This Supreme Court decision clarifies that the Rules of Court, not the Cooperative Code, govern service of summons in court proceedings. The court held that serving summons on a cooperative must comply with Rule 14, Section 11 of the Rules of Court, which exclusively lists authorized recipients. This ruling ensures proper notification and due process, safeguarding parties’ rights in legal actions involving cooperatives, despite the address requirements of the Cooperative Code. The annotations of adverse claims were based on a future claim.

Navigating Notice: When a Cooperative’s Claim Collides with Procedural Rules

The case of Cathay Metal Corporation vs. Laguna West Multi-Purpose Cooperative, Inc., revolves around a dispute over land rights and the proper procedure for notifying a cooperative in a legal proceeding. Laguna West, a cooperative, had entered into a joint venture agreement with farmer-beneficiaries who held Certificates of Land Ownership Award (CLOA) in Silang, Cavite. However, Cathay Metal Corporation entered into Irrevocable Exclusive Right to Buy (IERB) contracts with the same farmer-beneficiaries, committing them to sell their agricultural properties upon conversion to industrial or commercial properties.

In 1996, Laguna West, seeking to protect its interests, annotated an adverse claim on the farmer-beneficiaries’ certificates of title. Subsequently, the Department of Agrarian Reform (DAR) issued an order converting the properties from agricultural to mixed-use in 1998. Following this conversion, Cathay Metal and the farmer-beneficiaries executed contracts of sale in 1999, leading to the issuance of transfer certificates of title in Cathay Metal’s name, with the annotations from the original titles carried over. Laguna West’s Vice-President, Orlando dela Peña, informed Cathay Metal of their claim to the properties via letters in March and April 2000, but received no response.

Cathay Metal then filed a petition in September 2000 with the Regional Trial Court (RTC) of Tagaytay City to cancel the adverse claims on its transfer certificates of title. The copy of the petition was sent via registered mail to Laguna West’s alleged official address at Barangay Mayapa, Calamba, Laguna. The petition was returned because the cooperative was not found at that address, with the postman certifying that the “cooperative [was] not existing.” Cathay Metal moved for substituted service, which the RTC granted, declaring it effected despite Laguna West’s lack of actual notice.

Upon learning of the pending case, Laguna West filed a manifestation and motion, asserting that they had not received the summons or the petition and requested that these be served at their new address. The RTC granted this motion, but Cathay Metal instead filed a motion for reconsideration, arguing that the case was already submitted for decision. The RTC eventually granted Cathay Metal’s motion for reconsideration, declaring the case submitted for decision and later ruling in favor of Cathay Metal, ordering the cancellation of the annotations. Laguna West appealed to the Court of Appeals (CA), which reversed the RTC’s decision and remanded the case for Laguna West’s presentation of evidence.

The central legal issue before the Supreme Court was whether Laguna West was properly served with summons or notices of the hearing on the petition for cancellation of annotations of adverse claim on the properties. Cathay Metal argued that service was properly made to Laguna West’s official registered address, as required by the Cooperative Code. The Cooperative Code stipulates that every cooperative must have an official postal address registered with the Cooperative Development Authority (CDA), to which all notices and communications should be sent, citing Article 52 of Republic Act No. 6938, which states:

Article 52. Address. – Every cooperative shall have an official postal address to which all notice and communications shall be sent. Such address and every change thereof shall be registered with the Cooperative Development Authority.

Cathay Metal contended that this substantive law should take precedence over procedural rules, like the Rules of Court. The Supreme Court disagreed, emphasizing that the power to promulgate rules concerning pleading, practice, and procedure in all courts lies exclusively with the Supreme Court, as stated in Article VIII, Section 5(5) of the Constitution. This constitutional grant of power means that proper court procedures are determined by the Rules promulgated by the Court.

Sec. 5. The Supreme Court shall have the following powers:

(5) Promulgate rules concerning the protection and enforcement of constitutional rights, pleading, practice, and procedure in all courts, the admission to the practice of law, the integrated bar, and legal assistance to the underprivileged. Such rules shall provide a simplified and inexpensive procedure for the speedy disposition of cases, shall be uniform for all courts of the same grade, and shall not diminish, increase, or modify substantive rights. Rules of procedure of special courts and quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court.

The Court clarified that while notices may be sent to a cooperative’s official address in accordance with the Cooperative Code, this does not supersede the requirements for proper service of summons in a court proceeding. Service of summons is governed by Rule 14, Section 11 of the Rules of Court, which exclusively enumerates the persons authorized to receive summons for juridical entities:

Sec. 11. Service upon domestic private juridical entity. – When the defendant is a corporation, partnership or association organized under the laws of the Philippines with a juridical personality, service may be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel.

The Supreme Court has established that the enumeration in Section 11 of Rule 14 is exclusive, and service upon persons other than those officers is invalid. Even substantial compliance is insufficient. Cathay Metal failed to serve any of the enumerated officers; instead, it relied on sending the summons to the registered address, which proved unsuccessful.

