The Supreme Court ruled that while a third-party claimant cannot use an annulment of judgment to challenge an execution sale, the constitutional prohibition against foreign land ownership is paramount. The court nullified auction sales where a Canadian citizen acquired land, emphasizing that aliens are disqualified from owning land in the Philippines, except in cases of hereditary succession. This decision protects national sovereignty by preventing indirect land acquisition by foreigners.

When a Foreign Judgment Leads to Unconstitutional Land Ownership

This case began with a breach of contract lawsuit filed by Thomas Johnson, a Canadian citizen, against spouses Narvin and Mary Edwarson in Canada. Johnson won the case, and the Supreme Court of British Columbia issued a default judgment against the Edwardsons. Johnson then sought to enforce this judgment in the Philippines, leading to the levy and sale of properties allegedly belonging to Mateo Encarnacion, Mary’s father, to satisfy the judgment. Encarnacion, who was not a party to the original case, filed a petition for annulment of judgment, arguing that his properties were wrongly included in the execution sale. The central legal question is whether the execution sale, which resulted in a foreign citizen acquiring land in the Philippines, violated the constitutional prohibition on foreign land ownership.

The Supreme Court addressed two key issues. First, it examined whether an action for annulment of judgment was the proper remedy for a third-party claimant whose properties were levied and sold under an execution sale. Second, it considered whether Johnson, as an alien, could own private lands by virtue of an execution sale. The Court denied the petition for annulment of judgment, holding that it was not the appropriate remedy for Encarnacion, but nevertheless, it nullified the sale of private lands to Johnson, citing a violation of Section 7, Article XII of the Philippine Constitution.

The Court emphasized that an action for annulment of judgment is an independent remedy available only when other remedies are unavailable and when the judgment was rendered without jurisdiction or through extrinsic fraud. As stated in Dare Adventure Farm Corporation v. Court of Appeals:

A petition for annulment of judgment is a remedy in equity so exceptional in nature that it may be availed of only when other remedies are wanting, and only if the judgment, final order or final resolution sought to be annulled was rendered by a court lacking jurisdiction or through extrinsic fraud.

The Court noted that while Encarnacion was not a party to the original case, he needed to demonstrate that he was adversely affected by the judgment. Since Encarnacion had already transferred his interest in the properties to his daughter, Mary, he was not considered a real party in interest. Additionally, the Court stated that an action for annulment is to allow the petitioner an opportunity to prosecute his cause or ventilate his defense, which was not relevant in this case as the grievances of Encarnacion arose during the execution of the said judgment in Civil Case No. 110-0-2003, and not of the judgment itself. Thus, Mateo and his heirs could not raise the alleged irregularities in the action for recognition of foreign judgment; he may only question the propriety of the levy and sale of their alleged properties.

The Supreme Court also pointed out that Encarnacion had other remedies available, particularly those provided under Section 16, Rule 39 of the Rules of Court, which outlines the procedure when property is claimed by a third person. This rule allows the third-party claimant to file an affidavit of title and a separate action to vindicate their claim to the property. The court cited Sy v. Discaya, recognizing the right of a third-party claimant to file an independent action to vindicate his claim of ownership over the properties seized. Consequently, the Court deemed a separate action to prove ownership as the proper recourse for Encarnacion’s heirs.

Despite denying the petition for annulment of judgment, the Supreme Court addressed the constitutional issue of foreign land ownership. Section 7, Article XII of the Constitution explicitly 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 Court emphasized that aliens are disqualified from acquiring lands in the Philippines. Citing Matthews v. Taylor, the Court reiterated that this prohibition is clear and inflexible and has been consistently upheld in numerous cases. The Court noted that Johnson, being a Canadian citizen, was prohibited from acquiring private and public lands in the Philippines and was likewise prohibited from participating in the execution sale which involves a transfer of ownership and title of property.

The Court found that allowing Johnson to acquire land through the execution sale would be an indirect violation of the constitutional prohibition. The Supreme Court then nullified the auction sales conducted on June 23, 2004, and November 29, 2006, where Johnson was declared the highest bidder. The case was remanded to the Regional Trial Court of Olongapo City, instructing them to conduct a new auction sale, excluding Johnson from participating as a bidder. The Court also ordered that the proceeds of any public auction sale be delivered to Johnson.

This ruling affirms the principle that constitutional provisions take precedence over other legal considerations, particularly when dealing with issues of national sovereignty and land ownership. The decision underscores the importance of upholding the constitutional prohibition against foreign land ownership to protect the country’s patrimony.

FAQs

What was the key issue in this case?	The key issue was whether a foreign citizen could acquire land in the Philippines through an execution sale, considering the constitutional prohibition on foreign land ownership.
Why did the Supreme Court nullify the auction sales?	The Supreme Court nullified the auction sales because they resulted in a Canadian citizen acquiring land in the Philippines, which violates Section 7, Article XII of the Constitution. This provision restricts land ownership to Filipino citizens and corporations.
What remedy did the petitioners initially seek?	The petitioners initially sought the annulment of the judgment in the case for recognition and enforcement of the foreign judgment, arguing that the inclusion of their properties in the execution sale was improper.
Why was the petition for annulment of judgment denied?	The petition was denied because the Court ruled that annulment of judgment was not the proper remedy for a third-party claimant in an execution sale. The correct remedy was to file a separate action to vindicate their claim of ownership.
What alternative remedy was available to the petitioners?	The petitioners could have filed a separate action to vindicate their claim of ownership over the properties seized under Section 16, Rule 39 of the Rules of Court.
What does the Constitution say about foreign land ownership?	Section 7, Article XII of the Constitution states that, except in cases of hereditary succession, private lands can only be transferred or conveyed to individuals, corporations, or associations qualified to acquire or hold lands of the public domain, effectively barring foreign ownership.
What was the effect of Mateo Encarnacion transferring the properties to his daughter?	The transfer of properties from Mateo Encarnacion to his daughter, Mary, meant that he was no longer considered a real party in interest in the case, which affected his standing to file the petition for annulment of judgment.
What action did the Supreme Court order the lower court to take?	The Supreme Court ordered the Regional Trial Court of Olongapo City to conduct a new auction sale, excluding Thomas Johnson from participating as a bidder, and to deliver the proceeds of the auction sale to Johnson.

In conclusion, while procedural remedies may guide legal actions, the Constitution stands as the ultimate guardian of national interests. The Supreme Court’s decision ensures that the constitutional prohibition against foreign land ownership remains inviolable, preventing indirect acquisitions that could undermine national sovereignty.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Mateo Encarnacion v. Thomas Johnson, G.R. No. 192285, July 11, 2018