CIVIL PROCEDURE CASES Pleadings (Rule 6)
G.R. No. L-26768 October 30, 1970
FAUSTINO GOJO, petitioner-appellant, vs. SEGUNDO GOYALA and ANTONINA
ALMOGUERA, respondents-appellees
Appeal from the favorable decision of the Court of First Instance of Sorsogon on the
counterclaim of respondents (herein appellees) in its Civil Case No. 1657-84 the
complaint (petition) of therein petitioner (herein appellant) having beet previously
dismissed, without prejudice, for his failure to submit an amended complaint as required
of him in the court a quo's earlier order.
The record shows that on 26 May 1951, appellee Segundo, Goyala together with his now
deceased wife Antonina Almoguera, who was also named respondent or defendant in the
complaint or petition in the court below, sold to appellant by a "Deed of Pacto de
Retro Sale" a certain parcel of agricultural land having an area of approximately two and
one-half hectares for P750.00, the repurchase to be made, according to the deed, within
one year. It also appears from said deed that on July 4, 1951, the vendee paid another
P100.00 as addition to the purchase price. About ten (10) years after the execution of the
said document, or on April 12, 1961, to be precise, the vendee filed with the Court of First
Instance of Sorsogon the present case against the vendors by way of a petition for
consolidation of ownership of the land described and involved in the "Deed of Pacto de
Retro Sale." In his petition, the vendee, herein appellant, alleged, inter alia, that the date
for repurchase, May 26, 1952, having expired and the vendors not having been able to
repurchase the same under the terms and conditions of the agreement, the ownership
over the land involved had become consolidated in him; and that for the purpose of
recording in the Registry of Property the said consolidation of ownership, it was
necessary that a judicial order be issued to that effect and accordingly prayed for such
an order.
On May 26, 1961, appellee Segundo Goyala filed an opposition or answer to the petition.
He therein alleged that his wife Antonina Almoguera had died in the year 1959 and
denied the allegation in the petition regarding the pacto de retro sale, "the fact of the
matter being," according to him, "that on May 26, 1951, the respondents obtained a cash
load of P750.00 from the petitioner payable in one year without interest; that only on July
26, 1951, Dolores Goyala, daughter of the respondents, obtained from the petitioner the
sum of P50.00 to be added and credited to the account of the respondents; and then on
August 25, 1951, the said Dolores Goyala received from the petitioner another amount of
P10.00 to be added to and credited to the account of the respondents, (so that) the total
loan of the respondents from the petitioner aggregates P810.00 Philippine Currency" and
that to guarantee the payment of the said loan, the respondents executed a mortgage in
favor of the petitioner on a parcel of coconut land described in Annex A of the petition,
hence, altho the deed was executed or drawn in the form of a pacto de retro sale, the
true and real intention of the parties thereto was that the same was a mere mortgage to
secure the payment of the original loan of P750.00 together with the additional amount
received thereafter, making a total loan of P810.00, payable within, one year without
interest. He further alleged that in the evening of May 26, 1952, he and his wife went to
the house of the petitioner and tendered to him the sum of P810.00 to pay the debt, but
said petitioner refused to receive the same and to cancel the document of mortgage,
Annex A. The said appellee also reiterated by way of counterclaim the foregoing
allegations of his answer and prayed thus:.
WHEREFORE, the respondent Segundo Goyala respectfully prays this
Honorable Court to dismiss the petition and render judgment in favor of the
respondents as follows:.
(a) Ordering the petitioner to receive the sum of P810.00 tendered or
deposited by the respondents in full settlement of their debts to him;
(b) Declaring the document marked Annex A of the petition to be
mortgage and not a pacto de retro sale, and ordering the same cancelled
and with no more force and effect;
(c) Ordering the petitioner to pay the respondents the sum of P1,800.00
per annum beginning May 26, 1951 until the final termination of this case
as the reasonable monetary value of the products for the said property,
and from this amount, there should be deducted however, the
corresponding legal interest annually on said loans; and
(d) In case, however, of the remote possibility that this Court should find
the said instrument (Annex A) to be a true pacto de retro sale, and not a
mere mortgage, it is hereby prayed that the petitioner be ordered to
execute a deed of resale or repurchase of said property in favor of the
respondents in accordance with Art. 1606 third paragraph of the Civil
Code."
On December 1, 1962, counsel for respondent Goyala filed a manifestation informing the
trial court that the named defendant (respondent) Antonina Almoguera was already dead,
she having died at Labo, Camarines Norte on March 27, 1959, and that her surviving
nearest kin are her children, namely: Leonor, Pedro, Juliana, Dolores, Valentina,
Soledad, Penya, Mamerta, Salvador, Genesa, Felipe, Elegio all surnamed Goyala
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with residences at Bulan, Sorsogon. Hearing was had on that manifestation, after which
the trial court, under date of December 4, 1962, issued the following order:.
As prayed for in the manifestation of Atty. Agustin Frivaldo counsel for the
defendant, dated December 1, 1962, on the ground stated therein, the counsel
for the plaintiff is hereby required to submit an amended Complaint substituting
therein for one of the defendants, Antonina Almoguera, now deceased her
successors in interest as party defendants, within the reglementary period.
Subsequently, on January 26, 1963, appellee Goyala filed a motion to dismiss the
complaint or petition on the ground that notwithstanding the lapse of 43 days after
appellant's receipt of a copy of the above-quoted order of the trial court, said appellant
had failed and neglected to submit the amended complaint required of him. The motion
was opposed by appellant; and the trial court, resolving the incident, issued the following
order on February 15, 1963:.
The matter under consideration is the motion to dismiss filed by the defendants
on the ground that the plaintiff has failed and neglected to submit the amended
complaint as required in the order of this Court dated December 4, 1962, which
the plaintiff has received on December 18, 1962. From December 13, 1962 when
the motion to dismiss was filed, 43 days have elapsed. On February 6, 1963
when the plaintiff has again failed to file together with said opposition the
required amended complaint, and although plaintiff has requested for a
reasonable extension of time within which to file the said pleading, it is regretable
to state that up to the present has neglected to do so.
WHEREFORE, the complaint is hereby dismissed without prejudice.
Thereafter, on July 10, 1963, appellee filed a motion to declare appellant in default in
respect of said appellee's counterclaim, contained in his answer (opposition) to the
dismissed complaint petition) of appellant. This motion was granted by the trial court in
its order of July 11, 1963, to wit:.
Upon petition of the counsel for the defendant Segundo Goyala to declare the
plaintiff in default on the ground of failure on the part of the plaintiff to answer the
counterclaim filed by said defendant Segundo Goyala within the reglementary
period, despite the fact that the plaintiff's counsel was duly served with a copy
thereof, and the plaintiff's complaint was already dismissed by this Court in its
order of February 15, 1963 on the ground of neglect to submit the amended
complaint as required in the Court order of December 4, 1962, the plaintiff is
CIVIL PROCEDURE CASES Pleadings (Rule 6)
hereby declared in default on the counterclaim filed by said defendant Segundo
Goyala.
Let the defendant Segundo Goyala submit his evidence before the Clerk of
Court, who is hereby commissioned to receive the same.
As directed in the order above-quoted, the Clerk of Court received the evidence of
appellee in respect of his counterclaim and, thereafter, on November 15, 1963 the trial
court rendered favorable judgment on appellee's counterclaim. The pertinent portions of
the decision referred to read thus:.
It appears that on May 26, 1951, respondents obtained a loan of P750.00 from
the petitioner. To secure the loan, respondents executed a document, which was
made a Deed of Pacto de Retro Sale (Exh. "A"), on suggestion of petitioner to
exempt himself from liabilities under the Usury Law. Dolores Goyala, one of the
daughters of respondents, obtained an additional loan of P50.00 on July 26,
1951, (Exh. "A-1") and another P10.00 on August 19, 1951, (Exh. "A-3") from the
petitioner which amounts were duly authorized and acknowledged by respondent
Segundo Goyala. In the late afternoon of May 26, 1952, the last day to redeem
the property, Segundo Goyala, tendered the amount of P810.00 to herein
petitioner in complete payment of the loan and to release the property securing
the said loan, but was refused because it was already night time, and was
advised instead to return the following day. When Segundo Goyala returned the
following day to redeem the property he was told by petitioner that the period to
redeem has already expired. Segundo Goyala testified further that he tried no
less than three times to redeem the property but each time petitioner refused the
redemption money.
It appears further that the petitioner is in possession of the land since May 26,
1951, after the execution of Exhibit "A" up to the present time and had
appropriated to himself the products during the period. It is shown further that the
land is a productive coconut land and has a fair market value of P5,000.00 with
an annual yield of P1,800.00.
The respondents are not however entitled to be reimbursed of the value of the
products obtained by the petitioner who acted in the belief that the agreement
was a Pacto de Retro Sale which turned out to be otherwise as the Court now so
declares.
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WHEREFORE, in view of the foregoing the Court hereby declares the Deed of
Pacto de Retro Sale (Exh. "A") an equitable mortgage and respondents Segundo
Goyala and the heirs of Antonina Almoguera are allowed to redeem the property;
orders Faustino Gojo to withdraw the amount of P810.00 deposited with the
Clerk of Court in full settlement of the loan, and hereby cancels and declares
without force and effect the aforementioned Deed of Pacto de Retro Sale
executed by the spouses Segundo Goyala and Antonina Almoguera in favor of
Faustino Gojo. Without costs.
The above-quoted decision was subsequently amended in an order of December 19,
1963, as follows:.
It appearing that in the dispositive part of the decision there was no directive to
restore the possession to the defendants upon execution, the dispositive portion
of the said decision is hereby amended to include therein an additional directive
ordering the plaintiff to deliver and restore the possession of the land in question
to the defendants.
Dissatisfied with the decision referred to, appellant appealed to the Court of Appeals
which upon its finding that the said appeal involves purely questions of law, certified the
same to this Court for resolution.
In his brief, appellant assigns the following errors allegedly committed by the trial court:.
1. THE LOWER COURT ERRED IN DECLARING PLAINTIFF IN DEFAULT
WITH RESPECT TO DEFENDANT'S COUNTERCLAIM;
2. THE LOWER COURT ERRED IN DEPUTIZING OR COMMISSIONING THE
CLERK OF COURT TO RECEIVE THE EVIDENCE OF THE DEFENDANT
SEGUNDO GOYALA;
3. THE LOWER COURT ERRED IN RENDERING JUDGMENT IN FAVOR OF
THE RESPONDENT SEGUNDO GOYALA AND THE HEIRS OF ANTONINA
ALMOGUERA ALLOWING THEM TO REDEEM THE LAND IN QUESTION
FROM THE PETITIONER FAUSTINO GOJO FOR THE SUM OF P810.00.
The thrust of appellant's argument in respect of the first assignment of error is to the
effect that there is no occasion for the trial court to declare him in default in respect of
appellee's counterclaim in this case, for the reasons that: (a) the said counterclaim "falls
within the category of compulsory counterclaim" which does not call for an independent
CIVIL PROCEDURE CASES Pleadings (Rule 6)
answer as the complaint already denies its material allegations; and (b) the dismissal of
the complaint in this case without prejudice carried with it the dismissal of the said
counterclaim.
The first assignment of error of appellant is well taken. It is now settled that a plaintiff
who fails or chooses not to answer a compulsory counterclaim may not be declared in
default, principally because the issues raised in the counterclaim are deemed
automatically joined by the allegations of the complaint. 1 In the instant case, there can be
no doubt that appellant's counterclaim was a compulsory one in as much as it arises out of or
is necessarily connected with transaction or occurrence that is the subject matter of the
complaint; the complaint alleged that the right of appellee to repurchase the property in
question had already expired and asked for an order of consolidation; on the other hand,
appellant's counterclaim was for reformation of the deed claiming that it was only a mortgage.
Thus the counterclaim was clearly inconsistent with and directly controverted; the whole
theory and basic allegations of the complaint. In consequence, appellant's complaint stood as
the answer to appellee's counterclaim; hence, the incorrectness of the trial court's order
declaring the appellant in default in regard to said counterclaim is evident.
Regarding the dismissal of petitioner's complaint, We hold also, that the trial court
committed reversible error in ordering the same. It is true that under Section 3 of Rule
17, a complaint may be dismissed for failure to prosecute if the plaintiff fails to comply
with an order of the court, but it is obvious that the said provision cannot apply when the
order supposedly ignored is a void one, as in this case. Here, the trial court ordered
petitioner to amend the complaint only because it was informed that one of the
defendants had died, the court directing that the plaintiff should name the heirs of the
deceased as defendants in lieu of said deceased. Such an order runs counter to the
ruling of this Court in Caseas vs. Resales, et al. 2 which is squarely applicable to the Situation herein
obtaining. In that case, We held:.
When certain of the parties to Civil Case No. 261 died and due notice thereof
was given to the trial court, it devolved on the said court to order, not the
amendment of the complaint, but the appearance of the legal representatives of
the deceased in accordance with the procedure and manner outlined in Rule 3,
Section 17 of the Rules of Court, which provide:.
"SECTION 17. Death of party. After a party dies and the claim
is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to
be substituted for the deceased, within a period of thirty (30)
days, or within such time as may be granted. If the legal
representative fails to appear within said time, the court may
3
 CIVIL PROCEDURE CASES Pleadings (Rule 6)
order the opposing party to procure the appointment of a legal providing that: "If a counterclaim has been pleaded by a defendant prior to the service
representative of the deceased within a time to be specified by upon him of the plaintiff's motion to dismiss, the action shall not be dismissed against the
the court, and the representative shall immediately appear for and defendant's objection unless the counterclaim can remain pending for independent
on behalf of the interest of the deceased. The court charges adjudication by the court." With this limitation, the power of the court to dismiss the
involved in procuring such appointment, if defrayed by the complaint upon motion of plaintiff, which is usually without prejudice, is not purely
opposing party, may be recovered as costs. The heirs of the discretionary.3 The purpose is to avoid multiplicity of suits over the same matter which would
deceased may be allowed to be substituted for the deceased, necessarily entail unnecessary expense and, what is worse, possibility of conflict and
without requiring the appointment of an executor or administrator inconsistency in the resolution of the same questions. The same considerations would obtain,
and the court may appoint guardian ad litem for the minor heirs." if the defendant were the one to ask for dismissal. The best interests of justice require that
conflicting claims regarding the same matter should be decided in one single proceeding.
In the case of Barrameda vs. Barbara, 90 Phil. 718, this Court held that an order Dismissing the complaint without prejudice, as the trial court has done in this case, albeit
to amend the complaint, before the proper substitution of parties as directed by upon motion of the defendant, will not prevent the undesirable multiplication of suits and
reventilation of the same issues in the subsequent action that may be filed by virtue of the
the aforequoted rule has been effected, is void and imposes upon the plaintiff no
reservation made in the disputed order of dismissal.
duty to comply therewith to the end that an order dismissing the said complaint,
for such non-compliance, would similarly be void. In a subsequent case, Ferriera,
et al. vs. Gonzales, et al., G.R. No. L-11567, July 17, 1958, this Court affirmed a Having arrived at the foregoing conclusions, it becomes unnecessary to discuss the
similar conclusion on the determination that the continuance of a proceedings other two assigned errors.
during the pendency of which a party thereto dies, without such party having
been validly substituted in accordance with the rules, amounts to a "lack of WHEREFORE, the decision appealed from is set aside and this case is remanded to the
jurisdiction". court below for further proceedings in consonance with the above opinion, with costs
against appellee.
The facts of this case fit four square into the Barrameda case above-cited, save
for the minor variance that in the former two of the litigants died while only one
predeceased the case in Barrameda. Here, as in Barrameda, during the
pendency of (the) civil case, notice was given to the trial court of the deaths of
one of the plaintiffs and one of the defendants in it. Instead of ordering the
substitution of the deceased's legal representatives in accordance with Rule 3,
Sec. 17 of the Rules of Court, the trial court directed the surviving plaintiff to
amend the complaint and when the latter failed to comply therewith, the said
court dismissed the complaint for such non-compliance. We must hold, therefore,
as We did in Barrameda that inasmuch as there was no obligation on the part of
the plaintiff-appellant herein to amend his complaint in Civil Case No. 261, any
such imposition being void, his failure to comply with such an order did not justify
the dismissal of his complaint. Grounded as it was upon a void order, the
dismissal was itself void." (To the same effect, see World Wide Insurance &
Surety Co. v. Jose, etc., et al., 96 Phil. 45, 50).

