Macapagal vs. Court of Appeals

Service of summons upon the law firm representing a corporation and its officers/directors is valid to acquire jurisdiction over the individual officer/director defendants where the law firm had previously represented them and continued to represent them in the proceedings; moreover, the proper remedy to attack a final judgment on the ground of extrinsic fraud or lack of jurisdiction due to improper service of process is an action for annulment of judgment under Rule 47 of the Rules of Court, not a petition for certiorari under Rule 65.

The case arose from the widely publicized "Philfinance caper," wherein the Securities and Exchange Commission placed Philippine Underwriters Finance Corporation (Philfinance) under suspension of payments and receivership due to financial distress. Defrauded investors, including Esteban Yau, filed multiple cases against Philfinance and its directors/officers for damages arising from the corporation's alleged unlicensed quasi-banking activities and trading of commercial papers.

• Esteban Yau filed a complaint for damages against Philippine Underwriters Finance Corporation (Philfinance) and its directors/officers, including petitioners Arturo Macapagal and Ricardo Silverio, Sr., in the Regional Trial Court of Cebu (Civil Case No. CEB-2058), alleging liability for the corporation's unlicensed quasi-banking activities.
• Summons was served on July 16, 1984 at the law office of Salva, Villanueva and Associates located at the Philfinance Building on Benavidez Street, Makati, Metro Manila.
• Atty. Emerito Salva, senior partner of the firm and corporate secretary of Philfinance, was the legal counsel for Philfinance, Delta Motors Corporation, and their respective officers and directors.
• Atty. Salva entered a special appearance on July 24, 1984 to contest the jurisdiction of the trial court over the defendants, arguing that substituted service was premature and that his law firm was not authorized to receive summons for the individual petitioners.
• After the motion was denied, Atty. Salva failed to file an answer on behalf of petitioner Macapagal, resulting in the latter being declared in default.
• Atty. Salva filed a petition for certiorari with the Court of Appeals (AC-G.R. No. 04835) to set aside the order of default, which was subsequently dismissed.
• The RTC rendered judgment on March 27, 1991 ordering petitioners and co-defendants to pay over P12 million in damages, excluding interest, finding them liable as directors who knew or should have known that Philfinance was not licensed to engage in quasi-banking functions.
• Atty. Salva filed a notice of appeal on behalf of petitioners but failed to pay the required docket fees, resulting in the dismissal of the appeal (CA-G.R. CV No. 33496).
• Petitioner Macapagal claimed he only learned of the case when the writ of execution was enforced against his properties, alleging he had resigned from Philfinance on June 11, 1981 and from Delta Motors on March 1, 1984, and maintained his residence at Valle Verde since 1977.
• The Securities and Exchange Commission placed Philfinance under suspension of payments on June 18, 1981, took over management with the Central Bank, and approved a receivership committee on August 7, 1981.
• Petitioner Silverio claimed he was constantly traveling between Manila, Hongkong, and California and was unaware of the proceedings, attributing the failure to pay docket fees to Atty. Salva's gross negligence.

• Macapagal argued he was deprived of due process because he had absolutely no knowledge of the proceedings from the filing of the complaint in 1984 until the enforcement of the writ of execution against his properties.
• He contended that, if given the opportunity to present his defense, he could prove he was not liable under Section 31 of the Corporation Code as a one-share, non-management director.
• Macapagal claimed that service of summons at the Philfinance Building was improper because he had already resigned from both Philfinance and Delta Motors prior to July 16, 1984, and his residence was at Valle Verde.
• He argued that a petition for certiorari is the proper remedy to annul a judgment rendered without proper service of summons, citing Matanguihan v. Tengco.
• He sought the reception of evidence to determine whether the Salva law firm had authority to represent him, or alternatively, remand to the Court of Appeals for reception of evidence.
• Silverio argued that the gross negligence of Atty. Salva in failing to pay docket fees should not bar him from filing the petition since the issue was counsel's negligence, not lack of authority.
• Silverio claimed his constant travel between Manila, Hongkong, and California explained his failure to inquire about the case status.
• Silverio contended that the payment of docket fees by co-defendants should inure to his benefit.

• The validity of service of summons had been settled in AC-G.R. No. 04835, which held that service on the law firm at the Philfinance Building was valid for acquiring jurisdiction over Philfinance and its officers/directors, including petitioners.
• Atty. Salva would not have sought affirmative relief or continued representing defendants by filing a notice of appeal if he were not their counsel.
• Petitioners, as former board members and business associates moving in business circles, could not have been completely oblivious to Philfinance's legal problems and the widely reported "Philfinance caper," of which the Court took judicial notice.

• Procedural Issues:
  • Whether the Supreme Court should entertain questions of fact regarding the authority of counsel and petitioner's knowledge of the proceedings.
  • Whether the petitioners' motions for reconsideration should be granted to allow reception of evidence on the issue of counsel's authority.
• Substantive Issues:
  • Whether service of summons on the law firm of Salva, Villanueva and Associates was valid to acquire jurisdiction over petitioners Macapagal and Silverio.
  • Whether petitioners were deprived of due process by the proceedings conducted by Atty. Salva without their knowledge.
  • Whether a petition for certiorari under Rule 65 is the proper remedy to annul a judgment rendered with alleged lack of proper service of summons, or whether it should be an action for annulment of judgment under Rule 47.
  • Whether the gross negligence of counsel in failing to pay docket fees excuses the client from the effects of such negligence.
  • Whether the payment of docket fees by co-defendants inures to the benefit of a defendant who failed to pay.

