Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 105751 June 30, 1993

BA FINANCE CORPORATION, petitioner,
vs.
RUFINO CO, HIGHLINE MERCANTILE, INC., LUCITA VELOSO YAP, CLOVERLEAF
SUPERMARKET, INC., SAN ANDRES COMMERCIAL and COURT OF
APPEALS, respondents.

Agbayani, Leal, Ebarle & Venturanza Law Office for petitioner.

Angara, Abello, Concepcion, Regala & Cruz Law Office for respondent.

BELLOSILLO, J.:

Does the dismissal of the complaint for nonappearance of plaintiff at the pre-trial, upon
motion of defendants, carry with it the dismissal of their compulsory counterclaim?

Petitioner BA Finance Corporation brought this action as plaintiff in the court below to
recover a sum of money arising from a credit accommodation in the form of a
discounting line which it granted to defendant Rufino Co, and from certain suretyship
agreements executed in its favor by his co-defendants Highline Mercantile, Inc., Lucita
Veloso Yap, Cloverleaf Supermarket, Inc., and San Andres Commercial.

After defendants' Amended Answer to Complaint with Compulsory Counterclaim was

admitted, the case was set for Pre-Trial Conference. For various reasons, however, the
conference was repeatedly reset. On 19 December 1989, counsel for plaintiff, petitioner
herein, failed to attend the Pre-Trial Conference. Consequently, defendants moved for
dismissal of the case without prejudice. The motion was granted thus —

The plaintiff's representative and counsel having failed to appear for

today's setting, Atty. Luis Vera Cruz, Jr., for the defendants moved that the
above-entitled case be dismissed, without prejudice. Finding merit in said
motion, the same is hereby granted.

On 22 January 1990, private respondents moved to set the reception of their evidence
in support of their counterclaim. Petitioner opposed the motion.

On 2 April 1990, the trial court denied the motion of private respondents, prompting
them to elevate the order of denial to the Court of Appeals which, on 18 December
1991, reversed the questioned order and directed the trial court to set the reception of
their evidence on their counterclaim. Its motion for reconsideration having on 2 June
1992 been denied, petitioner instituted the instant petition.

Petitioner contends that the dismissal of the complaint carries with it the dismissal of the
counterclaim. Private respondents, on the other hand, claim that their compulsory
counterclaim should not have been included in the dismissal.

There is merit in the petition.

The counterclaim of private respondents is not merely permissive but compulsory in
nature: it arises out of, or is necessarily connected with, the transaction or occurrence
that is the subject matter of the opposing party's claim; it does not require the presence
of third parties of whom the court cannot acquire the presence of third parties of whom
the court cannot acquire jurisdiction; and, the trial court has jurisdiction to entertain the
claim.1 The counterclaim of private respondents is denominated "compulsory" and
consists of claims for alleged overpayments and damages. They assert that they are no
longer indebted to petitioner and are in fact entitled to reimbursement for overpayments.
They ask for damages for expenses incurred and inconveniences suffered by them as a
result of the filing of the present action. 2

Clearly, the same evidence needed to sustain the counterclaim of private respondents
would also refute the cause of action in petitioner's complaint. For, if private
respondents could successfully show that they actually made overpayments on the
credit accommodations extended by petitioner, then the complaint must fail. The
counterclaim is therefore compulsory.

The rule is that a compulsory counterclaim cannot "remain pending for independent
adjudication by the court." 3 This is because a compulsory counterclaim is auxiliary to the
proceeding in the original suit and merely derives its jurisdictional support therefrom. 4

Thus, it necessarily follows that if the trial court no longer possesses jurisdiction to
entertain the main action of the case, an when it dismisses the same, then the
compulsory counterclaim being ancillary to the principal controversy, must likewise be
similarly dismissed since no jurisdiction remains for the grant of any relief under the
counterclaim.5 Indeed, as Justice Vicente Abad Santos succinctly puts it —

. . . . The petitioner does not object to the dismissal of the civil case but
nonetheless wants her counterclaim therein to subsist. Impossible. A
person cannot eat his cake and have it at the same time. If the civil case is
dismissed, so also in the counterclaim filed therein. 6

More recently, this Court ruled that the dismissal of the complaint on defendant's own
motion operated likewise to dismiss the counterclaim questioning the complaint. 7

The Rules of Court provides a remedy to recover on defendant's counterclaim if plaintiff

moves to dismiss the case. Under Sec. 2, Rule 17, defendant may raise objection to the
dismissal of the complaint; in such case, the trial curt may not dismiss the main action.

In the instant petition, private respondents themselves moved for the dismissal of the
complaint, They could have simply asked the trial court to declare petitioners to be "non-
suited" on their complaint, and "as in default" on their compulsory counterclaim, for their
failure to appear at the pre-trial despite due notice. But private respondents did not.
Neither did they reserve their right to maintain their counterclaim. Consequently, the
dismissal of the complaint carried with it the dismissal of the compulsory counterclaim.

It may also be stressed that private respondents moved to set for hearing the reception
of evidence to support their counterclaim more than a month after the case was
dismissed, i.e., they filed their motion after the lapse of thirty-three (33) days. By then,
the order of dismissal had already become final. Thereafter, it was error for the
appellate court to set it aside, there being no ground to warrant it. Only error of
judgment, not error of jurisdiction, was involved.

However, we are not unaware of the seeming unfairness, if not harshness, of the
application of the Rule herein enunciated — that dismissal of the complaint for failure to
prosecute automatically carries with it dismissal of the compulsory counterclaim — to a
defendant who may be compelled to hire counsel to protect him in a frivolous complaint.
Equity and justice dictate that he be accorded adequate relief under the circumstances.

Henceforth, for the guidance of Bench and Bar, if any of the grounds to dismiss under
Sec. 3, Rule 17, of the Rules of Court arises, 8 the proper recourse for a defendant who
desires to pursue his compulsory counterclaim in the same proceeding is not to move
for the dismissal of the complaint; instead, he should only move to have plaintiff
declared non-suited on the complaint so that the latter can no longer present his
evidence thereon, and simultaneously move that he be declared as in default on the
compulsory counterclaim, and reserve the right to present evidence ex parte on his
counterclaim. This will enable defendant who was unjustly haled to court to prove his
compulsory counterclaim, which is intertwined with the complaint, because the trial court
retains jurisdiction over the complaint and of the whole case. The non-dismissal of the
complaint, the non-suit notwithstanding, provides the basis for the compulsory
counterclaim to remain active and subsisting.

But the procedure above stated, unfortunately, was not adopted by private respondents
herein in the court below, hence, we reverse the Court of Appeals and sustain the trial
court.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals
of 18 December 1991 in CA- G.R. No. CV-28420 is REVERSED and SET ASIDE.

