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G.R. No.

146595 June 20, 2003

CARLO A. TAN, petitioner,


vs.
KAAKBAY FINANCE CORPORATION, DENNIS S. LAZARO and ROLDAN M. NOYNAY,
respondents.

RESOLUTION

QUISUMBING, J.:

Petitioner seeks the review and reversal of the decision of the Court of Appeals, dated
August 22, 2000 in CA-G.R. SP No. 58379,1 which affirmed the orders of the Regional
Trial Court (RTC), Branch 37, Calamba, Laguna, dated February 8, 2000 and March 29,
2000 in Civil Case No. 2881-2000-C entitled "Carlo A. Tan v. Kaakbay Finance
Corporation, Dennis S. Lazaro and Roldan M. Noynay"2 for declaration of nullity of the
Promissory Note purportedly attached to the Real Estate Mortgage, the usurious and
unlawful or exorbitant and unconscionable rates of interest and fees therein, and the
Deed of Sale Under Pacto de Retro. Likewise, assailed is the appellate court’s resolution3
dated December 20, 2000, denying petitioner’s motion for reconsideration.

The facts, as culled from the records, are as follows:

In the latter part of 1995, petitioner Carlo4 A. Tan applied for and was granted a loan of
four million pesos (P4,000,000.00) by private respondent Kaakbay Finance Corporation
(Kaakbay), as represented by its president, private respondent Dennis S. Lazaro. As
collateral, a real estate mortgage5 on petitioner Tan’s parcel of land with the
improvements therein all covered by Transfer Certificate Title No. T-2071256 located
along Rizal St., Calamba, Laguna was executed. Petitioner alleged that the stipulated
interest was 12% per annum until fully paid, which amount however, was not stated in
the mortgage when he signed it on November 16, 1995. The amount loaned was released
to him in two installments of P2,500,000.00 and P1,500,000.00 on November 23, 1995
and December 23, 1995, respectively.

As of November 22, 1996, petitioner failed to pay his obligation. He claimed that
Kaakbay never furnished him a copy of the real estate mortgage; that, according to
Kaakbay, his obligation had now reached P5,570,000.00 because the actual interest was
0.3925% for a period of less than one year instead of the agreed-upon interest of 12% per
annum; and that he was made to issue two postdated checks to guarantee his obligation,
namely: UCPB Check No. CBA 052985 in the amount of P5,570,000.00 postdated to
November 5, 1996; and UCPB Check No. CBA 095215 in the amount of P6,175,000.00
postdated to January 31, 1997.7

Petitioner further alleged that he negotiated with Kaakbay for a further extension of time
to pay his obligation, which the latter agreed to. It was agreed that petitioner and
Kaakbay would sign, execute, and acknowledge a Deed of Sale Under Pacto de Retro
upon the expiration of a two-year period starting January 8, 1998 to January 8, 2000.
Petitioner was then given a blank Deed of Sale Under Pacto de Retro on January 8, 1998
which he signed.8 His suspicions that Kaakbay was charging him usurious rates of
interest were confirmed when he obtained a Statement of Account stating that his
obligation had now reached P13,333,750.00.9

On October 21, 1999, petitioner learned of the existence of an accomplished Deed of Sale
Under Pacto de Retro, which appeared that the same was signed by him and his wife
Maria Rosario Delmo Tan, on one hand, and private respondent Lazaro on the other, and
was allegedly notarized by private respondent Atty. Roldan M. Noynay on February 5,
1998,10 when in truth and in fact, he, his wife, and their witness Charito Morales did not
sign it on said date, nor did they execute it before Atty. Noynay or any other notary
public on said date.

On January 5, 2000, petitioner filed a complaint for Declaration of Nullity, Invalidity


and Unenforceability or Annulment of the Promissory Notes purportedly attached to the
Real Estate Mortgage dated November 16, 1995, the usurious and void rates of interest
and other fees therein appearing, and the Deed of Sale Under Pacto De Retro
purportedly dated February 5, 1998, and damages, with prayer for Preliminary
Injunction and/or Temporary Restraining Order against respondents Kaakbay Finance
Corporation, Dennis S. Lazaro and Roldan M. Noynay,11 with the RTC Calamba, Laguna,
and docketed as Civil Case No. 2881-2000-C. The complaint essentially prayed that
herein petitioner’s obligation to Kaakbay Finance Corporation in the amount of
P4,000,000.00 be subject to interest of only 12% per annum from November 23, 1995;
that the promissory notes attached to his Real Estate Mortgage dated November 16, 1995
be declared null and void; that the Deed of Sale Under Pacto de Retro dated February 5,
1998 be declared unenforceable; and that respondents pay moral and exemplary
damages in the amount of P200,000.00 and P50,000.00, respectively, as well as
attorney’s fees.

On the same date, petitioner filed a Notice of Lis Pendens with the Registry of Deeds of
Calamba, Laguna, which was annotated on TCT No. 207125.12

On January 17, 2000, respondents, through their counsel, Atty. Roldan M. Noynay, filed
their ‘Consolidated Answer With Compulsory Counterclaim And Opposition To
Temporary Restraining Order (TRO) and Preliminary Injunction.’13

During the hearing of petitioner’s application for the issuance of a TRO, the parties
agreed in open court that petitioner would withdraw his application for a TRO, while
respondents in turn would hold in abeyance the registration of the Deed of Sale Under
Pacto de Retro until the case was terminated. The trial court issued an order to that
effect, dated January 17, 2000.14

Later, the law firm of Ortega, Del Castillo, Bacorro, Odulio, Calma, and Carbonell
entered its appearance as counsel for respondents.15 Said counsel requested for an
extension of time to file an Answer, and also moved for the withdrawal of the
‘Consolidated Answer’16 filed by Atty. Noynay insofar as respondents Kaakbay and
Lazaro are concerned.17 Respondents also filed a ‘Supplemental Opposition To The
Prayer For Preliminary Injunction Or To Temporary Injunction.’18

On February 3, 2000, respondents, through the new counsel, filed their Answer with
Counterclaim,19 praying that petitioner pay them four million pesos (P4,000,000.00)
representing the principal amount of the loan, nine million three hundred thirty three
thousand seven hundred fifty pesos (P9,333,750.00) representing the ‘compounded
monthly interest and annual penalty interest’, two hundred fifty thousand pesos
(P250,000.00) as litigation expenses, and five hundred thousand pesos (P500,000.00)
as attorney’s fees.

In addition, respondents filed a Motion for Admission of Counterclaim Without Payment


of Fees, on the ground that their counterclaim is compulsory in nature, hence it may be
admitted without payment of fees.20

On February 21, 2000, petitioner filed an Urgent Motion to Expunge Motions and
Pleadings Filed by Defendants Kaakbay Finance Corporation and Dennis S. Lazaro,
Particularly Their Answer with Counterclaim and Motion for Admission of Counterclaim
both Dated February 3, 2000 and/or Comment/Opposition (To Said Defendants’
Manifestation and Supplemental Opposition to their Prayer for Preliminary Injunction
and to Temporary Injunction Dated January 24, 2000 and February 3, 2000
Respectively.)21 In this motion, petitioner pointed out that the respondents were being
represented by their counsel, the law firm of Ortega, Del Castillo, Bacorro, Odulio,
Calma, and Carbonell without stating if said law firm is in collaboration with or in
substitution of their previous counsel, respondent Atty. Roldan M. Noynay. Petitioner
argued that the procedure laid down in the rules concerning the change or substitution
of counsel of a party litigant had not been properly complied with by the respondents,
and thus the motions filed by the said law firm should be expunged. In addition,
petitioner argued that respondents’ Answer with Counterclaim should not be admitted,
as it partook of the nature of a permissive counterclaim, which required the payment of
the prescribed filing fees; and since the fees were not paid, the lower court did not
acquire jurisdiction over said Answer.

In its order of February 8, 2000, the trial court granted respondents’ motion for
admission of counterclaim without payment of fees.22

Petitioner then filed a "Supplemental Motion by Way of Motion for Reconsideration" but
this was denied.

Petitioner seasonably appealed to the Court of Appeals where he maintained that the
trial court committed grave abuse of discretion in admitting the answer with
counterclaim, which contains a permissive counterclaim the correct filing fees of which
have not been paid by respondents Kaakbay and Lazaro to the trial court. Thus,
petitioner insisted that the trial court had not acquired jurisdiction over the said answer
with counterclaim. Alternatively, petitioner urged that said answer be expunged from the
record of the case a quo.

On August 22, 2000, the appellate court promulgated its decision, decreeing as follows:

WHEREFORE, the instant petition is DENIED for lack of merit, and accordingly,
DISMISSED.23

Petitioner then moved for reconsideration, but the appellate court denied it in the
resolution dated December 20, 2000.

Hence, this instant petition, where petitioner now contends that the Court of Appeals
committed the following errors, in:
(a) ITS HOLDING THAT "XXX THE LOWER COURT DID NOT COMMIT
GRAVE ABUSE OF DISCRETION IN DECLARING THE COUNTERCLAIM OF
PRIVATE RESPONDENTS KAAKBAY FINANCE CORPORATION AND DENNIS
S. LAZARO AS COMPULSORY, REQUIRING NO PAYMENT OF LEGAL FEES
XXX" WHEN EVEN THE YULIENCO VS. COURT OF APPEALS CASE (G.R. NO.
131692, JUNE 10, 1999, 308 SCRA 206) IT CITED IN ITS DECISION
FAVORABLY SUPPORTS THE ASSERTION OF PETITIONER THAT THE
COUNTERCLAIM IN RESPONDENTS’ ANSWER IN THE CASE A QUO IS A
PERMISSIVE COUNTERCLAIM.

(b) ITS FAILURE TO RULE IN THE ASSAILED DECISION THAT HON. JUDGE
JUANITA T. GUERRERO HAS ACTED WITHOUT OR IN EXCESS OF
JURISDICTION, OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN ISSUING THE ORDERS OF
FEBRUARY 8, 2000 AND MARCH 29, 2000 CONSIDERING THAT THE
COLLECTION OF THE TOTAL AMOUNT OF P14,083,750.00 REPRESENTING
UNPAID LOAN AND ACCRUED INTEREST THEREIN BY WAY OF
COUNTERCLAIM IS COMPULSORY AND THAT THE ANSWER MAY BE
ADMITTED WITHOUT NECESSITY OF PAYING THE DOCKET FEES.

(c) ITS FAILURE TO DECLARE IN THE ASSAILED DECISION THAT THE


MOTION FOR ADMISSION OF COUNTERCLAIM WITHOUT PAYMENT OF
FEES IS A MERE SCRAP OF PAPER AND VIOLATIVE OF SECTIONS 4, 5 AND
6, RULE 15 OF THE 1997 RULES OF CIVIL PROCEDURE.24

The basic issue for resolution in this case is whether the counterclaim of respondents is
compulsory or permissive in nature.

Petitioner assails the Court of Appeals for affirming the trial court’s order that the
counterclaim of respondents is compulsory in nature, thus requiring no payment of legal
fees. Petitioner contends that his complaint against the respondents is predicated on the
unauthorized application of usurious, unconscionable and exorbitant rates of interest
and other fees by respondents Kaakbay and Lazaro to petitioner’s loan without the
latter’s knowledge, as well as the approval and the falsification of the promissory note
supposed to be attached to the Real Estate Mortgage and the Deed of Sale Under Pacto
de Retro.

According to petitioner, he did not attempt to prevent the foreclosure of the mortgage
because what he questions is the validity of the promissory note and the void rates of
interest. He insists that these were falsified. He likewise assails the genuineness of the
deed of sale in dispute. Since the evidence to be presented by the respondents to support
the genuineness and due execution of the questioned promissory note and the Deed of
Sale Under Pacto de Retro as a ground for the specific performance thereof, is not the
same as the evidence to be presented by the petitioner as plaintiff in the case below to
support his claim of fraud employed by respondents, petitioner asserts the counterclaim
cannot be deemed compulsory. He adds that since the respondents demand the payment
of the loan and the interests pursuant to the contract of loan, completely inconsistent
with his claim that subject documents were a nullity, what respondents had filed is not a
compulsory counterclaim.
For their part, respondents contend that their counterclaims are for payment of the
unpaid loan of the petitioner in the amount of P4,000,000.00, the compounded interest
with annual penalty equivalent to P9,333,750.00, litigation expenses of P250,000 and
attorney’s fees of P500,000. The respondents say these are all compulsory and not
permissive counterclaims. Petitioner admitted in his complaint his indebtedness to
respondent Kaakbay Finance Corporation in the amount of P4,000,000.00 and his
liability for interest at the rate of 12% per annum only. These admissions arise out of, or
are necessarily connected with, or have a logical relation to the transaction or occurrence
forming the subject matter of the petitioner’s claim. Consequently, respondents conclude
that the trial court did not err in ruling that payment of the docket fees is no longer
necessary as their counterclaims are compulsory in nature.

