Facts
Spouses Ramon and Araceli Mendiola (Petitioners) executed a real estate mortgage in favor of Pilipinas Shell Petroleum Corporation (Shell) to secure the performance of obligations under a distribution agreement. After default, Shell commenced extrajudicial foreclosure, and the property was sold to Tabangao Realty, Inc. (Tabangao).
- Manila Case: Shell sued Ramon Mendiola in the RTC Manila to recover the resulting deficiency (Civil Case No. 87-41852). Ramon filed an answer with counterclaim, asserting that the foreclosure was invalid and made in bad faith. The Manila RTC ruled in favor of Shell, and this judgment, which upheld the foreclosure, was affirmed by the Court of Appeals (CA) and the Supreme Court, becoming final and executory.
- Makati Case: While the Manila case was pending, the Spouses Mendiola filed a separate action in the RTC Makati to annul the extrajudicial foreclosure (Civil Case No. 88-398).
- Makati RTC Judgment: Despite the final and executory judgment in the Manila case, the Makati RTC proceeded to rule on the merits, declaring the extrajudicial foreclosure and the Certificate of Sale null and void, finding no actual auction sale was conducted.
- Appeal: Shell and Tabangao appealed the Makati RTC ruling, invoking res judicata. The CA denied Mendiola’s motion to dismiss the appeal, prompting Mendiola to file the present petition for certiorari before the Supreme Court.
Issues
- Whether the Court of Appeals committed grave abuse of discretion in entertaining an appeal filed against the order denying a motion for reconsideration.
- Whether the Makati case (annulment of foreclosure) was barred by res judicata due to the prior Manila case (deficiency collection suit).
Ruling
The Supreme Court ruled:
“WHEREFORE, we DISMISS the petition for certiorari, prohibition and mandamus for lack of merit; CONSIDER Civil Case No. 88-398 dismissed with prejudice on the ground of res judicata; and ORDER petitioners to pay the costs of suit to respondents.”
Essential Elements of Jurisprudence
The case established controlling doctrines regarding res judicata and compulsory counterclaims:
1. Compulsory Counterclaim and Waiver (Rule 6 & Rule 9):
- Logical Relation Test: The compelling test for determining if a counterclaim is compulsory is the existence of a logical relation between the claim and the counterclaim. Such a relationship exists when both claims are offshoots of the same basic controversy, involve the same factual and legal issues, or when conducting separate trials would entail substantial duplication of time and effort.
- Application: The Mendiola’s cause of action for annulment of the extrajudicial foreclosure (Makati case) was deemed a compulsory counterclaim in Shell’s Manila case for deficiency. The right of Shell to demand deficiency was predicated on the validity of the extrajudicial foreclosure.
- Effect of Non-Pleading (Waiver): A compulsory counterclaim that a defending party possesses at the time of filing the answer must be contained therein. Pursuant to Section 2, Rule 9 of the 1997 Rules of Civil Procedure, a compulsory counterclaim not set up shall be barred.
2. Bar by Prior Judgment (Res Judicata) (Rule 9):
- Elements: Bar by res judicata avails when: (a) the former judgment or order is final; (b) the judgment or order is on the merits; (c) it was rendered by a court having jurisdiction over the subject matter and parties; and (d) there is, between the first and the second action, identity of parties, of subject matter, and cause of action.
- Identity of Cause of Action: Identity does not require absolute identity, as a party cannot escape res judicata by merely varying the form of the action or the relief sought. The test is whether the same facts or evidence will sustain both actions. Since the annulment suit and the deficiency suit both arose from the same foreclosure transaction and required the same evidence to determine validity, there was an identity of causes of action.
- Motu Proprio Dismissal: The court is expressly mandated to dismiss a claim motu proprio (on its own motion) when it appears from the pleadings or evidence on record that the action is barred by a prior judgment (or litis pendentia) (Section 1, Rule 9, 1997 Rules of Civil Procedure).
3. Distinction between Venue and Jurisdiction:
- Confusion: The Makati RTC erroneously concluded that the Manila RTC lacked jurisdiction over the annulment issue because the mortgaged property was in Parañaque (Makati RTC’s venue).
- Principle: Venue relates only to the place of trial and is intended for the convenience of the parties; it is not jurisdictional and may be waived. Jurisdiction refers to the court’s power to hear and determine a cause, which is conferred by law.
4. Appealability of Denial of Motion for Reconsideration (Procedural):
- The proscription in the Rules of Court against appealing an order denying a motion for reconsideration refers only to an MR filed against an interlocutory order.
- The denial of an MR filed against a judgment or final order (like an order dismissing a complaint) is considered the final order which triggers the appeal period. Therefore, the appeal by Shell and Tabangao was proper.
Sample Q&A
Question: A creditor institutes an action in the Regional Trial Court (RTC) of Manila to recover a deficiency arising from an extrajudicial foreclosure sale of a property located in Makati. The debtor files an answer in the Manila case asserting, as an affirmative defense and counterclaim, the invalidity of the foreclosure sale. Thereafter, the debtor files a separate, distinct action in the RTC of Makati seeking the annulment of the foreclosure sale. The Manila RTC eventually issues a final and executory judgment granting the deficiency. May the RTC of Makati proceed with the annulment case?
Answer: No. The Makati case must be dismissed on the ground of res judicata.
The debtor’s action for annulment of the foreclosure sale (Makati case) is logically related to, and an offshoot of, the creditor’s action for deficiency collection (Manila case), as the right to deficiency is predicated on the validity of the foreclosure. The cause of action for annulment was thus a compulsory counterclaim in the Manila case, meeting the tests of compulsoriness, including the requirement that the same evidence would sustain both claims.
Since the issue of the foreclosure’s validity was raised by the debtor in the Manila case (albeit as a counterclaim/affirmative defense) and was necessarily resolved when the Manila RTC granted the deficiency, the final judgment in the Manila case bars the subsequent annulment suit in Makati.
Pursuant to Section 1, Rule 9 of the 1997 Rules of Civil Procedure, the Makati RTC should have dismissed the annulment case motu proprio upon determining that the action was barred by the prior final judgment in the Manila case. Furthermore, had the annulment claim not been initially set up in the Manila case, it would still be barred by virtue of Section 2, Rule 9, which states that a compulsory counterclaim not set up shall be barred. The Makati RTC also erred in confusing the venue of the real action (Makati) with the jurisdiction of the Manila RTC over the claim.
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