The Order of the Regional Trial Court of Manila, Branch 40, of 19 December 1989
dismissing Civil Case No. 84-26040 is REINSTATED and REITERATED.

SO ORDERED.
March 11, 2015

G.R. No. 155701

LIM TECK CHUAN, Petitioner,

vs.
SERAFIN UY and LEOPOLDA CECILIO, LIM SING CHAN @ HENRY
LIM, Respondents.

DECISION

REYES, J.:

Before this Court is a petition for review on certiorari 1 under Rule 45 filed by Lim Teck
Chuan (petitioner) assailing the Orders dated April 25, 2002 2 and October 21, 20023 of
the Regional Trial Court (RTC) of Lapu-lapu City, Branch 27, in Civil Case No. 4786-L,
which dismissed the case uponjointa motion of respondents Serafin Uy (Serafin) and
Leopolda Cecilio (Leopolda) despite an opposition and manifestation of the petitioner to
have his counterclaim prosecuted in the same action, and denied the petitioner's motion
for reconsideration for being barren of merit, respectively.

The antecedent facts are as follows:

The subject matter of the present controversy is a piece of land known as Lot 5357 with
an area of 33,610 square meters, covered by Transfer Certificate of Title (TCT) No. T-
0500, situated in Barrio Agus, Lapu-lapu City, Cebu, owned and registered under the
name of Antonio Lim Tanhu (Antonio), married to Dy Ochay.

Lot 5357 was sold by Antonio to the spouses Francisco Cabansag (Francisco) and
Estrella Cabansag (Spouses Cabansag) as evidenced by a Deed of Sale executed on
January 8, 1966. Apparently, Francisco failed to transfer the title of the property to their
names because of his work and frequent travels abroad. 4

In 1988, Spouses Cabansag sold the lot to Serafin, as evidenced by a Deed of Sale
dated April 8, 1988. To pave the way for the transfer of title to Serafin’s name, Spouses
Cabansag attempted to have the same transferred under their names first. However,
Francisco failed to do so as he lost the owner’s copy of TCT No. T-0500 together with
other documents pertaining to the sale of the subject lot. This prompted Serafin to exert
efforts to secure copies of the lost documents himself. On May 15, 1996, Serafin filed a
petition before the RTC, docketed as Cadastral Case No. 21 praying for the issuance of
a new owner’s duplicate TCT in his name, thereby cancelling TCT No. T-0500 in the
name of Antonio.5

Serafin’s petition for the issuance of a new owner’s copy of TCT No. T-0500 was raffled
to the RTC of Lapu-lapu City, Branch 27, then sitting as a cadastral court (Cadastral
Court). After due notice and hearing, the Cadastral Court issued an Order 6 on June 14,
1996 directing the Register of Deeds of Lapu-lapu City to issue a new owner’s duplicate
copy of TCT No. T-0500.

However, the aforesaid order was recalled and nullified on September 3, 1996 7 on the
ground that the petitioner filed an Opposition and/or Motion for Reconsideration with
Manifestation for Special Appearance 8 dated August 22, 1996 alleging that he is one of
the six legitimate descendants of Antonio; and that the original owner’s copy of TCT No.
T-0500 was not lost and has always been in his custody. The court further directed the
petitioner to deposit the said owner’s copy of TCT No. T-0500 with said court.

In the meantime, on August 2, 1996, Lim Sing Chan alias Henry Lim (Henry) executed
an Affidavit of Sole Adjudication/Settlement of the Estate of Antonio Lim Tanhu with
Deed of Sale9 (Affidavit of Self-Adjudication) claiming that he is the only surviving heir of
Antonio. In the same document, Henry sold Lot 5357 to Leopolda in the amount of
500,000.00.

With this turn of events, Serafin filed on July 25, 1997 a Complaint 10 for quieting of title,
surrender of owner’s copy of certificate of title, declaration of nullity of affidavit of
adjudication and sale, annulment of tax declaration, and other reliefs with a prayer for
preliminary injunction before the RTC, docketed as Civil Case No. 4786-L. Impleaded
as defendants were Leopolda, Henry, and the herein petitioner.

Leopolda filed her Answer11 (with counterclaim, and cross-claim against Henry),

asserting that she was the buyer in good faith and for value of Lot 5357. She alleged
that the said property was never encumbered to any person during the lifetime of
Antonio; that the deed of sale in favor of Spouses Cabansag was simulated and
spurious; and that the said document was never registered with the proper government
agency, nor was it ever annotated on the certificate of title covering the said property.
She claimed that the lot in question was sold to her as evidenced by the Affidavit of
Self-Adjudication executed by Henry; that she caused the issuance of a new tax
declaration over the said property in her name; that since then, she has been in open,
actual and material possession of the subject lot in the concept of an owner.

For his part, the petitioner averred in his Answer 12 (with counterclaim, and cross-claims
against Leopolda and Henry), that Lot 5357 was never transferred nor encumbered to
any person during Antonio’s lifetime. The deed of sale in favor of Spouses Cabansag
was simulated and spurious, and was intended to defraud the estate of Antonio.
Furthermore, the petitioner questioned Henry’s claim that he was an heir of Antonio,
much less the only surviving heir of the latter. Corollarily, the petitioner questioned the
validity of Henry’s Affidavit of Self-Adjudication and Leopolda’s claim of title to the
subject property.

On November 11, 1997, Leopolda filed her Answer 13 to the petitioner’s cross-claim. She
basically reiterated her allegations raised in her Answer to Serafin’s complaint.

Henry did not file an answer to any of the claims against him.

On December 22, 1998, the pre-trial conference 14 was conducted where the parties
agreed to the following stipulation of facts:

[T]hat Antonio Lim Tanhu was the registered owner of Lot 5357 of the Cadastral Survey
of Opon located in Lapu-lapu City[;] that Antonio Lim Tanhu died on April 13, 1991[;]
that Antonio Lim Tanhu was succeeded upon his death by his six children, namely, the
defendant Lim Teck Chuan, Lim Sing Tai, Helen Lim, Lenesita Lim, Warlito Lim and
Michael Lim Tan Ho[;] that the defendant Lim Sing Chan is actually a fictitious person[;]
that there exists an ancient document denominated as Deed of Absolute Sale of Lot
5357 executed on January 8, 1966 by Antonio Lim Tanhu in favor of the spouses
Francisco Cabansag and Estrella M. Cabansag (Exhibit A)[;] that there also exists a
document denominated as Deed of Absolute Sale (Exhibit B) of Lot 5357 executed on
April 8, 1988 by the spouses Francisco Cabansag and Estrella M. Cabansag in favor of
the plaintiff[;] and that there exists, too, a document denominated as Affidavit of [Sale]
Adjudication/Settlement of Estate of Antonio Lim Tanhu with Deed of Sale executed on
May 2, 1996 by a certain Lim Sing Chan (Exhibit 1-Cecilio). x x x. 15

