G.R. No. 184333 - Chu vs. Mach Asia Trading Corp.

Petitioner Sixto N. Chu entered into installment purchases with respondent Mach Asia Trading Corporation, a company engaged in importing dump trucks and heavy equipment.
On December 8, 1998, Chu purchased one (1) Hitachi Excavator for P900,000.00, paying an initial P180,000.00, with the balance payable in 12 monthly installments via postdated checks drawn on Prime Bank.
On March 29, 1999, he acquired two (2) heavy equipment units – one (1) motorgrader and one (1) payloader – for P1,000,000.00. A down payment of P200,000.00 was made with the balance of P800,000.00 set for installment payment in 12 monthly payments through Land Bank postdated checks.

Upon presentment, the postdated checks were dishonored due to reasons including a closed account, insufficient funds, or a payment stop, prompting respondent to notify Chu.
Respondent issued a formal demand letter on September 16, 1999, urging Chu to settle his account within five days.
In reply, Chu explained that his business was adversely affected by the Asian economic crisis and proposed to make partial payments, also indicating his willingness to voluntarily surrender the equipment if default continued.

On November 11, 1999, the respondent filed a complaint before the Regional Trial Court (RTC) of Cebu City for recovery of the unpaid balance (amounting to P1,661,947.27 with interest at 21% per annum), replevin of the heavy equipment, attorney’s fees, and damages.
The RTC issued an Order on November 29, 1999, authorizing a writ of replevin against the subject heavy equipment.
On December 9, 1999, the sheriff attempted personal service at Chu’s given address but, upon finding him absent, resorted to substituted service by delivering the summons and related documents to a security guard, Rolando Bonayon.

Chu failed to file a responsive pleading, leading the respondent to move for a declaration of default.
On January 12, 2000, the RTC declared Chu in default and permitted the respondent to present evidence ex parte.
Subsequently, on December 15, 2000, the RTC rendered a decision awarding ownership and possession of the heavy equipment to the respondent and ordering Chu to pay attorney’s fees and litigation expenses in addition to the unpaid balance.

Chu appealed the RTC decision to the Court of Appeals (CA), contending that the substituted service of summons was invalid and that the RTC lacked jurisdiction over his person.
The CA, on July 25, 2007, affirmed the RTC decision on the merits, albeit reducing the attorney’s fees to 10% of the equipment’s value.
The petitioner further assailed the CA’s ruling in a Motion for Reconsideration, which was denied by the Resolution dated August 28, 2008.

The crux of petitioner’s contention centered on the validity of substituted service via the security guard who received the summons.
The petitioner argued that jurisdiction over his person was acquired solely through proper service or voluntary appearance, and that irregular substituted service nullified any jurisdiction and subsequent judgment.

The Supreme Court scrutinized the requirements of substituted service under Section 7, Rule 14 of the Rules of Court, noting that such service is permissible only when personal service is not feasible within a reasonable time.
The Court emphasized that substituted service requires delivery to a person with a relation of confidence with the defendant to ensure actual receipt.
The Court found that the service on the security guard did not meet these statutory requirements, rendering the service defective and the RTC’s jurisdiction void from the outset.

Was the substituted service of summons valid under Section 7, Rule 14 of the Rules of Court?

Whether the sheriff’s delivery of the summons to a security guard, rather than to the petitioner or a person with a relation of confidence, sufficed for valid service.

Did the defect in the substituted service deprive the RTC of jurisdiction over the petitioner?

Whether lack of proper personal or valid substituted service nullified the court’s authority to issue a binding judgment.

Did the irregular service of summons deny the petitioner his due process rights?

Whether the failure to meet the statutory requirements of service prejudiced the petitioner’s ability to be informed and respond appropriately.

Is the judgment rendered on Chu’s default valid if he was not properly summoned?

Evaluating the effect of default judgment in the absence of valid personal jurisdiction.