G.R. No. 192285 - Encarnacion vs. Johnson

Mateo Encarnacion (deceased), substituted by his heirs (Elsa Deplian-Encarnacion, Krizza Marie D. Encarnacion, Loreta Encarnacion, Carmelita E. Staderman, Corazon S. Encarnacion, Rizalina Encarnacion-Parong, Victoria Encarnacion-Dula, Maria Helen Encarnacion-Day, Teresita Encarnacion-Manalang, George Encarnacion, Mary Mitchie E. Edwardson, Ernesto Encarnacion, Mateo Encarnacion, Jr., and Grace Wagner) are petitioners.
Thomas Johnson is the respondent.

On October 6, 2000, respondent initiated a breach of contract action in British Columbia against spouses Narvin Edwarson and Mary Mitchie Edwarson (also referred to as Mary Encarnacion), alleging fraudulent investment schemes.
The British Columbia courts granted a Mareva injunction and later rendered a default judgment against Narvin and Mary, ordering them to pay damages, interest, and aggravated damages.
Respondent subsequently filed an action for recognition and enforcement of the foreign judgment before Branch 72 of the RTC of Olongapo City, Philippines, on February 24, 2003, also seeking recognition of the Mareva injunction.

The RTC of Olongapo City, Civil Case No. 110-0-2003, issued several orders including:

A restraining order on the disposition of assets related to the judgment, including properties allegedly transferred in fraud of creditors.
An order annotating property titles and tax declarations on properties belonging not only to Narvin and Mary but also—through subsequent orders—to properties registered in the name of Mateo Encarnacion.

With Narvin and Mary failing to respond after summons by publication, the RTC declared them in default and rendered a judgment in default mirroring the foreign judgment.
The RTC issued successive writs and amended writs of execution allowing the levy and subsequent public auction sale of properties, which included those belonging to Narvin, Mary, and allegedly Mateo.

On March 30, 2004 and thereafter, actions were taken that expanded the writ of execution to include properties registered under Mateo’s name.
On September 10, 2007, Mateo filed a petition for annulment before the Court of Appeals (CA), contending:

He was not made a party to the original enforcement proceedings despite being a third-party claimant with an interest in 18 properties that were levied and sold.
The inclusion of his properties was effected without proper notice and through irregular procedures.

Although Mateo admitted his lack of standing to question the original foreign judgment, he sought to annul the February 17, 2005 Order amending the writ of execution which affected his alleged properties.
In his answer, respondent countered by arguing that tax declarations in Mateo’s name cannot serve as evidence of ownership and that necessary investigatory measures had already excluded properties clearly belonging to him.

Later, after the sale of levied properties in auctions (June 23, 2004 and November 29, 2006) where respondent was declared the highest bidder, Mateo’s heirs, now petitioners, reiterated that the entire enforcement proceedings should be annulled due to:

Lack of jurisdiction of the RTC to allow modifications of the writ of execution affecting third-party property claims.
Extrinsic fraud resulting from irregular service and auction procedures.
The unconstitutional participation of a foreigner in acquiring lands.

The petition raises additional arguments regarding procedural irregularities such as:

The improper filing allowing respondent to litigate as a pauper litigant despite his ability to post bond.
The use of service by publication in replacing personal service in an action in personam.

Central to the petition is the contention that respondent, an alien (Canadian citizen), should not be allowed to acquire private lands as resultant from the execution sale.

Whether an action for annulment of judgment is the appropriate remedy for a third-party claimant whose properties have been levied and sold under execution sale.
Whether the remedy of annulment of judgment properly accommodates claims concerning the alleged wrongful execution or levy affecting third parties not originally part of the civil action.

Whether respondent, being an alien, may legally acquire private lands through an execution sale.
Whether the participation of respondent in the public auction, resulting in his acquisition of land, constitutes a violation of Section 7, Article XII of the Philippine Constitution.