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Mercado V CA

This document summarizes a Supreme Court of the Philippines case regarding a dispute over certificates of deposit assigned as collateral. Leonides Mercado had been distributing beer for San Miguel Corporation (SMC) since 1967, securing his purchases by assigning certificates of deposit to SMC. When SMC claimed Mercado failed to pay, it asked the bank to release the deposit proceeds. Mercado sued to annul the assignment agreement. SMC counterclaimed for payment. The trial court ruled for SMC and the Court of Appeals affirmed. The Supreme Court held that SMC's counterclaim was compulsory, as it arose from the same transaction and would use the same evidence as Mercado's claim. As such, SMC did not need

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123 views3 pages

Mercado V CA

This document summarizes a Supreme Court of the Philippines case regarding a dispute over certificates of deposit assigned as collateral. Leonides Mercado had been distributing beer for San Miguel Corporation (SMC) since 1967, securing his purchases by assigning certificates of deposit to SMC. When SMC claimed Mercado failed to pay, it asked the bank to release the deposit proceeds. Mercado sued to annul the assignment agreement. SMC counterclaimed for payment. The trial court ruled for SMC and the Court of Appeals affirmed. The Supreme Court held that SMC's counterclaim was compulsory, as it arose from the same transaction and would use the same evidence as Mercado's claim. As such, SMC did not need

Uploaded by

Honey Joy MB
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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LEONIDES MERCADO, represented by his heirs: Racquel D. Mercado, Jimmy D.

Mercado, Henry D. Mercado, Louricar D. Mercado and Virgilio D. Mercado, petitioners, 


vs.
COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.
G.R. No. 169576              October 17, 2008

CORONA, J:

Leonides Mercado had been distributing respondent San Miguel Corporation’s (SMC’s) beer
products in Quiapo, Manila since 1967.  To secure his purchases, Mercado assigned three China
Banking Corporation (CBC) certificates of deposit amounting to ₱5 million1 to SMC and
executed a continuing hold-out agreement: Any demand made by [SMC] on [CBC], claiming
default on my/our part shall be conclusive on [CBC] and shall serve as absolute authority for
[CBC] to encash the [CBC certificates of deposit] in accordance with the third paragraph of
this Hold-Out Agreement, whether or not I/we have in fact defaulted on any of my/our
obligations with [SMC], it being understood that the issue of whether or not there was factual
default must be threshed out solely between me/us and [SMC].

On February 10, 1992, SMC notified CBC that Mercado failed to pay for the items he withdrew
on credit. Consequently, citing the continuing hold-out agreement, it asked CBC to release the
proceeds of the assigned certificates of deposit. CBC approved SMB’s request and informed
Mercado

On March 2, 1992, Mercado filed an action to annul the continuing hold-out agreement and deed
of assignment in the Regional Trial Court (RTC) of Manila, Branch 55.3 He claimed that the
continuing hold-out agreement allowed forfeiture without the benefit of foreclosure.

On March 18, 1992, SMC filed its answer with counterclaim against Mercado. It contended that
Mercado delivered only two CBC certificates of deposit amounting to ₱4.5 million5 and asserted
that the execution of the continuing hold-out agreement and deed of assignment was a
recognized business practice. 

In line with SMC’s counterclaim, the RTC held in its favor and ordered Mercado to pay
₱7,468,153.75. Upon appeal, CA affirmed the RTC’s decision. Petitioners subsequently filed this
petition asserting that the CA erred in affirming the RTC decision in toto. The said decision
(insofar as it ordered Mercado to pay SMC ₱7,468,153.75) 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.

Whether or not SMC’s non-payment of docket fees for its counterclaim is fatal considering that
what it filed is allegedly a permissive counterclaim.

No, it was not as what SMC filed was a compulsory counterclaim which do not require payment
of docket fees. 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

When Mercado sought to annul the continuing hold-out agreement and deed of assignment
(which he executed as security for his credit purchases), he in effect sought to be freed from
them. While he admitted having outstanding obligations, he nevertheless asserted that those were
not covered by the assailed accessory contracts. For its part, 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.

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