Besides, in line with the principle underlying Sec. 2 of Rule 17, it is not proper to dismiss
a complaint when a compulsory counterclaim has been pleaded by defendant. The
reason is obvious. Under the cited provision, the right of the plaintiff to move for the
dismissal of an action after the defendant has filed his answer is qualified by the clause
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G.R. No. L-21766 September 30, 1966
FELICISIMA BALLECER and JOSE S. AGAWIN, petitioners, vs. JOSE BERNARDO,
The Hon. JESUS P. MORFE, Presiding Judge, Branch XIII of the Court of First
Instance of Manila, and the Sheriff of Manila, respondents.
This is an original action to set aside several orders of the Court of First Instance of
Manila, in Civil Case No. 43073 thereof, as well as an alias writ of execution and a notice
of sale issued in connection therewith. Upon the filing of the petition and the submission
and approval of a bond in the sum of P1,000.00, on motion of petitioners herein, we
issued a writ of preliminary injunction enjoining respondent Judge and the Sheriff of
Manila from carrying out the aforementioned writ of execution.
CIVIL PROCEDURE CASES Pleadings (Rule 6)
WHEREFORE, the Court hereby renders judgment on the counterclaim in favor
of the defendant-counterclaimant and against the plaintiffs, as follows:
1. Ordering the plaintiffs and/or their agents and representatives including all
persons claiming under them to deliver and restore the possession thereof to the
defendant, that portion of said defendant's property consisting of 3.7 square
meters which is being encroached upon and occupied by or in possession of the
plaintiffs;
2. Ordering plaintiffs to pay, jointly and severally, the defendant the following
sums, to wit:

Petitioners herein are the spouses Jose S. Agawin and Felicisima Ballecer. On May 4, (a) P3,625.00 as compensatory damages which the defendant failed to
1960, they instituted, said Civil Case No. 43073 against respondent Jose Bernardo, to realize in the form of rentals from that portion of his property subject
recover damages allegedly caused by him in consequence of the destruction and matter of the counterclaim, corresponding to the period from May, 1948 to
demolition of a portion of a wall of the petitioners, along the common boundary line of May, 1960, with interest thereon at the legal rate from the date of filing of
their lot and that of Bernardo, at Felix Huertas Street, Manila, as well as to recover the answer with counterclaim until fully paid; plus the sum of P25.00 for
possession of a portion of petitioners' aforementioned lot, with an area of 0.80 square each month thereafter until the premises in question are actually
meters, which was allegedly encroached upon by the wall subsequently erected by delivered to the possession and occupation of the defendant;
Bernardo in place of the one he had destroyed.
(b) P541.00 as actual damages incurred by the defendant;
In due course, Bernardo filed his answer denying petitioners' averments, and alleging, in
turn, that the demolition and destruction made by him had taken place within the (c) P10,000.00 as moral damages;
boundary of his own property. By way of counterclaim, Bernardo set up two (2) causes of
action, namely: (1) that petitioners were the parties who had encroached upon and (d) P2,000.00 as exemplary damages; and
occupied a portion of Bernardo's property, with an area of about 3.70 square meters,
without his consent and against his will, and (2) that petitioners' complaint is premature, (e) P1,000.00 as attorney's fees.
uncalled for, capricious and without any justifiable cause, for which reason Bernardo
prayed that they be sentenced to vacate his aforementioned portion of land allegedly
With costs against the plaintiffs.
encroached upon by them and to turn it over to him, and to pay damages aggregating
P48,000.00.
On June 28, petitioners moved for a reconsideration of the orders of June 11 and 13, but
the motion was denied on July 1. Thereupon, petitioners filed a petition for relief from
On the last day of the reglementary period to answer the counterclaim, or on June 6,
judgment, with a prayer for a writ of preliminary injunction, to restrain the Clerk of Court
1960, petitioners filed ex parte urgent motion for extension of time therefor, but on June
from issuing a writ of execution. After denying this petition, the Court, on petitioner's
11 the motion was denied and ordered stricken off the record. Then, on June 13, the
motion for reconsideration, granted it on January 18, 1961, only to deny it once more, on
court declared petitioners in default as to the counterclaim and ordered Bernardo to
February 4, on motion for reconsideration filed by Bernardo. Forthwith, or on February 8,
present his evidence thereon before the Deputy Clerk of Court on June 15, at 9: 00 a.m.,
petitioners filed their notice of appeal. Soon thereafter, petitioners sought an extension of
which Bernardo did. On June 20, the court rendered a decision the dispositive part of
time to file their appeal bond and their record on appeal, but the motion was denied, on
which reads:
February 18, for lack of merit. On March 18, the Court ordered the issuance of a writ of

