Category: LATEST SUPREME COURT CASES


CASE NO. 2011-0079: HOME GUARANTY CORPORATION VS. R-II BUILDERS INC., AND NATIONAL HOUSING AUTHORITY (G.R. NO.  192649, 9 MARCH 2011, PEREZ, J.) SUBJECTS: JURISDICTION OF COURTS, HOW DETERMINED; FILING FEES IN CONNECTION WITH AMENDED COMPLAINT; CAN COURT WITHOUT JURISDICTION RE-RAFFLE CASE TO ANOTHER COURT? (BRIEF TITLE: HOME GUARANTY VS. R-11 BUILDERS ET AL.)

FIRST DIVISION

 

HOME GUARANTY CORPORATION,

                                       Petitioner,

 

 

 

 

 - versus -

R-II BUILDERS INC., and NATIONAL HOUSING AUTHORITY,

                                  Respondents. 

 

  G.R. No.  192649

 

 

 

Present:

CORONA, C. J.,

       Chairperson,

VELASCO, JR.,

LEONARDO DE-CASTRO,

DEL CASTILLO, and

PEREZ, JJ.

Promulgated:

March 9, 2011

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D E C I S I O N

PEREZ, J.:

 

          Primarily assailed in this petition for review filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, is the Decision dated 21 January 2010 rendered by the Former Fifteenth Division of the Court of Appeals (CA) in CA-G.R. SP No. 111153,[1] the dispositive portion of which states as follows:

            WHEREFORE, the petition for certiorari and prohibition is hereby DENIED.

            The assailed Orders, dated March 3, 2009 and September 29, 2009, of the Regional Trial Court of Manila, Branch 22 are hereby AFFIRMED.

            Consequently, the injunction earlier issued on December 4, 2009, restraining the proceedings in Civil Case No. 05-113407, is herebyDISSOLVED.[2]

The Facts

On 19 March 1993, a Joint Venture Agreement (JVA) was entered into between respondents National Housing Authority (NHA) and R-II Builders, Inc. (R-II Builders) for the implementation of the Smokey Mountain Development and Reclamation Project (SMDRP).   Amended and restated on 21 February 1994[3] and 11 August 1994,[4] the JVA was aimed at implementing a two-phase conversion of the Smokey Mountain Dumpsite “into a habitable housing project inclusive of the reclamation of the area across Radial Road 10 (R-10)”.[5]  By the terms of the JVA, R-II Builders, as developer, was entitled to own 79 hectares of reclaimed land and the 2.3 hectare commercial area at the Smokey Mountain.  As landowner/implementing agency, NHA, on the other hand, was entitled to own the 2,992 temporary housing units agreed to be built in the premises, the cleared and fenced incinerator site consisting of 5 hectares, 3,520 units of permanent housing to be awarded to qualified on site residents, the industrial area consisting of 3.2 hectares and the open spaces, roads and facilities within the Smokey Mountain Area.[6]

On 26 September 1994, NHA and R-II Builders, alongside petitioner Housing Guaranty Corporation (HGC) as guarantor and the Philippine National Bank (PNB) as trustee, entered into an Asset Pool Formation Trust Agreement which provided the mechanics for the implementation of the project.[7]  To back the project, an Asset Pool was created composed of the following assets: (a) the 21.2 hectare Smokey Mountain Site in Tondo, Manila; (b) the 79-hectare Manila Bay foreshore property in the name of the NHA; (c) the Smokey Mountain Project Participation Certificates (SMPPCs) to be issued, or their money proceeds; (d) disposable assets due to R-II Builders and/or its proceeds as defined in the JVA; (e) the resulting values inputted by R-II Builders for pre-implementation activities and some start-up works amounting to P300,000,000.00; (f) the 2,992 temporary housing facilities/units to be constructed by R-II Builders; and, (g) all pertinent documents and records of the project.[8]

On the same date, the parties likewise executed a Contract of Guaranty whereby HGC, upon the call made by PNB and conditions therein specified, undertook to redeem the regular SMPPCs upon maturity and to pay the simple interest thereon to the extent of 8.5% per annum.[9]  The foregoing agreements led to the securitization of the project through the issuance of 5,216 SMPPCs upon the Asset Pool, with a par value of 1 Million each, classified and to be redeemed by the trustee or, in case of call on its guaranty, by HGC, in the following order of priority:

a)  Regular SMPPCs worth P2.519 Billion, issued for value to the general public at specified interests and maturity dates.  These were to be redeemed by the PNB which was obliged to exhaust all liquid assets of the Asset Pool before calling on the HGC guarantee;

b) Special SMPPCs worth P1.403 Billion, issued exclusively to the NHA for conveyance of the Smokey Mountain Site and Manila Bay foreshore property to the Asset Pool, redeemable upon turnover of the developed project; and

c) Subordinated SMPPCs worth P1.294 Billion, issued exclusively to R-II Builders for its rights and interests in the JVA, redeemable with the turnover of all residual values, assets and properties remaining in the Asset Pool after both the Regular and Special SMPPCs are redeemed and all the obligations of the Asset Pool are settled.[10]

Subsequent to R-II Builders’ infusion of P300 Million into the project, the issuance of the SMPPCs and the termination of PNB’s services on 29 January 2001, NHA, R-II Builders and HGC agreed on the institution of Planters Development Bank (PDB) astrustee on 29 January 2001.[11]  By 24 October 2002, however, all the Regular SMPPCs issued had reached maturity and, unredeemed, already amounted to an aggregate face value of P2.513 Billion.  The lack of liquid assets with which to effect redemption of the regular SMPPCs  prompted PDB to make a call on HGC’s guaranty and to execute in the latter’s favor a Deed of Assignment and Conveyance (DAC) of the entire Asset Pool, consisting of: (a) 105 parcels of land comprising the Smokey Mountain Site and the Reclamation Area, with a total area of 539,471.47 square meters, and all the buildings and improvements thereon; (b) shares of stock of Harbour Centre Port Terminal, Inc. (HCPTI); and, (c) other documents.[12]

On 1 September 2005, R-II Builders filed the complaint against HGC and NHA which was docketed as Civil Case No. 05-113407 before Branch 24 of the Manila Regional Trial Court, a Special Commercial Court (SCC).  Contending that HGC’s failure to redeem the outstanding regular SMPPCs despite obtaining possession of the Asset Pool ballooned the stipulated interests and materially prejudiced its stake on the residual values of the Asset Pool, R-II Builders alleged, among other matters, that the DAC should be rescinded since PDB exceeded its authority in executing the same prior to HGC’s redemption and payment of the guaranteed SMPPCs; that while the estimated value of Asset Pool amounted to P5,919,716,618.62 as of 30 June 2005, its total liabilities was estimated at P2,796,019,890.41; and, that with the cessation of PDB’s functions as a trustee and HGC’s intention to use the Asset Pool to settle its obligations to the Social Security System (SSS), it was best qualified to be appointed as new trustee in the event of the resolution of the DAC. Assessed docket fees corresponding to an action incapable of pecuniary estimation, the complaint sought the grant of the following reliefs: (a) a temporary restraining order/preliminary and permanent injunction, enjoining disposition/s of the properties in the Asset Pool; (b) the resolution or, in the alternative, the nullification of the DAC; (c) R-II Builders’ appointment as trustee pursuant to Rule 98 of the Rules of Court; (d) HGC’s rendition of an accounting of the assets and the conveyance thereof in favor of R-II Builders; and, (e) P500,000.00 in attorney’s fees.[13]

On 26 October 2005, Branch 24 of the Manila RTC issued the writ of preliminary injunction sought by R-II Builders which, upon the challenge thereto interposed by HGC, was later affirmed by the CA in the 17 December 2007 decision rendered in CA-G.R. SP No. 98953.[14]  Having filed its answer to the complaint, in the meantime, HGC went on to move for the conduct of a preliminary hearing on its affirmative defenses which included such grounds as lack of jurisdiction, improper venue and the then pendency before this Court of G.R. No. 164537, entitled Francisco Chavez vs. National Housing Authority, et al., a case which challenged, among other matters, the validity of the JVA and its subsequent amendments.[15]  On 2 August 2007, R-II Builders, in turn, filed a motion to admit[16] its Amended and Supplemental Complaint which deleted the prayer for resolution of the DAC initially prayed for in its original complaint.  In lieu thereof, said pleading introduced causes of action for conveyance of title to and/or possession of the entire Asset Pool, for NHA to pay the Asset Pool the sum of P1,803,729,757.88 representing the cost of the changes and additional works on the project and for an increased indemnity for attorney’s fees in the sum of P2,000,000.00.[17]

Consistent with its joint order dated 2 January 2008 which held that R-II Builders’ complaint was an ordinary civil action and not an intra-corporate controversy,[18] Branch 24 of the Manila RTC issued a clarificatory order dated 1 February 2008 to the effect, among other matters, that it did not have the authority to hear the case.[19]  As a consequence, the case was re-raffled to respondent Branch 22 of the Manila RTC (respondent RTC) which subsequently issued the 19 May 2008 order which, having determined that the case is a real action, admitted the aforesaid Amended and Supplemental Complaint, subject to R-II Builders’ payment of the “correct and appropriate” docket fees.[20]  On 15 August 2008, however, R-II Builders filed a motion to admit it Second Amended Complaint, on the ground that its previous Amended and Supplemental Complaint had not yet been admitted in view of the non-payment of the correct docket fees therefor.[21]  Said Second Amended Complaint notably resurrected R-II Builders’ cause of action for resolution of the DAC, deleted its causes of action for accounting and conveyance of title to and/or possession of the entire Asset Pool, reduced the claim for attorney’s fees to P500,000.00, sought its appointment as Receiver pursuant to Rule 59 of the Rules of Court and, after an inventory in said capacity, prayed for approval of the liquidation and distribution of the Asset Pool in accordance with the parties’ agreements.[22] 

On 2 September 2008, HGC filed its opposition to the admission of R-II Builders’ Second Amended Complaint on the ground that respondent RTC had no jurisdiction to act on the case until payment of the correct docket fees and that said pleading was intended for delay and introduced a new theory inconsistent with the original complaint and the Amended and Supplemental Complaint.  Claiming that R-II Builders had defied respondent court’s 19 May 2008 order by refusing to pay the correct docket fees, HGC additionally moved for the dismissal of the case pursuant to Section 3, Rule 17 of the 1997 Rules of Civil Procedure.[23]  On 24 November 2008, R-II Builders also filed an Urgent Ex-Parte Motion for Annotation of Lis Pendens on the titles of the properties in the Asset Pool, on the ground that HGC had sold and/or was intending to dispose of portions thereof, in violation of the writ of preliminary injunction issued in the premises.[24]  Finding that jurisdiction over the case was already acquired upon payment of the docket fees for the original complaint and that the Second Amended Complaint was neither intended for delay nor inconsistent with R-II Builders’ previous pleadings, respondent RTC issued its first assailed order dated 3 March 2009 which: (a) denied HGC’s motion to dismiss; (b) granted R-II Builders’ motion to admit its Second Amended Complaint; and, (c) noted R-II Builders’ Urgent Ex-Parte Motion for Annotation of Lis Pendens, to which the attention of the Manila Register of Deeds was additionally called.[25]