The Court further noted that Cathay Metal could have availed itself of service by publication if the whereabouts of the defendant were unknown, as provided in Section 14, Rule 14 of the Rules of Court:

Sec. 14. Service upon defendant whose identity or whereabouts are unknown. – In any action where the defendant is designated as an unknown owner, or the like, or whenever his whereabouts are unknown and cannot be ascertained by diligent inquiry, service may, by leave of court, be effected upon him by publication in a newspaper of general circulation and in such places and for such time as the court may order.

The Supreme Court also addressed Cathay Metal’s argument that Laguna West’s alleged non-operation should excuse the improper service. The Court noted that the postmaster’s certification of non-existence or closure was not a reliable statement of Laguna West’s status. Furthermore, even if Laguna West was not operating, it could still exercise its powers as a cooperative until dissolved, including the power to sue and be sued in its cooperative name, as provided by Section 9 of Republic Act No. 6938:

Section 9. Cooperative Powers and Capacities. – A cooperative registered under this Code shall have the following powers and capacities:

(1) To sue and be sued in its cooperative name;
(2) Of succession;
(3) To amend its articles of cooperation in accordance with the provisions of this code;
(4) To adopt by-laws not contrary to law, morals or public policy, and to amend and repeal the same in accordance with this Code;
(5) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property as the transaction of the lawful affairs of the cooperative may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
(6) To enter into division, merger or consolidation, as provided in this Code;
(7) To join federations or unions, as provided in this Code;
(8) To accept and receive grants, donations and assistance from foreign and domestic sources; and
(9) To exercise such other powers granted in this Code or necessary to carry out its purpose or purposes as stated in its articles of cooperation.

The Court emphasized that the trial court had multiple opportunities to resolve the issue of representation and ensure that all parties were given a fair opportunity to be heard. It also reiterated the principle that lawsuits are not a game of technicalities and that courts should strive to do justice upon the merits, citing Alonso v. Villamor. However, despite finding that Laguna West was not validly served with summons, the Supreme Court ultimately ruled that the cooperative’s annotations of adverse claims should be canceled because they were based on a future claim.

The Court explained that a claim based on a future right does not qualify as an adverse claim under Section 70 of Presidential Decree No. 1529, the Property Registration Decree. Laguna West’s claim was based on its disrupted negotiations with the farmer-beneficiaries, which did not materialize into a binding agreement. The Court noted that, in 1996, the 10-year period of prohibition against conveyance of CLOA lands had not yet lapsed, and the properties had not yet been converted to non-agricultural use. The Comprehensive Agrarian Reform Law (CARL) prohibits circumvention of its provisions, including promises of sale that intend to avoid the law’s restrictions. Therefore, Laguna West’s adverse claim, based on an alleged payment of the farmer-beneficiaries’ 40% share, was invalid.

FAQs

What was the key issue in this case?	The central issue was whether Laguna West Multi-Purpose Cooperative was properly served with summons for the petition to cancel its adverse claim, and whether its adverse claim was valid.
What did the Supreme Court rule regarding the service of summons?	The Supreme Court ruled that the service of summons was invalid because it did not comply with Rule 14, Section 11 of the Rules of Court, which requires personal service to specific officers of a juridical entity.
Did the Cooperative Code’s address requirement affect the ruling on summons?	No, the Court clarified that the Cooperative Code’s requirement for a registered address does not override the procedural rules of the Rules of Court for proper service of summons in legal proceedings.
Why was Laguna West’s adverse claim ultimately canceled?	Despite the improper service of summons, the adverse claim was canceled because it was based on a future right—negotiations with farmer-beneficiaries that did not materialize into a binding agreement.
What is an adverse claim in property law?	An adverse claim is a statement in writing asserting a right or interest in registered land that is adverse to the registered owner, which aims to notify third parties of a potential dispute.
What is the effect of the Comprehensive Agrarian Reform Law (CARL) on land sales?	CARL prohibits the sale, transfer, or conveyance of awarded lands within ten years, except through hereditary succession, or to the government, or to other qualified beneficiaries, to prevent circumvention of agrarian reform.
What options did Cathay Metal have for serving summons if the cooperative’s address was unknown?	If the whereabouts of Laguna West were unknown, Cathay Metal could have sought leave of court to effect service by publication in a newspaper of general circulation, as provided by the Rules of Court.
What was the significance of Laguna West’s alleged non-operation?	The Court clarified that even if Laguna West was not actively operating, it still retained the power to sue and be sued until formally dissolved, meaning it could authorize representatives to act on its behalf.

This case underscores the importance of adhering to the specific procedural rules for serving summons, particularly when dealing with juridical entities like cooperatives. It also highlights the principle that adverse claims must be based on existing rights, not future expectations. While the Supreme Court acknowledged the procedural lapse in serving summons, it ultimately resolved the case on the merits, canceling the adverse claim due to its invalid basis.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Cathay Metal Corporation vs. Laguna West Multi-Purpose Cooperative, Inc., G.R. No. 172204, July 10, 2014