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YUJUICO v UNTED RESOURCES

The notice stated that, pursuant to the request10 earlier filed by Atty. Nethercott before "the
FIRST DIVISION notary public of Bayambang, Pangasinan" the public auction of the pledged STRADEC stocks
had been set at 8:30 in the morning of 23 June 2004 in front of the municipal building of
Bayambang, Pangasinan.11ChanRoblesVirtualawlibrary
G.R. No. 211113, June 29, 2015
On 21 June 2004, petitioner filed before the Regional Trial Court (RTC) of Pasig City an
ADERITO Z. YUJUICO, Petitioner, v. UNITED RESOURCES ASSET MANAGEMENT, INC., injunction complaint12 seeking to enjoin the sale at public auction mentioned in Atty.
ATTY. RICHARD J. NETHERCOTT AND ATTY. HONORATO R. MATABAN, Respondents. Nethercott's notice. Impleaded as defendants in such complaint were URAMI, Atty. Nethercott
and herein respondent Atty. Honorato R. Mataban (Atty. Mataban)—the notary public referred
DECISION to in the notice as the one requested by Atty. Nethercott to conduct the auction of the pledged
stocks.
PEREZ, J.:
In the complaint, petitioner argued that the planned auction sale of the stocks pledged under
the Pledge Agreements is void as the same suffers from a multitude of fatal defects; one of
This case is an appeal1 from the Decision2 dated 12 August 2013 and Resolution3 dated 29 which is the supposed lack of authority of Atty. Nethercott to initiate such a sale on behalf of
January 2014 of the Court of Appeals in CA-G.R. SP No. 117431. URAMI. As petitioner elaborated:
chanRoblesvirtualLawlibrary
The antecedents:
(k) [Atty. Nethercott] has no valid authority to represent URAMI for any
Prelude purpose, xxx. He is neither the counsel nor the agent of URAMI, whose
authorized representative under Section 9, paragraph 10 of the Loan
Agreement is its Chief Operating Officer, Ms. Lorna P. Feliciano. There has
The Strategic Alliance Development Corporation (STRADEC) is a domestic corporation been no modification of this provision in accordance with paragraph 9.04 of
operating as a business development and investment company. the same provision.13
chanroblesvirtuallawlibrary
In 2000, several stockholders4 of STRADEC executed Pledge Agreements5 whereby they
pledged a certain amount of their stocks 6 in the said company in favor of the respondent The injunction complaint, which also contained prayers for the issuance of a temporary
United Resources Asset Management, Inc. (URAMI). These pledges were meant to secure the restraining order and of a writ of preliminary injunction, was docketed in the RTC as Civil Case
loan obligations of STRADEC to URAMI under their Loan Agreement7 of 28 December 2000. No. 70027.

The Sale and URAMI's Answer with Counterclaim

One of the stockholders of STRADEC who so pledged his shares in STRADEC was petitioner
Aderito Z. Yujuico. As the RTC did not issue a temporary restraining order in Civil Case No. 70027, the public
auction of the pledged STRADEC stocks pushed through, as scheduled, on 23 June 2004. In
The Notice and Civil Case No. 70027 that auction, URAMI emerged as the winning bidder for all of the stocks pledged under
the Pledge Agreements.

Apparently, STRADEC had not been able to comply with its payment obligations under On 5 July 2004, however, the RTC issued a writ of preliminary injunction, which effectively
the Loan Agreement. prevented URAMI from appropriating the stocks it had purchased during the auction sale. On
the same day, Atty. Nethercott filed his answer denying the material allegations of the
On 18 June 2004, STRADEC and its stockholders received a notice8 informing them about an injunction complaint.
impending auction sale of the stocks pledged under the Pledge Agreements in order to satisfy
STRADEC's outstanding obligations9 under the Loan Agreement. The notice was sent and More than a year later, or on 21 April 2006, URAMI—which until then was still not able to file
signed by respondent Atty. Richard J. Nethercott (Atty. Nethercott), who claimed to be the an answer of its own—filed with the RTC a motion for leave to file an answer. Attached to the
attorney-in-fact of URAMI. motion was a copy of URAMFs answer.14 On 5 September 2006, the RTC granted URAMI's
motion and allowed the admission of its answer.
Thereafter, proceedings in Civil Case No. 70027 resumed.
In its answer, URAMI agreed with the petitioner that the 23 June 2004 auction sale was void;
URAMI admitted that it never authorized Atty. Nethercott to cause the sale of the stocks URAMI's Change of Counsel and Amended Answer
pledged under the Pledge Agreements. URAMI, however, pointed out that, since it never
sanctioned the 23 June 2004 auction sale, it similarly cannot be held liable to the petitioner for
any prejudice that may be caused by the conduct of such auction sale, viz.: On 26 January 2009, URAMI changed its counsel of record for Civil Case No. 70027. The law
chanRoblesvirtualLawlibrary firm Villlanueva, Gabionza & De Santos (VGD law firm), which hitherto had been URAMI's
counsel of record, was thus replaced by Atty. Edward P. Chico (Atty. Chico).
4.1 The [injunction complaint] dated 28 June 2004 fails to state a cause of
action only insofar as it seeks judgment ordering URAMI to pay [petitioner] Under the counsel of Atty. Chico, URAMI filed with the RTC an amended answer with
the amounts of Five Hundred Thousand Pesos (Php 500,000.00) as compulsory counterclaim (amended answer)20 on 23 February 2009. The amended answer
attorney's fees and One Hundred Thousand Pesos (Php 100,000.00) as was meant to supplant URAMI's original answer, which had been prepared by the VGD law
legal expenses. firm.

4.1.1. It bears emphasizing that the extra-judicial foreclosure of the In its amended answer, URAMI still vouched for the dismissal of the injunction
pledged shares conducted by [Atty. Nethercott] was without valid complaint but reneged from its previous admissions under the original answer. This time,
authority from URAMI. Consequently, it cannot be made liable for the URAMI claimed that the 23 June 2004 auction sale was valid and that it duly authorized Atty.
acts of another. Nethercott to initiate such sale on its behalf.21ChanRoblesVirtualawlibrary

4.1.2. URAMI never sanctioned or directed the questioned auction On 12 March 2009, petitioner filed with the RTC a motion to strike out URAMI's amended
sale. Neither did URAMI give its consent, explicit or otherwise, to answer on the grounds that: (1) it was not timely filed; (2) it was filed without leave of court; and
said foreclosure or any subsequent acts of [Atty. Nethercott] (3) its admission would prejudice petitioner's rights. In an order of even date, however, the
pursuant thereto. Hence, no liability whatsoever may be imputed to RTC denied petitioner's motion and allowed admission of URAMI's amended answer.
URAMI.
On 27 March 2009, petitioner filed with the RTC a motion for reconsideration of the order
4.1.3. If at all, the recourse of the plaintiff is solely against [Atty. allowing admission of URAMI's amended answer.
Nethercott].15
On 18 August 2009, the RTC issued an order granting petitioner's motion for reconsideration
Hence, overall, URAMI prayed for the dismissal of the injunction complaint against it. and setting aside its earlier order allowing admission of URAMI's amended answer. In the said
order, the RTC explained that the amended answer could not be admitted just yet as the same
Petitioner's Motion for Summary Judgment and the Suspension of Civil Case No. 70027 had been filed by URAMI without first securing leave of court.