Undaunted, HGC filed its 22 March 2009 motion for reconsideration of the foregoing order, arguing that: (a) the case is real action and the docket fees paid by R-II Builders were grossly insufficient because the estimated value of properties in the Asset Poolexceeds P5,000,000,000.00; (b) a complaint cannot be amended to confer jurisdiction when the court had none; (c) the RTC should have simply denied the Urgent Ex-Parte Motion for Annotation of Lis Pendens instead of rendering an advisory opinion thereon.  In addition, HGC faulted R-II Builders with forum shopping, in view of its 10 September 2008 filing of the complaint docketed as Civil Case No. 08-63416 before Branch 91 of the Quezon City RTC, involving a claim for receivables from the NHA.[26]  In turn, R-II Builders opposed the foregoing motion[27] and, on the theory that the Asset Pool was still in danger of dissipation, filed an urgent motion to resolve its application for the appointment of a receiver and submitted its nominees for said position.[28]

On 29 September 2009, respondent RTC issued its second assailed order which (a) denied HGC’s motion for reconsideration; (b) granted R-II Builders’ application for appointment of receiver and, for said purpose: [i] appointed Atty. Danilo Concepcion as Receiver and, [ii] directed R-II Builders to post a bond in the sum of P10,000,000.00.[29]  Imputing grave abuse of discretion against the RTC for not dismissing the case and for granting R-II Builders’ application for receivership, HGC filed the Rule 65 petition for certiorari and prohibition docketed as CA-G.R. SP No. 111153 before the CA[30] which, thru its Former Special Fifteenth Division, rendered the herein assailed 21 January 2010 decision,[31] upon the following findings and conclusions: 

a)                 Irrespective of whether it is real or one incapable of pecuniary estimation, the action commenced by R-II Builders indubitably falls squarely within the jurisdiction of respondent RTC;

b)                From the allegations of R-II Builders’ original complaint and amended complaint the character of the relief primarily sought, i.e., the declaration of nullity of the DAC, the action before respondent RTC is one where the subject matter is incapable of pecuniary estimation;

c)                 R-II Builders need not pay any deficiency in the docket fees considering its withdrawal of its Amended and Supplemental Complaint;

d)                A receiver may be appointed without formal hearing, particularly when it is within the interest of both parties and does not result in the delay of any government infrastructure projects or economic development efforts;

e)                 Respondent RTC’s act of calling the attention of the Manila Registrar of Deeds to R-II Builders’ Urgent Ex-Parte Motion for Annotation of Lis Pendens is well-within its residual power to act on matters before it; and

f)                  The withdrawal of R-II Builders’ Amended and Supplemental Complaint discounted the forum shopping imputed against it by HGC.[32] 

HGC’s motion for reconsideration of the foregoing decision[33] was denied for lack of merit in the CA’s resolution dated 21 June 2010, hence, this petition.

The Issues

 

          HGC urges the affirmative of the following issues in urging the grant of its petition, to wit:

“Did the Honorable Court of

Appeals Seriously Err When It

 Failed to Rule That:

 

I.                  The Regional Trial Court a quo had no jurisdiction to proceed with the case considering that:

 

(1)     the original court was without authority to hear the case and;

 

(2)     despite an unequivocal order from the trial court a quo,  Private Respondent (R-II Builders) failed and refused to pay the correct and proper docket fees, whether it be for a real or personal action, based on the values of the properties or claims subject of the complaints.

 

II.               Since the Honorable Court of Appeals had characterized the case as a personal action, the action before the Regional Trial Court a quo should have been dismissed for improper venue.

 

III.    The order appointing a receiver was made with grave abuse of discretion as amounting to lack of jurisdiction for having been issued under the following circumstances:

 

(1)             It was made without a hearing and without any evidence of its necessity;

 

(2)              It was unduly harsh and totally unnecessary in view of other available remedies, especially considering that Petitioner HGC is conclusively presumed to be solvent;

 

(3)             It effectively prevented the performance of HGC’s functions in recovering upon its guaranty exposure and was in contravention of Presidential Decree Nos. 385 and 1818, Republic Act No. 8927 and Supreme Court Circular Nos. 2-91, 13-93, 68-94 and Administrative Circular No. 11-00.”[34]

Acting on HGC’s motion for resolution of its application for a temporary restraining order and/or preliminary injunction,[35]the Court issued the resolution dated 23 August 2010, enjoining the enforcement of respondent RTC’s assailed orders.[36]

The Court’s Ruling

 

          We find the petition impressed with merit.

          Jurisdiction is defined as the authority to hear and determine a cause or the right to act in a case.[37]  In addition to being conferred by the Constitution and the law,[38] the rule is settled that a court’s jurisdiction over the subject matter is determined by the relevant allegations in the complaint,[39] the law in effect when the action is filed,[40] and the character of the relief sought irrespective of whether the plaintiff is entitled to all or some of the claims asserted.[41]  Consistent with Section 1, Rule 141 of theRevised Rules of Court which provides that the prescribed fees shall be paid in full “upon the filing of the pleading or other application which initiates an action or proceeding”, the well-entrenched rule is to the effect that a court acquires jurisdiction over a case only upon the payment of the prescribed filing and docket fees.[42] 

          The record shows that R-II Builders’ original complaint dated 23 August 2005 was initially docketed as Civil Case No. 05-113407 before Branch 24 of the Manila, a designated Special Commercial Court.[43]  With HGC’s filing of a motion for a preliminary hearing on the affirmative defenses asserted in its answer[44] and R-II Builders’ filing of its Amended and Supplemental Complaint dated 31 July 2007,[45] said court issued an order dated 2 January 2008 ordering the re-raffle of the case upon the finding that the same is not an intra-corporate dispute.[46]  In a clarificatory order dated 1 February 2008,[47] the same court significantly took cognizance of its lack of jurisdiction over the case in the following wise:

            At the outset, it must be stated that this Court is a designated Special Commercial Court tasked to try and hear, among others, intra-corporate controversies to the exclusion of ordinary civil cases.

            When the case was initially assigned to this Court, it was classified as an intra-corporate case.  However, in the ensuing proceedings relative to the affirmative defences raised by defendants, even the plaintiff conceded that the case is not an intra-corporate controversy or even if it is, this Court is without authority to hear the same as the parties are all housed in Quezon City.

            Thus, the more prudent course to take was for this Court to declare that it does not have the authority to hear the complaint it being an ordinary civil action.  As to whether it is personal or civil, this Court would rather leave the resolution of the same to Branch 22 of this Court. (Italics supplied).

We find that, having squarely raised the matter in its Rule 65 petition for certiorari and prohibition docketed as CA-G.R. SP No. 111153,[48] HGC correctly faults the CA for not finding that Branch 24 of the Manila RTC had no authority to order the transfer of the case to respondent RTC.[49]  Being outside the jurisdiction of Special Commercial Courts, the rule is settled that cases which are civil in nature, like the one commenced by R-II Builders, should be threshed out in a regular court.[50]  With its acknowledged lack of jurisdiction over the case, Branch 24 of the Manila RTC should have ordered the dismissal of the complaint, since a court without subject matter jurisdiction cannot transfer the case to another court.[51]  Instead, it should have simply ordered the dismissal of the complaint, considering that the affirmative defenses for which HGC sought hearing included its lack of jurisdiction over the case.

Calleja v. Panday,[52] while on facts the other way around, i.e., a branch of the RTC exercising jurisdiction over a subject matter within the Special Commercial Court’s authority, dealt squarely with the issue:

Whether a branch of the Regional Trial Court which has no jurisdiction to try and decide a case has authority to remand the same to another co-equal Court in order to cure the defects on venue and jurisdiction.

Calleja ruled on the issue, thus:

Such being the case, RTC Br. 58 did not have the requisite authority or power to order the transfer of the case to another branch of the Regional Trial Court.  The only action that RTC-Br. 58 could take on the matter was to dismiss the petition for lack of jurisdiction.

Certainly, the pronouncement of Br. 24, the Special Commercial Court, in its Joint Order of 2 January 2008 that the case is not an intracorporate controversy, amplified in its Order of 1 February 2008 that it “does not have the authority to hear the complaint it being an ordinary civil action” is incompatible with the directive for the re-raffle of the case and to “leave the resolution of the same to Branch 22 of this Court.”  Such a directive is an exercise of authority over the case, which authority it had in the same breath declared it did not have.  What compounds the jurisdictional error is the fact that at the time of its surrender of jurisdiction, Br. 24 had already acted on the case and had in fact, on 26 October 2005, issued the writ of preliminary injunction sought by herein respondent R-II Builders.  At that point, there was absolutely no reason which could justify a re-raffle of the case considering that the order that was supposed to have caused the re-raffle was not an inhibition of the judge but a declaration of absence of jurisdiction. So faulty was the order of re-raffle that it left the impression that its previously issued preliminary injunction remained effective since the case from which it issued was not dismissed but merely transferred to another court.  A re-raffle which causes a transfer of the case involves courts with the same subject matter jurisdiction; it cannot involve courts which have different jurisdictions exclusive of the other.  More apt in this case, a re-raffle of a case cannot cure a jurisdictional defect.           

Prescinding from the foregoing considerations, and to show that the proceedings below was error upon error, we find that the CA also gravely erred in not ruling that respondent RTC’s (Branch 22, the regular court)  jurisdiction over the case was curtailed by R-II Builders’ failure to pay the correct docket fees.  In other words, the jurisdictionally flawed transfer of the case from Branch 24, the SCC to Branch 22, the regular court, is topped by another jurisdictional defect which is the non-payment of the correct docket fees.  In its order dated 19 May 2008 which admitted R-II Builders’ Amended and Supplemental Complaint, respondent RTC distinctly ruled that the case was a real action and ordered the re-computation and payment of the correct docket fees.[53] In patent circumvention of said order, however, R-II Builders filed its 14 August 2008 motion to admit its Second Amended Complaint which effectively deleted its causes of action for accounting and conveyance of title to and/or possession of the entire Asset Pool and, in addition to reducing the claim for attorney’s fees and seeking its appointment as a receiver, reinstated its cause of action for resolution of the DAC.[54]  Acting on said motion as well as the opposition and motion to dismiss interposed by HGC,[55]respondent RTC ruled as follows in its assailed 3 March 2009 order,[56] to wit:

            1. The docket fees of the original complaint has been paid, thus, the Court already acquired jurisdiction over the instant case.  The admission of the Amended and Supplemental Complaint, is subject to the payment of docket fees pursuant to the Order of this Court dated May 18, 2008. The non-payment of the docket fees stated in the Order dated May 18, 2008 will result only in the non-admission of the Amended and Supplemental Complaint, which means that the Original Complaint remains.  However, since the Amended and Supplemental Complaint is being withdrawn and in lieu thereof a new Amended Complaint is sought to be admitted, there is no more need to pay the docket fees as provided for in the said Order.