The parties also agreed to the following issues:

1.Whether or not the plaintiff has valid causes of action for quieting of title, declaration
of nullity of documents of sale and tax declarations, reconveyance of title and damages
against the defendants[;]

2.Whether or not the defendants Leopolda Cecilio and Lim Teck Chuan have valid
counterclaims against the plaintiff; and

3.Whether or not the defendant Lim Teck Chuan has a valid cross-claim against the
defendant Leopolda Cecilio.16

Thereafter, the pre-trial order was amended such that it should not be considered as
established and stipulated facts that Henry is a fictitious person and that the Deed of
Sale of Lot 5357 purportedly executed by Antonio on January 8, 1966 is genuine and
authentic since there were actually no admissions made on these circumstances. 17

In the same Order18 dated July 17, 1999, the RTC denied Serafin’s motion for summary
judgment19 because under the circumstances, there were actually genuine issues of fact
to be resolved and passed upon by the court.

Eventually, the RTC set the initial trial of the case on March 28, 2001. 20 However, it was
postponed upon motion of Leopolda’s counsel and upon the manifestation of Serafin’s
counsel that there was an on-going negotiation for an amicable settlement. For his part,
the petitioner’s counsel manifested that the petitioner was not involved in any
negotiation for amicable settlement. The scheduled hearing was reset to July 11,
200121 and later to November 12, 2001.22

On September 20, 2001, Serafin and Leopolda submitted a Joint Motion to

Dismiss.23 They averred that:

1.That the case at [bench] is filed by the Plaintiff Serafin Uy against the defendants for
"quieting of title, surrender of owner of certificate of title, declaration of nullity of affidavit
of adjudication and sale annulment of tax declaration, and other reliefs consistent with
law, justice and equity[ ];

2.That in the case at bench, Plaintiff Serafin Uy seeks the quieting of title on his right
over Lot 5357 of the Cadastral Survey of Opon situated at Barangay Agus, Lapu-lapu
City, in view of the affidavit of adjudication and Sale dated August 2, 1996 (Annex "F")
of the Complaint, and Tax Decl. No. 01532 issued in the name of Leopolda Cecilio both
of which documents affected Lot 5357 (Annex G to the Complaint);

3.That Plaintiff Serafin Uy and Defendant Leopolda Cecilio have amicably settled their
differences in the case at bench and Def. Leopolda Cecilio has agreed to waive her
counterclaim for damages in the instant case;

4.That Plaintiff Serafin Uy has already secured a certificate of title to Lot No. 5357 in his
name dated July 26, 2001, and has also agreed for the cancellation of the same, and for
issuance of a new one, over said Lot 5357, in their common names;
5.That whatever claim defendant Lim Teck Chuan may have on said Lot No. 5357, the
same may be ventilated by said defendant in an appropriate independent action that he
may initiate and file[.]

PRAYER

WHEREFORE, this Honorable Court is most respectfully prayed and humbly implored
to dismiss the Complaint and the respective counterclaims of the defendants in the case
at bench.24

On October 4, 2001, the petitioner filed his Opposition/Comment 25 praying for the denial
of the Joint Motion to Dismiss on the ground of bad faith, and to prohibit Serafin and
Leopolda from undertaking any further transaction involving the subject lot. The
pertinent portion of his opposition reads as follows:

1. That the [petitioner] opposes the ‘Joint Motion to Dismiss’ filed by [Serafin] and
[Leopolda] on the grounds:

1.1that there [is] BAD FAITH on the part of [Serafin] and [Leopolda];

1.2.That the [petitioner] was not involved in any amicable settlements between [Serafin]
and [Leopolda] because both [Serafin] and [Leopolda] connived to MISLEAD this
Honorable Court and to DEFRAUD the estate of [Antonio];

1.3.That the [petitioner] has valid counterclaims against [Serafin] for moral damages of
P 5,000,000[.00]; exemplary damages of P 1,200,000[.00]; and Attorney’s fees of P
50,000[.00]; on the ground that [Serafin] maliciously and deliberately presented to this
Honorable Court the FALSIFIED AND FICTITIOUS ‘deed of sale’ PURPORTEDLY
executed by [Antonio] in favor of [Francisco];

1.4.That the [petitioner] has valid cross[-]claims against Cross-defendants Lim Sing
Chan alias Henry Lim whose real name is Henry Lim Ormoc, and [Leopolda] for moral
damages of P 5,000,000[.00] each, attorney’s fees of P 50,000[.00] each, and
exemplary damages of P 1,000,000[.00] for [Henry] and P 1,600,000[.00] for [Leopolda]
because [Henry] and [Leopolda] connived with each other to defraud the estate of
[Antonio] on the ground that [Henry] MISREPRESENTED himself as an heir of [Antonio]
while [Leopolda] has KNOWLEDGE of such MISREPRESENTATION;

1.5.That the [petitioner] manifest[s] to this Honorable Court of his preference that
the above-counterclaims and cross-claims be resolved in the present case[.] 26

The petitioner further averred that the transfer of Antonio’s title under TCT No. T-0500 in
the name of Serafin is irregular and illegal since the true owner’s copy of TCT No. T-
0500 remained in his possession.

Henry continued to remain silent.

On October 10, 2001, Serafin filed his Reply27 to the comment/opposition of the
petitioner. He substantially averred that:

1.With the end in view of registering Lot 5357 in his name, he instituted the instant case
due to the existence of certain documents affecting his title thereto, namely: Henry’s
Affidavit of Self-Adjudication with Deed of Sale dated August 2, 1996 naming Leopolda
as the buyer, and Tax Declaration No. 01532 issued in the name of the latter;
2.Under his Affidavit of Self-Adjudication, Henry already transferred whatever right and
interest he had on the subject lot to Leopolda. On the other hand, by reason of the
amicable settlement between him (Serafin) and Leopolda, the latter waived and
abandoned all her rights to Lot 5357. Ergo, as far as Leopolda is concerned, her waiver
negated all the legal consequences of Tax Declaration No. 01532 and Henry’s Affidavit
of Self-Adjudication. Since the same were the very documents that cast clouds on his
(Serafin) title over Lot 5357, his main causes of action in the case at bench had become
moot and academic as his title to the said lot had been quieted;

3.The petitioner was impleaded because of the following points: a) he alleged that he is
one of the heirs of the late Antonio; b) he contested the claim of Henry that the latter is
the only surviving heir of said decedent, and prayed upon the court to declare Henry as
an impostor; and c) he challenged the genuineness and due execution of the deed of
absolute sale between Antonio and Spouses Cabansag;