Thus, on 21 September 2009, URAMI filed with the RTC a motion for leave to file an amended
On 29 May 2007, petitioner filed with the RTC a motion for summary judgment16 arguing that,
answer (motion for leave).22 In the said motion, URAMI formally asked permission from the
in view of the admissions made by URAMI in its answer regarding Atty. Nethercott's lack of
RTC to allow it to file the amended answer explaining that the original answer filed by its
authority to cause the auction sale of pledged stocks, there was no longer any genuine issue
previous counsel "does not bear truthful factual allegations and is indubitably not supported by
left to be resolved in trial.
evidence on record."23ChanRoblesVirtualawlibrary
URAMI and Atty. Nethercott both filed comments on petitioner's motion for summary judgment.
On 10 November 2009, the RTC issued an Order24 granting URAMI's motion for leave.
The resolution of petitioner's motion for summary judgment, however, was deferred when, on
Petitioner filed a motion for reconsideration against the 10 November 2009 Order, but the
25 July 2007, this Court issued in G.R. No. 17706817 a temporary restraining order18 calling to
same was denied by the RTC in its Order25 of 27 September 2010.
a halt the conduct of further proceedings in Civil Case No. 70027. This temporary restraining
order remained in effect for more than a year until it was finally lifted by this Court on 13
CA-G.R. SP No. 117431 and the Present Appeal
October 2008.19ChanRoblesVirtualawlibrary
In this case, URAMI filed its motion for leave seeking the admission of its amended
Defeated but undeterred, petitioner next challenged the Orders dated 10 November 2009 and answer more than two (2) years after it filed its original answer. Despite the considerable lapse
27 September 2010 of the RTC through a certiorari petition before the Court of Appeals. of time between the filing of the original answer and the motion for leave, the RTC still granted
This certiorari petition was docketed in the Court of Appeals as CA-G.R. SP No. 117431. the said motion. Such grant was later affirmed on appeal by the Court of Appeals.

On 12 August 2013, the Court of Appeals rendered a Decision 26 sustaining the challenged Petitioner, however, opposes the grant of leave arguing that URAMI is precluded from filing an
orders of the RTC and dismissing petitioner's certiorari petition. Petitioner moved for amended answer by Section 4 of Rule 129 of the Rules of Court and claiming that
reconsideration, but the Court of Appeals remained steadfast. 27ChanRoblesVirtualawlibrary URAMI's amended answer was only interposed for the purpose of delaying the proceedings in
Civil Case No. 70027.
Hence, the present appeal.
We rule in favor of allowing URAMI's amended answer. Hence, we deny the present appeal.
In the present appeal, petitioner argues that the Court of Appeals erred in sustaining the orders
of the RTC allowing URAMI to file its amended answer. Petitioner argues that URAMI should First. We cannot subscribe to petitioner's argument that Section 4 of Rule 129 of the Rules of
not have been so allowed for the following reasons:28 Court precludes URAMI from filing its amended answer. To begin with, the said provision does
not set the be-all and end-all standard upon which amendments to pleadings may or may not
be allowed. Matters involving the amendment of pleadings are primarily governed by the
1. URAMI had not shown that the admissions it made under the original answer were
pertinent provisions of Rule 10 and not by Section 4 of Rule 129 of the Rule of Court. Hence,
made through "palpable mistake" Hence, pursuant to Section 4 of Rule 129 of the
allegations (and admissions) in a pleading—even if not shown to be made through "palpable
Rules of Court,29 URAMI is barred from contradicting such admissions through the
mistake"—can still be corrected or amended provided that the amendment is sanctioned under
filing of its amended answer.
Rule 10 of the Rules of Court.