            2.  It is settled that once jurisdiction is acquired and vested in a Court, said Court maintains its jurisdiction until judgment is had (Aruego, Jr., et al. vs. CA).  Such acquired jurisdiction is not lost by the amendment of a pleading that raises additional/new cause(s) of action.  The jurisdiction of a Court is not even lost even if the additional docket fees are required by reason of the amendment.

            Indeed, the Supreme Court held in PNOC vs. Court of Appeals (G.R. No. 107518, October 8, 1998) that:

            “Its failure to pay the docket fee corresponding to its increased claim for damages under the amended complaint should not be considered as having curtailed the lower court’s jurisdiction.  Pursuant to the ruling in Sun Insurance Office, Ltd. (SIOL) v. Asuncion, the unpaid docket fees should be considered as a lien on the judgment even though private respondent specified the amount of P600,000.00 as its claim for damages in its amended complaint.

            Thus, even on the assumption that additional docket fees are required as a consequence of any amended complaint, its non-payment will not result in the court’s loss of jurisdiction over the case.[57]

Distinctly, the principal reference remained to be the “original complaint,” in which R-II Builders itself submitted that the case “is a real action as it affects title and possession of real property or interest therein.”  It was precisely this submission which was the basis of the conclusion of the SCC court, Br. 24 that the case is not an intra-corporate controversy and therefore is outside its authority.

We see from the assailed Order that the regular court accepted the case on the reason that “the docket fees of the original complaint has been paid,” so that, furthermore, the Amended and Supplemental Complaint may be admitted “subject to the payment of docket fees.”  When the required fees were not paid, the court considered it as resulting in the non-admission of the Amended and Supplemental Complaint such that “the original complaint remains.”  That remaining original complaint can then be amended by “a new Amended Complaint” which is no longer subject to the conditions attached to the unadmitted Amended and Supplemental Complaint.

The Order of 3 March 2009, with its logic and reason, is wholly unacceptable.

In upholding the foregoing order as well as its affirmance in respondent RTC’s 29 September 2009 order,[58] the CA ruled that the case – being one primarily instituted for the resolution/nullification of the DAC – involved an action incapable of pecuniary estimation.  While it is true, however, that R-II Builder’s continuing stake in the Asset Pool is “with respect only to its residual value after payment of all the regular SMPPCs holders and the Asset Pool creditors”,[59] the CA failed to take into account the fact that R-II Builders’ original complaint and Amended and Supplemental Complaint both interposed causes of action for conveyance and/or recovery of possession of the entire Asset Pool.  Indeed, in connection with its second cause of action for appointment as trustee in its original complaint,[60] R-II Builders distinctly sought the conveyance of the entire Asset Pool[61] which it consistently estimated to be valued at P5,919,716,618.62 as of 30 June 2005.[62]  In its opposition to HGC’s motion to dismiss, R-II Builders even admitted that the case is a real action as it affects title to or possession of real property or an interest therein.[63]  With R-II Builders’ incorporation of a cause of action for conveyance of title to and/or possession of the entire Asset Pool in its Amended and Supplemental Complaint,[64] on the other hand, no less than respondent RTC, in its 19 May 2008 order, directed the assessment and payment of docket fees corresponding to a real action.

Admittedly, this Court has repeatedly laid down the test in ascertaining whether the subject matter of an action is incapable of pecuniary estimation by determining the nature of the principal action or remedy sought.  While a claim is, on the one hand, considered capable of pecuniary estimation if the action is primarily for recovery of a sum of money, the action is considered incapable of pecuniary estimation where the basic issue is something other than the right to recover a sum of money, the money claim being only incidental to or merely a consequence of, the principal relief sought.[65]  To our mind, the application of foregoing test does not, however, preclude the further classification of actions into personal actions and real action, for which appropriate docket fees are prescribed.  In contrast to personal actions where the plaintiff seeks the recovery of personal property, the enforcement of a contract, or the recovery of damages, real actions are those which affect title to or possession of real property, or interest therein.[66]While personal actions should be commenced and tried where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, or in the case of a non-resident defendant where he may be found, at the election of the plaintiff,[67] the venue for real actions is the court of the place where the real property is located.[68]

Although an action for resolution and/or the nullification of a contract, like an action for specific performance, fall squarely into the category of actions where the subject matter is considered incapable of pecuniary estimation,[69] we find that the causes of action for resolution and/or nullification of the DAC was erroneously isolated by the CA from the other causes of action alleged in R-II Builders’ original complaint and Amended and Supplemental Complaint which prayed for the conveyance and/or transfer of possession of the Asset Pool.  In Gochan v. Gochan,[70] this Court held that an action for specific performance would still be considered a real action where it seeks the conveyance or transfer of real property, or ultimately, the execution of deeds of conveyance of real property.  More to the point is the case of Ruby Shelter Builders and Realty Development Corporation v. Hon. Pablo C. Formaran III[71] where, despite the annulment of contracts sought in the complaint, this Court upheld the directive to pay additional docket fees corresponding to a real action in the following wise, to wit:

x x x [I]n Siapno v. Manalo, the Court disregarded the title/denomination of therein plaintiff Manalo’s amended petition as one for Mandamus with Revocation of Title and Damages; and adjudged the same to be a real action, the filing fees for which should have been computed based on the assessed value of the subject property or, if there was none, the estimated value thereof. The Court expounded in Siapno that:

In his amended petition, respondent Manalo prayed that NTA’s sale of the property in dispute to Standford East Realty Corporation and the title issued to the latter on the basis thereof, be declared null and void. In a very real sense, albeit the amended petition is styled as one for “Mandamus with Revocation of Title and Damages”, it is, at bottom, a suit to recover from Standford the realty in question and to vest in respondent the ownership and possession thereof. In short, the amended petition is in reality an action in res or a real action. Our pronouncement in Fortune Motors (Phils.), Inc. vs. Court of Appeals is instructive. There, we said:

A prayer for annulment or rescission of contract does not operate to efface the true objectives and nature of the action which is to recover real property. (Inton, et al., v. Quintan, 81 Phil. 97, 1948)

An action to annul a real estate mortgage foreclosure sale is no different from an action to annul a private sale of real property. (Muñoz v. Llamas, 87 Phil. 737, 1950).

While it is true that petitioner does not directly seek the recovery of title or possession of the property in question, his action for annulment of sale and his claim for damages are closely intertwined with the issue of ownership of the building which, under the law, is considered immovable property, the recovery of which is petitioner’s primary objective. The prevalent doctrine is that an action for the annulment or rescission of a sale of real property does not operate to efface the fundamental and prime objective and nature of the case, which is to recover said real property. It is a real action.[72]

          Granted that R-II Builders is not claiming ownership of the Asset Pool because its continuing stake is, in the first place, limited only to the residual value thereof, the conveyance and/or transfer of possession of the same properties sought in the original complaint and Amended and Supplemental Complaint both presuppose a real action for which appropriate docket fees computed on the basis of the assessed or estimated value of said properties should have been assessed and paid.   In support of its original complaint’s second cause of action for appointment as trustee and conveyance of the properties in the Asset Pool, R-II Builders distinctly alleged as follows:

            5.12. As the Court-appointed Trustee, R-II Builders shall have and exercise the same powers, rights and duties as if [it] had been originally appointed, having the principal duty of redeeming and buying back the Regular SMPPC’s and thereafter liquidating the Asset Pool, which are also the end goals of the Agreement.

5.12.1. R-II Builders, as the Trustee, shall have the power and right to invest, transfer, convey or assign any of the assets of the Asset Pool, whether funds, receivables, real or personal property, in exchange for shares of stocks, bonds, securities, real or personal properties of any kind, class or nature, provided that any such investment, transfer, conveyance or assignment shall not impair the value of the Asset Pool.

5.12.2. R-II Builders, as the Trustee, shall have the power and right to sell, change, assign or otherwise dispose of any stocks, bonds, securities, real or personal properties or other assets constituting the Asset Pool.

5.12. 3. R-II Builders, as the Trustee, shall have the power and right to enter into lease agreements as lessor or any other related contract for the benefit of the Asset Pool; and

5.12.4. It is understood that the aforecited powers and rights of R-II Builders as the court-appointed Trustee, are non-exclusive; and is deemed to include all the rights and powers necessary and incidental to achieve the goals and objectives of the Agreement.[73]

From the foregoing allegations in its original complaint, it cannot be gainsaid that R-II Builders was unquestionably seeking possession and control of the properties in the Asset Pool which predominantly consisted of real properties.  Having admitted that “the case is a real action as it affects title to or possession of real property or (an) interest therein”,[74] R-II Builders emphasized the real nature of its action by seeking the grant of the following main reliefs in the Amended and Supplemental Complaint it subsequently filed, to wit:

5.  After trial on the merits, render judgment:

(i) Declaring the annulment of the Deed of Assignment and conveyance executed by PDB in favor of HGC; or in the alternative, declaring the nullity of the said instrument;

(ii) Appointing R-II Builders as the Trustee of the Asset Pool Properties, with powers and responsibilities including but not limited to those stated in 5.12.1, 5.12.2, 5.12.3 and 5.12.4 herein and those spelled out in the Re-Stated Smokey Mountain Asset Pool Formation Trust Agreement;

(iii) Ordering HGC to render an accounting of all properties of the Asset Pool transferred thereto under the Deed of Assignment and Conveyance and thereafter convey title to and/or possession of the entire Asset Pool to R-II Builders as the Trustee thereof which assets consist of, but is not limited to the following:

(a)  105 parcels of land comprising the Smokey Mountain Site, and, the Reclamation Area, consisting of the 539,471.47 square meters, and all the buildings and improvements thereon, with their corresponding certificates of title;

(bshares of stock of Harbour Center Port Terminal, Inc. which are presently registered in the books of the said company in the name of PDB for the account of the Smokey Mountain Asset Pool; and

(cother documents as listed in Annex E of the Contract of Guaranty.

