Supreme Court of the Philippines

151 Phil. 338

G.R. No. L-22578, January 31, 1973

NATIONAL MARKETING CORPORATION, PLAINTIFF-APPELLEE, VS. FEDERATION OF

UNITED NAMARCO DISTRIBUTORS, INC., DEFENDANT-APPELLANT.

DECISION

ANTONIO, J.:

Appeal by defendant, Federation of United Namarco Distributors, Inc., from a decision of the
Court of First Instance of Manila in Civil Case No. 46124, ordering said defendant to pay the
plaintiff, National Marketing Corporation, the sum of P609,014.73, representing the cost of
merchandise delivered to, and not paid for by, the defendant, with interest thereon at the legal
rate from the date of delivery of the merchandise, until the whole obligation is paid; and the sum
of P5,000.00, for and as attorney's fees and other expenses of litigation, plus costs.

The facts of this case, which are not disputed by the parties, are correctly set forth in the
appealed decision from which we reproduce hereunder, as follows:

"The plaintiff, hereinafter to be called the NAMARCO, is a government owned and controlled
corporation duly organized and existing under and by virtue of Republic Act No. 1345, as
amended; and the defendant, hereinafter to be called the FEDERATION, is a non-stock
corporation duly organized and existing under and by virtue of the laws of the Philippines.

On November 16, 1959, the NAMARCO and the FEDERATION entered into a Contract of Sale
which contains the following stipulations, terms and conditions:

'That, WHEREAS, by virtue of NAMARCO Board Resolution dated November 3, 1959, the
Management of NAMARCO was authorized to import the following items with the
corresponding dollar value totalling Two Million One Thousand Thirty One Dollars
($2,001,031.00) to wit;

xxx xxx xxx

'That, WHEREAS, for and in consideration of the sum of Two Hundred Thousand Pesos
(P200,000.00) as part payment of the items and/or merchandise above-mentioned, and deposited
by the FEDERATION with the NAMARCO upon signing of the items and/or merchandise
above enumerated items and/or merchandise shall be paid on cash basis upon delivery of the
duly indorsed negotiable shipping document covering the same, the NAMARCO agrees to sell
the said items and/or merchandise, subject to the following terms and conditions:

'1. That the FEDERATION shall pay the NAMARCO the value of the goods equivalent to the
procurement costs plus 5% mark-up, provided, however, that should there be any adjustment in
the procurement costs the same shall be refunded to the FEDERATION.

C2. That all handling and storage charges of the goods sold shall be for the account of the
FEDERATION.

'3. That the FEDERATION waives its right to claim for any loss or damage that may be suffered
due to force majeure such as war, riots, strikes, etc., except when such incident is directly or
indirectly due to the negligence of the NAMARCO or its representative;

'4. That the items and/or merchandise sold by NAMARCO to the FEDERATION shall be
distributed among its members and retailers in accordance with NAMARCO's existing rules and
regulations governing the distribution of NAMARCO goods and at the wholesale and retail
prices to be determined by NAMARCO.

xxx xxx xxx

(Annex 'A' to the Complaint or Exh. 'A').

"Among the goods covered by the Contract of Sale were 2,000 cartons of PK Chewing Gums,
1,000 cartons of Juicy Fruit Chewing Gums, 500 cartons of Adams Chicklets, 168 cartons of
Blue Denims, and 138 bales of Khaki Twill.

