Rule 6 - Kinds of Pleadings

CASE NO. 1 G.R. No. 133119 August 17, 2000

FINANCIAL BUILDING CORPORATION, petitioner,

vs.
FORBES PARK ASSOCIATION, INC., respondent.

DECISION

DE LEON, JR., J.:

Before us is petition for review on certiorari of the Decision1 dated March 20, 1998 of the
Court of Appeals2 in CA-GR CV No. 48194 entitled "Forbes Park Association, Inc. vs.
Financial Building Corporation", finding Financial Building Corporation (hereafter,
Financial Building) liable for damages in favor of Forbes Park Association, Inc.
(hereafter, Forbes Park), for violating the latter’s deed of restrictions on the construction
of buildings within the Forbes Park Village, Makati.

The pertinent facts are as follows:

The then Union of Soviet Socialist Republic (hereafter, USSR) was the owner of a 4,223
square meter residential lot located at No. 10, Narra Place, Forbes Park Village in
Makati City. On December 2, 1985, the USSR engaged the services of Financial
Building for the construction of a multi-level office and staff apartment building at the
said lot, which would be used by the Trade Representative of the USSR. 3 Due to the
USSR’s representation that it would be building a residence for its Trade
Representative, Forbes Park authorized its construction and work began shortly
thereafter.

On June 30, 1986, Forbes Park reminded the USSR of existing regulations 4 authorizing
only the construction of a single-family residential building in each lot within the village.
It also elicited a reassurance from the USSR that such restriction has been complied
with.5 Promptly, the USSR gave its assurance that it has been complying with all
regulations of Forbes Park.6 Despite this, Financial Building submitted to the Makati City
Government a second building plan for the construction of a multi-level apartment
building, which was different from the first plan for the construction of a residential
building submitted to Forbes Park.

Forbes Park discovered the second plan and subsequent ocular inspection of the
USSR’s subject lot confirmed the violation of the deed of restrictions. Thus, it enjoined
further construction work. On March 27, 1987, Forbes Park suspended all permits of
entry for the personnel and materials of Financial Building in the said construction site.
The parties attempted to meet to settle their differences but it did not push through.

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Instead, on April 9, 1987, Financial Building filed in the Regional Trial Court of Makati,
Metro Manila, a Complaint7for Injunction and Damages with a prayer for Preliminary
Injunction against Forbes Park docketed as Civil Case No. 16540. The latter, in turn,
filed a Motion to Dismiss on the ground that Financial Building had no cause of action
because it was not the real party-in-interest.

On April 28, 1987, the trial court issued a writ of preliminary injunction against Forbes
Park but the Court of Appeals nullified it and dismissed the complaint in Civil Case No.
16540 altogether. We affirmed the said dismissal in our Resolution, 8 promulgated on
April 6, 1988, in G.R. No. 79319 entitled "Financial Building Corporation, et al. vs.
Forbes Park Association, et al."

After Financial Building’s case, G.R. No. 79319, was terminated with finality, Forbes
Park sought to vindicate its rights by filing on October 27, 1989 with the Regional Trial
Court of Makati a Complaint9 for Damages, against Financial Building, docketed as Civil
Case No. 89-5522, arising from the violation of its rules and regulations. The damages
claimed are in the following amounts: (a) P3,000,000.00 as actual damages; (b)
P1,000,000.00 as moral damages; (c) P1,000,000.00 as exemplary damages; and (d)
P1,000,000.00 as attorney’s fees.10 On September 26, 1994, the trial court rendered its
Decision11 in Civil Case No. 89-5522 in favor of Forbes Park and against Financial
Building, the dispositive portion of which reads, to wit:

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of
the plaintiff and against the defendant:

(1) Ordering the defendant to remove/demolish the illegal structures within three
(3) months from the time this judgment becomes final and executory, and in case
of failure of the defendant to do so, the plaintiff is authorized to demolish/remove
the structures at the expense of the defendant;

(2) Ordering the defendant to pay damages, to wit:

(a) P3,000,000.00 as actual damages by way of demolition expenses;

(b) P1,000,000.00 as exemplary damages;

(c) P500,000.00 as attorney’s fees;

(d) the costs of suit.

SO ORDERED."

Financial Building appealed the said Decision of the trial court in Civil Case No. 89-5522
by way of a petition for review on certiorari12 entitled "Financial Building Corporation vs.
Forbes Park Association, Inc." to the Court of Appeals and docketed therein as CA-GR

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CV No. 48194. However, the Court of Appeals affirmed it in its Decision 13dated March
20, 1998, the dispositive portion of which reads:

"WHEREFORE, the Decision dated September 26, 1994 of the Regional Trial Court of
Makati is AFFIRMED with the modification that the award of exemplary damages, as
well as attorney’s fees, is reduced to fifty thousand pesos (P50,000.00) each."

Hence, this petition, wherein Financial Building assigns the following errors:

I. "THE COURT OF APPEALS GRAVELY ERRED IN NOT DISMISSING THE

COMPLAINT FILED BY RESPONDENT FPA DESPITE THE FACT THAT ITS
ALLEGED CLAIMS AND CAUSES OF ACTION THEREIN ARE BARRED BY
PRIOR JUDGMENT AND/OR ARE DEEMED WAIVED FOR ITS FAILURE TO
INTERPOSE THE SAME AS COMPULSORY COUNTERCLAIMS IN CIVIL
CASE NO. 16540;

II. THE COURT OF APPEALS GRAVELY ERRED IN NOT DISMISSING THE

COMPLAINT FILED BY RESPONDENT FPA AGAINST PETITIONER FBC
SINCE RESPONDENT FPA HAS NO CAUSE OF ACTION AGAINST
PETITIONER FBC;

III. THE COURT OF APPEALS GRAVELY ERRED IN AWARDING DAMAGES

IN FAVOR OF RESPONDENT FPA DESPITE THE FACT THAT ON THE BASIS
OF THE EVIDENCE ON RECORD, RESPONDENT FPA IS NOT ENTITLED
THERETO AND PETITIONER FBC IS NOT LIABLE THEREFOR;

IV. THE COURT OF APPEALS ERRED IN ORDERING THE DEMOLITION OF

THE ILLEGAL STRUCTURES LOCATED AT NO. 10 NARRA PLACE, FORBES
PARK, MAKATI CITY, CONSIDERING THAT THE SAME ARE LOCATED ON
DIPLOMATIC PREMISES"14

We grant the petition.

First. The instant case is barred due to Forbes Park’s failure to set it up as a compulsory
counterclaim in Civil Case No. 16540, the prior injunction suit initiated by Financial
Building against Forbes Park.

A compulsory counterclaim is one which arises out of or is necessarily connected with

the transaction or occurrence that is the subject matter of the opposing party’s claim.15 If
it is within the jurisdiction of the court and it does not require for its adjudication the
presence of third parties over whom the court cannot acquire jurisdiction, such
compulsory counterclaim is barred if it is not set up in the action filed by the opposing
party.16

Thus, a compulsory counterclaim cannot be the subject of a separate action but it

should instead be asserted in the same suit involving the same transaction or

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occurrence, which gave rise to it.17 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 claim 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? Affirmative answers to the above queries indicate the existence of a
compulsory counterclaim.18

Undoubtedly, the prior Civil Case No. 16540 and the instant case arose from the same
occurrence – the construction work done by Financial Building on the USSR’s lot in
Forbes Park Village. The issues of fact and law in both cases are identical. The factual
issue is whether the structures erected by Financial Building violate Forbes Park’s rules
and regulations, whereas the legal issue is whether Financial Building, as an
independent contractor working for the USSR, could be enjoined from continuing with
the construction and be held liable for damages if it is found to have violated Forbes
Park’s rules.

As a result of the controversy, Financial Building seized the initiative by filing the prior
injunction case, which was anchored on the contention that Forbes Park’s prohibition on
the construction work in the subject premises was improper. The instant case on the
other hand was initiated by Forbes Park to compel Financial Building to remove the
same structures it has erected in the same premises involved in the prior case and to
claim damages for undertaking the said construction. Thus, the logical relation between
the two cases is patent and it is obvious that substantially the same evidence is involved
in the said cases.

Moreover, the two cases involve the same parties. The aggregate amount of the claims
in the instant case is within the jurisdiction of the regional trial court, had it been set up
as a counterclaim in Civil Case No. 16540. Therefore, Forbes Park’s claims in the
instant case should have been filed as a counterclaim in Civil Case No. 16540.

Second. Since Forbes Park filed a motion to dismiss in Civil Case No. 16540, its
existing compulsory counterclaim at that time is now barred.

A compulsory counterclaim is auxiliary to the proceeding in the original suit and derives
its jurisdictional support therefrom.19 A counterclaim presupposes the existence of a
claim against the party filing the counterclaim. Hence, where there is no claim against
the counterclaimant, the counterclaim is improper and it must dismissed, more so where
the complaint is dismissed at the instance of the counterclaimant. 20 In other words, if the
dismissal of the main action results in the dismissal of the counterclaim already filed, it
stands to reason that the filing of a motion to dismiss the complaint is an implied waiver
of the compulsory counterclaim because the grant of the motion ultimately results in the
dismissal of the counterclaim.

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Thus, the filing of a motion to dismiss and the setting up of a compulsory counterclaim
are incompatible remedies.1âwphi1In the event that a defending party has a ground for
dismissal and a compulsory counterclaim at the same time, he must choose only one
remedy. If he decides to file a motion to dismiss, he will lose his compulsory
counterclaim. But if he opts to set up his compulsory counterclaim, he may still plead his
ground for dismissal as an affirmative defense in his answer.21 The latter option is
obviously more favorable to the defendant although such fact was lost on Forbes Park.

The ground for dismissal invoked by Forbes Park in Civil Case No. 16540 was lack of
cause of action. There was no need to plead such ground in a motion to dismiss or in
the answer since the same was not deemed waived if it was not
pleaded.22 Nonetheless, Forbes Park still filed a motion to dismiss and thus exercised
bad judgment in its choice of remedies. Thus, it has no one to blame but itself for the
consequent loss of its counterclaim as a result of such choice.

Inasmuch as the action for damages filed by Forbes Park should be as it is hereby
dismissed for being barred by the prior judgment in G.R. No. 79319 (supra) and/or
deemed waived by Forbes Park to interpose the same under the rule on compulsory
counterclaims, there is no need to discuss the other issues raised by the herein
petitioner.

WHEREFORE, the instant petition is hereby GRANTED and the Decision dated March
20, 1998 of the Court of Appeals in CA-G.R. CV No. 48194 is hereby REVERSED and
SET ASIDE.

Costs against respondent Forbes Park Association, Inc. .

SO ORDERED.

5
CASE NO. 2 G.R. No. 161431 : October 13, 2010

CALIBRE TRADERS, INC., MARIO SISON SEBASTIAN, and MINDA BLANCO

SEBASTIAN,Petitioners, v. BAYER PHILIPPINES, INC., Respondent.

DECISION

DEL CASTILLO, J.:

This petition for review on certiorari 1cra1aw assails the July 31, 2002
Decision2cra1aw and the December 19, 2003 Resolution 3cra1aw of the Court of
Appeals (CA) in CA-G.R. CV No. 45546, that denied petitioners action for damages
against respondent Bayer Philippines Inc. (Bayerphil) and instead granted the latters
counterclaim for P1,272,103.07, representing unpaid purchases of Bayerphils products.

Factual Antecedents

Calibre Traders, Inc. (Calibre) was one of Bayerphils distributors/dealers of its

agricultural chemicals within the provinces of Pangasinan and Tarlac. 4cra1aw Their last
distributorship agreement was effective from June 1989 to June 1991.5cra1aw However,
Bayerphil stopped delivering stocks to Calibre on July 31, 1989 after the latter failed to
settle its unpaid accounts in the total amount of P1,751,064.56.6

As Bayerphils authorized dealer, Calibre then enjoyed discounts and rebates.

Subsequently, however, the parties had a disagreement as to the entitlement and
computations of these discounts. Calibre, although aware of the deadline to pay its
debts with Bayerphil, nevertheless withheld payment to compel Bayerphil to reconcile its
accounts.7

In a letter dated August 16, 1989, Calibre requested Bayerphil for a reconciliation of
accounts. It enumerated the following claims that amounted to P968,265.82:

1. Interest charged to our 1984-1985 Volume Rebate. These were charged to us without
our acknowledgment and was under protest since your people were not serving our
account during that period. This amounts to P60,000.00 more or less.

2. Request for retroactive application of your special rebate as per our letter dated
August 29, 1988 and your reply dated September 3, 1988. The reply is not acceptable
to us. This amounts to P33,127.26.

3. Special rebates of Machete EC and EN for CY 1988 which [were] not granted to us,
[but were] given to the other distributors after we have withdrawn a sizeable quantity.
This amounts to P68,244.30.

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4. The difference between our claim dated March 31, 1989 amounting to P47,746.30
against your Credit Memo 11868 dated April 28, 1989 amounting to P21,214.85. The
amount of difference is P26,531.47.

5. The difference between our claim dated October 31, 1988 amounting to P23,342.09
against your Credit Memo 11693 dated January 31, 1989 amounting to P21,222.48.
The amount of difference is P2,119.61.

6. Sales Returns as per your CRR 2159 dated December 19, 1988 amounting
to P8,047.71.

7. Special rebates of 8% for Machete 5G as per Invoice No. 834159 dated February 14,
1989. This amounts to [P1,376.80].

8. Request for Sales returns due to overdelivery as per our letter dated April 3, 1989
amounting to P147,108.86.

9. Request for Sales returns due to leakage as per our letter dated April 3, 1989
amounting to P8,681.24.

10. 1988-1989 Volume Rebate amounting to P520,548.41.

11. 5% Prompt Payment on P1,839,603.15 amounting to P92,480.16 since your Sales

Representative was not servicing our account due to his [forth]coming resignation. 8

Calibre sent follow-up letters dated September 17, October 13, and November 16,
1989.9

On September 29, 1989, Bayerphils credit and collection officer, Leon Abesamis,
conferred with Calibres General Manager Mario Sebastian (Sebastian). The attempt to
settle failed. Again, on October 27, 1989, Bayerphils Sales Manager of the Agro
Division, Vidal Lingan, met with Sebastian. The results of their discussion were put in
writing in Bayerphils letter dated November 10, 1989, to wit:

xxxx

Gentlemen:

Following our October 27, 1989 discussions with yourself for the final resolution of your
overdue accounts with our company in the amount of exactly P1,718,822.57, we have
arrived at a final arrangement which will no doubt be more than fair specially for your
firm.

We will now go by your claims per your letter of August 16, 1989[. We] now confirm the
following:

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1. The alleged interest charges of P60,000.00 x x x for unpaid invoices against your
volume rebate for the year 1984-1985 was not charged at all. Our records show that we
granted your year-end rebate per our

Credit Note #9089 of July 1985 - P 973,511.56

and
Credit Note #9149 of September 1985 - 181,441.15
Total rebate from retention scheme
1984-1985 P1,154,952.71

These credit notes do not bear any interest charges as you claimed during that
discussion. It means you were not charged any penalty on delayed payments of subject
invoices.

2. Retroactive application against inventory of special deal rebates have never been
paid to any of our distributors nationwide since we began business operations in this
country. As a matter of policy, we regret that we cannot grant this request.

3. Special rebates on Machete EN and Machete EC on the basis of 30-day COD

arrangement were granted during the last quarter of 1988. This agreement did not apply
to your purchases on the same products from January 1, 1988 to September 30, 1988.
We found your claim difficult to accept.

4. Your claim for P26,531.47 from our 30-day COD terms with 5% rebate on selected
products only, i.e., Gusathion, Folidol, Machete EC & EN. You have, in your claim
included other products than those listed. Inasmuch as our former Sales Representative
agreed to the inclusion of the other [products], we will grant that claim for P26,531.47
net of our earlier issued CM #11868, as an honorable business organization is expected
to act.

5. Your claim on the difference of P2,119.61 [as stated in] your letter of October 31,
1988 in the amount of P23,342.09 and our Credit Note #11693 dated January 31, 1989,
is granted. Our computations are absolutely correct but we shall not argue over a trivial
figure.

6. Your claims on returned stocks on December 19, 1988 per CRR No. 2159
for P8,047.71. We issued the corresponding credit note dated July 25, 1989 in the
amount of P7,242.26, which is based on the prices of the returned goods at the time
you acquired them, not at the time when you returned them when there was a
corresponding increase in prices. The difference is P805.45. Any business house will
reluctantly consider this claim but we thought we should gallantly grant you that
oversight. We are sure you did not intend to do that.

