G.R. No.
169576 October 17, 2008
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.
TOPIC: RULE 6- KINDS OF PLEADINGS
Sec. 7. Compulsory Counterclaim
See: Rule 11, Sec. 8
Rule 9, Sec. 2
FACTS
Leonides Mercado had been distributing respondent San Miguel Corporation’s (SMC’s)
beer products in Quiapo, Manila since 1967. In 1991, SMC extended to him a ₱7.5
million credit line allowing him to withdraw goods on credit. 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 stating:
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]
He also submitted three surety bonds from Eastern Assurance and Surety Corporation
(EASCO) totaling ₱2.6 million.2
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.
ORIGINAL CASE FILED: action to annul the continuing hold-out agreement and deed of
assignment
WHO: Mercado
AGAINST: smc
WHERE: Regional Trial Court (RTC) of Manila, Branch 55.
CONTENTION/ARGUMENTS:
Claimed that the continuing hold-out agreement allowed forfeiture without the
benefit of foreclosure. It was therefore void pursuant to Article 2088 of the Civil
Code.
Moreover, Mercado argued that he had already settled his recent purchases on
credit but SMC erroneously applied the said payments to his old accounts not
covered by the continuing hold-out agreement (i.e., purchases made prior to the
extension of the credit line).
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. Furthermore, because
Mercado admitted his outstanding liabilities, SMC sought payment of the lees products
he withdrew (or purchased on credit) worth ₱7,468,153.75.6
On April 23, 1992, SMC filed a third-party complaint against EASCO.7 It sought to
collect the proceeds of the surety bonds submitted by Mercado.
On September 14, 1994, Mercado filed an urgent manifestation and motion seeking the
dismissal of the complaint. He claimed that he was no longer interested in annulling the
continuing hold-out agreement and deed of assignment.
RTC DECISION:
The RTC, however, denied the motion.8 Instead, it set the case for pre-trial. Thereafter,
trial ensued.
During trial, Mercado acknowledged the accuracy of SMC’s computation of his
outstanding liability as of August 15, 1991.
Thus, the RTC dismissed the complaint and ordered Mercado and EASCO (to the
extent of ₱2.6 million or the value of its bonds) to jointly and severally pay SMC the
amount of ₱7,468,153.75.9
COURT OF APPEALS
Aggrieved, Mercado and EASCO appealed to the Court of Appeals (CA) 10 insisting that
Mercado did not default in the payment of his obligations to SMC.
On December 14, 2004, the CA affirmed the RTC decision in toto.11 Mercado and
EASCO both moved for reconsideration but their respective motions were denied. 12
SUPREME COURT
On October 28, 2005, EASCO filed a petition for review on certiorari in this Court 13 but
eventually agreed to settle its liability with SMC.14 The petition was terminated on
September 19, 2007.15
Meanwhile, Mercado passed away and was substituted by his heirs, petitioners Racquel
D. Mercado, Jimmy D. Mercado, Henry D. Mercado, Louricar D. Mercado and Virgilio D.
Mercado.
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.
ISSUE: WON the counterclaim is permissive or compulsory
HELD: COMPULSORY! We deny the petition.
A counterclaim (or a claim which a defending party may have against any
party)16 may be compulsory17 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.18 Otherwise, a
counterclaim is merely permissive.
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.
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.19 Consequently, the
payment of docket fees was not necessary for the RTC to acquire jurisdiction over the
subject matter.
WHEREFORE, the petition is hereby DENIED.
Costs against petitioners.
SO ORDERED.
