BANCO DE ORO UNIBANK, INC. (FORMERLY EQUITABLE PCI BANK, INC.) AND EBC STRATEGIC HOLDINGS, INC., PETITIONERS, VS. REGIONAL TRIAL COURT OF PARAÑAQUE, BRANCH 274 AND ASIA AMALGAMA…

Banco de Oro Unibank versus Regional Trial Court of Parañaque

The Case

This is a petition for certiorari brought by Banco de Oro Unibank, formerly Equitable PCI Bank, and EBC Strategic Holdings against the Regional Trial Court of Parañaque, Branch 274, and Asia Amalgamated Holdings Corporation. The private respondent sued in the trial court for declaration of nullity of a deed of assignment and for damages, over the sale of its shares in Ecology Savings Bank to the petitioners. The petitioners asked the Supreme Court to annul the trial court's orders denying their motion to dismiss. The case matters because it draws the line between the special competence of the Bangko Sentral ng Pilipinas and the judicial power of the regular courts, and because it settles how filing fees and estoppel are treated at the pleading stage.

Procedural History

Asia Amalgamated filed its complaint for declaration of nullity of contract and damages before the Regional Trial Court of Parañaque, Branch 274, in November 2007. The petitioners moved to dismiss on the grounds that the trial court had no jurisdiction, that the correct docket fees were not paid, that the respondent was estopped, and that the complaint failed to state a cause of action. The trial court denied the motion to dismiss in an order dated 30 July 2008, and later denied the motion for reconsideration in an order dated 19 December 2008. The petitioners then went directly to the Supreme Court by petition for certiorari, and the Court resolved the petition on the merits.

Facts

Asia Amalgamated Holdings Corporation is a holding company majority owned by the Gow family, which also owned almost all the shares of the Uniwide Group of Companies. Asia Amalgamated in turn owned almost all the outstanding shares of Ecology Savings Bank, a thrift bank, comprising 4,500,000 common shares with a par value of 100 pesos per share. Equitable Banking Corporation had been the Uniwide Group's depositary bank since 1965 and had extended loans and credit accommodations to it. When the 1997 Asian financial crisis struck, the Uniwide Group fell into severe financial difficulty, and Equitable offered to act as its financial adviser. Equitable then advised that the group could raise about 500 million pesos if Asia Amalgamated allowed Equitable to take over the operations of Ecology Bank, and under distress Asia Amalgamated relented.

In October 1998, Asia Amalgamated entered into a memorandum of agreement with EBC Investments, a subsidiary of Equitable, to sell its Ecology Bank shares. On 24 November 1998, it entered into a deed of assignment with EBC Strategic Holdings. The purchase price was initially fixed at 75 million pesos, based on book value, subject to further adjustment after a due diligence audit by the assignee. The deed provided that the final purchase price computation, as determined by the assignee, shall be deemed final and conclusive on both parties, and that ownership would transfer upon approval by the Bangko Sentral ng Pilipinas notwithstanding the pendency of the audit. Approval was secured in April 1999. Through Gow, Asia Amalgamated gave its conformity to a final price of negative 2.522 million pesos in June 1999, and its stockholders later approved the assignment with knowledge of the negative price. The petitioners infused 365 million pesos into the bank and later transferred the shares to East West Bank in 2002.

In November 2007, Asia Amalgamated filed its complaint, asking that the deed of assignment be declared null and void, or in the alternative that the petitioners pay the reasonable price of the shares, plus exemplary damages, attorney's fees, and litigation expenses. It alleged that the clause leaving the final price to the assignee violated the Civil Code, and that it had no freedom of choice and was constrained to agree to the takeover.

Issues

• Whether or not the Bangko Sentral ng Pilipinas has primary jurisdiction over the case, to the exclusion of the regular courts.
• Whether or not the filing fees so far paid by Asia Amalgamated are in order, and whether the trial court acquired jurisdiction over the complaint.
• Whether or not Asia Amalgamated, having agreed to the purchase price, is estopped from questioning the validity of the petitioners' purchase of its shares.
• Whether or not the complaint failed to state a cause of action.