"To insure the payment of those goods by the FEDERATION, the NAMARCO accepted three
domestic letters of credit, to wit: PNB Domestic L/C No. 600570, dated January 27, 1960, in
favor of the NAMARCO for the account of the FEDERATION, available by draft up to the
aggregate amount of P277,357.91, covering the full invoice value of the 2,000 cartons PK-5
Chewing Gums, 1,000 cartons of Juicy Fruit Chewing Gums, and 500 cartons of Adams
Chicklets; PNB Domestic L/C No. 600606, dated January 28, 1960, in favor of the NAMARCO
for the account of the FEDERATION, available by draft up to the aggregate amount of
P135,891.82? covering the full invoice value of the 168 cartons of Blue Denims; and PNB
Domestic L/C No. 600586, dated January 28, 1960, in favor of the NAMARCO for the account
of the FEDERATION, available by draft up to the aggregate amount of P197,804.12, covering
the full invoice value of the 183 bales of Khaki Twill, each to be accompamed by statement of
account of buyer issued by. the NAMARCO, accepted draft and duly executed trust receipt
approved by the Philippine National Bank.
"Upon arrival of the goods in Manila in January, 1960, the NAMARCO submitted to the
FEDERATION Statement of Account for P277.357.91, covering shipment of the 2,000 cartons
of PK Chewing Gums, 1,000 cartons of Juicy Fruit Chewing Gums, and 500 cartons of Adams
Chicklets; Statement of Account of P135,891.32, covering shipment of the 168 cartons of Blue
Denims; and Statement of Account of P197,824.12, covering shipment of the 183 bales of Khaki
Twill, or a total of P611,053.35, for the FEDERATION to pay.

"On January 29, 1960, the FEDERATION received from the NAMARCO the 2,000 cartons of
PK Chewing Gums, 1,000 cartons of Juicy Fruit Chewing Gums, and 500 cartons of Adams
Chicklets, all with a total value of P277,357.91, under the condition that the cost thereof would
be paid in cash through PNB Domestic L/C No. 600570; and on February 20, I960, the
FEDERATION received from the NAMARCO the 168 cartons of Blue Denims and 183 bales of
Khaki Twill, with a total value of P135,891.82 and P197,804.12, respectively, under the
condition that the cost thereof would be paid in cash through PNB Domestic L/C Nos. 600606
and 600586, respectively.

"On March 2, 1960, the FEDERATION and some of its members filed a complaint against the
NAMARCO, which became Civil Case No. 42684 of this Court, for specific performance and
damages, alleging that after the NAMARCO had delivered a great portion of the goods listed in
the Contract of Sale, it refused to deliver the other goods mentioned in the said contract. The
pertinent allegations of the complaint in that case is, as follows:

'17. That now the defendant has refused and declined to accept the cash payments by the
FEDERATION, in accordance with the terms and conditions stipulated,in said contract, Annex
'A' hereof, against deliveries to it of the commodities listed in paragraph 16 hereof, and has
refused and declined to make deliveries thereof to the FEDERATION, in accordance with such
terms and conditions; and that the plaintiffs have always been, and still are willing to take
deliveries of the same commodities and to pay for them, through the FEDERATION, in
accordance with the terms and conditions, of said contract' (Exh. 'Is)

"On March 10, 1960, the NAMARCO presented to the Philippine National Bank, Manila, for
payment Sight Draft, dated March 10, 1960, for P277,357.91, to cover the full payment of the
2,000 cartons of PK Chewing Gums, 1,000 cartons of Juicy Fruit Chewing Gums, and 500
cartons of Adams Chicklets, duly accompanied with supporting papers; Sight Draft, dated March
10, 1960, for P135.891.82, to cover the full payment of the 168 cartons of Blue Denims, duly
accompanied with supporting papers; and Sight Draft, dated March 10, 1960, for P197,804.12, to
cover the full payment of 183 bales of Khaki Twill, duly accompanied with supporting papers.

"On March 19, 1960, the NAMARCO filed in Civil Case No. 42684 its answer to the complaint,
alleging that the Contract of Sale was not validly entered into by the NAMARCO and, therefore,
it is not bound by the provisions thereof, without setting up any counterclaim for the value of the
goods which it had already delivered but which had not yet been paid for by the FEDERATION.
"On May 19, 1960, the Philippine National Bank informed the NAMARCO that it could not
negotiate and effect payment on the sight drafts drawn under PNB Domestic L/C Nos. 600570,
600606 and 600586, in the amounts of P277.357.91, P135.891.82 and P197,804.12, respectively,
as the requirements of the covering letters of credit had not been complied with. The common
condition of the three letters of credit is that the sight drafts drawn on them must be duly
accepted by the FEDERATION before they will be honored by the Philippine National Bank.
But the said drafts were not presented to the FEDERATION for acceptance.