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7. Special 8% rebates on Machete 5G in the amount of P1,376.80. We have given you
a Credit Note #12160 to offset that claim.

8. Your volume rebate claim for the year 1988-1989 is in the sum of P520,548.41,
however, our computation stands at P479,326.49. Enclosed herewith please find our
CM#12250 in the amount of P320,849.42 representing your volume rebate for 1988-
1989 on the paid portion of your volume rebate year purchases. As soon as payment is
received on your balance of P1,042,248.16 (net of additional volume rebate
of P158,477.07 on the unpaid portion and prompt payment rebate of P63,196.06), we
shall issue you the aforementioned additional volume rebate and prompt payment
rebate CMs.

9. Your claim of 5% prompt payment rebate per your note dated June 30, 1989 has
been computed to amount to P63,196.06 in view of the returns and application of your
volume rebate against the total outstanding unpaid balances.

10. Your intention to return stocks per your letter of April 3, 1989. We have withdrawn
the following products on October 28, 1989, as follows:

Basagran 250 ml. - 230 bottles

500 ml. - 102 bottles
Baycarb 1000 ml. - 64 ‫״‬
Baythroid 100 ml. - 373 ‫״‬
250 ml. - 336 ‫״‬
Gusacarb 500 ml. - 20 ‫״‬
Roundup 250 ml. - 30 ‫״‬
Machete EC 500 ml. - 12 ‫״‬
1000 ml. - 12 ‫״‬

The net value of the above materials has been computed at P124,493.28, [for which]a
credit note will be issued shortly.

We believe that we have been more than fair in meeting your claims. We granted your
requests as a gesture of benevolence in assisting your firm in softening the burdens as
inevitable consequences of business difficulties.

And as the time tested physical law rightly states for every action, there must be an
equal positive reaction. We feel that you now react favorably in the final and complete
resolution of your main problem.

9
Yours faithfully,

BAYER PHILIPPINES, INC.10chanroblesvirtuallawlibrary

Bayerphils Assistant Sales Manager Rene Garcia (Garcia) gave this letter to
Sebastian11cra1aw on November 17, and offered to grant Calibres claims just so that it
may finally settle all its unpaid accounts with Bayerphil. Sebastian wrote Bayerphil to
confirm Garcias offer.12cra1aw In reply, Bayerphil specified in its November 24, 1989
letter the additional claims it granted and clarified the other claims:

xxxx

[Gentlemen]:

We have your letter of November 22, 1989 with your request that we confirm or deny
the verbal offer of our Mr. Renato G. Garcia granting all your claims with us per your
letter of August 16, 1989.

Please be informed that we confirm that offer subject to the conditions hereunder made
explicit, to wit:

1. We will grant you a credit note for P33,127.26 referring to your Item #2 in your letter
dated August 16, 1989.

2. We will also grant you a credit note for P68,244.30 referring to your Item #3 in your
above-named letter.

3. We will likewise grant the amount of P6,572.29 by CM to cover your Item #4 in your
above-named letter. We have excluded the free goods portion in your claim.

4. We will further grant the sum of P2,119.61 by CM as claimed in Item #5 of your

above-named letter.

5. We will also grant P805.45 through a CM to complete our CM #4975 as per your Item
#6 in your said letter.

6. Items 7, 8 & 9 in your letter has [sic] been earlier granted by our CM Nos. 12160 and
5263.

7. We will also grant your additional volume rebate amounting to P147,590.03 (see also
CM#12250 P320,849.42 VR earlier granted upon full payment of the hereunder
mentioned net payable to us).

8. Lastly, we will grant you under Item #11 of your August 16 letter, the sum
of P79,557.21 (credited free goods and volume rebate which shall be applied against
outstanding account are excluded).

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All the foregoing are premised on our receipt of your full payment of the sum
of P934,086.92, in full and total settlement of your outstanding account after the
crediting of the eight (8) above-named concessions totaling to P338,016.15.

We strongly urge you to accept and adhere to the foregoing offer by remitting to us the
said sum of P934,086.92 through a bank demand draft on or before close of business
hours of December 8, 1989. Your failure to remit the said demand draft within the
allotted time shall effectively cancel our herein offer, and much to our regret we shall be
left with no other recourse but to protect our interests by and through an appropriately
more drastic legal action.

Yours faithfully,

BAYER PHILIPPINES, INC.13

In his December 8, 1989 letter, Sebastian expressed discontent in Bayerphils refusal to

credit his claims in full and underscored the alleged inaction of Bayerphil in reconciling
Calibres accounts.14

This was followed by a demand letter requiring Bayerphil to pay the sum
of P10,000,000.00 for the damages it had allegedly caused to
Calibre.15cra1aw Bayerphil replied, reminding that Calibre owed it P1,272,103.07 as of
December 31, 1989.16

Accusing Bayerphil of maliciously breaching the distributorship agreement by

manipulating Calibres accounts, withholding discounts and rebates due it, charging
unwarranted penalties, refusing to supply goods, and favoring the new
distributors/dealers to drive it out of business, Calibre, on March 14, 1990, filed a suit for
damages, docketed as Civil Case No. 59258, before the Regional Trial Court (RTC) of
Pasig.17cra1aw Calibre prayed for P8,000,000.00 actual damages, representing alleged
actual losses and profits;18cra1aw P2,000,000.00 award as alleged damage to its
goodwill and business reputation; P3,500,000.00 as exemplary damages; and,
attorneys fees of P1,500,000.00.

In its Answer with Counterclaim,19cra1aw Bayerphil denied its alleged wanton

appointment of other distributors, reasoning that it could not be faulted for a difference
in treatment between a paying dealer and a non-paying one. It maintained that Calibre
filed the damage suit to avoid paying its overdue accounts. Considering that those
purchased on credit remained unpaid, Bayerphil had to refuse to further supply Calibre
with its products.

Bayerphil also averred that the dealership agreement provides that rebates and
discounts would only be granted if the previous purchases had been first fully paid. It
denied that it failed to reconcile Calibres accounts since it conferred with Calibre, and
even acceded to a number of deductions demanded by Calibre subject to the latters
settlement of accounts. Bayerphil thus prayed for the collection of P1,272,103.07, with

11
interest of 14% per annum accruing daily and compounded monthly from the date of
default (as provided in the dealership agreement); P1,000,000.00 exemplary damages;
and, P200,000.00 attorneys fees and costs of suit.

Bayerphil also moved that Mario Sebastian and his wife Minda (Sebastians) be
impleaded as co-defendants, considering that the Sebastians bound themselves as
solidary debtors under the distributorship/dealership agreement.20

Calibre opposed Bayerphils motion to implead the Sebastians and moved to strike out
the counterclaim, reasoning that the spouses are not parties in its suit against Bayerphil
and thus are not the proper parties to the counterclaim. It stressed that the issues
between the damages suit it filed and Bayerphils counterclaim for collection of money
are totally unrelated.21

On the other hand, Bayerphil contended that both causes of action arose from the same
contract of distributorship, and that the Sebastians inclusion is necessary for a full
adjudication of Bayerphils counterclaim to avoid duplication of suits.22

In its October 24, 1990 Resolution,23cra1aw the trial court rejected Calibres arguments
and granted the motion to implead the Sebastians as co-defendants in the counterclaim.
The spouses then filed their answer to Bayerphils counterclaim, 24cra1aw adopting all
the allegations and defenses of Calibre. They raised the issue that the counterclaim
against them is permissive, and since Bayerphil failed to pay the required docket fees,
the trial court has no jurisdiction over the counterclaim.

Ruling of the Regional Trial Court

On December 6, 1993, the trial court rendered judgment 25cra1aw favoring Calibre. It
held that Calibre was justified in withholding payment because there was deliberate
inaction/employment of dilatory tactics on the part of Bayerphil to reconcile accounts
making it liable for damages for abuse of rights and unfair competition under Articles 19,
20, and 28 of the Civil Code.26cra1aw It opined that Bayerphil unfairly favored other
dealers and deliberately refused to supply the plaintiff with its products to drive it out of
business. As for Bayerphils counterclaim, the court a quo adjudged that aside from
being unmeritorious for lack of valid demand, the counterclaim was permissive in
character. Therefore, it must be dismissed for Bayerphils failure to pay the required
docket fees. The dispositive portion of the Decision states:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant

Bayer Philippines, Inc., ordering said defendant to pay to plaintiff the amounts
of P8,000,000.00 as actual damages, plus P80,000.00 as attorneys fees, plus costs.

The "Counter-Complaint" of defendant against the spouses Mario and Minda Sebastian
is DISMISSED, for defendants failure to pay the required docket and filing fees,
considering that the counterclaim is permissive in character, and not compulsory.
Defendants counterclaim is likewise DISMISSED for lack of merit.

12
SO ORDERED.27

Ruling of the Court of Appeals

The CA reversed the trial courts factual findings. In its July 31, 2002 Decision, the CA
found no reason to award Calibre anything as it has no cause of action against
Bayerphil. The CA said:

We agree with the appellant that nothing in the evidence suggests that it deliberately
and maliciously withheld approval of Calibres claims. Indeed, the correspondences
between the parties show that either there was an honest difference in the computation
of the amount, and/or a variance in opinion as to the validity of the claims. There is
abundant evidence that Bayer actually examined its records so much so that through a
letter dated November 10, 1989, it gave its explanation why it was denying certain
claims. Bayer sent its representatives to discuss the matter with Calibres General
Manager Mario Sebastian. Bayer exerted efforts to arrive at a compromise with Calibre,
and expressed its willingness to grant several concessions to plaintiff-appellee (Exhibit
"N", Record, pp. 256-257)

Parenthetically, Bayers offer of compromise cannot be taken as an admission of liability

on its part for the entire claim of appellee Calibre. In civil cases, an offer of compromise
is not an admission of any liability. The compromise settlement of a claim or cause of
action is not an admission that the claim is valid, but merely admits that there is a
dispute, and that the amount is being paid just to buy peace. (Servicewide Specialists,
Inc. vs. Court of Appeals, G.R. No. 117728, June 26, 1996, 257 SCRA 643) After all, it
is the policy of the law to encourage compromises.

xxxx

It must also be noted that plaintiff-appellee was not entitled to be the sole distributor
within its area of coverage for Bayer. Under number 3, Part III of the latest
Distributorship/Dealership Agreement (p. 231, Record) between the parties, it was
stipulated that unless otherwise agreed upon, formally and in writing, plaintiff-appellees
appointment as distributor/dealer was to be on a non-exclusive basis. The agreement
expressly reserved Bayers right to appoint other distributors and/or dealers, in any
number desired and anywhere in the appointed area. There is no evidence of a formal
and written agreement appointing plaintiff-appellee as sole distributor in Pangasinan
and Tarlac. Hence, it cannot validly claim that Bayer caused its business injury by
appointing other dealers and distributors within its area.

Significantly, the Distributorship/Dealership Agreement also reserved to both parties the

right to cancel the agreement at any time. Under the circumstances obtaining, Bayer
was justified, in the exercise of sound business decision, to stop supplying goods to
plaintiff-appellee until the latters outstanding account had been finally settled. 28

13
Furthermore, the CA favored Bayerphils counterclaim. It ruled that Bayerphils
counterclaim was compulsory hence it need not pay the docket and filing fees. It noted
that it arose out of the same dealership agreement from which the claims of Calibre in
its complaint were likewise based. Finding that Calibre never denied that it owes
Bayerphil, and that the evidence of Bayerphil regarding the amount owed by Calibre
was unrebutted, the CA deemed justified the award of actual damages. Hence:

WHEREFORE, premises considered, the Decision of the lower court is hereby

REVERSED and SET ASIDE and a new one is entered ordering plaintiff-appellee
Calibre Traders and/or Mario Sison Sebastian and Minda Blanco Sebastian to pay
defendant-appellant the amount of One Million Two Hundred Seventy-Two Thousand
One Hundred Three Pesos and Seven Centavos (P1,272,103.07) with interest thereon
at the rate of 14% per annum compounded from December 31, 1989 until fully paid.

Without pronouncement as to costs.

SO ORDERED.29chanroblesvirtuallawlibrary

In its December 19, 2003 Resolution,30cra1aw the CA denied the motion for
reconsideration.

Issues

Based on the parties contentions, the Court should now resolve the following issues: a)
Calibres entitlement to an award of damages; and, b) the propriety of granting relief to
Bayerphils counterclaim.

Our Ruling

No form of damages can be awarded to Calibre for it miserably failed to prove its right to
the reliefs it sought.

While only questions of law are reviewed in petitions for review on certiorari, the Court
shall delve into the factual milieu of this case in view of the conflicting findings of facts
by the trial court and the CA.31cra1awThe question arises whether Calibre has a cause
of action against Bayerphil. The records before us though, highlight the lack of it.

The lower courts ruling against the latter is premised on a finding of malice or bad faith,
i.e., a finding of an abuse of right on Bayerphils part in exercising inimical acts that
prejudiced Calibres business. However, we agree with the CAs conclusion that there is
no adequate proof that Bayerphil was guilty of abusing its rights. "[G]ood faith is
presumed and that the burden of proving bad faith rests upon a party alleging the
same."32cra1aw "In civil cases, the law requires that the party who alleges a fact and
substantially asserts the affirmative of the issue has the burden of proving
it."33cra1aw This is where Calibre failed.

14
As regards the allegations of inaction/refusal to reconcile accounts, accounts
manipulation by withholding discounts/rebates, imposition of penalties, and refusal to
supply goods, the records reveal that Bayerphil never ignored the request for accounts
reconciliation. Bayerphil acted on Calibres letter and sent its representatives to meet
with Sebastian. It wrote a letter answering point-by-point why some demands for
discounts and rebates had to be refused. Bayerphils second letter, wherein some claims
were additionally granted, was on Bayerphils part an act of concession in its desire to
be paid since Calibre remained adamant in not paying its accounts. If ever Calibre
found the second letter to be apparently inconsistent with the first letter, bad faith cannot
be immediately imputed to Bayerphil since the latter is not precluded from making
prompt corrections in its computations.

We cannot subscribe to the accusation of accounts manipulation. As the CA had found,

this matter involves an "honest difference in the computation of the amount, and/or a
variance in opinion as to the validity of the claims." Moreover, Bayerphil could not be
blamed for disallowing some of the claimed discounts and rebates. Under the latest
dealership agreement and the volume rebate agreement executed, payment is a
precondition for the discounts and rebates.34cra1aw Bayerphil, to minimize further
losses, was justified in stopping the supply of its products when its dealer still had
outstanding accounts. Lastly, Calibre did not specify during the trial the unwarranted
penalties Bayerphil had allegedly imposed.

Neither do we find any abuse in Bayerphils exercise of appointing other distributors

within Calibres area. The fact that the distributors appointed were Calibres former
customers or salesmen or their relatives does not prove any ill intention to drive Calibre
out of business. Notably, the distributorship/dealership agreement was on a non-
exclusive basis. Bayerphil merely accorded the same business opportunities to others
to better themselves. Naturally, an increase in the number of distributors in an area will
entail corresponding decline in volume sales of the individual distributors. Even then
Bayerphils assistant sales manager for internal administration Ofelia Castillo, who
named during the trial the other distributors Bayerphil appointed in Pangasinan, not only
acknowledged that Bayerphils former salesmen had resigned to be dealers, but also
admitted that competition is part of business risk:

Q You said in Manaoag, this Rosalyn Agricultural Supply was there as early as 1980 is
that correct?

A At about.

Q But somehow, it was a distributor for only 2 or 3 years?

A Yes, shortly, unlike those dealers who have several years.

Q This Samson in Urdaneta was also short lived?

A It began in the area and operating until now.

15
Q Would you know when Samson began as a distributor?

A Between the period 82 and 85.

Q This San Carlos Agricultural Center owned by William.

A It is owned by Ricardo Rule. There are two operating in San Carlos.

Q There are two dealers operating in San Carlos?

A Yes, Sir.

Q How many in Urdaneta?

A Calibre and Samson. Only those two.

Q You would admit Mrs. Castillo that the Bayer Phils. Salesmen of agro chemicals are
experienced in the products of Bayer Philippines?

A Having worked and dealt with Bayer chemicals, with the training they got, I suppose
they get that experience.