In Intestate Estate of Dalisay v. Hon. Marasigan,25 we held that a counterclaim is


compulsory where: (1) it arises out of, or is necessarily connected with the transaction or
occurrence that is the subject matter of the opposing party’s claim; (2) it does not require
the presence of third parties of whom the court cannot acquire jurisdiction; and (3) the
trial court has jurisdiction to entertain the claim. To determine whether a counterclaim
is compulsory or not, we have devised the following tests: (1) Are the issues of fact or law
raised by the claim and the counterclaim largely the same? (2) Would res judicata bar a
subsequent suit on defendant’s claims absent the compulsory counterclaim rule? (3) Will
substantially the same evidence support or refute plaintiff’s claim as well as the
defendant’s counterclaim? and (4) Is there any logical relation between the claim and the
counterclaim?26

In Quintanilla v. Court of Appeals, we said a "compelling test of compulsoriness" is


whether there is "a logical relationship between the claim and counterclaim, that is,
where conducting separate trials of the respective claims of the parties would entail a
substantial duplication of effort and time by the parties and the court."27

Tested against the abovementioned standards, we agree with the appellate court’s view
that respondents’ counterclaims are compulsory in nature. Petitioner’s complaint was for
declaration of nullity, invalidity or annulment of the promissory notes purportedly
attached to the Real Estate Mortgage dated November 16, 1995 and the usurious and
void interest rates appearing therein and the Deed of Sale Under Pacto De Retro.
Respondents’ counterclaim was for the payment of the principal amount of the loan,
compounded monthly interest and annual penalty interest arising out of the non-
payment of the principal loan, litigation expenses and attorney’s fees. There is no dispute
as to the principal obligation of P4,000,000, but there is a dispute as to the rate and
amount of interest. Petitioner insists that the amount of interest is only 12% yearly until
fully paid, while respondents insist on 3.5% monthly. Also, respondents allege that
petitioner owes them P9,333,750.00 representing the compounded monthly interest and
annual penalty, which is disputed by petitioner. Petitioner further seeks the nullification
of the Deed of Sale Under Pacto de Retro for being falsified, while respondents aver the
deed is valid. It thus appears that the evidence required to prove petitioner’s claims is
similar or identical to that needed to establish respondents’ demands for the payment of
unpaid loan from petitioner such as amount of interest rates. In other words, petitioner’s
claim is so related logically to respondents’ counterclaim, such that conducting separate
trials for the claim and the counterclaim would result in the substantial duplication of
the time and effort of the court and the parties. Clearly, this is the situation contemplated
under the "compelling test of compulsoriness." The counterclaims of respondents herein
are obviously compulsory, not permissive. As aptly held by the Court of Appeals, the
issues of fact and law raised by both the claim and counterclaim are largely the same,
with a logical relation, considering that the two claims arose out of the same
circumstances requiring substantially the same evidence. Any decision the trial court will
make in favor of petitioner will necessarily impinge on the claim of respondents, and vice
versa. In this light, considering that the counterclaims of respondents are compulsory in
nature, payment of docket fees is not required. The CA did not err in holding that the
trial court had acquired jurisdiction on the matter.28

WHEREFORE, the petition is hereby DENIED for lack of merit, and the assailed
decision of the Court of Appeals dated August 22, 2000 and its resolution dated
December 20, 2000, in CA-G.R. SP No. 58379, are AFFIRMED. No pronouncement as to
costs.

SO ORDERED.

G.R. No. L-57250 October 30, 1981


NEVILLE Y. LAMIS ENTS, and/or NEVILLE Y. LAMIS, petitioners,
vs.
HON. ALFREDO J. LAGAMON as Judge of the Court of First Instance of Davao, Branch
III, and SANTIAGO MANINGO, respondents.

ABAD SANTOS, J.:


This is an appeal by certiorari to annul the order of the respondent judge, dated April 2,
1981, which denied a motion to dismiss Civil Case No. 1395 of the Court of First Instance
of Davao at Tagum
Santiago Maningo in a complaint dated November 3, 198 1, sued Neville Y. Lamis
Enterprises and Neville Lamis for sums of money in the above-mentioned civil case
under the following causes of action:
FIRST CAUSE OF ACTION
I
That as First Cause of Action against the defendants, it is hereby averred,
that sometimes on January 26, 1979, the defendants obtained a loan from
the plaintiff in the sum of FIFTY FIVE THOUSAND (P 55,000.00) PESOS
payable on or before February 28, 1979 at 14% interest per annum:
II
That said loan, now overdue, is evidenced by a Promise Note signed by the
defendant Neville Y. Lamis Enterprises through its proprietor and
General Manager Neville Y. Lamis, copy of which is hereto attached as
Annex "A" and form part of this complaint the substance and/or content
of said note are hereby quoted as follows:
PROMISSORY NOTE
January 26, 1979

For value received, on or before February 28, 1979, Neville Y. Lamis


Enterprises of Hiway, Villa Consuelo Subdivision, General Santos City,
promise to pay the sum of Fifty Five Thousand Pesos (P55,000.00)
Philippine Currency.
Interest of 14% per annum will be charged on delayed payment and
twenty five (25%) of the amount due as attorney's fees and expenses of
collection in the event of judicial collection.
In case of litigation, jurisdiction shall be vested in the Court of Davao City.

NEVILLE Y. LAMIS ENTS By: (Sgd.) NEVILLE Y. LAMIS


Proprietor/Gen. Manager
III
That the defendants have not paid said loan nor any part thereof, despite
plaintiff's demand for payment;
IV
That for having purposely failed to pay the said loan, the defendants are
now liable to plaintiff for the payment of interest and at, Attorney's fees
which, as per computation, it is already P ll,550.00 for and as interest and
P 20,625.00 for attorney's fees;
SECOND CAUSE OF ACTION
I
That as second cause of action against the defendant, it is hereby averred
that sometimes on January 29, 1979, defendant Neville Y. Lamis
Enterprises, represented by its Proprietor and General Manager Neville Y.
Lamis had, by way of Chattel Mortgage acquired from the plaintiff a
certain personal property worth P200,000.00 on installment basis
hereinafter described as follows:
One (1) unit:
Komatsu Crawler Tractor D8CA-12 with Cummins Engine NH- 22OC1
0168Nl2521 Chassis No. D80A-9659 complete with Hydraulic angle
Dozer with Towing Winch Carco No. 21568. UNIT IN GOOD
OPERATING CONDITION;
II
That the above-described properties had already been delivered to the
defendant subject however to the terms and conditions as provided for
under the Chattel Mortgage contract, the pertinent portion of which reads
as follows:
For value received, I/we jointly and severally promise to
pay to the order of Santiago Maningo at its office, the
principal sum of Two Hundred Thousand, Philippine
Currency with interest at the rate stipulated hereinbelow,
in installment basis as follows:
P120,000.00 — February 16, 1979
P80,000.00 — March 16, 1979
Hereto attached as Annex "B" and form part hereof is the xerox copy of
the Chattel Mortgage Contract covering said properties;
III
That until recently, and despite the lapse of the period stated in the
Chattel Mortgage contract consisting of two installments, no single
payment and/or installment having been made by the defendants to the
prejudice and great damage on the part of the plaintiff;
IV
That for having purposely failed to pay a single payment and/or
installments on the amount due that defendants are now liable to the
penalty of P10.00 for every month or fraction thereof, that an installment
remains overdue, in which case, as per computation under the penalty
clause, of the Chattel Mortgage Contract, the penalty of P500.00
computed as of September 30, 1980, can now be charged and collected
from the defendant;
V
That for having purposely failed to pay a single installment and/or
payment thereof, the defendants are now liable to the plaintiff for
damages in the form of interest and attorney's fees equivalent to 14% and
25% respectively, in which case, as per computation under the Chattel
Mortgage Contract, the interest of P45,661.00 computed as of September
30, 1980 can now be charged and collected from the defendant plus
another amount of P50,000.00 for and as attorney's fees;
THIRD CAUSE OF ACTION
Plaintiff does hereby reproduces and incorporate as part hereof, all the
allegations stated under the first and second cause of action in this
complaint, and thus respectively aver:
I
That as a legal consequence of the Promissory Note and the Chattel
Mortgage Contract the defendants had made and entered into with the
plaintiff as promisee and/or as mortgagee thereof, there a certain right is
created in favor of the plaintiff, the breach thereof, either through the
manipulation of legal maneuvers or through any other means by the
defendants purposely to evade payments of a certain obligations, which
incidentally, is exactly, what the defendants had done here, there entitles
the plaintiff for damages under the provision of Article 19 of the New Civil
Code, which says:
Every person must, in the exercise of his rights, and in the
performance thereof, give everyone his due, and observe
honesty and good faith.
II
That on August 16, 1979, that is several months after the defendants had
failed to pay their obligation with the plaintiff, to the latter's surprise, the
defendants after having received several demands from the plaintiff,
through counsel, in clear abuse of their rights under the provisions of the
Article above-mentioned and basically, for a certain purpose to evade the
fulfillment of their obligations with the plaintiff, had maliciously filed a
groundless suit in the Court of First Instance of Rizal, Branch XXV
thereof, for specific performance against the plaintiff;
III
That actually, said action for Specific performance was filed in bad faith
and basically to evade and/or delay the payments of their obligation with
the plaintiff. It was made for no other purpose except to defeat the rights
of the plaintiff under the law;
IV
That with the filing of the defendant's most malicious complaint against
the plaintiff, the latter had suffered mental anguish, fright, anxieties and
certainly such wounded feeling, where the amount of P200,000.00 had
been asked and prayed for to compensate the plaintiff for his moral
damages;
V
That with the filing of the defendant's most malicious complaint against
the plaintiff there an abuse of a right had been committed by the
defendants, in which case, as a corrective measure against them, the
amount of P 30,000.00 should be imposed by way of example or
correction for the public good; ...
The suit mentioned in par. II of Maningo's Third Cause of Action (supra) was filed by
Neville Lamis Ents. against Santiago Maningo in the Court of First Instance of Rizal
(Civil Case No. 35199) by means of a complaint dated November 16, 1979, alleging the
following causes of action:
FIRST CAUSE OF ACTION
1. That plaintiff is a single proprietorship firm duly established and
existing under the laws of the Philippines with principal office address at
8 Fairlane Street, Fairlane Subdivision, Marikina, Metro Manila; and
defendant is of legal age, Filipino, married, and with residence address at
29 Palm Drive, Bajada, Davao City, where summons may be served;
2. That on January 27,1979 defendant and plaintiff executed a
memorandum of agreement whereby defendant shall specifically advance
unto plaintiff for the latter's logging operations with ETCO TIMBER
CORPORATION at General Santos City which corporation, the proprietor
of plaintiff's firm, NEVILLE Y. LAMIS is now President likewise thereof,
the sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) payable
as follows:
a) IMMEDIATE; UPON SIGNING OF THIS MEMO OF
AGREEMENT .................................................P 50,000.00;
and
b) TO BE RELEASED ONE WEEK FROM DATE
HEREOF............................................................ P 50,000.00
/Par. A-1, (a) & (b)
copy of which memorandum of agreement is herewith attached as Annex
"A" hereof
3. That to the aforesaid conditions defendant only complied and released
the sum of P50,000 upon the signing of the agreement and failed to
release the balance Of P50,000 unto pig within one week from date of the
memorandum of agreement. inspite of the latter's repeated calls and
demands for the release of the same (copy of one of which demands is
herein attached as. Annex "B " hereof, and defendant refused and still
refuses to release the said amount up to the present to the prejudice of the
plaintiff's logging operation and productions;
4. That the performance of aforesaid obligation is now long overdue and
defendant just simply ignores the same;
SECOND CAUSE OF ACTION
1. Plaintiff reproduces herein the allegations in paragraph 1 of the First
Cause of Action
2. That under the same memorandum of agreement in paragraph A No. 2
(a) thereof defendant have covenanted himself unto plaintiff to deliver
one (1) unit of 'D80A-12 Komatsu Bulldozer with winch in good operating
condition, for a value of P200,000.00;
3. That the bulldozer delivered however to the defendant by the plaintiff
was one outside of the specifications covenanted by the parties as it was
later found out by plaintiff after defendant's mechanic have dismantled
the same for repairs before operation, Chat the unit was not D80A-12 but
an outmoded model of Komatsu bulldozer D80A-8 which is much lower
in power than the D80A-12 originally contracted hence, defendant evieted
his warranty under the said memo agreement of 'GOOD OPERATING
CONDITION' and 'D8O-A' to the great prejudice of plaintiff;
4. That the actual value of the tractor model delivered by defendant to
plaintiff is currently tagged at only between P120,000 to P150,000 at well
established outlets thereof and not to reach P200,000 or even P170,000
as valued by defendant.
THIRD CAUSE OF ACTION
1. That plaintiff reproduces the allegation of paragraph 1 of the First Cause
of Action to form an integral part hereof;
2. That under the same memorandum of agreement, aforesaid defendant
further failed to deliver unto plaintiff the 'JH-65 Payloader with log-
grapple, complete and in good operating condition one week after date of
said contract,' in open defiance of paragraph A No. 2 (b) hereof, the
pertinent provision of which is herewith reproduced to wit;
'2. To be released by SANTIAGO MANINGO to N.Y.
LAMIS ENTS/ETCO TIMBER CORP. operations ...
b. JH-65 Payloader with log-grapple
complete and in good operating condition,
after one (1) week hereof ...'
3. That the performance of aforesaid obligation by defendant has been
long overdue and in spite of repeated calls and demands by plaintiff of its
delivery defendant refused and still refuses to deliver the same in
violation of the covenant and to the great prejudice and damage of the
plaintiff;
FOURTH CAUSE OF ACTION
1. That plaintiff reproduces all the allegations contained in paragraph I of
the First Cause of Action to form likewise an integral part hereof;
2. That by reason of the non-performance of defendant, plaintiff suffered
actual financial losses, aside from loss of business good will in its failure
to ship and comply with the terms of the agreement between itself thru
ETCO TIMBER CORP. and their Japanese buyer, MITSUI & CO., LTD. of
Tokyo, Japan under which plaintiff having been assured of the '
compliance of defendant's covenant accepted to supply logs to MITSUI &
CO., LTD., in the volume of about 2,000 cubic meters equivalent to U.S.
$200,000 or approximately equivalent to p 1,460,000 under Mitsui
Foreign Letter of Credit No. G/HK780014 as opened on 18th of November
1978 thru SUMITOMO BANK, LTD. 8 Queen's Road Central, Hongkong
and coursed thru Equitable Banking Corporation under their reference
No. O.B.-L.C. 78/893 as amended to expire on February 28,1979 copy of
which L/C and extension are hereby attached as Annexes "C" and "C-1 "
hereof of which defendant has the full knowledge thereof;
FIFTH CAUSE OF ACTION
1. That plaintiff reproduces ail the allegations contained in paragraph I of
the First Clause of Action to form an integral part hereof;
2. That by reason of the non-performance and breach of defendant's
covenant plaintiff suffered further losses in the repairs of the unit
maliciously misrepresented to by defendant which amount is no less than
P6,000 for labor and parts, and further suffered a great period of time
loss as caused by the non- operating condition of the unit at the time of
delivery thereof and several months thereof thereafter.
SIXTH CAUSE OF ACTION
1. That plaintiff reproduces the allegation contained in paragraph 1 of the
First Cause of Action and made an integral part hereof;
2. That by reason further defendant's non-performance in the contract,
plaintiff suffered moral damages by the evident loss of its credit standing
and commitments as well as mental anxiety and embarrassment to its
creditors and suppliers in the equivalent amount of not less than
P30,000.00;
3. That the acts of defendant merits an imposition of exemplary damages
which the plaintiff asks this Honorable Court to be fixed at P20,000.00;
4. That to enforce its rights the plaintiff has availed of the legal
consultations with special luminaries in Manila, to which in
representation thereof, it has spent no less than P3,000.00;
SEVENTH CAUSE OF ACTION
1. That plaintiff reproduces the allegation contained in paragraph 1 of the
First Cause of Action as intregal part hereof;
2. That by reason of the saturated misrepresentations made by defendant
and with the hope in view that defendant may be able to comply with his
obligations, should proper commercial documentation in good faith are
executed, plaintiff herein unhesitatingly heeded to the requirement of
defendant and executed a promissory note for P55,000.00 inclusive of
P5,000 usurious interest thereon for a period of 30 days, issued on
January 26,1979 to become due on February 28, 1979, and delivered to
defendant on January 27, 1979 to cover the release of the first obligation
of cash advances of defendant; which promissory note is merely a
guarantee of the payment unto defendant should he be able to comply
with his contractual obligations, copy of the same is herewith attached as
Annex "D" hereof,
3. That aside from the aforesaid promissory note defendant still required
plaintiff to further cover the said advance with post dated checks of the
plaintiff which the latter issued originally with its Metro Bank Davao
Account (Magsaysay Branch);
4. That sometime in May 1979, defendant visited plaintiff at their office in
General Santos City renewing its promise to deliver very soon the JH-65
Payloader and P50,000 balance of the memo agreement dated January
27, 1979, provided plaintiff in consideration thereof shall renew its checks
covering the transaction to enable him to produce the cash needed, to
which plaintiff was again deceived by defendant in issuing the following
checks in guarantee of the P50,000 first advanced by him
RCBC Main Office Account No. 9366-2
1. Check No.6923588-P60,000-July 3l, 1979;
2. Check No.6923589-Pl0,000-July 3l, 1979.
All of which checks are now in the possession of defendant;
5. That defendant had the fullest of know that the performance of
payment of plaintiff's aforesaid checks were all dependent upon his
compliance of the original contract of January 27, 1979;
6. That the collection of payment made by defendant unto plaintiff is
obviously showing of his 'loan shark' mentality of charging a total sum of
P20,000 interest charges for a total period of just over four months of
maturity date on the P50,000 originally released by him pursuant to the
contract in open defiance of usury laws;
EIGHT CAUSE OF ACTION
1. That plaintiff reproduces the allegation of paragraph I of the First Cause
of Action as part hereof
2. That by reason further of the continued misrepresentations of
defendant for his farther compliance of their original contract subject
hereof, sometime in June 1979, defendant renewed his prior checks of
guarantee in good faith and issued the following checks amounting to a
total of P170,000 in favor of defendant to wit: a) RCBC Check No.
6923586 dated July 2, 1979 for P100,000 and b) RCBC Check No.
6923587 dated July 9, 1979 for ?70,000; which checks are all in the
possession of defendant;
3. That the issuance of checks were all premised on the guarantee that
defendant shall already comply very soon his promise to deliver the
P50,000 cash advance balance subject of the contract and the JH-65
Payloader likewise covered by the same in order for plaintiff to comply
with its log commitments to its buyers including defendant himself
4. That defendant however continuously failed to comply with his
contractual obligations pursuant to the subject memorandum of
agreement for which reason the defendant has no right to enforce
collection by virtue of aforesaid checks against plaintiff as by the default
of defendant himself as well as misrepresentations and misdelivery of the
required units the obligation of plaintiff did not expire under the same
contract;
FACTS COMMON TO ALL CAUSES OF ACTION ABOVE-MENTIONED
1. Plaintiff reproduces the allegation in paragraph 1 of the complaint as
integral part hereof;
2. That plaintiff is willing to perform its part of the obligation contained in
subject memorandum of agreement between plaintiff and defendant
dated January 27, 1979 provided full compliance by defendant of his
preceding obligations as raised is properly enforced by this Honorable
court and provided further that the prices of logs stipulated therein to be
sold to defendant shall indispensably be adjusted to conform with the
present local current market price;
xxx xxx xxx
The memorandum of agreement in the Lamis complaint reads as follows:
MEMORANDUM OF AGREEMENT
A. TO BE PERFORMED BY SANTIAGO MANINGO:
1. To be advanced by SANTIAGO MANINGO to N.Y. LAMIS ENTS./ETCO
TIMBER operations:
a) Immediate, upon signing of this memo of agreement......... P 50,000.00
b) To be released one (l) week from date hereof......................... 50,000.00
TOTAL.......... P l00,000.00
2. To be released by SANTIAGO MANINGO to N.Y. LAMIS ENTS./ETCO
TIMBER operations:
a) D80 A-12 Komatsu Bulldozer with which, good
operating condition, immediate,
Value............................................. P 200,000.00
b) JH-65 Payloader with long-grapple, complete and in
good operating condition, after one (1) week hereof.
Value .............................................P 180,000.00
B. TO BE PERFORMED BY NEVILLE Y. LAMIS ENTS. (SCHEDULE OF
RE-PAYMENTS):
1. AFTER MITSUI PARTIAL EXPORT ON OR ABOUT
FIRST WEEK FEBRUARY, 1979 FOR 700 CU. M.:
a) Partial payment of cash advance ..............P 55,000.00
b) Down payment on D80A-12 tractor............120,000.00
Total .............................P 175,000.00
2. AFTER LOCAL LOG SHIPMENT WITH SARMIENTO
ON OR ABOUT LAST WEEK FEBRUARY, 1979 for 1,000
CU.M.:
a) Full payment of cash advance..................... P 55,000.00
b) Full payment of D80A-12 tractor.....................
80,000.00
Total..................................P l35,000.00
3. AFTER MITSUI FULL BALANCE REPORT SHIPMENT
ON OR ABOUT END OF MARCH, 1979 FOR 1,200 CU. M.:
Full payment of JH 65 payloader/grapple.................
P180,000.00
WE AGREE:
(Sgd.) SANTIAGO MANINGO
ADDENDUM: SHOULD THE EXPECTED EXPORT
SHIPMENT/S WITH MITSUI & CO., LTD. FAIL,
SUBJECT LOGS OF N.Y. LAMIS ENTS/ETCO TIMBER
CORP. SHALL BE PURCHASED BY L.S. SARMIENTO
INDS. THRU SANTIAGO MANINGO AT THE CURRENT
PRICE OF P350.00/CU. M. FOR EXPORTABLE;
P270/CU. M. FOR LSQ GRADE & P170.00/CU. M. FOR
SAWMILL GRADE, ALL PRICES F.O.B. VESSEL.