"On June 7, I960, the NAMARCO demanded from the FEDERATION the payment of the total
amount of P611,053.35, but the latter failed and refused to -pay the said amount, or any portion
thereof, to the NAMARCO.

"In the readjustment made on the basis of actual expenditures, the total cost of the goods was
reduced from P611.053.35 to P609,014.73.

On October 15, 1960, the Court of First Instance of Manila promulgated its decision in Civil
Case No. 42684, ordering the NAMARCO to specifically perform its obligation in the Contract
of Sale, by delivering to the FEDERATION the undelivered goods.

"On November 11, 1960, the NAMARCO appealed from the decision. On March 31, 1962, the
Supreme Court1 rendered a decision on NAMARCO's appeal in Civil Case No. 42684, holding
that the Contract of Sale was valid." (Record on Appeal, pp. 63-71, Civil Case No. 46124.)

On January 25, 1961, NAMARCO instituted the present action (Civil Case No. 46124) alleging,
among others, that the FEDERATION'S act or omission in refusing to satisfy the former's valid,
just and demandable claim has compelled it to file the instant action; and praying that the
FEDERATION be ordered to pay the NAMARCO the sum of P611,053.35, representing the cost
of merchandise mentioned in the preceding paragraph, with interest thereon at the legal rate from
the date of delivery of the merchandise in question, until the whole obligation is paid;
P20,000.00 as attorney's fees, and other expenses of litigation, plus costs.

On February 7, 1961, the FEDERATION moved to dismiss the complaint on the ground that the
cause of action alleged therein is barred forever, pursuant to Section 6 of Rule 10 of the Rules of
Court. In support thereof, the FEDERATION alleged that on March 2, 1960, the FEDERATION
and some of its members instituted Civil Case No. 42684 against NAMARCO for specific
performance to enforce compliance with the contract of sale; that said contract, basis of Civil
Case No. 42684, is also the basis of NAMARCO's present complaint in Civil Case No. 46124;
that when NAMARCO filed, on March 19, 1960, its answer to the complaint in Civil Case No.
42684, it did not set up any counterclaim therein; that on October 15, 1960, the Court of First
Instance of Manila promulgated the decision in said Civil Case No. 42684, ordering, among
others, the NAMARCO to specifically perform its obligation under the contract of sale by
delivering to the FEDERATION the goods subject-matter of the contract as are involved in the
complaint; that the claim of NAMARCO against the FEDERATION matured either on May 19,
1960 when the Philippine National Bank, Manila, informed the NAMARCO that it could not
effect payment on the sight drafts, or on June 7, 1969 when NAMARCO demanded payment of
the sum of P611,053.35; that the FEDERATION refused to pay said amount; that NAMARCO's
claim in the present case, Civil Case No. 46124, against the FEDERATION alone, being a
compulsory counterclaim against the latter, in that it arose out of or is necessarily connected with
the transaction or occurrence that is the subject-matter of the action of the FEDERATION in
Civil Case No. 42684 against the NAMARCO and therefore it must have been set up in said
Civil Case No. 42684 in the manner prescribed by Section 4, Rule 10 of the Rules of Court, and
within the time between March 19, 1960, the date of filing, in Civil Case No. 42684, of the
answer of NAMARCO, and October 15, 1960, the date of the decision in that case; and that the
failure of NAMARCO to set up, in said Civil Case No. 42684, such a counterclaim, precludes
NAMARCO from raising it as an independent action, pursuant to Section 6 of Rule 10 of the
Rules of Court.