5

execution, but, on April 11, the execution of the decision of June 20, 1960, was ordered
stayed pending trial on the merits on petitioners' complaint.
On motion of Bernardo, dated December 19, 1962, said order was, on January 29, 1963,
set aside and the issuance of a writ of execution "only as to paragraph No. 1 and
paragraph No. 2-a of the dispositive part" of the aforementioned decision, was ordered. A
reconsideration of this order having been denied, the Clerk of Court issued an alias writ
of execution and, in pursuance thereof, the Sheriff of Manila caused to be published a
notice of sale at public auction of a property of petitioners herein. Hence, the present
case against Bernardo, the Judge of the lower court and the Sheriff of Manila.
The main question for determination in this case is whether the lower court has gravely
abused its discretion in declaring the petitioners in default and in rendering judgment
against them on Bernardo's counterclaim after an ex parte hearing. It is obvious that the
answer must be in the affirmative. 1awphl.nt
To begin with, a motion for extension of time to file an answer to the counterclaim had
been filed within the reglementary period and plausible reasons were given in support
thereof: counsel for petitioners had been unable to contact them owing to a typhoon that
had just hit Manila, and the flood and inclement weather that had followed.
The main reason for the lower court's adverse action thereon would seem to be
petitioners' failure to set it for hearing as provided in the Rules of Court. But, there are
motions that may be heard and granted ex parte, and petitioners' aforementioned motion
belongs to such class. Thus in Moya v. Barton (76 Phil. 831, 833) it was held:
With respect to the other ground, Section 2 of Rule 27 provides that "every
motion other than one which may be heard ex-parte . . . . shall be filed with the
Court, and served upon the parties affected thereby." Taking into consideration
that the extension of time applied for may be shorter than the time required to
have a motion set for hearing and acted on by the court, and that the court has,
as above stated, discretion to grant the petition, the motion for extension filed in
the present case may be considered as one which may be heard ex-parte. . . . .."
What is more, Bernardo's counterclaim was predicated upon allegations of fact which are
inconsistent with, and, hence, controverted by, the allegations in petitioners' complaint. In
this connection, it should be noted that Bernardo had, according to the complaint,
encroached upon petitioners' property, whereas Bernardo maintained the exact opposite
in his counterclaim not only that petitioners' allegation was not true, but, also, that they
were the ones encroaching upon the property of Bernardo. Certainly, this contention, of
CIVIL PROCEDURE CASES Pleadings (Rule 6)
Bernardo can not be decided without passing upon the truth of the allegations in the
complaint, which petitioners are entitled to prove, whether they had answered Bernardo's
counterclaim or not. In other words, the issues raised in the counterclaim were
inseparable from those posed in the complaint, and so it was not absolutely necessary
for the petitioners to file an answer to the counterclaim (Arejola vs. Cayetano, L-6673,
Sept. 8, 1954; Rosario vs. Martinez, L-4473, Sept. 30, 1952). In the language of Mr.
Justice Reyes (J.B.L.), speaking for the Court in Navarro v. Bello (54 O.G. 6588):
There was no need for petitioners to answer respondents' counterclaim,
considering that plaintiffs, in their complaint, claimed not only ownership of, but
also the right to possess, the parcels in question, alleging that sometime in May,
1954, defendants, through force and intimidation, wrested possession thereof
from their tenants, and that it was upon a writ of possession issued by the Court
of First Instance of Pangasinan that they were placed back in possession by the
provincial sheriff. These averments were denied by defendants in their answer,
wherein they asserted ownership in themselves and illegal deprivation of their
possession by plaintiffs, and as counterclaim, prayed for damages allegedly
suffered because of plaintiffs' alleged usurpation of the premises.
It thus appears that the issues of the counterclaim are the very issues raised in
the complaint and in the answer, and said counterclaim is based on the very
defenses pleaded in the answer. To answer such counterclaim would require
plaintiffs to replead the same facts already alleged in their complaint. 1awphl.nt
But in any event, whether or not plaintiffs have answered defendants'
counterclaim, they have the right to prove the averments of their complaint,
including their claim that it was by court order that they secured possession of
the parcels in question from defendants. And if plaintiffs are able to prove such
allegations, then the court must dismiss defendants' counterclaim for damages,
since the illegal usurpation of defendants' possession allegedly committed by
plaintiffs, which is the basis of the counterclaim, would not have been proved. In
short, the issues of the counterclaim are so inseparable from those of the
complaint and the answer that such counterclaim partakes of the nature of a
special defense which, even if not specifically challenged by plaintiffs in a reply, is
deemed controverted (Rule 11, Sec. 1, Rules of Court; Rosario v. J. Martinez, L-
4473, September 30, 1952; Lama v. Apacible, 79 Phil. 68). There was, therefore,
no occasion for plaintiffs' default on defendants' counterclaim, and the order of
the court below declaring them in default, as well as the judgment by default, is
improper and void.
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The lower court committed, therefore, a grave abuse of discretion, amounting to excess
of jurisdiction, in declaring the petitioners in default as regards the counterclaim, and in
rendering a decision in default against them on said counterclaim, and, as a
consequence, said decision is null and void, and so are the aforementioned writ of
execution, alias writ of execution, and notice of sale issued by the Sheriff in pursuance
thereof.
WHEREFORE, the orders complained of, as well as said writ of execution and alias writ
of execution, and the notice of sale adverted to above, including the decision of June 20,
1960, are hereby annulled and set aside, and the writ of preliminary injunction heretofore
issued by this Court is, accordingly, made permanent, with costs against herein
respondent Jose Bernardo. It is so ordered.
G.R. No. 107356 March 31, 1995
SINGAPORE AIRLINES LIMITED, petitioner, vs. THE COURT OF APPEALS and
PHILIPPINE AIRLINES, respondents.
Sancho Rayos was an overseas contract worker who had a renewed contract with the
Arabian American Oil Company (Aramco) for the period covering April 16, 1980, to April
15, 1981. As part of Aramco's policy, its employees returning to Dhahran, Saudi Arabia
from Manila are allowed to claim reimbursement for amounts paid for excess baggage of
up to 50 kilograms, as long as it is properly supported by receipt. On April 1980, Rayos
took a Singapore Airlines (SIA) flight to report for his new assignment, with a 50-kilogram
excess baggage for which he paid P4,147.50. Aramco reimbursed said. amount upon
presentation of the excess baggage ticket.
In December 1980, Rayos learned that he was one of several employees being
investigated by Aramco for fraudulent claims. He immediately asked his wife Beatriz in
Manila to seek a written confirmation from SIA that he indeed paid for an excess
baggage of 50 kilograms. On December 10, 1980, SIA's manager, Johnny Khoo, notified
Beatriz of their inability to issue the certification requested because their records showed
that only three kilograms were entered as excess and accordingly charged. SIA issued
the certification requested by the spouses Rayos only on April 8, 1981, after its
investigation of the anomaly and after Beatriz, assisted by a lawyer, threatened it with a
lawsuit. On April 14, 1981, Aramco gave Rayos his travel documents without a return
visa. His employment contract was not renewed.
On August 5, 1981, the spouses Rayos, convinced that SIA was responsible for the non-
renewal of Rayos' employment contract with Aramco, sued it for damages. SIA claimed
CIVIL PROCEDURE CASES Pleadings (Rule 6)
that it was not liable to the Rayoses because the tampering was committed by its
handling agent, Philippine Airlines (PAL). It then filed a third-party complaint against PAL.
PAL, in turn, countered that its personnel did not collect any charges for excess
baggage; that it had no participation in the tampering of any excess baggage ticket; and
that if any tampering was made, it was done by SIA's personnel.
Judge Jesus O. Ibay of the Regional Trial Court of Manila, Branch 30, rendered judgment
on September 9, 1988, in favor of the plaintiffs, the dispositive portion of which reads
thus:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against
the defendant Singapore Airlines Limited, sentencing the latter to pay the former
the following:
1. The sum of Four Hundred Thirty Thousand Nine Hundred Pesos and Eighty
Centavos (P430,900.80) as actual damages, with interest at the legal rate from
the date of the filing of the complaint until fully paid.
2. The sum of Four Thousand One Hundred Forty-Seven Pesos and Fifty
Centavos (P4,147.50) as reimbursement for the amount deducted from Mr.
Rayos' salary, also with legal rate of interest from the filing of the complaint until
paid in full;
3. The sum of Fifty Thousand Pesos (P50,000.00) as moral damages;
4. The sum equivalent to ten Per Cent (10th) of the total amount due as and for
attorney's fees; and
5. The cost of suit.
The defendant's counterclaim is hereby dismissed.
ON THE THIRD PARTY COMPLAINT, the third-party defendant PAL is ordered to
pay defendant and third-party plaintiff SIA whatever the latter has paid the
plaintiffs. SO ORDERED.
In so ruling, the court a quo concluded that the excess baggage ticket of Rayos was
tampered with by the employees of PAL and that the fraud was the direct and proximate
cause of the non-renewal of Rayos' contract with Aramco.
7

All parties appealed to the Court of Appeals. SIA's appeal was dismissed for non-
payment of docket fees, which dismissal was eventually sustained by this Court. The
Rayos spouses withdrew their appeal when SIA satisfied the judgment totaling
P802,435.34.
In its appeal, PAL claimed that the spouses Rayos had no valid claim against SIA
because it was the inefficiency of Rayos which led to the non-renewal of his contract with
Aramco, and not the alleged tampering of his excess bagged ticket On the other hand,
SIA argued that the only issue in the said appeal is whether or not it was entitled to
reimbursement from PAL, citing
the case of Firestone Tire and Rubber Company of the Philippines v. Tempongko. 1 defendant whatever amount said defendant is ordered to pay plaintiff in the case.
The appellate court disagreed with SIA's contention that PAL could no longer raise the
issue of SIA's liability to the Rayoses and opined "that SIA's answer to the complaint
should inure to the benefit of PAL, and the latter may challenge the lower court's findings
against SIA in favor of plaintiffs-appellees (the Rayos spouses) for the purpose of
defeating SIA's claim against it, and not for the purpose of altering in any way the
executed judgment against SIA." In its answer to the main complaint, SIA set up the
defense that the excess baggage ticket was indeed tampered with but it was committed
by PAL's personnel. On September 21, 1992, the appellate court granted PAL's appeal
and absolved it from any liability to SIA.
In this petition for review, SIA argues that PAL cannot validly assail for the first time on
appeal the trial court's decision sustaining the validity of plaintiff's complaint against SIA if
PAL did not raise this issue in the lower court. It added that the appellate court should
have restricted its ruling on the right of SIA to seek reimbursement from PAL, as this was
the only issue raised by SIA in its third-party complaint against PAL.
The instant appeal is impressed with merit.
The petitioner correctly pointed out that the case of Firestone squarely applies to the
case at bench. In said case, the Court expounded on the nature of a third-party
complaint and the effect of a judgment in favor of the plaintiff against the defendant and
in favor of such defendant as third-party plaintiff against, ultimately, the third-party
defendant. Speaking through then Justice and later Chief Justice Claudio Teehankee, the
Court stated:
The third-party complaint is, therefore, a procedural device whereby a "third
party" who is neither a party nor privy to the act or deed complained of by the
plaintiff, may be brought into the case with leave of court, by the defendant, who
CIVIL PROCEDURE CASES Pleadings (Rule 6)
acts as third-party plaintiff to enforce against such third-party defendant a right
for contribution, indemnity, subrogation or any other relief, in respect of the
plaintiff's claim. The third-party complaint is actually independent of and separate
and distinct from the plaintiff's complaint. . . . When leave to file the third-party
complaint is properly granted, the Court renders in effect two judgments in the
same case, one on the plaintiff's complaint and the other on the third-party
complaint. When he finds favorably on both complaints, as in this case, he
renders judgment on the principal complaint in favor of plaintiff against defendant
and renders another judgment on the third-party complaint in favor of defendant
as third-party plaintiff, ordering the third-party defendant to reimburse the
Failure of any of said parties in such a case to appeal the judgment as against
him makes such judgment final and executory. By the same token, an appeal by
one party from such judgment does not inure to the benefit of the other party who
has not appealed nor can it be deemed to be an appeal of such other party from
the judgment against him.
It must be noted that in the proceedings below, PAL disclaimed any liability to the
Rayoses and imputed the alleged tampering to SIA's personnel. On appeal, however,
PAL changed its theory and averred that the spouses Rayos had no valid claim against
SIA on the around that the non-renewal of Sancho's contract with Aramco was his
unsatisfactory performance rather than the alleged tampering of his excess baggage
ticket. In response to PAL's appeal, SIA argued that it was improper for PAL to question
SIA's liability to the plaintiff, since this was no longer an issue on account of the finality
and, in fact, satisfaction of the judgment.
Surprisingly, the appellate court ignored the Court's pronouncements in Firestone and
declared:
[T]here is nothing in the citation which would suggest that the appellant cannot
avail of the defenses which would have been available to the non-appealing party
against the prevailing party which would be beneficial to the appellant. After all,
PAL's liability here is premised on the liability of SIA to plaintiffs-appellees, In its
own defense, it should have the right to avail of defenses of SIA against plaintiffs-
appellees which would redound to its benefit. This is especially true here where
SIA lost the capability to defend itself on the technicality of failure to pay docket
fee, rather than on the merits of its appeal. To hold otherwise would be to open
the door to a possible collusion between the plaintiff and defendant which would
leave the third-party defendant holding the bag.
8