• Procedural:
  • The Supreme Court declined to review questions of fact or to try cases, stating that it is not the function of the Court to do so on review.
  • The motions for reconsideration were denied with finality for lack of merit.
• Substantive:
  • The Court held that service of summons was valid. Atty. Salva's law firm was counsel not only for Philfinance and Delta Motors but also for their respective corporate officers and directors. The validity of service had been settled in AC-G.R. No. 04835, and none of the other officers/directors denied that Atty. Salva was their counsel.
  • The Court found Macapagal's claim of resignation not credible as the resignation letters were easily fabricated, and he did not deny that Atty. Salva had been counsel or that he had held office at Philfinance/Delta Motors. Atty. Salva would not have sought affirmative relief if he were not their attorney.
  • The Court ruled that petitioners were not deprived of due process because they were properly represented by counsel who actively participated in the proceedings. The burden was on petitioners to prove they had resigned and that counsel ceased to represent them, which they failed to discharge.
  • The Court held that the proper remedy is an action for annulment of judgment under Rule 47 on the ground of extrinsic fraud, not a petition for certiorari under Rule 65. The cases cited by petitioner (Matanguihan, Cavili, Olar, Filmerco, Syjuco) were distinguished as they involved patent defects in service of summons (absence of service evident from return, service by registered mail, vague summons), whereas here there was no evidence of lack of proper service or that Atty. Salva was no longer petitioner's attorney.
  • The Court held that the gross negligence of counsel in failing to pay docket fees binds the client. Silverio's failure to pay constituted abandonment of the appeal, making the decision final as to him. His constant travel was not a sufficient excuse for his failure to protect his interest.
  • The Court rejected the contention that co-defendants' payment of docket fees inures to Silverio's benefit, as his non-payment constituted abandonment of his appeal.

• Binding Effect of Counsel's Actions — The acts, negligence, and omissions of counsel bind the client, including the failure to pay docket fees which results in the dismissal of the appeal and abandonment of the case. Applied to hold Silverio bound by Atty. Salva's failure to pay docket fees, resulting in the finality of the judgment against him.
• Annulment of Judgment vs. Certiorari — A petition for annulment of judgment under Rule 47 is the proper remedy to attack a final judgment on the grounds of extrinsic fraud or lack of jurisdiction due to improper service of summons, not a petition for certiorari under Rule 65 which is limited to acts of courts performed without or in excess of jurisdiction. Applied to reject Macapagal's use of certiorari to assail the judgment.
• Validity of Service of Summons on Counsel — Service of summons on the law firm representing a corporation and its officers/directors is valid to acquire jurisdiction over the individual defendants where the firm is shown to be their counsel, the defendants do not deny such representation, and the firm actively participates in the proceedings. Applied to uphold jurisdiction over petitioners despite their claim of non-appointment of counsel.
• Due Process — Requires notice and opportunity to be heard. The Court found no violation as petitioners were represented by counsel who participated in the proceedings, and petitioners failed to prove by competent evidence that counsel lacked authority to represent them.

• "It is fairly obvious that the issue involved in the resolution of the petition is essentially one of fact. Was the law office 'Salva, Villanueva and Associates' authorized by petitioner to act in his behalf? Was petitioner aware of the representation of the aforementioned lawyers made in his behalf before the Regional Trial Court of Cebu and the Court of Appeals? It is submitted that these vital, yet simple, questions can only be decided on the basis of evidence - not on assumptions..." — Petitioner's admission in his motion for reconsideration that the issue is factual.
• "These cases are here on review. It is not the function of this Court to review questions of fact, much less to try cases."
• "Even this Court took judicial notice of the 'Philfinance caper.'"

• Matanguihan v. Tengco (95 SCRA 478) — Cited by petitioner to support argument that certiorari is proper to annul judgment without proper service; distinguished by the Court as involving patent defects in service (absence of service evident from sheriff's return and violation of Rules 14, §§ 2 & 5).
• Cavili v. Vamenta, Jr. — Distinguished; involved counsel withdrawing upon discovering two defendants were not actually served.
• Olar v. Cuna — Distinguished; involved service of summons by registered mail.
• Filmerco v. Intermediate Appellate Court — Distinguished; involved sheriff leaving copies with maid after being informed defendants did not live there.
• Syjuco v. Castro — Distinguished; involved summons invalidated for being vague as to place of service.
• Sesbreño v. Court of Appeals (222 SCRA 466) — Cited regarding the Philfinance cases and the Court's judicial notice of the Philfinance caper.
• PCIB v. Court of Appeals (172 SCRA 436) — Cited regarding the SEC suspension of Philfinance and the approval of the receivership committee.
• Filinvest v. Court of Appeals (182 SCRA 664) — Cited in relation to the Philfinance cases and the multiple suits filed by defrauded investors.
• Araneta v. Court of Appeals (211 SCRA 830) — Cited in relation to the Philfinance cases.
• Sesbreño v. Garcia (181 SCRA 879) — Cited in relation to the Philfinance cases.

• Section 31 of the Corporation Code — Cited by Macapagal regarding the liability of directors and officers; mentioned as the basis for the trial court's finding of liability against petitioner as a director.
• Rule 14, §8 of the Rules of Court — Cited by Atty. Salva in his initial motion arguing that service of summons should have been made at defendants' residences or offices.
• Rule 14, §§ 2 & 5 of the Rules of Court — Referenced in the discussion of Matanguihan regarding the manner of service of summons.
• Rule 47 of the Rules of Court — Implied as the proper remedy for annulment of judgment based on extrinsic fraud or lack of jurisdiction.
• Rule 65 of the Rules of Court — Implied as the improper remedy used by petitioners to assail the final judgment.