4.Aside from his claim for damages, the petitioner’s counterclaim sought the nullification
of the Deed of Absolute Sale dated January 8, 1966 between Antonio and Spouses
Cabansag which required the impleading of persons who were not parties in the case.
These persons included Spouses Cabansag who was indispensable party to any action
for the annulment of the deed which was executed in their favor. However, to implead
the said persons, there was a need to summon them so that the court can acquire
jurisdiction over them - and in order that they can be summoned, there was a need for
the petitioner to file a formal complaint against them;

5.Moreover, the cross-claim of the petitioner against Henry can also be resolved in a
separate action for the declaration of the true heirs of Antonio wherein all the heirs of
the latter will be impleaded, and where the petitioner can prove that he was indeed one
of the heirs of said decedent – especially so that there is yet no judicial or extra-judicial
declaration as to who were Antonio’s heirs;

6.The dismissal of the case will not affect the rights of the petitioner because whatever
claim he had on the subject lot and against any party may be ventilated in an
appropriate and separate action.

On November 6, 2001, the petitioner, through counsel, filed his

Motion to Implead Indispensable Parties and Supplemental Opposition to Joint Motion

to Dismiss.28 Invoking Section 1129 of Rule 3 of the Rules of Court, the petitioner averred
that there is a need to implead Spouses Cabansag in order that a final determination of
all the issues could be had in the case.

Acting on the Joint Motion to Dismiss, the RTC issued the assailed Order 30 dated April
25, 2002 granting the same and denying the petitioner’s motion to implead Spouses
Cabansag. The order is quoted as follows:

Going over the arguments of the parties, the Court finds the arguments of the movants
as tenable. For what is the use of so continuously litigating this case when [Serafin]
admits and confirms that the principal reliefs he prayed for have already been met or
satisfied as his title to the property in question has already been quieted with him having
"already secured a certificate of title to Lot No. 5357 in his name dated July 26, 2001,
and has also agreed for the cancellation of the same, and for the issuance of a new
one, over said Lot 5357, in their common names." In fact, even without said reliefs
having been met or satisfied, nobody, not even the courts of justice, can compel a party-
litigant in a civil action like [Serafin] to so continuously litigate his case if he does not
want to anymore.

Finding therefore, the subject motion to dismiss to be proper and in order, this case is
ordered dismissed so with the respective counterclaims of the defendants. Considering
however, that [the petitioner] is not a party and even opposed the subject motion to
dismiss, the dismissal of his counterclaims and cross-claim is without prejudice to give
him his day in court. And with this pronouncement of dismissal, the motion to implead
indispensable parties of [the petitioner] becomes moot and academic and therefore is
denied.31

On May 30, 2002, the petitioner filed a Motion for Reconsideration 32 which was denied
in the Order33 dated October 21, 2002.

Aggrieved, the petitioner went up to this Court via a petition for review on certiorari
under Rule 45 raising the lone assignment of error that:

THE LOWER COURT ERRED IN DISMISSING CIVIL CASE 4786-L UPON A JOINT
MOTION TO DISMISS FILED BY THE RESPONDENTS WHO ARE PLAINTIFF AND
ONE OF THE DEFENDANTS, RESPECTIVELY, IN THE AFOREMENTIONED CASE
DESPITE THE OPPOSITION BY HEREIN PETITIONER AND THE MANIFESTATION
OF THE LATTER OF HIS PREFERENCE MADE WITHIN FIFTEEN (15) DAYS FROM
THE JOINT MOTION TO DISMISS, TO HAVE HIS COUNTERCLAIM, AS WELL AS
HIS CROSS-CLAIM, PROSECUTED IN THE SAME ACTION, IN ACCORDANCE WITH
SECTION 2, RULE 17 OF THE 1997 RULES OF CIVIL PROCEDURE. 34

The petitioner faults the RTC for dismissing the case in its entirety in spite of his
counterclaim and cross-claim. He asserts that within 15 days from notice of the filing of
the joint motion to dismiss, he filed his opposition thereto and expressed his preference
to have his counterclaim and cross-claim be resolved in the same action. Therefore,
pursuant to the provisions of Section 2, Rule 17 of the Rules of Court, his timely
expression of such preference should be enough for the trial court not to dismiss the
case in its entirety, and to limit its action to the dismissal of the complaint.

Preliminarily, the respondents question the petitioner’s recourse to this Court in filing the
instant petition alleging that no appeal may be taken from an order of the RTC
dismissing an action without prejudice. 35 Nonetheless, the Rules of Court do not prohibit
any of the parties from filing a Rule 45 petition with this Court in case only questions of
law are raised or involved. 36 In Bukidnon Doctors’ Hospital, Inc. v. Metropolitan Bank &
Trust Co.,37 the Court explained that:

Section 2(c), Rule 41 of the Rules of Court categorically provides that in all cases where
only questions of law are raised, the appeal from a decision or order of the Regional
Trial Court shall be to the Supreme Court by petition for review on certiorari in
accordance with Rule 45. Section 2(c) of Rule 41 of the Rules of Court reads:

SEC. 2. Modes of appeal. –

(a)Ordinary appeal. – The appeal to the Court of Appeals in cases decided by the
Regional Trial Court in the exercise of its original jurisdiction shall be taken by filing a
notice of appeal with the court which rendered the judgment or final order appealed
from and serving a copy thereof upon the adverse party. No record on appeal shall be
required except in special proceedings and other cases of multiple or separate appeals
where the law or these Rules so require. In such cases, the record on appeal shall be
filed and served in like manner.

(b)Petition for review. – The appeal to the Court of Appeals in cases decided by the
Regional Trial Court in the exercise of its appellate jurisdiction shall be by petition for
review in accordance with Rule 42.

(c)Appeal by certiorari. – In all cases where only questions of law are raised or involved,
the appeal shall be to the Supreme Court by petition for review on certiorari in
accordance with Rule 45.

Section 1 of Rule 45 provides:

SECTION 1. Filing of petition with Supreme Court.

– A party desiring to appeal by certiorari from a judgment or final order or resolution of

the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified petition for
review on certiorari. The petition shall raise only questions of law which must be
distinctly set forth.

A question of law exists when the doubt or controversy concerns the correct application
of law or jurisprudence to a certain set of facts; or when the issue does not call for an
examination of the probative value of the evidence presented, the truth or falsehood of
facts being admitted. A question of fact exists when the doubt or difference arises as to
the truth or falsehood of facts or when the query invites calibration of the whole
evidence considering mainly the credibility of the witnesses, the existence and
relevancy of specific surrounding circumstances, as well as their relation to each other
and to the whole, and the probability of the situation. 38 (Citation omitted)

Considering that the issue in the instant case is clearly one of law as it calls for the
correct application of the Rules of Court, the petitioner’s direct resort to this Court is
proper.