Q And this experience would be invaluable in their distributorship?

A Valuable.

Q Very valuable?

A Very valuable.

Q And in fact, you know of many salesmen of Bayer Phils who resigned?

A Yes, sir.

Q Because the chances of getting more is there if you are an independent distributor?

A Yes, sir.

Q In fact, this is true not only in Pangasinan but all over the country, Mrs. Castillo?

A Yes, because we have mentioned one in Cotabato, in San Jose, Nueva Ecija, in
Tuguegarao.

Q And from the records that you mentioned earlier on, it would seem some of them
succeeded beautifully and some closed shop afterwards?

16
A Yes, sir.

Q It is just a matter of luck and yes, business luck?

A Yes, sir.35

Incidentally, under actual or compensatory damages, indemnification comprises not

only the value of the loss suffered, but likewise the profits the obligee failed to
obtain.36cra1aw In its attempt to support this claim for compensatory damages, Calibre,
based its computation of more or less a loss of P8 million on a 10-year sales
projection.37cra1aw But as could be gleaned from Sebastians testimony, there is no
solid evidence upon which this sales projection was based:

Q You prepared a projection of your total sales for another ten (10) years from 1989.

A Yes, sir.

Q In the preparation of your projection, I assume that you based it on the records of
your sales of previous years?

A No.

Q You did not in preparing your projection of sales to determine your alleged lost profits
refer at all to your previous records?

A No.

Q What then was the basis of your projection?

A The basis of my projection is, as one of the valued clients of Bayer Philippines which
is a member of the World Club, we are in the bracket of 10 million per year sales.

Q So you only had capability to sell?

A Yes.

Q Have you ever sold before in the 10 million per year sales?

A Yes.

Q That is why I am asking you, you did not at all base your assumption on your prior
sales record of Bayer Philippines products?

A I cannot possibly base it on the past sales. Cost of money is going up so I based it on
a bracket that Bayer Philippines put us which is in the 10 million per year sales that is
projected for another 10 years because we are the valued clients of Bayer.

17
Q You also projected your profits for the next 10 years?

A Yes, sir.

Q And you did not consider the profits from the Bayer business of the prior years in
making your projection?

A Yes, sir.

Q I assume then that in determining your profits for the previous years you used the
figures of the summary Exhibit O as to your sales from 1977 to 1989?

A No, sir.

Q You did not refer at all to your profits for the previous years?

A No, sir.

Q Why did you not refer to your previous profits to determine your projection of probable
profits?

A We projected our projection based on our being a valued client of Bayer Philippines,
and based on the contract of the minimum 5% profit. 38chanroblesvirtuallawlibrary

To justify a grant of actual or compensatory damages, the amount of loss must be

proved with a reasonable degree of certainty, based upon competent proof and the best
evidence obtainable by the injured party.39cra1aw The projected sum of P10 million
sales cannot thus be the proper base in computing actual damages. Calibre computed
its lost income based only on its capability to sell around P10 Million, not on the actual
income earned in the past years to properly compute the average income/profit.

At any rate, since Calibre had no cause of action at all against Bayerphil, there can be
no basis to award it with damages.

Bayerphils counterclaim is permissive, but the trial court should have given it the
opportunity to pay the docket fees since it did not avoid paying said fees.

"A compulsory counterclaim is any claim for money or other relief, which a defending
party may have against an opposing party, which at the time of suit arises out of, or is
necessarily connected with, the same transaction or occurrence that is the subject
matter of plaintiffs complaint. It is compulsory in the sense that it is within the jurisdiction
of the court, does not require for its adjudication the presence of third parties over whom
the court cannot acquire jurisdiction, and will be barred x x x if not set up in the answer
to the complaint in the same case. Any other claim is permissive."40cra1aw "[The] Court
has already laid down the following tests to determine whether a counterclaim is
compulsory or not, to wit: (1) Are the issues of fact or law raised by the claim and the

18
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, such that the conduct of separate trials of the respective claims of the
parties would entail a substantial duplication of effort and time by the parties and the
court?"41cra1aw The fourth test is the compelling test of
compulsoriness.42chanroblesvirtuallawlibrary

Bayerphils suit may independently proceed in a separate action. Although the rights and
obligations of the parties are anchored on the same contract, the causes of action they
filed against each other are distinct and do not involve the same factual issues. We find
no logical relationship between the two actions in a way that the recovery or dismissal of
plaintiffs suit will establish a foundation for the others claim. The counterclaim for
collection of money is not intertwined with or contingent on Calibres own claim for
damages, which was based on the principle of abuse of rights. Both actions involve the
presentation of different pieces of evidence. Calibres suit had to present evidence of
malicious intent, while Bayerphils objective was to prove nonpayment of purchases. The
allegations highlighting bad faith are different from the transactions constituting the
subject matter of the collection suit. Respondents counterclaim was only permissive.
Hence, the CA erred in ruling that Bayerphils claim against the petitioners partakes of a
compulsory counterclaim.

Be that as it may, the trial court was incorrect in dismissing Bayerphils counterclaim for
non-payment of docket fees.

All along, Bayerphil has never evaded payment of the docket fees on the honest belief
that its counterclaim was compulsory. It has always argued against Calibres contention
that its counterclaim was permissive ever since the latter opposed Bayerphils motion
before the RTC to implead the Sebastian spouses. Lastly, Bayerphils belief was
reinforced by Judge Claravalls October 24, 1990 Resolution when she denied Calibres
motion to strike out Bayerphils counterclaim. Thus:

With respect to the motion to strike out the counterclaim, the Rejoinder and Reply of
CALIBRE mentioned two reasons to support it. These are: 1) that the counterclaim is
not against the opposing party only, and 2) that the plaintiffs claim against the defendant
is totally unrelated to the latters claim against the Sebastian spouses because they are
"not the same."

To resolve the issues abovementioned, the elements of a compulsory counterclaim are

thus given:

A counterclaim is compulsory and is considered barred if not set up where the following
circumstances are present: 1) that it arises out of the, or is necessarily connected with
the transaction or occurrence that is the subject matter of the opposing partys claim, 2)
that it does not require for its adjudication the presence of third parties of whom the

19
court cannot acquire jurisdiction, and 3) that the court has jurisdiction to entertain the
claim. (Javier vs. IAC, 171 SCRA 605)

The provisions of Section 8, Rule 6 must necessarily be mentioned also. To wit:

Sec. 8, Rule 6. Counterclaim or cross-claim in the answer. The answer may contain any
counterclaim or crossclaim which a party may have at the time against the opposing
party or a co-defendant provided, that the court has jurisdiction to entertain the claim
and can, if the presence of third parties is essential for its adjudication, acquire
jurisdiction of such parties.

The rules and jurisprudence do not require that the parties to the counterclaim be the
original parties only. In fact, the presence of third parties is allowed, the only provision
being their capacity to be subjected under the courts jurisdiction. As regards the nature
of the claims of the parties, neither is it required that they be of the same nature, only
that they arise from the same transaction or occurrence. 43chanroblesvirtuallawlibrary

It cannot be gainsaid that the emerging trend in the rulings of this Court is to afford
every party litigant the amplest opportunity for the proper and just determination of his
cause, free from the constraints of technicalities.44cra1aw Rules on the payment of filing
fees have already been relaxed:

1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the
payment of the prescribed docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow payment of the fee
within a reasonable time but in no case beyond the applicable prescriptive or
reglementary period.

2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee prescribed
therefor is paid. The court may also allow payment of said fee within a reasonable time
but also in no case beyond its applicable prescriptive or reglementary period.

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate
pleading and payment of the prescribed filing fee but, subsequently, the judgment
awards a claim not specified in the pleading, or if specified the same has been left for
determination by the court, the additional filing fee therefor shall constitute a lien on the
judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy
to enforce said lien and assess and collect the additional
45
fee. chanroblesvirtuallawlibrary

It is a settled doctrine that "although the payment of the prescribed docket fees is a
jurisdictional requirement, its non-payment x x x should not result in the automatic
dismissal of the case provided the docket fees are paid within the applicable
prescriptive period."46cra1aw "The prescriptive period therein mentioned refers to the

20
period within which a specific action must be filed. It means that in every case, the
docket fee must be paid before the lapse of the prescriptive period. Chapter 3, Title V,
Book III of the Civil Code is the principal law governing prescription of
actions."47chanroblesvirtuallawlibrary

In accordance with the aforementioned rules on payment of docket fees, the trial court
upon a determination that Bayerphils counterclaim was permissive, should have instead
ordered Bayerphil to pay the required docket fees for the permissive counterclaim,
giving it reasonable time but in no case beyond the reglementary period. 48cra1aw At the
time Bayerphil filed its counter-claim against Calibre and the spouses Sebastian without
having paid the docket fees up to the time the trial court rendered its Decision on
December 6, 1993, Bayerphil could still be ordered to pay the docket fees since no
prescription has yet set in.49cra1aw Besides, Bayerphil should not suffer from the
dismissal of its case due to the mistake of the trial court.

Considering the foregoing discussion, we find no need to remand the case to the trial
court for the resolution of Bayerphils counterclaim. In Metromedia Times Corporation v.
Pastorin,50cra1aw we discussed the rule as to when jurisdiction by estoppel applies and
when it does not, thus:

Lack of jurisdiction over the subject matter of the suit is yet another matter. Whenever it
appears that the court has no jurisdiction over the subject matter, the action shall be
dismissed (Section 2, Rule 9, Rules of Court). This defense may be interposed at any
time, during appeal (Roxas vs. Rafferty, 37 Phil. 957) or even after final judgment
(Cruzcosa vs. Judge Concepcion, et al., 101 Phil. 146). Such is understandable, as this
kind of jurisdiction is conferred by law and not within the courts, let alone the parties, to
themselves determine or conveniently set aside. In People vs. Casiano (111 Phil. 73,
93-94), this Court, on the issue of estoppel, held:

"The operation of the principle of estoppel on the question of jurisdiction seemingly

depends upon whether the lower court actually had jurisdiction or not. If it had no
jurisdiction, but the case was tried and decided upon the theory that it had jurisdiction,
the parties are not barred, on appeal, from assailing such jurisdiction, for the same must
exist as a matter of law, and may not be conferred by consent of the parties or by
estoppel (5 C.J.S., 861-863). However, if the lower court had jurisdiction, and the case
was heard and decided upon a given theory, such, for instance, as that the court had no
jurisdiction, the party who induced it to adopt such theory will not be permitted, on
appeal, to assume an inconsistent position that the lower court had jurisdiction. Here,
the principle of estoppel applies. The rule that jurisdiction is conferred by law, and does
not depend upon the will of the parties, has no bearing thereon."

In this case, the trial court had jurisdiction over the counterclaim although it erroneously
ordered its automatic dismissal. As already discussed, the trial court should have
instead directed Bayerphil to pay the required docket fees within a reasonable time.
Even then, records show that the trial court heard the counterclaim although it again
erroneously found the same to be unmeritorious. Besides, it must also be mentioned

21
that Bayerphil was lulled into believing that its counterclaim was indeed compulsory and
thus there was no need to pay docket fees by virtue of Judge Claravalls October 24,
1990 Resolution. Petitioners also actively participated in the adjudication of the
counterclaim which the trial court adjudge to be unmeritorious.

However, we are more inclined to affirm the CAs ruling anent Bayerphils counterclaim. It
held thus:

What remains to be determined now is whether or not defendant-appellant is entitled to

its counterclaim. On this score, We note that plaintiff-appellee never denied that it still
owes defendant-appellant for purchases it had made. Bayer had already recognized
that Calibre was entitled to a volume rebate for the years 1988-1989 in the amount
of P320,849.42 on paid purchases, and a 5% prompt payment rebate of P63,196.06 in
view of the application of the volume rebate to Calibres outstanding balance, or a total
of P384,045.48, as stated in Bayers letter dated November 10, 1989 (Exhibit "10",
Record, pp. 373-375) earlier quoted.

Since no evidence was presented by plaintiff-appellee to rebut the correctness of

Bayers computation. We therefore assume it to be correct. Moreover, We note that the
stocks Bayer had withdrawn per plaintiff-appellees request under Claims 10 and 11
amounting to P124,493.28 had been credited to plaintiff-appellee as shown by the
Statement of Account (Exhibit "4", Record, pp. 366-367) which shows that Calibres
outstanding indebtedness as of December 31, 1989 was One million Two Hundred
Seventy-Two Thousand, One Hundred Three Pesos and Seventeen Centavos
(P1,272,103.17) (Exhibit "4-E", p. 367). We also note that the Distributorship/Dealership
Agreement entered into by the parties provides that default in payment on any account
by the DISTRIBUTOR/DEALER when and as they fall due shall entitle BAYERPHIL to
interests thereon at the then maximum lawful interest rates which in no case shall be
lower than twelve per cent (12%) per annum for accounts fully secured by a mortgage
on realty or fourteen per cent (14%) per annum when otherwise unsecured. (Exhibit "1-
F", Record, p. 328).51chanroblesvirtuallawlibrary

WHEREFORE, the July 31, 2002 Decision of the Court of Appeals in CA-G.R. CV No.
45546 is AFFIRMED. Considering that the counterclaim is permissive, respondent
Bayer Philippines, Inc. is ORDERED to pay the prescribed docket fees with the
Regional Trial Court of Pasig City within fifteen (15) days from receipt of this Decision.

SO ORDERED.

22
CASE NO. 3 G.R. No. 198752

ARTURO C. ALBA, JR., duly represented by his attorneys-in-fact, ARNULFO B.

ALBA and ALEXANDER C. ALBA, Petitioner,
vs.
RAYMUND D. MALAPAJO, RAMIL D. MALAPAJO and the Register of Deeds for
the City of Roxas,Respondents.

DECISION

PERALTA, J.:

Assailed in this petition for review on certiorari are the Resolution1 dated February 28,
2011 and the Resolution2dated August 31, 2011 issued by the Court of Appeals (CA)
Cebu City, in CA-G.R. SP No. 05594.

The antecedents are as follows:

On October 19, 2009, petitioner Arturo C. Alba, Jr., duly represented by his attorneys-in-
fact, Arnulfo B. Alba and Alexander C. Alba, filed with the Regional Trial Court (RTC) of
Roxas City, Branch 15, a Complaint3 against respondents Raymund D. Malapajo, Ramil
D. Malapajo and the Register of Deeds of Roxas City for recovery of ownership and/or
declaration of nullity or cancellation of title and damages alleging, among others, that he
was the previous registered owner of a parcel of land consisting of 98,146 square
meters situated in Bolo, Roxas City, covered by TCT No. T-22345; that his title was
subsequently canceled by virtue of a deed of sale he allegedly executed in favor of
respondents Malapajo for a consideration of Five Hundred Thousand Pesos
(P500,000.00); that new TCT No. T-56840 was issued in the name of respondents
Malapajo; that the deed of sale was a forged document which respondents Malapajo
were the co-authors of.

Respondents Malapajo filed their Answer with Counterclaim4 contending that they were
innocent purchasers for value and that the deed was a unilateral document which was
presented to them already prepared and notarized; that before the sale, petitioner had,
on separate occasions, obtained loans from them and their mother which were secured
by separate real estate mortgages covering the subject property; that the two real estate
mortgages had never been discharged. Respondents counterclaimed for damages and
for reimbursement of petitioner's loan from them plus the agreed monthly interest in the
event that the deed of sale is declared null and void on the ground of forgery.

Petitioner filed a Reply to Answer and Answer to (Permissive) Counterclaim5 stating,

among others, that the court had not acquired jurisdiction over the nature of
respondents' permissive counterclaim; and, that assuming without admitting that the two
real estate mortgages are valid, the rate of five percent (5%) per month uniformly stated
therein is unconscionable and must be reduced. Respondents filed their
Rejoinder6 thereto.

23
Petitioner filed a Motion to Set the Case for Preliminary Hearing as if a Motion to
Dismiss had been Filed7 alleging that respondents’ counterclaims are in the nature of a
permissive counterclaim, thus, there must be payment of docket fees and filing of a
certification against forum shopping; and, that the supposed loan extended by
respondents’ mother to petitioner, must also be dismissed as respondents are not the
real parties-in-interest. Respondents filed their Opposition8 thereto.

On June 4, 2010, the RTC issued an Order9 denying petitioner's motion finding that
respondents’ counterclaims are compulsory. Petitioner’s motion for reconsideration was
denied in an Order10 dated September 30, 2010.