2. The amended answer is merely a ploy of URAMI to further delay the proceedings in Nevertheless, even if we are to apply Section 4 of Rule 129 to the present case, we still find
Civil Case No. 70027. the allowance of URAMI's amended answer to be in order. To our mind, a consideration of the
evidence that URAMI plans to present during trial indubitably reveals that the admissions
Thus, petitioner prays that we set aside the decision of the Court of Appeals, disallow made by URAMI under its original answer were a product of clear and patent mistake.
URAMI's amended answer and direct the RTC in Civil Case No. 70027 to resolve his motion
for summary judgment with dispatch.30ChanRoblesVirtualawlibrary One of the key documents that URAMI plans to present during trial, which it also attached in
its amended answer as "Annex 8" thereof, is URAMI's Board Resolution38 dated 21 June 2004
OUR RULING that evinces Atty. Nethercott's authority to cause the foreclosure on the pledged stocks on
behalf of URAMI. With the existence of such board resolution, the statement in URAMI's
original answer pertaining to the lack of authority of Atty. Nethercott to initiate the 23 June 2004
Our rules of procedure allow a party in a civil action to amend his pleading as a matter of right, auction sale thus appears mistaken, if not entirely baseless and unfounded. Hence, we find it
so long as the pleading is amended only once and before a responsive pleading is served (or, only right and fair, that URAMI should be given a chance to file its amended answer in order to
if the pleading sought to be amended is a reply, within ten days after it is served).31 Otherwise, rectify such mistakes in its original answer.
a party can only amend his pleading upon prior leave of court. 32ChanRoblesVirtualawlibrary
Second. We also cannot agree with the petitioner's accusation that the amended answer was
As a matter of judicial policy, courts are impelled to treat motions for leave to file amended only interposed to further delay the proceedings in Civil Case No. 70027. As the previous
pleadings with liberality.33 This is especially true when a motion for leave is filed during the discussion reveal, the amended answer aims to correct certain allegations of fact in the
early stages of proceedings or, at least, before trial. 34 Our case law had long taught that bona original answer which, needless to state, are crucial to a full and proper disposition of Civil
fide amendments to pleadings should be allowed in the interest of justice so that every case Case No. 70027. It is, therefore, in the best interest of justice and equity that URAMI should be
may, so far as possible, be determined on its real facts and the multiplicity of suits thus be allowed to file the amended answer.
prevented.35 Hence, as long as it does not appear that the motion for leave was made with bad
faith or with intent to delay the proceedings,36 courts are justified to grant leave and allow the Third. The mere fact that URAMI filed its motion for leave years after the original answer is
filing of an amended pleading. Once a court grants leave to file an amended pleading, the also not reason enough in itself to discredit the amended answer as a sheer dilatory measure.
same becomes binding and will not be disturbed on appeal unless it appears that the court had Readily observable from the established facts is that the perceived delay between the filing of
abused its discretion.37ChanRoblesVirtualawlibrary the motion for leave and the filing of the original answer is not purely attributable to URAMI. It
must be remembered that some time after the original answer was filed, we issued a LISAM ENTERPRISES, INC. represented by LOLITA A. SORIANO, and LOLITA A.
temporary restraining order in G.R. No. 177068 that effectively suspended the proceedings in SORIANO, Petitioners,
Civil Case No. 70027 for more than a year. Thus, even if it wanted to, URAMI really could not vs.
have filed a motion for leave to file amended answer sooner than it already had. On this score, BANCO DE ORO UNIBANK, INC. (formerly PHILIPPINE COMMERCIAL INTERNATIONAL
we note that it only took URAMI a little over three months after the lifting of the temporary BANK),* LILIAN S. SORIANO, ESTATE OF LEANDRO A. SORIANO, JR., REGISTER OF
restraining order to replace its previous counsel of record in Civil Case No. 70027 and to file DEEDS OF LEGASPI CITY, and JESUS L. SARTE, Respondents.
its amended answer.
DECISION
Fourth. All in all, we find absolutely no cause to overrule the grant of leave granted to URAMI
to file its amended answer. The said grant is consistent with our time-honored judicial policy of
PERALTA, J.:
affording liberal treatment to amendments to pleadings, especially those made before the
conduct of trial.
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying
We should always remember that our rules of procedure are mere tools designed to facilitate that the Resolution1 of the Regional Trial Court of Legaspi City (RTC), dated November 11,
the attainment of justice. Their application should never be allowed to frustrate the truth and 1999, dismissing petitioners’ complaint, and its Order2 dated May 15, 2000, denying herein
the promotion of substantial justice.39 Were we to succumb to petitioner's arguments today, petitioners’ Motion for Reconsideration and Motion to Admit Amended Complaint, be reversed
however, we would have sanctioned an outcome totally inconsistent with the underlying and set aside.
purpose of our procedural laws. That, we simply cannot countenance.
The records reveal the following antecedent facts.
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision dated 12
August 2013 and Resolution dated 29 January 2014 of the Court of Appeals in CA-G.R. SP No. On August 13, 1999, petitioners filed a Complaint against respondents for Annulment of
117431 are hereby AFFIRMED. 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
SO ORDERED.cralawlawlibrary 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:

xxxx

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 ₱20 Million;

LISAM ENTERPRISES v BDO 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
THIRD DIVISION 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
G.R. No. 143264 April 23, 2012
Mortgage is hereto attached and marked as Annex "B," and made part hereof, to the prejudice instigation of the latter, signed a document denominated as "Deed of Assumption of Loans and
of plaintiffs; Mortgage Obligations and Amendment of Mortgage"; wherein in said document, plaintiff LEI
was made to assume the ₱20 Million personal indebtedness of the Spouses Soriano with
7. That specifically, the Spouses Soriano, with intent to defraud and prejudice plaintiff LEI and defendant PCIB, when in fact and in truth it never so assumed the same as no board resolution
its stockholders, falsified the signatures of plaintiff Lolita A. Soriano as corporate secretary and duly certified to by plaintiff Lolita A. Soriano as corporate secretary was ever issued to that
director of plaintiff LEI, in a document denominated as board resolution purportedly issued by effect, copy of said Deed is hereto attached and marked as Annex "D," and made part hereof;
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 12. Moreover, to make it appear that plaintiff LEI had consented to the execution of said deed
encumber all or substantially all of the properties of plaintiff LEI, when in fact and in truth, no of assumption of mortgage, the Spouses Soriano again, through the unlawful instigation and
resolution of that nature was ever issued by the board of plaintiff LEI, nor a meeting was called connivance of defendant PCIB, falsified the signature of plaintiff Lolita A. Soriano as corporate
to that effect, copy of the resolution in question is hereto attached and marked as Annex "C," secretary of plaintiff LEI in a document denominated as "Corporate Resolution to Borrow," to
and made part hereof; 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
8. That plaintiff Lolita A. Soriano as Corporate Secretary of plaintiff LEI, had never signed a granted by plaintiff LEI, nor a meeting called and held for said purpose in accordance with its
board resolution nor issued a Secretary's Certificate to the effect that on 6 November 1995 a By-laws; copy of which is hereto attached and marked as Annex "E" and made part hereof;
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, 13. That said irregular transactions of defendant Lilian S. Soriano and her husband Leandro A.
neither did she appear personally before a notary public on 28 March 1996 to acknowledge or Soriano, Jr., on one hand, and defendant PCIB, on the other, were discovered by plaintiff Lolita
attest to the issuance of a supposed board resolution issued by plaintiff LEI on 6 November A. Soriano sometime in April 1999. That immediately upon discovery, said plaintiff, for herself
1995; 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
9. That defendant PCIB, knowing fully well that the property being mortgaged by the Spouses such mortgage lien, by paying in full their personal indebtedness to defendant PCIB in the
Soriano belongs to plaintiff LEI, a corporation, negligently and miserably failed to exercise due principal sum of ₱20 Million. However, said defendants, for reason only known to them,
care and prudence required of a banking institution. Specifically, defendant PCIB failed to continued and still continue to ignore said demands, to the damage and prejudice of plaintiffs;
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, 14. Hence, on 25 June 1999, plaintiffs commenced a derivative suit against defendants Lilian
it failed to verify the genuineness of the signatures appearing in said board resolution nor to S. Soriano and the Estate of Leandro A. Soriano, Jr., before the Securities and Exchange
confirm the fact of its issuance with plaintiff Lolita A. Soriano, as the corporate secretary of Commission, docketed as SEC Case No. 06-99-6339 for "Fraudulent Scheme and Unlawful
plaintiff LEI. Furthermore, the height of its negligence was displayed when it disregarded or Machination with Damages" in order to protect and preserve the rights of plaintiffs, copy of said
failed to notice that the questioned board resolution with a Secretary's Certificate was complaint is hereto attached as Annex"F";
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 15. That plaintiffs, in order to seek complete relief from the unauthorized mortgage transaction
defendant PCIB on notice of the flaws and infirmities of the questioned board resolution. between the Spouses Soriano and defendant PCIB, were further compelled to institute this
Unfortunately, it negligently failed to exercise due care and prudence expected of a banking instant case to seek the nullification of the real estate mortgage dated 28 March 1999.
institution; Consequently, plaintiffs were forced to retain the services of a lawyer with whom they
contracted to pay ₱100,000.00 as and for attorney's fee;
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 16. That unfortunately, the plaintiffs learned that on 30 July 1999, defendant Sarte, in his
favor of defendant PCIB, is the null and void and has no legal effect upon said plaintiff. capacity as Notary Public of Daraga, Albay and upon application of defendant PCIB, issued a
Consequently, said mortgage deed cannot be used nor resorted to by defendant PCIB against notice of Auction/Foreclosure Sale of the property subject of the mortgage in question and has
subject property of plaintiff LEI as no right or rights whatsoever were created nor granted set the auction sale on 7 September 1999 x x x;
thereunder by reason of its nullity;
17. That by reason of the fraudulent and surreptitious schemes perpetrated by defendant Lilian
11. Worst, sometime in August 1998, in order to remedy the defects in the mortgage S. Soriano and her husband, the late Leandro A. Soriano, Jr., in unlawful connivance and
transaction entered by the Spouses Soriano and defendant PCIB, the former, with the unlawful 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, upon the Board of Directors of Lisam Enterprises, Inc. to take steps to protect the interest of
should be awarded moral damages in the amount of ₱200,000.00. 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
After service of summons on all defendants, the RTC issued a temporary restraining order on absolutely changed petitioners' cause of action.
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 Petitioners filed the present petition with this Court, alleging that what are involved are pure
auction sale of the subject property. questions of law, to wit:

Respondents Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr. filed an Answer dated FIRST, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE
September 25, 1999, stating that the Spouses Lilian and Leandro Soriano, Jr. were duly ERROR WHEN IT DISMISSED THE ACTION ON THE GROUND THAT
authorized by LEI to mortgage the subject property; that proceeds of the loan from respondent PETITIONER LOLITA A. SORIANO HAS NO LEGAL CAPACITY TO SUE
PCIB were for the use and benefit of LEI; that all notarized documents submitted to PCIB by AS SHE IS NOT A REAL PARTY-IN-INTEREST;
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 SECOND, WHETHER OR NOT THE COURT COMMITTED A
loan, they gave satisfactory explanations to the latter why her demands could not be honored. REVERSIBLE ERROR WHEN IT DISMISSED THE ACTION ON THE
It was, likewise, alleged in said Answer that it was respondent Lilian Soriano who should be GROUND THAT THERE IS ANOTHER ACTION PENDING BETWEEN THE
entitled to moral damages and attorney's fees. SAME PARTIES FOR THE SAME CAUSE;

On September 28, 1999, respondent PCIB filed a Motion to Dismiss the Complaint on grounds THIRD, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE
of lack of legal capacity to sue, failure to state cause of action, and litis pendencia. Petitioners ERROR WHEN IT DISMISSED THE ACTION ON THE GROUND THAT
filed an Opposition thereto, while PCIB's co-defendants filed a Motion to Suspend Action. THE COMPLAINT STATES NO CAUSE OF ACTION;

On November 11, 1999, the RTC issued the first assailed Resolution dismissing petitioners' FOURTH, WHETHER OR NOT THE COURT COMMITTED A
Complaint. Petitioners then filed a Motion for Reconsideration of said Resolution. While REVERSIBLE ERROR WHEN IT DENIED THE ADMISSION OF
awaiting resolution of the motion for reconsideration, petitioners also filed, on January 4, 2000, PETITIONERS' AMENDED COMPLAINT FILED AS A MATTER OF RIGHT,
a Motion to Admit Amended Complaint, amending paragraph 13 of the original complaint to AFTER THE ORDER OF DISMISSAL WAS ISSUED BUT BEFORE ITS
read as follows: FINALITY.

13. That said irregular transactions of defendant Lilian S. Soriano and her husband Leandro A. FIFTH, WHETHER OR NOT THE COURT ERRED IN DISMISSING THE
Soriano, Jr., on one hand, and defendant PCIB, on the other, were discovered by plaintiff Lolita ACTION, INSTEAD OF MERELY SUSPENDING THE SAME FOLLOWING
A. Soriano sometime in April 1999. That immediately upon discovery, said plaintiff, for herself THE DOCTRINE LAID DOWN IN UNION GLASS. 3
and on behalf and for the benefit of plaintiff LEI, made demands upon defendant Lilian S.
Soriano and the Estate of Leandro A. Soriano, Jr., to free subject property of plaintiff LEI from
The petition is impressed with merit.
such mortgage lien, by paying in full their personal indebtedness to defendant PCIB in the
principal sum of ₱20 Million. However, said defendants, for reason only known to them,
continued and still continue to ignore said demands, to the damage and prejudice of The Court shall first delve into the matter of the propriety of the denial of the motion to admit
plaintiffs; that plaintiff Lolita A. Soriano likewise made demands upon the Board of Directors of amended complaint. Pertinent provisions of Rule 10 of the Rules of Court provide as follows:
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 Sec. 2. Amendments as a matter of right. − A party may amend his pleadings once as a matter
Board, hence, this action for the benefit and in behalf of the corporation; of right at any time before a responsive pleading is served x x x.

