Tatlonghari vs. Bangko Kabayan-Ibaan Rural Bank

Substantial amendments to pleadings before trial must be liberally allowed absent bad faith or intent to delay, and a client may substitute counsel at any time without the former counsel's written consent, mere notice to the adverse party being required. Applied here, the third amended complaint was admissible to plead the Tatlonghari spouses' distinct cause of action and prayer for reconveyance, and Atty. Villanueva was recognized as their counsel of record despite lack of Atty. Salva's conforme.

On August 3, 2004, Pedro V. Ilagan filed a complaint before the Regional Trial Court of Pallocan West, Batangas City for annulment of special power of attorney, promissory notes, and real estate mortgage against Bangko Kabayan-Ibaan Rural Bank, Inc. and the Provincial Sheriff of Batangas Province. He alleged that the Office of the Ex-Officio Sheriff had posted and published notices of sheriff's sale against him as attorney-in-fact of Matilde Valdez, married to Crispin Brual, and spouses Ernesto and Eugenia Tatlonghari, setting the auction sale of properties belonging to said couples for satisfaction of his alleged ₱3,000,000.00 indebtedness to the bank. Pedro denied obtaining a loan from the bank and denied that the Tatlongharis or Valdez had constituted him attorney-in-fact to mortgage their properties as collateral.

Thereafter, Pedro convinced the Tatlongharis to join him in the civil case, informing them that the bank used a falsified SPA to make it appear that they had authorized him to obtain a loan secured by a real estate mortgage on their property then subject to foreclosure proceedings. Maintaining that they issued no SPA or authorization in favor of Pedro, the Tatlongharis agreed to join as plaintiffs and accepted Pedro's counsel, Atty. Bienvenido Castillo, to represent them. On August 11, 2004, the Tatlongharis and Pedro, together with Valdez and Brual as plaintiffs, filed an amended complaint, which defendants answered on September 21, 2004.

While the case was pending, Atty. Eliseo Magno Salva of Salva Salva & Salva Law Office entered as collaborating counsel for plaintiffs on July 22, 2005. Through Atty. Salva, plaintiffs filed a Manifestation and Motion for Leave to File and to Admit Second Amended Complaint to include as additional plaintiffs spouses Tolentino A. Sandoval and Evelyn C. Sandoval, who had previously purchased Valdez's mortgaged property, and to include the estate and heirs of the deceased Valdez and Brual as defendants, plus Eugenia Ilagan, Pedro's spouse, as plaintiff. The RTC admitted the Second Amended Complaint.

Later, the Tatlongharis allegedly discovered evidence leading them to believe that Tolentino, one of their co-plaintiffs, was responsible for involving their property in the anomalous transactions with the bank. Because collaborating counsels Attys. Castillo and Salva had both been hired by Pedro and Tolentino, the Tatlongharis engaged their own counsel. On August 3, 2011, Atty. Marlito I. Villanueva entered his appearance as counsel for the Tatlongharis and filed a motion for leave to file third amended complaint, alleging that title to their property had already been consolidated in the bank's favor and that the prior complaints contained no allegations or prayer pertaining specifically to their cause of action, which might bar complete relief. The proffered Third Amended Complaint fully described their property as entirely different from that covered by the real estate mortgage in favor of the bank and prayed, among others, for reconveyance of their foreclosed property and damages. The RTC denied leave and reconsideration, and the CA sustained the denial.

• Necessity of Amendment for Complete Relief: Petitioner argued that title to their property had already been consolidated in favor of the bank, and that the original and amended complaints contained no allegations or prayer pertaining specifically to their cause of action against the bank, which might bar them from getting complete relief, particularly reconveyance and damages.
• Distinct Property and Cause of Action: Petitioner maintained that the Third Amended Complaint fully described the property in question and stated that it was an entirely different property from the one covered by the real estate mortgage in favor of the bank, necessitating admission to present their real controversy.
• Validity of Substitution of Counsel: Petitioner maintained through Atty. Villanueva's entry of appearance and filing of the motion that Villanueva was their authorized new counsel, having decided to engage separate counsel after discovering that collaborating counsels were hired by Pedro and Tolentino.

• Amendment by Leave of Court: Whether the CA erred in upholding the RTC's denial of Sps. Tatlonghari's motion for leave to file third amended complaint.
• Substitution of Counsel: Whether the CA erred in finding that there was no valid substitution of counsels of record insofar as Sps. Tatlonghari were concerned.

• Amendment by Leave of Court: Yes. Leave should have been granted, amendments before trial being liberally allowed absent bad faith or intent to delay to decide cases on real facts and avoid multiplicity of suits.
• Substitution of Counsel: Yes. Substitution was valid, a client being entitled at any time to dismiss counsel and employ another without the former counsel's written consent.