Petitioner filed a petition for certiorari with the CA which sought the annulment of the
RTC Orders dated June 4, 2010 and September 30, 2010.

In a Resolution dated February 28, 2011, the CA dismissed the petition

for certiorari saying that there was no proper proof of service of the petition to the
respondents, and that only the last page of the attached copy of the RTC Order was
signed and certified as a true copy of the original while the rest of the pages were mere
machine copies.

Petitioner filed a motion for reconsideration which the CA denied in a Resolution dated
August 31, 2011 based on the following findings:

Nevertheless, while petitioner filed with the Petition his Affidavit of Service and
incorporated the registry receipts, petitioner still failed to comply with the requirement on
proper proof of service. Post office receipt is not the required proof of service by
registered mail. Section 10, Rule 13 of the 1997 Rules of Civil Procedure specifically
stated that service by registered mail is complete upon actual receipt by the addressee,
or after five (5) days from the date he received the first notice of the postmaster,
whichever is earlier. Verily, registry receipts cannot be considered sufficient proof of
service; they are merely evidence of the mail matter with the post office of the sender,
not the delivery of said mail matter by the post office to the addressee. Moreover,
Section 13, Rule 13 of the 1997 Rules of Civil Procedure specifically stated that the
proof of personal service in the form of an affidavit of the party serving shall contain a
full statement of the date, place and manner of service, which was not true in the instant
petition.11

Petitioner filed the instant petition for review raising the following assignment of errors:

I. CONTRARY TO THE ERRONEOUS RULING OF THE COURT A QUO, THE

COUNTERCLAIMS INTERPOSED BY RESPONDENTS MALAPAJO IN THEIR
ANSWER WITH COUNTERCLAIM ARE, BASED ON APPLICABLE LAW AND
JURISPRUDENCE, PERMISSIVE IN NATURE, NOT COMPULSORY, AND
THEREFORE, SUCH ANSWER WITH RESPECT TO SUCH COUNTERCLAIMS IS IN
REALITY AN INITIATORY PLEADING WHICH SHOULD HAVE BEEN ACCOMPANIED
BY A CERTIFICATION AGAINST FORUM SHOPPING AND CORRESPONDING

24
DOCKET FEES, THEREFORE, SHOULD HAVE BEEN PAID, FAILING IN WHICH THE
COUNTERCLAIMS SHOULD HAVE BEEN ORDERED DISMISSED. MOREOVER, AS
REGARDS THE LOAN ALLEGEDLY EXTENDED BY THEIR MOTHER TO
PETITIONER, WHICH UP TO NOW IS SUPPOSEDLY STILL UNPAID,
RESPONDENTS MALAPAJO ARE NOT THE REAL PARTIES-IN-INTEREST AND IS,
THEREFORE, DISMISSIBLE ON THIS ADDITIONAL GROUND; and

II. THE HONORABLE COURT OF APPEALS COMMITTED A VERY SERIOUS ERROR

WHEN IT DISMISSED THE PETITION FOR CERTIORARI BASED ON PURE
TECHNICALITY, THEREBY GIVING MORE PREMIUM AND MORE WEIGHT ON
TECHNICALITIES RATHER THAN SUBSTANCE AND DISREGARDING THE MERITS
OF THE PETITION.12

We find that the CA erred in denying petitioner's petition for certiorari after the latter had
clearly shown compliance with the proof of service of the petition as required under
Section 13 of Rule 13 of the 1997 Rules of Civil Procedure, which provides:

Sec.13. Proof of service.

Proof of personal service shall consist of a written admission of the party served, or the
official return of the server, or the affidavit of the party serving, containing a full
statement of the date, place and manner of service. If the service is by ordinary mail,
proof thereof shall consist of an affidavit of the person mailing of facts showing
compliance with section 7 of this Rule. If service is made by registered mail, proof shall
be made by such affidavit and the registry receipt issued by the mailing office. The
registry return card shall be filed immediately upon its receipt by the sender, or in lieu
thereof the unclaimed letter together with the certified or sworn copy of the notice given
by the postmaster to the addressee.

Clearly, service made through registered mail is proved by the registry receipt issued by
the mailing office and an affidavit of the person mailing of facts showing compliance with
the rule. In this case, Nerissa Apuyo, the secretary of petitioner’s counsel, had executed
an affidavit13 of personal service and service by registered mail which she attached to
the petition marked as original filed with the CA. She stated under oath that she
personally served a copy of the petition to the RTC of Roxas City on December 6, 2010,
as evidenced by a stamp mark of the RTC on the corresponding page of the petition;
that she also served copies of the petition by registered mail to respondents' counsels
on December 6, 2010 as evidenced by registry receipts numbers "PST 188" and "PST
189", both issued by the Roxas City Post Office. The registry receipts issued by the post
office were attached to the petition filed with the CA. Petitioner had indeed complied
with the rule on proof of service.

Since the case was dismissed outright on technicality, the arguments raised in the
petition for certiorari were not at all considered. However, we will now resolve the issue
on the merits so as not to delay further the disposition of the case instead of remanding
it to the CA.

25
The issue for resolution is whether respondents’ counterclaim, i.e., reimbursement of
the loan obtained from them in case the deed of absolute sale is declared null and void
on the ground of forgery, is permissive in nature which requires the payment of docket
fees and a certification against forum shopping for the trial court to acquire jurisdiction
over the same.

A counterclaim is any claim which a defending party may have against an opposing
party.14 A compulsory counterclaim is one which, being cognizable by the regular courts
of justice, arises out of or is connected with the transaction or occurrence constituting
the subject matter of the opposing party's claim and does not require for its adjudication
the presence of third parties of whom the court cannot acquire jurisdiction. Such a
counterclaim must be within the jurisdiction of the court both as to the amount and the
nature thereof, except that in an original action before the Regional Trial Court,
necessarily connected with the subject matter of the opposing party's claim or even
where there is such a connection, the Court has no jurisdiction to entertain the claim or
it requires for adjudication the presence of third persons over whom the court acquire
jurisdiction.15 A compulsory counterclaim is barred if not set up in the same action.

A counterclaim is permissive if it does not arise out of or is not necessarily connected

with the subject matter of the opposing party's claim.16 It is essentially an independent
claim that may be filed separately in another case.

To determine whether a counterclaim is compulsory or permissive, we have devised the

following tests: (a) Are the issues of fact and law raised by the claim and by the
counterclaim largely the same? (b) Would res judicata bar a subsequent suit on
defendants’ claims, absent the compulsory counterclaim rule? (c) Will substantially the
same evidence support or refute plaintiffs’ claim as well as the defendants’
counterclaim? and (d) Is there any logical relation between the claim and the
counterclaim?17 A positive answer to all four questions would indicate that the
counterclaim is compulsory.18

Based on the above-mentioned tests, we shall determine the nature of respondents’

counterclaim. Respondents anchored their assailed counterclaim on the following
allegations in their affirmative defenses in their Answer with Counterclaim, thus:

xxxx

10. The plaintiff's cause of action is based on his allegation that his signature on the
Deed of Absolute Sale was forged.

The Deed of Absolute Sale is a unilateral instrument, i.e., it was signed only by the
vendor, who is the plaintiff in this case and his instrumental witnesses, who are his
parents in this case. It was presented to defendants already completely prepared,
accomplished and notarized. Defendants had no hand in its preparation,
accomplishment and notarization.

26
While the plaintiff claims that his signature on the instrument is forged, he never
questioned the genuineness of the signatures of his instrumental witnesses, his parents
Arturo P. Alba, Sr. and Norma C. Alba, who signed the said instrument below the words
"SIGNED IN THE PRESENCE OF" and above the words "Father" and "Mother,"
respectively.

Furthermore, plaintiff acknowledged in par. 7 of his Complaint that the stated

consideration in the Deed of Absolute Sale is P500,000.00 and he never categorically
denied having received the same.

11. Before the plaintiff sold the property to the defendants, he secured a loan from them
in the sum of Six Hundred Thousand Pesos (P600,000.00) payable on or before
November 10, 2008. The loan is evidenced by a Promissory Note and secured by a
Real Estate Mortgage dated September 11, 2008, both executed by him, covering the
parcel of land subject of this case, Lot 2332-D, Psd 06-000738. Like the Deed of
Absolute Sale, the Real Estate Mortgage is a unilateral instrument, was signed solely by
the plaintiff, and furthermore, his parents affixed their signatures thereon under the
heading "WITH MY PARENTAL CONSENT", and above the words, "Father" and
"Mother," respectively.

Prior to this, or as early as July 25, 2008, the plaintiff also obtained a loan payable on or
before September 6, 2008 from defendants' mother, Alma D. David, and already
mortgaged to her Lot 2332-D, Psd 06-000738. The loan is evidenced by a Promissory
Note and a Real Estate Mortgage, both of which were executed by plaintiff. Again, the
Real Estate Mortgage is an unilateral instrument, was signed solely by the plaintiff and
furthermore, his parents also affixed their signatures thereon under the heading, "WITH
MY PARENTAL CONSENT " and above the words, "Father" and "Mother," respectively.

In both instances, the plaintiff was always represented by his parents, who always
manifested their authority to transact in behalf of their son the plaintiff.1âwphi1

As in the case with the Deed of Absolute Sale, the defendants or their mother did not
have any hand in the preparation, accomplishment or notarization of the two Promissory
Notes with accompanying Real Estate Mortgages, x x x.

Neither of the two Real Estate Mortgages have been discharged or extinguished.

12. Considering the foregoing, the plaintiff's allegation that his signature on the Deed of
Absolute Sale was forged, and that the defendants are the "co-authors" of the said
forgery, are absolutely false and baseless.

13. If the Deed of Absolute Sale is declared null and void on the ground of forgery, then
the plaintiff should reimburse the defendants the loan he obtained from them, which he
did not deny having obtained, plus the agreed monthly interest. 19

27
Petitioner seeks to recover the subject property by assailing the validity of the deed of
sale on the subject property which he allegedly executed in favor of respondents
Malapajo on the ground of forgery. Respondents counterclaimed that, in case the deed
of sale is declared null and void, they be paid the loan petitioner obtained from them
plus the agreed monthly interest which was covered by a real estate mortgage on the
subject property executed by petitioner in favor of respondents. There is a logical
relationship between the claim and the counterclaim, as the counterclaim is connected
with the transaction or occurrence constituting the subject matter of the opposing party's
claim. Notably, the same evidence to sustain respondents' counterclaim would disprove
petitioner's case. In the event that respondents could convincingly establish that
petitioner actually executed the promissory note and the real estate mortgage over the
subject property in their favor then petitioner's complaint might fail. 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.20

Since respondents' counterclaim is compulsory, it must be set up in the same action;

otherwise, it would be barred forever.21 If it is filed concurrently with the main action but
in a different proceeding, it would be abated on the ground of litis pendentia; if filed
subsequently, it would meet the same fate on the ground of res judicata.22 There is,
therefore, no need for respondents to pay docket fees and to file a certification against
forum shopping for the court to acquire jurisdiction over the said counterclaim.

We agree with the RTC’s disquisition in finding that respondents’ counterclaim is

compulsory, to wit:

The arguments of the plaintiffs that this transaction is a permissive counterclaim do not
convince.

By the manner in which the answer pertaining to this transaction was phrased, the real
estate mortgage was the origin of the Deed of Absolute Sale after the loan of
P600,000.00 using the same property as security for the payment thereof was not
settled. In short, it is one of defendants' defenses and controverting evidence against
plaintiffs' allegations of falsification of the Deed of Absolute Sale, the property subject of
the Deed of Sale being one and the same property subject of the mortgage. 23

xxxx

Can the Court adjudicate upon the issues [of whether or not the plaintiff could recover
ownership and or whether or not the title to the property in question may be canceled or
declared null and void, and damages] without the presence of the mother of defendants
in whose favor the Real Estate Mortgage of the property subject of this action was
executed?

Definitely, this Court can. That there was an allegation pertaining to the mortgage of the
property in question to defendants’ mother is only some sort of a backgrounder on why

28
a deed of sale was executed by plaintiff in defendants’ favor, the truth or falsity of which
will have to be evidentiary on the part of the parties hereto. In short, the Court does not
need the presence of defendants’ mother before it can adjudicate on whether or not the
deed of absolute sale was genuine or falsified and whether or not the title to the
property may be cancelled.24

WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED.

The Resolutions dated February 28, 2011 and August 31, 2011 issued by the Court of
Appeals in CA-G.R. SP No. 05594 dismissing the petition for certiorari and denying
reconsideration thereof, respectively, for failure to show proper proof of service of the
petition to respondents, are SET ASIDE. Acting on the petition for certiorari, we resolve
to DENY the same and AFFIRM the Order dated June 4, 2010 of the Regional Trial
Court of Roxas City, Branch 15, denying petitioner's motion to set the case for hearing
as if a motion to dismiss had been filed, and the Order dated September 30, 2010
denying reconsideration thereof.

SO ORDERED.

29
CASE NO. 4

G.R. No. 166393

CRISTINA F. REILLO, LEONOR F.

PUSO, ADELIA F. ROCAMORA,
SOFRONIO S.J. FERNANDO, EFREN
S.J. FERNANDO, ZOSIMO S.J.
FERNANDO, JR., and MA. TERESA F. Present:
PION,
Petitioners,

YNARES-SANTIAGO, J.,
Chairperson,
- versus - CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.
GALICANO E.S. SAN JOSE,
represented by his Attorneys-in-Fact,
ANNALISA S.J. RUIZ and RODELIO S.
SAN JOSE, VICTORIA S.J. REDONGO,
CATALINA S.J. DEL ROSARIO
and MARIBETH S.J. CORTEZ,
collectively known as the HEIRS OF
QUITERIO SAN JOSE and ANTONINA
ESPIRITU SANTO, Promulgated:
Respondents.
June 18, 2009
x---------------------------------------------------x

DECISION

PERALTA, J.:

Assailed in this petition for review on certiorari is the Decision[1] dated August 31,

2004 of the Court of Appeals (CA) in CA-G.R. CV No. 69261 which affirmed the Order

dated May 9, 2000 of the Regional Trial Court (RTC) of Morong, Rizal, Branch 78,

30
granting the motion for judgment on the pleadings and the motion to dismiss counter

petition for partition filed by respondents in Civil Case No. 99-1148-M. Also questioned

is the CA Resolution[2] dated December 14, 2004 denying petitioners motion for

reconsideration.

Spouses Quiterio San Jose (Quiterio) and Antonina Espiritu Santo (Antonina)

were the original registered owners of a parcel of land located in E. Rodriguez Sr.

Avenue, Teresa, Rizal covered by Transfer Certificate of Title (TCT) No. 458396 of the

Register of Deeds of Rizal. The said parcel of land is now registered in the name of Ma.

Teresa F. Pion (Teresa) under TCT No. M-94400.

Quiterio and Antonina had five children, namely, Virginia, Virgilio, Galicano,

Victoria and Catalina. Antonina died on July 1, 1970, while Quiterio died on October 19,

1976. Virginia and Virgilio are also now deceased. Virginia was survived by her

husband Zosimo Fernando, Sr. (Zosimo Sr.) and their seven children, while Virgilio was

survived by his wife Julita Gonzales and children, among whom is Maribeth S.J. Cortez

(Maribeth).

On October 26, 1999, Galicano, represented by his children and attorneys-in-fact,

Annalisa S.J. Ruiz and Rodegelio San Jose, Victoria, Catalina, and Maribeth

(respondents) filed with the RTC a Complaint[3] for annulment of title, annulment of deed

of extra-judicial settlement, partition and damages against Zosimo Sr. and his children

31
Cristina F. Reillo, Leonor F. Puso, Adelia F. Rocamora, Sofronio S.J. Fernando, Efren

S.J. Fernando, Zosimo S.J. Fernando, Jr. and Ma. Teresa (petitioners) and the Register

of Deeds of Morong, Rizal. The complaint alleged among other things:

6. Under date of January 23, 1998, defendants FERNANDO et al, without
the knowledge and consent of all the other surviving heirs of the deceased
spouses QUITERIO SAN JOSE and ANTONINA ESPIRITU SANTO,
including herein plaintiffs, executed a Deed of Extrajudicial Settlement of
Estate Among Heirs with Waiver of Rights making it appear therein that
they are the legitimate descendants and sole heirs of QUITERIO SAN
JOSE and ANTONINA ESPIRITU SANTO; and adjudicating among
themselves, the subject parcel of land.

