Case Summary (G.R. No. 169576)
Factual Background
On February 10, 1992, SMC notified CBC of Mercado's default in payment for products he withdrew on credit and subsequently demanded the encashment of the certificates of deposit. Mercado contested this action by filing a complaint in the Regional Trial Court (RTC) of Manila on March 2, 1992, seeking to annul the continuing hold-out agreement and deed of assignment. He argued that this agreement allowed forfeiture without foreclosure, rendering it void under Article 2088 of the Civil Code. Furthermore, he claimed that SMC misapplied his payments, which led to a discrepancy in his outstanding obligations.
Proceedings in Lower Courts
In response to Mercado's complaint, SMC countered by asserting that he had delivered only two certificates of deposit worth P4.5 million. SMC also emphasized that the agreements in question were standard business practices and sought the payment of overdue amounts for products Mercado acquired. After a series of motions, including Mercado's request for dismissal of his complaint on September 14, 1994, which the RTC denied, the trial took place. The RTC later dismissed Mercado's complaint and ordered him and EASCO to jointly pay SMC P7,468,153.75.
Appeal to the Court of Appeals
Mercado and EASCO appealed the RTC's decision to the Court of Appeals, asserting that Mercado had not defaulted. On December 14, 2004, the Court of Appeals upheld the RTC's decision in its entirety, which led the petitioners to seek a reconsideration that was ultimately denied. Subsequent to these proceedings, EASCO opted to settle its liabilities with SMC, leading to the cessation of its litigation.
Arguments on Appeal
Following Mercado's death, his heirs pursued the claim, contending that the Court of Appeals erred in affirming the RTC's order for payment, asserting that SMC's counterclaim was permissive and that the RTC lacked jurisdiction over it due to non-payment of docket fees. They questioned the nature of SMC's counterclaim in relation to the original complaint.
Analysis of Counterclaim Nature
The Supreme Court examined whether SMC's counterclaim was compulsory or permissive. It concluded that since Mercado's complaint sought to annul the continuing
...continue readingCase Syllabus (G.R. No. 169576)
Case Background
- Leonides Mercado had been a distributor of San Miguel Corporation's (SMC) beer products in Quiapo, Manila since 1967.
- In 1991, SMC granted Mercado a credit line amounting to P7.5 million, allowing him to withdraw goods on credit.
- To secure his purchases, Mercado assigned three certificates of deposit from China Banking Corporation (CBC) totaling P5 million to SMC and executed a continuing hold-out agreement.
- The hold-out agreement stipulated that a demand from SMC to CBC for default claims would be conclusive and serve as authority for CBC to encash the certificates, irrespective of the actual default status.
Events Leading to Legal Action
- On February 10, 1992, SMC notified CBC of Mercado's alleged failure to pay for goods withdrawn on credit.
- SMC requested CBC to release the proceeds from the assigned certificates, which CBC complied with.
- In response, on March 2, 1992, Mercado filed an action in the Regional Trial Court (RTC) of Manila to annul the continuing hold-out agreement and deed of assignment, claiming it allowed forfeiture without foreclosures, contrary to Article 2088 of the Civil Code.
Arguments Presented
- Mercado argued that he had settled recent purchases but SMC mistakenly applied these payments to older accounts not covered by the hold-out agreement.
- SMC countered that Mercado delivered only two of the three certificates of deposit, asserting the validity of the hold-out agreement as a recognized busines