Private International Law

CASE NO. 27
Encarnacion v Johnson
G.R 192285 | DATE: JULY 11, 2018 | JARDELEZA
TOPIC: Foreign Judgment
DIGEST BY: HAWK

RECITATION-READY SUMMARY

In this case, respondent filed an action for breach of contract spouses Edwarson and Mateo's daughter, before the Vancouver
Registry of the Supreme Court of British Columbia, Canada. Respondent alleged that Narvin and Mary convinced him to invest his
money and personal property in a vehicle leasing company owned by the couple, which turned out to be a fraudulent business
scheme. Supreme Court of British Columbia Columbia issued an injunction (to restrain Narvin and Mary from dealing with any of
their assets except as is necessary for payment of ordinary living expenses or to carry on their ordinary business) and authorized
respondent to obtain orders in foreign jurisdictions which would permit its enforcement in those jurisdictions. Respondent filed an
action for recognition and enforcement of foreign judgment with prayer for the recognition of the Mareva injunction with the RTC of
Olongapo City which the RTC granted. Thereafter, 13 levied properties not covered by certificates of title were sold in public auction
wherein respondent placed the highest bid.

SC nullify the sale of the private lands to respondent for being a flagrant violation of Section 7, Article XII of the Constitution.

PARTIES

Plaintiff/Petitioner Defendant/Respondent

MATEO ENCARNACION (Deceased), substituted by his heirs, THOMAS JOHNSON

CASE DOCTRINE(S)

The fundamental law is clear that aliens, whether individuals or corporations, are disqualified from acquiring lands of the public
domain. The right to acquire lands of the public domain is reserved only to Filipino citizens or corporations at least 60% of the capital
of which is owned by Filipinos.69 Consequently, they are also disqualified from acquiring private lands.

A. FACTS

● On October 6, 2000, respondent filed an action for breach of contract with prayer for damages and costs against
spouses Narvin Edwarson and Mary Mitchie Edwarson (also known as Mary Encarnacion), Mateo's daughter, before
the Vancouver Registry of the Supreme Court of British Columbia, Canada. Respondent alleged that Narvin and Mary
convinced him to invest his money and personal property in a vehicle leasing company owned by the couple, which
turned out to be a fraudulent business scheme. The couple neither deposited the promised profits into his account
nor gave an accounting or explanation as to where his funds went.
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● The Supreme Court of British Columbia gave due course to respondent's action and ordered summons to be served
upon Narvin and Mary. While service of summons was being attempted, respondent moved that the Supreme Court
of British Columbia grant him a Mareva injunction, with ex Juris affect, to restrain Narvin and Mary from dealing with
any of their assets except as is necessary for payment of ordinary living expenses or to carry on their ordinary
business.6 On October 6, 2000, the Supreme Court of British Columbia issued a Mareva injunction and authorized
respondent, among others, to obtain orders in foreign jurisdictions which would permit its enforcement in those
jurisdictions.

● On February 24, 2003, respondent filed an action for recognition and enforcement of foreign judgment with prayer for
the recognition of the Mareva injunction with the RTC of Olongapo City, the RTC granted his petition on the condition
that a lien of ₱123,161.00, representing the amount of the filing fees, would be imposed upon him in the event of a
favorable judgment.

● On March 5, 2003, the RTC issued an Order restraining Narvin and Mary from disposing or encumbering their assets,
as well as those belonging to, or controlled by, the Zambales-Canada Foundation, the 5-E Foundation, and those
belonging to Mateo (for being properties transferred in fraud of creditors). On May 12, 2003, the RTC ordered the
Register of Deeds of Zambales and the Provincial Assessor to annotate its March 5, 2003 Order on the titles and tax
declarations of all properties owned by Narvin and Mary, as well as those belonging to Mateo.

● Thereafter, the RTC ordered the service of summonses by publication upon Narvin and Mary but Narvin and Mary still
failed to file their answer. Accordingly, R TC declared them in default, and subsequently rendered a judgment in
default in accordance with the judgment of the Supreme Court of British Columbia.