The Court now looks into the propriety of the order of the RTC in dismissing the case.
Needless to state, the Court is again confronted with the issue of whether the dismissal
of the complaint, specifically upon motion of the plaintiff under Section 2 of Rule 17 of
the Rules of Court also calls for the dismissal of the defendant’s counterclaim, as in the
case at bar.

Rule 17 of the Rules of Civil Procedure provides the following:

SECTION 1. Dismissal upon notice by plaintiff. – A complaint may be dismissed by the

plaintiff by filing a notice of dismissal at any time before service of the answer or of a
motion for summary judgment. Upon such notice being filed, the court shall issue an
order confirming the dismissal. Unless otherwise stated in the notice, the dismissal is
without prejudice, except that a notice operates as an adjudication upon the merits
when filed by a plaintiff who has once dismissed in a competent court an action based
on or including the same claim.

SECTION 2. Dismissal upon motion of plaintiff. – Except as provided in the preceding

section, a complaint shall not be dismissed at the plaintiff’s instance save upon approval
of the court and upon such terms and conditions as the court deems proper. If a
counterclaim has been pleaded by a defendant prior to the service upon him of the
plaintiff’s motion for dismissal, the dismissal shall be limited to the complaint. The
dismissal shall be without prejudice to the right of the defendant to prosecute his
counterclaim in a separate action unless within fifteen (15) days from notice of the
motion he manifests his preference to have his counterclaim resolved in the same
action. Unless otherwise specified in the order, a dismissal under this paragraph shall
be without prejudice. A class suit shall not be dismissed or compromised without the
approval of the court.

SECTION 3. Dismissal due to fault of plaintiff. – If, for no justifiable cause, the plaintiff
fails to appear on the date of the presentation of his evidence in chief on the complaint,
or to prosecute his action for an unreasonable length of time, or to comply with these
Rules or any order of the court, the complaint may be dismissed upon motion of the
defendant or upon the court’s own motion, without prejudice to the right of the defendant
to prosecute his counterclaim in the same or in a separate action. This dismissal shall
have the effect of an adjudication upon the merits, unless otherwise declared by the
court.

SECTION 4. Dismissal of counterclaim, cross-claim, or third- party complaint. – The

provisions of this Rule shall apply to the dismissal of any counterclaim, cross-claim, or
third-party complaint. A voluntary dismissal by the claimant by notice as in Section 1 of
this Rule, shall be made before a responsive pleading or a motion for summary
judgment is served or, if there is none, before the introduction of evidence at the trial or
hearing.

The RTC granted the Joint Motion to Dismiss upon the behest of Serafin, the plaintiff
therein on the main ground that the case had become moot and academic since his title
to Lot 5357 had been allegedly quieted and the reliefs prayed for were obtained. In the
Order dated October 21, 2002 denying the motion for reconsideration, the RTC
elucidated that:

The Court in issuing the dismissal order dated April 25, 2002 had already made its
position on the matter very clearly such that it finds no reason to disturb the subject
order. As clarified, a party-litigant in a civil action like the plaintiff herein, cannot be
compelled to so continuously litigate his case if he does not want to anymore as was
obtaining in this case. More so that the principal reliefs prayed for in the complaint had
already been served as was so admitted by the plaintiff. Being so, this Court finds it
repugnant to go on with the hearing of movant’s-defendant’s counterclaim for what is to
be countered by the movant when the claim of the plaintiff, at his own instance, had
already been dismissed it having been served and satisfied as aforestated. And this is
so because what is contemplated under the Rules authorizing the hearing of
defendant’s counterclaim is when the dismissal is not at the instance of the plaintiff. 39

As can be gleaned from the assailed orders, the RTC erred when it dismissed the case
when the present rules state that the dismissal shall be limited only to the
complaint.1âwphi1 A dismissal of an action is different from a mere dismissal of the
complaint. For this reason, since only the complaint and not the action is dismissed, the
defendant in spite of said dismissal may still prosecute his counterclaim in the same
action.40 The case of Pinga v. Heirs of German Santiago 41 is quite instructive which this
Court finds worth reiterating. In Pinga, the Court clearly stated that the dismissal of the
complaint does not necessarily result to the dismissal of the counterclaim, abandoning
the rulings in Metals Engineering Resources Corporation v. Court of
Appeals,42 International Container Terminal Services, Inc. v. Court of Appeals, 43 and BA
Finance Corporation v. Co.44 The Court held that:

At present, even Section 2, concerning dismissals on motion of the plaintiff, now

recognizes the right of the defendant to prosecute the counterclaim either in the same
or separate action notwithstanding the dismissal of the complaint, and without regard as
to the permissive or compulsory nature of the counterclaim.

In his commentaries on the 1997 Rules of Civil Procedure, Justice Regalado expounds
on the effects of the amendments to Section 2 and 3 of Rule 17:

2. Under this revised section [2], where the plaintiff moves for the dismissal of his
complaint to which a counterclaim has been interposed, the dismissal shall be limited to
the complaint. Such dismissal shall be without prejudice to the right of the defendant to
either prosecute his counterclaim in a separate action or to have the same resolved in
the same action. Should he opt for the first alternative, the court should render the
corresponding order granting and reserving his right to prosecute his claim in a separate
complaint. Should he choose to have his counterclaim disposed of in the same action
wherein the complaint had been dismissed, he must manifest such preference to the
trial court within 15 days from notice to him of plaintiff’s motion to dismiss. These
alternative remedies of the defendant are available to him regardless of whether his
counterclaim is compulsory or permissive. x x x.45 (Italics in the original)

In the instant case, the petitioner’s preference to have his counterclaim (and cross-
claims) be prosecuted in the same action was timely manifested. The records show that
Serafin and Leopolda furnished the petitioner’s counsel with a copy of their Joint Motion
to Dismiss by posting it (via registered mail) on September 19, 2001. 46 Said motion was
filed in court the following day. 47 On October 4, 2001, the petitioner filed his
Opposition/Comment thereto.48 Copies of the said opposition were personally served
upon the opposing parties on the same date. 49 In paragraph 1.550 of said opposition, the
petitioner expressed his preference to have his counterclaim and cross-claim
prosecuted in the same case, as he thus stated:

1.5 That the undersigned defendant manifest to this Honorable Court of his preference
that the above[ ]counterclaims and cross-claims be resolved in the present case. 51

There are valid reasons why the petitioner vehemently objected to the dismissal of the
case upon the joint motion of Serafin and Leopolda and insisted to have his
counterclaim prosecuted in the same action.

