Spouses Mendiola v. Court of Appeals, G.R. No. 159746, July 18, 2012

Spouses Mendiola v. Court of Appeals,
G.R. No. 159746, July 18, 2012

Pilipinas Shell Petroleum Corporation entered into an agreement for the distribution of Shell petroleum products by Pacific Management & Development, a single proprietorship belonging to petitioner Ramon G. Mendiola. To secure Pacific’s performance of its obligations under the agreement, petitioners executed on August 1, 1985 a real estate mortgage in favor of Shell covering their real estate and its improvements, located in the then Municipality of Parañaque, Rizal.

Pacific ultimately defaulted on its obligations, impelling Shell to commence extrajudicial foreclosure proceedings in April 1987. After application of the proceeds of the sale to the obligation of Pacific, a deficiency of P170,228.00 remained. The deficiency was not paid by Ramon. Thus, Shell sued in RTC Manila to recover the deficiency. Mendiola answered that the foreclosure and the filing of the action were made in bad faith, with malice, fraudulently and in gross and wanton violation of his rights.

Petitioners commenced in the RTC in Makati an action to annul the extrajudicial foreclosure. Shell and Tabangao separately moved for dismissal, stating similar grounds, namely: (a) that the Makati RTC had no jurisdiction due to the pendency of the Manila case; (b) that the complaint stated no cause of action, the Makati case having been filed more than a year after the registration of the certificate of sale; (c) that another action (Manila case) involving the same subject matter was pending; (d) that the venue was improperly laid; and (e) that the Makati case was already barred by petitioners’ failure to raise its cause of action as a compulsory counterclaim in the Manila case.

Manila RTC then rendered its decision favoring Shell. Ramon appealed, but his appeal was decided adversely to him with the CA affirming the Manila RTC’s decision and finding that he was guilty of forum shopping for instituting the Makati case.

Makati RTC then resolved the case favoring Mendiola voiding the foreclosure sale, finding that there had been no auction actually conducted on the scheduled date; that had such auction taken place, petitioners could have actively participated and enabled to raise their objections against the amount of their supposed obligation; and that they had been consequently deprived of notice and hearing as to their liability.

Shell and Tabangao filed their motions for reconsideration, however, Makati RTC denied said motions. They then filed a joint notice of appeal to the CA

Whether the Makati case could prosper independently of the Manila case?

No. The Makati case should have been earlier disallowed to proceed on the ground of litis pendentia, or, once the decision in the Manila case became final, should have been dismissed on the ground of being barred by res judicata.

In the Manila case, Ramon averred a compulsory counterclaim asserting that the extrajudicial foreclosure of the mortgage had been devoid of basis in fact and in law; and that the foreclosure and the filing of the action had been made in bad faith, with malice, fraudulently and in gross and wanton violation of his rights. His pleading thereby showed that the cause of action he later pleaded in the Makati case – that of annulment of the foreclosure sale – was identical to the compulsory counterclaim he had set up in the Manila case.

Rule 6 of the 1997 Rules of Civil Procedure defines a compulsory counterclaim as follows:

Section 7. Compulsory counterclaim. — A compulsory counterclaim is one which, being cognizable by the regular courts of justice, arises out of or is connected with the transaction or occurrence constituting the subject matter of the opposing party’s claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. Such a counterclaim must be within the jurisdiction of the court both as to the amount and the nature thereof, except that in an original action before the Regional Trial Court, the counterclaim may be considered compulsory regardless of the amount.

The four tests to determine whether a counterclaim is compulsory or not are the following, to wit:  (a) Are the issues of fact or law raised by the claim and the counterclaim largely the same? (b) Would res judicata bar a subsequent suit on defendant’s claims, absent the compulsory counterclaim rule? (c) Will substantially the same evidence support or refute plaintiff’s claim as well as the defendant’s counterclaim? and (d) Is there any logical relation between the claim and the counterclaim, such that the conduct of separate trials of the respective claims of the parties would entail a substantial duplication of effort and time by the parties and the court? Of the four, the one compelling test of compulsoriness is the logical relation between the claim alleged in the complaint and that in the counterclaim. Such relationship exists when conducting separate trials of the respective claims of the parties would entail substantial duplication of time and effort by the parties and the court; when the multiple claims involve the same factual and legal issues; or when the claims are offshoots of the same basic controversy between the parties. If these tests result in affirmative answers, the counterclaim is compulsory.

The four tests are affirmatively met as far as the Makati case was concerned. The Makati case had the logical relation to the Manila case because both arose out of the extrajudicial foreclosure of the real estate mortgage constituted to secure the payment of petitioners’ credit purchases under the distributorship agreement with Shell. Specifically, the right of Shell to demand the deficiency was predicated on the validity of the extrajudicial foreclosure, such that there would not have been a deficiency to be claimed in the Manila case had Shell not validly foreclosed the mortgage. As earlier shown, Ramon’s cause of action for annulment of the extrajudicial foreclosure was a true compulsory counterclaim in the Manila case. Thus, the Makati RTC could not have missed the logical relation between the two actions.


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