There is no question that a third-party defendant is allowed to set up in his answer the
defenses which the third-party plaintiff (original defendant) has or may have to the
plaintiff's claim. There are, however, special circumstances present in this case which
preclude third-party defendant PAL from benefiting from the said principle.
One of the defenses available to SIA was that the plaintiffs had no cause of action, that
is, it had no valid claim against SIA. SIA investigated the matter and discovered that
tampering was, indeed, committed, not by its personnel but by PAL's. This became its
defense as well as its main cause of action in the third-party complaint it filed against
PAL. For its part, PAL could have used the defense that the plaintiffs had no valid claim
against it or against SIA. This could be done indirectly by adopting such a defense in its
answer to the third-party complaint if only SIA had raised the same in its answer to the
main complaint, or directly by so stating in unequivocal terms in its answer to SIA's
complaint that SIA and PAL were both blameless. Yet, PAL opted to deny any liability
which it imputed to SIA's personnel. It was only on appeal in a complete turn around
of theory that PAL raised the issue of no valid claim by the plaintiff against SIA. This
simply cannot be allowed.
While the third-party defendant; would benefit from a victory by the third-party plaintiff
against the plaintiff, this is true only when the third-party plaintiff and third-party
defendant have non-contradictory defenses. Here, the defendant and third-party
defendant had no common defense against the plaintiffs' complaint, and they were even
blaming each other for the fiasco.
Fear of collusion between the third-party plaintiff and the plaintiffs aired by the appellate
court is misplaced if not totally unfounded. The stand of SIA as against the plaintiffs'
claim was transparent from the beginning. PAL was aware of SIA's defense, and if it was
convinced that SIA should have raised the defense of no valid claim by the plaintiffs, it
should have so stated in its answer as one of its defenses, instead of waiting for an
adverse judgment and raising it for the first time on appeal.
The judgment, therefore, as far as the Rayoses and SIA are concerned, has already
gained finality. What remains to be resolved, as correctly pointed out by petitioner, is
whether it is entitled to reimbursement from PAL, considering that PAL appealed that part
of the decision to the appellate court. This is where the rule laid down
in Firestone becomes applicable.
The trial court's decision, although adverse to SIA as defendant, made PAL ultimately
answerable for the judgment by ordering the latter to reimburse the former for the entire
monetary award. On appeal, PAL tried to exonerate itself by arguing that the Rayoses
CIVIL PROCEDURE CASES Pleadings (Rule 6)
had no valid claim against SIA. From PAL's viewpoint, this seemed to be the only way to
extricate itself from a mess which the court a quo ascribed to it. This cannot, however, be
allowed because it was neither raised by SIA in its answer to the main complaint nor by
PAL in its answer to the third-party complaint. The prudent thing that PAL should have
done was to state in its answer to the third-party complaint filed by SIA against it
everything that it may conceivably interpose by way of its defense, including specific
denials of allegations in the main complaint which implicated it along with SIA.
The appellate court was in error when it opined that SIA's answer inured to the benefit of
PAL for the simple reason that the complaint and the third-party complaint are actually
two separate cases involving the same set of facts which is allowed by the court to be
resolved in a single proceeding only to avoid a multiplicity of actions. Such a proceeding
obviates the need of trying two cases, receiving the same or similar evidence for both,
and enforcing separate judgments therefor. This situation is not, as claimed by the
appellate court, analogous to a case where there are several defendants against whom a
complaint is filed stating a common cause of action, where the answer of some of the
defendants inures to the benefit of those who did not file an answer. While such a
complaint speaks of a single suit, a third-party complaint involves an action separate and
distinct from, although related to the main complaint. A third-party defendant who feels
aggrieved by some allegations in the main complaint should, aside from answering the
third-party complaint, also answer the main complaint.
We do not, however, agree with the petitioner that PAL is solely liable for the satisfaction
of the judgment. While the trial court found, and this has not been adequately rebutted by
PAL, that the proximate cause of the non-renewal of Rayos' employment contract with
Aramco was the tampering of his excess baggage ticket by PAL's personnel, it failed to
consider that the immediate cause of such non-renewal was SIA's delayed transmittal of
the certification needed by Rayos to prove his innocence to his employer.
SIA was informed of the anomaly in December 1980 but only issued the certification four
months later or, more specifically, on April 8, 1981, a few days before the expiration of
Rayos' contract. Surely, the investigation conducted by SIA could not have lasted for four
months as the information needed by the Rayoses could easily be verified by comparing
the duplicate excess baggage tickets which they and their handling agent, PAL, kept the
record purposes. The fact that the Rayos spouses had to be assisted by counsel who
threatened to file a damage suit against SIA if the certification they urgently needed was
not immediately issued only strengthens the suspicion that SIA was not dealing with
them in utmost good faith. The effect of SIA's mishandling of Beatriz Rayos' request
became instantly apparent when her husband's contract was not renewed in spite of his
performance which was constantly "highly regarded" by the manager of Aramco's
equipment services department.
9
 CIVIL PROCEDURE CASES Pleadings (Rule 6)
Former Chief Justice and noted remedial law expert Manuel V. Moran opined that "in an
action upon a tort, the defendant may file a third-party complaint against a joint tort-
feasor for contribution." 2

The non-renewal of Rayos employment contract was the natural and probable
consequence of the separate tortious acts of SIA and PAL. Under mandate of Article
2176 of the Civil Code, Rayos is entitled to be compensated for such damages.
Inasmuch as the responsibility of two or more persons, or tort-feasors, liable for a quasi-
delict is joint and several, 3 and the sharing as between such solidary debtors is pro-rata, 4 it
is but logical, fair, and equitable to require PAL to contribute to the amount awarded to the
Rayos spouses and already paid by SIA, instead of totally indemnifying the latter.

WHEREFORE, the decision of the respondent Court of Appeals in CA-G.R. CV No.

20488 dated September 21, 1992, is hereby REVERSED and a new one is entered
ordering private respondent Philippine Airlines to pay, by way of contribution, petitioner
Singapore Airlines one-half (1/2) of the amount it actually paid to Sancho and Beatriz
Rayos in satisfaction of the judgment in Civil Case No. 142252, dated September 9,
1988.

SO ORDERED.

10

G.R. No. 138822 January 23, 2001
EVANGELINE ALDAY, petitioner, vs. FGU INSURANCE CORPORATION, respondent.
On 5 May 1989, respondent FGU Insurance Corporation filed a complaint with the
Regional Trial Court of Makati1alleging that petitioner Evangeline K. Alday owed it
P114,650.76, representing unliquidated cash advances, unremitted costs of premiums
and other charges incurred by petitioner in the course of her work as an insurance agent
for respondent.2 Respondent also prayed for exemplary damages, attorney's fees, and
costs of suit.3Petitioner filed her answer and by way of counterclaim, asserted her right
for the payment of P104,893.45, representing direct commissions, profit commissions
and contingent bonuses earned from 1 July 1986 to 7 December 1986, and for
accumulated premium reserves amounting to P500,000.00. In addition, petitioner prayed
for attorney's fees, litigation expenses, moral damages and exemplary damages for the
allegedly unfounded action filed by respondent.4 On 23 August 1989, respondent filed a
"Motion to Strike Out Answer With Compulsory Counterclaim And To Declare Defendant
In Default" because petitioner's answer was allegedly filed out of time. 5However, the trial
court denied the motion on 25 August 1989 and similarly rejected respondent's motion
for reconsideration on 12 March 1990. 6 A few weeks later, on 11 April 1990, respondent
filed a motion to dismiss petitioner's counterclaim, contending that the trial court never
acquired jurisdiction over the same because of the non-payment of docket fees by
petitoner.7 In response, petitioner asked the trial court to declare her counterclaim as
exempt from payment of docket fees since it is compulsory and that respondent be
declared in default for having failed to answer such counterclaim. 8
In its 18 September 1990 Order, the trial court 9 granted respondent's motion to dismiss
petitioner's counterclaim and consequently, denied petitioner's motion. The court found
petitioner's counterclaim to be merely permissive in nature and held that petitioner's
failure to pay docket fees prevented the court from acquiring jurisdiction over the
same.10 The trial court similar denied petitioner's motion for reconsideration on 28
February 1991. 1wphi1.nt
On 23 December 1998, the Court of Appeals 11 sustained the trial court, finding that
petitioner's own admissions, as contained in her answer, show that her counterclaim is
merely permissive. The relevant portion of the appellate court's decision 12 is quoted
herewith -
Contrary to the protestations of appellant, mere reading of the allegations in the
answer a quo will readily show that her counterclaim can in no way be
compulsory. Take note of the following numbered paragraphs in her answer:
CIVIL PROCEDURE CASES Pleadings (Rule 6)
"(14) That, indeed, FGU's cause of action which is not supported by any
document other than the self-serving 'Statement of Account' dated March
28, 1988 x x x
(15) That it should be noted that the cause of action of FGU is not the
enforcement of the Special Agent's Contract but the alleged 'cash
accountabilities which are not based on written agreement x x x.
x x x x
(19) x x x A careful analysis of FGU's three-page complaint will show that
its cause of action is not for specific performance or enforcement of the
Special Agent's Contract rather, it is for the payment of the alleged cash
accountabilities incurred by defendant during the period form [sic] 1975 to
1986 which claim is executory and has not been ratified. It is the
established rule that unenforceable contracts, like this purported money
claim of FGU, cannot be sued upon or enforced unless ratified, thus it is
as if they have no effect. x x x."
To support the heading "Compulsory Counterclaim" in her answer and give the
impression that the counterclaim is compulsory appellant alleged that "FGU has
unjustifiably failed to remit to defendant despite repeated demands in gross
violation of their Special Agent's Contract x x x." The reference to said contract
was included purposely to mislead. While on one hand appellant alleged that
appellee's cause of action had nothing to do with the Special Agent's Contract,
on the other hand, she claim that FGU violated said contract which gives rise of
[sic] her cause of action. Clearly, appellant's cash accountabilities cannot be the
offshoot of appellee's alleged violation of the aforesaid contract.
On 19 May 1999, the appellate court denied petitioner's motion for
reconsideration,13 giving rise to the present petition.
Before going into the substantive issues, the Court shall first dispose of some procedural
matters raised by the parties. Petitioner claims that respondent is estopped from
questioning her non-payment of docket fees because it did not raise this particular issue
when it filed its motion - the "Motion to Strike out Answer With Compulsory Counterclaim
And To Declare Defendant In Default" - with the trial court; rather, it was only nine months
after receiving petitioner's answer that respondent assailed the trial court's lack of
jurisdiction over petitioner's counterclaims based on the latter's failure to pay docket
fees.14 Petitioner's position is unmeritorious. Estoppel by laches arises from the
11
 CIVIL PROCEDURE CASES Pleadings (Rule 6)
negligence or omission to assert a right within a reasonable time, warranting a 3. Will substantially the same evidence support or refute plaintiff's claim as well s
presumption that the party entitled to assert it either has abandoned or declined to assert defendant's counterclaim?
it.15 In the case at bar, respondent cannot be considered as estopped from assailing the
trial court's jurisdiction over petitioner's counterclaim since this issue was raised by 4. Is there any logical relation between the claim and the counterclaim?
respondent with the trial court itself - the body where the action is pending - even before
the presentation of any evidence by the parties and definitely, way before any judgment Another test, applied in the more recent case of Quintanilla v. Court of Appeals,21 is the
could be rendered by the trial court. "compelling test of compulsoriness" which requires "a logical relationship between the
claim and counterclaim, that is, where conducting separate trials of the respective claims
Meanwhile, respondent questions the jurisdiction of the Court of Appeals over the appeal of the parties would entail a substantial duplication of effort and time by the parties and
filed by petitioner from the 18 September 1990 and 28 February 1991 orders of the trial the court."
court. It is significant to note that this objection to the appellate court's jurisdiction is
raised for the first time before this Court; respondent never having raised this issue As contained in her answer, petitioner's counterclaims are as follows:
before the appellate court. Although the lack of jurisdiction of a court may be raised at
any stage of the action, a party may be estopped from raising such questions if he has (20) That defendant incorporates and repleads by reference all the foregoing
actively taken part in the very proceedings which he questions, belatedly objecting to the allegations as may be material to her Counterclaim against FGU.
court's jurisdiction in the event that the judgment or order subsequently rendered is
adverse to him.16 In this case, respondent actively took part in the proceedings before the (21) That FGU is liable to pay the following just, valid and legitimate claims of
Court of Appeals by filing its appellee's brief with the same. 17 Its participation, when taken defendant:
together with its failure to object to the appellate court's jurisdiction during the entire
duration of the proceedings before such court, demonstrates a willingness to abide by
(a) the sum of at least P104,893.45 plus maximum interest thereon
the resolution of the case by such tribunal and accordingly, respondent is now most
representing, among others, direct commissions, profit commissions and
decidedly estopped from objecting to the Court of Appeals' assumption of jurisdiction
contingent bonuses legally due to defendant; and
over petitioner's appeal.18
(b) the minimum amount of P500,000.00 plus the maximum allowable
The basic issue for resolution in this case is whether or not the counterclaim of petitioner
interest representing defendant's accumulated premium reserve for 1985
is compulsory or permissive in nature. A compulsory counterclaim is one which, being
and previous years,
cognizable by the regular courts of justice, arises out of or is connected with the
transaction or occurrence constituting the subject matter of the opposing party's claim
which FGU has unjustifiably failed to remit to defendant despite repeated
and does not require for its adjudication the presence of third parties of whom the court
demands in gross violation of their Special Agent's Contract and in contravention
cannot acquire jurisdiction.19
of the principle of law that "every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and
In Valencia v. Court of Appeals,20 this Court capsulized the criteria or tests that may be
observe honesty and good faith."
used in determining whether a counterclaim is compulsory or permissive, summarized as
follows:
(22) That as a result of the filing of this patently baseless, malicious and
unjustified Complaint, and FGU's unlawful, illegal and vindictive termination of
1. Are the issues of fact and law raised by the claim and counterclaim largely the
their Special Agent's Contract, defendant was unnecessarily dragged into this
same?
litigation and to defense [sic] her side and assert her rights and claims against
FGU, she was compelled to hire the services of counsel with whom she agreed
2. Would res judicata bar a subsequent suit on defendant's claim absent the to pay the amount of P30,000.00 as and for attorney's fees and stands to incur
compulsory counterclaim rule?