(ivOrdering NHA to pay the Asset Pool the amount of Php1,803,729,757.88 including the direct and indirect cost thereon as may be found by this Honorable Court to be due thereon;

(v) Making the injunction permanent;

(vi) Ordering HGC and the NHA to pay Attorney’s fees in the amount of P2,000,000 and the costs of suit.[75]

For failure of R-II Builders to pay the correct docket fees for its original complaint or, for that matter, its Amended and Supplemental Complaint as directed in respondent RTC’s 19 May 2008 order, it stands to reason that jurisdiction over the case had yet to properly attach.  Applying the rule that “a case is deemed filed only upon payment of the docket fee regardless of the actual date of filing in court” in the landmark case of Manchester Development Corporation v. Court of Appeals,[76] this Court ruled that jurisdiction over any case is acquired only upon the payment of the prescribed docket fee which is both mandatory and jurisdictional.  To temper said ruling, the Court subsequently issued the following guidelines in Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,[77] viz.:

          1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the subject matter or nature of the action. Where the filing of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee within a reasonable time but in no case beyond the applicable prescriptive or reglementary period.

            2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be considered filed until and unless the filing fee prescribed therefor is paid. The court may also allow payment of said fee within a reasonable time but also in no case beyond its applicable prescriptive or reglementary period.

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the pleading, or if specified the same has been left for determination by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee.

True to the foregoing guidelines, respondent RTC admitted R-II Builder’s Amended and Supplemental Complaint and directed the assessment and payment of the appropriate docket fees in the order dated 19 May 2008.  Rather than complying with said directive, however, R-II Builders manifested its intent to evade payment of the correct docket fees by withdrawing its Amended and Supplemental Complaint and, in lieu thereof, filed its Second Amended Complaint which deleted its cause of action for accounting and conveyance of title to and/or possession of the entire Asset Pool, reduced its claim for attorney’s fees, sought its appointment as Receiver and prayed for the liquidation and distribution of the Asset Pool.[78] In upholding the admission of saidSecond Amended Complaint in respondent RTC’s assailed 3 March 2009 Order, however, the CA clearly lost sight of the fact that a real action was ensconced in R-II Builders’ original complaint and that the proper docket fees had yet to be paid in the premises. Despite the latter’s withdrawal of its Amended and Supplemental Complaint, it cannot, therefore, be gainsaid that respondent RTC had yet to acquire jurisdiction over the case for non-payment of the correct docket fees.

In the 15 February 2011 Resolution issued in the case of David Lu v. Paterno Lu Ym, Sr.,[79] this Court, sitting En Banc, had occasion to rule that an action for declaration of nullity of share issue, receivership and corporate dissolution is one where the value of the subject matter is incapable of pecuniary estimation.  Subsequent to the trial court’s rendition of a decision on the merits declared to be immediately executory and the CA’s denial of their application for a writ of preliminary injunction and/or temporary restraining order to enjoin enforcement of said decision, the defendants questioned the sufficiency of the docket fees paid a quowhich supposedly failed take into consideration the value of the shares as well as the real properties involved for which the plaintiff additionally caused notices of lis pendens to be annotated.  Finding that defendants were already estopped in questioning the jurisdiction of the trial court on the ground of non-payment of the correct docket fees, the Court discounted intent to defraud the government on the part of the plaintiff who can, at any rate, be required to pay the deficiency which may be considered a lien on the judgment that may be rendered, without automatic loss of the jurisdiction already acquired, in the first instance, by the trial court.       

The factual and legal milieus of the case at bench could not, however, be more different.  While R-II Builders styled its original complaint and Amended and Supplemental Complaint as one primarily for the resolution and/or declaration of the DAC, it simultaneously and unmistakably prayed for the conveyance, possession and control of the Asset Pool.  Alongside the fact that HGC has consistently questioned the sufficiency of the docket fees paid by R-II Builders, estoppel cannot be said to have set in since, the lapse of more than five years from the commencement of the complaint notwithstanding, it appears that the case has yet to be tried on the merits.  Having admitted that its original complaint partook the nature of a real action and having been directed to pay the correct docket fees for its Amended and Supplemental Complaint, R-II Builders is, furthermore, clearly chargeable with knowledge of the insufficiency of the docket fees it paid.   Unmistakably manifesting its intent to evade payment of the correct docket fees, moreover, R-II Builders withdrew its Amended and Supplemental Complaint after its admission and, in lieu thereof, filed its’Second Amended Complaint on the ground that said earlier pleading cannot be considered admitted in view of its non-payment of the docket and other fees it was directed to pay.  In so doing, however, R-II Builders  conveniently overlooked the fact that the very same argument could very well apply to its original complaint for which – given its admitted nature as a real action – the correct docket fees have also yet to be paid.

The importance of filing fees cannot be over-emphasized for they are intended to take care of court expenses in the handling of cases in terms of costs of supplies, use of equipment, salaries and fringe benefits of personnel, and others, computed as to man-hours used in the handling of each case.  The payment of said fees, therefore, cannot be made dependent on the result of the action taken without entailing tremendous losses to the government and to the judiciary in particular.[80]  For non-payment of the correct docket fees which, for real actions, should be computed on the basis of the assessed value of the property, or if there is none, the estimated value thereof as alleged by the claimant,[81] respondent RTC should have denied admission of R-II Builders’ Second Amended Complaint and ordered the dismissal of the case.  Although a catena of decisions rendered by this Court eschewed the application of the doctrine laid down in the Manchester case,[82] said decisions had been consistently premised on the willingness of the party to pay the correct docket fees and/or absence of intention to evade payment of the correct docket fees.  This cannot be said of R-II Builders which not only failed to pay the correct docket fees for its original complaint and Amended and Supplemental Complaint but also clearly evaded payment of the same by filing its Second Amended Complaint.

By itself, the propriety of admitting R-II Builders’ Second Amended Complaint is also cast in dubious light when viewed through the prism of the general prohibition against amendments intended to confer jurisdiction where none has been acquired yet. Although the policy in this jurisdiction is to the effect that amendments to pleadings are favored and liberally allowed in the interest of justice, amendment is not allowed where the court has no jurisdiction over the original complaint and the purpose of the amendment is to confer jurisdiction upon the court.[83]  Hence, with jurisdiction over the case yet to properly attach, HGC correctly fault the CA for upholding respondent RTC’s admission of R-II Builders’ Second Amended Complaint despite non-payment of the docket fees for its original complaint and Amended and Supplemental Complaint as well as the clear intent to evade payment thereof.

With the determination  of the jurisdictional necessity of the dismissal of the complaint of R-II Builders docketed as Civil Case No. 05-113407, first before Br. 24 and later before Br. 22 both of the RTC of Manila, we no longer find any reason to go into a discussion of the remaining issues HGC proffers for resolution.  In view, particularly, of its non-acquisition of jurisdiction over the case, respondent RTC clearly had no authority to grant the receivership sought by R-II Builders.  It needs pointing out though that the prayer for receivership clearly indicates that the R-II Builders sought the transfer of possession of property consisting of the assets of the JVA from HGC to the former’s named Receiver.  As already noted, said transfer of possession was sought by respondent R-II Builders since the very start, overtly at the first two attempts, covertly in the last, the successive amendments betraying the deft maneuverings to evade payment of the correct docket fees.

WHEREFORE, premises considered, the assailed Decision dated 21 January 2010 is REVERSED and SET ASIDE.  In lieu thereof, another is entered NULLIFYING the regular court’s, RTC Branch 22’s Orders dated 3 March 2009 and 29 September 2009 as well as the SCC’s, RTC Branch 24’s Order dated 26 October 2005 which was rendered void by the SCC’s subsequent declaration of absence of authority over the case.  The complaint of R-II Builders docketed as Civil Case No. 05-113407 first before Br. 24 and thereafter before Br. 22 both of the RTC of Manila is hereby DISMISSED.

           SO ORDERED.

 

 

 

                                                                      JOSE PORTUGAL PEREZ

                                                                                     Associate Justice

WE CONCUR:

RENATO C. CORONA

Chief Justice

Chairperson

 

 

 

 

 

PRESBITERO J. VELASCO, JR.

Associate Justice

 

 

 

 

 

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

 

MARIANO C. DEL CASTILLO

Associate Justice

 

 

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                                      RENATO C. CORONA

                                                                                Chief Justice


[1]               Rollo, pp.  139-165.

[2]               Id. at 165.

[3]               Id. at 1063-1077.

[4]               Id. at 1078-1087.

[5]               Id. at 1063.

[6]               Id. at 1068-1069.

[7]               Id. at 1088.

[8]               Id. at 19-20 and 1094.

[9]               Id. at 1112-1117.

[10]             Id. at 20-22, 354, 142-143 and 505.

[11]             Id. at 22 and 356.

[12]             Id. at 1118-1119.

[13]             Id. at 348-376.    

[14]             Id. at 24 and 146.

[15]             Id. at 1416-1423.

[16]             Id. at 440-445.

[17]             Id. at 446-489.

[18]             Id. at 435-437.

[19]             Id. at 438-439.

[20]             Id. at 490-495.

[21]             Id. at 496-500.

[22]             Id. at 496-538.

[23]             Id. at 539-549.

[24]             Id. at 585-590.

[25]             Id. at 325-332.

[26]             Id. at 613-656.

[27]             Id. at 775-793.

[28]             Id. at 823-827.

[29]             Id. at 333-347.

[30]             Id. at 178-313.

[31]             Id. at 139-165.

[32]             Id. at 154-165.

[33]             Id. at 1375-1415.

[34]             Id. at 40-41.

[35]             Id. at 1451-1484.

[36]             Id. at 1485-1488.

[37]             Union Bank of the Philippines v. Securities and Exchange Commission, G.R. No. 165382, 17 August 2006, 499 SCRA 253, 263.

[38]             Proton Pilipinas Corporation v. Republic, G.R. No. 165027, 16 October 2006, 504 SCRA 528, 540.

[39]             General Milling Corporation v. Uytengsu III, G.R. No. 160514, 30 June 2006, 494 SCRA 241, 245.

[40]             Bokingo v. Court of Appeals, G.R. No. 161739, 4 May 2006, 489 SCRA 521, 530.

[41]             AC Enterprises, Inc. v. Frabelle Properties Corporation, G.R. No. 166744, 2 November 2006, 506 SCRA 625, 654-655.

[42]             Lacson v. Reyes, G.R. No. 86250, 26 February 1990, 182 SCRA 729, 733.

[43]             Rollo, pp. 348-377.            

[44]             Id. at 1416-1423.

[45]             Id. at 446-487.

[46]             Id. at 435-437.

[47]             Id. at 438-439.

[48]             Id. at 211-217.

[49]             Id. at 41-47.

[50]             Atwell v. Concepcion Progressive Association, Inc., G.R. No. 169370, 14 April 2008, 551 SCRA 272, 281.

[51]             Igot v. Court of Appeals, G.R. No. 150794, 17 August 2004, 436 SCRA 668, 676.

[52]             G.R. No. 168696, 28 February 2006, 483 SCRA 680, 693.

[53]             Rollo, pp. 490-495.

