FILMERCO COMMERCIAL CO., INC., SPOUSES JAIME AND ANA MARIA MIGUEL, PETITIONERS, VS. HON. INTERMEDIATE APPELLATE COURT; HON. TEOFILO GUADIZ, JR., IN HIS OFFICIAL CAPACITY AS PRES…

Filmerco Commercial versus Intermediate Appellate Court

The Case

This is a petition for review of a decision of the Intermediate Appellate Court which refused to annul a default judgment rendered by the Regional Trial Court of Makati against a corporation and a husband and wife who had been sued as solidary sureties on two bank loans. The petitioners are Filmerco Commercial Company, Incorporated, and the spouses Jaime and Ana Maria Miguel. The private respondent is the Bank of Philippine Islands, which sued them to recover a sum of money. The case matters because it is the classic statement on the strictness of substituted service of summons, and because it holds that the doctrine of piercing the veil of corporate fiction determines liability, never jurisdiction.

Procedural History

The Bank of Philippine Islands filed a complaint for recovery of a sum of money before the Regional Trial Court of Makati against Filmerco and the Miguel spouses. Upon motion of the plaintiff, the trial court declared all the defendants in default for failure to file an answer within the reglementary period, allowed the plaintiff to present its evidence ex parte, and rendered judgment ordering the defendants to pay jointly and severally the principal amount with interest and penalty, attorney's fees, and the costs of suit.

Because no appeal was taken, the plaintiff moved for execution. The motion was granted and a writ of execution issued. The sheriff levied on and attached properties of the defendants, and these were scheduled for public auction. On September 25, 1984, the defendants filed a motion to set aside the decision, the writ of execution, and the notice of levy and attachment, and to restrain the auction sale, on the ground that the court had never acquired jurisdiction over them because no valid summons was served. The trial court denied the motion. A motion for reconsideration was filed while the auction was in progress, and without waiting for its resolution the defendants went up to the Intermediate Appellate Court on certiorari and prohibition with injunction and a preliminary restraining order. The appellate court dismissed the petition, and denied reconsideration. Hence this petition.

Facts

Filmerco obtained two separate loans from the Bank of Philippine Islands in November and December of 1982. As security, the spouses Jaime and Ana Maria Miguel executed a deed of continuing suretyship, binding themselves jointly and solidarily with Filmerco for the payment of the corporation's obligation under the loan accounts. The loans remained outstanding even after they became due and demandable, and so in May 1983 the bank sued.

Three separate summonses, one for each defendant, were addressed to the petitioners' given principal place of business at Saint Escolastica Street, Pasay City. The sheriff's return of September 1983 stated that the summons and complaint could not be served because the defendants had vacated the premises more than a year earlier and no definite information could be had regarding their present whereabouts. Upon motion of the bank, the trial court issued alias summons.

The sheriff's return of March 1984 stated that summons was served on the Miguel spouses at Yuchengco Drive, Pacific Malayan Village, Alabang, Muntinlupa, through a certain Mrs. Angie Morger, described as a person residing therein of suitable age and discretion who received the processes for the defendants but refused to sign. The same return noted that Filmerco was not and could not be served, and its summons was returned unserved. Mrs. Morger later executed affidavits stating that she and her husband were the bona fide residents and lessees of the premises since September 1983, that she told the sheriff the Miguels did not reside there and that she was not authorized to receive papers for them, and that the sheriff nevertheless left documents with her maid, unsigned and unread. Her manifestation was never refuted.

Issues

• Whether or not there was valid substituted service of summons upon the spouses Jaime and Ana Maria Miguel through Mrs. Angie Morger.
• Whether or not the trial court acquired jurisdiction over the corporation Filmerco, either by service on the spouses or by piercing the veil of corporate fiction.
• Whether or not the default judgment and the orders enforcing it are valid, given the failure of valid service.

Applicable Provisions

Section 8, Rule 14 of the Revised Rules of Court, on substituted service, provides:

Section 8. Substituted service. If the defendant cannot be served within a reasonable time as provided in the preceding section, service may be effected (a) by leaving copies of the summons at the defendant's dwelling house or residence with some person of suitable age and discretion then residing therein, or (b) by leaving the copies at defendant's office or regular place of business with some competent person in charge thereof.

This is the provision the Court construes, and its two requirements, the right place and the right person, are the very points on which the service failed.

Ruling

On the first issue, the Court held that no valid service of summons was effected on the spouses through Mrs. Angie Morger. The Court stressed that the statutory requirements of substituted service must be followed strictly, faithfully, and fully, and that any substituted service other than that authorized by the statute is ineffective. The terms dwelling house and residence refer to the place where the person named in the summons is living at the time of service, and it is not enough to leave the copy at a former residence after his removal. Here, the Alabang address was neither the residence nor the dwelling house of the petitioners when summons was served. Nor was Mrs. Morger a proper person to receive the papers, because the rule presupposes a relation of confidence between that person and the defendant, such that the process will be delivered or notice given, and her manifestation negated any such close relationship. The Court added that a sheriff's certification that he duly served summons does not necessarily mean that he validly served it, and that the presumption of regularity cannot stand against the unrebutted facts.

On the second issue, the Court held that no valid summons reached the corporation either. The appellate court had reasoned that the spouses were directors and majority stockholders of Filmerco, and that service on them was service on the corporation. The Court rejected this. Even assuming valid service on the spouses, it would not follow that the corporation was validly served. Piercing the veil of corporate fiction, the Court explained, refers to the determination of liability and not to the determination of jurisdiction, and it comes into play only during trial, after the court has already acquired jurisdiction over the corporation. To acquire jurisdiction over a domestic corporation, summons must be served upon it through the officers enumerated in Section 13, Rule 14 of the Revised Rules of Court, and here there was not even a semblance of any effort to serve an officer as such. The summons intended for the corporation was returned unserved, and so the trial court never acquired jurisdiction over it.

On the third issue, the Court held that the judgment against the petitioners is null and void. The bank's suspicions that the petitioners were hiding to escape their obligations did not justify upholding a judgment rendered without jurisdiction over their persons. The bank chose a procedure strictly in personam, and while proceedings in rem or quasi in rem might have achieved the same ends, the shortcut approved by the appellate court was not one of them.

Doctrine

First, substituted service of summons under Section 8, Rule 14 of the Revised Rules of Court must be followed strictly, faithfully, and fully; it is valid only if the copies are left at the defendant's dwelling house or residence, or office or regular place of business, at the time of service, with a person of suitable age and discretion then residing therein, or a competent person in charge, as the case may be. Any other substituted service is ineffective and the court acquires no jurisdiction over the person of the defendant.

Second, a sheriff's return stating that summons was duly served does not by itself establish valid service, and the presumption of regularity of official functions yields to unrebutted proof that the statutory requirements were not met.

Third, the doctrine of piercing the veil of corporate fiction determines liability, not jurisdiction; it cannot supply the jurisdiction that valid service of summons on the corporation through its officers under Section 13, Rule 14 of the Revised Rules of Court would have conferred.

Disposition

The petition was granted; the decision of the trial court was set aside, and the case was remanded to the trial court for proper service of summons and trial.

Remember This

Memorize the line that piercing the veil of corporate fiction refers to the determination of liability and not to the determination of jurisdiction. Examiners use this case to test strict compliance with substituted service and to trap students who think service on controlling stockholders is service on the corporation.