KT Construction Supply v. Philippine Savings Bank
REITERATIONFacts
The Antecedents: KT Construction Supply, Inc. (KT Construction), represented by William Go and Nancy Go-Tan, obtained a loan from Philippine Savings Bank (PSBank) amounting to ₱2.5 million, evidenced by a Promissory Note dated October 12, 2006. William Go and Nancy Go-Tan signed the note both as corporate officers and in their personal capacities. The loan was payable within sixty (60) months from November 12, 2006, to October 12, 2011, and stipulated attorney's fees in case of litigation. Procedural History: On January 3, 2011, PSBank sent a demand letter to KT Construction for its outstanding obligation of ₱725,438.81, excluding interest and penalties. Due to non-payment, PSBank filed a complaint for sum of money. The Regional Trial Court (RTC) ruled in favor of PSBank, declaring KT Construction, William Go, and Nancy Go-Tan solidarily liable for ₱725,438.81 with 12% interest per annum and ₱50,000.00 as attorney's fees. The Court of Appeals (CA) affirmed the RTC decision with modification, ordering legal interest at 6% per annum from finality until full payment and directing the assessment of additional docket fees. The CA denied KT Construction's motion for reconsideration. The Petition: KT Construction filed a petition for review on certiorari, assailing the CA's decision, primarily arguing that William Go and Nancy Go-Tan could not be held solidarily liable as they were not impleaded nor served with summons, that the complaint was prematurely filed, that the promissory note was a contract of adhesion and thus void, and that the award of attorney's fees was improper.
Issue(s)
Whether William Go and Nancy Go-Tan can be held jointly and severally liable with KT Construction. Whether the complaint was prematurely filed. Whether the promissory note is null and void for being a contract of adhesion. Whether attorney's fees were improperly awarded.
Ruling
The Court affirmed the decision of the Court of Appeals with modification, holding that only petitioner KT Construction Supply, Inc. is bound by the judgment award. The Court ruled that while the acceleration clause made the loan due and demandable, and the promissory note validly stipulated attorney's fees, William Go and Nancy Go-Tan could not be held solidarily liable as they were neither impleaded nor served with summons, and thus, the courts never acquired jurisdiction over their persons.
Ratio Decidendi
On the liability of William Go and Nancy Go-Tan: The Court ruled that the lower courts erred in holding William Go and Nancy Go-Tan solidarily liable. It reiterated the established principle that a judgment binds only those who were made parties to the case, and jurisdiction over the person must be acquired through service of summons or voluntary appearance. In this case, Go and Go-Tan were neither impleaded nor served with summons, and they merely acted as representatives of KT Construction, which was the impleaded defendant. Therefore, the trial court never acquired jurisdiction over their persons, making the declaration of their solidary liability in the dispositive portion improper and a mere conclusion without discussion in the body of the decision. On the prematurity of the complaint: The Court found KT Construction's argument that the complaint was premature to be without merit. It explained that an acceleration clause, which was explicitly stated in the promissory note, makes the entire obligation due and demandable upon default in any installment, even without prior notice or demand. The promissory note stipulated that default in any installment would make the entire obligation due and payable. Furthermore, even if KT Construction had not received the demand letter, the loan still became due and demandable because the parties expressly waived the necessity of demand in the promissory note. PSBank had also sent a demand letter dated February 3, 2011. On the validity of the promissory note as a contract of adhesion: The Court rejected KT Construction's claim that the promissory note was null and void for being a contract of adhesion. While acknowledging that KT Construction may not have had a hand in its preparation, the Court reiterated that contracts of adhesion are not per se invalid. It explained that the party adhering to such a contract is free to reject it entirely, and by adhering, they give their consent. Therefore, the promissory note, having been signed by KT Construction, was considered valid. On the award of attorney's fees: The Court upheld the award of attorney's fees, finding it to be proper and based on a clear stipulation in the promissory note. The promissory note categorically provided for the payment of attorney's fees in case of default, which constituted a penal clause binding upon the parties as part of their contract. The Court clarified that Article 2208 of the Civil Code, which KT Construction relied upon, applies only when there is no stipulation as to attorney's fees in case of default.
Main Doctrine
A judgment binds only those who were made parties to the case, and jurisdiction over the person must be acquired through service of summons or voluntary appearance for the decision to be binding.