6.1 In the same document, defendants ZOSIMO SR., CRISTINA,

LEONOR, ADELIA, SOFRONIO, EFREN and ZOSIMO JR., waived all
their rights, participation and interests over the subject parcel of land in
favor of their co-defendant MA. TERESA F. PION (a.k.a MA. TERESA
S.J. FERNANDO).

xxxx
7. On the strength of the said falsified Deed of Extrajudicial
Settlement of Estate, defendant MA. TERESA PION (a.k.a MA. TERESA
S.J. FERNANDO) succeeded in causing the cancellation of TCT No.
458396 in the name of SPS. QUITERIO SAN JOSE and ANTONINA
ESPIRITU SANTO and the issuance of a new Transfer Certificate of Title
in her name only, to the extreme prejudice of all the other heirs of the
deceased SPS. QUITERIO SAN JOSE and ANTONINA ESPIRITU
SANTO, specifically, the herein plaintiffs who were deprived of their lawful
participation over the subject parcel of land.

7.1 Thus, on July 6, 1999, Transfer Certificate of Title No. M-94400 was
issued in the name of defendant MA. TERESA S.J. FERNANDO.

xxxx
8. As a result, the herein plaintiffs and the other surviving heirs of the
deceased spouses QUITERIO SAN JOSE and ANTONINA ESPIRITU
SANTO, who are legally entitled to inherit from the latters respective
estates, in accordance with the laws of intestate succession, have been
duly deprived of their respective rights, interests and participation over the
subject parcel of land.

8.1 Thus, there is sufficient ground to annul the subject Deed of

Extrajudicial Settlement of Estate Among Heirs with Waiver of Rights

32
 dated January 23, 1998, and all other documents issued on the strength
thereof, particularly Transfer Certificate of Title No. M-94400.[4]

It was also alleged that respondents filed a complaint before the Lupong

Tagapamayapa of their Barangay which issued the required certification to file action for

failure of the parties to settle the matter amicably.

Petitioners filed their Answer with Counter-Petition and with Compulsory

Counterclaim[5] denying that the Deed of Extrajudicial Settlement of Estate Among Heirs

with Waiver of Rights which was the basis of the issuance of TCT No. M-94400, was

falsified and that the settlement was made and implemented in accordance with law.

They admitted that the deceased spouses Quiterio and Antonina had five children; that

the subject property was not the only property of spouses Quiterio and Antonina and

submitted in their counter-petition for partition the list of the other 12 parcels of land of

the deceased spouses Quiterio and Antonina that petitioners alleged are in respondents

possession and control.

On January 18, 2000, respondents filed a Motion for Judgment on the

Pleadings[6] alleging that: (1) the denials made by petitioners in their answer were in the

form of negative pregnant; (2) petitioners failed to state the basis that the questioned

document was not falsified; (3) they failed to specifically deny the allegations in the

complaint that petitioners committed misrepresentations by stating that they are the sole

heirs and legitimate descendants of Quiterio and Antonina; and (4) by making reference

33
to their allegations in their counter-petition for partition to support their denials,

petitioners impliedly admitted that they are not the sole heirs of Quiterio and Antonina.

Respondents filed a Reply to Answer with Compulsory Counterclaim[7] with a motion to

dismiss the counter-petition for partition on the ground that petitioners failed to pay the

required docket fees for their counter-petition for partition. Petitioners filed their

Rejoinder[8] without tackling the issue of non-payment of docket fees.

On February 4, 2000, petitioners filed their Comment [9] to respondents motion for

judgment on the pleading and prayed that the instant action be decided on the basis of

the pleadings with the exception of respondents unverified Reply. Petitioners also filed

an Opposition to the motion to dismiss the counter-petition for partition.

On May 9, 2000, the RTC rendered its Order, [10] the dispositive portion of which reads:

1. The Extrajudicial Settlement of Estate Among Heirs

with Waiver of Rights, dated January 23, 1998 and Transfer Certificate of
Title No. M-94400 in the name of Ma. Teresa S.J. Fernando are declared
null and void;

2. The Register of Deeds of Rizal, Morong Branch, is

directed to cancel TCT No. 94400; and

3. The Heirs of Quiterio San Jose and Antonina Espiritu

Santo is (sic) directed to partition the subject parcel of land covered by
TCT No. M-458396 in accordance with the law of intestate succession.[11]

SO ORDERED.

34
 The RTC found that, based on the allegations contained in the pleadings filed by

the parties, petitioners misrepresented themselves when they alleged in the Deed of

Extrajudicial Settlement of Estate Among Heirs with Waiver of Rights that they are the

sole heirs of the deceased spouses Quiterio and Antonina; that petitioners prayed for a

counter-petition for partition involving several parcels of land left by the deceased

spouses Quiterio and Antonina which bolstered respondents claim that petitioners

falsified the Extrajudicial Settlement which became the basis for the issuance of TCT

No. M-94400 in Ma. Teresas name; thus, a ground to annul the Deed of Extrajudicial

Settlement and the title. The RTC did not consider as filed petitioners Counter-Petition

for Partition since they did not pay the corresponding docket fees.

Petitioners filed their Motion for Reconsideration, which the RTC denied in an

Order[12] dated August 29, 2000.

Dissatisfied, petitioners filed an appeal with the CA. After the parties filed their

respective briefs, the case was submitted for decision.

On August 31, 2004, the CA rendered its assailed Decision affirming the May 9, 2000

Order of the RTC.

The CA found that, while the subject matter of respondents complaint was the

nullity of the Deed of Extrajudicial Settlement of Estate among Heirs with Waiver of

Rights that resulted in the issuance of TCT No. M-94400 in Ma. Teresas name,

35
petitioners included in their Answer a Counter-Petition for Partition involving 12 other

parcels of land of spouses Quiterio and Antonina which was in the nature of a

permissive counterclaim; that petitioners, being the plaintiffs in the counter-petition for

partition, must pay the docket fees otherwise the court will not acquire jurisdiction over

the case. The CA ruled that petitioners cannot pass the blame to the RTC for their

omission to pay the docket fees.

The CA affirmed the RTCs judgment on the pleadings since petitioners admitted

that the deceased spouses Quiterio and Antonina had five children which included

herein plaintiffs; thus, petitioners misrepresented themselves when they stated in the

Deed of Extrajudicial Settlement that they are the legitimate descendants and sole heirs

of the deceased spouses Quiterio and Antonina; that the deed is null and void on such

ground since respondents were deprived of their rightful share in the subject property

and petitioners cannot transfer the property in favor of Ma. Teresa without respondents

consent; that TCT No. M-94400 must be cancelled for lack of basis. The CA affirmed

the RTCs Order of partition of the subject property in accordance with the rules on

intestate succession in the absence of a will.

Petitioners filed the instant petition for review on certiorari raising the following

assignment of errors, to wit:

THE COURT OF APPEALS ERRED IN NOT GIVING DUE

COURSE TO THE APPEAL OF THE DEFENDANTS (HEREIN

36
 PETITIONERS) AND IN EVENTUALLY UPHOLDING THE DECISION OF
THE COURT OF ORIGIN, CONSIDERING THAT SUCH RULING WILL
RESULT TO MULTIPLICITY OF SUITS BETWEEN THE SAME PARTIES
AND IN VIOLATION OF THE CONSTITUTIONAL GUARANTY OF DUE
PROCESS OF LAW & PROPERTY AND PROPERTY RIGHTS.

THE COURT OF APPEALS ERRED IN NOT VACATING THE

ORDER OF THE TRIAL COURT IN PARTITIONING THE ESTATE
WITHOUT PUBLICATION AS REQUIRED BY RULE 74 AND 76 OF THE
1997 RULES OF CIVIL PROCEDURE. [13]

Petitioners contend that in their Comment to respondents motion for judgment on the

pleadings, they stated that they will not oppose the same provided that their Answer

with Counter-Petition for Partition and Rejoinder will be taken into consideration in

deciding the case; however, the RTC decided the case on the basis alone of

respondents complaint; that the Answer stated that the deed was not a falsified

document and was made and implemented in accordance with law, thus, it was

sufficient enough to tender an issue and was very far from admitting the material

allegations of respondents complaint.

Petitioners also fault the RTC for disregarding their claim for partition of the other

parcels of land owned by the deceased spouses Quiterio and Antonina for their failure

to pay the court docket fees when the RTC could have simply directed petitioners to pay

the same; and that this error if not corrected will result to multiplicity of suits.

Petitioners argue that the RTC erred in ordering the partition of the subject property as it

violates the basic law on intestate succession that the heirs should be named and

37
qualified through a formal petition for intestate succession whereby blood relationship

should be established first by the claiming heirs before they shall be entitled to receive

from the estate of the deceased; that the order of partition was rendered without

jurisdiction for lack of publication as required under Rules 74 and 76 of the Rules of Civil

Procedure for testate or intestate succession.

We find no merit in the petition.

The CA committed no reversible error in affirming the judgment on the pleadings

rendered by the RTC.

Section 1, Rule 34 of the Rules of Court, states:

SECTION 1. Judgment on the pleadings. Where an answer fails to

tender an issue, or otherwise admits the material allegations of the
adverse partys pleading, the court may, on motion of that party, direct
judgment on such pleading. x x x.

Where a motion for judgment on the pleadings is filed, the essential question is

whether there are issues generated by the pleadings. In a proper case for judgment on

the pleadings, there is no ostensible issue at all because of the failure of the defending

partys answer to raise an issue.[14] The answer would fail to tender an issue, of course,

if it does not deny the material allegations in the complaint or admits said material

38
allegations of the adverse partys pleadings by confessing the truthfulness thereof and/or

omitting to deal with them at all.[15]

In this case, respondents principal action was for the annulment of the Deed of

Extrajudicial Settlement of Estate Among Heirs with Waiver of Rights executed by

petitioners and annulment of title on the ground that petitioners stated in the said Deed

that they are the legitimate descendants and sole heirs of the spouses Quiterio and

Antonina. Although petitioners denied in their Answer that the Deed was falsified, they,

however, admitted respondents allegation that spouses Quiterio and Antonina had 5

children, thus, supporting respondents claim that petitioners are not the sole heirs of the

deceased spouses. Petitioners denial/admission in his Answer to the complaint should

be considered in its entirety and not truncated parts. Considering that petitioners

already admitted that respondents Galicano, Victoria, Catalina and Maribeth are the

children and grandchild, respectively, of the spouses Quiterio and Antonina, who were

the original registered owners of the subject property, and thus excluding respondents

from the deed of settlement of the subject property, there is no more genuine issue

between the parties generated by the pleadings, thus, the RTC committed no reversible

error in rendering the judgment on the pleadings.

A deed of extrajudicial partition executed without including some of the heirs,

who had no knowledge of and consent to the same, is fraudulent and

39
vicious.[16] The deed of settlement made by petitioners was invalid because it excluded

respondents who were entitled to equal shares in the subject property. Under the rule,

no extrajudicial settlement shall be binding upon any person who has not participated

therein or had no notice thereof.[17] Thus, the RTC correctly annulled the Deed of

Extrajudicial Settlement of Estate Among Heirs with Waiver of Rights dated January 23,

1998 and TCT No. M-94400 in the name of Ma. Teresa S.J. Fernando issued pursuant

to such deed.

Petitioners claim that had there been a trial, they could have presented

testamentary and documentary evidence that the subject land is the inheritance of their

deceased mother from her deceased parents, deserves scant consideration. A perusal

of petitioners Answer, as well as their Rejoinder, never raised such a defense. In fact,

nowhere in the Deed of Extrajudicial Settlement Among Heirs with Waiver of Rights

executed by petitioners was there a statement that the subject property was inherited by

petitioners mother Virginia from her deceased parents Quiterio and Antonina. Notably,

petitioners never opposed respondents motion for judgment on the pleadings.

We also find no merit in petitioners contention that the Counter-Petition for

Partition in their Answer was in the nature of a compulsory counterclaim which does not

require the payment of docket fees.

40
 A counterclaim is any claim which a defending party may have against an

opposing party.[18] It may either be permissive or compulsory. It is permissive if it does

not arise out of or is not necessarily connected with the subject matter of the opposing

partys claim.[19] A permissive counterclaim is essentially an independent claim that may

be filed separately in another case.

A counterclaim is compulsory when its object arises out of or is necessarily

connected with the transaction or occurrence constituting the subject matter of the

opposing partys claim and does not require for its adjudication the presence of third

parties of whom the court cannot acquire jurisdiction. [20] Unlike permissive

counterclaims, compulsory counterclaims should be set up in the same action;

otherwise, they would be barred forever.

Respondents action was for the annulment of the Deed of Extrajudicial

Settlement, title and partition of the property subject of the Deed. On the other hand, in

the Counter-Petition filed by petitioners in their Answer to respondents complaint, they

were asking for the partition and accounting of the other 12 parcels of land of the

deceased spouses Quiterio and Antonina, which are entirely different from the subject

matter of the respondents action. Petitioners claim does not arise out of or is

necessarily connected with the action for the Annulment of the Deed of Extrajudicial

41
Settlement of the property covered by TCT No. 458396. Thus, payment of docket fees

is necessary before the RTC could acquire jurisdiction over petitioners petition for

partition.

Petitioners, however, argue that the RTC could have simply issued a directive

ordering them to pay the docket fees, for its non-payment should not result in the

automatic dismissal of the case.

We find apropos the disquisition of the CA on this matter, thus:

The rule regarding the payment of docket fees upon the filing of the
initiatory pleading is not without exception. It has been held that if the filing
of the initiatory pleading is not accompanied by payment of docket fees,
the court may allow payment of the fee within reasonable time but in no
case beyond the applicable prescriptive or reglementary period.

It is apparent from the arguments of the defendants-appellants that

they are blaming the trial court for their omission to pay the docket fees. It
is, however, our opinion that the defendants-appellants cannot pass on to
the trial court the performance of a positive duty imposed upon them by
the law. It should be noted that their omission to file the docket fees was
raised as one of the grounds to dismiss the counter petition for partition.
The defendants-appellants opposed the said motion without, however,
offering an answer to the said ground raised by the plaintiffs-appellees. In
fact, during the period the motion was being heard by the trial court, the
defendantsappellants never paid the docket fees for their petition so that it
could have at least brought to the attention of the trial court their payment
of the docket fees although belatedly done. They did not even ask the trial
court for time within which to pay the docket fees for their petition. When
the trial court ruled to dismiss the petition of the defendants-appellants,
the latter did not, in their motion for reconsideration, ask the trial court to
reconsider the dismissal of their petition by paying the required docket
fees, neither did they ask for time within which to pay their docket fees. In
other words, the trial court could have issued an order allowing the
defendants-appellants a period to pay the docket fees for their petition if
the defendants-appellants made such manifestation. What is
apparent from the factual circumstances of the case is that the

42
 defendants-appellants have been neglectful in complying with this positive
duty imposed upon them by law as plaintiffs of the counter petition for
partition. Because of their omission to comply with their duty, no grave
error was committed by the trial court in dismissing the defendants-
appellants counter petition for partition. [21]

Petitioners argue that with the dismissal of their Counter-Petition for Partition, the

partition of the other parcels of land owned by the deceased spouses Quiterio and

Antonina will result to multiplicity of suits.

We are not persuaded.

Significantly, in petitioners Answer with Counter-Petition for Partition, they

enumerated 12 other parcels of land owned by the deceased spouses Quiterio and

Antonina. They alleged that some of these properties had already been disposed of by

respondents and some are still generating income under the control and administration

of respondents, and these properties should be collated back by respondents to be

partitioned by all the heirs of the deceased spouses. It bears stressing that the action

filed by respondents in the RTC was an ordinary civil action for annulment of title,

annulment of the deed of extrajudicial settlement and partition of a parcel of land now

covered by TCT No. M-94400; hence, the authority of the court is limited to the property

described in the pleading. The RTC cannot order the collation and partition of the other

properties which were not included in the partition that was the subject matter of the

respondents action for annulment. Thus, a separate proceeding is indeed proper for the

partition of the estate of the deceased spouses Quiterio and Antonina.

43
 Finally, petitioners contend that the RTC erred when it ordered the heirs of

Quiterio and Antonina to partition the subject parcel of land covered by TCT No. 458396

in accordance with the laws of intestate succession; that the RTC violated the

requirement of publication under Sections 1 and 2 of Rule 74 and Section 3 of Rule 76

of the Rules of Court.