NEVILLE Y. LAMIS ENTS By: (Sgd.) NEVILLE Y. LAMIS


Proprietor/Gen. Manager
Davao City, Philippines, January 27, 1979.
By motion dated February 18, 1981, which the defendant filed in Civil Case No. 1395, the
dismissal of the complaint was sought on the following grounds:
(1) THAT THE SUBJECT IS IN 'LIS PENDENS' AND/OR
'MULTIPLICITY OF SUIT' OF A PRIOR AND EXISTING CIVIL CASE
NO. 35199 ENTITLED NEVILLE Y. LAMIS ENTS PLAINTIFF VERSUS
SANTIAGO MANINGO, DEFENDANT, BEFORE CFI PASIG, BRANCH
XXV FILED ON NOVEMBER 16, 1979.
(2) THAT VENUE IN THE HEREIN CASE IS RESPECTFULLY
SUBMITTED TO BE IMPROPERLY LAID.
On the question of venue it is alleged that the proper venue for Civil Case No. 1395
should be Davao City where the plaintiff resides and as stipulated in the promissory note
dated February 26, 1979 and in the chattel mortgage dated February 27, 1979. However,
the respondent judge found that Maningo has "not only legal residence but also physical
residence in Busaon, Tagum Davao" and We are not inclined to disturb this finding
Anent the claim that Davao City had been stipulated the venue, suffice it to say that a
stipulation as to venue does not preclude the filing of suits in the residence of plaintiff or
defendant under Section 2 (b), Rule 4, Rules of Court, in f he absence of qualifying or
restrictive words in the agreement which would indicate that the place named is the only
venue agreed upon by the parties The stipulation did not deprive Maningo of his right to
pursue remedy in the court specifically mentioned in Section 2 (b) of Rule 4, Rules of
Court. Renuntiato non praesumitur. (Polytrade Corporation vs. Blanco, No. L-
27033,Oct.31, 1969,30 SCRA187.)
However, We believe that the first ground invoked in the motion to dismiss is well-taken;
the respondent judge should have dismissed, Civil Case No. 1395 on that ground.
Rule 16, Sec. 1 of the Rules of Court provides that a motion to dismiss an action may be
made, inter alia, on the ground that "there is another action pending between the same
parties for the same cause."
It has been said that for this ground to be invoked "there must be, between the action
under consideration and the other action, (1) Identity of parties, or at least such as
representing the same interest in both actions; (2) Identity of rights asserted and relief
prayed for, the relief being founded on the same facts; and (3) the Identity on the two
preceding particulars should be such that any judgment which may be rendered on the
other action will, regardless of which party is successful, amount to res adjudicata in the
action under consideration." (1 Moran, Rules of Court, pp. 488-489 [1970].)
The petitioner contends that in so far as the complaint in Civil Case No. 1395 seeks to
collect the P 55,000 alleged loan, it should be dismissed on the ground of litis pendencia
because there is another case on the same cause pending between them in the Court of
First Instance of Rizal And with respect to the claim for P 200,000, the same can not be
set up in the present action on the ground of multiplicity of suits since Santiago
Maningo's claim under the deed of chattel mortgage (over the tractor) partook of a
compulsory counterclaim which not having been set up in Civil Case No. 35199 was
forever barred under See. 4, Rule 9 of the Rules of Court.
The private respondent, on the other hand, states that although the causes of action in
Civil Case No. 1395 arose from the Memorandum Agreement sued upon in Civil Case No.
35199, the respective causes of action in the two cases are distinct in nature. He claims
that Civil Case No. 35199 is basically for the performance of certain supposedly valid
obligations whereas Civil Case No. 1395 is principally for collection of over due accounts.
He also argues that on the assumption that the petitioner succeeds in compelling the
private respondents to perform under the Memorandum Agreement, the private
respondent would not be barred from seeking judgment in a separate case for the loan
and the purchase price of the tractor. Finally, he maintains that the evidence to support
the claims in the two actions are not the same.
We find the position of the petitioner tenable. The claim of the private respondent for
P55,000 admittedly arose from the same transaction i.e., the Memorandum of
Agreement sued upon in Civil Case No. 35199, notwithstanding that no mention of the
agreement is made in Civil Case No. 1395. Moreover, it appears that in the answer with a
counter-claim filed by the private respondent as the defendant in Civil Case No. 35199,
the same amount of P55,000 was demanded of the plaintiff therein. Indubitably, in the
resolution of the issues of facts and law in Civil Case No. 35199, relative to the claimed
amount, the right of the private respondent thereto will have to be passed upon.
Similarly the private respondent's claim for the purchase price of the tractor is barred.
This claim should have been set up in Civil Case No. 35199, of which, in one of the causes
of action it was alleged that there was a misdelivery of tractor for which reason the
plaintiff therein asks for the delivery of the tractor specified in the Memorandum
Agreement.
In Yu Lay v. Galmes (40 Phil. 651 [1920]), a counterclaim is compulsory if (a) it matured
before answer; (b) it arises out of or is necessarily connected with the transaction or
occurrence that is the subject matter of the opposing party's claim; (c) it does not require
for its adjudication the presence of third persons of whom the court cannot acquire
jurisdiction; and (d) it is within the jurisdiction of the court. And in Carpena v. Manalo,
(L-13143, April 26, 1961, 1 SCRA 1060), it was held that where the claim is necessarily
connected with or arise out of the transaction involved in the first case, the same claim is
barred if not set up as a counterclaim in the previous case.
It is clear that in the light of the jurisprudence cited, the private respondent's claim for
the purchase price of the tractor is in the nature of a compulsory counterclaim and to
allow it in the present action will violate the principle against multiplicity of suits.
WHEREFORE, the petition is granted; the order of the respondent judge dated April 2,
1981 in Civil Case No. 1395 is hereby set aside and another one entered ordering the
dismissal of said case. No special pronouncement as to costs.
SO ORDERED.
Barredo (Chairman), Aquino, Concepcion, Jr. and De Castro, JJ., concur.

