G.R. No. 230015 - Land Bank of the Philippines vs. La Loma Columbary, Inc.

The petitioner, Land Bank of the Philippines (LBP), and the respondent, La Loma Columbary Inc. (LLCI), entered into a Purchase Receivables Agreement (PRA) on February 22, 2010.
Under the PRA, LLCI was granted a credit facility of up to P95 million; the facility was secured by the assignment of LLCI’s receivables arising from Contracts to Sell (CTS) with its clients.
As additional security, respondents Emmanuel and Fe Zapanta, spouses, executed a Comprehensive Surety Agreement whereby they assumed solidary liability with LLCI’s loan obligations.

LLCI availed of the credit facility in tranches, executing separate deeds of assignment and special powers of attorney which resulted in receivables worth an aggregate amount of P88,271,647.00.
LLCI eventually defaulted on its obligations under the PRA, prompting LBP to file a Complaint for Sum of Money against LLCI and the spouses Zapanta after a series of unheeded demands.

On November 20, 2013, the RTC’s Deputy Sheriff served summons to spouses Zapanta by contacting Fe by phone, who authorized her maid to receive the summons. The next day, summons were served to LLCI at its address in La Loma, Caloocan City.
The RTC recorded these service details in the Sheriff’s Return without indicating multiple attempts, raising questions as to whether the statutory requirements for substituted service had been strictly complied with.
On January 16, 2014, LBP moved to declare LLCI and the spouses in default; on January 24, 2014, the RTC granted the motion, and LBP subsequently presented evidence ex parte on February 17, 2015.
Respondents filed an Omnibus Motion on July 9, 2014 seeking (a) the lifting of the order of default and (b) leave to admit an answer with a compulsory counterclaim, arguing that:

Emmanuel Zapanta’s heart murmur and ensuing treatment hindered his ability to consult a lawyer promptly.
Fe Zapanta did not personally receive the summons and was unaware of the complaint.
They should be afforded a chance to prove their defenses given the substantial amount involved.

The RTC, in its October 22, 2014 Order, denied the Omnibus Motion on the basis that respondents failed to establish excusable negligence, noting that Emmanuel’s clinical and laboratory evidence did not conclusively prove his incapacity, and that Fe’s alleged ignorance was inconsistent with the documented service details.
A subsequent motion for reconsideration was likewise denied in the March 17, 2015 Order of the RTC.

Respondents filed a Petition for Certiorari before the CA challenging the RTC’s denial, arguing that the RTC’s denial of their motion to lift the order of default was marred by grave abuse of discretion.
In its October 21, 2016 Decision, the CA ruled that:

There was no valid service of summons due to the sheriff’s hasty resort to substituted service.
However, jurisdiction was acquired through the respondents’ voluntary appearance.
The RTC had gravely abused its discretion in not lifting the order of default because Emmanuel’s illness constituted an accident preventing him from timely filing an answer.
Respondents also had a meritorious defense based on the validity of the assignment of receivables which, according to the CA, resulted in dacion en pago.

LBP subsequently moved for reconsideration, but the CA denied it on February 10, 2017, leading to the present petition for review on certiorari.

Whether or not the respondents are estopped from questioning the validity of the service of summons, given the alleged shortcomings in substituted service and the fact that actual receipt of the summons by one of the respondents was admitted.

Whether the illness of respondent Emmanuel Zapanta, alleged to have prevented him from consulting a lawyer and filing an Answer, constitutes an “accident” or excusable negligence justifying the lifting of the order of default.

Whether the respondents have established a meritorious defense by way of the argument that the assignment of receivables effectuated a dacion en pago, thereby discharging LLCI’s loan obligations, or whether LLCI’s and the spouses’ solidary liability remains enforceable.