On February 11, 1961, NAMARCO interposed its opposition to said motion to dismiss
contending that its claim for the recovery of the cost of merchandise delivered to the
FEDERATION on January 29 and February 20, 1960 is not necessarily connected with the suit
in Civil Case No. 42684 for specific performance and, therefore, does not fall under the category
of compulsory counterclaim; that NAMARCO's failure to set it up as a counterclaim in its
answer in Civil Case No. 42684 does not constitute res judicata; that the deliveries of the
merchandise were effected through the fault or negligence of one of its personnel, Juan T. Arive,
who was administratively charged therefor, found guilty and accordingly dismissed; that the
issue in Civil Case No. 42684, was the genuineness and due execution of said contract as the
same was entered into by the General Manager of the NAMARCO without the knowledge,
consent and approval of the Board of Directors and that the same was not approved by the
Auditor General conformably with Administrative Order No. 290 dated February 3, 1959 of the
President of the Philippines and therefore it would have been inconsistent for NAMARCO to
avail itself of the contract the validity of which it was impugning, to enforce its claim; and that
the present claim is not necessarily connected with the transaction or occurrence that is the
subject matter of Civil Case No. 42684, as the same evidence would not support or refute both.

On February 18, 1961, the FEDERATION filed a rejoinder reiterating that the requirements on
the rule of compulsory counterclaim are present; that the first requirement — that the
counterclaim arises out of or is necessarily connected with the contract of sale subject-matter of
NAMARCO's cause of action — is evident from the face of the complaint itself.

On June 3, 1961, the lower court issued an order holding "in abeyance" action on the motion to
dismiss till after the trial on the merits.

On June 14, 1961, the FEDERATION filed its answer to the NAMARCO's complaint admitting
some material averments of the complaint, specifically denying other allegations and consistently
with its position averred as affirmative defense that NAMARCO's failure to assert its claim
against the FEDERATION before judgment in Civil Case No. 42684 on October 15, 1960
constituted a bar to the institution of the present action. By way of counterclaim, the
FEDERATION sought P50,000.00 as attorney's fees and other expenses of litigation, as well as
P17,000.00 as damages for improper issuance of a writ of attachment which writ, evidently had
been issued earlier by the court.

On June 21, 1961, NAMARCO filed an answer to the FEDERATION'S counterclaim

specifically denying the material averments thereof and maintaining that the present action is not
barred by Civil Case No. 42684.

On January 13, 1964, after due hearing, the lower court rendered its aforementioned decision.
Hence, the present appeal.

In this appeal, the FEDERATION contends that:

"The lower court erred in failing to hold that the complaint does not state a cause of action
against the defendant-appellant;

II

"The lower court erred in holding that the plaintiff-appellee's claim is not a compulsory
counterclaim as defined and governed by Section 6, Rule 10 of the old Rules of Court (Section 4,
Rule 9 of the new);

III

"The lower court erred in entering judgment in favor of the plaintiff-appellee and ordering
defendant-appellant to pay the former the sum of P609,014.73 with interest thereon at the legal
rate from the date of delivery of the merchandise, and the sum of P5,000.00 for and as attorney's
fees and other expenses of litigation, with costs."

We shall first proceed because of its decisive significance, with the issue posed by appellant in
its second assignment of error * * * whether or not this action of NAMARCO for the collection
of the payment of the merchandise delivered to, but not yet paid by, the FEDERATION, is
already barred as a consequence of the failure of NAMARCO to set it up as a counterclaim in the
previous case, (Civil Case No. 42684).

In ruling that the present claim of NAMARCO is not compulsory counterclaim, that should have
been asserted in the previous case the lower court had the following to say:

"As to the meaning of the terms 'transactions' and 'occurrence' used in Section 6, Rule 10, Rules
of Court, Francisco in his annotations and commentaries on the Rules of Court, Vol. I, p. 577,
cites the following:
'The terms 'transaction' and 'occurrence' used in the section now under consideration include the
facts and circumstances out of which a claim may arise, and whether two claims arise out of the
same transaction or occurrence depends in part on whether the same evidence would support or
refute both. (Williams v. Robinson, 3 Federal Rules Service, 174). These terms are broader than
the term 'contract', and authorize matters to be counterclaimed which could not be
counterclaimed as arising out of the contract sued upon by the plaintiff. This is obvious, for
while a contract is a transaction, a transaction is not necessarily a contract. One of the definitions
of the term 'transaction' is, 'a matter of affair either completed or in course of completion,' (Story
etc., Commercial Co. v. Story, 100 Cal. 35, 34 Pac. 671).

