaration of default and no prejudice is caused to the plaintiff.
Where the answer is filed beyond the reglementary period but before the defendant
is declared in default and there is no showing that defendant intends to delay the
case, the answer should be admitted.
Same; Same; Where answer has been filed, there can be no declaration of
default anymore.—Since the trial court already admitted the answer, it was correct
in denying the subsequent motion of respondents to declare petitioner spouses in
default. In Cathay Pacific Airways, Ltd. v. Hon. Romillo, Jr., 141 SCRA 451 (1986),
the Court ruled that it was error to declare the defending party in default after
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294 SUPREME COURT REPORTS ANNOTATED
Sablas vs. Sablas
the answer was filed. The Court was in fact even more emphatic in Indiana
Aerospace University v. Commission on Higher Education, 356 SCRA 367 (2001): it
was grave abuse of discretion to declare a defending party in default despite the
latter’s filing of an answer.
Same; Same; A case is best decided when all contending parties are able to
ventilate their respective claims, present their arguments and adduce evidence in
support thereof.—The policy of the law is to have every litigant’s case tried on the
merits as much as possible. Hence, judgments by default are frowned upon. A case
is best decided when all contending parties are able to ventilate their respective
claims, present their arguments and adduce evidence in support thereof. The parties
are thus given the chance to be heard fully and the demands of due process are
subserved. Moreover, it is only amidst such an atmosphere that accurate factual
findings and correct legal conclusions can be reached by the courts.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Juanito V. Raza for petitioners.
Arturo Astorga for respondents.
CORONA, J.:
This case traces its roots to a complaint for judicial partition, inventory and
accounting filed by respondents Esterlita S. Sablas and Rodulfo S. Sablas against
petitioner spouses Pascual Lumanas and Guillerma S. Sablas in the Regional Trial
Court of Baybay, Leyte, Branch 141 on October 1, 1999.2
Petitioner spouses were served with summons and a copy of the complaint on
October 6, 1999. On October 21, 1999, they filed a motion for extension of time
requesting an additional period of 15 days, or until November 5, 1999, to file
_______________
1Presided by Judge Cristina T. Pontejos.
2The case was docketed as Civil Case No. B-1999-10-24.
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Sablas vs. Sablas
their answer. However, they were able to file it only on November 8, 1999. While the
trial court observed that the answer was filed out of time, it admitted the pleading
because no motion to declare petitioner spouses in default was filed.3
The following day, November 9, 1999, respondents filed a motion to declare
petitioner spouses in default.4 It was denied by the trial court in an order dated
December 6, 1999.5 Respondents moved for reconsideration but it was also
denied.6 Thereafter, they challenged the December 6, 1999 order in the Court of
Appeals in a petition for certiorari7 alleging that the admission of the answer by the
trial court was contrary to the rules of procedure and constituted grave abuse of
discretion amounting to lack of jurisdiction.
In a decision dated July 17, 2000,8 the appellate court ruled that the trial court
committed grave abuse of discretion because, pursuant to Section 3, Rule 9 of the
Rules of Court, the trial court had no recourse but to declare petitioner spouses in
default when they failed to file their answer on or before No-vember 5, 1999. Thus,
the Court of Appeals granted the petition, vacated the December 6, 1999 order and
remanded the case to the trial court for reception of plaintiffs’ evidence.
_______________
Order dated November 9, 1999. Rollo, p. 52.
3
The answer was served on respondents’ counsel by registered mail and
4
respondents alleged that they were unaware that petitioner spouses already
answered the complaint.
5 Rollo, p. 24.
6 Resolution dated January 11, 2000. Id., pp. 25-26.
7 Under Rule 65 of the Rules of Court. The case was docketed as CA-G.R. SP No.
57397.
8 Penned by Associate Justice Andres B. Reyes, Jr. and concurred in by Associate
Justices Qu irino D. Abad-Santos, Jr. (retired) and Romeo A. Brawner (retired) of
the Third Division of the Court of Appeals. Rollo, pp. 63-67.
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296 SUPREME COURT REPORTS ANNOTATED
Sablas vs. Sablas
Aggrieved, petitioner spouses (defendants in the trial court) now assail the July 17,
2000 decision of the Court of Appeals in this petition for review on certiorari.9
Petitioner spouses contend that the Court of Appeals decision was not in accord
with the rules of procedure as it misconstrued Section 3, Rule 9 of the Rules of Court
and was in contravention of jurisprudence.
We agree.
WHERE THERE IS NO MOTION,THERE CAN BE NO DECLARATION OF
DEFAULT
The elements of a valid declaration of default are:
1. 1.the court has validly acquired jurisdiction over the person of the defending
party either by service of summons or voluntary appearance; 10
 2. 2.the defending party failed to file the answer within the time allowed
therefor and
3. 3.a motion to declare the defending party in default has been filed by the
claiming party with notice to the defending party.
An order of default can be made only upon motion of the claiming party.11 It can be
properly issued against the defending party who failed to file the answer within the
prescribed period only if the claiming party files a motion to that effect with notice
to the defending party.
In this connection, Section 3, Rule 9 of the Rules of Court provides:
_______________
9 Under Rule 45 of the Rules of Court.
10 Laus v. Court of Appeals, G.R. No. 101256, 08 March 1993, 219 SCRA 688.
11 Mediserv, Inc. v. China Banking Corporation, G.R. No. 140755, 17 April
2001, 356 SCRA 616.
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Sablas vs. Sablas
