THIRD DIVISION

[G.R. No. 143264. April 23, 2012.]

LISAM ENTERPRISES, INC. represented by LOLITA A. SORIANO, and LOLITA

A. SORIANO, petitioners, vs. BANCO DE ORO UNIBANK, INC. (formerly
PHILIPPINE COMMERCIAL INTERNATIONAL BANK), * LILIAN S. SORIANO,
ESTATE OF LEANDRO A. SORIANO, JR., REGISTER OF DEEDS OF LEGASPI
CITY, and JESUS L. SARTE, respondents.

DECISION

PERALTA, J p:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of
Court, praying that the Resolution 1 of the Regional Trial Court of Legaspi City
(RTC), dated November 11, 1999, dismissing petitioners' complaint, and its
Order 2 dated May 15, 2000, denying herein petitioners' Motion for
Reconsideration and Motion to Admit Amended Complaint, be reversed and set
aside. TcHCDI

The records reveal the following antecedent facts.

On August 13, 1999, petitioners filed a Complaint against respondents for

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

4. Sometime in 1993, plaintiff LEI, in the course of its business operation,

acquired by purchase a parcel of residential land with improvement situated at
Legaspi City, covered by Transfer Certificate of Title No. 37866, copy attached
as Annex "A," which property is more particularly described as follows:
DaACIH

xxx xxx xxx

5. On or about 28 March 1996, defendant Lilian S. Soriano and the late

Leandro A. Soriano, Jr., as husband and wife (hereafter "Spouses Soriano"), in
their personal capacity and for their own use and benefit, obtained a loan from
defendant PCIB (Legaspi Branch) (now known as Banco de Oro Unibank, Inc.)
in the total amount of P20 Million;
6. That as security for the payment of the aforesaid credit accommodation,
the late Leandro A. Soriano, Jr. and defendant Lilian S. Soriano, as president
and treasurer, respectively of plaintiff LEI, but without authority and consent
of the board of said plaintiff and with the use of a falsified board resolution,
executed a real estate mortgage on 28 March 1996, over the above-described
property of plaintiff LEI in favor of defendant PCIB, and had the same
registered with the Office of the Registry of Deeds, Legaspi City, copy of the
Real Estate Mortgage is hereto attached and marked as Annex "B," and made
part hereof, to the prejudice of plaintiffs;

7. That specifically, the Spouses Soriano, with intent to defraud and

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

8. That plaintiff Lolita A. Soriano as Corporate Secretary of plaintiff LEI,

had never signed a board resolution nor issued a Secretary's Certificate to the
effect that on 6 November 1995 a resolution was passed and approved by
plaintiff LEI authorizing the Spouses Soriano as president and treasurer,
respectively, to mortgage the above-described property of plaintiff LEI, neither
did she appear personally before a notary public on 28 March 1996 to
acknowledge or attest to the issuance of a supposed board resolution issued by
plaintiff LEI on 6 November 1995;

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

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

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

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

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

14. Hence, on 25 June 1999, plaintiffs commenced a derivative suit against

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

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

16. That unfortunately, the plaintiffs learned that on 30 July 1999,

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

17. That by reason of the fraudulent and surreptitious schemes perpetrated

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

After service of summons on all defendants, the RTC issued a temporary

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

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

On September 28, 1999, respondent PCIB filed a Motion to Dismiss the

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

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

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

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

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

FIRST, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE ERROR

WHEN IT DISMISSED THE ACTION ON THE GROUND THAT PETITIONER
LOLITA A. SORIANO HAS NO LEGAL CAPACITY TO SUE AS SHE IS NOT A
REAL PARTY-IN-INTEREST;

SECOND, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE

ERROR WHEN IT DISMISSED THE ACTION ON THE GROUND THAT THERE IS
ANOTHER ACTION PENDING BETWEEN THE SAME PARTIES FOR THE SAME
CAUSE;

THIRD, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE ERROR

WHEN IT DISMISSED THE ACTION ON THE GROUND THAT THE COMPLAINT
STATES NO CAUSE OF ACTION; ITHADC

FOURTH, WHETHER OR NOT THE COURT COMMITTED A REVERSIBLE

ERROR WHEN IT DENIED THE ADMISSION OF PETITIONERS' AMENDED
COMPLAINT FILED AS A MATTER OF RIGHT, AFTER THE ORDER OF
DISMISSAL WAS ISSUED BUT BEFORE ITS FINALITY.