[54]             Id. at 496-538.

[55]             Id. at 539-549.

[56]             Id. at 325-332.

[57]             Id. at 327-328.

[58]             Id. at 333-347.

[59]             Id. at 157-158.

[60]             Id. at 364-371.

[61]             Id. at 376.

[62]             Id. at 357-358.

[63]             Id. at 436.

[64]             Id. at 460-463.

[65]             Radio Communications of the Philippines, Inc. v. Court of Appeals, 435 Phil. 62, 66 (2002).

[66]             Marcos-Araneta v. Court of Appeals, G.R. No. 154096, 22 August 2008, 563 SCRA 41, 62-63.

[67]             Davao Light and Power Co, Inc. v. Court of Appeals, 415 Phil. 630-631 (2001).

[68]             Infante v. Aran Builders, Inc., G.R. No. 156596, 24 August 2007, 531 SCRA 123, 129-130.

[69]             Russel v. Hon. Augustine A. Vestil, 364 Phil. 392, 400 (1999).

[70]             423 Phil. 491, 501 (2001).

[71]             G.R. No. 175914, 10 February 2009, 578 SCRA 283.

[72]             Id. at 302-303.

[73]             Rollo, pp. 369-370.

[74]             Id. at 436.

[75]             Id. at 485-486.

[76]             233 Phil. 579, 584 (1987).

[77]             G.R. Nos. 79937-38, 13 February 1989, 170 SCRA 274, 285.

[78]             Rollo, pp. 501-538.

[79]             En Banc Resolution, G.R. Nos. 153690 and 157381.

[80]             Suson v. Court of Appeals, 343 Phil. 820, 825 (1997) citing Pilipinas Shell Petroleum Corp. v. Court of Appeals, 171 SCRA 674.

[81]             Serrano v. Delica, 503 Phil. 73, 77 (2005).

[82]             Negros Oriental Planters Association, Inc. v. Presiding Judge of RTC-Negros Occidental, Br. 52, Bacolod City, G.R. No. 179878, 24 December 2008, 575 SCRA 575, 587 ;Spouses Go v. Tong,   462 Phil. 256 (2003); Soriano v. Court of Appeals, 416 Phil. 226 (2001); Yambao v. Court of Appeals, 399 Phil. 712 (2000); Mactan Cebu International Airport Authority v. Mangubat, 371 Phil. 393, (1999) ; Ng Soon v. Hon. Alday, 258 Phil. 848 (1989).

[83]             Tirona v. Hon.  Alejo, 419 Phil. 285, 300 (2001).

CASE NO. 2011-0078: CHATEAU DE BAIE CONDOMINIUM CORPORATION VS. SPS. RAYMOND AND MA. ROSARIO MORENO (G.R. NO. 186271, 23 FEBRUARY 2011, BRION, J.) SUBJECTS: QUESTIONS ON ASSESSMENT OF CONDO DUES ARE INTRA-CORPORATE; FORECLOSURE ALSO INTRA-CORPORATE. (BRIEF TITLE CHATEU DE BAIE VS. SPS. MORENO)

Republic of the Philippines

Supreme Court

Manila

 

 

THIRD DIVISION

 

 

CHATEAU DE BAIE CONDOMINIUM CORPORATION,

                             Petitioner,

- versus -

SPS. RAYMOND and

MA. ROSARIO MORENO,

Respondents.

 

 

G.R. No. 186271

Present:

   *CARPIO MORALES, J., Chairperson,

  **BRION, Acting Chairperson,

    BERSAMIN,

***ABAD,

   VILLARAMA, JR. and

   SERENO, JJ.

 

Promulgated:

   February 23, 2011

x ————————————————————————————– x

D E C I S I O N

 

BRION, J.:

          Before us is the petition for review on certiorari with prayer for a temporary restraining order filed by Chateau de Baie Condominium Corporation (petitioner) challenging the decision[1] of the Court of Appeals (CA) that dismissed its petition forcertiorari, prohibition and mandamus. The petition, the CA ruled upon, questioned the ruling[2] of the Regional Trial Court (RTC), Branch 258, Parañaque City, that denied the petitioner’s motion to dismiss the complaint filed by respondent spouses Raymond and Ma. Rosario Moreno.

          This case is the second of two related cases submitted to us involving the condominium unit of Ma. Rosario Moreno.  We had decided the first case – Oscar S. Salvacion v. Chateau de Baie Condominium Corporation, G.R. No. 178549[3] – and our ruling has attained finality.

The Facts

Mrs. Moreno is the registered owner of a penthouse unit and two parking slots in Chateau de Baie Condominium (Chateau Condominium) in Roxas Boulevard, Manila. These properties are covered by Condominium Certificates of Title (CCT) Nos. 4153, 4154, and 4155 (Moreno properties).  As a registered owner in Chateau Condominium, Mrs. Moreno is a member/stockholder of the condominium corporation.  

Mrs. Moreno obtained a loan of P16,600,000.00 from Oscar Salvacion, and she mortgaged the Moreno properties as security; the mortgage was annotated on the CCTs.

Under Section 20 of Republic Act (R.A.) No. 4726 (the Condominium Act),[4]  when a unit owner fails to pay the association dues, the condominium corporation can enforce a lien on the condominium unit by selling the unit in an extrajudicial foreclosure sale.  

On November 23, 2001, the petitioner caused the annotation of a Notice of Assessment on the CCTs of the Moreno properties for unpaid association dues amounting to P323,870.85.  It also sent a demand letter to the Moreno spouses who offered to settle their obligation, but the petitioner declined the offer. 

Subsequently, to enforce its lien, the president of the petitioner wrote the Clerk of Court/Ex-Officio Sheriff of Parañaque Cityfor the extrajudicial public auction sale of the Moreno properties. The extrajudicial sale was scheduled on February 10, 2005.[5]

 

The first case – the Salvacion Case (Civil Case No. 05-0061;  

CA-G.R. SP No.  90339; and G.R. No. 178549)

To stop the extrajudicial sale, Salvacion, as mortgagee, filed, on February 3, 2005, a petition for certiorari and prohibition with prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction before the RTC, Branch 196,Parañaque City.  The case was docketed as Civil Case No. 05-0061.[6] The petition sought to prohibit the scheduled extrajudicial sale for lack of a special power to sell from the registered owner as mandated by Act No. 3135,[7] and to declare the lien to be excessive.  

On February 9, 2005, the RTC dismissed Salvacion’s petition and denied the injunctive relief for lack of merit.  The extrajudicial sale proceeded as scheduled, and the Moreno properties were sold to the petitioner, the lone bidder, forP1,328,967.12.  The RTC denied Salvacion’s motion for reconsideration. 

Salvacion went to the CA via a petition for certiorari and prohibition (CA-G.R. SP No. 90339) and, among others, submitted the issue of whether the RTC erred in finding Section 5, Article 4 of the By-Laws of the petitioner as blanket authority to institute an extrajudicial foreclosure, contrary to Section 20 of R.A. No. 4726 and Section 1 of Act No. 3135.

On February 27, 2007, the CA’s Third Division ruled that Act No. 3135 covers only real estate mortgages and is intended merely to regulate the extrajudicial sale of mortgaged properties.  It held that R.A. No. 4726  is the applicable law because it is a special law that exclusively applies to condominiums. Thus, the CA upheld the validity of the extrajudicial sale.[8]  It ruled that R.A. No. 4726 does not require a special authority from the condominium owner before a condominium corporation can initiate a foreclosure proceeding.  It additionally observed that Section 5 of the By-Laws of the petitioner provides that it has the authority to avail of the remedies provided by law, whether judicial or extrajudicial, to collect unpaid dues and other charges against a condominium owner. The CA’s Third Division also denied Salvacion’s motion for reconsideration.[9]

Salvacion appealed to this Court through a petition for review on certiorari.[10]  The Court’s Third Division denied the petition for technical infirmities and for failing to show that the CA committed any reversible error. An entry of judgment was made on January 24, 2008.[11]

 

The present case – the Moreno Case

(Civil Case No. 05-0183 and CA-G.R. SP No. 93217)

While the Salvacion case was pending before the CA, the Moreno 
spouses filed before the RTC, Parañaque City, a complaint for intra-corporate dispute against the petitioner[12] to question how it calculated the dues assessed against them, and to ask an accounting of the association dues. They asked for damages and the annulment of the foreclosure proceedings, and prayed for the issuance of a writ of preliminary injunction. The case was raffled to Branch 258 and was docketed as Civil Case No. 05-0183.   

The petitioner moved to dismiss the complaint on the ground of lack of jurisdiction, alleging that since the complaint was against the owner/developer of a condominium whose condominium project was registered with and licensed by the Housing and Land Use Regulatory Board (HLURB), the HLURB has the exclusive jurisdiction. 

In an order dated October 15, 2005,[13] the RTC denied the motion to dismiss because it was a prohibited pleading under the Interim Rules of Procedure Governing Intra-Corporate Controversies.[14] It likewise ordered the motion to dismiss expunged from the records, and declared the petitioner in default for failing to answer within the reglementary period.  The RTC denied the petitioner’s motion for reconsideration in its order of January 20, 2006.[15] 

The petitioner went to the CA via a petition for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court. It alleged grave abuse of discretion on the part of the RTC for not dismissing the Moreno spouses’ complaint because (1) the Moreno spouses are guilty of forum shopping,   (2) of litis pendencia, and (3) the appeal pending before the CA (CA-G.R. SP No. 90339 [SPL CV No. 05-0061]).

The CA’s First Division denied the petition in its decision of August 29, 2008.[16]  It found no grave abuse of discretion on the part of the RTC because the complaint involved an intra-corporate dispute.  It ruled:

 Since the instant civil case involves an intra-corporate controversy, it is the RTC which has jurisdiction over the same pursuant to R.A. 8799 otherwise known as the Securities Regulation Code and Section 9 of the Interim Rules.  The public respondent indeed correctly applied the provisions of the Interim Rules.  And under Section 8(1), Rule 1 thereof, it is expressly stated that a Motion to Dismiss is a prohibited pleading. Thus, the motion to dismiss on the ground of lack of jurisdiction filed by petitioner must necessarily be denied and expunged from the record. Petitioner should have instead averred its defense of lack of jurisdiction and even the issue of forum shopping in its Answer.  Section 6, par. (4), Rule 2 of the Interim Rules, explicitly provides that in the Answer, the defendant can state the defenses, including the grounds for a motion to dismiss under the Rules of Court.

Considering that the motion to dismiss filed by private respondent is a prohibited pleading, hence, it did not toll the running of the period for filing an Answer, the public respondent properly declared the petitioner in default for its failure to file its Answer within fifteen (15) days from its receipt of summons.[17]

The CA’s First Division also denied the petitioner’s motion for reconsideration;[18] hence, this appeal by way of a Rule 45 petition. 