12

litigation expenses in the amount estimated to at least P20,000.00 and for which
FGU should be assessed and made liable to pay defendant.
(23) That considering further the malicious and unwarranted action of defendant
in filing this grossly unfounded action, defendant has suffered and continues to
suffer from serious anxiety, mental anguish, fright and humiliation. In addition to
this, defendant's name, good reputation and business standing in the insurance
business as well as in the community have been besmirched and for which FGU
should be adjudged and made liable to pay moral damages to defendant in the
amount of P300,000.00 as minimum.
(24) That in order to discourage the filing of groundless and malicious suits like
FGU's Complaint, and by way of serving [as] an example for the public good,
FGU should be penalized and assessed exemplary damages in the sum of
P100,000.00 or such amount as the Honorable Court may deem warranted under
the circumstances.22
Tested against the abovementioned standards, petitioner's counterclaim for
commissions, bonuses, and accumulated premium reserves is merely permissive. The
evidence required to prove petitioner's claims differs from that needed to establish
respondent's demands for the recovery of cash accountabilities from petitioner, such as
cash advances and costs of premiums. The recovery of respondent's claims is not
contingent or dependent upon establishing petitioner's counterclaim, such that
conducting separate trials will not result in the substantial duplication of the time and
effort of the court and the parties. One would search the records in vain for a logical
connection between the parties' claims. This conclusion is further reinforced by
petitioner's own admissions since she declared in her answer that respondent's cause of
action, unlike her own, was not based upon the Special Agent's Contract. 23 However,
petitioner's claims for damages, allegedly suffered as a result of the filing by respondent
of its complaint, are compulsory.24
There is no need for need for petitioner to pay docket fees for her compulsory
counterclaim.25 On the other hand, in order for the trial court to acquire jurisdiction over
her permissive counterclaim, petitioner is bound to pay the prescribed docket fees. 26 The
rule on the payment of filing fees has been laid down by the Court in the case of Sun
Insurance Office, Ltd. V. Hon. Maximiano Asuncion27-
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but
the payment of the prescribed docket fee, that vests a trial court with jurisdiction
over the subject-matter or nature of the action. Where the filing of the initiatory
CIVIL PROCEDURE CASES Pleadings (Rule 6)
pleading is not accompanied by payment of the docket fee, the court may allow
payment of the fee within a reasonable time but in no case beyond the applicable
prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and
similar pleadings, which shall not be considered filed until and unless the filing
fee prescribed therefor is paid. The court may allow payment of said fee within a
reasonable time but also in no case beyond its applicable prescriptive or
reglementary period.
3. 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 therefor
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.
The above mentioned ruling in Sun Insurance has been reiterated in the recent case
of Susan v. Court of Appeals.28 In Suson, the Court explained that although the payment
of the prescribed docket fees is a jurisdictional requirement, its non-payment does not
result in the automatic dismissal of the case provided the docket fees are paid within the
applicable prescriptive or reglementary period. Coming now to the case at bar, it has not
been alleged by respondent and there is nothing in the records to show that petitioner
has attempted to evade the payment of the proper docket fees for her permissive
counterclaim. As a matter of fact, after respondent filed its motion to dismiss petitioner's
counterclaim based on her failure to pay docket fees, petitioner immediately filed a
motion with the trial court, asking it to declare her counterclaim as compulsory in nature
and therefore exempt from docket fees and, in addition, to declare that respondent was
in default for its failure to answer her counterclaim. 29 However, the trial court dismissed
petitioner's counterclaim. Pursuant to this Court's ruling in Sun Insurance, the trial court
should have instead given petitioner a reasonable time, but in no case beyond the
applicable prescriptive or reglementary period, to pay the filing fees for her permissive
counterclaim.
Petitioner asserts that the trial court should have declared respondent in default for
having failed to answer her counterclaim. 30 Insofar as the permissive counterclaim of
petitioner is concerned, there is obviously no need to file an answer until petitioner has
paid the prescribed docket fees for only then shall the court acquire jurisdiction over such
claim.31 Meanwhile, the compulsory counterclaim of petitioner for damages based on the
13
 CIVIL PROCEDURE CASES Pleadings (Rule 6)
filing by respondent of an allegedly unfounded and malicious suit need not be answered
since it is inseparable from the claims of respondent. If respondent were to answer the
compulsory counterclaim of petitioner, it would merely result in the former pleading the
same facts raised in its complaint.32

WHEREFORE, the assailed Decision of the Court of Appeals promulgated on 23

December 1998 and its 19 May 1999 Resolution are hereby MODIFIED. The compulsory
counterclaim of petitioner for damages filed in Civil Case No. 89-3816 is
ordered REINSTATED. Meanwhile, the Regional Trial Court of Makati (Branch 134) is
ordered to require petitioner to pay the prescribed docket fees for her permissive
counterclaim (direct commissions, profit commissions, contingent bonuses and
accumulated premium reserves), after ascertaining that the applicable prescriptive period
has not yet set in.33

SO ORDERED. 1wphi1.nt

14

G.R. No. 146019 June 8, 2004
ARMANDO M. LASCANO, petitioner, vs. UNIVERSAL STEEL SMELTING CO., INC.,
REYNALDO U. LIM and HON. REGIONAL TRIAL COURT OF QUEZON
CITY, respondents.
For review are (1) the resolution 1 dated August 7, 2000 of the Court of Appeals in CA-
G.R. SP No. 59972, which dismissed petitioners special civil action for certiorari
because of late filing; and (2) the resolution 2 of November 15, 2000, denying petitioners
motion for reconsideration. In the interest of the speedy administration of justice, we shall
also inquire into the merits of said special civil action.
The antecedent facts are as follows:
Sometime in 1990, petitioner Armando Lascano had a construction project at No.
18 Dalsol Street, GSIS Village, Project 8, Quezon City. This project required a
number of steel bars of various grades, which petitioner ordered from private
respondent Universal Steel Smelting Co., Inc. (USSCI). On August 30, 1990, the
steel bars valued at P104,268 were received by petitioners representative,
Rolando Nanquil. When the amount due thereon was not paid, USSCI demanded
payment. Instead of complying, petitioner denied that he ordered the steel bars
from USSCI.
Upon advice of its lawyer, USSCI filed a criminal complaint for estafa against petitioner
with the Quezon City Prosecutors Office. The complaint was dismissed on September 5,
1991. USSCIs motion for reconsideration was denied on November 14, 1991 and its
petition for review filed with the Department of Justice was also dismissed per resolution
dated June 19, 1992.
In the meantime, the Manila Bulletin in its August 23, 1991 issue, published a news item
entitled "School Owner in QC Sued." On August 27, 1991, another news item, "School
Owner Faces Rap," was published, this time by Tempo. In both news items, the school
owner referred to was petitioner Armando Lascano.
Hence, on August 25, 1992, petitioner filed with public respondent Regional Trial Court of
Quezon City, Branch 93, a complaint for damages against private respondents USSCI
and its Vice-President Reynaldo Lim, for alleged malicious prosecution and allegedly
causing the publication in two (2) newspapers of general circulation, that he was being
sued for estafa.
CIVIL PROCEDURE CASES Pleadings (Rule 6)
The case was docketed as Civil Case No. Q-92-13212 and on December 27, 1994, the
trial court dismissed the complaint, thus:
WHEREFORE, premises considered, the Court hereby dismisses the complaint
for failure of plaintiff to establish his causes of action by preponderant evidence.
On the counterclaim, the Court orders plaintiff to pay the defendants the
following:
1. P104,268.00 with interest thereon at 14% per annum from
August 30, 1990 until fully paid;
2. P100,000.00 for moral damages;
3. P50,000.00 for exemplary damages;
4. P35,000.00 as and for reasonable attorneys fees; and
5. Costs of suit.
SO ORDERED.3
Petitioner received said Decision on January 16, 1995. Petitioners counsel then filed a
Notice of Appeal on January 20, 1995, which was approved by the trial court in an Order
dated January 25, 1995. However, the Court of Appeals dismissed the appeal in its
Resolution dated August 13, 1998, in this wise:
Pursuant to Section 1 (c), Rule 50 in relation to Section 4 of Rule 41 of the 1997
Rules of Civil Procedure, as amended, the instant appeal is hereby DISMISSED
for failure of the appellant to pay the docket and other lawful fees.
SO ORDERED.4
On September 5, 1998, said Resolution became final and executory and the Court of
Appeals issued an entry of judgment thereon. Private respondents then promptly filed on
January 10, 2000 a motion for execution of the December 27, 1994 judgment, which the
court a quo granted on February 9, 2000. On March 15, 2000, petitioner filed a motion for
reconsideration of the trial courts Order granting the motion for execution, but the same
was denied on April 28, 2000.
15