We do not agree.

We find the ruling of the CA on the matter of the RTCs order of partition of land

subject of the annulled deed of extrajudicial settlement worth quoting, thus:

Considering that the subject document and the corresponding title

were canceled, the logical consequence is that the property in dispute,
which was the subject of the extrajudicial settlement, reverted back to the
estate of its original owners, the deceased spouses Quiterio and Antonina
San Jose. Since, it was admitted that all the parties to the instant suit are
legal heirs of the deceased spouses, they owned the subject property in
common. It is a basic rule that any act which is intended to put an end to
indivision among co-heirs or co-owners is deemed to be a partition.
Therefore, there was no reversible error committed by the trial court in
ordering the partition of the subject property. We find nothing wrong with
such ruling considering that the trial court ordered the partition of the
subject property in accordance with the rules on intestate succession. The
trial court found the property to be originally owned by the deceased
spouses Quiterio and Antonina San Jose and, in the absence of a will left
by the deceased spouses, it must be partitioned in accordance with the
rules on intestate succession.[22]

44
 As the RTC nullified the Deed of Extrajudicial Settlement of Estate Among Heirs

with Waiver of Rights executed by petitioners and the title issued in accordance

therewith, the order of partition of the land subject of the settlement in accordance with

the laws on intestate succession is proper as respondents action filed in the RTC and

respondents prayer in their complaint asked for the partition of the subject property in

accordance with intestate succession. The applicable law is Section 1, Rule 69 of the

Rules of Court, which deals with action for partition, to wit:

SECTION 1. Complaint in action for partition of real estate. A

person having the right to compel the partition of real estate may do so as
provided in this Rule, setting forth in his complaint the nature and extent of
his title and an adequate description of the real estate of which partition is
demanded and joining as defendants all other persons interested in the
property.

And, under this law, there is no requirement for publication.

WHEREFORE, the instant petition is DENIED. The Decision dated August 31,

2004 and the Resolution dated December 14, 2004, of the Court of Appeals in CA-G.R.

CV No. 69261, are AFFIRMED.

SO ORDERED.

45
CASE NO. 5 G.R. No. 160354 August 25, 2005

BANCO DE ORO UNIVERSAL BANK, Petitioners,

vs.
THE HON. COURT OF APPEALS and SPS. GABRIEL G. LOCSIN and MA.
GERALDINE R. LOCSIN,Respondents.

DECISION

CARPIO MORALES, J.:

Subject of the present Petition for Review is the Court of Appeals June 5, 2003
Decision1 annulling and setting aside the Orders2 of the Regional Trial Court (RTC) of
Mandaluyong denying respondents spouses Gabriel and Ma. Geraldine Locsin’s Motion
to Dismiss the complaint of petitioner, Banco de Oro Universal Bank.

The following antecedent facts are not disputed:

On September 28, 1995, respondents Locsins entered into a Term Loan Agreement
(TLA) with petitioner under which they obtained a loan of ₱700,000.00 which was
secured by a Real Estate Mortgage of their property covered by TCT No. N-138739 (1st
TLA).

On February 29, 1996, the Locsins obtained a 2nd TLA from petitioner in the amount of
₱800,000.00, to secure which they executed a Real Estate Mortgage over their property
covered by TCT No. 67286. This 2nd TLA was eventually settled on July 2, 1996, on
account of which the mortgage was cancelled and the title was released on July 8,
1996.

On November 6, 1996, the parties entered into a Credit Line Agreement (CLA) under
which the Locsins obtained a credit line of ₱2.5 Million, to secure which their business
partners, the spouses Juanito and Anita Evidente, executed a Real Estate Mortgage of
their (the Evidentes’) properties covered by TCT Nos. N-166336 and N-166637. Monthly
amortization of the obligation appears to have been religiously paid until October of
1997.

The Locsins having failed to comply with their obligation under the CLA, petitioner filed
before the Quezon City Regional Trial Court (RTC) Executive Judge an application
dated May 4, 1998 for the extra-judicial foreclosure of the mortgage which encumbered
the Evidente properties under the CLA, as well as the mortgage of the Locsin property
covering TCT N-67286 which secured the 2nd TLA. The application was granted and
public auction of these properties was scheduled, and was actually carried out on July
23, 1998.

The public auction was later nullified, however, on petitioner’s move, the Locsin property
covered by TCT No. 67286 which secured the 2nd TLA having been erroneously

46
included. An amended application for extrajudicial foreclosure was thus filed by
petitioner, this time covering the same Evidente properties and TCT No. 138739, the
property of the Locsins which secured the 1st TLA. Public auction of these properties
was scheduled on August 26, 1998.

Two days before the scheduled public auction or on August 24, 1998, the Locsins filed
before the Quezon City Regional Trial Court (RTC) a complaint against petitioner, the
RTC Clerk of Court and Ex-Oficio Sheriff of Quezon City, and Sheriff VI Marino V.
Cahero, for Specific Performance, Tort and Damages with Prayer for the Issuance of a
Temporary Restraining Order (TRO) and a Writ of Preliminary Injunction, docketed
as Civil Case No. Q-98-35337.3The pertinent allegations of the Locsins’ complaint are
as follows:

xxx

15. Defendant bank, through its Assistant Vice-President-Combank II, Agnes C.

Tuason, told plaintiffs that the loan valuation of the two aforementioned properties [of
the spouses Evidente securing the CLA] is PHP2.5 Million, and this was in fact the
amount received by plaintiff from defendant bank . . .

16. The spouses Evidente, through plaintiffs, paid for the monthly installments due on
the [CLA] until October, 1997, as evidenced by OR No. 167588 dated October 31, 1997
issued by defendant bank. . . .

17. The spouses Evidente were unable to make subsequent payments and the real
estate mortgage over the Evidente properties was recommended for foreclosure.

xxx

19. . . . [P]laintiffs advised defendant bank that they will be settling their 1st TLA in full
and shall be taking the property covered by TCT No. N-138739 out of the mortgage.

20. However, to the shock of plaintiffs, defendant bank through its Account Officer, Nelia
Umbal, refused to release the said property because the Evidente properties, the
mortgage of which secures . . . the CLA dated November 6, 1996, will be insufficient to
cover the balance of the said CLA.

21. Plaintiffs were surprised to learn that defendant bank capriciously, recklessly and
oppressively gave a loan valuation of only PHP900,000.00 for each of [the] two
Evidente properties, or a total of PHP1.8 Million. This valuation is unfair and
unreasonable considering that the fair market value of these properties is around PHP5
Million. Furthermore, no reason was given by defendant bank for the sudden and unjust
change in the valuation, which was originally pegged by defendant at PHP2.5 Million.

22. In effect, the mortgaged property covered by TCT No. N-138739, which secures the
1st TLA dated September 28, 1995, and which has a loan valuation of PHP700,000.00,

47
was also made a collateral for the CLA. Worse, the whole amount of the loan under the
1st TLA was declared due and demandable, although plaintiffs faithfully and regularly
paid for the monthly amortization there[of].

23. Thus, to complete, rather suspiciously, the security for the CLA which is for PHP2.5
Million, defendant bank further informed plaintiffs that it would cost them PHP1.4 Million
to take the property covered by TCT No. N-138739 [which secured the first TLA] out of
the mortgage, because the deficiency in the CLA secured by the Evidente properties
must also be paid. This amount is preposterous considering that at the time, the
remaining balance of the 1st TLA was only around PHP450,000,00. Moreover, plaintiffs
were suffering from financial difficulties because of the sharp decline of the peso’s
purchasing power.

xxx

26. Defendant bank filed with the Executive Judge of Quezon City, through public
defendants herein, an Application for Extra-Judicial foreclosure of Real Estate Mortgage
under Act No, 3135, as amended, dated May 4, 1998. The application sought the sale in
a public auction of the Evidente properties and plaintiffs’ property covered by TCT No.
67286 [which secured the second TLA and which TLA had been settled]. . . .

xxx

31. Yet, defendant bank and public defendants allowed the public auction to proceed as
scheduled [on July 23, 1998].

xxx

35. In the meantime, without making any effort to cancel the effects of the public auction
held on July 23, 1998, defendant bank filed with public defendants an Amended
Application for Extra-Judicial Foreclosure of Real Estate Mortgage under Act No. 3135,
as amended. The amended application sought the sale in a public auction of the same
Evidente properties and plaintiffs’ property covered by TCT No. N-138739 [which
secured the first TLA].

36. Acting upon the said application, public defendants issued another notice of Sheriff
Sale dated July 28, 1998 which scheduled the public auction of the aforementioned real
properties on August 26, 1998 . . .

37. Plaintiffs’ property covered by TCT No. N-138739 is erroneously included in the
amended application and in the Notice of the Sheriff’s Sale. The said mortgaged
property secures the 1st TLA dated September 28, 1995, for which plaintiffs have
faithfully and regularly paid for the monthly amortization due. On the other hand,
defendant bank is foreclosing the said property and the two Evidente properties for
alleged failure to pay the monthly installments due on the CLA dated November 8,
1996.

48
 xxx

38. Furthermore, defendant bank acted in bad faith and in willful breach of its
contractual obligations to plaintiffs in understating the loan valuation of the two Evidente
properties, and in effect declaring the property covered by TCT No. N-133739 [which
secured the first TLA] as additional collateral for the said CLA. (Emphasis and
underscoring supplied).

The plaintiffs Locsins thus prayed that:

A. Upon filing of this complaint, a temporary restraining order (TRO) be immediately

issued ex-parte, enjoining defendants, their agents and/or representatives from
enforcing the Notice of Sheriff’s Sale dated July 28, 1998, and from proceeding with the
scheduled public auction of the properties included therein, particularly plaintiffs’ real
property covered by TCT No. N-138739, on August 26, 1998, or on any date thereafter,
until further orders from the Honorable Court.

B. After appropriate proceedings, a writ of preliminary injunction be issued, under the

same tenor as above, and upon payment of such bond as may be fixed by the
Honorable Court.

C. After trial on the merits, judgment be rendered:

1. On the First Cause of Action, ordering defendant bank to faithfully comply with its
obligations under the 1st TLA and the CLA, revert the loan valuation of the two Evidente
properties covered by TCT’s Nos. N-166336 and 166337 to PHP2.5 Million, and allow
plaintiffs to take its property covered by TCT No. N-138739 out of the mortgage by
paying the balance thereon, minus interests and penalties accruing from February 1998;

2. On the First and Second Causes of Action, ordering defendant bank to pay plaintiffs
PHP500,000.00 in actual damages;

3. On the Third Cause of Action, ordering defendant bank to pay plaintiffs PHP1 Million
in actual damages;

4. On the Fourth Cause of Action, ordering defendant bank to pay plaintiffs

PHP500,000.00 in moral damages;

5. On the Fifth Cause of Action, ordering defendant bank to pay plaintiffs

PHP300,000.00 in exemplary damages;

6. On the Sixth Cause of Action, ordering defendant bank to [pay] plaintiffs

PHP200,[000].00 for attorney’s fees and litigation expenses;

7. Making the injunction issued against defendants permanent; and

49
8. Ordering defendants to pay costs of suit.

Other reliefs which are just and equitable are likewise prayed for. 4 (Emphasis and
underscoring in the original; italics supplied).

Branch 233 of the Quezon City RTC denied the Locsins’ prayer for the issuance of a
TRO, by Order of August 25, 1998.

In its September 8, 1998 ANSWER5 with Compulsory Counterclaim filed on September

11, 1998, petitioner denied that its Asst. Vice President Agnes Tuason had told the
Locsins that the loan valuation of the Evidente properties was ₱2.5 million for it in fact
told them that the ₱2.5 million loan was approved "inspite of the deficiency of the
Evidente properties because of their [Locsins’] good paying record with [it]." And it
denied (specifically) too the Locsins’ complaints-allegations in paragraphs 19-25,
alleging as follows:

8.2 All the promissory notes signed by [the Locsins] uniformly provide:

Upon the occurrence as to Maker or any Co-Maker of this Promissory Note of any of the
following events of default, the outstanding principal, accrued interest and any other
sum payable hereunder or under any related agreement shall become immediately due
and payable without presentment, demand, protest or notice of any kind (other than
notice of the event and fact of default) all of which are hereby expressly waived by the
Maker and all of the Co-Makers, if any:

xxx

3) Failure by the Maker or any Co-Maker to perform or the violation of any provision of
this Promissory Note or any related agreement;

xxx

6) The Maker or any Co-Maker fails to pay any money due under any other agreement,
standby letter of credit or document evidencing, securing, guaranteeing or otherwise
relating to indebtedness of the Maker or any Co-Maker to any other creditor, or there
occurs, any event of default or any event which, but for the passage of time or the giving
of notice, or both, would constitute under any such agreement, stand by letter of credit
or document (and which has not been remedied within any applicable grace period):

xxx

8.3 The letter of approval of the ₱2.5 million loan of [the Locsins] has a cross-default
provision, which reads:

50
3.6 A default on any availment under this credit line facility shall automatically mean a
default on [the Locsins] existing term loan under Promissory Note No. 29-01-9080-95
[covering the first TLA] and vice versa (Emphasis and underscoring supplied),6

on which letter the Locsins affixed their conformity; that in light of the Locsins’ default in
the settlement of their monthly obligations under the CLA, it sent them a January 7,
1998 demand letter advising them of the Past Due Status of their promissory note
covering the ₱2.5 million account to thereby "automatically mean that [said promissory
note] and the other loan account under [the promissory note covering the 1st TLA] with
an outstanding balance of ₱460,652.95 are considered Due and Demandable already;"
that after a follow up letter and a final letter of demand, the Locsins requested, by letter
of February 26, 1998, that the promissory note under the 1st TLA and that under the
CLA be treated separately and that one of their titles be released upon payment of ₱1.8
million; that by letter of March 5, 1998, it advised the Locsins that their request in their
February 26, 1998 letter "regarding the release of one of the [two Evidente titles]" was
approved, "subject to the partial payment on Principal plus all interests and charges
amounting to ₱1,934,465.79 as of March 20, 1998"; that to its March 5, 1998 letter, the
Locsins, by letter of March ___, (sic) 1998, replied as follows:

We would like to request for a thirty day extension on the deadline given us today for
the payment of ₱1,900,000.00, or (sic) the release of one title under PN No. 11-01-
0586-96 [covering the CLA] as the person very much interested in purchasing it has
asked us for the same. At the same time we are also going to take out the property
under PN No. 29-01-9080-95 [covering the first TLA], so that only one property under
the fire (sic) account mentioned shall be left mortgaged to your bank.

Thank you for your kind consideration. 7 (Underscoring supplied);

that despite the grant of the Locsins’ request for extension of 30 days or up to April 20,
1998 to pay ₱1.9 million as a condition "for the release of the title," the Locsins failed to
come up therewith; and that the inclusion of the Locsins’mortgaged title covering the 1st
TLA in the amended application for extra-judicial foreclosure was "not erroneous
because of the cross-default provisions and acceleration clauses in the loan documents
which [the Locsins] signed."

As Compulsory Counterclaim petitioner alleged that on account of the filing of the

baseless and malicious suit, it was constrained to engage the services of its counsel at
an agreed fee of ₱200,000.00. It thus prayed for the dismissal of the Locsins’ complaint
and the grant of its counterclaim.

En passant, it does not appear that the Locsins filed a Reply8 to petitioners’ Answer with
Compulsory Counterclaim.

On March 26, 1999, the Locsins filed an Omnibus Motion 9 (To Amend the Designation
of the Plaintiffs; and to Admit Supplemental Complaint), which appears to have been
granted by the Quezon City RTC. In their Supplemental Complaint,10 they repleaded in

51
toto the allegations in their August 24, 1998 Complaint and additionally alleged that
petitioner proceeded with the public auction of the properties covered by the mortgage
in the 1st TLA and the mortgage in the CLA on September 23, 1998, "contrary to law."

The Locsins thus prayed in their Supplemental Complaint as follows:

1. Ordering the cancellation of the public auction of TCT Nos. N-138739, N-166336 and
N-166337 on September 23, 1998;

2. Declaring said auction of no legal force and effect; and

3. Granting the following reliefs prayed for by plaintiffs in their [original] Complaint, to
wit:

x x x11 (Emphasis and underscoring supplied).

By Answer12 (To Supplemental Complaint) dated June 1, 1999, petitioner admitted that
the public auction (which was originally scheduled on August 26, 1998) did take place
on September 23, 1998. It denied, however, that it was contrary to law.

