G.R. No. 168951 - Posadas vs. Sandiganbayan

Case Summary (G.R. No. 168951)

Factual Background in Canada

On October 6, 2000, Thomas Johnson filed an action for breach of contract before the Supreme Court of British Columbia against spouses Narvin Edwarson and Mary Mitchie Edwarson alleging a fraudulent vehicle leasing scheme. The British Columbia court granted a Mareva injunction on October 6, 2000 to restrain defendants from dealing with assets and later entered a default judgment on February 26, 2001 awarding respondent C$380,431.00 plus interest, costs, and damages to be assessed; on June 29, 2001 it awarded aggravated damages of C$25,000.00 each against Narvin and Mary.

Filing in the Philippines and Early RTC Orders

Respondent filed for recognition and enforcement of the British Columbia judgment in the Philippines on February 24, 2003. He also sought recognition of the Mareva injunction and permission to litigate as a pauper; the RTC granted pauper status on condition that a lien of P123,161.00 would be imposed in the event of a favorable judgment. On March 5, 2003, Branch 72 of the RTC issued an order restraining Narvin and Mary from disposing of assets, and it directed annotation of that order on titles and tax declarations on May 12, 2003. Service by publication was ordered when summons could not be served personally.

Default Judgment, Writs, and Sales

After Narvin and Mary failed to answer, the RTC declared them in default on December 1, 2003 and rendered judgment in accordance with the British Columbia default judgment. The RTC issued a writ of execution on March 30, 2004 authorizing levy of sufficient property to satisfy the award. Respondent moved to modify the writ to include properties previously annotated as linked to Mateo; the RTC modified and issued an amended writ authorizing levy of properties registered in the name of Mateo Encarnacion. Thirteen levied properties not covered by certificates of title were sold at public auction on June 23, 2004, where respondent was the highest bidder at P10,000,000.00; another sale produced a Certificate of Sale dated November 29, 2006 covering several titled parcels for which respondent was the highest bidder at P4,000,000.00.

Mateo’s Third-Party Claim and RTC Clarification

On January 11, 2005, respondent sought a clarificatory order to expressly authorize levy of properties in the name of Mateo Encarnacion. Mateo filed an Affidavit of Third Party Claim on January 17, 2005 claiming ownership of several parcels then being levied. The RTC’s February 17, 2005 Order further amended the writ of execution to levy properties registered under Mateo’s name that previously had been annotated in the assessor’s office and the Register of Deeds of Iba, Zambales.

Petition for Annulment Before the Court of Appeals

On September 10, 2007, more than two years after the RTC’s February 17, 2005 Order, Mateo filed a petition for annulment of judgment with the Court of Appeals alleging he owned the levied properties, that he was not made a party to the recognition proceeding, and that inclusion of his properties in the levy and sale occurred without notice. Mateo initially admitted to the CA that he lacked standing to question the recognition proceeding itself, but he asserted that he sought annulment only of the February 17, 2005 Order that deprived him of property. The CA denied the petition on August 12, 2009, and on May 13, 2010 it denied reconsideration.

Court of Appeals’ Rationale and Additional Findings

The CA upheld the jurisdiction of the RTC to recognize a foreign judgment. It ruled that by filing an Affidavit of Third Party Claim, Mateo voluntarily submitted to the RTC’s jurisdiction. The CA held that a petition for annulment of judgment was not the proper remedy because the February 17, 2005 Order was not final but merely clarified the writ of execution; the CA indicated the proper remedies were a motion to quash the writ of execution or a petition for certiorari under Rule 65. The CA also found the petition barred by estoppel and laches due to Mateo’s delay and concluded that Mateo had transferred the properties to Mary by deed of quitclaim on February 27, 1995.

Issues Presented to the Supreme Court

The Supreme Court framed the issues as: whether an action for annulment of judgment is the proper remedy of a third-party claimant of properties levied and sold under execution sale; and whether respondent, an alien, may own private lands by virtue of an execution sale.

Governing Law on Annulment of Judgment and Third-Party Remedies

The Court reviewed the exceptional nature of a petition for annulment of judgment under Rule 47 and reiterated that such remedy is available only when ordinary remedies are no longer available through no fault of the petitioner and only on grounds of lack of jurisdiction or extrinsic fraud. The Court observed that a third-party claimant of levied property has statutory remedies under Rule 39, Section 16, namely: to serve an affidavit of title on the levying officer and judgment obligee (terceria), to seek indemnity by bond, to file an action for damages against the bond within one hundred twenty days, or to vindicate ownership in a separate proceeding. The Court emphasized precedents recognizing the right of a third-party claimant to bring a separate action to vindicate ownership.