Serafin instituted the instant case due to the existence of certain documents affecting
his title, namely: Henry’s Affidavit of Self-Adjudication with Deed of Sale which names
Leopolda as the buyer; and Tax Declaration No. 01532 which was issued in the name of
the latter. In his Affidavit of Self-Adjudication, Henry transferred whatever right and
interest he had on the subject lot to Leopolda. Subsequently, by reason of the amicable
settlement between Serafin and Leopolda, the latter waived and abandoned all her
rights to Lot 5357.

On the other hand, the petitioner asserts that the subject property was never transferred
nor encumbered to any person during Antonio’s lifetime. He insists that the deed of sale
in favor of Spouses Cabansag is simulated and spurious, and was intended to defraud
the estate of Antonio. Further, he asserts that said Spouses Cabansag are mere
creations of Serafin.
Forthwith, the foregoing contentions touch on the very merits of the case which this
Court is not prepared to rule upon for want of sufficient factual basis since this case was
dismissed by the RTC even before the parties were able to present their evidence on
the merits. Nonetheless, the records show that Serafin had been aware of the
petitioner’s claim over the property as descendants of Antonio and Dy Ochay even
before the institution of this case, which was why he impleaded the petitioner in this
case. Then, the Joint Motion to Dismiss was filed by Serafin and Leopolda on the
ground that both parties were able to settle their differences. It is rather intriguing that in
said joint motion, it was alleged that Serafin was already able to secure a certificate of
title in his name dated July 26, 2001 and that both parties agreed for its cancellation and
have a title over said property issued in their common names. 52 Clearly, the petitioner
was peremptorily left out of the picture. From the case’s inception, the petitioner’s
interests and that of his siblings over the subject property were vigilantly defended as
evidenced by the numerous and exchange of pleadings made by the parties. It can not
therefore be denied that the petitioner has certainly valid defenses and enforceable
claims against the respondents for being dragged into this case. Thus, the petitioner’s
manifestation of his preference to have his counterclaim prosecuted in the same action
is valid and in accordance with Section 2, Rule 17 of the Rules of Court.

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

Orders dated April 25, 2002 and October 21, 2002 of the Regional Trial Court ofLapu-
lapu City, Branch 27 in Civil Case No. 4786-L are MODIFIEDthatin the counterclaim of
Lim Teck Chuan as defendant in Civil Case No. 4786-L is REINSTATED. The Regional
Trial Court is ORDERED to hear and decide Lim Teck Chuan's counterclaim with
dispatch.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

G.R. No. 189532               June 11, 2014

VIRGINIA S. DIO and H.S. EQUITIES, LTD., Petitioners,
vs.
SUBIC BAY MARINE EXPLORATORIUM, INC., represented by its Chairman and
Chief Executive Officer, TIMOTHY DESMOND, Respondents.

DECISION

PEREZ, J.:

This is a Petition for Review on Certiorari 1 pursuant to Rule 45 of the Revised Rules of
Court, assailing the 3 April 2009 Order 2 of the Regional Trial Court (RTC) of Balanga
City, Bataan, on pure question of law. In its assailed Order, the RTC denied the motion
filed by petitioners to set their counterclaims for hearing on the ground that the main
case was already dismissed with finality by the Court of Appeals in CA-G.R. CV No.
87117.

In an Order3 dated 26 August 2009, the RTC refused to reconsider its earlier

disposition.

The Facts

Petitioner H.S. Equities, Ltd., (HSE) is a foreign corporation duly organized and existing
under the laws of the British Virgin Islands, with registered address at Akara Building,
24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands. It
entered into an isolated transaction subject of the instant case. It is represented in this
action by petitioner Virginia S. Dio (Dio).

Respondent Subic Bay Marine Exploratorium, Inc. (SBME) is a domestic corporation,

duly organized and existing under the Philippine laws and is represented in this action
by its Chief Executive Officer, respondent Timothy Desmond (Desmond).

In 2002, SBME decided to expand its business by operating a beach resort inside the
property administered by the Subic Bay Metropolitan Authority (SBMA). For the
business venture to take off, SBME needed to solicit investors who are willing to infuse
funds for the construction and operation of the beach resort project. HSE (formerly
known as Westdale Assets Limited) thru its authorized director, Dio, agreed to invest
the amount of US$2,500,000.00 with SBME by purchasing 750,000 common shares
with a par value of ₱100 per share from the increase in its authorized capital stock. The
agreement was reduced into writing wherein HSE, in order to protect its interest in the
company, was afforded minority protection rights such as the right to appoint a member
of the board of directors and the right to veto certain board resolutions. After HSE
initially paid US$200,000.00 for its subscription, it refused to further lay out money for
the expansion project of the SBME due to the alleged mismanagement in the handling
of corporate funds.

Consequently, SBME initiated an intra-corporate dispute before the RTC of Balanga

City, Bataan against petitioners HSE and Dio. 4 Before petitioners could file their answer
to the complaint, respondents impleaded its Corporate Secretary, Atty. Winston Ginez,
as additional defendant. In their Amended Complaint 5 docketed as Civil Case No. 7572,
SBME essentially alleged that HSE unjustly refused to pay the balance of its unpaid
subscription effectively jeopardizing the company’s expansion project. Apart from their
refusal to honor their obligation under the subscription contract, it was further alleged by
SBME that Dio tried to dissuade local investors and financial institutions from putting in
capital to SBME by imputing defamatory acts against Desmond. To protect the interest
of the corporation and its stockholders, SBME sought that petitioners be enjoined from
committing acts inimical to the interest of the company.
To refute the claims of respondents, petitioners maintained in their Answer with
Compulsory Counterclaim6 that it would be highly preposterous for them to dissuade
investors and banks from putting in money to SBME considering that HSE and Dio are
stakeholders of the company with substantial investments therein. In turn, petitioners
countered that their reputation and good name in the business community were
tarnished as a result of the filing of the instant complaint, and thus prayed that they be
indemnified in the amount of US$2,000,000.00 as moral damages. Constrained to
litigate to protect their rights, petitioners asked that they be indemnified in the amount
of₱1,000,000.00 in litigation expenses. Petitioners likewise sought to recover their
investment of US$1,500,000.00 since they were purportedly inveigled by Desmond into
putting in money to SBME under the pretext that they will be accorded with minority
protection rights. It was alleged that after the filing of the instant complaint, Desmond, in
collusion with other Board of Directors of SBME, managed to unjustly deny HSE and
Dio their rights under the Subscription Agreement. To curb similar socially abhorrent
actions, petitioners prayed that SBME and its Board of Directors, namely, Desmond,
John Corcoran, Gaile Laule and Gregorio Magdaraog, be jointly and severally held
liable to pay exemplary damages in the amount of US$2,000,000.00.