● On March 30, 2004, the RTC issued a Writ of Execution authorizing the sheriff to attach sufficient properties
belonging to Narvin and Mary to satisfy the judgment award.

● Subsequently, 13 levied properties not covered by certificates of title were sold in public auction on June 23, 2004,
wherein respondent placed the highest bid of ₱10,000,000.00.20 The properties listed in the Certificate of Sale were:
(1) a coco/agricultural land covered by Tax Declaration No. 016- 0322A in the name of "Mary Mitchie Encarnacion;"
and (2) a commercial/agricultural land covered by Tax Declaration No. 007-0410AR in the name of "Mary Mitchie E.
Edwardson."

● On January 11, 2005, respondent filed a motion for clarificatory order seeking further amendment of the writ of
execution to expressly authorize the levy of the properties in the name of Mateo whose title and tax declarations
were previously annotated with the March 30, 2004 Order.

● Subsequently, Mateo filed an Affidavit of Third Party Claim before the RTC, claiming that he is the owner of 14 parcels
of land which were being levied. The records, however, are not clear as to what action was taken by the RTC on
Mateo's third party claim.

B. LOWER COURT DECISIONS (PROCEDURAL ASPECTS)

RTC RTC, acting on respondent's motion for clarificatory order, further amended the Writ of Execution as follows:

"AND FURTHER ORDERS to levy the properties registered under the name of Mateo Encarnacion which was
previously annotated in the Assessors Office and the Register of Deeds of Iba, Zambales, shall be the subject of
the same under execution."

CA It upheld the jurisdiction of the RTC over the action of recognition of foreign judgment. By filing an Affidavit of
Third Party Claim, Mateo was deemed to have voluntarily submitted himself to the jurisdiction of the RTC. It also
ruled that the remedy of annulment of judgment is not proper because the February 17, 2005 Order is not a final
order as it merely seeks to clarify the RTC's further amended writ of execution; the proper remedy is to move to
quash the writ of execution and if unsuccessful, to file a petition for certiorari under Rule 65 of the Rules of
Court. The CA also said that even if procedural rules were relaxed, the petition would still fail because it has

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already been barred by estoppel and laches due to Mateo's delay in filing the petition despite numerous
opportunities to do so. Lastly, the CA pointed out that Mateo is not the proper party to file the petition, as he had
already transferred the properties to Mary by virtue of a deed of quitclaim on February 27, 1995.

C. ISSUE(S)

1. Whether an action for annulment of judgment is the proper remedy of a third-party claimant of properties levied and
sold under execution sale.

2. Whether respondent, an alien, may own private lands by virtue of an execution sale. (MAIN ISSUE)

D. RULINGS (S)

Court denies the petition. Nevertheless, Court nullify the sale of the private lands to respondent for being a flagrant violation
of Section 7, Article XII of the Constitution.

1. Conclusion: No, an action for annulment of judgment is not the proper remedy of a third-party claimant of properties
levied and sold under execution sale.

Rule of Law: In Pinausukan Seafood House, Roxas Boulevard, Inc. v. Far East Bank & Trust Company, court said that
owing to the extraordinary nature and objective of the remedy of annulment of judgment or final order, there are
requirements that must be complied with before the remedy is granted. First, the remedy is only available when the
petitioner can no longer resort to the ordinary remedies of new trial, appeal, petition for relief, or other appropriate
remedies through no fault of the petitioner. Second, the ground for the remedy is limited to either extrinsic fraud or
lack of jurisdiction (although lack of due process has been cited as a ground by jurisprudence). Third, the time for
availing the remedy is set by the rules: if based on extrinsic fraud, it must be filed within four years from the discovery
of extrinsic fraud; if based on lack of jurisdiction, it must be brought before it is barred by laches or estoppel.

The proper party to file a petition for annulment of judgment or final order need not be a party to the judgment sought
to be annulled. Nevertheless, it is essential that he is able to prove by preponderance of evidence that he is adversely
affected by the judgment. A person not adversely affected by a decision in the civil action or proceeding cannot bring
an action for annulment of judgment under Rule 47 of the Rules of Court. The exception is if he is a successor in
interest by title subsequent to the commencement of the action, or if the action or proceeding is in rem, in which case
the judgment is binding against him.