The Issue

The petitioner submits this sole issue for our consideration:

WITH DUE RESPECT, THE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT IN VIEW OF THE DECISION RENDERED BY ANOTHER DIVISION OF THE COURT OF APPEALS IN CA-G.R. SP. NO. 90339 ENTITLED OSCAR S. SALVACION VS. ATTY. CLEMENTE E. BOLOY, IN HIS CAPACITY AS EX-OFFICIO SHERIFF, OFFICE OF THE CLERK OF COURT, REGIONAL TRIAL COURT, PARAÑAQUE CITY, BRANCH 196 AND CHATEAU DE BAIE CONDOMINIUM CORPORATIONSUSTAINING THE VALIDITY OF THE [EXTRAJUDICIAL] PUBLIC AUCTION OF THE CONDOMINIUM UNIT AND PARKING SLOTS OWNED BY RESPONDENT MA. ROSARIO MORENO, WHICH DECISION BECAME FINAL AND EXECUTORY ONJANUARY 24, 2008.[19]

The Court’s Ruling

 

We deny the petition for lack of merit.     The CA did not err when it did not dismiss the Moreno spouses’ complaint despite the full completion of the extrajudicial sale.    

          The case before the RTC involved an intra-corporate dispute – the Moreno spouses were asking for an accounting of the association dues and were questioning the manner the petitioner calculated the dues assessed against them.  These issues are alien to the first case that was initiated by Salvacion – a third party to the petitioner-Moreno relationship – to stop the extrajudicial sale on the basis of the lack of the requirements for a valid foreclosure sale. Although the extrajudicial sale of the Moreno properties to the petitioner has been fully effected and the Salvacion petition has been dismissed with finality, the completion of the sale does not bar the Moreno spouses from questioning the amount of the unpaid dues that gave rise to the foreclosure and to the subsequent sale of their properties.  The propriety and legality of the sale of the condominium unit and the parking spaces questioned by Salvacion are different from the propriety and legality of the unpaid assessment dues that the Moreno spouses are questioning in the present case.  

The facts of this case are similar to the facts in Wack Wack Condominium Corporation, et al. v. Court of Appeals, et al.,[20] where we held  that the dispute as to the validity of the assessments is purely an intra-corporate matter between Wack Wack Condominium Corporation and its stockholder, Bayot, and is, thus, within the exclusive original jurisdiction of the Securities and Exchange Commission (SEC).[21]   We ruled in that case that since the extrajudicial sale was authorized by Wack Wack Condominium Corporation’s by-laws and was the result of the nonpayment of the assessments, the legality of the foreclosure was necessarily an issue within the exclusive original jurisdiction of the SEC.  We added that:

Just because the property has already been sold extrajudicially does not mean that the questioned assessments have now become legal and valid or that they have become immaterial. In fact, the validity of the foreclosure depends on the legality of the assessments and the issue must be determined by the SEC if only to insure that the private respondent was not deprived of her property without having been heard. If there were no valid assessments, then there was no lien on the property, and if there was no lien, what was there to foreclose? Thus, SEC Case No. 2675 has not become moot and academic and the SEC retains its jurisdiction to hear and decide the case despite the extrajudicial sale.[22]

Based on the foregoing, we affirm the decision of the CA’s First Division dismissing the petitioner’s petition.  The way is now clear for the RTC to continue its proceedings on the Moreno case.

WHEREFORE, premises considered, we DENY the petition for review on certiorari and AFFIRM the Decision, datedAugust 29, 2008, and the Resolution, dated February 5, 2009, of the Court of Appeals in CA-G.R. SP No. 93217.  The Regional Trial Court, Branch 258, Parañaque City is directed to continue its proceedings in Civil Case No. 05-0183.  Costs against the petitioner.

SO ORDERED.

                                                          ARTURO D. BRION

                                                              Associate Justice

 

WE CONCUR:

                            

(NO PART)

CONCHITA CARPIO MORALES

Associate Justice

 

LUCAS P. BERSAMIN

Associate Justice

 

 

ROBERTO A. ABAD

Associate Justice

 

MARTIN S. VILLARAMA, JR.

Associate Justice

 

MARIA LOURDES P.A. SERENO

 Associate Justice

 

ATTESTATION

 

          I attest that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                                     ARTURO D. BRION

                                                                          Associate Justice

                                                                       Acting Chairperson

CERTIFICATION

          Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson’s Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                                   RENATO C. CORONA

                                                                            Chief Justice


* No Part.

** Designated Acting Chairperson of the Third Division effective February 16, 2011, per Special Order No. 295 dated January 24, 2011.

*** Designated additional Member of the Third Division per Special Order No. 944 dated February 9, 2011.

[1]  Penned by Associate Justice Rosmari D. Carandang, and concurred in by Presiding Justice Conrado M. Vasquez, Jr. and Associate Justice Mariflor P. Punzalan Castillo; rollo, pp. 24-33.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

[2]  Annex “C,” Petition; id. at 37-38.

[3]  January 24, 2008.

[4]               Section 20.  An assessment upon any condominium made in accordance with a duly registered declaration of restrictions shall be an obligation of the owner thereof at the time the assessment is made. The amount of any such assessment plus any other charges thereon, such as interest, costs (including attorney’s fees) and penalties, as such may be provided for in the declaration of restrictions, shall be and become a lien upon the condominium assessed when the management body causes a notice of assessment to be registered with the Register of Deeds of the city or province where such condominium project is located. The notice shall state the amount of such assessment and such other charges thereon as may be authorized by the declaration of restrictions, a description of the condominium unit against which same has been assessed, and the name of the registered owner thereof. Such notice shall be signed by an authorized representative of the management body or as otherwise provided in the declaration of restrictions. Upon payment of said assessment and charges or other satisfaction thereof, the management body shall cause to be registered a release of the lien.  

Such lien shall be superior to all other liens registered subsequent to the registration of said notice of assessment except real property tax liens and except that the declaration of restrictions may provide for the subordination thereof to any other liens and encumbrances.

Such liens may be enforced in the same manner provided for by law for the judicial or extra-judicial foreclosure of mortgages of real property. Unless otherwise provided for in the declaration of restrictions, the management body shall have power to bid at the foreclosure sale. The condominium owner shall have the same right of redemption as in cases of judicial or extra-judicial foreclosure of mortgages.

[5]  Rollo, p. 43.

[6]  Entitled Oscar S. Salvacion v. Atty. Clemente E. Boloy, in his capacity as Ex-Officio Sheriff, Office of the Clerk of Court, Regional Trial Court, Parañaque City, Branch 196, and Chateau de Baie Condominium Corporation.

[7] An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real Estate Mortgages (approved on March 6, 1924).

[8] Rollo, pp. 42-49; penned by Associate Justice Japar B. Dimaampao, and concurred in by Associate Justice Portia Aliño-Hormachuelos and Associate Justice Mario L. Guariña III.

[9]  Id. at 51-52.

[10] G.R. No. 178549, entitled Oscar S. Salvacion v. Chateau de Baie Condominium Corporation.

[11] Rollo, p. 53.

[12] On May 11, 2005.

[13] Rollo, pp. 37-38.

[14] Rule 1, Section 8. Prohibited pleadings. — The following pleadings are prohibited:

(1) Motion to dismiss;

(2) Motion for a bill of particulars;

(3) Motion for new trial, or for reconsideration of judgment or order, or for re-opening of trial;

(4) Motion for extension of time to file pleadings, affidavits or any other paper, except those filed due to clearly compelling reasons. Such motion must be verified and under oath; and

(5) Motion for postponement and other motions of similar intent, except those filed due to clearly compelling reasons. Such motion must be verified and under oath.

[15] Rollo, pp. 39-40.

[16] Id. at 24-33.

[17] Id. at 31-32.

[18] In its February 5, 2009 Resolution; id. at 35-36.

[19] Id. at 14.

[20] G.R. No. 78490, November 23, 1992, 215 SCRA 850.

[21] Section 5.2 of the Securities Regulation Code (R.A. No. 8799) transferred exclusive and original jurisdiction of the SEC over actions involving intra-corporate controversies to the courts of general jurisdiction or the appropriate RTC.   

[22]  Supra note 20, at 856.

CASE NO. 2011- 0077: SUPREME   TRANSLINER, INC., MOISES C. ALVAREZ AND PAULITA S. ALVAREZ VS. BPI FAMILY SAVINGS BANK, INC. (G.R. NO. 165617); BPI FAMILY SAVINGS BANK, INC. VS. SUPREME   TRANSLINER,                  INC., MOISES C. ALVAREZ AND PAULITA S. ALVAREZ (G.R. NO. 165837)(25 FEBRUARY 2011, VILLARAMA, JR., J.) SUBJECTS: DETERMINING REDEMPTION PRICE IN FORECLOSURE SALE; CAPITAL GAINS TAX SHOULD NOT BE INCLUDED IN REDEMPTION PRICE. (BRIEF TITLE: SUPREME TRANSLINER ET AL VS. BPI FAMILY).

   

THIRD DIVISION

 

SUPREME   TRANSLINER, INC., MOISES C. ALVAREZ and PAULITA S. ALVAREZ,

                             Petitioners,

                   – versus -

BPI FAMILY SAVINGS BANK, INC.,

                             Respondent.

             G.R. No. 165617

 

x- – – – – – – – – – – – – – – – – – – – – – – – – -x  
 

BPI FAMILY SAVINGS BANK, INC.,                 

                             Petitioner,

                   – versus -

 

 

 

 

SUPREME   TRANSLINER,                       

INC., MOISES C. ALVAREZ

and PAULITA S. ALVAREZ,

                            Respondents.                        

 

             G.R. No. 165837

 

             Present:

             BRION,* J.,

                   Chairperson,

             BERSAMIN,

             ABAD,**

             VILLARAMA, JR., and

             SERENO, JJ.

             Promulgated:

             February 25, 2011

     

x- – – – – – — – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – -x

DECISION

 

VILLARAMA, JR., J.:

          This case involves the question of the correct redemption price payable to a mortgagee bank as purchaser of the property in a foreclosure sale.

          On April 24, 1995, Supreme Transliner, Inc. represented by its Managing Director, Moises C. Alvarez, and Paulita S. Alvarez, obtained a loan in the amount of P9,853,000.00 from BPI Family Savings Bank with a 714-square meter lot covered by Transfer Certificate of Title No. T-79193 in the name of Moises C. Alvarez and Paulita S. Alvarez, as collateral.[1]      

          For non-payment of the loan, the mortgage was extrajudicially foreclosed and the property was sold to the bank as the highest bidder in the public auction conducted by the Office of the Provincial Sheriff of Lucena City.   On August 7, 1996, a Certificate of Sale[2] was issued in favor of the bank and the same was registered on October 1, 1996.