More than eight months after the Locsins filed their Supplemental Complaint reflecting
their prayer for the nullification of the September 23, 1998 public auction sale or on
November 29, 1999, petitioner filed a complaint against the Locsins before the RTC of
Mandaluyong where it was docketed as Civil Case No. MC-99-935,13 for Collection of
Sum of Money, alleging as follows:

xxx

5. Defendants failed to satisfy their obligations under the . . . Promissory Notes

[covering the first TLA & the CLA] and Plaintiff deemed them in default;

xxx

11. The [amended] extrajudicial sale was conducted on 23 September 1998 and Plaintiff
was again declared the highest bidder . . .

12. The total outstanding obligation of Defendants at the time of the foreclosure was
PESOS: FIVE MILLION TWENTY THREE THOUSAND FOUR HUNDRED NINETY SIX
& 64/100 (P5,023.496.64). However, the appraised value of the properties was only
P3,879,406.80 and plaintiff thus submitted a bid of PESOS: THREE MILLION EIGHT
HUNDRED SEVENTY NINE THOUSAND FOUR HUNDRED SIX & 80/100
(P3,879.406.80);

13. After all expenses for the foreclosure and registration of the Certificate of Sale have
been deducted from the aforementioned bid, there still remains an outstanding balance
in the amount of PESOS: ONE MILLION ONE HUNDRED FORTY FOUR THOUSAND

52
EIGHTY NINE & 84/100 (1,144,089.84), EXCLUSIVE OF INTEREST AT THE RATE OF
TWENTY FIVE AND A HALF PERCENT (25.5%) per annum, which Plaintiff is entitled
to recover from Defendants;

14. On 09 February 1999, counsel for plaintiff sent a letter to defendants dated 05
February 1999, demanding from the latter the payment of said deficiency but
Defendants refused and failed and continue to refuse and fail to pay said obligation . . .

15. Due to Defendants’ unreasonable refusal and failure to comply with Plaintiffs just
demands, Plaintiff was compelled to institute the present action and to engage the
services of counsel to whom it bound itself to pay the sum of P130,000.00, plus
appearance fee of P2,000.00 and other legal costs and expenses.14 (Emphasis in the
original; underscoring supplied).

Petitioner accordingly prayed in its complaint that the Locsins be ordered to pay it jointly
and severally

1. the outstanding obligation in the sum of PESOS: ONE MILLION ONE HUNDRED
FORTY FOUR THOUSAND EIGHTY NINE & 84/100 (1,144,089.84), plus interest
thereon at the rate of twenty five and a half percent (25.5%) per annum from 23
September 1998, the date of the foreclosure sale, until the obligation has been fully
paid;

2. attorney’s fees in the sum of P130,000.00, plus appearance fee of P2,000.00; and

3. costs of suit and expenses of litigation.

Other just and equitable reliefs under the premises are likewise prayed for.15 (Emphasis
in the original).

To petitioner’s complaint (for sum of money), the Locsins filed a Motion to Dismiss 16 on
the ground that it should have been raised as compulsory counterclaim in their (the
Locsins’) complaint (for specific performance, damages and nullification of the public
auction), and by failing to raise it as such, it is now "barred by the rules." To the Motion,
petitioner filed its Opposition which merited the Locsins’ filing of a Reply to Opposition. 17

Branch 213 of the Mandaluyong RTC denied the Locsins’ Motion to Dismiss petitioner’s
Complaint, by Order of September 18, 2000,18 in this wise:

The motion to dismiss is premised on the ground that plaintiff’s claim in the instant case
should have been raised in the previous case, [C]ivil [C]ase No. Q98-35337, wherein
plaintiff herein was the defendant, said claim being a compulsory counterclaim and for
failure to raise the same, it is now barred by the rules.

It is noted, however, that the instant case is one for collection of alleged
deficiency amount as the proceeds of the foreclosure sale of defendant’s properties are

53
not sufficient to cover the entire indebtedness. In effect, such claim did not arise as a
consequence of [C]ivil Case No. 098-353337 but was already existing (sic) even before
the institution of that earlier case.

Without necessarily delving into the veracity of plaintiff’s claim but merely considering its
origin and nature as alleged in the complaint, said claim is merely permissive and not
compulsory. Thus, such a claim can stand as an independent action. 19 (Underscoring
supplied).

The Locsins’ Motion for Reconsideration having been denied by the Mandaluyong RTC
by Order of March 21, 2001,20 they appealed to the Court of Appeals which, by the
present assailed decision of June 5, 2003,21 reversed the Orders of the Mandaluyong
RTC, it finding that petitioner’s complaint was a compulsory counterclaim which should
have been raised in its Answer to the Locsins’ complaint, and having failed to do so, it is
now barred; that litis pendentia and res judicata apply to the case; and that petitioner
violated the rule on forum shopping, hence, the dismissal of its complaint is warranted.
Explained the appellate court:

[The Locsins’] complaint in Civil Case No. Q-98-35337, pending before Branch 223 of
the Regional; Trial Court of Quezon City asks specific performance by private
respondent Banco de Oro of its obligations under the very same loan agreements
covered by Real Estate Mortgages mentioned in private respondent’s Complaint in Civil
Case No. MC-99-935 before the Mandaluyong City Trial Court. In both cases, the real
properties involved are those covered by TCT Nos. N-138739, [N-166336] and N-
166337. The basis of the parties’ respective complaints arose from the very same
transactions, the Term Loan Agreement, dated September 28, 1995 and the Credit Line
Agreement, dated November 6, 1996. Clearly, there is a logical connection between
both claims which arose from the same transaction and are necessarily connected and
it does not require the presence of third parties for its adjudication. A counterclaim is
logically related to the opposing party’s claim where separate trials of each of their
respective claims would involve substantial duplication of effort and time by the parties
and the courts.

Moreover, Sec. 2, Rule 9 of the Rules of Court provides:

"Sec. 2. Compulsory counterclaim, or cross-claim, not set up barred. - A compulsory

counterclaim. or a cross claim, not set up shall be barred."

Private respondent should have raised its complaint as compulsory counterclaim in the
Regional Trial Court of Quezon City. Failing to do so, it is now barred. The reason for
the rule relating to counterclaims is to avoid multiplicity of suits and to enable the Courts
to dispose of the whole matter in controversy in one action, and adjustment of
defendant’s demand by counterclaim rather than by independent suit. (Reyes vs. Court
of Appeals, 38 SCRA 138).

54
[The Locsins’] second argument is that private respondent’s complaint in Civil Case No.
MC-99-935 constitutes litis pendentia, and therefore should have been dismissed by the
trial court. For litis pendentia to be a ground for dismissal of an action, three elements
must concur: (a) identity of parties, or at least such parties who represent the same
interest in both actions; (b) identity of rights asserted and relief prayed for being founded
on the same facts; and (c) the identity, with respect to the two preceding particulars in
the two cases, is such that any judgment that may be rendered in the pending case,
regardless of which party is successful, would amount to res judicata in the other.

Applying this test, the principle of litis pendentia and res judicata will certainly apply to
the instant case, all three requisites are present. The parties are the same and what is
involved in both Civil Case No. Q-98-35337 pending before the Quezon City Trial Court
and Civil Case No. MC-99-935 before the Mandaluyong City Trial Court are the same
subject matter and set of circumstances, which would entail presentation of the same
evidence. Judgment in favor of one of the parties in Civil Case No. Q-9835337 would
bar the institution of the case filed before the Mandaluyong City Trial Court.

Finally, [the Locsins] assert that Civil Case MC-99-935 should be dismissed since
private respondent is guilty of willful and deliberate forum shopping. Jurisprudence has
defined forum-shopping as the filing of multiple suits involving the same parties for the
same cause of action, either simultaneously or successively, for the purpose of
obtaining a favorable judgment. Forum shopping exists where the elements of litis
pendentia are present, and where the a final judgment in one case will amount to res
judicata in the other. (Heirs of Victorina Motus Penaverde v. Heirs of Mariano
Penaverde, 344 SCRA 69). Thus, there is forum shopping when there exist: a) identity
of parties, or at least such parties as represent the same interest in both actions, b)
identity of rights asserted and relief prayed for, the relief being founded on the same
facts, and c) the identity of the two preceding particulars is such that any judgment
rendered in the other action, will amount to res judicata in the action under
consideration. (Prubankers Association vs. Prudential Bank and Trust Company, 302
SCRA 83). As discussed earlier, the elements of litis pendentia being present and
that res judicata will eventually result, a decision by the Quezon City Trial Court would
bar the institution of the Civil Case in the Mandaluyong City Trial Court for the collection
of deficiency claim in the foreclosure sale of the petitioner’s properties. Private
respondent violated the rule on forum shopping and therefore, the summary dismissal of
their action is warranted.22 (Italics in the original; underscoring supplied).

Hence, the present Petition for Review on Certiorari, 23 petitioner raising the following
assignment of errors:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK’S

COMPLAINT FOR COLLECTION OF SUM OF MONEY BASED ON DEFICIENCY
CLAIM UNDER CIVIL CASE No. MC-99-935 IS A COMPULSORY COUNTERCLAIM
AND SHOULD HAVE BEEN SET UP BY PETITIONER BANK IN PRIVATE
RESPONDENTS’ COMPLAINT FOR SPECIFIC PERFORMANCE, TORT AND
DAMAGES, AND ANNULMENT OF FORECLOSURE IN CIVIL CASE NO. Q-98-35337.

55
II. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE IS LITIS
PENDENTIA AND THUS, CIVIL CASE No. MC-99-935 SHOULD BE DISMISSED.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER BANK
IS GUILTY OF FORUM SHOPPING.24

Petitioner argues that the Locsins’ complaint is one based on tort, whereas its complaint
before the Mandaluyong RTC is based on contract and law, hence, the two causes of
action are separate and distinct; that under the test for the determination of whether the
counterclaim is compulsory or permissive, its suit before the RTC of Mandaluyong for
collection of deficiency judgment is not a compulsory, but permissive counterclaim and
may, therefore, proceed independently of the Locsins’ complaint.

Petitioner adds that its claim arises from the loan agreement, whereas the Locsins’
claim arises from the annulment of the foreclosure sale; that litis pendentia and res
judicata do not apply as grounds for dismissal of its complaint as a perusal of both
complaints reveals different causes of action, and the rights asserted and the reliefs
prayed for are different, and the rule on lis pendens "is applicable only when the
judgment to be rendered in the action first instituted will be such that regardless of
which party is successful, it will amount to res judicata as to the second action," it
citing Hongkong & Shanghai Bank v. Aldecon & Co.25

Citing Enriquez, et al. v. Ramos, et al.,26 petitioner further argues that an action for
collection of a mortgage loan does not bar another for rescission of the mortgage if such
is based on the non-compliance by the mortgagor of the mortgage contract.

Petitioner further cites Roa v. PH Credit Corporation,27 wherein this Court ruled that the
pendency of a replevin suit does not bar a proceeding for deficiency claim as there is no
identity of subject matter, cause of action and reliefs prayed for.

Finally, petitioner cites Bangko Silangan Development Bank v. Court of

Appeals,28 wherein this Court held that:

The test to determine identity of the causes of action is to ascertain whether the same
evidence necessary to sustain the second cause of action is sufficient to authorize a
recovery in the first, even if the form or nature of the two (2) actions are different from
each other. If the same facts or evidence would sustain both, the two (2) actions are
considered the same within the rule that the judgment in the former is a bar to the
subsequent action; otherwise, it is not. This method has been considered the most
accurate test as to whether a former judgment is a bar in subsequent proceedings
between the same parties. It has even been designated as infallible.

While it is true that the two (2) cases are founded in practically the same set of facts, as
correctly observed by the Court of Appeals, it cannot be said that exactly the same
evidence are needed to prove the causes of action in both cases. Thus, in Civil Case
No, 91-56185 of the RTC of Manila, the evidence needed to prove that petitioner

56
sustained damage to its reputation and goodwill is not the same evidence needed in
Civil Case No. 221 of the RTC of Batangas to prove the allegation that a substantial
amount of respondent Bausas’ bank deposit in petitioner’s bank was illegally withdrawn
without her consent or authority, The RTC of Batangas and the Court of Appeals,
therefore, did not abuse their discretion in denying petitioner’s motion to dismiss which
was based on the ground of litis pendentia.29 (Emphasis and underscoring supplied).

By their Comment,30 the Locsins maintain that petitioner’s claim in Civil Case No. MC-
99-935 is "logically related" to their claim in Civil Case No. Q-98-35337, as they involve
the same parties, rely on the same facts, subject matter and series of

transactions and, therefore, would entail presentation of the same evidence; that
petitioner having failed to set up its claim as a compulsory counterclaim 31 in Civil Case
No. Q-98-35337, it is now barred from setting it up in Civil Case No. MC-99-935; and
that litis pendentia and res judicata proscribe the filing of a separate complaint by
petitioner which is guilty of "willful and deliberate forum shopping."

The petition is impressed with merit.

It bears noting that when petitioner filed its Answer with Counterclaim to the Locsins’
complaint on September 11, 1998, the Real Estate Mortgages covering the 1st TLA and
the CLA had not been extrajudicially foreclosed, the extra-judicial foreclosure having
taken place subsequent thereto or on September 23, 1998.

It bears noting too that until after the Locsins allegedly refused and failed to settle the
alleged deficiency amount of their outstanding obligation, despite petitioner’s February
5, 1999 letter of demand sent to the Locsins on February 9, 1999, petitioner’s cause of
action had not arisen.

Petitioner could not, therefore, have set its claim – subject of its complaint in Civil Case
No. MC-99-935 as, assuming arguendo that it is, a compulsory counterclaim when it
filed on September 11, 1998 its Answer with Compulsory Counterclaim to the Locsins’
complaint.32

The counterclaim must be existing at the time of filing the answer, though not at the
commencement of the action for under Section 3 of the former Rule 10, the
counterclaim or cross-claim which a party may aver in his answer must be one which he
may have "at the time" against the opposing party. That phrase can only have reference
to the time of the answer. Certainly a premature counterclaim cannot be set up in the
answer. This construction is not only explicit from the language of the aforecited
provisions but also serves to harmonize the aforecited sections of Rule 10, with section
4 of the same rule which provides that "a counterclaim . . . which either matured or was
acquired by a party after serving his pleading may, with the permission of the court, be
presented as a counterclaim . . . by supplemental pleading before judgment."

57
Thus a party who fails to interpose a counterclaim although arising out of or is
necessarily connected with the transaction or occurrence of the plaintiff’s suit but which
did not exist or mature at the time said party files his answer is not thereby barred from
interposing such claim in a future litigation. . . 33 (Emphasis and underscoring supplied).

While petitioner could have, after the Locsins filed on March 26, 1999 a Supplemental
Complaint in Civil Case No. Q-98-35337, set up, in its Supplemental Answer, its claim
subject of Civil Case No. MC-99-935, again assuming arguendo that it is a Compulsory
Counterclaim, the setting up of such "after-acquired counterclaim," is merely permissive,
not compulsory.34

At all events, even if the claim of petitioner - subject of its complaint in Civil Case No.
MC-99-935 is a compulsory counterclaim which should have been set up in its Answer
to the Locsins’ Supplemental Complaint, technicality should give way to justice and
equity to enable petitioner to pursue its "after-acquired" claim against the Locsins.

As for the issue of whether petitioner’s complaint is dismissible on the grounds of litis
pendentia or auter action pendant, and forum shopping, the above-quoted and recited
allegations of the pleadings of the parties do not reflect identity of rights asserted and
reliefs sought, as well as basis thereof, to a degree sufficient to give rise to the
abatement of petitioner’s complaint on any of these grounds.

WHEREFORE, the petition is hereby GRANTED.

The assailed decision of the Court of Appeals is SET ASIDE.

Let the case be REMANDED to the court of origin, Branch 213 of the Regional Trial
Court of Mandaluyong, which is hereby DIRECTED to continue with dispatch the
proceedings in Civil Case No. MC-99-935.

No costs.

SO ORDERED.

58
CASE NO. 6 G.R. No. 160242 May 17, 2005

ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS and MONARK EQUIPMENT CORPORATION, respondents.