G.R. No. L-33583 February 12, 1972


FE F. BAUTISTA, Municipal Mayor of Pozorrubio, Pangasinan, petitioner,
vs.
CIPRIANO B. PRIMICIAS, JR., VICENTE MILLORA, PORFIRIO SISON, AGERICO
ROSARIO and ALFONSO BINCE JR. as Governor, Vice Governor, and Members of the
Provincial Board, respectively; ANITA T. ESTRADA, Complainant in the Administrative
case involved; and JOSE MARTINEZ, Vice Mayor of Pozorrubio, Pangasinan,
respondents.
Saturnino D. Bautista, Custodio O. Parlade and Doria, Ancheta and Associates for
petitioner.
Juan S. de la Cruz, Provincial Attorney and Teodoro Primicias-Regino for respondents
Agerico Rosario and Jose Martinez.
Magat, Bince, Villar and Associates for respondent Anita T. Estrada.
Vicente Millora in his own behalf and on behalf of respondents Cipriano B. Primicias,
Jr., et al.
RESOLUTION

TEEHANKEE, J.:p
This original action for prohibition with preliminary injunction was filed on June 3, 1971
by the then municipal mayor of Pozorrubio, Pangasinan, against the then provincial
governor and members of the provincial board of Pangasinan and other co-respondents.
The petition questioned the legality and validity of Resolution No. 176 dated May 20,
1971 and of Resolution No. 185 dated May 27, 1971 of respondent provincial board
resolving to preventively suspend petitioner mayor from her office at the instance of
complainant (herein respondent Anita T. Estrada, president of the Pozorrubio Market
Vendors Association, Inc.) who had filed administrative charges against petitioner mayor
for alleged oppression and/or misconduct in office.
The said administrative complaint dated December 29, 1970 was intimately related to a
complaint filed on December 1, 1970 in the Court of First Instance of Pangasinan by the
same market vendors association questioning the validity of the municipal ordinances
sought to be enforced by petitioner mayor against them in the matter of their vacating
their leased market stalls to give way to the construction of a new market building. Said
civil complaint was dismissed by the court per its decision dated April 5, 1971, and
plaintiff appealed the same to the Court of Appeals.
The petitioner further sought the issuance of a restraining order or preliminary
injunction against said resolutions of the provincial board and her impending
suspension thereunder, and the Court issued the corresponding temporary restraining
order per its resolution of June 4, 1971.
Respondents duly filed their respective answers besides a joint motion to lift restraining
order. After discussion of the motion by the parties in their various pleadings, the Court
issued its Resolution of July 2, 1971, as follows: .
... THE COURT resolved: (a) to issue an amended temporary restraining
order so as to restrain the respondents herein from continuing with the
hearing of Administrative Case No. 11, entitled "Anita T. Estrada,
complainant, vs. Fe F. Bautista, etc., respondent," of the Provincial Board
of Pangasinan; (b) to require the respondents to show cause, not later
than July 12, 1971, why the writ of preliminary injunction prayed for
should not be issued; and (c) to set the hearing of the case on the merits
and on the matter of the issuance of a preliminary injunction on
Wednesday, July 14, 1971, at 9:30 a.m.
After the hearing thus held on July 14, 1971, respondents officials filed a manifestation
dated July 19, 1971 informing the Court: .
That on July 17, 1971, the Provincial Board of Pangasinan passed a
resolution suspending indefinitely the continuation of the investigation of
Administrative Case No. 11 entitled Anita Estrada, complainant, versus
Mayor Fe Bautista, respondent, and declaring Resolutions Nos. 176 and
185, both current series, of the Board as functus oficio and without any
further force and effect,
and submitting a certified copy of the resolution referred to, as unanimously approved by
the provincial board. The resolution was approved upon the written recommendation of
then vice-governor Millora who called the board's attention to the corresponding
provisions of the Decentralization Act "that no [administrative] investigation shall
commence or continue within ninety (90) days immediately prior to an election."
(Section 5, Republic Act No. 5185).
Petitioner's counsel filed a counter-manifestation dated August 7, 1971 expressing
concern that the provincial board's "indefinite suspension" of the administrative case
might be lifted after the November 1971 elections, notwithstanding that the said board
had in effect cancelled its questioned resolutions that sought to effect the preventive
suspension of petitioner.
With the expiration of the term of office of petitioner mayor * as well as of respondents
provincial officials as of the end of the year 1971 without any further action having been
taken by the latter and without petitioner's preventive suspension during her said term
having been effected, the issues in the case at bar have become moot and academic.
ACCORDINGLY, the Court resolved to dismiss the case at bar, without pronouncement
as to costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Barredo,
Villamor and Makasiar, JJ., concur.

Footnotes
* As per Comelec certification of Feb. 8, 1972, petitioner was a candidate
for the same office of mayor of Pozorrubio at the Nov. 8, 1971 elections
and lost to the now incumbent Mayor Artemio R. Saldivar.

G.R. No. L-22485 March 13, 1968


CONSUELO V. CALO, doing business under the trade name CVC Lumber Industries,
assisted by MARCOS M. CALO, plaintiffs-appellants,
vs.
AJAX INTERNATIONAL, INCORPORATED, defendant-appellee.
Tranquilino O. Calo, Jr. for plaintiffs-appellants.
Sergio P. Villareal for defendant-appellee.
BENGZON, J.P., J.:
Sometime on May 7, 1959, plaintiff-appellant Calo ordered from defendant-
appellee Ajax International, Inc., 1,200 ft. of John Shaw wire rope at P2.85 per foot. The
transaction was evidenced by Charge Order No. 37071, for P3,420.00.
According to plaintiff Calo, when the wire rope was delivered to Butuan City, the
same was found short of 300 ft. Plaintiff then wrote two letters to defendant asking for
either completion of delivery or account adjustment of the alleged undelivered 300 ft. of
wire rope.
On November 20, 1961, a complaint docketed as Civil Case No. IV-93062 was filed
in the Municipal Court of Manila by one Adolfo Benavides who claimed to have acquired
the outstanding credit account of Calo from defendant Ajax International, Inc. Charge
Order No. 37071 was among those included in the assigned account. Subsequently, a
judgment by default was entered, and a writ of execution issued, against plaintiff Calo.
The latter resorted to this Court on a petition for certiorari, prohibition and mandamus.1
We set aside the judgment of default and writ of execution issued against plaintiff Calo
and remanded the case for further proceedings.
On January 23, 1962, plaintiff Calo, assisted by her husband, Marcos Calo, filed in
the Court of First Instance of Agusan a complaint against defendant asking (1) that the
latter either effect complete delivery of Charge Order No. 37071 or that she be relieved
from paying P855.00 and (2) that the latter indemnify her for P12,000 as attorney's fees,
damages and expenses of litigation.2 The case was docketed as Civil Case No. 860.
Instead of filing an answer, defendant moved for the dismissal of Civil Case 860 on
the ground, inter alia, that the subject thereof was involved and intimately related to
that in Civil Case No. IV-93062 of the Municipal Court of Manila. The court a quo
sustained the motion and dismissed the case.
Plaintiff-appellant moved for reconsideration and new trial. When this failed, she
instituted the present appeal.1äwphï1.ñët
The dismissal of Civil Case No. 860 by the court a quo because of the pendency of
Civil Case No. IV-93062 in the municipal court of Manila is predicated on the
supposition that plaintiff's claim is a compulsory counter-claim that should be filed in
the latter case. There is no question that it arises out of the same transaction which is the
basis of the complaint in Civil Case No. IV-93062 and does not require the presence of
third parties over whom the municipal court of Manila could not acquire jurisdiction.
However, plaintiff's claim is not a compulsory counterclaim in Civil Case No. IV-
93062 for the simple reason that the amount thereof exceeds the jurisdiction of the
municipal court. The rule that a compulsory counterclaim not set up is barred, when
applied to the municipal court, presupposes that the amount involved is within the said
court's jurisdiction. Otherwise, as this Court had already noted in Yu Lay v. Galmes 3 we
would come to the absurd situation where a claim must be filed with the municipal court
which it is prohibited from taking cognizance of, being beyond its jurisdiction.
Besides, the reason underlying the rule, which is to settle all related controversies
in one sitting only, does not obtain. For, even if the counterclaim in excess of the amount
cognizable by the inferior court is set up, the defendant cannot obtain positive relief. The
Rules allow this only for the defendant to prevent plaintiff from recovering from him. 4
This means that should the court find both plaintiff's complaint and defendant's
counterclaim (for an amount exceeding said court's jurisdiction) meritorious, it will
simply dismiss the complaint on the ground that defendant has a bigger credit. Since
defendant still has to institute a separate action for the remaining balance of his
counterclaim, the previous litigation did not really settle all related controversies.
Plaintiff Calo's claim of P12,000.00 not being a compulsory counterclaim in Civil
Case No. VI-93062, it need not be filed there. The pendency then of said civil case could
not be pleaded in abatement of Civil Case No. 860. Consequently, the lower court erred
in dismissing plaintiff's complaint.
WHEREFORE, the order of dismissal appealed from is hereby reversed and the
case remanded for further proceedings. Costs against appellee Ajax International, Inc. So
ordered.

G.R. No. L-28466 March 27, 1971


ALBERTO T. REYES, SATURNINO LIWANAG and LORENZO HERNANDEZ,
petitioners,
vs.
THE COURT OF APPEALS and TEODORO KALAW, JR. respondents.
Quijano and Arroyo for petitioners.
J.A. Perello and Associates and Cacnio, Pablo and Associates for respondent Teodoro
Kalaw, Jr.

REYES, J.B.L., J.:


Appeal by petitioners-plaintiffs from the decision of the Court of Appeals (in CA-G.R.
No. 36043-R) affirming the decision of the Court of First Instance of Manila (Civil Case
No. 54369), with the sole modification that plaintiffs are ordered to pay defendant
(respondent herein) the sum of P50,000.00 as temperate damages.
The pertinent facts are herein stated.
Plaintiffs-appellants are lessees of defendant's premises located at Nos. 686, 688 and
690 Rizal Avenue, Manila, where they also conduct their respective businesses. The lease
was oral and on a month-to-month basis. Plaintiffs have been occupying the premises for
a period of from 10 to 15 years as of the filing of the complaint. On 8 May 1962,
defendant started sending out to each of sad plaintiffs notices to vacate the premises to
give way for the demolition of the old building occupied by them and the eventual
construction of a new one. The notices were received by plaintiffs on their respective
dates, namely, 8 May 1962, 21 September 1962, 10 October 1962 and 15 January 1963.
Each of the said notices gave plaintiffs a period of time within which to move out. The
last notice gave sad plaintiffs 24 hours within which to vacate the premises.
On 16 January 1963, as previously scheduled, defendant started the demolition of the
roofing and upper sidings of the building and also the fencing thereof, although the
demolition of the back portion actually started on 7 January 1963.
On 17 January 1963, plaintiffs filed a complaint for forcible entry with the City Court
against defendant, praying, among others, for a writ of preliminary injunction (which
was granted) and damages. The defendant counterclaimed for ejectment and damages
for alleged loss of the use and occupation of his premises in the form of (a) fixed losses in
the amount of P177,869.06; (b) monthly losses in the amount of P27,295.00 from 15
January 1963; and (c) P1,000.00 daily losses, also from 15 January 1963, until
possession is restored.
On 23 February 1963, the City Court rendered its decision in favor of plaintiffs, later
amended on 24 May 1963 because of the intervening Compromise Agreement between
plaintiff Go Ban and defendant, the dispositive portion of which reads:
WHEREFORE, the COMPROMISE AGREEMENT between Go Ban and
the defendant is hereby approved and judgment is hereby rendered in
conformity therewith; the lease agreement between Alberto T. Reyes,
Lorenzo Hernandez and Saturnino Liwanag, on one hand and the
defendant on the other hereby extended to one (1) year from 23 February
1963 at the same rate (P800.00 a month); declaring the preliminary
injunction heretofore issued enjoining the defendant from further
performing acts of demolition of the premises hereby declared permanent
during the period of the intended lease, and ordering the defendant
Teodoro Kalaw, Jr., to restore the premises to the same condition as they
were before demolition started, particularly restoring the roofing of the
premises and removing the fence thereon constructed within three (3)
days from receipt hereof; ordering the defendant to pay unto each of
plaintiffs,. except Go Ban, compensatory damages for the impairment
caused on their business establishment at the rate of TWENTY-FIVE
PESOS (P25.00) a day from 16 January 1963 until the premises shall have
been restored to its former condition; to pay the sum of TWO HUNDRED
PESOS (P200.00) as attorney's fees, plus the costs of the suit.
Defendant's counterclaim for want of merit is hereby dismissed.
Defendant appealed the aforesaid decision to the Court of First Instance. In a decision
dated 11 January 1965, later amended on 11 February 1965, the said Court dismissed the
complaint and all claims and counterclaims, among others. The dispositive part of the
decision follows:
WHEREFORE, the Court hereby renders judgment, dismissing the
complaint and all claims and counterclaims; ordering Plaintiff Alberto
Reyes to pay the P800.00 monthly rentals for and beginning with
November, 1962, until he vacates the premises; ordering each of plaintiffs
Saturnino Liwanag and Lorenzo Hernandez to pay defendant the
P800.00 monthly rentals from 15 January 1963 until they vacate the
premises; ordering the plaintiffs to vacate the premises designated as Nos.
686, 688 and 690 Rizal Avenue, Manila, immediately from and after the
date this judgment becomes final and executory.
The preliminary injunction is hereby ordered dissolved. No costs.
Both parties appealed to the Court of Appeals which, in turn, rendered its decision on 21
November 1967, affirming the decision of the Court of First Instance, with the sole
modification that plaintiffs should also pay to defendant Kalaw the sum of P50,000.00
as temperate damages.lâwphî1.ñèt The dispositive portion of the decision is quoted
below:
WHEREFORE, with the sole modification that plaintiffs are ordered to
pay defendant the sum of P50,000.00 as temperate damages, the decision
appealed from is AFFIRMED in all other respects. Costs in this instance
against the plaintiffs in favor of defendant.
Hence, the appeal by plaintiffs to this Court. The following errors are assigned in their
brief:
The Court of Appeals erred in —
1. Concluding that defendant did not take the law in his own hands, contrary to its own
finding that the plaintiffs were in possession of the premises as of the time of demolition;
2. Refusing to decide the issue raised in the plaintiffs' second and third assignments of
error, contrary to Section 33 of the Judiciary Act and Section 4, Rule 51, of the Revised
Rules of Court; and in
3. Awarding P50,000.00 temperate damages aside from the usual monthly rental of
P800.00 in favor of the defendant.
The issue of whether respondent took the law in his own hands is clearly factual. It
invites calibration of the whole evidence, considering mainly the credibility of witnesses,
existence and relevancy of specific surrounding circumstances, their relation to each
other and to the whole, and the probabilities of the situation. Being a question of fact, it
is for the Court of Appeals to decide, 1 and its findings will not be disturbed by this Court
unless clearly baseless or irrational. 2 The exception do not obtain in this case.
It has been clearly established in the foregoing that respondent was assured of
petitioners' vacating the premises after the Christmas season, specifically on or before 15
January 1963. Respondent was putting up a P1,700,000, 9-story, building in lieu of the
old one occupied by petitioners, among other tenants. As early as 8 May 1962,
petitioners had been already notified "to vacate within 60 days" from said date.
Petitioners requested for an extension until after the Christmas season for the reason
that the 60-day period was insufficient for petitioners to move their respective
businesses to new places. ln the meantime, respondent completed solution of the
technical problems of the proposed building. The services of architect Juan Nakpil were
contracted; the loan applications for the project were followed up; municipal licenses
were secured and paid for so that the construction could be started; and a number of
guards were even hired to secure the site of the new building.
From 8 May 1962, three more notices were sent to petitioners, dated 21 September 1962,
10 October 1962 and 15 January 1963, that construction would commence after the
Christmas season. These notices were not questioned. On the contrary, and as found by
the Court of Appeals, petitioners led respondent to believe that the promises would be
voluntarily vacated on or before 15 January 1963. Moreover, when the respondent
started demolishing the back part of the building on 7 January 1963, which fact was
known to petitioners, nothing was done to protest the demolition or ask for another
extension. On 16 January 1963, when the demolition of the old building reached the
portion tenanted by petitioners, petitioners saw respondent merely to get a written
assurance of priority in leasing out spaces in the new building but not for another
extension.
Under the foregoing circumstances, it can hardly be believed that respondent forcible
entered the leased premises and took the law in his own hands. The given assurance of
vacating on or before 15 January 1963 was clearly proved. Respondent's belief in good
faith that tenant petitioners would leave voluntarily as scheduled was well-founded, not
only because of the uncontested reminders to vacate but also because of petitioners'
passive attitude when, finally, the demolition started. The fact, therefore, that petitioners
reneged on their promises and chose to continue staying in the premises at the time the
scheduled demolition took place should not be taken against respondent. In view hereof,
there is no reason to disturb the Court of Appeals' finding that "the defendant's act of
ordering the fencing of the premises could not be considered done in bad faith... (or) that
he took the law in his own hands." 3 A pronouncement of good faith cannot be reviewed
on appeal by certiorari, 4 especially since We find no conflict in the Court of Appeals'
findings in this regard.
The second issue was raised in Appellants' Brief but not in the main petition for
certiorari. It is alleged that the Court of Appeals refused to decide the second and third
assignments of error presented by plaintiffs in their appeal to the said Court, which are:
(a) the Court of First Instance erred in not granting plaintiffs-appellants' motion for the
execution of the mandatory injunctive relief granted in the City Court decision for failure
of the defendant-appellant to restore the roofings and remove the fence constructed
thereon within three days from receipt of the decision and/or to pay the sum of P25.00
compensatory damages daily to each of the plaintiffs-appellants until the premises are
restored to their former condition; and (b) in ordering each of the plaintiffs-appellants to
pay P800.00 monthly rental in the premises under its present condition, devoid of
roofings and with fencing on their frontage for at least one year subsequent to the filing
of this action.
Section 33 of the Judiciary Act of 1948 5 partly provides that "every decision of the Court
of Appeals shall contain complete findings of fact on all issues properly raised before it."
This provision has been reproduced in Section .1, Rule 51, of the Revised Rules of Court,.
In the case of Ramos, et al. vs. Ramos, et al.,6 it has been held that the law does not
impose on the Court of Appeals the duty of stating complete findings of facts on all errors
assigned but merely on all issues properly raised before it.
It is well-settled in this jurisdiction that, in a trial de novo on appeal, the Court of First
Instance will not affirm, reverse, or modify the judgment appealed from inferior courts,
for the simple reason that there is no judgment to affirm or modify, because all the
proceedings had in the Municipal Court, including the judgment, do not in
contemplation of law exist, having been vacated upon perfection of the appeal, and the
only instance when said judgment appealed from is revived is when the appeal is
withdrawn or dismissed. 7 For under Section 9, Rule 40, of the Rules of Courts, 8 a
"perfected appeal" from the city court to the court of first instance "shall operate to
vacate the judgment" of the city court, and "the action when duly docketed in the court of
first instance shall stand for trial de novo upon its merits, in accordance with the regular
procedure in that court, as though the same had never been tried before and was
originally there commenced." 9 Since all the proceedings in the city court including the
judgment become, as it were, inexistent in case of appeal to the Court of First Instance,
and since trial de novo must be held in the latter court, the execution of the aforesaid
decision of -the City Court (requiring the lessor to restore the roofing and remove the
fence and/or pay P25.00 compensatory damages daily to each of the plaintiffs-appellants
until the premises are restored to their former condition) was not yet proper and
warranted. Moreover, if a case is to be tried de novo, there is always the possibility that
the trial court may make different findings that will support a judgment contrary to that
of the inferior court. As such, the rights of the parties are changed. If the inferior court's
decision were to be executed after appeal therefrom, the Court of First Instance would
have to undo what it had previously ordered to be done; hence, justice would hardly be
served if it were mandatory for the Court of First Instance to order the execution of the
City Court's decision. As it turned out, the original judgment was superseded by that of
the Court of First Instance in this case. The City Court's decision upon rendition of the
Court of First Instance judgment "become a thing of the past, without life, purpose or
effect." It is the decision of the Court of First Instance that prevails. 10 Finally, the city
court decision having been superseded, the issue raised now . has become moot and
academic and, therefore, cannot be properly raised.
The same reason hold true as regards the other error assigned in the Court of Appeals.
Besides, the records reveal that in spite of the fencing and removal of the part of the roof,
plaintiffs were able to continue their respective businesses. The Court of Appeals in fact
found as not substantiated by competent evidence the claim of plaintiffs-appellants that
their respective gross sales suffered a reduction.lâwphî1.ñèt The books of plaintiff
Hernandez showed an increase in his 1963 gross sales as compared to those of 1962. 11
On the last issue of whether temperate damages may be awarded in favor of respondent
landlord, it has been held that while damages may be adjudged in forcible entry and
detainer cases, these "damages" mean "rents" or "the reasonable compensation for the
use and occupation of the premises," 12 or "fair rental value of the, property." Profits
which the plaintiff might have received were it not for the forcible entry or detainer do
not represent a fair rental value. 14
Former Chief Justice Moran makes the following comment as to the nature of damages
that may be recovered in an action for forcible entry and detainer:
But what is the character of these damages? Since the only issue in actions
for forcible entry and detainer is physical possession, the damages which
plaintiff is entitled to are such as he may have sustained as a mere
possessor. Material possession involves only the enjoyment of the thing
possessed, its uses and the collection of its fruits, and these are the only
benefits which the possessor is deprived of in losing his possession. In
other words, plaintiff is entitled only to those damages which are caused
by his loss of the use and occupation of the property, and not to such
damages as are caused to the land or building during the unlawful
possession, which he may recover only if he were the owner of the
property, and he cannot be declared as such in an action for forcible entry
and detainer. Damages to property may be recovered only by the owner in
an ordinary action." 15 .
This Court had further occasion to explain the meaning of "damages" in ejectment cases
when it said in Mitschiener vs. Barrios, supra, that —
Undoubtedly, these pronouncements of the Supreme Court were taken
into consideration by the authors of the Rules of Court when, although in
section 1 of Rule 72, 16 plaintiff is authorized to sue for the restitution of
possession together with damages, 'in drafting section 6 of Rule 72, 17 as to
judgment to be pronounced, the word 'damages' was eliminated, placing,
in lieu thereof, the words 'reasonable compensation for the use and
occupation of the premises.'
1. SEC. 6. Judgment. -If upon trial the court finds that the complaint is
not true, it shall render judgment in favor of the defendant for the
restitution of the premises, for the sum justly due as arrears of rent or as
reasonable compensation for the use and occupation of the premises, and
for costs. If a counterclaim is established, the court shall render judgment
for the sum found in arrears from either party, and award costs as justice
requires.'
That is, in an ejectment case, plaintiff may recover either rents or the
reasonable compensation for the use and occupation of the premises,
loosely designated in sections 1 18 and 8 19 of Rule 72, as 'damages,' which
may be designated also as 'fair rental value of the property.' When rents
are adjudged no reasonable compensation for the use and occupation of
the property can be adjudicated, while, inversely, when reasonable
compensation is adjudged, it is because no rents are adjudicated.
In the more recent case of Ramirez vs. Sy Chit, 20 the aforesaid ruling on the meaning of
damages was reiterated when this Court held that damages recoverable by plaintiff under
Section 1, Rule 70 (formerly Rule 72), are those which correspond to the reasonable
value of the use and occupation of the property, which in this case is the agreed monthly
rental of P230.00 for the land leased. It thus considered the award of P25.00 as damages
for every day of delay in addition to the agreed monthly rental as an error and without
basis in law. The pertinent portion of the decision is quoted below:
The trial court held defendant liable 'to pay plaintiff the sum of P25.00 a day for every
day of delay as damages until he finally vacates the premises, in addition to the agreed
current rental that may accrue.' This is an error. The damages recoverable by the
plaintiff under Section 1, Ride 70 (formerly Rule 72) are those which correspond to the
reasonable value of the use and occupation of the property, which in this case is the
agreed monthly rental of P230.00. The award, therefore, of P25.00 as damages for
every day of delay in addition to the agreed monthly rentals is without basis in law." 21
Since temperate damages are neither "rents" nor "reasonable compensation for the use
and occupation of the premises," nor "fair rental value" as above-stated, and since the
agreed rental itself was adjudged in favor of respondent, 22 We are constrained to deny
the temperate damages awarded by the Court of Appeals.
However, in view of the plaintiffs-appellants' repeated reneging on their promises to
vacate, and their resorting to litigation to unreasonably prolong their holding unto the
appellee's property for eight years, the appellee is also entitled to recover in these
proceedings attorneys' fee under Article 2208 of the New Civil Code (Ramirez vs. Sy
Chit, ante) fees that we fix at P2,500 Moreover, this decision does not preclude
respondent from filing in the competent court a separate suit for damages consisting of
other losses allegedly sustained by him as a result of the wrongful withholding of
possession by petitioners-appellants, especially since this question had been raised in the
city court but were beyond its jurisdiction to award. In Zambales Chromite Mining Co.
vs. Robles, it was ruled by this Court that —
...The Rules expressly provide that upon appeal from the judgment of a justice of the
peace to the court of first instance, the ease shall stand for trial de novo (Section 9, Rule
40). This provision has been interpreted to mean that parties are prevented from
raising issues in the court of first instance which were not raised in the justice of the
peace court.
xxx xxx xxx
We must call attention to the fact that the rules, which have the. force of
law, provide the manner and occasion when issue are to be raised for
adjudication. If the rules were to be ignored and We permit litigants to
raise issues without order and regulation, confusion would arise. This
would certainly happen were we to allow the issues the defendant raised
in his answer in the Court of First Instance. The defendant-appellant is
not precluded from raising his counterclaim in a separate action if he
decides to do so. But in view of the fact that the trial in the Court of First
Instance in an appeal is merely a trio de novo, We are constrained to
dismiss the counterclaim in pursuance of the dictates and mandate of the
rules." (Emphasis supplied)
While said damages arose out of, or are necessarily connected with, the same transaction
or occurrence which was the wrongful withholding of possession, they are not a
compulsory counterclaim because they exceed the jurisdiction of the inferior court. In
Calo vs. Ajax International, Inc., 24 We held that the rule that a compulsory counterclaim
is barred if not set up, when applied to municipal courts presupposes that the amount
involved is within the said court's jurisdiction. The reason for the rule relating to
counterclaims is to avoid multiplicity of suits and to dispose of the whole matter in
controversy in one action, and adjustment of defendants demand by counterclaim rather
than by independent suit. 25 This reason, however, does not obtain where the amount
exceeds the jurisdiction of the inferior court, for, as aptly stated in Calo vs. Ajax
International, Inc., supra —
... even if the counterclaim in excess of the amount cognizable by the
inferior court is set up, the defendant cannot obtain positive relief. The
Rules allow this only for the defendant to prevent plaintiff from
recovering from him (Rule 5, petition 5, Rules of Court). This means that
should the court find both plaintiff's complaint and defendant's
counterclaim (for the amount exceeding said court's jurisdiction)
meritorious it will simply dismiss the complaint on the ground. that
defendant has a bigger credit. Since defendant still has to institute a
separate action for the remaining balance of his counterclaim, the
previous litigation did not really settle all related controversies.
FOR THE FOREGOING REASONS, the decision appealed from is modified by deleting
therefrom the award of temperate damages, but sentencing plaintiffs-appellants to pay
respondent Teodoro Kalaw Jr., P2,500, attorney's fees, without prejudice to said
respondent's right to file a separate suit with the competent court for the recovery of the
other damages claimed by him in the inferior courts. Thus modified, the decision of the
Court of Appears is affirmed in all other respects. No special pronouncement as to costs.