On May 15, 2000, the trial court issued the questioned Order denying both the Motion for Sec. 3. Amendments by leave of court. − Except as provided in the next preceding section,
Reconsideration and the Motion to Admit Amended Complaint. The trial court held that no new substantial amendments may be made only upon leave of court. But such leave may be
argument had been raised by petitioners in their motion for reconsideration to address the fact refused if it appears to the court that the motion was made with intent to delay. x x x
of plaintiffs' failure to allege in the complaint that petitioner Lolita A. Soriano made demands
It should be noted that respondents Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr. real facts and in order to speed up the trial of the case or prevent the circuitry of action and
already filed their Answer, to petitioners' complaint, and the claims being asserted were made unnecessary expense. That is, unless there are circumstances such as inexcusable delay or
against said parties. A responsive pleading having been filed, amendments to the complaint the taking of the adverse party by surprise or the like, which might justify a refusal of
may, therefore, be made only by leave of court and no longer as a matter of right. However, permission to amend.5
in Tiu v. Philippine Bank of Communications,4 the Court discussed this rule at length, to wit:
Since, as explained above, amendments are generally favored, it would have been more fitting
x x x [A]fter petitioners have filed their answer, Section 3, Rule 10 of the Rules of Court for the trial court to extend such liberality towards petitioners by admitting the amended
specifically allows amendment by leave of court. The said Section states: 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
SECTION 3. Amendments by leave of court. - Except as provided in the next preceding amendment would not have caused any delay. Moreover, doing
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 so would have served the higher interest of justice as this would provide the best opportunity
the court upon the matters provided in this section shall be made upon motion filed in court, for the issues among all parties to be thoroughly threshed out and the rights of all parties finally
and after notice to the adverse party, and an opportunity to be heard. 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.
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: 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
Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil Procedure amended the former rule corporation from said fraudulent transaction, but unfortunately, until now, no such legal step
in such manner that the phrase "or that the cause of action or defense is substantially altered" was ever taken by the Board, hence, this action for the benefit and in behalf of the
was stricken-off and not retained in the new rules. The clear import of such amendment in corporation," does the amended complaint now sufficiently state a cause of action? In Hi-Yield
Section 3, Rule 10 is that under the new rules, "the amendment may (now) substantially alter Realty, Incorporated v. Court of Appeals,6 the Court enumerated the requisites for filing a
the cause of action or defense." This should only be true, however, when despite a substantial derivative suit, as follows:
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 a) the party bringing the suit should be a shareholder as of the time of the act or transaction
the laudable objective of the rules which is to secure a "just, speedy and inexpensive complained of, the number of his shares not being material;
disposition of every action and proceeding."
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
The granting of leave to file amended pleading is a matter particularly addressed to the sound directors for the appropriate relief but the latter has failed or refused to heed his plea; and
discretion of the trial court; and that discretion is broad, subject only to the limitations that the
amendments should not substantially change the cause of action or alter the theory of the case, c) the cause of action actually devolves on the corporation, the wrongdoing or harm having
or that it was not made to delay the action. Nevertheless, as enunciated in Valenzuela, even if been, or being caused to the corporation and not to the particular stockholder bringing the
the amendment substantially alters the cause of action or defense, such amendment could still suit.7
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.
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
The courts should be liberal in allowing amendments to pleadings to avoid a multiplicity and now sufficiently states a cause of action.
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
Respondent PCIB should not complain that admitting the amended complaint after they
liberality is greatest in the early stages of a lawsuit, especially in this case where the
pointed out a defect in the original complaint would be unfair to them. They should have been
amendment was made before the trial of the case, thereby giving the petitioners all the
well aware that due to the changes made by the 1997 Rules of Civil Procedure, amendments
time allowed by law to answer and to prepare for trial.1âwphi1
may now substantially alter the cause of action or defense. It should not have been a surprise
to them that petitioners would redress the defect in the original complaint by substantially
Furthermore, amendments to pleadings are generally favored and should be liberally allowed amending the same, which course of action is now allowed under the new rules.
in furtherance of justice in order that every case, may so far as possible, be determined on its
The next question then is, upon admission of the amended complaint, would it still be proper Trial Court of Legaspi City, Branch 4 is hereby DIRECTED to PROCEED with dispatch in
for the trial court to dismiss the complaint? The Court answers in the negative. trying Civil Case No. 9729.

Saura v. Saura, Jr.8 is closely analogous to the present case. In Saura,9 the petitioners therein, SO ORDERED.
stockholders of a corporation, sold a disputed real property owned by the corporation, despite
the existence of a case in the Securities and Exchange Commission (SEC) between
stockholders for annulment of subscription, recovery of corporate assets and funds, etc. The
sale was done without the knowledge of the other stockholders, thus, said stockholders filed a
separate case for annulment of sale, declaration of nullity of deed of exchange, recovery of
possession, etc., against the stockholders who took part in the sale, and the buyer of the
property, filing said case with the regular court (RTC). Petitioners therein also filed a motion to
dismiss the complaint for annulment of sale filed with the RTC, on the ground of forum
shopping, lack of jurisdiction, lack of cause of action, and litis pendentia among others. The
Court held 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,
TIU v PBCOM
hence, the buyer could not be joined as party-defendant in the SEC case. To include said
buyer as a party-defendant in the case pending with the SEC would violate the then existing
rule on jurisdiction over intra-corporate disputes. The Court also struck down the argument that THIRD DIVISION
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 [G.R. NO. 151932 : August 19, 2009]
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 HENRY CHING TIU, CHRISTOPHER HALIN GO, and GEORGE
final outcome of the SEC case. CO, Petitioners, v. PHILIPPINE BANK OF COMMUNICATIONS, Respondent.

The foregoing pronouncements of the Court are exactly in point with the issues in the present DECISION
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
PERALTA, J.:
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 This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to
resolutions and other documents used to facilitate the execution of the mortgage, while the annul and set aside the Decision1 dated September 28, 2001, rendered by the Court of
issue in the case filed by petitioners with the RTC is the validity of the mortgage itself executed Appeals (CA) in CA-G.R. SP No. 57732, dismissing the petition and affirming the assailed
between the bank and the corporation, purportedly represented by the spouses Leandro and Orders of the Regional Trial Court (RTC) of Cagayan de Oro City, Branch 21 in Civil Case No.
Lilian Soriano, the President and Treasurer of petitioner LEI, respectively. Thus, there is no 99-352, dated December 14, 1999 and January 11, 2000.
reason to dismiss the complaint in this case.
The factual and procedural antecedents are as follows:
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, In June 1993, Asian Water Resources, Inc. (AWRI), represented by herein petitioners, applied
and its Order dated May 15, 2000, denying herein petitioners’ Motion for Reconsideration and for a real estate loan with the Philippine Bank of Communications (PBCOM) to fund its purified
Motion to Admit Amended Complaint, are hereby REVERSED and SET ASIDE. The Regional water distribution business. In support of the loan application, petitioners submitted a Board
Trial Court of Legaspi City, Branch 4, is hereby DIRECTED to ADMIT the Amended Resolution2 dated June 7, 1993. The loan was guaranteed by collateral over the property
Complaint. covered by Transfer Certificate of Title No. T-13020.3 The loan was eventually approved.4