FIFTH, WHETHER OR NOT THE COURT ERRED IN DISMISSING THE ACTION,

INSTEAD OF MERELY SUSPENDING THE SAME FOLLOWING THE DOCTRINE
LAID DOWN IN UNION GLASS. 3

The petition is impressed with merit.

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

Sec. 2. Amendments as a matter of right. — A party may amend his

pleadings once as a matter of right at any time before a responsive pleading is
served . . . .
Sec. 3. Amendments by leave of court. — Except as provided in the next
preceding section, substantial amendments may be made only upon leave of
court. But such leave may be refused if it appears to the court that the motion
was made with intent to delay. . . .

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

. . . [A]fter petitioners have filed their answer, Section 3, Rule

10 of the Rules of Court specifically allows amendment by
leave of court. The said Section states:

SECTION 3. Amendments by leave of court. — Except as

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

This Court has emphasized the import of Section 3, Rule 10 of

the 1997 Rules of Civil Procedure in Valenzuela v. Court of
Appeals, thus:

Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil

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

The granting of leave to file amended pleading is a matter

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

The courts should be liberal in allowing amendments to

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

Furthermore, amendments to pleadings are generally favored

and should be liberally allowed in furtherance of justice in
order that every case, may so far as possible, be determined on
its real facts and in order to speed up the trial of the case or
prevent the circuitry of action and unnecessary expense. That
is, unless there are circumstances such as inexcusable delay or
the taking of the adverse party by surprise or the like, which
might justify a refusal of permission to amend. 5
Since, as explained above, amendments are generally favored, it would have
been more fitting for the trial court to extend such liberality towards petitioners
by admitting the amended complaint, which was filed before the order
dismissing the original complaint became final and executory. It is quite
apparent that since trial proper had not yet even begun, allowing the
amendment would not have caused any delay. Moreover, doing so would
have served the higher interest of justice as this would provide the best
opportunity for the issues among all parties to be thoroughly threshed out
and the rights of all parties finally determined. Hence, the Court overrules
the trial court's denial of the motion to admit the amended complaint,
and orders the admission of the same.

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

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

b) he has tried to exhaust intra-corporate remedies, i.e., has made a

demand on the board of directors for the appropriate relief but the latter has
failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing

or harm having been, or being caused to the corporation and not to the
particular stockholder bringing the suit. 7

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

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

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

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

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

IN VIEW OF THE FOREGOING, the Resolution of the Regional Trial Court of

Legaspi City, Branch 4, dated November 11, 1999, dismissing petitioners'
complaint in Civil Case No. 9729, and its Order dated May 15, 2000, denying
herein petitioners' Motion for Reconsideration and Motion to Admit Amended
Complaint, are hereby REVERSED and SET ASIDE. The Regional Trial Court of
Legaspi City, Branch 4, is hereby DIRECTED to ADMIT the Amended
Complaint. ScTCIE

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

SO ORDERED.

Velasco, Jr., Abad, Mendoza and Perlas-Bernabe, JJ., concur.

Footnotes

* Per Manifestation dated January 26, 2012, filed by said respondent.

1. Penned by Judge Gregorio A. Consulta.

2. Id.

3. Rollo, p. 5.

4. G.R. No. 151932, August 19, 2009, 596 SCRA 432.

5. Id. at 444-445. (Emphasis supplied.)

6. G.R. No. 168863, June 23, 2009, 590 SCRA 548.

7. Id. at 556.

8. G.R. No. 136159, September 1, 1999, 313 SCRA 465.

 9. Supra.

10. Supra.
THIRD DIVISION

[G.R. No. 151932. August 19, 2009.]

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

DECISION

PERALTA, J. p

This is a petition for review on certiorari, under Rule 45 of the Rules of Court,
seeking to annul and set aside the Decision 1 dated September 28, 2001,
rendered by the Court of Appeals (CA) in CA-G.R. SP No. 57732, dismissing the
petition and affirming the assailed Orders of the Regional Trial Court (RTC) of
Cagayan de Oro City, Branch 21 in Civil Case No. 99-352, dated December 14,
1999 and January 11, 2000.