• Amendment by Leave of Court: After a responsive pleading is served, substantial amendments require prior leave of court, but judicial policy impels liberality, especially before trial, so bona fide amendments are allowed to determine every case on its real facts and prevent multiplicity of suits unless made with bad faith or intent to delay. Here, inspection showed the First and Second Amended Complaints, apart from denying execution of any SPA in favor of Pedro, were bereft of material allegations on the Tatlongharis' personal involvement and sought specific relief only for Sps. Sandoval, with no prayer for reconveyance to the Tatlongharis. Admission before trial would have presented the real controversies with ample time to prepare, prevented circuity of action and expense of a new complaint, and afforded complete relief. No evidence showed inexcusable delay was attributable to the Tatlongharis or impelled by bad faith.
• Substitution of Counsel: Section 26, Rule 138 of the Rules of Court permits an attorney to retire by written consent of the client filed in court, or without consent upon court approval after notice and hearing, and provides for substitution by entering the new attorney's name on the docket and giving written notice to the adverse party. Nowhere does it require written consent of the former attorney; what is required is mere notice to the adverse party. A client may at any time dismiss counsel or substitute another, this being the client's sole prerogative, and an attorney appearing is presumed properly authorized under Section 21, Rule 138. Thus Atty. Villanueva, having entered appearance for the Tatlongharis, must be recognized as their new counsel of record fully authorized to act for them, notwithstanding absence of Atty. Salva's conforme and lack of shown disqualifying conditions.

• Liberal Allowance of Amendments to Pleadings — A party may amend once as a matter of right before a responsive pleading is served; thereafter substantial amendments require leave of court, which is to be treated with liberality, especially before trial, and granted absent bad faith or intent to delay so cases are decided on real facts and multiplicity of suits is prevented. Once leave is granted it binds unless discretion was abused. Applied to admit the Third Amended Complaint pleading the Tatlongharis' distinct property, reconveyance claim, and damages before trial and without attributable delay or bad faith.
• Change or Substitution of Attorneys — Under Section 26, Rule 138 of the Rules of Court, a client may at any time dismiss counsel or substitute another; substitution requires entry of the new attorney's name on the docket and written notice to the adverse party, with no requirement of the former attorney's written consent, subject only to protection of the former counsel's compensation and lien. Complemented by the presumption under Section 21 that an appearing attorney is properly authorized. Applied to recognize Atty. Villanueva as the Tatlongharis' counsel of record despite lack of Atty. Salva's signature or withdrawal.

• "bona fide amendments to pleadings should be allowed in the interest of justice so that every case may, so far as possible, be determined on its real facts and the multiplicity of suits thus be prevented." — States the controlling liberality rule for amendments by leave of court and justifies admission of the Third Amended Complaint to decide the real controversy.
• "But such leave may be refused if it appears to the court that the motion was made with intent to delay, x x x" — Quotes the limiting proviso in Section 3, Rule 10 of the Rules of Court relied upon by the CA, which was held inapplicable for lack of attributable delay or bad faith.
• "A client may at any time dismiss his attorney or substitute another in his place," — States the canonical prerogative under Section 26, Rule 138 supporting the validity of Atty. Villanueva's substitution without Atty. Salva's conforme.
• "An attorney is presumed to be properly authorized to represent any cause in which he appears." — States the presumption of authority sustaining recognition of the newly engaged counsel as counsel of record.

• Yujuico vs. United Resources Asset Management, Inc., G.R. No. 211113, June 29, 2015, 760 SCRA 610, 620 — Followed as controlling authority on amendments as a matter of right versus by leave of court and on liberal treatment of motions for leave absent bad faith or intent to delay.
• Torres vs. Tomacruz, 49 Phil. 913, 915 (1927) — Cited through Yujuico as supporting precedent for liberally allowing bona fide amendments in the interest of justice.
• Tiu vs. Philippine Bank of Communications, 613 Phil. 56, 68 (2009) — Cited through Yujuico as supporting precedent for the liberality rule on amended pleadings.
• Quirao vs. Quirao, 460 Phil. 605, 611 (2003) — Cited through Yujuico as supporting precedent that leave once granted will not be disturbed absent abuse of discretion.

• Section 3, Rule 10, Rules of Court — Governs substantial amendments by leave of court after responsive pleading, allowing refusal only if motion was made with intent to delay; invoked by CA to sustain denial but held inapplicable where no bad faith or attributable delay was shown and motion was filed before trial.
• Sections 2, 3, and 4, Rule 10, Rules of Court — Set the regime for amendments as a matter of right versus by leave; cited to frame that petitioners required prior leave for a third amendment after answer.
• Section 26, Rule 138, Rules of Court — Governs retirement and substitution of attorneys, requiring entry of new counsel on the docket and notice to the adverse party without requiring former counsel's written consent; applied to validate substitution by Atty. Villanueva.
• Section 21, Rule 138, Rules of Court — Presumes an appearing attorney is properly authorized without written power of attorney; applied to recognize Atty. Villanueva as fully authorized to act for Sps. Tatlonghari.

Sereno, C.J. (Chairperson), Leonardo-De Castro, J., Bersamin, J., Caguioa, J.