Thus, on July 31, 2000, petitioner filed a special civil action for certiorari with the Court of
Appeals. However, the Court of Appeals, in its Resolution of August 7, 2000, dismissed
said petition on the ground of late filing. Petitioner then filed a motion for reconsideration,
which was denied in the appellate courts Resolution dated November 15, 2000.
Hence, the instant petition ascribing to the appellate court the following errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN STRICTLY APPLYING THE
RULES IN THE FILING OF PETITION FOR CERTIORARI CONTRARY TO THE
LIBERAL CONSTRUCTION RULE AS ECHOED IN SEVERAL SUPREME
COURT DECISIONS.
II
THE COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE RULE
ON INTEREST OF JUSTICE AND EQUITY IN FAVOR OF TECHNICALITY
WHERE THE RTC DECISION SUBJECT OF EXECUTION WAS UNJUST AND
VOID HAVING BEEN RENDERED ON PURE SPECULATION AND
CONJECTURE WITHOUT CITATION OF SPECIFIC EVIDENCE. 5
On the procedural aspect, we find merit in the petition.
In finding that the special civil action for certiorari was filed out of time, the Court of
Appeals applied Supreme Court Circular No. 39-98, 6 which took effect on September 1,
1998. Said circular amended Section 4, Rule 65 of the 1997 Rules of Civil Procedure as
follows:
Sec. 4. Where and when petition to be filed. The petition may be filed not later
than sixty (60) days from notice of the judgment, order or resolution sought to be
assailed in the Supreme Court or, if it relates to the acts or omissions of a lower
court or of a corporation, board, officer or person, in the Regional Trial Court
exercising jurisdiction over the territorial area as defined by the Supreme Court. It
may also be filed in the Court of Appeals whether or not the same is in aid of its
appellate jurisdiction, or in the Sandiganbayan if it is in aid of its jurisdiction. If it
involves the acts or omissions of a quasi-judicial agency, and unless otherwise
provided by law or these Rules, the petition shall be filed in and cognizable only
by the Court of Appeals.
CIVIL PROCEDURE CASES Pleadings (Rule 6)
If the petitioner had filed a motion for new trial or reconsideration in due time after
notice of said judgment, order or resolution, the period herein fixed shall be
interrupted. If the motion is denied, the aggrieved party may file the petition within
the remaining period, but which shall not be less than five (5) days in any event,
reckoned from notice of such denial. No extension of time to file petition shall be
granted except for the most compelling reason and in no case to exceed fifteen
(15) days. (Underscoring ours).
Records show that petitioner received on March 3, 2000 a copy of respondent trial
courts February 9, 2000 Order granting the motion for execution of the December 27,
1994 judgment. He filed the motion for reconsideration on March 15, 2000 or twelve (12)
days after notice of the assailed Order. Thus, consistent with SC Circular No. 39-98, the
original 60-day period was interrupted when petitioner filed a motion for reconsideration.
Since the motion was denied, petitioner had the remaining period of forty-eight (48) days
within which to file the special civil action for certiorari with the Court of Appeals.
Evidence on record shows petitioner received on June 1, 2000 a copy of the trial courts
April 28, 2000 Order denying his motion for reconsideration. Therefore, conformably with
SC Circular No. 39-98, the filing of the special civil action for certiorari with the Court of
Appeals on July 31, 2000, or on the 60th day, was twelve (12) days beyond the
reglementary period.
We must point out, however, that Supreme Court Circular No. 56-2000, 7 which took effect
on September 1, 2000 further amended Section 4 of Rule 65 as follows:
Sec 4. When and where petition filed. - The petition shall be filed not later than
sixty (60) days from notice of the judgment, order or resolution. In case a motion
for reconsideration or new trial is timely filed, whether such motion is required or
not, the sixty (60) day period shall be counted from notice of the denial of the
said motion. (Underscoring ours).
Under the second amendment, the 60-day period within which to file the special civil
action for certiorari starts to run from receipt of notice of the denial of the motion for
reconsideration. However, it bears stressing, at the time of petitioners filing of the special
civil action for certiorari with the Court of Appeals on July 31, 2000, SC Circular No. 56-
2000 was not yet in effect. Therefore, the sole issue for our consideration in this case is
whether or not said circular may be applied retroactively.
The present question does not pose a novel issue. In an analogous case, San Luis v.
Court of Appeals,8 the Court of Appeals likewise reckoned the counting of the 60-day
16

period from petitioners receipt of a copy of the assailed Order, considered the
interruption of the running of the period by the filing of the motion for reconsideration, and
held that the remaining period resumed to run on the date petitioner received the Order
denying his motion for reconsideration.
In said case of San Luis, petitioners special civil action for certiorari was filed with the
Court of Appeals on January 7, 2000, long before SC Circular No. 56-2000 took effect.
Nonetheless, we applied the circular retroactively and held that the appellate court erred
in dismissing the special civil action for certiorari on the ground of late filing. We said
therein:
Settled is the rule that remedial statutes or statutes relating to remedies or
modes of procedure, which do not create new rights or take away vested rights
but only operate in furtherance of the remedy or confirmation of rights already
existing, do not come within the purview of the general rule against the
retroactive operation of statutes. Procedural laws are construed to be applicable
to actions pending and undetermined at the time of their passage, and are
deemed retroactive in that sense and to that extent. As a general rule, the
retroactive application of procedural laws cannot be considered violative of any
personal rights because no vested right may attach to nor arise therefrom. 9
We see no reason why we should treat the instant case differently. Thus, pursuant to SC
Circular No. 56-2000, petitioners 60-day period to file the special civil action for certiorari
should be counted from his receipt on June 1, 2000 of the Order of April 28, 2000,
denying his motion for reconsideration. Hence, the special civil action for certiorari having
been filed on July 31, 2000, or the last day before the reglementary period expired, the
Court of Appeals should not have dismissed the same on the ground of late filing.
Considering the circumstances in this case, we could direct the Court of Appeals to
decide on the merits the issues raised in petitioners special civil action for certiorari.
However, that would only result in further delay before the resolution of this case. In our
view, it is preferable to settle the entire controversy now in a single proceeding, leaving
no root or branch to bear the seeds of future litigation. Following the San Luis decision, if
based on the records including the pleadings and the evidence, the dispute could be
resolved by us, we will do so to serve the ends of justice, instead of remanding the case
to the lower court for further proceedings.10
In the petition for certiorari, petitioner assigns the following errors to the trial court:
I and P50,000 as moral and exemplary damages, respectively. He maintains that he filed
CIVIL PROCEDURE CASES Pleadings (Rule 6)
THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION IN
GRANTING THE ISSUANCE OF WRIT OF EXECUTION.
II
THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION IN
UPHOLDING THAT IT IS THE MINISTERIAL DUTY THE (sic) COURT TO ISSUE
THE WRIT OF EXECUTION.
III
THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION IN
UPHOLDING THAT THE EXECUTION OF WHATEVER JUDGMENT THAT MAY
HAVE BEEN RENDERED WILL PUT THE (SIC) REST THE CONTROVERSY
BETWEEN PARTY LITIGANTS.
IV
THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION IN
DISREGARDING THE RULE THAT A WRIT OF EXECUTION MAY BE
DISALLOWED ON EQUITABLE GROUNDS.11
Petitioner contends that the December 27, 1994 judgment is devoid of factual and legal
bases. He protests the order to pay private respondents P104,268 representing the value
of the steel bars delivered to him. According to petitioner, he transacted business with
LNG Marketing, not with private respondents. He claims that LNG Marketing was a
dealer of private respondents, but that both could not compete for one client. 12
In our view, that petitioner transacted with LNG Marketing for the purchase of steel bars
might well be true, but it did not preclude the fact that private respondents had delivered
steel bars to petitioner. The fact of delivery to petitioner of the subject steel bars is
evidenced by delivery receipts signed by one Rolando Nanquil acting as petitioners
agent. While petitioner denied knowing said Rolando Nanquil, the delivery receipts of
LNG Marketing were signed by the same Rolando Nanquil, as duly authorized agent of
petitioner. Delivery of subject steel bars to petitioner having been established by
preponderance of evidence, we could not conclude that the trial court erred when it
ordered petitioner to pay private respondents the value of said steel bars.
Petitioner questions the trial courts order to pay private respondents P100,000
17

the complaint in good faith, which is inconsistent with the order to pay moral damages;
and that there was no proof he acted in a wanton, fraudulent, reckless, oppressive and
malevolent manner, as to justify exemplary damages.
Petitioner misses the point that the court a quo ordered the payment of moral damages
not because he filed the complaint in bad faith, but because of his unjustified refusal to
pay a just debt. Article 2220 of the Civil Code provides:
ART. 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages
are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith. (Underscoring ours).
When payment on the delivered steel bars was demanded, petitioner, instead of
complying with his obligation, denied having transacted with private respondents. Such
cold refusal to pay a just debt amounts to a breach of contract in bad faith, as
contemplated by the aforecited provision. Hence, the order to pay moral damages is in
accordance with law, but only with regard to respondent individual (Reynaldo Lim) and
not to respondent corporation (USSCI). A corporation cannot suffer nor be entitled to
moral damages.13
As to exemplary damages, although the same cannot be recovered as a matter of right,
they need not be proved. But before considering whether exemplary damages should be
awarded, it must first be shown that an award of moral, temperate or compensatory
damages obtains.14 In the instant case, as the order to pay moral damages to private
individual respondent is proper, it follows that the adjudication of exemplary damages on
that basis is also in order.
As to the amount of damages, the court a quo ordered payment of P100,000 for moral
damages and P50,000 for exemplary damages. However, considering the amount of the
unpaid debt at issue in this case, we are of the considered view that P10,000 as moral
damages and P5,000 in exemplary damages would suffice under the circumstances.
Finally, petitioner argues private respondents counterclaims are merely permissive,
which require payment of docket fees. Indeed, before the trial court may acquire
jurisdiction over permissive counterclaims, docket fees thereon must first be
paid.15 However, we find that the counterclaims herein are not permissive, but
compulsory.16On this point, Section 7, Rule 6 of the Revised Rules of Civil Procedure is
pertinent:
CIVIL PROCEDURE CASES Pleadings (Rule 6)
SEC. 7. Compulsory counterclaim. A compulsory counterclaim is one which,
being cognizable by the regular courts of justice, arises out of or is connected
with the transaction or occurrence constituting the subject matter of the opposing
partys claim and does not require for its adjudication the presence of third
parties of whom the court cannot acquire jurisdiction. Such a counterclaim must
be within the jurisdiction of the court both as to the amount and the nature
thereof, except that in an original action before the Regional Trial Court, the
counterclaim may be considered compulsory regardless of the amount.
The alleged malicious filing of estafa against petitioner is necessarily connected with the
non-payment of the value of steel bars delivered to petitioner. The resolution of the latter
issue does not require the presence of third parties of whom the court a quo cannot
acquire jurisdiction. Therefore, the counterclaims raised by private respondents are
clearly compulsory in nature. Thus, non-payment of docket fees does not affect the
jurisdiction of the trial court to rule thereon.
In sum, we find no error nor grave abuse of discretion on the part of public respondent in
rendering the assailed judgment dismissing the complaint. But the award to private
respondents of damages as part of their counterclaims against the petitioner, particularly
with regard to damages as herein elucidated, ought to be modified accordingly.
WHEREFORE, the resolutions of the appellate court dated August 7, 2000 and
November 15, 2000 in CA-G.R. SP No. 59972 are SET ASIDE. The assailed decision of
the Regional Trial Court of Quezon City, Branch 93, in Civil Case No. Q-92-13212, dated
December 27, 1994, is AFFIRMED, except as to the amounts of moral and exemplary
damages, which are MODIFIED and reduced to only P10,000.00 and P5,000.00,
respectively. No pronouncement as to costs.
SO ORDERED.
18

G.R. No. 155173 November 23, 2004
LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON
CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION
and PHILIP ROSEBERG, petitioners, vs. CONTINENTAL CEMENT CORPORATION,
GREGORY T. LIM and ANTHONY A. MARIANO, respondents.
May defendants in civil cases implead in their counterclaims persons who were not
parties to the original complaints? This is the main question to be answered in this
controversy.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify
the May 22, 20022 and the September 3, 2002 Orders 3 of the Regional Trial Court (RTC)
of Quezon City (Branch 80) in Civil Case No. Q-00-41103. The decretal portion of the
first assailed Order reads:
"WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion
to dismiss claims is granted. Accordingly, the defendants' claims against Mr. Lim
and Mr. Mariano captioned as their counterclaims are dismissed."4
The second challenged Order denied petitioners' Motion for Reconsideration.
The Facts
Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI)
executed by both parties on August 11, 1998, whereby Petitioner Lafarge Cement
Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified entities,
including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase
the cement business of Respondent Continental Cement Corporation (CCC). On October
21, 1998, both parties entered into a Sale and Purchase Agreement (SPA). At the time of
the foregoing transactions, petitioners were well aware that CCC had a case pending
with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset
Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation.
CIVIL PROCEDURE CASES Pleadings (Rule 6)
In anticipation of the liability that the High Tribunal might adjudge against CCC, the
parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price
a portion of the contract price in the amount of P117,020,846.84 -- the equivalent of
US$2,799,140. This amount was to be deposited in an interest-bearing account in the
First National City Bank of New York (Citibank) for payment to APT, the petitioner in GR
No. 119712.
However, petitioners allegedly refused to apply the sum to the payment to APT, despite
the subsequent finality of the Decision in GR No. 119712 in favor of the latter and the
repeated instructions of Respondent CCC. Fearful that nonpayment to APT would result
in the foreclosure, not just of its properties covered by the SPA with Lafarge but of
several other properties as well, CCC filed before the Regional Trial Court of Quezon
City on June 20, 2000, a "Complaint with Application for Preliminary Attachment" against
petitioners. Docketed as Civil Case No. Q-00-41103, the Complaint prayed, among
others, that petitioners be directed to pay the "APT Retained Amount" referred to in
Clause 2 (c) of the SPA.
Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition
on forum-shopping. Respondent CCC had allegedly made the same claim it was raising
in Civil Case No. Q-00-41103 in another action, which involved the same parties and
which was filed earlier before the International Chamber of Commerce. After the trial
court denied the Motion to Dismiss in its November 14, 2000 Order, petitioners elevated
the matter before the Court of Appeals in CA-GR SP No. 68688.
In the meantime, to avoid being in default and without prejudice to the outcome of their
appeal, petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before
the trial court in Civil Case No. Q-00-41103. In their Answer, they denied the allegations
in the Complaint. They prayed -- by way of compulsory counterclaims against
Respondent CCC, its majority stockholder and president Gregory T. Lim, and its
corporate secretary Anthony A. Mariano -- for the sums of (a) P2,700,000 each as actual
damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each as
moral damages, and (d) P5,000,000 each as attorney's fees plus costs of suit.
Petitioners alleged that CCC, through Lim and Mariano, had filed the "baseless"
Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad
faith. Relying on this Court's pronouncement in Sapugay v. CA, 5petitioners prayed that
both Lim and Mariano be held "jointly and solidarily" liable with Respondent CCC.
19