'Mr. Pomeroy defines the term as 'that combination of acts and events, circumstances and
defaults which viewed in one aspect results in the plaintiff's right of action, and viewed in
another aspect results in the defendant's right of action. * * * As these two opposing rights
cannot be the same, it follows that there may be, and generally must be, acts, facts, events, and
defaults in the transaction as a whole which do not enter into each cause of action.' Every
transaction is more or less complex, consisting of various facts and acts done by the respective
parties and it frequently happens that one or more of these acts, if viewed by itself, may be such
a violation of duty as to give to the other a right of action; but the obligation thus created may be
so counter-balanced by other matters growing out of the same transaction that no compensation
ought to be made therefor. In such a case, simple equity requires that the respective causes of
action in behalf of each be adjusted in a single suit.' (Story, etc. Commercial Co. v. Story, 100
Cal. 35, 34 Pac. 671).

"What is the 'transaction or occurrence that is the subject-matter of the opposing party's
(FEDERATION'S) claim' in Civil Case No. 42684? It must consist in 'the facts and
circumstances out of which a claim may arise,' or it must be 'that combination of acts and events,
circumstances and defaults which viewed in one aspect results in the plaintiff's right of action,
and viewed in another aspect results in defendant's.right of action.'

"The complaint of the FEDERATION against the NAMARCO in Civil Case No. 42684 was
predicated on the refusal of the latter to perform its obligation under the Contract of Sale. The
refusal of the NAMARCO to perform its obligation under the Contract of Sale is the act or the
event, the circumstance or default, which constitutes the transaction or the occurrence.

"The FEDERATION contends that NAMARCO's claim arose out of that transaction or
occurrence, or was necessarily connected with that transaction or occurrence, because the cause
of action of the FEDERATION in Civil Case No. 42684 and the cause of action of the
NAMARCO in this case are based on the same Contract of Sale.

"But it will be noted that one of the requisites for the application of the rule on compulsory
counterclaim is that the counterclaim should at least be connected with or must arise out of the
transaction or occurrence which gave rise to the opposing party's claim.
"To illustrate the meaning of that requisite, the following cases are cited:

'1. In a former suit, B claimed realty under a will of her deceased husband and L claimed the
same as a forced heir, After judgment dividing the property and requiring B to turn over a part of
the same to L, this suit was brought by B to recover the value of the improvements made on the
property during the time she had possession of the same. Defendant pleaded res adjudicata
alleging that B should have made a counterclaim in the first action. Held: That the former suit
was a petition for the inheritance and the present one being a claim for improvements is in no
wise connected with the principal object of the former litigation and that a counterclaim could
not properly have been presented in the first action (Bautista v. Jimenez, 24 Phil. 111).'

'2. Mariano executed an instrument purporting to be a deed of conveyance of two parcels of land
in favor of Maclan. About a year later, Mariano instituted an action (Civil Case No. 106) against
Maclan for the annulment of the said instrument on the ground of fraud and the recovery of the
property. Judgment was rendered in favor of Mariano. About two years later, Maclan filed a
complaint against Garcia who acquired the property by inheritance from Mariano, for the
purpose of recovering the sum of P5,200.00 as necessary expenses allegedly incurred in the
preservation of said property prior to the commencement of case No. 106, Held: It is clear that
the claim for repairs or necessary expenses allegedly made by Maclan in the property in dispute
in Case No. 106, is necessarily connected with the action of the plaintiff therein to recover said
property from Maclan. Said connection is substantially identical with that which exists between
an action for recovery of a land and the claim for improvements therein made by the defendant in
said case. It is well settled that such claim for improvements is barred unless set up by recovery
of the land (Bautista v. Jimenez, 24 Phil. Ill; Berses v. Villanueva, 25 Phil. 473; Lopez v. Gloria,
40 Phil. 76; Beltran v. Valbuena, 53 Phil. 697; Calit v, Giness and Hernandez, 62 Phil. 451).'