G.R. No. L-46000 March 18, 1985


GLICERIO AGUSTIN (Deceased) as Administrator of the Intestate Estate of Susana
Agustin, petitioner-plaintiff-appellant,
vs.
LAUREANO BACALAN and the PROVINCIAL SHERIFF OF CEBU, respondents-
defendants-appellees.

GUTIERREZ, JR., J.:


The precursor of this case was a complaint for ejectment with damages filed by plaintiff-
appellant Agustin, as adininistrator of the Intestate Estate of Susana Agustin, against
defendant-appellee Bacalan, before the City Court of Cebu.
Bacalan is a lessee of a one-door ground floor space in a building owned by the late
Susana Agustin. Due to nonpayment of rentals despite repeated demands an action to
eject him was filed.
In his complaint, the plaintiff-appellant prayed that the defendant-appellee be ordered to
immediately vacate the place in question, to pay plaintiff-appellant the sum of P2,300.00
representing arrearages in rentals plus the corresponding rentals until he actually
vacates the place, attorney's fees, expenses, and costs.
In his answer, the defendant-appellee included a counter-claim alleging that the present
action was "clearly unfounded and devoid of merits, as it is tainted with malice and bad
faith on the part of the plaintiff for the obvious reason that plaintiff pretty well knows
that defendant does not have any rentals in arrears due to the estate of Susana Agustin,
but notwithstanding this knowledge, plaintiff filed the present action merely to annoy,
vex, embarrass and inconvenience the defendant." He stated, "That by virtue of the
unwarranted and malicious filing of this action by the plaintiff against the defendant, the
latter suffered, and will continue to suffer, actual and moral damages in the amount of
no less than P50,000.00; P10,000.00 in concept of exemplary damages. In addition,
defendant has been compelled to retain the services of undersigned counsel to resist
plaintiffs' reckless, malicious and frivolous claim and to protect and enforce his rights for
which he obligated himself to pay the further sum of P3,500.00 as attorney's fees."
The City Court of Cebu subsequently rendered judgment dismissing the counterclaim
and ordering the defendant to vacate the premises in question and to pay the plaintiff the
sum of P3,887.10 as unpaid back rentals and the sum of P150.00 as attorney's fees' From
this decision, the defendant filed an appeal with Branch Ill of the Court of First Instance
of Cebu. The case was designated as Civil Case No. R-12430.
Availing of Republic Act 6031 which does away with trials de novo in appeals before it,
the Court of First Instance rendered a decision, the dispositive portion of which reads:
WHEREFORE, based on all the foregoing considerations, the appealed
judgment is hereby set aside. Judgment is hereby required in favor of the
defendant—
1. Ordering the plaintiff to pay.
a) P10,000.00 as moral damages;
b) P5,000.00 as exemplary damages;
c) P1,000.00 as attorney's fees; and
2. With costs against plaintiff.
JUDGMENT REVERSED.
No appeal was taken by the plaintiff-appellant. The decision lapsed into finality and
became executory. A writ of execution was issued by virtue of which a notice to sell at
public auction real properties belonging to the estate of Susana Agustin was issued by the
Deputy Sheriff to satisfy judgment in the case. Plaintiff's counsel filed a motion for
reconsideration, confessing his fault and giving the reason why he failed to perfect the
appeal on time. The motion was denied.
Thereafter, with the aid of new counsel, the plaintiff-appellant filed a complaint with
Branch V, Court of First Instance of Cebu, against the defendant and the Deputy Sheriff
of Cebu for the declaration of the nullity of the above-cited decision of Branch III, Court
of First Instance of Cebu in the ejectment case on the ground that the exercise of its
appellate jurisdiction was null and void from the beginning for the following reasons:
(a) It grants relief in the total sum of P16,000.00 (exclusive of costs)
distributed thus:
P10,000.00 as moral damages
P5,000.00 as exemplary damages
P1,000.00 as attorney's fees
which is clearly beyond the jurisdiction of the City Court of Cebu; Section
88 of the Judiciary Act of 1948, as amended by Rep. Acts Nos. 2613 and
3828, limits the jurisdiction of the city courts in civil cases to P10,000.00
as the maximum amount of the demand (exclusive of interest and costs);
(b) Moreover, said Decision (Annex "G") grants moral damages to the
defendant in the sum of P10,000.00 which constitutes a grave abuse of
discretion amounting to lack of jurisdiction, there being no evidence to
support it and the subject matter of the suit in Civil Case No. R-13504
being purely contractual where moral damages are not recoverable.
A motion to dismiss was filed by the defendant on the grounds that the plaintiff has no
cause of action and that the court lacks jurisdiction to declare the nullity of a decision of
another branch of the Court of First Instance of Cebu.
While rejecting the second ground for the motion to dismiss, the court sustained the
defendant and ruled:
Clearly from a reading of the complaint, the plaintiff seeks the annulment
of the decision rendered by the Third Branch of this Court because the
award exceeded the jurisdiction amount cognizable by the City Court of
Cebu and the said Branch III of this Court has no jurisdiction to award the
defendants herein (plaintiff in Civil Case No. 12430) an amount more
than P10,000.00;
It is the considered opinion of this Court that this allegation of the herein
plaintiff cannot be availed of as a ground for annulment of a judgment. It
may perhaps, or at most, be a ground for a petition for certiorari. But
then, the remedy should be availed of within the reglementary period to
appeal. Nevertheless, even if the plaintiff did take his cause by certiorari,
just the same, it would have been futile....
xxx xxx xxx
In fine, this Court believes that the present complaint fails to allege a valid
cause of action as the same is only a clear attempt at utilizing the remedy
for the annulment of the judgment rendered by this Court in Civil Case
No. 12430 to offset the adverse effects of failure to appeal.
Plaintiff-appellant's motion for reconsideration was denied, prompting him to file an
appeal before the Court of Appeals, which, in a resolution, certified the same to us on the
ground that it involves pure questions of law.
We ruled in Macabingkil v. People's Homesite and Housing Corporation (72 SCRA 326,
citing Reyes v. Barretto-Datu, 94 Phil. 446, 448-449)-
Under our rules of procedure, the validity of a judgment or order of the
court, which has become final and executory, may he attacked only by a
direct action or proceeding to annul the same, or by motion in another
case if, in the latter case, the court had no jurisdiction to enter the order
or pronounce the judgment (section 44, Rule 39 of the Rules of Court).
The first proceeding is a direct attack against the order or judgment,
because it is not incidental to, but is the main object of, the proceeding.
The other one is the collateral attack, in which the purpose of the
proceedings is to obtain some relief, other than the vacation or setting
aside of the judgment, and the attack is only an incident. (I Freeman on
Judgments, sec. 306, pages 607-608.) A third manner is by a petition for
relief from the judgment order as authorized by the statutes or by the
rules, such as those expressly provided in Rule 38 of the Rules of Court,
but in this case it is to be noted that the relief is granted by express
statutory authority in the same action or proceeding in which the
judgment or order was entered ...
The question is thus poised, whether or not the present action for the annulment of the
judgment in the ejectment case is the proper remedy after it has become final and
executory.
To this procedural dilemma, the solution lies in the determination of the validity of the
judgment sought to be annulled, for against a void judgment, plaintiff-appellant's
recourse would be proper.
There is no question as to the validity of the court's decision with respect to the issue of
physical possession of property, the defendant-appellee's right to the same having been
upheld. However, the plaintiff-appellant assails the money judgment handed down by
the court which granted damages to the defendant-appellee. By reason thereof, he seeks
the declaration of the nullity of the entire judgment.
It is the plaintiff-appellant's contention that moral damages may not properly be
awarded in ejectment cases, the only recoverable damages therein being the reasonable
compensation for use and occupancy of the premises and the legal measure of damages
being the fair rental value of the property.
Plaintiff-appellant loses sight of the fact that the money judgment was awarded the
defendant-appellee in the concept of a counterclaim. A defending party may set up a
claim for money or any other relief which he may have against the opposing party in a
counterclaim (Section 6, Rule 6, Revised Rules of Court). And the court may, if
warranted, grant actual, moral, or exemplary damages as prayed for. The grant of moral
damages, in the case at bar, as a counterclaim, and not as damages for the unlawful
detention of property must be upheld. However, the amount thereof is another matter.
Plaintiff-appellant raises the issue of whether or not the Court of First Instance may, in
an appeal, award the defendant-appellee's counterclaim in an amount exceeding or
beyond the jurisdiction of the court of origin.
It is well-settled that a court has no jurisdiction to hear and determine a set-off or
counterclaim in excess of its jurisdiction (Section 5, Rule 5, Revised Rules of Court; Ago
v. Buslon, 10 SCRA 202). A counterclaim beyond the court's jurisdiction may only be
pleaded by way of defense, the purpose of which, however, is only to defeat or weaken
plaintiff's claim, but not to obtain affirmative relief (Section 5, Rule 5, Revised Rules of
Court). Nevertheless, the defendant-appellee, in the case at bar, set up his claim in excess
of the jurisdiction of the city court as a compulsory counterclaim. What is the legal effect
of such a move?
Pertinent to our disposition of this question is our pronouncement in the case of Hyson
Tan, et al. v. Filipinas Compania de Seguros, et al., (G.R. No. L-10096, March 23, 1956)
later adopted in Pindangan Agricultural Co., Inc. v. Dans (6 SCRA 14) and the later case
of One Heart Club, Inc. v. Court of Appeals (108 SCRA 416) to wit:
xxx xxx xxx
... An appellant who files his brief and submits his case to the Court of
Appeals for decision, without questioning the latter's jurisdiction until
decision is rendered therein, should be considered as having voluntarily
waives so much of his claim as would exceed the jurisdiction of said
Appellate Court; for the reason that a contrary rule would encourage the
undesirable practice of appellants submitting their cases for decision to
the Court of Appeals in expectation of favorable judgment, but with intent
of attacking its jurisdiction should the decision be unfavorable. ...
Thus, by presenting his claim voluntarily before the City Court of Cebu, the defendant-
appellee submitted the same to the jurisdiction of the court. He became bound thereby.
The amount of P10,000.00 being the jurisdictional amount assigned the City Court of
Cebu, whose jurisdiction the defendant-appellee has invoked, he is thereby deemed to
have waived the excess of his claim beyond P10,000.00. It is as though the defendant-
appellee had set up a counterclaim in the amount of P10,000.00 only. May the Court of
First Instance then, on appeal, award defendant-appellee's counterclaim beyond that
amount?
The rule is that a counterclaim not presented in the inferior court cannot be entertained
in the Court of First Instance on appeal (Francisco, The Revised Rules of Court in the
Philippines, Vol. III, p. 26, citing the cases of Bernardo v. Genato, 11 Phil. 603 and Yu
Lay v. Galmes, 40 Phil. 651). As explained in Yu Lay v. Galmes— "Upon an appeal to a
court of first instance from the judgment of a justice of the peace, it is not possible,
without changing the purpose of the appeal, to alter the nature of the question raised by
the complaint and the answer in the original action. There can be no doubt, therefore, of
the scope of the doctrine laid down in the several decisions of the Court. Consequently,
We hold that, upon an appeal to the Court of First Instance, the plaintiff as well as the
defendant cannot file any pleading or allegation which raises a question essentially
distinct from that raised and decided in the justice of the peace court. "This rule was
reiterated in cases from Ng Cho Cio v. Ng Diong (1 SCRA 275) to Development Bank of
the Philippines v. Court of Appeals (116 SCRA 636).
Thus, the defendant-appellee's counterclaim beyond P10,000.00, the jurisdictional
amount of the city Court of Cebu, should be treated as having been deemed waived. It is
as though it has never been brought before trial court. It may not be entertained on
appeal.
The amount of judgment, therefore, obtained by the defendant-appellee on appeal,
cannot exceed the jurisdiction of the court in which the action began. Since the trial court
did not acquire jurisdiction over the defendant's counterclaim in excess of the
jurisdictional amount, the appellate court, likewise, acquired no jurisdiction over the
same by its decisions or otherwise. Appellate jurisdiction being not only a continuation
of the exercise of the same judicial power which has been executed in the court of
original jurisdiction, also presupposes that the original and appellate courts are capable
of participating in the exercise of the same judicial power (See 2 Am. Jur. 850; Stacey
Cheese Company v. R.E. Pipkin, Appt. 155 NC 394, 71 S.E. 442, 37 LRA 606) It is the
essential criterion of appellate jurisdiction that it revises and corrects the proceedings in
a cause already instituted, and does not create that cause (See 2 Am. Jur 850 citing
Marbury v. Madison, 1 Cranch US, 137, 2 L. ed. 60).
It is, of course, a well-settled rule that when court transcends the limits prescribed for it
by law and assumes to act where it has no jurisdiction, its adjudications will be utterly
void and of no effect either as an estoppel or otherwise (Planas v. Collector of Internal
Revenue, 3 SCRA 395; Parades v. Moya, 61 SCRA 526). The Court of First Instance, in
the case at bar, having awarded judgment in favor of the defendant-appellee in excess of
its appellate jurisdiction to the extent of P6,000.00 over the maximum allowable award
of P10,000.00, the excess is null and void and of no effect. Such being the case, an action
to declare the nullity of the award as brought by the plaintiff-appellant before the Court
of First Instance of Cebu, Branch V is a proper remedy.
The nullity of such portion of the decision in question, however, is not such as to affect
the conclusions reached by the court in the main case for ejectment. As held in Vda. de
Pamintuan v. Tiglao (53 Phil. 1) where the amount set up by the defendant was not
proper as a defense and it exceeded the inferior court's jurisdiction, it cannot be
entertained therein, but the court's jurisdiction over the main action will remain
unaffected. Consequently, the decision over the main action, in the case at bar, must
stand, best remembering that a counter-claim, by its very nature, is a cause of action
separate and independent from the plaintiff's claim against the defendant.
WHEREFORE, the decision of the Court of First Instance of Cebu, Branch III in Civil
Case No. R-12430 for ejectment is hereby DECLARED NULL AND VOID insofar as it
awards damages on the defendant-appellee's counterclaim in excess of P6,000.00
beyond its appellate jurisdiction. The decision in all other respects is AFFIRMED. The
order of the Court of First Instance of Cebu, Branch V dismissing Civil Case No. R-13462
for declaration of nullity of judgment with preliminary injunction is hereby MODIFIED,
Civil Case No. R-13462 is ordered DISMISSED insofar as the decision sought to be
annulled upholds the defendant's right to possession of the disputed property. The
defendant's counterclaim for damages is GRANTED to the extent of TEN THOUSAND
(P10,000.00) PESOS. The grant of SIX THOUSAND (P6,000.00) PESOS in excess of
such amount is hereby declared NULL and VOID, for having been awarded beyond the
jurisdiction of the court.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Relova, De la Fuente and Alampay,
JJ., concur.
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.
Rosendo N. Feleo for petitioners.
Tecson, Bernardo and Berba for respondents.