After petitioners filed their Answer with Compulsory Counterclaim, the RTC, instead of
setting the case for pre-trial, issued an Order 7 dated 15 August 2005 motu proprio
dismissing Civil Case No. 7572. The dismissal was grounded on the defective certificate
of non-forum shopping which was signed by Desmond without specific authority from
the Board of Directors of SBME.

Armed with a board resolution specifically authorizing Desmond to sign the certificate of
non-forum shopping on behalf of SBME, respondents moved that Civil Case No. 7572
be reinstated and further proceedings thereon be conducted. A copy of such authority
was attached by respondents to their Motion for Reconsideration.

For lack of merit, RTC denied respondents’ motion and affirmed the dismissal in an
Order8 dated 22 September 2005. In refusing to reinstate respondents’ complaint, the
court a quo ruled that the belated submission of a board resolution evidencing
Desmond’s authority to bind the corporation did not cure the initial defect in the
complaint and declared that strict compliance with procedural rules is enjoined for the
orderly administration of justice.

Aggrieved by the lower court’s refusal to reinstate their complaint, respondents elevated
the matter before the Court of Appeals assailing the propriety of the 15 August 2005
and 22 September 2005 RTC Orders via Petition for Review which was docketed as
CA-G.R. CV No. 87117.

For failure of the respondents to file their appellants’ brief, the appellate court
proceeded to dismiss CA-G.R.CV No. 87117 and considered the case closed and
terminated in its Resolution9 dated 2 January 2007.

After respondents failed to seasonably move for the reconsideration of the

aforementioned Resolution, the dismissal of CA-G.R. CV No. 87117 became final and
executory, as shown in the Entry of Judgment10 dated 3 May 2007.

The procedural incidents before the appellate court having been resolved with finality,
petitioners went back to the RTC to file a motion to set their counterclaims for
hearing11 which was opposed by the respondents on the ground that the filing of the
compulsory counterclaims was not accompanied by payment of the required docket
fees precluding the court from acquiring jurisdiction over the case. 12

Acting on the motions filed by the opposing parties, the RTC, in an Order 13 dated 3 April
2009 granted the motion of the respondents, thereby directing the dismissal of
petitioners’ counterclaims but not on the ground of non-payment of docket fees. In
disallowing petitioners’ counterclaims to proceed independently of respondents’
complaint, the lower court pointed out that in view of the dismissal of the main case,
which has already been affirmed with finality by the appellate court, it has already lost
its jurisdiction to act on petitioners’ counterclaim, the compulsory counterclaim being
merely ancillary to the principal controversy.

In an Order14 dated 26 August 2009, the RTC refused to reconsider its earlier

disposition. Petitioners filed this instant Petition for Review on Certiorari 15 on pure
question of law seeking the reversal of the 3 April 2009 and 26 August 2009 RTC
Orders on the ground that:

THE TRIAL COURT COMMITTED AN ERROR OF LAW WHEN IT REFUSED TO SET

[PETITIONERS’] COUNTERCLAIMS FOR HEARING ON THE GROUND THATTHE
CASE WAS DEEMED "CLOSED AND TERMINATED" BYTHE COURT OF APPEALS
AFTER THE LATTER DISMISSED RESPONDENTS’ APPEAL BECAUSE OF THEIR
FAILURE TOFILE THEIR APPELLANTS’ BRIEF. 16

The Court’s Ruling

Petitioners argue that despite the dismissal of the main case, the counterclaim may still
remain for independent adjudication under Section 6, Rule 16 of the Revised Rules of
Court.17 Petitioners pointed out that while the dismissal of respondents’ complaint is a
confirmation of Desmonds’ lack of legal personality to file the case, this does not,
however, mean that they also do not have the qualification to pursue their counterclaim.
To fault petitioners for the fatal infirmity in the respondents’ complaint would not only
work injustice to the former but would result to an absurd situation where the fate of
their counterclaims is placed entirely in the hands of the respondents.

For their part, respondents posit that, in directly assailing the adverse RTC Orders
before the Court, petitioners erroneously availed themselves of an erroneous remedy
arguing that this petition should have been initially filed with the appellate court. By
seeking relief directly from the Court, petitioners ignored the judicial hierarchy
warranting the peremptory dismissal of their petition. Unless special and important
reasons were clearly and specifically set out in the petition, and in this case it was not, a
direct invocation of this Court’s original jurisdiction may not be allowed.

The established policy of strict observance of the judicial hierarchy of courts, as a rule,
requires that recourse must first be made to the lower ranked court exercising
concurrent jurisdiction with a higher court. A regard for judicial hierarchy clearly
indicates that petitions for the issuance of extraordinary writs against first level courts
should be filed in the RTC and those against the latter should be filed in the Court of
Appeals. The rule is not iron-clad, however, as it admits of certain exceptions. 18

Thus, a strict application of the rule is unnecessary when cases brought before the
appellate courts do not involve factual but purely legal questions. 19 In fact, Rule 41,
Section 2(c)20 of the Revised Rules of Court provides that a decision or order of the
RTC may as it was done in the instant case, be appealed to the Supreme Court by
petition for review on certiorari under Rule 45, provided that such petition raises only
questions of law.

A question of law exists when the doubt or controversy concerns the correct application
of law or jurisprudence to a certain set of facts; or when the issue does not call for the
examination of the probative value of the evidence presented, the truth or falsehood of
facts being admitted. A question of fact exists when the doubt or difference arises as to
the truth or falsehood of facts or when the query invites calibration of the whole
evidence considering mainly the credibility of the witnesses, the existence and
relevancy of specific surrounding circumstances, as well as their relation to each other
and to the whole, and the probability of the whole situation. 21 Thus, the test of whether a
question is one of law or of fact is not the appellation given to such question by the party
raising the same; rather, it is whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence, in which case, it is a question of law;
otherwise it is a question of fact.22

Petitioners here raise the solitary issue of the propriety of the dismissal of their
counterclaim on the basis of the reasoning of the lower court that the counterclaim
derives its jurisdictional support from the complaint which has already been dismissed.
Petitioners maintain that the court a quo erred in arriving at the legal conclusion that the
counterclaim can no longer stand for independent adjudication after the main case was
already dismissed with finality. In order to resolve this issue, the Court need only to look
into the pleadings, depositions, admissions, and affidavits submitted by the respective
parties without going into the truth or falsity of such documents. Consequently, the
petitioners’ remedy for assailing the correctness of the dismissal of their counterclaims,
involving as it does a pure question of law, indeed lies with this Court. Now to the issue
of the propriety of the dismissal of the counterclaim.