"The right of the NAMARCO to the cost of the goods existed upon delivery of the said goods to
the FEDERATION which, under the Contract of Sale, had to pay for them. Therefore, the claim
of the NAMARCO for the cost of the goods delivered arose out of the failure of the
FEDERATION to pay for the said goods, and not out of the refusal of the NAMARCO to deliver
the other goods to the FEDERATION. The action of the FEDERATION in Civil Case No.
42684, based on the refusal of the NAMARCO to deliver the other goods, had nothing to do with
the latter's claim for the cost of the goods delivered and, hence, such claim was not necessarily
connected therewith. * * *

"The claim of the NAMARCO in this case could have been a permissive counterclaim, but is not
a compulsory counterclaim, in Civil Case No. 42684.

"While the Contract of Sale created reciprocal obligations between the FEDERATION and the
NAMARCO, the refusal of the latter to deliver the other goods was not due to the failure of the
FEDERATION to pay for the goods delivered, but rather to the fact that it believed, as alleged in
its answer in Civil Case No. 42684, that the Contract of Sale was not validiy entered into by it.
Such being the case, the failure of the FEDERATION to pay for the goods delivered could not
have been properly raised by the NAMARCO as a defense or pleaded as a compulsory
counterclaim in Civil Case No. 42684. However, had the NAMARCO alleged its present claim
in Civil Case No. 42684, the Court would have permitted it. A permissive counterclaim is one
which does not arise out of, or is not necessarily connected with, the transaction or occurrence
that is the subject-matter of the opposing party's claim.

"Since the cause of action of the FEDERATION in Civil Case No. 42684 is such that the claim
of the NAMARCO in this case could not properly be pleaded as a compulsory counterclaim in
that case, the NAMARCO is not precluded from bringing this present action. Section 6, Rule 10,
Rules of Court, is not applicable."[2] (Italics supplied.)

This ruling of the court a quo is now assigned as error by the FEDERATION for it is its position
that the previous action which it filed against NAMARCO, for specific performance to compel
NAMARCO to deliver the goods, was predicated upon the contract of sale of/November 16,
1959 executed by the FEDERATION and NAMARCO who are the same parties, both in the
previous case as well as in the present case, (Civil Case No. 46124) and therefore this action
must be considered as having arisen out of or is necessarily connected with the transaction or
occurrence that was the subject matter of the previous case. It is the theory of the FEDERATION
that the applicable guiding principle is "that there be a logical relationship between" plaintiffs
claim and defendant's counterclaim. It insists that "logical relationship" exists between the
previous action for specific performance (Civil Case No. 42684) and NAMARCO's present
action for the payment of the goods delivered as (a) both actions are derived from the same
contract of sale; and (b) the two actions are but the consequences of the reciprocal obligation
imposed by law[3] upon the parties by virtue of the aforesaid contract. The alleged failure of the
FEDERATION to pay for goods delivered should therefore have been raised by NAMARCO as
a defense or counterclaim in the previous case notwithstanding the fact that said claim only
accrued after NAMARCO's answer was filed in said Civil Case No. 42684 because NAMARCO
could have set it up as a counterclaim in a supplemental pleading pursuant to Section 4 of Rule
10 of the old Rules of Court.[4]

On the other hand, NAMARCO insists that the same evidence or substantial identity in the
evidence criterion should be applied in determining whether or not its claim is compulsory, * * *
and on the basis of such test its claim could not be considered compulsory, because: (a) the
evidence presented to support the genuineness and due execution of the contract of sale as
ground for specific performance in Civil Case No. 42684, is not the same as the evidence
presented to support NAMARCO's claim for recovery of the cost of the merchandise received by
the FEDERATION, subject of the instant appeal; (b) for NAMARCO in Civil Case No. 42684 to
interpose its claim for the payment of the goods delivered pursuant to the contract of sale, and
thus seek in effect the enforcement of said contract, would have been inconsistent with its
defense that the same contract was a nullity, and (c) in any event, such claim could neither have
been asserted as a counterclaim by NAMARCO in its answer, filed on March 19, 1960, to the
complaint in Civil Case No. 42684, for it had no cause of action as yet against the
FEDERATION as, under the rule, a claim to be available as a counterclaim to an action must be
due and owing at the time of the commencement of the action, nor could NAMARCO file it as a
counterclaim based on a contingent demand for the same cannot be allowed.

