In cases involving the annulment of a real estate mortgage, the determination of whether a court has jurisdiction hinges on identifying the primary relief sought in the complaint. If the main objective is to nullify the mortgage contract itself, rather than to recover ownership or possession of the property, the action is considered one that is incapable of pecuniary estimation. This distinction is crucial because it dictates which court has the authority to hear the case and ensures that the appropriate docket fees are paid, maintaining fairness and efficiency in the judicial process. The Supreme Court emphasizes that courts must look at the true nature of the action based on the pleadings, irrespective of potential outcomes regarding property rights.

Mortgage Disputes: When is an Annulment Action More Than Just About the Property?

First Sarmiento Property Holdings, Inc. (First Sarmiento) sought to annul a real estate mortgage it had entered into with Philippine Bank of Communications (PBCOM), arguing that it never received the loan proceeds secured by the mortgage. PBCOM, however, initiated extrajudicial foreclosure proceedings, leading First Sarmiento to file a complaint for annulment. The core legal question revolved around whether this action was principally about recovering property—a real action requiring higher filing fees based on the property’s value—or about nullifying the contract itself, which is considered an action incapable of pecuniary estimation. The Regional Trial Court (RTC) initially dismissed First Sarmiento’s complaint for lack of jurisdiction, agreeing with PBCOM that the action was essentially a real action aimed at recovering the foreclosed properties. First Sarmiento appealed, asserting that its primary goal was to invalidate the mortgage contract due to the alleged non-receipt of loan proceeds, not to reclaim property.

The Supreme Court (SC) reversed the RTC’s decision, holding that the action was indeed one incapable of pecuniary estimation. The SC emphasized that jurisdiction is determined by the principal relief sought in the complaint. In this case, First Sarmiento’s complaint focused on annulling the mortgage due to the alleged failure to receive the loan proceeds, not on recovering possession or ownership of the properties. “To determine the nature of an action, whether or not its subject matter is capable or incapable of pecuniary estimation, the nature of the principal action or relief sought must be ascertained,” the Court stated. Furthermore, the SC noted that when First Sarmiento filed its complaint, it was still the registered owner of the properties, as the certificate of sale had not yet been registered with the Registry of Deeds. Thus, it could not be said that the company was seeking to recover something it had already lost.

Building on this principle, the SC distinguished the case from situations where the recovery of property is the primary objective. Quoting Lapitan v. Scandia, the Court reiterated that “where the basic issue is something other than the right to recover a sum of money, or where the money claim is purely incidental to, or a consequence of, the principal relief sought… this Court has considered such actions as cases where the subject of the litigation may not be estimated in terms of money.” This reinforces the idea that the true nature of the action dictates jurisdiction, not merely the potential consequences affecting property rights.

The Supreme Court also addressed the issue of the extended temporary restraining order (TRO) issued by the RTC. The Court clarified that a TRO has a limited lifespan and cannot be extended indefinitely to take the place of a preliminary injunction. “In no case shall the total period of effectivity of the temporary restraining order exceed twenty (20) days, including the original seventy-two hours provided herein,” the Court cited from Rule 58, Section 5 of the Rules of Court. This pronouncement served as a reminder to lower courts about the proper application of injunctive reliefs and the importance of adhering to procedural rules.

The SC also took the opportunity to clarify its stance on a previous ruling, Home Guaranty v. R-II Builders, which had caused confusion regarding the determination of subject matter jurisdiction in cases involving contracts and property rights. The Court emphasized that the nature of an action is determined by the principal relief sought in the complaint, irrespective of other potential causes of action that may arise as a consequence. The SC stated that the principal remedy sought by R-II Builders was the resolution of the Deed of Assignment and Conveyance, the action was incapable of pecuniary estimation. The contrary rule espoused in Home Guaranty is thereby set aside.

In conclusion, the Supreme Court’s decision in First Sarmiento Property Holdings, Inc. v. Philippine Bank of Communications reaffirms the principle that jurisdiction in actions for annulment of mortgage depends on the primary relief sought in the complaint. The court must determine whether the action is principally aimed at nullifying the mortgage contract or at recovering property. This ruling provides clarity and guidance for lower courts in assessing jurisdiction and ensures that litigants are not unduly burdened with excessive filing fees when their primary objective is to challenge the validity of a contract rather than to reclaim property rights.

FAQs

What was the key issue in this case?	The key issue was whether the complaint for annulment of a real estate mortgage was an action incapable of pecuniary estimation, thus properly filed with the RTC, or a real action requiring higher filing fees.
How did the Supreme Court define ‘actions incapable of pecuniary estimation’?	The Supreme Court defined these as actions where the primary relief sought is not the recovery of a sum of money or real property, but something else to which any monetary claim is merely incidental.
What was First Sarmiento’s main argument?	First Sarmiento argued that its primary goal was to invalidate the mortgage contract due to the alleged non-receipt of loan proceeds, not to reclaim property ownership or possession.
Why did the RTC initially dismiss the case?	The RTC dismissed the case for lack of jurisdiction, agreeing with PBCOM that the action was essentially a real action aimed at recovering the foreclosed properties.
What did the Supreme Court rule regarding the TRO issued by the RTC?	The Supreme Court clarified that a TRO has a limited lifespan and cannot be extended indefinitely to substitute a preliminary injunction. The RTC’s extension was deemed improper.
How does this ruling affect future cases involving annulment of mortgages?	This ruling provides clarity and guidance for lower courts in assessing jurisdiction by emphasizing the importance of identifying the primary relief sought in the complaint.
What was the significance of the certificate of sale in this case?	The certificate of sale had not yet been registered with the Registry of Deeds when First Sarmiento filed its complaint, meaning First Sarmiento still enjoyed ownership and possession over the foreclosed property. This bolstered the claim it was not seeking to recover property.
How did the Supreme Court’s decision impact the Home Guaranty v. R-II Builders case?	The Supreme Court reaffirmed that subject matter jurisdiction is determined by the principal relief sought in the complaint and the contrary rule espoused in Home Guaranty is thereby set aside.

The Supreme Court’s decision underscores the importance of carefully evaluating the nature of the relief sought in actions involving property rights and contractual obligations. By emphasizing the primacy of the principal action, the Court ensures that jurisdictional assessments are grounded in the actual claims presented, rather than speculative interpretations of underlying motives. This approach promotes fairness, efficiency, and adherence to established legal principles in the resolution of disputes.

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: First Sarmiento Property Holdings, Inc. vs. Philippine Bank of Communications, G.R. No. 202836, June 19, 2018