CONCEPCION, C.J.:
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.
Petitioners herein are the spouses Jose S. Agawin and Felicisima Ballecer. On May
4, 1960, they instituted, said Civil Case No. 43073 against respondent Jose Bernardo, to
recover damages allegedly caused by him in consequence of the destruction and
demolition of a portion of a wall of the petitioners, along the common boundary line of
their lot and that of Bernardo, at Felix Huertas Street, Manila, as well as to recover
possession of a portion of petitioners' aforementioned lot, with an area of 0.80 square
meters, which was allegedly encroached upon by the wall subsequently erected by
Bernardo in place of the one he had destroyed.
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 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 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, 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 encroached upon by them and to turn it over to him, and to pay damages
aggregating P48,000.00.
On the last day of the reglementary period to answer the counterclaim, or on June
6, 1960, petitioners filed ex parte urgent motion for extension of time therefor, but on
June 11 the motion was denied and ordered stricken off the record. Then, on June 13, the
court declared petitioners in default as to the counterclaim and ordered Bernardo to
present his evidence thereon before the Deputy Clerk of Court on June 15, at 9: 00 a.m.,
which Bernardo did. On June 20, the court rendered a decision the dispositive part of
which reads:
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:
(a) P3,625.00 as compensatory damages which the defendant failed to
realize in the form of rentals from that portion of his property subject
matter of the counterclaim, corresponding to the period from May, 1948
to May, 1960, with interest thereon at the legal rate from the date of filing
of the answer with counterclaim until fully paid; plus the sum of P25.00
for each month thereafter until the premises in question are actually
delivered to the possession and occupation of the defendant;
(b) P541.00 as actual damages incurred by the defendant;
(c) P10,000.00 as moral damages;
(d) P2,000.00 as exemplary damages; and
(e) P1,000.00 as attorney's fees.
With costs against the plaintiffs.
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 judgment, with a prayer for a writ of preliminary injunction, to restrain the Clerk of
Court from issuing a writ of execution. After denying this petition, the Court, on
petitioner's motion for reconsideration, granted it on January 18, 1961, only to deny it
once more, on February 4, on motion for reconsideration filed by Bernardo. Forthwith,
or on February 8, petitioners filed their notice of appeal. Soon thereafter, petitioners
sought an extension of time to file their appeal bond and their record on appeal, but the
motion was denied, on February 18, for lack of merit. On March 18, the Court ordered
the issuance of a writ of 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.1awphîl.nèt
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 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.1awphîl.nèt
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.
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.
Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro,
G.R. No. L-16371 March 28, 1961

ZAMBALES COLLEGES, INC., petitioner-appellant,


vs.
THE HON. COURT OF APPEALS, ETC., ET AL., respondents-appellees.

Alberto R. de Joya and Senen Dimaguila for petitioner-appellant.


Crisostomo R. Nano for respondents-appellees.

REYES, J.B.L., J.:

Petition for certiorari against the decision of the Court of Appeals in its CA-G.R. No.
24617-R.

The Zambales Colleges, Inc. filed with the Court of First Instance of Zambales a suit for
damages against Ciriaco Villanueva. In his answer dated 2 February 1956, defendant set
up a counterclaim with three causes of action, to wit:

FIRST CAUSE OF ACTION

12. That on February 24, 1951, plaintiff, acting thru its President, Ricardo
Aguirre, maliciously filed criminal cases Nos. 1635 and 1636 in the Justice of the
Peace Court of San Narciso, Zambales, charging him of estafa for allegedly
certifying that a certain Jose Dumiao was qualified to teach and receive salary;

xxx xxx xxx

SECOND CAUSE OF ACTION

17. That on August 3, 1955, plaintiff corporation filed an action for estafa with the
Justice of the Peace Court of San Narciso, Zambales, against the defendant based
on the same facts as alleged in the complaint;

xxx xxx xxx

THIRD CAUSE OF ACTION

22. That on or about August 6, 1955, after the said estafa case mentioned in the
second cause of action was filed, plaintiff with malice aforethought, took undue
actions in the is issuance and service of the warrant of arrest by causing its
representatives to hand-carry the said warrant notwithstanding official
regulations and orders against such practice, and in so doing managed to serve
said warrant or caused to have it served shortly before noon on a Saturday when
bonding companies were closing their offices for the weekend, plaintiff'(s)
purpose being to detain the defendant until the following Monday;

23. That because of this act of the plaintiff, defendant was arrested scandalously
in the presence of his many visitors and unceremoniously taken to police
headquarters and treated like an ordinary criminal, thus causing him damages in
the amount of P10,000.00.

On 16 February 1956, plaintiff filed a motion to dismiss the counterclaim alleging bar by
prior judgment and lack of cause of action. Alleging that the motion to dismiss was filed
out of time, defendant moved to declare the plaintiff in default as to the counterclaim.
The trial court denied this motion for default by its order of 23 March 1956; but, on 31
August 1956, the court also denied plaintiff's motion to dismiss the counterclaim. It
appears that plaintiff's counsel was duly notified of the last denial on 1 September 1956.
Because the plaintiff continued to ignore the counterclaim, on 20 March 1957, the trial
court, upon defendant's motion, finally declared the plaintiff in default as to the
counterclaim.

Evidence having been adduced, the trial court rendered its decision dated 24 June 1958,
the dispositive portion of which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court hereby renders


judgment in favor of the defendant and against the plaintiff;

1. Dismissing the plaintiff's complaint.

2. Ordering the plaintiff to pay to the defendant the sum of P2,500.00 as moral
damages and P1,000.00 as attorney's fees on the first cause of action of the
latter's counterclaim; the amount of P5,000.00 as moral damages and P1,000.00
as attorney's fees on the second cause of action; and the sum of P5,000.00 as
moral damages and P1,000.00 as exemplary damages on the third cause of
action.

Plaintiff's appeal from this judgment to the Court of Appeals was given due course after
the re-amended record on appeal was approved on 20 March 1959 and is now pending
decision in that Court. However, before the perfection of the appeal and upon motion of
the defendant, the trial court ordered on 15 August 1958, the execution f its decision as to
defendant's counterclaim.

Alleging that the trial court issued the writ of execution without or in excess of its
jurisdiction, the plaintiff filed with the Court of Appeals an original action for certiorari
and prohibition designed to set aside and annul said order. On the theory, however, that
the petitioner was not entitled to appeal on the counterclaim, the appellate tribunal
denied the petition. Hence, this review.

Petitioner argues in this instance that respondent trial court committed a grave abuse of
discretion and/or acted in excess of its jurisdiction in sustaining the counterclaim
notwithstanding an utter lack of evidence in support of its allegations; that its order
declaring the petitioner (plaintiff therein) in default and judgment by default on the
counterclaim are null and void; and, finally, that said court erred in ruling that a party in
default has no right to appeal.

There is clearly no merit the first contention. While an error of judgment might have
been committed by the trial judge in his evaluation of the evidence in the damage suit
(but this is just an assumption), we, nonetheless, do not find such excess of discretion to
be whimsical, arbitrary or capricious amounting to a virtual refusal to perform his
bounden duty as a magistrate of justice. As to the first and second causes of action, the
court, we note, took into consideration the Criminal charges filed against the defendant,
the findings of the criminal courts dismissing the same for want of substance, and
testimonial evidence tending to show the lack of merit of the criminal imputations
instituted by the plaintiff (herein petitioner), like, for instance, the absence of deceit on
the part of accused Villanueva and damage on the part of the complainant college.
Coming specifically to the third cause of action, the trial court found, among other
things, that the warrant for Villanueva's arrest was unduly hand-carried to Manila
without the necessary indorsement of the justice of the Peace court; that his arrest was so
timed that defendant could not possibly procure immediately a bond for his could no
provisional release, and that the warrant was served on him at his office at the
Department of Education to unnecessarily embarrass, humiliate, and ridicule him before
his visitors and co-employees. To accept petitioner's plea for a review of these findings
and conclusions of the court would, in effect, amount to allowing the substitution of
petitions for certiorari in lieu of appeals, which we are not in a position to do (see Chua
Ke vs. Abeto, 63 Phil. 539, and cases cited therein).

Invoking the case of Navarro and Binoya vs. Bello, et al., G.R. No. L-11674, January 31,
1958, 54 Off. Gaz 6588, petitioner next argues that the declaration of default is null and
void, because the issues raised in the counter-claim, particularly those contained in the
second and third causes of action, are so inextricably linked with those raised by the
complaint, that an answer would merely require a repleading of the complaint.

The pertinent allegations of the complaint filed by the petitioner in the Court of First
Instance of Zambales read:

2. ... (The defendant was, in the years from 1947 to 1950, the Director of the
Zambales Academy, Inc. (now the Zambales Colleges, Inc.) in all its school
departments, and a member of the Board of Trustees of the same corporation
from 1948 to 1950;

3. ... (The defendant, acting fraudulently and in abuse of the trust reposed in him
as Director and member of the Board of Trustees, without the knowledge,
consent and authority of the Board of Trustees of the Zambales Academy, Inc.,
and without the requisite permit and authority of the Bureau of Private Schools,
clandestinely organized and operated fake branches or classes of the Zambales
Academy Junior Normal Court in the municipalities of Castillejos Iba and
Palauig, all within the province of Zambales, in the years from 1947 to 1950;

4. ... (Under) the defendant's direction tuition and other school fees were
collected from students enrolled in this fake branches or classes, which money
collections were not delivered to the Zambales Academy, Inc. but were
appropriated to defendant's use and purchases known to and allowed only by
himself.

Even the petitioner, however, does not pretend that defendant's initial cause of action in
his counterclaim (malicious filing of criminal charges) is related to the allegations stated
in the complaint. This is but to be expected, considering that the complaint never made
the slightest reference to the matters averred in said portion of the counterclaim (see
First Cause of Action, Supra). That being the case, the plaintiff was still obligated under
the Rules of Court to controvert or otherwise meet the new issues by filing the
corresponding answer (see Sec. 7, Rule 10, Rules of Court). The same thing may be sa
third cause of action of the counterclaim, which only raised the propriety of the manner
how the warrant for Villanueva's arrest was procured by the plaintiff and served upon
said defendant. No further discourse is needed to show the already apparent disparity
between the issues posed by the first and third causes of action of the counter-claim, on
one handy and the complaint, on the other.

Petitioner is, however, correct as to the second cause of action. The counterclaim itself
recited that this particular cause of action is merely base on facts alleged in the
complaint, and it thus had the effect only of restating the issues already raised by the
plaintiff. Obviously, as far as this cause of action is concerned, there was no occasion to
rule the plaintiff in default.1 Hence, the award of damages on the counterclaims second
cause of action has become final, since the case was appealed on the merits. But this fact
not excuse the petitioner from meeting the different issues of the first and third causes of
action, and as to them, it was properly declared in default.

Petitioner maintains that it has not lost its standing in court and is technically not in
default because it filed a motion to dismiss the counterclaim. The records show,
however, that said motion was denied by the trial court on 31 August 1956, and movant
Zambales College, Inc. was duly notified of this denial on 1 September 1956. Needless to
say, a motion to dismiss cannot be a substitute for an answer, especially when it is
denied.

Not having moved for the reconsideration or for the lifting of the order of default,
petitioner itself has foreclosed its right to appeal from the portions of the judgment
which considered it in default (see Lim vs. Go Fay, 80 Phil. 166; Samudio vs.
Municipality of Gaiza, 53 Off. Gaz., 3744; Manila Motor Co., Inc. vs. San Juan, G.R. No
L-9163, May 29, 1959).

Finally, petitioner contends that it would be unconstitutional to deprive a party of his


opportunity to appeal. Suffice it to say in this regard, however, that petitioner was not
denied or deprived of that, lost it due to its own fault and negligence, for which it is
exclusively to blame.

