G.R. No. 151932 - Tiu vs. Philippine Bank of Communications

Case Summary (G.R. No. 151932)

Factual Background

In June 1993 Asian Water Resources, Inc. applied for a real estate loan with PBCOM, supported by a Board Resolution dated June 7, 1993 and guaranteed by real estate collateral under Transfer Certificate of Title No. T-13020; the loan was approved. In August 1996 AWRI sought a larger unsecured loan using the same Board Resolution, whereupon all directors executed a Surety Agreement on August 16, 1996, acknowledged by a notary public. Most copies of the Surety Agreement were retained by PBCOM; two copies remained with the notary, one of which was forwarded to the Records Management and Archives Office through the RTC Clerk. AWRI later offered dacion en pago of its properties on December 16, 1998; the bank denied the request and thereafter demanded payment, which produced the complaint for collection that became Civil Case No. 99-352.

Trial Court Proceedings

PBCOM attached to its complaint the Surety Agreement as Annexes "A" to "A-2." Petitioners answered on July 3, 1999, alleging lack of personal liability because they signed in their capacities as officers and asserting that the Annexes "A" to "A-2" were falsified by the intercalation of the words "In his personal capacity" without their consent. Petitioners submitted a certified photocopy from the Records Management and Archives Office showing the words were absent. PBCOM retrieved its notarial file copy and likewise found the words absent there. PBCOM then discovered that a bank auditor had ordered a loans clerk, Kenneth Cabahug, to insert the phrase to conform to bank practice; the notary was not informed. Cabahug executed an affidavit explaining the insertion. PBCOM filed a Reply and an application for leave to substitute the Annexes with the duplicate original notarial copy.

RTC Orders Allowing Substitution and Denying Reconsideration

On December 14, 1999 the RTC allowed substitution of the altered Annexes "A" to "A-2" with the duplicate original notarial copy. Petitioners moved for reconsideration, which the RTC denied on January 11, 2000, reasoning that the motion largely repeated prior opposition and raised evidentiary matters proper for trial.

Court of Appeals Decision

Petitioners sought certiorari under Rule 65 before the Court of Appeals, alleging the RTC acted without or in excess of jurisdiction and committed grave abuse of discretion in allowing substitution because PBCOM's cause of action was founded on the falsified Annexes. On September 28, 2001 the CA dismissed the petition for lack of merit and affirmed the RTC Orders in toto.

Issues Presented in the Supreme Court Petition

Petitioners advanced four assignments of error: that the CA erred in affirming substitution based on Section 3, Rule 10; that the CA acted without jurisdiction in ruling on petitioners' obligations founded on an allegedly falsified document; that the CA improperly credited PBCOM's factual assertions about additional loan availments totaling P2,030,000 evidenced by Annexes "B" series; and that the lower courts misapplied equitable principles in permitting substitution.

Petitioners' Contentions

Petitioners argued that the Rules do not permit withdrawal and substitution of a falsified document upon discovery and that PBCOM’s withdrawal of the Annexes nullified its cause of action. They maintained that substitution would prejudice their defenses, prevent them from offering the altered documents as evidence, and render appeal ineffective because the falsified documents would no longer be in the record. Petitioners further alleged that the CA exceeded the issues before it by deciding the merits and depriving them of due process.

Respondent's Contentions

PBCOM contended that when a cause of action is based on a written instrument, the original or a copy must be attached under Section 7, Rule 8, and that substitution of the document attached to the complaint with the original duplicate was a form of amendment permissible under Section 3, Rule 10 upon leave of court. PBCOM admitted the insertion was a mistake made without the notary’s knowledge, denied fraudulent intent, and asserted that leave to amend was within the broad discretion of the trial court and would not prejudice petitioners.