The factual and procedural antecedents are as follows:

In June 1993, Asian Water Resources, Inc. (AWRI), represented by herein

petitioners, applied for a real estate loan with the Philippine Bank of
Communications (PBCOM) to fund its purified water distribution business. In
support of the loan application, petitioners submitted a Board Resolution 2
dated June 7, 1993. The loan was guaranteed by collateral over the property
covered by Transfer Certificate of Title No. T-13020. 3 The loan was eventually
approved. 4

In August 1996, AWRI applied for a bigger loan from PBCOM for additional
capitalization using the same Board Resolution, but without any additional real
estate collateral. Considering that the proposed additional loan was unsecured,
PBCOM required all the members of the Board of Directors of AWRI to become
sureties. Thus, on August 16, 1996, a Surety Agreement 5 was executed by its
Directors and acknowledged by a notary public on the same date. All copies of
the Surety Agreement, except two, were kept by PBCOM. Of the two copies kept
by the notary public, one copy was retained for his notarial file and the other
was sent to the Records Management and Archives Office, through the Office of
the RTC Clerk of Court. 6

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

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

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

In support of their allegations, petitioners attached to their Answer a certified

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

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

Petitioners' counsel then asked PBCOM to explain the alteration appearing on

the agreement. PBCOM subsequently discovered that the insertion was ordered
by the bank auditor. It alleged that when the Surety Agreement was inspected
by the bank auditor, he called the attention of the loans clerk, Kenneth
Cabahug, as to why the words "In his personal capacity" were not indicated
under the signature of each surety, in accordance with bank standard
operating procedures. The auditor then ordered Mr. Cabahug to type the words
"In his personal capacity" below the second signatures of petitioners. However,
the notary public was never informed of the insertion. 14 Mr. Cabahug
subsequently executed an affidavit 15 attesting to the circumstances why the
insertion was made.

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

On December 14, 1999, the RTC issued an Order 17 allowing the substitution
of the altered document with the original Surety Agreement, the pertinent
portion of which reads: cDCEIA

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

SO ORDERED.

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

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

Additionally, the instant motion for reconsideration treats on evidentiary

matter which can be properly ventilated in the trial proper, hence, there is no
cogent reason to disturb the Court's order of December 14, 1999.

SO ORDERED.

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

Petitioners claimed that the RTC acted without or in excess of jurisdiction, or

with grave abuse of discretion amounting to lack or excess of jurisdiction in
denying their motion for reconsideration and in allowing PBCOM to substitute
the altered copy of the Surety Agreement with the duplicate original notarial
copy thereof considering that the latter's cause of action was solely and
principally founded on the falsified document marked as Annexes "A" to "A-2".
20

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

WHEREFORE, foregoing considered, the instant petition is hereby DENIED

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

SO ORDERED. 21

Hence, the petition assigning the following errors:

THE COURT COMMITTED A REVERSIBLE ERROR IN AFFIRMING IN TOTO

THE ORDER OF THE LOWER COURT ALLOWING THE SUBSTITUTION OF
THE FALSIFIED DOCUMENT BY RELYING ON THE PROVISION OF SECTION
3, RULE 10 OF THE RULES OF COURT.

II

ACTING AS THE COURT ON THE PETITION FOR CERTIORARI, THE COURT

COMMITTED A REVERSIBLE ERROR HAVING NO JURISDICTION TO RULE
ON THE OBLIGATION OF THE PETITIONERS BASED ON THE FALSIFIED
DOCUMENT

III

THE COURT ERRED IN GIVING CREDENCE TO THE ALLEGATION OF

RESPONDENT BANK THAT FROM AUGUST 15 TO DECEMBER 9, 1997 ASIAN
WATER RESOURCES INC. OBTAINED SEVERAL AVAILMENTS OF NEW
BIGGER AND ADDITIONAL LOANS TOTALLING P2,030,000.00 EVIDENCED
BY 4 PROMISSORY NOTES MARKED AS ANNEXES "B", "B-1", "B-2" AND "B-
3". IcHTCS

IV

THE COURT FAILED TO CONSIDER THE MISAPPLICATION OF THE

PRINCIPLE OF EQUITY COMMITTED BY THE LOWER COURT IN ORDERING
THE SUBSTITUTION OF THE FALSIFIED DOCUMENT. 22
Petitioners argue that the CA committed a reversible error in affirming the
Order of the RTC allowing the substitution of the document by relying on
Section 3, Rule 10 of the Rules of Court. Petitioners assert that the Rules do
not allow the withdrawal and substitution of a "falsified document" once
discovered by the opposing party.