Considering further, that this case has been pending for some time and, under R.A. No. 8799, In August 1996, AWRI applied for a bigger loan from PBCOM for additional capitalization using
it is now the regular courts which have jurisdiction over intra-corporate disputes, the Regional 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 insertion and explained that it was made without the knowledge and consent of the notary
Directors of AWRI to become sureties. Thus, on August 16, 1996, a Surety Agreement 5 was public. PBCOM maintained that the insertion was not a falsification, but was made only to
executed by its Directors and acknowledged by a notary public on the same date. All copies of speak the truth of the parties' intentions. PBCOM also contended that petitioners were already
the Surety Agreement, except two, were kept by PBCOM. Of the two copies kept by the notary primarily liable on the Surety Agreement whether or not the insertion was made, having
public, one copy was retained for his notarial file and the other was sent to the Records admitted in their pleadings that they voluntarily executed and signed the Surety Agreement in
Management and Archives Office, through the Office of the RTC Clerk of Court.6 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
Thereafter, on December 16, 1998, AWRI informed the bank of its desire to surrender and/or admit the amended complaint pursuant to Section 3, Rule 10 of the Rules of Court.
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 On December 14, 1999, the RTC issued an Order 17 allowing the substitution of the altered
denying the request. On May 12, 1999, PBCOM sent a letter to petitioners demanding full document with the original Surety Agreement, the pertinent portion of which reads:
payment of its obligation to the bank.8
August 16, 1996 attached as Annexes "A" to "A-2" of the reply and answer Resolving the
Its demands having remained unheeded, PBCOM instructed its counsel to file a complaint for Motion to Substitute Annexes "A" to "A-2" of the complaint and the opposition thereto by the
collection against petitioners. The case was docketed as Civil Case No. 99-352. 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
On July 3, 1999, petitioners filed their Answer. It alleged, among other things, that they were to counter-claim.
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 SO ORDERED.
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 Petitioners filed a motion for reconsideration,18 but it was denied in the Order19 dated January
intercalated thereon without their knowledge and consent. 10 11, 2000, to wit:

In support of their allegations, petitioners attached to their Answer a certified photocopy of the Resolving the motion for reconsideration and the opposition thereto, the Court finds the motion
Surety Agreement issued on March 25, 1999 by the Records Management and Archives Office substantially a reiteration of the opposition to plaintiff's motion.
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
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
Because of this development, PBCOM's counsel searched for and retrieved the file copy of the order of December 14, 1999.
Surety Agreement. The notarial copy showed that the words "In his personal capacity" did not
appear on page two of the Surety Agreement.13
SO ORDERED.

Petitioners' counsel then asked PBCOM to explain the alteration appearing on the agreement.
Aggrieved, petitioners sought recourse before the CA via a petition for certiorari under Rule 65
PBCOM subsequently discovered that the insertion was ordered by the bank auditor. It alleged
of the Rules of Court, docketed as CA-G.R. SP No. 57732.
that when the Surety Agreement was inspected by the bank auditor, he called the attention of
the loans clerk, Kenneth Cabahug, as to why the words "In his personal capacity" were not
indicated under the signature of each surety, in accordance with bank standard operating Petitioners claimed that the RTC acted without or in excess of jurisdiction, or with grave abuse
procedures. The auditor then ordered Mr. Cabahug to type the words "In his personal capacity" of discretion amounting to lack or excess of jurisdiction in denying their motion for
below the second signatures of petitioners. However, the notary public was never informed of reconsideration and in allowing PBCOM to substitute the altered copy of the Surety Agreement
the insertion.14 Mr. Cabahug subsequently executed an affidavit 15 attesting to the with the duplicate original notarial copy thereof considering that the latter's cause of action was
circumstances why the insertion was made. solely and principally founded on the falsified document marked as Annexes "A" to "A-2."20

PBCOM then filed a Reply and Answer to Counterclaim with Motion for Leave of Court to On September 28, 2001, the CA rendered a Decision dismissing the petition for lack of merit,
Substitute Annex "A" of the Complaint,16 wherein it attached the duplicate original copy the decretal portion of which reads:
retrieved from the file of the notary public. PBCOM also admitted its mistake in making the
WHEREFORE, foregoing considered, the instant petition is hereby DENIED DUE COURSE Annexes "A" to "A-2." Thus, the "withdrawal" of the document results in the automatic
and, accordingly, DISMISSED for lack of merit. The assailed Orders dated December 14, 1999 withdrawal of the whole complaint on the ground that there is no more cause of action to be
and January 11, 2000 of the Regional Trial Court of Cagayan de Oro City, Branch 21, are maintained or enforced by plaintiff against petitioners. Also, petitioners argue that if the
hereby AFFIRMED in toto. 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,
SO ORDERED.21 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
Hence, the petition assigning the following errors:

Petitioners submit that the RTC misapplied the principle of equity when it allowed PBCOM to
I
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 COURT committed a reversible error in affirming in toto the order of the the Order of the RTC allowing the "withdrawal" and "substitution" of the document would not be
lower court allowing the substitution of the falsified document by relying on nullified, because the falsified document would no longer be found in the records of the case
the provision of section 3, rule 10 of the rules of Court. during the appeal.24

II 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
Acting as the court on the petition for certiorari, the court committed a obligations of the parties based on
reversible error having no jurisdiction to rule on the obligation of the
petitioners based on the falsified document the document. Petitioners posit that the CA prematurely ruled on petitioners' obligations,
considering that their obligations should be determined during trial on the merits, after the
III 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 court erred in giving credence to the allegation of respondent bank that the statement of fact of PBCOM that "From August 15 to December 9, 1997, Asian Water
from August 15 to December 9, 1997 asian water resources inc. obtained Resources, Inc. obtained several availments on its additional loans totalling P2,030,000.00 as
several availments of new bigger and additional loans evidenced by 4 promissory notes marked as Annexes B, B-1, B-2, and B-3. Thus, the
totalLing p2,030,000.00 evidenced by 4 promissory notes marked as conclusion of the CA in declaring the petitioners liable as sureties violated their right to due
annexes "B," "B-1," "B-2" and "B-3." process.25

IV 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
The court failed to consider the misapplication of the principle of equity
annexed to the complaint, it is an integral part thereof and its substitution with another copy is
committed by the lower court in ordering the substitution of the falsified
in the nature of a substantial amendment, which is allowed by the Rules, but with prior leave of
document.22
court.

Petitioners argue that the CA committed a reversible error in affirming the Order of the RTC
Moreover, PBCOM alleges that since the Rules provides that substantial amendments may be
allowing the substitution of the document by relying on Section 3, Rule 10 of the Rules of Court.
made upon leave of court, the authority of the RTC to allow the amendment is discretionary.
Petitioners assert that the Rules do not allow the withdrawal and substitution of a "falsified
Thus, the CA correctly held that the act of granting the said substitution was within the clear
document" once discovered by the opposing party.
and proper discretion of the RTC.