          Before the expiration of the one-year redemption period, the mortgagors notified the bank of their intention to redeem the property.  Accordingly, the following Statement of Account[3] was prepared by the bank indicating the total amount due under the mortgage loan agreement:

                      x x x x

Balance of Principal

Add:    Interest Due

            Late Payment Charges

            MRI

            Fire Insurance

            Foreclosure Expenses

P     9,551,827.64

1,417,761.24

155,546.25

0.00

0.00

         155,817.23    

Sub-total

Less:    Unapplied Payment

P  11,280,952.36

        908,241.01

Total Amount Due As Of 08/07/96            (Auction Date) 10,372,711.35
Add:    Attorney’s Fees (15%) 1,555,906.70
            Liquidated Damages (15%) 1,555,906.70
            Interest on P 10,372,711.35 from            08/07/96 to 04/07/97 (243 days)            at 17.25% p.a.  

1,207,772.58

           

            x x x x

            Asset Acquired Expenses:

 
            Documentary Stamps 155,595.00
            Capital Gains Tax 518,635.57
            Foreclosure Fee 207,534.23
            Registration and Filing Fee 23,718.00
            Add’l. Registration & Filing Fee         660.00             906,142.79
            Interest on P 906,142.79 from            08/07/96 to 04/07/97 (243 days)

            at 17.25% p.a.

 

105,509.00

            Cancellation Fee                 300.00
   
Total Amount Due As Of 04/07/97            (Subject to Audit)  

P  15,704,249.12

            x x x x                                                                                                                                 

            The mortgagors requested for the elimination of liquidated damages and reduction of attorney’s fees and interest (1% per month) but the bank refused.  On May 21, 1997, the mortgagors redeemed the property by paying the sum of P15,704,249.12.  A Certificate of Redemption[4] was issued by the bank on May 27, 1997.

          On June 11, 1997, the mortgagors filed a complaint against the bank to recover the allegedly unlawful and excessive charges totaling P5,331,237.77,  with prayer for damages and attorney’s fees, docketed as Civil Case No. 97-72 of the Regional Trial Courtof Lucena City, Branch 57.

          In its Answer with Special and Affirmative Defenses and Counterclaim, the bank asserted that the redemption price reflecting the stipulated interest, charges and/or expenses, is valid, legal and in accordance with documents duly signed by the mortgagors. The bank further contended that the claims are deemed waived and the mortgagors are already estopped from questioning the terms and conditions of their contract.

          On September 30, 1997, the bank filed a motion to set the case for hearing on the special and affirmative defenses by way of motion to dismiss.    The trial court denied the motion on January 8, 1998 and also denied the bank’s motion for reconsideration. The bank elevated the matter to the Court of Appeals (CA-G.R. SP No. 47588) which dismissed the petition for certiorari onFebruary 26, 1999.

          On February 14, 2002, the trial court rendered its decision[5] dismissing the complaint and the bank’s counterclaims.  The trial court held that plaintiffs-mortgagors are bound by the terms of the mortgage loan documents which clearly provided for the payment of the following interest, charges and expenses: 18% p.a. on the loan, 3% post-default penalty, 15% liquidated damages, 15% attorney’s fees and collection and legal costs.  Plaintiffs-mortgagors’ claim that they paid the redemption price demanded by the defendant bank under extreme pressure was rejected by the trial court since there was active negotiation for the final redemption price between the bank’s representatives and plaintiffs-mortgagors who at the time had legal advice from their counsel, together with Orient Development Banking Corporation which committed to finance the redemption.   

          According to the trial court, plaintiffs-mortgagors are estopped from questioning the correctness of the redemption price as they had freely and voluntarily signed the letter-agreement prepared by the defendant bank, and along with Orient Bank expressed their conformity to the terms and conditions therein, thus:

                                                                                  May 14, 1997

ORIENT DEVELOPMENT BANKING CORPORATION

7th Floor Ever Gotesco Corporate Center

C.M. Recto Avenue corner Matapang Street

Manila

            Attention:  MS. AIDA C. DELA ROSA

                               Senior Vice-President

Gentlemen:

            This refers to your undertaking to settle the account of SUPREME TRANS LINER, INC. and spouses MOISES C. ALVAREZ and PAULITA S. ALVAREZ, covering the real estate property located in the Poblacion, City of Lucena under TCT No. T-79193 which was foreclosed by BPI FAMILY SAVINGS BANK, INC.

            With regard to the proposed refinancing of the account, we interpose no objection to the annotation of your mortgage lien thereon subject to the following conditions:

1.   That all expenses for the registration of the annotation of mortgage and other incidental registration and cancellation expenses shall be borne by the borrower.

2.   That you will recognize our mortgage liens as first and superior until the loan with us is fully paid.

3.   That you will annotate your mortgage lien and pay us the full amount to close the loan within five (5) working days from the receipt of the titles.  If within this period, you have not registered the same and paid us in full, you will immediately and unconditionally return the titles to us without need of demand, free from liens/encumbrances other than our lien.

4.   That in case of loss of titles, you will undertake and shoulder the cost of re-issuance of a new owner’s titles.

5.   That we will issue the Certificate of Redemption after full payment of P15,704,249.12. representing the outstanding balance of the loan as of May 15, 1997 including interest and other charges thereof within a period of five (5) working days after clearance of the check payment.

6.   That we will release the title and the Certificate of Redemption and other pertinent papers only to your authorized representative with complete authorization and identification.

7.   That all expenses related to the cancellation of your annotated mortgage lien should the Bank be not fully paid on the period above indicated shall be charged to you.

If you find the foregoing conditions acceptable, please indicate your conformity on the space provided below and return to us the duplicate copy.

                                                Very truly yours,

                                                BPI FAMILY BANK

                                                BY:

                                                (SGD.) LOLITA C. CARRIDO

                                                                       Manager

C O N F O R M E :

ORIENT DEVELOPMENT BANKING CORPORATION

(SGD.) AIDA C. DELA ROSA

Senior Vice President

C O N F O R M E :

SUPREME TRANS LINER, INC.

(SGD.) MOISES C. ALVAREZ/PAULITA S. ALVAREZ

Mortgagors[6]

(Underscoring in the original; emphasis supplied.)

          As to plaintiffs-mortgagors’ contention that the amounts representing attorney’s fees and liquidated damages were already included in the P10,372,711.35 bid price, the trial court said this was belied by their own evidence, the Statement of Account showing the breakdown of the redemption price as computed by the defendant bank.   

The mortgagors appealed to the CA (CA-G.R. CV No. 74761) which, by Decision[7] dated April 6, 2004 reversed the trial court and decreed as follows:

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE.  A new one is hereby entered as follows:

1.   Plaintiffs-appellants’ complaint for damages against defendant-appellee is hereby REINSTATED;

2.   Defendant-appellee is hereby ORDERED to return to plaintiffs-appellees (sic) the invalidly collected amount of P3,111,813.40 plus six (6) percent legal interest from May 21, 1997 until fully returned;

3.   Defendant-appellee is hereby ORDERED to pay plaintiffs-appellees (sic) the amount of P100,000.00 as moral damages, P100,000.00 as exemplary damages and P100,000.00 as attorney’s fees;

4.   Costs against defendant-appellee.

SO ORDERED.[8]

The CA ruled that attorney’s fees and liquidated damages were already included in the bid price of P10,372,711.35 as per the recitals in the Certificate of Sale that said amount was paid to the foreclosing mortgagee to satisfy not only the principal loan but also “interest and penalty charges, cost of publication and expenses of the foreclosure proceedings.”  These “penalty charges” consist of 15% attorney’s fees and 15% liquidated damages which the bank imposes as penalty in cases of violation of the terms of the mortgage deed. The total redemption price thus should only be P12,592,435.72 and the bank should return the amount ofP3,111,813.40 representing attorney’s fees and liquidated damages.  The appellate court further stated that the mortgagors cannot be deemed estopped to question the propriety of the charges because from the very start they had repeatedly questioned the imposition of attorney’s fees and liquidated damages and were merely constrained to pay the demanded redemption price for fear that the redemption period will expire without them redeeming their property.[9]

          By Resolution[10] dated October 12, 2004, the CA denied the parties’ respective motions for reconsideration.

           Hence, these petitions separately filed by the mortgagors and the bank.

          In G.R. No. 165617, the petitioners-mortgagors raise the single issue of whether the foreclosing mortgagee should pay capital gains tax upon execution of the certificate of sale, and if paid by the mortgagee, whether the same should be shouldered by the redemptioner.  They specifically prayed for the return of all asset-acquired expenses consisting of documentary stamps tax, capital gains tax, foreclosure fee, registration and filing fee, and additional registration and filing fee totaling P906,142.79, with 6% interest thereon from May 21, 1997.[11]

          On the other hand, the petitioner bank in G.R. No. 165837 assails the CA in holding that –

1. … the Certificate of Sale, the bid price of P10,372,711.35 includes penalty charges and as such for purposes of computing the redemption price petitioner can no longer impose upon the private respondents the penalty charges in the form of 15% attorney’s fees  and the 15% liquidated damages in the aggregate amount of P3,111,813.40, although the evidence presented by the parties show otherwise.

2.  … private respondents cannot be considered to be under estoppel to question the propriety of the aforestated penalty charges despite the fact that, as found by the Honorable Trial Court, “there was very active negotiation between the parties in the computation of the redemption price” culminating into the signing freely and voluntarily by the petitioner, the private respondents and Orient Bank, which financed the redemption of the foreclosed property, of Exhibit “3”, wherein they mutually agreed that the redemption price is in the sum of P15,704,249.12.

3.  … petitioner [to] pay private respondents damages in the aggregate amount of P300,000.00 on the ground that the former acted in bad faith in the imposition upon them of the aforestated penalty charges, when in truth it is entitled thereto as the law and the contract expressly provide and that private respondents agreed to pay the same.[12]

          On the correct computation of the redemption price, Section 78 of Republic Act No. 337, otherwise known as the General Banking Act, governs in cases where the mortgagee is a bank.[13]  Said provision reads:

            SEC. 78. x x x In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of executionor the amount due under the mortgage deed, as the case may be,with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. x x x x (Emphasis supplied.)

          Under the Mortgage Loan Agreement,[14] petitioners-mortgagors undertook to pay the attorney’s fees and the costs of registration and foreclosure.  The following contract terms would show that the said items are separate and distinct from the bid price which represents only the outstanding loan balance with stipulated interest thereon.