Petitioners maintain that PBCOM's cause of action was solely and principally
founded on the alleged "falsified document" originally marked as Annexes "A" to
"A-2". Thus, the "withdrawal" of the document results in the automatic
withdrawal of the whole complaint on the ground that there is no more cause
of action to be maintained or enforced by plaintiff against petitioners. Also,
petitioners argue that if the substitution will be allowed, their defenses that
were anchored on Annexes "A" to "A-2" would be gravely affected. Moreover,
considering that the said document was already removed, withdrawn, and
disregarded by the RTC, the withdrawal and substitution of the document
would prevent petitioners from introducing the falsified documents during the
trial as part of their evidence. 23 HCITAS

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

Petitioners contend that the CA went beyond the issue raised before it when it
interpreted the provisions of the Surety Agreement, particularly paragraph 4
thereof, and then ruled on the obligations of the parties based on the
document. Petitioners posit that the CA prematurely ruled on petitioners'
obligations, considering that their obligations should be determined during
trial on the merits, after the parties have been given the opportunity to present
their evidence in support of their respective claims. Petitioners stress that the
CA went into the merit of the case when it gave credence to the statement of
fact of PBCOM that "From August 15 to December 9, 1997, Asian Water
Resources, Inc. obtained several availments on its additional loans totalling
P2,030,000.00 as evidenced by 4 promissory notes marked as Annexes B, B-1,
B-2, and B-3". Thus, the conclusion of the CA in declaring the petitioners liable
as sureties violated their right to due process. 25 aDHCAE
For its part, PBCOM argues that since the complaint is based on an actionable
document, i.e., the surety agreement, the original or a copy thereof should be
attached to the pleading as an exhibit, which shall be deemed part of the
pleading. Considering that the surety agreement is annexed to the complaint, it
is an integral part thereof and its substitution with another copy is in the
nature of a substantial amendment, which is allowed by the Rules, but with
prior leave of court.

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

The petition is without merit.

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

The pertinent rule on actionable documents is found in Section 7, Rule 8 of the

Rules of Court, which provides that when the cause of action is anchored on a
document, its substance must be set forth, and the original or a copy thereof
"shall" be attached to the pleading as an exhibit and deemed a part thereof, to
wit:

Section 7. Action or defense based on document. — Whenever an action or

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

With respect to PBCOM's right to amend its complaint,

including the documents annexed thereto, after petitioners
have filed their answer, Section 3, Rule 10 of the Rules of
Court specifically allows amendment by leave of court. The said
Section states:
SECTION 3. Amendments by leave of court. — Except as
provided in the next preceding section, substantial
amendments may be made only upon leave of court. But such
leave may be refused if it appears to the court that the motion
was made with intent to delay. Orders of the court upon the
matters provided in this section shall be made upon motion
filed in court, and after notice to the adverse party, and an
opportunity to be heard.

This Court has emphasized the import of Section 3, Rule 10 of

the 1997 Rules of Civil Procedure in Valenzuela v. Court of
Appeals, 26 thus:

Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil

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

The granting of leave to file amended pleading is a matter

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

The courts should be liberal in allowing amendments to

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

Furthermore, amendments to pleadings are generally favored

and should be liberally allowed in furtherance of justice in
order that every case, may so far as possible, be determined on
its real facts and in order to speed up the trial of the case or
prevent the circuity of action and unnecessary expense. That
is, unless there are circumstances such as inexcusable delay or
the taking of the adverse party by surprise or the like, which
might justify a refusal of permission to amend. 30
In the present case, there was no fraudulent intent on the part of PBCOM in
submitting the altered surety agreement. In fact, the bank admitted that it was
a mistake on their part to have submitted it in the first place instead of the
original agreement. It also admitted that, through inadvertence, the copy that
was attached to the complaint was the copy wherein the words "IN HIS
PERSONAL CAPACITY" were inserted to conform to the bank's standard
practice. This alteration was made without the knowledge of the notary public.
PBCOM's counsel had no idea that what it submitted was the altered
document, thereby necessitating the substitution of the surety agreement with
the original thereof, in order that the case would be judiciously resolved.