Supreme Court’s Analysis on Standing and Proper Remedy

The Court held that Mateo lacked standing to seek annulment of the recognition proceeding because the foreign judgment was a personal claim against Narvin and Mary and Mateo was neither an indispensable party nor a successor in interest to the judgment debtors. The Court found that Mateo and his heirs were affected only insofar as the levy and sale targeted properties allegedly in Mateo’s name, and that the appropriate remedy for alleged wrongful levy was the procedural and substantive relief provided under Rule 39, Sec. 16, or separate actions to vindicate title, not a petition for annulment under Rule 47. The Court also observed that petitioners had failed to show that ordinary or appropriate remedies were unavailable through no fault of the petition

Case Syllabus (G.R. No. 168951)

Parties and Procedural Posture

Mateo Encarnacion (deceased), substituted by his heirs, namely: 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 the petitioners before the Supreme Court.
Thomas Johnson is the respondent who obtained a foreign judgment from the Supreme Court of British Columbia and sued for recognition and enforcement in the Philippines.
The petition is a petition for review on certiorari under Rule 45, Rules of Court seeking nullification of the Court of Appeals' August 12, 2009 Decision and May 13, 2010 Resolution in CA-G.R. SP No. 100483.
The petition challenged the Regional Trial Court, Branch 72, Olongapo City, February 17, 2005 Order further amending the amended writ of execution in Civil Case No. 110-0-2003 and sought annulment of proceedings affecting alleged properties of petitioners.

Key Factual Allegations

Thomas Johnson alleged that spouses Narvin Edwarson and Mary Mitchie Edwarson induced him to invest in a fraudulent vehicle leasing business and filed a breach of contract action on October 6, 2000 before the Supreme Court of British Columbia.
The Supreme Court of British Columbia granted a Mareva injunction on October 6, 2000 and later issued a Default Judgment dated February 26, 2001 finding the defendants liable in the sum of C$380,431.00 plus interest, costs, and aggravated damages.
On February 24, 2003, respondent filed an action for recognition and enforcement of the foreign judgment with Branch 72 of the RTC of Olongapo City, docketed as Civil Case No. 110-0-2003, and simultaneously sought to litigate as a pauper.
The RTC granted pauper status on condition of a lien of P123,161.00 for filing fees and issued a March 5, 2003 Order restraining Narvin and Mary from disposing of assets and directing annotation of titles and tax declarations.
The RTC declared Narvin and Mary in default on December 1, 2003 and rendered judgment in accordance with the British Columbia judgment, and thereafter issued a Writ of Execution on March 30, 2004.
The writ was modified and amended to include properties with titles and tax declarations annotated under Mateo's name, and levied properties were sold at public auction on June 23, 2004 where respondent became the highest bidder at P10,000,000.00 for certain parcels not covered by certificates of title.
A subsequent sale resulted in a Certificate of Sale dated November 29, 2006 in favor of respondent covering several OCTs and tax declarations for which respondent was the highest bidder at P4,000,000.00.
On January 17, 2005, Mateo filed an Affidavit of Third Party Claim asserting ownership of 14 parcels noted as being levied, and the RTC issued a February 17, 2005 Order further amending the writ to levy properties registered under Mateo's name.
Mateo filed a petition for annulment of judgment before the Court of Appeals on September 10, 2007 alleging lack of notice, lack of party joinder, and extrinsic irregularities in Civil Case No. 110-0-2003.

Procedural History

The Supreme Court of British Columbia issued a Mareva injunction on October 6, 2000 and a Default Judgment on February 26, 2001 with damages and costs to be assessed.
Respondent filed for recognition in the Philippines on February 24, 2003 and the RTC issued restraining orders and annotations on May 12, 2003 following a March 5, 2003 order.
The RTC declared defendants in default on December 1, 2003 and issued a writ of execution on March 30, 2004 which was modified and amended in August and September 2004 to include properties annotated to Mateo.
Public auctions were conducted on June 23, 2004 and November 29, 2006 resulting in Certificates of Sale in favor of respondent and a November 3, 2008 RTC Order granting consolidation of title to respondent.
Mateo filed an annulment petition with the Court of Appeals on September 10, 2007; the CA denied the petition on August 12, 2009 and denied recon