Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation
REITERATIONFacts
1. The Antecedents: Banco de Oro-EPCI, Inc. (BDO) extended credit facilities totaling P230,000,000 to JAPRL Development Corporation (JAPRL), with Rapid Forming Corporation (RFC) and Jose U. Arollado acting as sureties. Following the extension of credit, JAPRL defaulted on four trust receipts. BDO later discovered that JAPRL had allegedly altered and falsified its financial statements to inflate its revenues and project a stronger financial position. BDO subsequently demanded immediate payment of JAPRL's outstanding obligations, amounting to P194,493,388.98. 2. Procedural History: JAPRL and RFC filed a petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City, which was later rejected. Concurrently, BDO filed a complaint for sum of money against JAPRL, RFC, and Arollado in the RTC of Makati City, alleging fraud due to the falsified financial statements. The Makati RTC denied BDO's application for a writ of preliminary attachment but ordered the issuance of summons. Respondents moved to dismiss the complaint, arguing defective service of summons. The Makati RTC denied this motion. Subsequently, JAPRL and RFC filed another petition for rehabilitation in the RTC of Calamba, Laguna, which issued a stay order. Based on this stay order, the Makati RTC suspended proceedings against JAPRL and RFC but ordered Arollado to answer. Respondents then filed a petition for certiorari with the Court of Appeals (CA), assailing the Makati RTC's orders regarding jurisdiction due to alleged defective service of summons. The CA granted the petition, finding that the Makati RTC never acquired jurisdiction. BDO sought reconsideration, which was denied, leading to the present petition. 3. The Petition: This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the CA's decision and resolution. BDO argues that respondents deliberately evaded service of summons and exploited procedural technicalities to delay payment. BDO contends that respondents waived any defect in the service of summons by moving to suspend proceedings in the Makati RTC. Furthermore, BDO asserts that the CA erred in dismissing the petition for certiorari, which was filed beyond the prescribed period after the withdrawal of the motion for reconsideration of the Makati RTC's initial order on summons service. BDO seeks to have the Makati RTC proceed with the case against all respondents, arguing that rehabilitation is not a refuge for debtors found to have committed fraud.
Issue(s)
Whether the Court of Appeals erred in ruling that the Regional Trial Court of Makati City never acquired jurisdiction over the persons of the respondents due to allegedly defective service of summons, and whether the respondents waived any defect in the service of summons by moving for the suspension of the proceedings in the Makati RTC case based on the rehabilitation stay order issued by the Calamba RTC. Whether the Regional Trial Court of Makati City may proceed to hear the case against Jose U. Arollado despite the rehabilitation proceedings initiated by JAPRL and RFC. Whether the respondents abused procedural technicalities, the importance of banking, the application of Section 40 of the General Banking Law, and the investigation for violation of the Trust Receipts Law are relevant to the case.
Ruling
The petition is GRANTED. The June 7, 2007 decision and August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET ASIDE. The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other respondents if warranted.
Ratio Decidendi
On the issue of jurisdiction and waiver of defects in service of summons: The Court found that the respondents, in their petition for certiorari before the CA, questioned the jurisdiction of the Makati RTC over their persons. However, they had previously withdrawn their motion for reconsideration of the Makati RTC's October 10, 2005 order denying their motion to dismiss. This withdrawal rendered the order final. Furthermore, their petition for certiorari was filed 10 months and 1 day after the said order, exceeding the 60-day reglementary period. More importantly, when respondents moved for the suspension of proceedings in Civil Case No. 03-991 before the Makati RTC, citing the stay order from the Calamba RTC's rehabilitation proceedings, they effectively waived any defect in the service of summons. By seeking affirmative relief from the Makati RTC in the form of suspension of proceedings, they voluntarily submitted themselves to its jurisdiction. This act of seeking suspension, predicated on the rehabilitation proceedings, constituted a waiver of their earlier objections to the court's jurisdiction based on the allegedly defective service of summons. On the suspension of proceedings against Arollado: The Court clarified that while a stay order in rehabilitation proceedings generally defers all actions or claims against the corporation seeking rehabilitation, this does not preclude a creditor from pursuing claims against a surety who is jointly and solidarily liable. Therefore, the Makati RTC correctly ordered Arollado to file an answer, as proceedings against him could continue independently, especially given his solidary liability with JAPRL and RFC. The Court emphasized that a creditor can demand payment from a surety who is solidarily liable with a corporation undergoing rehabilitation, as the surety's obligation is distinct and can be pursued separately to satisfy the creditor's claim. On the alleged abuse of procedural technicalities and the importance of banking, Section 40 of the General Banking Law, and the Trust Receipts Law: The Court noted that respondents abused procedural technicalities to delay the collection of their legitimate obligations, impeding the speedy dispensation of justice. The Court underscored the vital role of banks in the national economy, as they are engaged in lending funds obtained from public deposits and redistribute wealth. The integrity of the banking system is imbued with public interest, necessitating sound lending practices and good corporate governance. The Court found that the allegation of fraudulent alteration and falsification of financial statements to obtain credit facilities warranted a hearing to determine the truth, as rehabilitation was never intended as a refuge for debtors guilty of fraud. The Court directed the Makati RTC to proceed with the trial guided by Section 40 of the General Banking Law. This provision grants banks the right to terminate any loan or credit accommodation and demand immediate repayment if the borrower's submitted financial statements are found to be false or incorrect in any material detail. The Court stated that if fraud is found, BDO would be entitled to the immediate payment of P194,493,388.98 and other damages. The Court also recommended that the Makati City Prosecutor investigate whether there is probable cause to indict respondents for violation of Section 13 of the Trust Receipts Law, considering their failure to pay the four trust receipts.
Main Doctrine
A party who moves for the suspension of proceedings based on a rehabilitation stay order, after questioning the jurisdiction of a court due to defective service of summons, waives any defect in the service of summons and is deemed to have voluntarily submitted to the jurisdiction of the court.