Supreme Court's Analysis on Amendment and Best Evidence

The Supreme Court held that the RTC did not err in allowing substitution. The Court observed that Section 7, Rule 8 requires attaching the written instrument underlying a cause of action, and that Section 3, Rule 10 permits substantial amendments by leave of court. The Court cited Valenzuela v. Court of Appeals for the principle that amendments which substantially alter a cause of action may be allowed when they serve substantial justice, prevent delay, and secure a just, speedy, and inexpensive disposition. The Court found no fraudulent intent by PBCOM in submitting the altered copy and stressed the best evidence rule: the original surety agreement is the best evidence of the parties' stipulations and must be used to determine rights and obligations. The RTC's allowance of substitution was treated as permitting amendment to use the best evidence and to further substantial justice.

Supreme Court on the Proper Role of Certiorari and the CA's Exceeding of Issues

The Court reiterated that a petition for certiorari under Rule 65 corrects jurisdictional defects or grave abuse of discretion only. It articulated the requisites for relief under Rule 65 and explained the distinctions among lack of jurisdiction, excess of jurisdiction, and grave abuse of discre

Case Syllabus (G.R. No. 151932)

Parties and Procedural Posture

Henry Ching Tiu, Christopher Halin Go, and George Co, Petitioners are the signatories of the challenged surety agreement who appealed to the Supreme Court from the Court of Appeals decision.
Philippine Bank of Communications, Respondent is the plaintiff below who filed a collection case in the Regional Trial Court.
The petition to the Supreme Court was filed under Rule 45, Rules of Court seeking review of the Court of Appeals Decision dated September 28, 2001 in CA-G.R. SP No. 57732.
The litigious matters below arose from Civil Case No. 99-352 before the Regional Trial Court of Cagayan de Oro City, Branch 21, which issued orders dated December 14, 1999 and January 11, 2000 allowing substitution of a document and denying reconsideration.
The Court of Appeals dismissed the petition for certiorari under Rule 65, Rules of Court and affirmed the RTC orders in toto, prompting the present appeal.

Key Factual Allegations

Asian Water Resources, Inc. (AWRI) applied for a real estate loan in June 1993 supported by a Board Resolution and collateralized by TCT No. T-13020.
AWRI applied in August 1996 for an additional unsecured loan using the same Board Resolution, whereupon all AWRI directors executed a Surety Agreement dated August 16, 1996.
The bank retained most copies of the Surety Agreement while two copies remained with the notary public, one in his file and one forwarded to the Records Management and Archives Office.
AWRI sought to surrender its properties as dacion en pago on December 16, 1998, which request was denied on January 11, 1999, and the bank thereafter demanded payment on May 12, 1999.
The petitioners alleged that the words "In his personal capacity" were intercalated beneath their signatures without their knowledge and that the copy attached to the complaint was thus altered.
A certified photocopy from the Records Management and the notary's file showed the words absent, while the copy attached to the complaint contained the inserted phrase.
The bank discovered that a bank auditor instructed loans clerk Kenneth Cabahug to type the words to conform to bank practice and that the insertion was made without notifying the notary, whereupon Cabahug executed an affidavit explaining the insertion.
The bank moved for leave to substitute Annexes "A" to "A-2" with the duplicate original notarial copy of the Surety Agreement and the RTC granted the substitution.

Procedural History Below

The RTC issued an order dated December 14, 1999 allowing substitution of the altered Annexes "A" to "A-2" with the duplicate original notarial copy of the Surety Agreement.
The RTC denied the petitioners' motion for reconsideration in its January 11, 2000 Order.
Petitioners filed a petition for certiorari under Rule 65, Rules of Court in the Court of Appeals alleging lack or excess of jurisdiction and grave abuse of discretion, which the CA denied on September 28, 2001.
Petitioners elevated the matter to the Supreme Court by a petition for review on certiorari under Rule 45, Rules of Court.

Issues Presented

Whether the RTC committed grave abuse of discretion or acted without jurisdiction in allowing substitution of the allegedly falsified Surety Agreement.
Whether substitution of the annexed instrument was permissible under Section 3, Rule 10, Rules of Court.
Whether the Court of Appeals exceeded its jurisdiction by interpreting the Surety Agreement and adjudicating the petitioners' obligations on certiorari.
Whether the withdrawal and substitutio