On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved
to dismiss petitioners' compulsory counterclaims on grounds that essentially constituted
the very issues for resolution in the instant Petition.
Ruling of the Trial Court
On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed
petitioners' counterclaims for several reasons, among which were the following: a) the
counterclaims against Respondents Lim and Mariano were not compulsory; b) the ruling
in Sapugay was not applicable; and c) petitioners' Answer with Counterclaims violated
procedural rules on the proper joinder of causes of action. 6
Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an
Amended Order dated September 3, 20027 -- admitted some errors in its May 22, 2002
Order, particularly in its pronouncement that their counterclaim had been pleaded against
Lim and Mariano only. However, the RTC clarified that it was dismissing the counterclaim
insofar as it impleaded Respondents Lim and Mariano, even if it included CCC.
Hence this Petition.8
Issues
In their Memorandum, petitioners raise the following issues for our consideration:
"[a] Whether or not the RTC gravely erred in refusing to rule that Respondent
CCC has no personality to move to dismiss petitioners' compulsory
counterclaims on Respondents Lim and Mariano's behalf.
"[b] Whether or not the RTC gravely erred in ruling that (i) petitioners'
counterclaims against Respondents Lim and Mariano are not compulsory; (ii)
Sapugay v. Court of Appeals is inapplicable here; and (iii) petitioners violated the
rule on joinder of causes of action."9
For clarity and coherence, the Court will resolve the foregoing in reverse order.
The Court's Ruling
The Petition is meritorious.
First Issue:
CIVIL PROCEDURE CASES Pleadings (Rule 6)
Counterclaims and Joinder of Causes of Action.
Petitioners' Counterclaims Compulsory
Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any
claim which a defending party may have against an opposing party." They are generally
allowed in order to avoid a multiplicity of suits and to facilitate the disposition of the whole
controversy in a single action, such that the defendant's demand may be adjudged by a
counterclaim rather than by an independent suit. The only limitations to this principle are
(1) that the court should have jurisdiction over the subject matter of the counterclaim, and
(2) that it could acquire jurisdiction over third parties whose presence is essential for its
adjudication.10
A counterclaim may either be permissive or compulsory. It is permissive "if it does not
arise out of or is not necessarily connected with the subject matter of the opposing
party's claim."11 A permissive counterclaim is essentially an independent claim that may
be filed separately in another case.
A counterclaim is compulsory when its object "arises out of or is necessarily connected
with the transaction or occurrence constituting the subject matter of the opposing party's
claim and does not require for its adjudication the presence of third parties of whom the
court cannot acquire jurisdiction."12
Unlike permissive counterclaims, compulsory counterclaims should be set up in the
same action; otherwise, they would be barred forever. NAMARCO v. Federation of
United Namarco Distributors13 laid down the following criteria to determine whether a
counterclaim is compulsory or permissive: 1) Are issues of fact and law raised by the
claim and by the counterclaim largely the same? 2) Would res judicata bar a subsequent
suit on defendant's claim, absent the compulsory counterclaim rule? 3) Will substantially
the same evidence support or refute plaintiff's claim as well as defendant's counterclaim?
4) Is there any logical relation between the claim and the counterclaim? A positive
answer to all four questions would indicate that the counterclaim is compulsory.
Adopted in Quintanilla v. CA14 and reiterated in Alday v. FGU Insurance Corporation, 15 the
"compelling test of compulsoriness" characterizes a counterclaim as compulsory if there
should exist a "logical relationship" between the main claim and the counterclaim. There
exists such a relationship when conducting separate trials of the respective claims of the
parties would entail substantial duplication of time and effort by the parties and the court;
when the multiple claims involve the same factual and legal issues; or when the claims
are offshoots of the same basic controversy between the parties.
20

We shall now examine the nature of petitioners' counterclaims against respondents with
the use of the foregoing parameters.
Petitioners base their counterclaim on the following allegations:
"Gregory T. Lim and Anthony A. Mariano were the persons responsible for
making the bad faith decisions for, and causing plaintiff to file this baseless suit
and to procure an unwarranted writ of attachment, notwithstanding their
knowledge that plaintiff has no right to bring it or to secure the writ. In taking such
bad faith actions, Gregory T. Lim was motivated by his personal interests as one
of the owners of plaintiff while Anthony A. Mariano was motivated by his sense of
personal loyalty to Gregory T. Lim, for which reason he disregarded the fact that
plaintiff is without any valid cause.
"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-
joint tortfeasors in the commission of the acts complained of in this answer and in
the compulsory counterclaims pleaded below. As such they should be held jointly
and solidarily liable as plaintiff's co-defendants to those compulsory
counterclaims pursuant to the Supreme Court's decision in Sapugay v. Mobil.
xxx xxx xxx
"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this
baseless case has compelled the defendants to engage the services of counsel
for a fee and to incur costs of litigation, in amounts to be proved at trial, but in no
case less than P5 million for each of them and for which plaintiff Gregory T. Lim
and Anthony A. Mariano should be held jointly and solidarily liable.
"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged
the reputations of the defendants and they should be held jointly and solidarily
liable to them for moral damages of P100 million each.
"In order to serve as an example for the public good and to deter similar
baseless, bad faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano
should be held jointly and solidarily liable to the defendants for exemplary
damages of P100 million each." 16
The above allegations show that petitioners' counterclaims for damages were the result
of respondents' (Lim and Mariano) act of filing the Complaint and securing the Writ of
Attachment in bad faith. Tiu Po v. Bautista 17 involved the issue of whether the
CIVIL PROCEDURE CASES Pleadings (Rule 6)
counterclaim that sought moral, actual and exemplary damages and attorney's fees
against respondents on account of their "malicious and unfounded" complaint was
compulsory. In that case, we held as follows:
"Petitioners' counterclaim for damages fulfills the necessary requisites of a
compulsory counterclaim. They are damages claimed to have been suffered by
petitioners as a consequence of the action filed against them. They have to be
pleaded in the same action; otherwise, petitioners would be precluded by the
judgment from invoking the same in an independent action. The pronouncement
in Papa vs. Banaag (17 SCRA 1081) (1966) is in point:
"Compensatory, moral and exemplary damages, allegedly suffered by the
creditor in consequence of the debtor's action, are also compulsory counterclaim
barred by the dismissal of the debtor's action. They cannot be claimed in a
subsequent action by the creditor against the debtor."
"Aside from the fact that petitioners' counterclaim for damages cannot be the
subject of an independent action, it is the same evidence that sustains
petitioners' counterclaim that will refute private respondent's own claim for
damages. This is an additional factor that characterizes petitioners' counterclaim
as compulsory."18
Moreover, using the "compelling test of compulsoriness," we find that, clearly, the
recovery of petitioners' counterclaims is contingent upon the case filed by respondents;
thus, conducting separate trials thereon will result in a substantial duplication of the time
and effort of the court and the parties.
Since the counterclaim for damages is compulsory, it must be set up in the same action;
otherwise, it would be barred forever. If it is filed concurrently with the main action but in
a different proceeding, it would be abated on the ground of litis pendentia; if filed
subsequently, it would meet the same fate on the ground of res judicata. 19
Sapugay v. Court of Appeals Applicable to the Case at Bar
Sapugay v. Court of Appeals finds application in the present case. In Sapugay,
Respondent Mobil Philippines filed before the trial court of Pasig an action for replevin
against Spouses Marino and Lina Joel Sapugay. The Complaint arose from the
supposed failure of the couple to keep their end of their Dealership Agreement. In their
Answer with Counterclaim, petitioners alleged that after incurring expenses in
anticipation of the Dealership Agreement, they requested the plaintiff to allow them to get
21

gas, but that it had refused. It claimed that they still had to post a surety bond which,
initially fixed at P200,000, was later raised to P700,000.
The spouses exerted all efforts to secure a bond, but the bonding companies required a
copy of the Dealership Agreement, which respondent continued to withhold from them.
Later, petitioners discovered that respondent and its manager, Ricardo P. Cardenas, had
intended all along to award the dealership to Island Air Product Corporation.
In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its
manager -- Ricardo P. Cardenas -- as defendants. They prayed that judgment be
rendered, holding both jointly and severally liable for pre-operation expenses, rental,
storage, guarding fees, and unrealized profit including damages. After both Mobil and
Cardenas failed to respond to their Answer to the Counterclaim, petitioners filed a
"Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on
Defendant's Counterclaim."
Among the issues raised in Sapugay was whether Cardenas, who was not a party to the
original action, might nevertheless be impleaded in the counterclaim. We disposed of this
issue as follows:
"A counterclaim is defined as any claim for money or other relief which a
defending party may have against an opposing party. However, the general rule
that a defendant cannot by a counterclaim bring into the action any claim against
persons other than the plaintiff admits of an exception under Section 14, Rule 6
which provides that 'when the presence of parties other than those to the original
action is required for the granting of complete relief in the determination of a
counterclaim or cross-claim, the court shall order them to be brought in as
defendants, if jurisdiction over them can be obtained.' The inclusion, therefore, of
Cardenas in petitioners' counterclaim is sanctioned by the rules." 20
The prerogative of bringing in new parties to the action at any stage before judgment is
intended to accord complete relief to all of them in a single action and to avert a duplicity
and even a multiplicity of suits thereby.
In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot
be included in a counterclaim, except when no complete relief can be had. They add that
"[i]n the present case, Messrs. Lim and Mariano are not necessary for petitioners to
obtain complete relief from Respondent CCC as plaintiff in the lower court. This is
because Respondent CCC as a corporation with a separate [legal personality] has the
juridical capacity to indemnify petitioners even without Messrs. Lim and Mariano." 21
CIVIL PROCEDURE CASES Pleadings (Rule 6)
We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay
or Lim and Mariano in the instant case -- is not premised on the assumption that the
plaintiff corporation does not have the financial ability to answer for damages, such that it
has to share its liability with individual defendants. Rather, such inclusion is based on the
allegations of fraud and bad faith on the part of the corporate officer or stockholder.
These allegations may warrant the piercing of the veil of corporate fiction, so that the
said individual may not seek refuge therein, but may be held individually and personally
liable for his or her actions.
In Tramat Mercantile v. Court of Appeals,22 the Court held that generally, it should only be
the corporation that could properly be held liable. However, circumstances may warrant
the inclusion of the personal liability of a corporate director, trustee, or officer, if the said
individual is found guilty of bad faith or gross negligence in directing corporate affairs.
Remo Jr. v. IAC23 has stressed that while a corporation is an entity separate and distinct
from its stockholders, the corporate fiction may be disregarded if "used to defeat public
convenience, justify a wrong, protect fraud, or defend crime." In these instances, "the law
will regard the corporation as an association of persons, or in case of two corporations,
will merge them into one." Thus, there is no debate on whether, in alleging bad faith on
the part of Lim and Mariano the counterclaims had in effect made them "indispensable
parties" thereto; based on the alleged facts, both are clearly parties in interest to the
counterclaim.24
Respondents further assert that "Messrs. Lim and Mariano cannot be held personally
liable [because their assailed acts] are within the powers granted to them by the proper
board resolutions; therefore, it is not a personal decision but rather that of the corporation
as represented by its board of directors." 25 The foregoing assertion, however, is a matter
of defense that should be threshed out during the trial; whether or not "fraud" is extant
under the circumstances is an issue that must be established by convincing evidence. 26
Suability and liability are two distinct matters. While the Court does rule that the
counterclaims against Respondent CCC's president and manager may be properly filed,
the determination of whether both can in fact be held jointly and severally liable with
respondent corporation is entirely another issue that should be ruled upon by the trial
court.
However, while a compulsory counterclaim may implead persons not parties to the
original complaint, the general rule -- a defendant in a compulsory counterclaim need not
file any responsive pleading, as it is deemed to have adopted the allegations in the
complaint as its answer -- does not apply. The filing of a responsive pleading is deemed
22