Petitioners maintain that PBCOM's cause of action was solely and principally founded on the
The petition is without merit.
alleged "falsified document" originally marked as
As to the substitution of the earlier surety agreement that was annexed to the complaint with The courts should be liberal in allowing amendments to pleadings to avoid a multiplicity of suits
the original thereof, this Court finds that the RTC did not err in allowing the substitution. 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
The pertinent rule on actionable documents is found in Section 7, Rule 8 of the Rules of Court, greatest in the early stages of a lawsuit, especially in this case where the amendment was
which provides that when the cause of action is anchored on a document, its substance must made before the trial of the case, thereby giving the petitioners all the time allowed by law to
be set forth, and the original or a copy thereof "shall" be attached to the pleading as an exhibit answer and to prepare for trial.29
and deemed a part thereof, to wit:
Furthermore, amendments to pleadings are generally favored and should be liberally allowed
Section 7. Action or defense based on document. - Whenever an action or defense is based in furtherance of justice in order that every case, may so far as possible, be determined on its
upon a written instrument or document, the substance of such instrument or document shall be real facts and in order to speed up the trial of the case or prevent the circuity of action and
set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as unnecessary expense. That is, unless there are circumstances such as inexcusable delay or
an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect the taking of the adverse party by surprise or the like, which might justify a refusal of
be set forth in the pleading. permission to amend.30

With respect to PBCOM's right to amend its complaint, including the documents annexed In the present case, there was no fraudulent intent on the part of PBCOM in submitting the
thereto, after petitioners have filed their answer, Section 3, Rule 10 of the Rules of Court altered surety agreement. In fact, the bank admitted that it was a mistake on their part to have
specifically allows amendment by leave of court. The said Section states: 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
SECTION 3. Amendments by leave of court. Except as provided in the next preceding section,
alteration was made without the knowledge of the notary public. PBCOM's counsel had no
substantial amendments may be made only upon leave of court. But such leave may be
idea that what it submitted was the altered document, thereby necessitating the substitution of
refused if it appears to the court that the motion was made with intent to delay. Orders of the
the surety agreement with the original thereof, in order that the case would be judiciously
court upon the matters provided in this section shall be made upon motion filed in court, and
resolved.
after notice to the adverse party, and an opportunity to be heard.

Verily, it is a cardinal rule of evidence, not just one of technicality but of substance, that the
This Court has emphasized the import of Section 3, Rule 10 of the 1997 Rules of Civil
written document is the best evidence of its own contents. It is also a matter of both principle
Procedure in Valenzuela v. Court of Appeals,26 thus:
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
Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil Procedure amended the former rule such contract, or even to alter or contradict the latter. 31 The original surety agreement is the
in such manner that the phrase "or that the cause of action or defense is substantially altered" best evidence that could establish the parties' respective rights and obligations. In effect, the
was stricken-off and not retained in the new rules. The clear import of such amendment in RTC merely allowed the amendment of the complaint, which consequently included the
Section 3, Rule 10 is that under the new rules, "the amendment may (now) substantially alter substitution of the altered surety agreement with a copy of the original.
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
It is well to remember at this point that rules of procedure are but mere tools designed to
shall serve the higher interests of substantial justice, and prevent delay and equally promote
facilitate the attainment of justice. Their strict and rigid application that would result in
the laudable objective of the rules which is to secure a "just, speedy and inexpensive
technicalities that tend to frustrate rather than promote substantial justice must always be
disposition of every action and proceeding."27
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
The granting of leave to file amended pleading is a matter particularly addressed to the sound evidence possible to determine the rights and obligations of the party - litigants.
discretion of the trial court; and that discretion is broad, subject only to the limitations that the
amendments should not substantially change the cause of action or alter the theory of the case,
Moreover, contrary to petitioners' contention, they could not be prejudiced by the substitution
or that it was not made to delay the action.28 Nevertheless, as enunciated in Valenzuela, even
since they can still present the substituted documents, Annexes "A" to A-2," as part of the
if the amendment substantially alters the cause of action or defense, such amendment could
evidence of their affirmative defenses. The substitution did not prejudice petitioners or delay
still be allowed when it is sought to serve the higher interest of substantial justice; prevent
the action. On the contrary, it tended to expedite the determination of the controversy. Besides,
delay; and secure a just, speedy and inexpensive disposition of actions and proceedings.
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 whether or not there was grave abuse of discretion on the part of the RTC in issuing the Orders
documents would not, in any way, erase the existence of falsification, if any. The case before dated December 14, 1999 and January 11, 2000.
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 WHEREFORE, premises considered, the petition is DENIED. Subject to the above
substitution of the altered surety agreement with that of the original. disquisitions, the Decision of the Court of Appeals in CA-G.R. SP No. 57732, dated September
28, 2001, and the Orders of the Regional Trial Court of Cagayan de Oro City, Branch 21, in
A Petition for Certiorari under Rule 65 of the Rules of Court is intended for the correction of Civil Case No. 99-352, dated December 14, 1999 and January 11, 2000, are AFFIRMED.
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 SO ORDERED.
jurisdiction or to prevent it from committing such a grave abuse of discretion amounting to lack
or excess of jurisdiction.33

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

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

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

However, this Court agrees with the petitioners' contention that the CA should not have made
determinations as regards the parties' respective rights based on the surety agreement. The
CA went beyond the issues brought before it and effectively preempted the RTC in making its
own determinations. It is to be noted that the present case is still pending determination by the
RTC. The CA should have been more cautious and not have gone beyond the issues
submitted before it in the petition for certiorari; instead, it should have squarely addressed
REMINGTON v CA no other reference was made to respondent that would constitute a valid cause of action
against it. Since petitioner failed to plead any cause of action against respondent as alternative
defendant under Section 13, Rule 3,8 the trial court should have ordered the dismissal of the
complaint insofar as respondent was concerned.

FIRST DIVISION
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
G.R. No. 133657 May 29, 2002
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
REMINGTON INDUSTRIAL SALES CORPORATION, petitioner,
vs. Subsequently, petitioner filed a Manifestation and Motion 11 in CA-G.R. SP No. 44529 stating
THE COURT OF APPEALS and BRITISH STEEL (ASIA), LTD., respondents.
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
YNARES-SANTIAGO, J.: be suspended.