DECISION

CALLEJO, SR., J.:

On March 13, 2001, Monark Equipment Corporation (MEC) filed a Complaint 1 for a sum
of money with damages against the Asian Construction and Development Corporation
(ACDC) with the Regional Trial Court (RTC) of Quezon City. The complaint alleged the
following: ACDC leased Caterpillar generator sets and Amida mobile floodlighting
systems from MEC during the period of March 13 to July 15, 1998 but failed, despite
demands, to pay the rentals therefor in the total amount of P4,313,935.00; from July 14
to August 25, 1998, various equipments from MEC were, likewise, leased by ACDC for
the latter’s power plant in Mauban, Quezon, and that there was still a balance
of P456,666.67; and ACDC also purchased and took custody of various equipment
parts from MEC for the agreed price of P237,336.20 which, despite demands, ACDC
failed to pay.

MEC prayed that judgment be rendered in its favor, thus:

1. Ordering defendant to pay the plaintiff the total amount of FIVE MILLION
SEVENTY-ONE THOUSAND THREE HUNDRED THIRTY-FIVE [PESOS] &
86/100 (P5,071,335.86);

2. Ordering defendant to pay the plaintiff legal interest of 12% per annum on the
principal obligations in the total amount of FIVE MILLION SEVENTY-ONE
THOUSAND THREE HUNDRED THIRTY-FIVE [PESOS] & 86/100
(P5,071,335.86) computed from the date the obligations became due until fully
paid;

3. Ordering defendant to pay attorney’s fees in the amount equivalent to 15% of

the amount of claim;

4. Ordering defendant to pay all costs of litigation.

Plaintiff prays for such other reliefs as may be just and equitable under the
premises.2

ACDC filed a motion to file and admit answer with third-party complaint against Becthel
Overseas Corporation (Becthel). In its answer, ACDC admitted its indebtedness to MEC
in the amount of P5,071,335.86 but alleged the following special and affirmative
defenses:

59
5. Defendant has incurred an obligation with plaintiff, in the amount
of P5,071,335.86. But third-party defendant fails and refuses to pay its overdue
obligation in connection with the leased equipment used by defendant to comply
with its contracted services;

6. The equipment covered by the lease were all used in the construction project
of Becthel in Mauban, Quezon, and Expo in Pampanga and defendant was not
yet paid of its services that resulted to the non-payment of rentals on the leased
equipment.3

And by way of third-party complaint against Becthel as third-party defendant,

ACDC alleged that:

7. Third-party plaintiff repleads the foregoing allegations in the preceding

paragraphs as may be material and pertinent hereto;

8. Third-party BECTHEL OVERSEAS CORPORATION (herein called "Becthel")

is a corporation duly organized and existing under the laws of the United States
of America but may be served with summons at Barangay Cagsiay I, Mauban,
Quezon 4330, Philippines;

9. Third-party defendant Becthel contracted the services of third-party plaintiff to

do construction work at its Mauban, Quezon project using the leased equipment
of plaintiff Monark;

10. With the contracted work, third-party plaintiff rented the equipment of the
plaintiff Monark;

11. Third-party plaintiff rendered and complied with its contracted works with
third-party defendant using plaintiff’s (Monark) rented equipment. But, third-party
defendant BECTHEL did not pay for the services of third-party plaintiff
ASIAKONSTRUKT that resulted to the non-payment of plaintiff Monark’s claim;

12. Despite repeated demands, third-party defendant failed and refused to pay its
overdue obligation to third-party plaintiff ASIAKONSTRUKT, and third-party
defendant needs to be impleaded in this case for contribution, indemnity,
subrogation or other reliefs to off-set or to pay the amount of money claim of
plaintiff Monark on the leased equipment used in the Mauban, Quezon project in
the total amount of P456,666.67;

13. By reason thereof, third-party plaintiff was compelled to prosecute its claim
against third-party defendant and hired the services of undersigned counsel for
an attorney’s fees of P500,000.00.4

60
ACDC prayed that judgment be rendered in its favor dismissing the complaint and
ordering the third-party defendant (Becthel) to pay P456,666.67 plus interest thereon
and attorney’s fees.5

MEC opposed the motion of ACDC to file a third-party complaint against Becthel on the
ground that the defendant had already admitted its principal obligation to MEC in the
amount of P5,071,335.86; the transaction between it and ACDC, on the one hand, and
between ACDC and Becthel, on the other, were independent transactions. Furthermore,
the allowance of the third-party complaint would result in undue delays in the disposition
of the case.6

MEC then filed a motion for summary judgment, alleging therein that there was no
genuine issue as to the obligation of ACDC to MEC in the total amount
of P5,071,335.86, the only issue for the trial court’s resolution being the amount of
attorney’s fees and costs of litigation.7

ACDC opposed the motion for summary judgment, alleging that there was a genuine
issue with respect to the amount of P5,071,335.86 being claimed by MEC, and that it
had a third-party complaint against Becthel in connection with the reliefs sought against
it which had to be litigated.8

In its reply, MEC alleged that the demand of ACDC in its special and affirmative
defenses partook of the nature of a negative pregnant, and that there was a need for a
hearing on its claim for damages.

On August 2, 2001, the trial court issued a Resolution denying the motion of ACDC for
leave to file a third-party complaint and granting the motion of MEC, which the trial court
considered as a motion for a judgment on the pleadings. The fallo of the resolution
reads:

ACCORDINGLY, this Court finds defendant Asian Construction and

Development Corporation liable to pay plaintiff Monark Equipment Corporation
and is hereby ordered to pay plaintiff the amount of FIVE MILLION SEVENTY-
ONE THOUSAND AND THREE HUNDRED THIRTY-FIVE & 86/100 PESOS
(P5,071,335.86) plus 12% interest from the filing of the complaint until fully paid.

SO ORDERED.9

ACDC appealed the resolution to the Court of Appeals (CA), alleging that –

I. THE LOWER COURT ERRED IN DENYING THE MOTION TO FILE AND

ADMIT ANSWER WITH THIRD-PARTY COMPLAINT;

II. THE LOWER COURT ERRED IN GRANTING THE MOTION FOR SUMMARY
JUDGMENT;

61
 III. THE LOWER COURT ERRED WHEN IT DENIED THE THIRD-PARTY
COMPLAINT AND ORDERED DEFENDANT TO PAY THE AMOUNT
OF P5,071,335.86 PLUS INTEREST OF 12% PER ANNUM.10

On July 18, 2001, the CA rendered judgment dismissing the appeal and affirming the
assailed decision. The appellate court ruled that since MEC had prayed for judgment on
the pleadings, it thereby waived its claim for damages other than the amount
of P5,071,335.86; hence, there was no longer a genuine issue to be resolved by the
court which necessitated trial. The appellate court sustained the disallowance of the
third-party complaint of ACDC against Becthel on the ground that the transaction
between the said parties did not arise out of the same transaction on which MEC’s claim
was based.

Its motion for reconsideration of the decision having been denied, ACDC, now the
petitioner, filed the present petition for review on certiorari, and raises the following
issues:

I. WHETHER OR NOT A THIRD-PARTY COMPLAINT IS PROPER; AND

II. WHETHER OR NOT JUDGMENT ON THE PLEADINGS IS PROPER.11

Citing the rulings of this Court in Allied Banking Corporation v. Court of

Appeals12 and British Airways v. Court of Appeals,13 the petitioner avers that the CA
erred in ruling that in denying its motion for leave to file a third-party complaint, the RTC
acted in accordance with the Rules of Court and case law. The petitioner maintains that
it raised genuine issues in its answer; hence, it was improper for the trial court to render
judgment on the pleadings:

With due respect, the judgment on the pleadings affirmed by the Court of
Appeals is not, likewise, proper considering that the Answer with Third-Party
Complaint, although it admitted the obligation to respondent, tendered an issue
of whether the respondent’s claim is connected with the third-party claim.

As alleged in the Answer with Third-Party Complaint, it is admitted then by

respondent, for purposes of judgment on the pleadings, that failure to pay
respondent was in connection of Becthel Overseas Corporation’s failure to pay
its obligation to petitioner and that the equipment leased was used in connection
with the Becthel Overseas Corporation project.

This tendered issue could not just be disregarded in the light of the third-party
complaint filed by herein petitioner and third-party plaintiff which, as argued in the
first discussion/argument, is proper and should have been given due course. 14

The petition is denied for lack of merit.

Section 11, Rule 6 of the Rules of Court provides:

62
 Sec. 11. Third (fourth, etc.)-party complaint. – A third (fourth, etc.) – party
complaint is a claim that a defending party may, with leave of court, file against a
person not a party to the action, called the third (fourth, etc.) – party defendant,
for contribution, indemnity, subrogation or any other relief, in respect of his
opponent’s claim.

Furthermore, Section 1, Rule 34 of the Rules of Court provides that the Court may
render judgment on the pleadings, as follows:

Section 1. Judgment on the pleadings. – Where an answer fails to tender an

issue, or, otherwise, admits the material allegations of the adverse party’s
pleading, the court may, on motion of that party, direct judgment on such
pleading. However, in actions for declaration of nullity or annulment of marriage
or for legal separation, the material facts alleged in the complaint shall always be
proved.

The purpose of Section 11, Rule 6 of the Rules of Court is to permit a defendant to
assert an independent claim against a third-party which he, otherwise, would assert in
another action, thus preventing multiplicity of suits. All the rights of the parties
concerned would then be adjudicated in one proceeding. This is a rule of procedure and
does not create a substantial right. Neither does it abridge, enlarge, or nullify the
substantial rights of any litigant.15 This right to file a third-party complaint against a third-
party rests in the discretion of the trial court. The third-party complaint is actually
independent of, separate and distinct from the plaintiff’s complaint, such that were it not
for the rule, it would have to be filed separately from the original complaint. 16

A prerequisite to the exercise of such right is that some substantive basis for a third-
party claim be found to exist, whether the basis be one of indemnity, subrogation,
contribution or other substantive right.17 The bringing of a third-party defendant is proper
if he would be liable to the plaintiff or to the defendant or both for all or part of the
plaintiff’s claim against the original defendant, although the third-party defendant’s
liability arises out of another transaction.18The defendant may implead another as third-
party defendant (a) on an allegation of liability of the latter to the defendant for
contribution, indemnity, subrogation or any other relief; (b) on the ground of direct
liability of the third-party defendant to the plaintiff; or (c) the liability of the third-party
defendant to both the plaintiff and the defendant. 19There must be a causal connection
between the claim of the plaintiff in his complaint and a claim for contribution, indemnity
or other relief of the defendant against the third-party defendant. In Capayas v. Court of
First Instance,20the Court made out the following tests: (1) whether it arises out of the
same transaction on which the plaintiff’s claim is based; or whether the third-party claim,
although arising out of another or different contract or transaction, is connected with the
plaintiff’s claim; (2) whether the third-party defendant would be liable to the plaintiff or to
the defendant for all or part of the plaintiff’s claim against the original defendant,
although the third-party defendant’s liability arises out of another transaction; and (3)
whether the third-party defendant may assert any defenses which the third-party plaintiff
has or may have to the plaintiff’s claim.

63
The third-party complaint does not have to show with certainty that there will be
recovery against the third-party defendant, and it is sufficient that pleadings show
possibility of recovery.21 In determining the sufficiency of the third-party complaint, the
allegations in the original complaint and the third-party complaint must be examined.22 A
third-party complaint must allege facts which prima facie show that the defendant is
entitled to contribution, indemnity, subrogation or other relief from the third-party
defendant.23

It bears stressing that common liability is the very essence for contribution. Contribution
is a payment made by each, or by any of several having a common liability of his share
in the damage suffered or in the money necessarily paid by one of the parties in behalf
of the other or others.24 The rule on common liability is fundamental in the action for
contribution.25 The test to determine whether the claim for indemnity in a third-party
complaint is, whether it arises out of the same transaction on which the plaintiff’s claim
is based, or the third-party plaintiff’s claim, although arising out of another or different
contract or transaction, is connected with the plaintiff’s claim. 26

In this case, the claims of the respondent, as plaintiff in the RTC, against the petitioner
as defendant therein, arose out of the contracts of lease and sale; such transactions are
different and separate from those between Becthel and the petitioner as third-party
plaintiff for the construction of the latter’s project in Mauban, Quezon, where the
equipment leased from the respondent was used by the petitioner. The controversy
between the respondent and the petitioner, on one hand, and that between the
petitioner and Becthel, on the other, are thus entirely distinct from each other. There is
no showing in the proposed third-party complaint that the respondent knew or approved
the use of the leased equipment by the petitioner for the said project in Quezon. Becthel
cannot invoke any defense the petitioner had or may have against the claims of the
respondent in its complaint, because the petitioner admitted its liabilities to the
respondent for the amount of P5,075,335.86. The barefaced fact that the petitioner used
the equipment it leased from the respondent in connection with its project with Becthel
does not provide a substantive basis for the filing of a third-party complaint against the
latter. There is no causal connection between the claim of the respondent for the rental
and the balance of the purchase price of the equipment and parts sold and leased to the
petitioner, and the failure of Becthel to pay the balance of its account to the petitioner
after the completion of the project in Quezon. 27

We note that in its third-party complaint, the petitioner alleged that Becthel should be
ordered to pay the balance of its account of P456,666.67, so that the petitioner could
pay the same to the respondent. However, contrary to its earlier plea for the admission
of its third-party complaint against Becthel, the petitioner also sought the dismissal of
the respondent’s complaint. The amount of P456,666.67 it sought to collect from
Becthel would not be remitted to the respondent after all.

The rulings of this Court in Allied Banking Corporation and British Airways are not
applicable in this case since the factual backdrops in the said cases are different.

64
In Allied Banking Corporation, Joselito Yujuico obtained a loan from General Bank and
Trust Company. The Central Bank of the Philippines ordered the liquidation of the Bank.
In a Memorandum Agreement between the liquidation of the Bank and Allied Banking
Corporation, the latter acquired the receivables from Yujuico. Allied Banking
Corporation then sued Yujuico for the collection of his loan, and the latter filed a third-
party complaint against the Central Bank, alleging that by reason of its tortious
interference with the affairs of the General Bank and Trust Company, he was prevented
from performing his obligation under the loan. This Court allowed the third-party
complaint based on the claim of the defendant therein, thus:

… In the words of private respondent, he "[s]eeks to transfer liability for the

default imputed against him by the petitioner to the proposed third-party
defendants because of their tortious acts which prevented him from performing
his obligations." Thus, if at the outset the issue appeared to be a simple maker’s
liability on a promissory note, it became complex by the rendition of the
aforestated decision.28

In British Airways, the Court allowed the third-party complaint of British Airways against
its agent, the Philippine Airlines, on the plaintiff’s complaint regarding his luggage,
considering that a contract of carriage was involved. The Court ruled, thus:

Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA,
in view of their contract of carriage. Yet, BA adamantly disclaimed its liability and
instead imputed it to PAL which the latter naturally denies. In other words, BA
and PAL are blaming each other for the incident.

In resolving this issue, it is worth observing that the contract of air transportation
was exclusively between Mahtani and BA, the latter merely endorsing the Manila
to Hongkong leg of the former’s journey to PAL, as its subcontractor or agent. In
fact, the fourth paragraph of the "Conditions of Contracts" of the ticket issued by
BA to Mahtani confirms that the contract was one of continuous air transportation
from Manila to Bombay.

"4. xxx carriage to be performed hereunder by several successive carriers is

regarded as a single operation."

Prescinding from the above discussion, it is undisputed that PAL, in transporting

Mahtani from Manila to Hongkong acted as the agent of BA.

Parenthetically, the Court of Appeals should have been cognizant of the well-
settled rule that an agent is also responsible for any negligence in the
performance of its function and is liable for damages which the principal may
suffer by reason of its negligent act. Hence, the Court of Appeals erred when it
opined that BA, being the principal, had no cause of action against PAL, its agent
or sub-contractor.

65
 Also, it is worth mentioning that both BA and PAL are members of the
International Air Transport Association (IATA), wherein member airlines are
regarded as agents of each other in the issuance of the tickets and other matters
pertaining to their relationship. Therefore, in the instant case, the contractual
relationship between BA and PAL is one of agency, the former being the
principal, since it was the one which issued the confirmed ticket, and the latter
the agent.29

It goes without saying that the denial of the petitioner’s motion with leave to file a third-
party complaint against Becthel is without prejudice to its right to file a separate
complaint against the latter.

Considering that the petitioner admitted its liability for the principal claim of the
respondent in its Answer with Third-Party Complaint, the trial court did not err in
rendering judgment on the pleadings against it.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioner.

SO ORDERED.

66