23.  Application of Proceeds of Foreclosure Sale.  The proceeds of sale of the mortgaged property/ies shall be applied as follows:

a) To the payment of the expenses and cost of foreclosure and sale, including the attorney’s fees as herein provided;

b) To the satisfaction of all interest and charges accruing upon the obligations herein and hereby secured.

c) To the satisfaction of the principal amount of the obligations herein and hereby secured.

d) To the satisfaction of all other obligations then owed by the Borrower/Mortgagor to the Bank or any of its subsidiaries/affiliates such as, but not limited to BPI Credit Corporation; or to Bank of the Philippine Islands or any of its subsidiaries/affiliates such as, but not limited to BPI Leasing Corporation, BPI Express Card Corporation, BPI Securities Corporation and BPI Agricultural Development Bank; and

e) The balance, if any, to be due to the Borrower/Mortgagor.

x x x x

31.  Attorney’s Fees: In case the Bank should engage the services of counsel to enforce its rights under this Agreement, the Borrower/Mortgagor shall pay an amount equivalent to fifteen (15%) percent of the total amount claimed by the Bank, which in no case shall be less than P2,000.00, Philippine currency, plus costs, collection expenses and disbursements allowed by law, all of which shall be secured by this mortgage.[15]

          Additionally, the Disclosure Statement on Loan/Credit Transaction[16] also duly signed by the petitioners-mortgagors provides:

10.  ADDITIONAL CHARGES IN CASE CERTAIN STIPULATIONS ARE NOT MET BY THE BORROWER

a.  Post Default Penalty         3.00% per month

b.  Attorney’s Services          15% of sum due but not less than P2,000.00

c.  Liquidated Damages         15% of sum due but not less than P10,000.00

d.  Collection & Legal Cost   As provided by the Rules of Court

e.  Others (Specify)   

          As correctly found by the trial court, that attorney’s fees and liquidated damages were not yet included in the bid price ofP10,372,711.35 is clearly shown by the Statement of Account as of April 4, 1997 prepared by the petitioner bank and  given to petitioners-mortgagors.  On the other hand, par. 23 of the Mortgage Loan Agreement indicated that asset acquired expenses were to be added to the redemption price  as part of “costs and other expenses incurred” by the mortgagee bank in connection with the foreclosure sale.

          Coming now to the issue of capital gains tax, we find merit in petitioners-mortgagors’ argument that there is no legal basis for the inclusion of this charge in the redemption price.  Under Revenue Regulations (RR) No. 13-85 (December 12, 1985), every sale or exchange or other disposition of real property classified as capital asset under Section 34(a)[17] of the Tax Code shall be subject to the final capital gains tax.  The term sale includes pacto de retro and other forms of conditional sale. Section 2.2 of Revenue Memorandum Order (RMO) No. 29-86 (as amended by RMO No. 16-88 and as further amended by RMO Nos. 27-89 and 6-92) states that these conditional sales “necessarily include mortgage foreclosure sales (judicial and extrajudicial foreclosure sales).” Further, for real property foreclosed by a bank on or after September 3, 1986, the capital gains tax and documentary stamp tax must be paid before title to the property can be consolidated in favor of the bank.[18]

          Under Section 63 of Presidential Decree No. 1529 otherwise known as the Property Registration Decree, if no right of redemption exists, the certificate of title of the mortgagor shall be cancelled, and a new certificate issued in the name of the purchaser.  But where the right of redemption exists, the certificate of title of the mortgagor shall not be cancelled, but the certificate of sale and the order confirming the sale shall be registered by brief memorandum thereof made by the Register of Deeds upon the certificate of title.  In the event the property is redeemed, the certificate or deed of redemption shall be filed with the Register of Deeds, and a brief memorandum thereof shall be made by the Register of Deeds on the certificate of title.

It is therefore clear that in foreclosure sale, there is no actual transfer of the mortgaged real property until after the expiration of the one-year redemption period as provided in Act No. 3135 and title thereto is consolidated in the name of the mortgagee in case of non-redemption.  In the interim, the mortgagor is given the option whether or not to redeem the real property.  The issuance of the Certificate of Sale does not by itself transfer ownership.[19]   

RR No. 4-99 issued on March 16, 1999, further amends RMO No. 6-92 relative to the payment of Capital Gains Tax and Documentary Stamp Tax on extrajudicial foreclosure sale of capital assets initiated by banks, finance and insurance companies. 

SEC. 3.  CAPITAL GAINS TAX. 

(1) In case the mortgagor exercises his right of redemption within one year from the issuance of the certificate of sale, no capital gains tax shall be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. x x x

(2)  In case of non-redemption, the capital gains [tax] on the foreclosure sale imposed under Secs. 24(D)(1) and 27(D)(5) of the Tax Code of 1997 shall become due based on the bid price of the highest bidder but only upon the expiration of the one-year period of redemption provided for under Sec. 6 of Act No. 3135, as amended by Act No. 4118, and shall be paid within thirty (30) days from the expiration of the said one-year redemption period.

SEC. 4.  DOCUMENTARY STAMP TAX. –

(1) In case the mortgagor exercises his right of redemption, the transaction shall only be subject to the P15.00 documentary stamp tax imposed under Sec. 188 of the Tax Code of 1997 because no land or realty was sold or transferred for a consideration.

(2)  In case of non-redemption, the corresponding documentary stamp tax shall be levied, collected and paid by the person making, signing, issuing, accepting, or transferring the real property wherever the document is made, signed, issued, accepted or transferred where the property is situated in the Philippines. x x x  (Emphasis supplied.)

Although the subject foreclosure sale and redemption took place before the effectivity of RR No. 4-99, its provisions may be given retroactive effect in this case. 

          Section 246 of the NIRC of 1997 states:

SEC. 246.  Non-Retroactivity of Rulings. – Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers, except in the following cases:

(a)  where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue;

(b)  where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or

(c)  where the taxpayer acted in bad faith.

In this case, the retroactive application of RR No. 4-99 is more consistent with the policy of aiding the exercise of the right of redemption.   As the Court of Tax Appeals concluded in one case, RR No. 4-99 “has curbed the inequity of imposing a capital gains tax even before the expiration of the redemption period [since] there is yet no transfer of title and no profit or gain is realized by the mortgagor at the time of foreclosure sale but only upon expiration of the redemption period.”[20]  In his commentaries, De Leon expressed the view that while revenue regulations as a general rule have no retroactive effect, if the revocation is due to the fact that the regulation is erroneous or contrary to law, such revocation shall have retroactive operation as to affect past transactions, because a wrong construction of the law cannot give rise to a vested right that can be invoked by a taxpayer.[21]

            Considering that herein petitioners-mortgagors exercised their right of redemption before the expiration of the statutory one-year period, petitioner bank is not liable to pay the capital gains tax due on the extrajudicial foreclosure sale. There was no actual transfer of title from the owners-mortgagors to the foreclosing bank.   Hence, the inclusion of the said charge in the total redemption price was unwarranted and the corresponding amount paid by the petitioners-mortgagors should be returned to them.

          WHEREFORE, premises considered, both petitions are PARTLY GRANTED.   

In G.R. No. 165617, BPI Family Savings Bank, Inc. is hereby ordered to RETURN the amounts representing capital gains and documentary stamp taxes as reflected in the Statement of Account To Redeem as of April 7, 1997, to petitioners Supreme Transliner, Inc., Moises C. Alvarez and Paulita Alvarez, and to retain only the sum provided in RR No. 4-99 as documentary stamps tax due on the foreclosure sale.

          In G.R. No. 165837, petitioner BPI Family Savings Bank, Inc. is hereby declared entitled to the attorney’s fees and liquidated damages included in the total redemption price paid by Supreme Transliner, Inc., Moises C. Alvarez and Paulita Alvarez. The sums awarded as moral and exemplary damages, attorney’s fees and costs in favor of Supreme Transliner, Inc., Moises C. Alvarez and Paulita Alvarez are DELETED.

          The Decision dated April 6, 2004 of the Court of Appeals in CA-G.R. CV No. 74761 is accordingly MODIFIED.

SO ORDERED.

 

MARTIN S. VILLARAMA, JR.

                                                                               Associate Justice

 

WE CONCUR:

ARTURO D. BRION

Associate Justice

Acting Chairperson

LUCAS P. BERSAMIN

Associate Justice

ROBERTO A. ABAD

Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

 

 

 

A T T E S T A T I O N

 

          I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

  ARTURO D. BRION

Associate Justice

Acting Chairperson, Third Division

 

 

 

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

  RENATO C. CORONA

Chief Justice

 


*       Designated Acting Chairperson per Special Order No. 925 dated January 24, 2011.

**     Designated additional member per Special Order No. 926 dated January 24, 2011.

[1]       Records, pp. 48-52.

[2]       Id. at 9.

[3]       Id. at 14.

[4]       Id. at 18.

[5]       Id. at 393-401. Penned by Judge Rafael R. Lagos.

[6]       Id. at 46-47.

[7]       Rollo (G.R. No. 165617), pp. 23-36. Penned by Associate Justice Eugenio S. Labitoria and concurred in by Associate Justices Mercedes Gozo-Dadole and Rosmari D. Carandang.

[8]       Id. at 36.

[9]       Id. at 30-34.

[10]     Id. at 41-42.  Penned by Associate Justice Eugenio S. Labitoria and concurred in by Associate Justices Edgardo P. Cruz and Rosmari D. Carandang.

[11]     Id. at 11, 15 and 18.

[12]     Rollo (G.R. No. 165837), pp. 13-14.

[13]     Tecklo v. Rural Bank of Pamplona, Inc., G.R. No. 171201, June 18, 2010, 621 SCRA 262, 273, citing  Heirs of Norberto J. Quisumbing v. Philippine National Bank, G.R. No. 178242, January 20, 2009, 576 SCRA 762, 772;  Union Bank of the Philippines v. Court of Appeals, G.R. No. 134068, June 25, 2001, 359 SCRA 480, 490, citing Ponce de Leon v. Rehabilitation Finance Corporation, No. L-24571, December 18, 1970, 36 SCRA 289 and Sy v. Court of Appeals, G.R. No. 83139, April 12, 1989, 172 SCRA 125.

[14]     Records, pp. 48-51.

[15]     Id. at 50.

[16]     Id. at 45.

[17]     Now Sec. 39(A) of the National Internal Revenue Code of 1997. 

                SEC. 39. Capital Gains and Losses. – 

                (A) Definitions. – As used in this Title –

        (1) Capital Assets. – The term “capital assets” means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real property used in trade or business of the taxpayer.

[18]     De Leon and De Leon, Jr., THE NATIONAL INTERNAL REVENUE CODE ANNOTATED, 2003 Ed., Vol. 1, pp. 130-131, citing  BIR Ruling No. 134, July 12, 1990.

[19]     BIR Ruling [DA-062-06] February 28, 2006. 

[20]     Spouses Alfredo & Imelda Diaz v. BIR, C.T.A. Case No. 6244, March 5, 2003.

[21]     De Leon and De Leon, Jr., supra, Vol. 2, p. 540.

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