WHEREFORE, the judgment of the Court of Appeals appealed from is modified in the
sense that the order of execution, dated 15 August 1959, issued by the trial court in its
Civil Case No. 1760, shall be confined only to those portions of its judgment relating to
the first and third causes of action of defendant Villanueva's counterclaim to the
exclusion of the P6,000.00 — awarded on the second cause of action. The writ of
preliminary injunction issued by this Court on 8 March 1960 to stay execution of
judgment in said Civil case is hereby lifted, and the trial court ordered to proceed in
accordance with this opinion. No special pronouncement as to costs. So ordered.
G.R. No. L-56605 January 28, 1983
ANDRES C. SARMIENTO, petitioner,
vs.
THE HON. CELESTINO C. JUAN, PRESIDING JUDGE, BRANCH X, COURT OF FIRST
INSTANCE OF MANILA and BELFAST SURETY & INSURANCE CO., INC.,
respondents.
Andres C. Sarmiento in his own behalf.
Federico T. Castillo, Jr., for respondents.

VASQUEZ, J.:
In this petition for review on certiorari, petitioner Andres C. Sarmiento seeks to set aside
a decision rendered by the respondent Court of Appeals in CA G.R. No. SP-10649 which
denied due course to a petition for certiorari filed therein by the herein petitioner to
annul two orders issued by the Court of First Instance of Manila in Civil Case No. 126113.
The instant petition was given due course in the Resolution of September 14, 1981 and
the parties ordered to submit their respective memoranda. The petitioner flied a
memorandum in his behalf but the private respondent merely adopted its comment on
the petition as its memorandum.
Civil Case No. 126113 was an action filed by private respondent Belfast Surety &
Insurance Co., Inc. against herein petitioner and his father Benjamin R. Sarmiento, Sr.
for indemnification under an Indemnity Agreement executed by them in connection with
a bail bond. The case was assigned to Branch X of the Court of First Instance of Manila
presided over by respondent Judge Celestino C. Juan who had since retired.
After the petitioner filed an answer with compulsory counterclaim, private respondent
filed a motion to dismiss the case against defendant Benjamin R. Sarmiento, Sr., and to
schedule the case for pre-trial. This motion was granted by Judge Juan and the pre-trial
was set on February 5, 1980, at 8:30 a.m.
At the said pre-trial, nobody appeared except Atty. Federico T. Castillo, Jr., counsel for
the private respondent. However, the petitioner sent to the Court on the same date an
urgent motion for postponement stating therein that when he was preparing to go to the
Court, he felt severe stomach pain followed by loose bowel movements, and he
accordingly prayed that the pre-trial be postponed to another date.
The urgent motion for postponement filed by the petitioner was denied in the order of
Judge Juan dated February 5, 1980. On motion of Atty. Castillo, the petitioner was
"declared non-suited" (should have been "as in default") and the private respondent
allowed to present its evidence ex-parte on February 26, 1980, at 8:30 a.m.
On February 25, 1980, the petitioner filed a motion for reconsideration of the order of
February 5, 1980. In his order of February 26, 1980, Judge Juan denied the said motion
for reconsideration "for lack of merit," and reiterated the permission for the private
respondent to present its evidence ex-parte.
It does not appear whether the ex-parte presentation of evidence by the private
respondent had already been accomplished, nor that a derision thereon had been
rendered. That such proceedings had not taken place could, however, be gathered from
the fact that on March 19, 1980, the petitioner filed a petition for certiorari with the
Supreme Court docketed as G.R. No. 53399 to annul the aforementioned orders of Judge
Juan dated February 5, 1980 and February 26, 1980. The said petition was remanded to
the Court of Appeals pursuant to the Resolution of the First Division of this Court dated
March 28, 1980. It was docketed in the Court of Appeals as CA-G.R. No. SP-14649. In a
decision promulgated on August 29, 1980 by the Special First Division of the Court of
Appeals, the petition was denied due course and ordered dismissed for lack of meet. Said
decision is the subject of the present appeal by certiorari.
The petitioner assails the refusal of the respondent Court of Appeals to disturb the
questioned orders of Judge Juan which petitioner claims to have been issued in excess of
jurisdiction and with grave abuse of discretion. He contends that (a) the pre-trial was
premature inasmuch as, there having been no answer filed by the private respondent to
the petitioner's counterclaim alleged in his answer, the "last pleading" has not yet been
filed so as to authorize a pre-trial to be conducted in accordance with Section 1, Rule 20,
of the Rules of Court; (b) there being no valid pre-trial, the trial court had no authority to
declare him as "non-suited", or more correctly, as in default, for his failure to appear at
the said pre-trial; (b) assuming that there was a valid pre-trial, the trial court could not
legally declare the petitioner as in default due to his failure to be present threat inasmuch
as the private respondent itself made no valid appearance at said pre-trial because only
its counsel appeared without any special authority to represent his client at the said pre-
trial; and (c) it was a grave abuse of discretion on the part of the trial court to deny the
petitioner's urgent motion for postponement despite the merit of the ground alleged
therein, and the same thing is true with the denial of his motion to set aside or lift the
order declaring him in default.
We see no merit in the petitioner's contention that the pre-trial was prematurely
scheduled on the supposed ground that the last pleading had not been filed. In the
petition for certiorari docketed as G.R. No. 53399, the petitioner has alleged that he filed
his answer to the complaint containing a compulsory counterclaim on December 21,
1979 which was served on the counsel for the private respondent on the same date.
(Rollo, p. 19.) The pre-trial was scheduled to be held on February 5, 1980 or a month and
a half after the petitioner had flied his answer to the complaint in Civil Case No. 126113
and private respondent served with a copy of the same. While it may be true that the
private respondent had not filed any answer to the counterclaim contained in the
petitioner's answer, such circumstance does not prevent the trial court from conducting
the pre-trial. As was observed by the respondent Court of Appeals in its questioned
decision: "If no answer (to the counterclaim) is timely filed the pre-trial order may issue.
Otherwise, an unscrupulous party litigant can hold court processes by the simple
expedient of failing to answer."
The requirement that the pre-trial shall be scheduled "after the last pleading has been
filed" ( Section 1, Rule 20, Rules of Court) is intended to fully apprise the court and the
parties of all the issues in the case before the pre-trial is conducted. It must be
remembered that the issues may only be ascertained from the allegations contained in
the pleadings filed by the parties. The last permissible pleading that a party may file
would be the reply to the answer to the last pleading of claim that had been filed in the
case, which may either be the complaint, a cross-claim, a counterclaim or a third party
complaint, etc. (Secs. 2 and 11, Rule 6, Rules of Court.) Any pleading asserting a claim
must be answered, and the failure to do so by the party against whom the claim is
asserted renders him liable to be declared in default in respect of such claim. (See. 10,
Ibid) There are, however, recognized exceptions to the rule, making the failure to answer
a pleading of claim as a ground for a default declaration, such as the failure to answer a
complaint in intervention (Sec. 2(c) Rule 12, Rules of Court), or a compulsory
counterclaim so intimately related to the complaint such that to answer to same would
merely require a repetition of the allegations contained in the complaint (Zamboanga
Colleges, Inc. vs. Court of Appeals, 1 SCRA 870; Ballecer vs. Bernardo, 18 SCRA 291;
Agaton vs. Perez, 18 SCRA 1165.)
In the case presently considered, the nature of the counterclaim in the petitioner's
answer has not been made clear, except to categorize it as a compulsory counterclaim.
Such being the case, it is likely to be one where the answering thereof is not necessary,
and the failure to do so would not be a ground to be declared in default. In any event, the
private respondent's failure to answer the petitioner's counterclaim after the period to
file the answer had lapsed is no obstacle to holding a pre-trial.1äwphï1.ñët The
requirement that the last pleading must have been filed before a pre-trial may be
scheduled should more appropriately be construed to mean not only if the last pleading
had been actually filed, but also if the period for filing the same had expired.
We, however, find merit in the petitioner's two other contentions. The denial by Judge
Juan of the petitioner's motion to postpone the pre-trial scheduled on February 5, 1980
may have appeared valid at the outset, considering that it was filed at the last minute and
was not accompanied by a medical certificate although the ground alleged was illness on
the part of the petitioner. Nonetheless, a different appraisal of the petitioner's plea
should have been made after the petitioner filed a motion for reconsideration which was
made under oath. Due regard should have been given to the repeated pronouncements
by this Court against default judgments and proceedings that lay more emphasis on
procedural niceties to the sacrifice of substantial justice. After all, the ex-parte
presentation of evidence had not yet been conducted nor had a decision been rendered in
the case. It appeared to be a simple matter of giving the petitioner a chance to have his
day in court in order to defend himself against the claim filed by the private respondent.
As it turned out, the procedure adopted by the trial court proved unprofitable and
disadvantageous to all parties concerned, including the courts. The case would have been
disposed of in a much easier and more expeditious manner if the trial court had heeded
the petitioner's simple plea for a chance to be heard. Thereby, all the proceedings taken
subsequent to the disputed orders of the trial court could have been avoided, and the
Court of Appeals and the Supreme Court spared from the trouble of resolving the
petitions filed before them.
The petitioner also has valid reason to complain about the apparent overanxiousness of
the trial court to finish the case in summary fashion. The petitioner had manifested to
the Court that his inability to appear before the pre-trial was due to a sudden ailment
that befell him while he was preparing to go to Court. While it is true that the motion for
postponement was not accompanied by a medical certificate, it must be considered that
not every ailment is attended to by a physician, or if so, a medical certificate under oath
as required by the Rules could be secured within the limited time available. There has
been no refutation of the cause of the non-appearance of the petitioner as claimed by the
latter. Said cause had been reiterated under oath in the petitioner's motion for
reconsideration to which the trial court turned a deaf ear. Any suspicion that the
petitioner was merely suing for delay is readily dispelled by the fact that the pre-trial was
being set for the first time, and that the petitioner took immediate steps against the
refusal of the trial court to set aside the default declaration and to pursue remedies
steadfastly against the same in the higher tribunals.
The declaration default on the part of the petitioner may not be considered as entirely
proper under the circumstances surrounding the same. It is undenied that nobody
appeared at the pre-trial except the counsel for the private respondent. Under settled
doctrines, not even the private respondent may be considered as having appeared at the
said pre-trial, it not having made appearance thereat through a duly authorized
representative. In such a situation, the trial court would have acted more properly if it
dismissed the case, or declared the private respondent as plaintiff therein as non-suited
instead of declaring the petitioner as in default (erroneously stated by it as "non-suited.")
This is because while the court may declare the plaintiff non- suited for non-appearance
at the pre-trial or dismiss the case for his non- appearance at the trial without motion on
the part of the defendant (Sec. 3, Rule 17), the latter may not be declared in default
without such motion on the part of the plaintiff. (Sec. 1. Rule 18; Trajano vs. Cruz, 80
SCRA 712.) A plaintiff who makes no valid appearance at pre-trial may not ask that the
defendant be punished for the same shortcoming it was equally guilty of.
WHEREFORE, the judgment of the Court of Appeals rendered in CA-G.R. No. 10649
promulgated on August 29, 1980, and the Resolution issued in said case dated March 29,
1981 which denied a motion for the reconsideration of the said judgment are hereby
REVERSED and SET ASIDE. The orders of the Court of First Instance of Manila in Civil
Case No. 126113 dated February 5, 1980 and February 26, 1980 are ordered ANNULLED
and SET ASIDE. Let the said case be rescheduled for pre-trial and for subsequent
proceedings thereafter. Costs against the private respondent.
SO ORDERED.

G.R. No. L-26768 October 30, 1970

FAUSTINO GOJO, petitioner-appellant,


vs.
SEGUNDO GOYALA and ANTONINA ALMOGUERA, respondents-appellees.

Fernando P. Gerona, Sr. for petitioner-appellant.

Agustin Frivaldo for respondents-appellees.

BARREDO, J.:.

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 — 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 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.

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
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 Caseñas 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 order the opposing party to
procure the appointment of a legal representative of the
deceased within a time to be specified by the court, and the
representative shall immediately appear for and on behalf
of the interest of the deceased. The court charges involved
in procuring such appointment, if defrayed by the opposing
party, may be recovered as costs. The heirs of the deceased
may be allowed to be substituted for the deceased, without
requiring the appointment of an executor or administrator
and the court may appoint guardian ad litem for the minor
heirs."

In the case of Barrameda vs. Barbara, 90 Phil. 718, this Court held that
an order to amend the complaint, before the proper substitution of parties
as directed by the aforequoted rule has been effected, is void and imposes
upon the plaintiff no 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 similar conclusion on the
determination that the continuance of a proceedings 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
jurisdiction".

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
providing that: "If a counterclaim has been pleaded by a defendant prior to the service
upon him of the plaintiff's motion to dismiss, the action shall not be dismissed against
the defendant's objection unless the counterclaim can remain pending for independent
adjudication by the court." With this limitation, the power of the court to dismiss the
complaint upon motion of plaintiff, which is usually without prejudice, is not purely
discretionary.3 The purpose is to avoid multiplicity of suits over the same matter which
would necessarily entail unnecessary expense and, what is worse, possibility of conflict
and inconsistency in the resolution of the same questions. The same considerations
would obtain, 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. Dismissing the complaint without prejudice, as the trial court has
done in this case, albeit 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 reservation made in the disputed order of dismissal.

Having arrived at the foregoing conclusions, it becomes unnecessary to discuss the other
two assigned errors.

WHEREFORE, the decision appealed from is set aside and this case is remanded to the
court below for further proceedings in consonance with the above opinion, with costs
against appellee.