Before us is a petition for review under Rule 45 of the Rules of Court assailing the decision of On January 29, 1998, the trial court ruled on petitioner’s Motion to Admit Amended Complaint
the Court of Appeals in CA-G.R. SP No. 44529 dated February 24, 19981, which granted the thus:
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 WHEREFORE, the Amended Complaint is NOTED and further proceedings thereon and
sum of money and damages. Also assailed in this petition is the resolution 2 of the Court of action on the other incidents as aforementioned are hereby held in abeyance until final
Appeals denying petitioner’s motion for reconsideration. 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
The facts of the case, as culled from the records, are as follows: private respondent, herein plaintiff.

On August 21, 1996, petitioner filed a complaint 3 for sum of money and damages arising from SO ORDERED.12
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 Thereafter, on February 24, 1998, the Court of Appeals rendered the assailed decision in
therein was Industrial Steels, Ltd. (ISL), with Ferro Trading GMBH (Ferro) and respondent CA-G.R. SP No. 44529 as follows:
British Steel as alternative defendants.

WHEREFORE, this Court grants the writ of certiorari and orders the respondent judge to
ISL and respondent British Steel separately moved for the dismissal of the complaint on the dismiss without prejudice the Complaint in Civil Case No. 96-79674 against petitioner British
ground that it failed to state a cause of action against them. On April 7, 1997, the RTC denied Steel (Asia) Ltd. Costs against private respondent.
the motions to dismiss,4 as well as the ensuing motion for reconsideration.5 ISL then filed its
answer to the complaint.
SO ORDERED.13

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 In the same decision, the Court of Appeals addressed petitioner’s prayer for suspension of
the complaint did not contain a single averment that respondent committed any act or is guilty proceedings in this wise:
of any omission in violation of petitioner’s legal rights. Apart from the allegation in the
complaint’s "Jurisdictional Facts" that: 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
1.05. Defendants British Steel (Asia) Ltd. and Ferro Trading Gmbh, while understood by the whether the lower court committed grave abuse of discretion when it denied petitioner’s motion
plaintiff as mere suppliers of goods for defendant ISL, are impleaded as party defendants to dismiss the complaint against it. The admission or rejection by the lower court of said
pursuant to Section 13, Rule 3 of the Revised Rules of Court.7 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 accordance with Section 2 of Rule 10. The defendant still retains the unqualified opportunity to
dismiss.14 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
Petitioner filed a motion for reconsideration of the appellate court’s decision, which was denied right, prior to the filing of an answer by the defendant.
in a resolution dated April 28, 1998. Hence, this petition, anchored on the following grounds:
The right granted to the plaintiff under procedural law to amend the complaint before an
-I- answer has been served is not precluded by the filing of a motion to dismiss 20 or any other
proceeding contesting its sufficiency. Were we to conclude otherwise, the right to amend a
pleading under Section 2, Rule 10 will be rendered nugatory and ineffectual, since all that a
THE HON. COURT OF APPEALS ERRED IN ORDERING THE DISMISSAL OF THE
defendant has to do to foreclose this remedial right is to challenge the adequacy of the
COMPLAINT AGAINST THE PRIVATE RESPONDENT FOR LACK OF CAUSE OF ACTION
complaint before he files an answer.
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 Moreover, amendment of pleadings is favored and should be liberally allowed in the
OF THE 1997 RULES OF CIVIL PROCEDURE. furtherance of justice in order to determine every case as far as possible on its merits without
regard to technicalities. This principle is generally recognized to speed up trial and save party
litigants from incurring unnecessary expense, so that a full hearing on the merits of every case
-II-
may be had and multiplicity of suits avoided.21

THE HON. COURT OF APPEALS ERRED IN HOLDING THAT IF THE PETITIONER WANTS
In this case, the remedy espoused by the appellate court in its assailed judgment will precisely
TO PURSUE ITS CASE AGAINST THE PRIVATE RESPONDENT, IT HAS TO REFILE THE
result in multiple suits, involving the same set of facts and to which the defendants would likely
COMPLAINT, THUS PRE-EMPTING THE RIGHT OF THE LOWER COURT TO RULE ON
raise the same or, at least, related defenses. Plainly stated, we find no practical advantage in
THE AMENDED COMPLAINT AND COMPELLING THE PETITIONER TO LITIGATE ITS
ordering the dismissal of the complaint against respondent and for petitioner to re-file the same,
CAUSES OF ACTION AGAINST THE PRIVATE RESPONDENT AS AN ALTERNATIVE
when the latter can still clearly amend the complaint as a matter of right. The amendment of
DEFENDANT IN A SEPARATE ACTION, THEREBY ABETTING MULTIPLICITY OF SUITS.15
the complaint would not prejudice respondents or delay the action, as this would, in fact,
simplify the case and expedite its disposition.
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
The fact that the other defendants below has filed their answers to the complaint does not bar
state a cause of action, despite the fact that petitioner exercised its right to amend the
petitioner’s right to amend the complaint as against respondent. Indeed, where some but not
defective complaint under Section 2, Rule 10 of the Rules of Court. Stated differently, the
all the defendants have answered, the plaintiff may still amend its complaint once, as a matter
query posed before us is: can a complaint still be amended as a matter of right before an
of right, in respect to claims asserted solely against the non-answering defendant, but not as to
answer has been filed, even if there was a pending proceeding for its dismissal before the
claims asserted against the other defendants.22
higher court?

Furthermore, we do not agree with respondent’s claim that it will be prejudiced by the
Section 2, Rule 1016 of the Revised Rules of Court explicitly states that a pleading may be
admission of the Amended Complaint because it had spent time, money and effort to file its
amended as a matter of right before a responsive pleading is served. This only means that
petition before the appellate court.23 We cannot see how the result could be any different for
prior to the filing of an answer, the plaintiff has the absolute right to amend the complaint
respondent, if petitioner merely re-filed the complaint instead of being allowed to amend it. As
whether a new cause of action or change in theory is introduced. 17 The reason for this rule is
adverted to earlier, amendment would even work to respondent’s advantage since it will
implied in the subsequent Section 3 of Rule 1018. Under this provision, substantial amendment
undoubtedly speed up the proceedings before the trial court. Consequently, the amendment
of the complaint is not allowed without leave of court after an answer has been served,
should be allowed in the case at bar as a matter of right in accordance with the rules.
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.
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,
Conversely, it cannot be said that the defendant’s rights have been violated by changes made
are REVERSED and SET ASIDE. The Regional Trial Court of Manila, Branch 22 is further
in the complaint if he has yet to file an answer thereto. In such an event, the defendant has not
ordered to ADMIT petitioner’s Amended Complaint in Civil Case No. 96-79674 and to conduct
presented any defense that can be altered19 or affected by the amendment of the complaint in
further proceedings in said case.
SO ORDERED.

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