Sep 7, 2019

Mercado VS. CA CASE DIGEST - Civil Procedure - Commencement of action


Mercado VS. CA

Facts: Mercado had been distributing respondent San Miguel Corporation’s (SMC’s) beer products in Manila. SMC extended to him a P7.5 million credit line allowing him to withdraw goods on credit. Mercado failed to pay for the items. Citing the continuing hold-out agreement (which allows SMC to encash China Banking Corporation (CBC) certificates of deposit assigned by Mercado), it asked CBC to release the proceeds of the assigned certificates of deposit. Mercado filed an action to annul the continuing hold-out agreement and deed of assignment in the RTC. SMC filed its answer with counterclaim against Mercado. SMC sought payment of the lees products he withdrew (or purchased on credit) worth P7.5 million

During trial, Mercado acknowledged the accuracy of SMC’s computation of his outstanding liability. Thus, the RTC dismissed the complaint and ordered Mercado and Eastern Assurance and Surety Corporation (EASCO) (to the extent of P2.6 million or the value of its bonds) to jointly and severally pay SMC the amount of P7.5m. CA affirmed the RTC.

Mercado passed away and was substituted by his heirs who filed the petition asserting that the CA erred in affirming the RTC. The said decision (insofar as it ordered Mercado to pay SMC P7,468,153.75) was void. SMC’s counterclaim was permissive in nature. Inasmuch as SMC did not pay docket fees, the RTC never acquired jurisdiction over the counterclaim.

Issue: WON SMC’s counterclaim was permissive in nature, whereby payment of docket fees is necessary for the RTC to acquire jurisdiction.

Held: No. A counterclaim (or a claim which a defending party may have against any party) may be compulsory or permissive. A counterclaim that (1) arises out of (or is necessarily connected with) the transaction or occurrence that is the subject matter of the opposing party’s claim; (2) falls within the jurisdiction of the court and (3) does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction, is compulsory. Otherwise, a counterclaim is merely permissive.
Aside from invoking the validity of the said agreements, SMC therefore sought to collect the payment for the value of goods Mercado purchased on credit. Thus, Mercado’s complaint and SMC’s counterclaim both touched the issues of whether the continuing hold-out agreement and deed of assignment were valid and whether Mercado had outstanding liabilities to SMC. The same evidence would essentially support or refute Mercado’s claim and SMC’s counterclaim.
Based on the foregoing, had these issues been tried separately, the efforts of the RTC and the parties would have had to be duplicated. Clearly, SMC’s counterclaim, being logically related to Mercado’s claim, was compulsory in nature. Consequently, the payment of docket fees was not necessary for the RTC to acquire jurisdiction over the subject matter.

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