The dismissal of the complaint resulted from respondents’ failure to append to the
complaint a copy of the board resolution authorizing Desmond to sign the certificate of
non-forum shopping on behalf of SBME. The subsequent dismissal of the counterclaim,
in turn, erroneously proceeded from the ratio that since the main action has already
been dismissed with finality by the appellate court, the lower court has lost its
jurisdiction to grant any relief under the counterclaim.

In the significant case of Pinga v. Heirs of German Santiago, 23 this Court speaking
through Justice Dante Tinga, resolved the nagging question as to whether or not the
dismissal of the complaint carries with it the dismissal of the counterclaim. Putting to
rest the remaining confusion occasioned by Metals Engineering Resources Corp. v.
Court of Appeals24 and BA Finance Corporation v. Co, 25 the Court articulated that, in
light of the effectivity of the 1997 Rules of Civil Procedure, the correct and prevailing
doctrine is as follows:

To be certain, when the Court promulgated the 1997 Rules of Civil Procedure, including
the amended Rule17, those previous jural doctrines that were inconsistent with the new
rules incorporated in the 1997 Rules of Civil Procedure were implicitly abandoned
insofar as incidents arising after the effectivity of the new procedural rules on 1 July
1997. BA Finance, or even the doctrine that a counterclaim may be necessarily
dismissed along with the complaint, clearly conflicts with the 1997 Rules of Civil
Procedure. The abandonment of BA Finance as doctrine extends as far back as 1997,
when the Court adopted the new Rules of Civil Procedure. If, since then, such
abandonment has not been affirmed in jurisprudence, it is only because no proper case
has arisen that would warrant express confirmation of the new rule. That opportunity is
here and now, and we thus rule that the dismissal of a complaint due to fault of the
plaintiff is without prejudice to the right of the defendant to prosecute any pending
counterclaims of whatever nature in the same or separate action. We confirm that BA
Finance and all previous rulings of the Court that are inconsistent with this present
holding are now abandoned.

xxxx

Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more
equitable disposition of the counterclaims by ensuring that any judgment thereon is
based on the merit of the counterclaim itself and not on the survival of the main
complaint. Certainly, if the counterclaim is palpably without merit or suffers jurisdictional
flaws which stand independent of the complaint, the trial court is not precluded from
dismissing it under the amended rules, provided that the judgment or order dismissing
the counterclaim is premised on those defects. At the same time, if the counterclaim is
justified, the amended rules now unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the complaint. 26 Reviewing the
vacated position, in Metals Engineering Resources Corp., severance of causes of action
was not be permitted in order to prevent circuity of suits and to avert the possibility of
inconsistent rulings based on the same set of facts, viz:

For all intents and purposes, such proposition runs counter to the nature of a
compulsory counterclaim in that it cannot remain pending for independent adjudication
by the court. This is because a compulsory counterclaim is auxiliary to the proceeding in
the original suit and derives its jurisdictional support therefrom, inasmuch as it arises out
of or is necessarily connected with the transaction or occurrence that is the subject
matter of the complaint. It follows that if the court does not have jurisdiction to entertain
the main action of the case and dismisses the same, then the compulsory counterclaim,
being ancillary to the principal controversy, must likewise be dismissed since no
jurisdiction remained for any grant of relief under the counterclaim.

The aforementioned doctrine is in consonance with the primary objective of a

counterclaim which is to avoid and prevent circuity of action by allowing the entire
controversy between the parties to be litigated and finally determined in one action,
wherever this can be done with entire justice to all parties before the court. The
philosophy of the rule is to discourage multiplicity of suits.1âwphi1 It will be observed
that the order of the trial court allowing herein private respondent to proceed with the
presentation of his evidence in support of the latter's counterclaim is repugnant to the
very purpose and intent of the rule on counterclaims. 27

In BA Finance Corporation, we likewise refused to entertain the compulsory

counterclaim after the trial court lost its jurisdiction in the main case, thus:

The rule is that a compulsory counterclaim cannot "remain pending for independent
adjudication by the court." This is because a compulsory counterclaim is auxiliary to the
proceeding in the original suit and merely derives its jurisdictional support therefrom.

Thus, it necessarily follows that if the trial court no longer possesses jurisdiction to
entertain the main action of the case, as when it dismisses the same, then the
compulsory counterclaim being ancillary to the principal controversy, must likewise be
similarly dismissed since no jurisdiction remains for the grant of any relief under the
counterclaim.28

As the rule now stands, the nature of the counterclaim notwithstanding, the dismissal of
the complaint does not ipso jure result in the dismissal of the counterclaim, and the
latter may remain for independent adjudication of the court, provided that such
counterclaim, states a sufficient cause of action and does not labor under any infirmity
that may warrant its outright dismissal. Stated differently, the jurisdiction of the court
over the counterclaim that appears to be valid on its face, including the grant of any
relief thereunder, is not abated by the dismissal of the main action. The court’s authority
to proceed with the disposition of the counterclaim independent of the main action is
premised on the fact that the counterclaim, on its own, raises a novel question which
may be aptly adjudicated by the court based on its own merits and evidentiary support.

In Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporartion, 29 a case on all fours
with the present one, we expounded our ruling in Pinga and pointed out that the
dismissal of the counterclaim due to the fault of the plaintiff is without prejudice to the
right of the defendant to prosecute any pending counterclaims of whatever nature in the
same or separate action, thus: Based on the aforequoted ruling of the Court, if the
dismissal of the complaint somehow eliminates the cause of the counterclaim, then the
counterclaim cannot survive. Conversely, if the counterclaim itself states sufficient
cause of action then it should stand independently of and survive the dismissal of the
complaint. Now, having been directly confronted with the problem of whether the
compulsory counterclaim by reason of the unfounded suit may prosper even if the main
complaint had been dismissed, we rule in the affirmative.

It bears to emphasize that petitioner's counterclaim against respondent is for damages

and attorney's fees arising from the unfounded suit. While respondent's Complaint
against petitioner is already dismissed, petitioner may have very well already incurred
damages and litigation expenses such as attorney's fees since it was forced to engage
legal representation in the Philippines to protect its rights and to assert lack of
jurisdiction of the courts over its person by virtue of the improper service of summons
upon it. Hence, the cause of action of petitioner's counterclaim is not eliminated by the
mere dismissal of respondent's complaint.30 (Emphasis theirs).

Once more, we allow the counterclaim of the petitioners to proceed independently of the
complaint of the respondents.

WHEREFORE, premises considered, the petition is GRANTED. The assailed R TC

Orders dated 3 April 2009 and 26 August 2009 are hereby REVERSED and SET
ASIDE. The case is REMANDED to the Regional Trial Court of Balanga City, Bataan for
further proceedings, on the matter of petitioners Virginia S. Dio and H.S. Equities, Ltd. 's
counterclaims. No pronouncement as to costs.

SO ORDERED.