Application: In this case, petitioners failed to show their standing to file the petition. They have also failed to comply
with the first requirement.

Further, the action sought to be annulled is a recognition of foreign judgment in a collection case rendered by the
Supreme Court of British Columbia filed by respondent against Narvin and Mary. Under Section 48(b), Rule 39 of the
Rules of Court, a foreign judgment or final order against a person creates a "presumptive evidence of a right as
between the parties and their successors in interest by a subsequent title." We have previously held that Philippine
courts exercise limited review on foreign judgments and are not allowed to delve into its merits. Thus, the action for
recognition of foreign judgment does not require the relitigation of the case under a Philippine court. 55 Once
admitted and proven in a Philippine court, a foreign judgment can only be repelled by the parties and their successors
in interest by subsequent title on grounds external to its merits, i.e., "want of jurisdiction, want of notice to the party,
collusion, fraud, or clear mistake of law or fact."56 Consequently, the right being enforced in the action is the subject
of the collection case, which is a personal one against the couple and their successors in interest.

Considering the foregoing, Mateo is not a party who could be adversely affected by the outcome of Civil Case. To
begin with, he was not an indispensable party to the action for recognition whose interest in the controversy is such
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that a final decree will necessarily affect his rights, as he was not the judgment debtor in the action. Neither is Mateo
a real party in interest in Civil Case, as aptly noted by the CA, having already transferred his interest in the properties
to Mary. Lastly, he is not a successor in interest of Narvin and Mary.

Thus, the proper recourse for petitioners is to vindicate and prove their ownership over the properties in a separate
action as allowed under Section 16, Rule 39 of the Rules of Court.

2. Conclusion: No, respondent, an alien, cannot own private lands by virtue of an execution sale.

Rule of Law: Section 7, Article XII of the Constitution states:

Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain.

The fundamental law is clear that aliens, whether individuals or corporations, are disqualified from acquiring lands of
the public domain. The right to acquire lands of the public domain is reserved only to Filipino citizens or corporations
at least 60% of the capital of which is owned by Filipinos.69 Consequently, they are also disqualified from acquiring
private lands.

In light of this, court nullify the auction sales conducted on June 23, 2004 and November 29, 2006 where respondent
was declared the highest bidder, as well as the proceedings which led to the acquisition of ownership by respondent
over the lands involved. Article 1409(1) and (7) of the Civil Code states that all contracts whose cause, object, or
purpose is contrary to law or public policy, and those expressly prohibited or declared void by law are inexistent and
void from the beginning. Court thus remand the case back to Branch 72 of the RTC of Olongapo City, to conduct
anew the auction sale of the levied properties, and to exclude respondent from participating as bidder.

Application: In this case, it is undisputed that respondent is a Canadian citizen.75 Respondent neither denied this, nor
alleged that he became a Filipino citizen. Being an alien, he is absolutely prohibited from acquiring private and public
lands in the Philippines. Concomitantly, respondent is also prohibited from participating in the execution sale, which
has for its object, the transfer of ownership and title of property to the highest bidder. What cannot be legally done
directly cannot be done indirectly.

E. ADDITIONAL NOTES:

CASES ON CONSTITUTIONAL PROHIBITION ON ALIEN LAND OWNERSHIP

In Matthews v. Taylor, we took cognizance of the violation of the Constitutional prohibition on alien land ownership despite the
failure of the trial and appellate courts to consider and apply these constitutional principles. There we said, " the trial and
appellate courts both focused on the property relations of petitioner and respondent in light of the Civil Code and Family Code
provisions. They, however, failed to observe the applicable constitutional principles, which, in fact, are the more decisive." We
said further:

The rule is clear and inflexible: aliens are absolutely not allowed to acquire public or private lands in the Philippines,
save only in constitutionally recognized exceptions. There is no rule more settled than this constitutional prohibition, as
more and more aliens attempt to circumvent the provision by trying to own lands through another. In a long line of
cases, we have settled issues that directly or indirectly involve the above constitutional provision. We had cases where
aliens wanted that a particular property be declared as part of their father's estate; that they be reimbursed the funds
used in purchasing a property titled in the name of another; that an implied trust be declared in their (aliens') favor; and
that a contract of sale be nullified or their lack of consent.