Applicable Provisions

Article 1473 of the Civil Code, which the complaint invokes against the price-fixing clause, provides:

Article 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected.

This bears on the case because the complaint attacks the deed precisely for leaving the final price to the assignee alone.

Article 1390 of the Civil Code, which the Court cites on vitiated consent, provides:

Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.

This bears on the case because the allegation of undue influence makes the contract voidable, not inexistent, and the resolution of that question is judicial.

Section 1 of Rule 16 of the Rules of Court, on the grounds for dismissal, provides:

Section 1. Grounds. Within the time for but before the filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made on any of the following grounds: (a) That the court has no jurisdiction over person of the defending party; (b) That the court has no jurisdiction over the subject matter of the claim; (c) That venue is improperly laid; (d) That the plaintiff has no legal capacity to sue; (e) That there is another action pending between the same parties for the same cause; (f) That the cause of action is barred by a prior judgment or by the statute of limitations; (g) That the pleading asserting the claim states no cause of action; (h) That the claim or demand set forth in the plaintiff's pleading has been paid, waived, abandoned, or otherwise extinguished; (i) That the claim on which the action is founded is unenforceable under the provisions of the statute of frauds; and (j) That a condition precedent for filing the claim has not been complied with.

This bears on the case because estoppel is not among the listed grounds, so it cannot justify a dismissal.

Ruling

On the first issue, the Court held that the Bangko Sentral does not have primary jurisdiction. The complaint does not involve a bank or corporate dispute; it puts in issue the validity of the deed of assignment, which is a judicial question requiring the ascertainment of what laws apply, their interpretation, and a judgment thereon. The doctrine of primary jurisdiction applies only where enforcement of a claim requires resolution of issues placed within the special competence of an administrative body. Arbitration before an administrative agency is proper only when the parties disagree on some provision of a contract needing the agency's expertise; it is not proper when one party repudiates the existence or validity of the contract on grounds of fraud, oppression, or undue influence, for the validity of a contract cannot be the subject of arbitration proceedings.

On the second issue, the Court held that the action is one incapable of pecuniary estimation, because the basic issue is something other than the right to recover a sum of money, and the money claim is merely incidental. The complaint is therefore within the jurisdiction of the Regional Trial Court. Even assuming the correct docket fees were not paid at filing, the trial court did not automatically lose jurisdiction, for it still acquires jurisdiction upon full payment within a reasonable time, barring prescription. The Court quoted its guidelines from Sun Insurance Office, including the third:

Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the pleading, or if specified the same has been left for determination by the court, the additional filing fee therefore shall constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee.

On the third issue, the Court held that estoppel is not a ground for dismissal under Rule 16, Section 1, but a matter of defense requiring the presentation of evidence by both parties. On the fourth issue, the Court found the allegations of the complaint sufficient to state a cause of action.

Doctrine

• The doctrine of primary jurisdiction does not apply where the complaint puts in issue the validity of a contract on grounds of fraud, oppression, or undue influence; that is a judicial question for the regular courts.
• An action for annulment of a deed of sale or conveyance is one incapable of pecuniary estimation, cognizable by the Regional Trial Court regardless of the value of the property involved.
• Failure to pay the correct docket fees at filing does not automatically deprive the trial court of jurisdiction; the court may allow full payment within a reasonable time, barring prescription, and any deficiency constitutes a lien on the judgment.
• Estoppel is not a ground for a motion to dismiss under Rule 16, Section 1; it is a matter of defense.

Disposition

The Supreme Court denied the petition, and the orders of the trial court denying the motion to dismiss and the motion for reconsideration stand.

Remember This

Memorize this line: the validity of a contract cannot be the subject of arbitration proceedings, for allegations of fraud and duress are matters within the jurisdiction of the ordinary courts. Examiners use this case to test the doctrine of primary jurisdiction against the Bangko Sentral, the rule on actions incapable of pecuniary estimation, and the exclusive grounds for dismissal under Rule 16.