“SEC. 3. Default: Declaration of.—If the defending party fails to answer within the
time allowed therefor, the court shall, upon motion of the claiming party with
notice to the defending party, and proof of such failure, declare the defending party
in default. x x x. (emphasis supplied)
Three requirements must be complied with before the court can declare the
defending party in default: (1) the claiming party must file a motion asking the court
to declare the defending party in default; (2) the defending party must be notified of
the motion to declare him in default and (3) the claiming party must prove that the
defending party has failed to answer within the period provided by the Rules of
Court.12
The rule on default requires the filing of a motion and notice of such motion to
the defending party. It is not enough that the defendant fails to answer the
complaint within the reglementary period.13 The trial court cannot motu
proprio declare a defendant in default14 as the rules leave it up to the claiming party
to protect his or its interests. The trial court should not under any circumstances act
as counsel of the claiming party.
WHERE THERE IS NO DECLARATION OF DEFAULT,ANSWER MAY BE
ADMITTED EVEN IF FILED OUT OF TIME
It is within the sound discretion of the trial court to permit the defendant to file his
answer and to be heard on the merits even after the reglementary period for filing
the answer ex-pires.15 The Rules of Court provides for discretion on the part of the
trial court not only to extend the time for filing an an-
_______________
12 De los Santos v. Carpio, G.R. No. 153696, 11 September 2006, 501 SCRA 390.
13 Id.
14 Viacrucis v. Estenzo, 115 Phil. 556; 5 SCRA 560 (1962); Trajano v. Cruz, G.R.
No. L-47070, 29 December 1977, 80 SCRA 712.
15De Dios v. Court of Appeals, G.R. No. 80491, 12 August 1992, 212 SCRA 519.
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298 SUPREME COURT REPORTS ANNOTATED
Sablas vs. Sablas
swer but also to allow an answer to be filed after the reglementary period.16
Thus, the appellate court erred when it ruled that the trial court had no recourse
but to declare petitioner spouses in default when they failed to file their answer on
or before November 5, 1999.
The rule is that the defendant’s answer should be admitted where it is filed
before a declaration of default and no prejudice is caused to the plaintiff. 17 Where
the answer is filed beyond the reglementary period but before the defendant is
declared in default and there is no showing that defendant intends to delay the case,
the answer should be admitted.18
Therefore, the trial court correctly admitted the answer of petitioner spouses
even if it was filed out of time because, at the time of its filing, they were not yet
declared in default nor was a motion to declare them in default ever filed. Neither
was there a showing that petitioner spouses intended to delay the case.
WHERE ANSWER HAS BEEN FILED, THERE CAN BE NO DECLARATION OF
DEFAULT ANYMORE
Since the trial court already admitted the answer, it was correct in denying the
subsequent motion of respondents to declare petitioner spouses in default.
_______________
16 Regalado, Florenz, REMEDIAL LAW COMPENDIUM, Vol. I, 6th Revised
edition; Section 11, Rule 11, Rules of Court provides:
Sec. 11. Extension of time to plead.—Upon motion and on such terms as may be just,
the court may extend the time to plead provided in these Rules.
The court may also, upon like terms, allow an answer or other pleading to be
filed after the time fixed by these Rules.
17 Trajano v. Cruz, supra.
18 Cathay Pacific Airways, Ltd. v. Hon. Romillo, Jr., 225 Phil. 397; 141 SCRA
451(1986).
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Sablas vs. Sablas
In Cathay Pacific Airways, Ltd. v. Hon. Romillo, Jr.,19 the Court ruled that it was
error to declare the defending party in default after the answer was filed. The Court
was in fact even more emphatic in Indiana Aerospace University v. Commission on
Higher Education:20it was grave abuse of discretion to declare a defending party in
default despite the latter’s filing of an answer.
The policy of the law is to have every litigant’s case tried on the merits as much
as possible. Hence, judgments by default are frowned upon.21 A case is best decided
when all contending parties are able to ventilate their respective claims, present
their arguments and adduce evidence in support thereof. The parties are thus given
the chance to be heard fully and the demands of due process are subserved.
Moreover, it is only amidst such an atmosphere that accurate factual findings and
correct legal conclusions can be reached by the courts.
 Accordingly, the petition is hereby GRANTED. The July 17, 2000 decision of the
Court of Appeals in CA-G.R. SP No. 57397 is REVERSED and SET ASIDE and the
December 6, 1999 order of the Regional Trial Court of Baybay, Leyte, Branch 14 is
REINSTATED. The case is REMANDED to the trial court for further proceedings.
SO ORDERED.
Puno (C.J., Chairperson), Azcuna and Garcia, JJ., concur.
Sandoval-Gutierrez, J., On Leave.
Petition granted, judgment reversed and set aside. That of the Regional Trial
Court of Baybay, Leyte, Br. 14 reinstated.

_______________

19 Id.
20 G.R. No. 139371, 04 April 2001, 356 SCRA 367.
21 Cathay Pacific Airways, Ltd. v. Romillo, Jr., supra.

300
300 SUPREME COURT REPORTS ANNOTATED
Cordova vs. Reyes Daway Lim Bernardo Lindo Rosales Law Offices
Notes.—The trial court gravely abuses its discretion when it declares a
defendant in default despite the latter’s filing of an answer. A defendant’s answer
should be admitted where it had been filed before it was declared in default, and no
prejudice is caused to plaintiff. (Indiana Aerospace University vs. Commission on
Higher Education [CHED], 356 SCRA 367 [2001])
There is no rule or jurisprudence that mandates that a Motion to Dismiss and a
Motion to Declare Defendants in Default cannot be resolved together. (Mediserv, Inc.
vs. China Banking Corporation, 356 SCRA 616 [2001])

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