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In Ting Ho, Jr. v. Teng Gui, Felix Ting Ho, a Chinese citizen, acquired a parcel of land, together with the improvements thereon.
Upon his death, his heirs (the petitioners therein) claimed the properties as part of the estate of their deceased father, and
sought the partition of said properties among themselves. We, however, excluded the land and improvements thereon from
the estate of Felix Ting Ho, precisely because he never became the owner thereof in light of the above-mentioned
constitutional prohibition.

In Muller v. Muller, petitioner Elena Buenaventura Muller and respondent Helmut Muller were married in Germany. During the
subsistence of their marriage, respondent purchased a parcel of land in Antipolo City and constructed a house thereon. The
Antipolo property was registered in the name of the petitioner. They eventually separated, prompting the respondent to file a
petition for separation of property. Specifically, respondent prayed for reimbursement of the funds he paid for the acquisition
of said property. In deciding the case in favor of the petitioner, the Court held that respondent was aware that as an alien, he
was prohibited from owning a parcel of land situated in the Philippines. He had, in fact, declared that when the spouses
acquired the Antipolo property, he had it titled in the name of the petitioner because of said prohibition. Hence, we denied his
attempt at subsequently asserting a right to the said property in the form of a claim for reimbursement. Neither did the Court
declare that an implied trust was created by operation of law in view of petitioner's marriage to respondent. We said that to
rule otherwise would permit circumvention of the constitutional prohibition.

In Frenzel v. Catito, petitioner, an Australian citizen, was married to Teresita Santos; while respondent, a Filipina, was married
to Klaus Muller. Petitioner and respondent met and later cohabited in a common-law relationship, during which petitioner
acquired real properties; and since he was disqualified from owning lands in the Philippines, respondent's name appeared as
the vendee in the deeds of sale. When their relationship turned sour, petitioner filed an action for the recovery of the real
properties registered in the name of respondent, claiming that he was the real owner. Again, as in the other cases, the Court
refused to declare petitioner as the owner mainly because of the constitutional prohibition. The Court added that being a party
to an illegal contract, he could not come to court and ask to have his illegal objective carried out. One who loses his money or
property by knowingly engaging in an illegal contract may not maintain an action for his losses.

Finally, in Cheesman v. Intermediate Appellate Court, petitioner (an American citizen) and Criselda Cheesman acquired a parcel
of land that was later registered in the latter's name. Criselda subsequently sold the land to a third person without the
knowledge of the petitioner. The petitioner then sought the nullification of the sale as he did not give his consent thereto. The
Court held that assuming that it was his (petitioner's) intention that the lot in question be purchased by him and his wife, he
acquired no right whatever over the property by virtue of that purchase; and in attempting to acquire a right or interest in land,
vicariously and clandestinely, he knowingly violated the Constitution; thus, the sale as to him was null and void.

Also in Hulst v. PR Builders, Inc., we said that "before resolving the question [of] whether the CA erred in affirming the Order of
the [Housing and Land Use Regulatory Board (HLURB)] setting aside the levy made by the sheriff, it behooves this Court to
address a matter of public and national importance which completely escaped the attention of the HLURB Arbiter and the CA:
petitioner and his wife are foreign nationals who are disqualified under the Constitution from owning real property in their
names." There, Hulst, a Dutch national, won an action for rescission of a contract to sell over a 210-square meter townhouse
against the developer in the HL URB. The HLURB ordered reimbursement of the contract price to Hulst. Subsequently, the
sheriff levied real properties owned by the developer. The developer filed a motion to quash the writ of levy on the ground of
over-levy of properties, which the HLURB Arbiter granted. While the issue before the CA, and successively before us, was
whether the HLURB Arbiters erred in setting aside the levy, we took cognizance of the violation of the Constitution that
escaped both the HLURB and the CA. We declared that the contract to sell was void.