Verily, it is a cardinal rule of evidence, not just one of technicality but of

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

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

Moreover, contrary to petitioners' contention, they could not be prejudiced by

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

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

For a petition for certiorari to prosper, the essential requisites that have to
concur are: (1) the writ is directed against a tribunal, a board or any officer
exercising judicial or quasi-judicial functions; (2) such tribunal, board or officer
has acted without or in excess of jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction; and (3) there is no appeal or any
plain, speedy and adequate remedy in the ordinary course of law. 34
The phrase without jurisdiction means that the court acted with absolute lack
of authority or want of legal power, right or authority to hear and determine a
cause or causes, considered either in general or with reference to a particular
matter. It means lack of power to exercise authority. Excess of jurisdiction
occurs when the court transcends its power or acts without any statutory
authority; or results when an act, though within the general power of a
tribunal, board or officer (to do) is not authorized, and is invalid with respect to
the particular proceeding, because the conditions which alone authorize the
exercise of the general power in respect of it are wanting. Grave abuse of
discretion implies such capricious and whimsical exercise of judgment as to be
equivalent to lack or excess of jurisdiction; simply put, power is exercised in an
arbitrary or despotic manner by reason of passion, prejudice, or personal
hostility; and such exercise is so patent or so gross as to amount to an evasion
of a positive duty or to a virtual refusal either to perform the duty enjoined or
to act at all in contemplation of law. 35

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

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

WHEREFORE, premises considered, the petition is DENIED. Subject to the

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

SO ORDERED.
Carpio Morales, * Chico-Nazario, ** Velasco, Jr. and Nachura, JJ., concur.

Footnotes

1. Penned by Associate Justice B. A. Adefuin-De la Cruz, with Associate

Justices Andres B. Reyes, Jr. and Amelita G. Tolentino, concurring, rollo, pp.
25-30.

2. CA rollo, p. 113.

3. Id. at 114.

4. Rollo, p. 26.

5. CA rollo, pp. 116-118.

6. Rollo, p. 26.

7. CA rollo, p. 122.

8. Id. at 37.

9. Id. at 55-58.

10. Rollo, p. 26.

11. CA rollo, pp. 38-40.

12. Id.

13. Rollo, p. 27.

14. Id. at 26.

15. CA rollo, p. 115.

16. Id. at 50-57.

17. Id. at 68.

18. Id. at 69-72.

19. Id. at 81.

20. Rollo, p. 28.

21. Id. at 30.

22. Id. at 60-61.

23. Id. at 61-64.

24. Id. at 71-73.

25. Id. at 64-71.

26. 416 Phil. 289 (2001).

27. Id. at 297.

28. Refugia v. Alejo, 389 Phil. 568, 576 (200).

29. Id. at 576-577.

30. Philippine National Bank v. Court of Appeals, G.R. No. L-45770, March
30, 1988, 159 SCRA 433, 444.

31. ACI Philippines, Inc. v. Coquia, G.R. No. 174466, July 14, 2008, 558
SCRA 300, 309-310.

32. Philippine National Bank v. Sanao Marketing Corporation, G.R. No.

153951, July 29, 2005, 465 SCRA 287, 307.

33. People of the Philippines v. Court of Appeals, 468 Phil. 1, 10 (2004).

34. Rules of Court, Rule 65, Sec. 1.

35. Tagle v. Equitable PCI Bank, G.R. No. 172299, April 22, 2008, 552 SCRA
424, 437.

* Designated as an additional member in lieu of Associate Justice

Consuelo Ynares-Santiago per Special Order No. 679 dated August 3, 2009.

** Per Special Order No. 678 dated August 3, 2009.