a voluntary submission to the jurisdiction of the court; a new party impleaded by the
plaintiff in a compulsory counterclaim cannot be considered to have automatically and
unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in
mischievous consequences whereby a party may be indiscriminately impleaded as a
defendant in a compulsory counterclaim; and judgment rendered against it without its
knowledge, much less participation in the proceedings, in blatant disregard of
rudimentary due process requirements.
The correct procedure in instances such as this is for the trial court, per Section 12 of
Rule 6 of the Rules of Court, to "order [such impleaded parties] to be brought in as
defendants, if jurisdiction over them can be obtained," by directing that summons be
served on them. In this manner, they can be properly appraised of and answer the
charges against them. Only upon service of summons can the trial court obtain
jurisdiction over them.
In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did
not file any responsive pleading to the counterclaim leveled against him. Nevertheless,
the Court gave due consideration to certain factual circumstances, particularly the trial
court's treatment of the Complaint as the Answer of Cardenas to the compulsory
counterclaim and of his seeming acquiescence thereto, as evidenced by his failure to
make any objection despite his active participation in the proceedings. It was held thus:
"It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim
against him on the ground of lack of jurisdiction. While it is a settled rule that the
issue of jurisdiction may be raised even for the first time on appeal, this does not
obtain in the instant case. Although it was only Mobil which filed an opposition to
the motion to declare in default, the fact that the trial court denied said motion,
both as to Mobil and Cardenas on the ground that Mobil's complaint should be
considered as the answer to petitioners' compulsory counterclaim, leads us to the
inescapable conclusion that the trial court treated the opposition as having been
filed in behalf of both Mobil and Cardenas and that the latter had adopted as his
answer the allegations raised in the complaint of Mobil. Obviously, it was this
ratiocination which led the trial court to deny the motion to declare Mobil and
Cardenas in default. Furthermore, Cardenas was not unaware of said incidents
and the proceedings therein as he testified and was present during trial, not to
speak of the fact that as manager of Mobil he would necessarily be interested in
the case and could readily have access to the records and the pleadings filed
therein.
CIVIL PROCEDURE CASES Pleadings (Rule 6)
"By adopting as his answer the allegations in the complaint which seeks
affirmative relief, Cardenas is deemed to have recognized the jurisdiction of the
trial court over his person and submitted thereto. He may not now be heard to
repudiate or question that jurisdiction."27
Such factual circumstances are unavailing in the instant case. The records do not
show that Respondents Lim and Mariano are either aware of the counterclaims
filed against them, or that they have actively participated in the proceedings
involving them. Further, in dismissing the counterclaims against the individual
respondents, the court a quo -- unlike in Sapugay -- cannot be said to have
treated Respondent CCC's Motion to Dismiss as having been filed on their
behalf.
Rules on Permissive Joinder of Causes
of Action or Parties Not Applicable
Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of
causes of action. It argues that while the original Complaint was a suit for specific
performance based on a contract, the counterclaim for damages was based on the
tortuous acts of respondents.28 In its Motion to Dismiss, CCC cites Section 5 of Rule 2
and Section 6 of Rule 3 of the Rules of Civil Procedure, which we quote:
"Section 5. Joinder of causes of action. A party may in one pleading assert, in
the alternative or otherwise, as many causes of action as he may have against
an opposing party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules on joinder of
parties; x x x"
Section 6. Permissive joinder of parties. All persons in whom or against whom
any right to relief in respect to or arising out of the same transaction or series of
transactions is alleged to exist whether jointly, severally, or in the alternative,
may, except as otherwise provided in these Rules, join as plaintiffs or be joined
as defendants in one complaint, where any question of law or fact common to all
such plaintiffs or to all such defendants may arise in the action; but the court may
make such orders as may be just to prevent any plaintiff or defendant from being
embarrassed or put to expense in connection with any proceedings in which he
may have no interest."
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The foregoing procedural rules are founded on practicality and convenience. They are
meant to discourage duplicity and multiplicity of suits. This objective is negated by
insisting -- as the court a quo has done -- that the compulsory counterclaim for damages
be dismissed, only to have it possibly re-filed in a separate proceeding. More important,
as we have stated earlier, Respondents Lim and Mariano are real parties in interest to
the compulsory counterclaim; it is imperative that they be joined therein. Section 7 of
Rule 3 provides:
"Compulsory joinder of indispensable parties. Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants."
Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are
being consistent with the solidary nature of the liability alleged therein.
Second Issue:
CCC's Personality to Move to Dismiss the Compulsory Counterclaims
Characterizing their counterclaim for damages against Respondents CCC, Lim and
Mariano as "joint and solidary," petitioners prayed:
"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:
"1. Dismissing the complaint in its entirety;
"2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and
solidarily to pay defendant actual damages in the sum of at least P2,700,000.00;
"3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and
solidarily to pay the defendants LPI, LCLC, COC and Roseberg:
"a. Exemplary damages of P100 million each;
"b. Moral damages of P100 million each; and
"c. Attorney's fees and costs of suit of at least P5 million each.
Other reliefs just and equitable are likewise prayed for."29
CIVIL PROCEDURE CASES Pleadings (Rule 6)
Obligations may be classified as either joint or solidary. "Joint" or "jointly" or "conjoint"
means mancum or mancomunada or pro rata obligation; on the other hand, "solidary
obligations" may be used interchangeably with "joint and several" or "several." Thus,
petitioners' usage of the term "joint and solidary" is confusing and ambiguous.
The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if
proven, is solidary. This characterization finds basis in Article 1207 of the Civil Code,
which provides that obligations are generally considered joint, except when otherwise
expressly stated or when the law or the nature of the obligation requires solidarity.
However, obligations arising from tort are, by their nature, always solidary. We have
assiduously maintained this legal principle as early as 1912 in Worcester v. Ocampo, 30 in
which we held:
"x x x The difficulty in the contention of the appellants is that they fail to recognize
that the basis of the present action is tort. They fail to recognize the universal
doctrine that each joint tort feasor is not only individually liable for the tort in
which he participates, but is also jointly liable with his tort feasors. x x x
"It may be stated as a general rule that joint tort feasors are all the persons who
command, instigate, promote, encourage, advise, countenance, cooperate in, aid
or abet the commission of a tort, or who approve of it after it is done, if done for
their benefit. They are each liable as principals, to the same extent and in the
same manner as if they had performed the wrongful act themselves. x x x
"Joint tort feasors are jointly and severally liable for the tort which they commit.
The persons injured may sue all of them or any number less than all. Each is
liable for the whole damages caused by all, and all together are jointly liable for
the whole damage. It is no defense for one sued alone, that the others who
participated in the wrongful act are not joined with him as defendants; nor is it
any excuse for him that his participation in the tort was insignificant as compared
to that of the others. x x x
"Joint tort feasors are not liable pro rata. The damages can not be apportioned
among them, except among themselves. They cannot insist upon an
apportionment, for the purpose of each paying an aliquot part. They are jointly
and severally liable for the whole amount. x x x
"A payment in full for the damage done, by one of the joint tort feasors, of course
satisfies any claim which might exist against the others. There can be but
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satisfaction. The release of one of the joint tort feasors by agreement generally
operates to discharge all. x x x
"Of course the court during trial may find that some of the alleged tort feasors are
liable and that others are not liable. The courts may release some for lack of
evidence while condemning others of the alleged tort feasors. And this is true
even though they are charged jointly and severally."
In a "joint" obligation, each obligor answers only for a part of the whole liability; in a
"solidary" or "joint and several" obligation, the relationship between the active and the
passive subjects is so close that each of them must comply with or demand the
fulfillment of the whole obligation.31 The fact that the liability sought against the CCC is for
specific performance and tort, while that sought against the individual respondents is
based solely on tort does not negate the solidary nature of their liability for tortuous acts
alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point:
"Solidarity may exist although the creditors and the debtors may not be bound in
the same manner and by the same periods and conditions."
The solidary character of respondents' alleged liability is precisely why credence cannot
be given to petitioners' assertion. According to such assertion, Respondent CCC cannot
move to dismiss the counterclaims on grounds that pertain solely to its individual co-
debtors.32 In cases filed by the creditor, a solidary debtor may invoke defenses arising
from the nature of the obligation, from circumstances personal to it, or even from those
personal to its co-debtors. Article 1222 of the Civil Code provides:
"A solidary debtor may, in actions filed by the creditor, avail itself of all defenses
which are derived from the nature of the obligation and of those which are
personal to him, or pertain to his own share. With respect to those which
personally belong to the others, he may avail himself thereof only as regards that
part of the debt for which the latter are responsible." (Emphasis supplied).
The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the
counterclaim on grounds that pertain only to its individual co-debtors -- is therefore
allowed.
However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent
CCC filed it on behalf of Co-respondents Lim and Mariano; it did not pray that the
counterclaim against it be dismissed. Be that as it may, Respondent CCC cannot be
declared in default. Jurisprudence teaches that if the issues raised in the compulsory
CIVIL PROCEDURE CASES Pleadings (Rule 6)
counterclaim are so intertwined with the allegations in the complaint, such issues are
deemed automatically joined.33 Counterclaims that are only for damages and attorney's
fees and that arise from the filing of the complaint shall be considered as special
defenses and need not be answered.34
CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano
Not Allowed
While Respondent CCC can move to dismiss the counterclaims against it by raising
grounds that pertain to individual defendants Lim and Mariano, it cannot file the same
Motion on their behalf for the simple reason that it lacks the requisite authority to do so. A
corporation has a legal personality entirely separate and distinct from that of its officers
and cannot act for and on their behalf, without being so authorized. Thus, unless
expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory
counterclaim filed by Respondent CCC has no force and effect as to them.
In summary, we make the following pronouncements:
1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A.
Mariano are compulsory.
2. The counterclaims may properly implead Respondents Gregory T. Lim and
Anthony A. Mariano, even if both were not parties in the original Complaint.
3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano)
may include, in a Motion to Dismiss, defenses available to their co-defendants;
nevertheless, the same Motion cannot be deemed to have been filed on behalf of
the said co-defendants.
4. Summons must be served on Respondents Lim and Mariano before the trial
court can obtain jurisdiction over them.
WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The
court of origin is hereby ORDERED to take cognizance of the counterclaims pleaded in
petitioners' Answer with Compulsory Counterclaims and to cause the service of
summons on Respondents Gregory T. Lim and Anthony A. Mariano. No costs.
SO ORDERED.
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