1. The rule on compulsory counterclaim contained in Section 6 of Rule 10 of the old

Rules of Court,[5] is taken from Section 97 of Act No. 190.[6] This rule is
substantially the same as Rule 13(a) of the Federal Rules of Civil Procedure.[7]
This rule is "mandatory" because the failure of the corresponding party to set it up
will bar his right to interpose it in a subsequent litigation.[8] Under this Rule, a
counterclaim not set up shall be barred if the following circumstances are present:
(1) that it arises out of, or is necessarily connected with, the transaction or
occurrence that is the subject matter of the opposing party's claim; (2) that it does
not require for its adjudication the presence of third parties of whom the court
cannot acquire jurisdiction; and (3) that the court has jurisdiction to entertain the
claim.[9] Conversely, a counterclaim is merely permissive and hence is not barred
if not set up, where it has no logical relation with the transaction or occurrence
that is the subject matter of the opposing parry's claim, or even where there is
such connection, the court has no jurisdiction to entertain the claim or it requires
for its adjudication the presence of third persons of whom the court cannot
acquire jurisdiction.[10]

The first requisite that the claim should arise out of or is necessarily connected with the
transaction or occurrence that is the subject matter of the opposing party's claim, may give rise to
the critical question: What constitutes a "transaction" or "occurrence"? On this point the lower
court has conveniently embodied in its decision, quoted elsewhere herein, the meaning of the
terms "transaction" or "occurrence," as defined in Williams v. Robinson,[11] and in Pomeroy's
Treatise on Remedies and Remedial Rights.[12] The formulation in Williams v. Robinson shows
the futility of attempting to reduce the term "transaction" or "occurrence" within the context of
an all-embracing definition. Such formulation does not adequately answer eveiy question
whether a particular claim is compulsory in character. As a matter of fact most courts, rather than
attempting to define the key terms of the rule on compulsory counterclaim,[13] have preferred to
suggest certain criteria or tests by which the compulsory or permissive nature of specific
counterclaims can be determined. Wright & Miller in their Federal Practice and Procedure[14]
summarize them as follows:

1. Are the issues of fact and law raised by the claim and 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 plaintiffs claim as well as
defendant's counterclaim?
4. Is there any logical relation between the claim and the counterclaim?

An affirmative answer to each of the foregoing questions suggests that the counterclaim is
compulsory. These tests or standards have been the object of extensive analysis and criticisms, as
follows:

The first test * * * identity of issues[15] had been considered of doubtful utility for it assumes that,
in order to protect himself from inadvertently losing the right to present his claim in a later
action, defendant will be both motivated and able to determine before answering whether his
claim must be asserted as a compulsory counterclaim. * * * Yet, no one can be certain what the
issues are until after the pleadings are closed and discovery is underway, and in many instances
the issues are not really formulated until the pre-trial conference.

The second test * * * that the counterclaim is compulsory if it would be barred by res
judicata,[16] has been judicially recognized by some courts as "the acid test" for distinguishing
compulsory from permissive counterclaims. As aptly stated by Judge Frank in a dissenting
opinion:

" * * * Everyone agrees, too, that, if a counterclaim is not 'compulsory,' it is 'permissive' and that
the following is the acid test in distinguishing the two: If a defendant fails to set up a
'compulsory' counterclaim, he cannot in a later suit assert it against the plaintiff, since it is barred
by res judicata; but if it is 'permissive,' then Jt is not thus barred. To put it differently, if a
counterclaim is the kind not thus barred, it is 'permissive'- We have recently employed that test;
see Claim v. Kastar, 2 Cir, 138 F. 2d 828, 830; See also Moore, Federal Practice, 682; Clark,
Code Pleading, 447; Big Cola Corp. v. World Bottling Co., 6 Cir., 134 F.2d 718."[17]

This criterion has however been found inadequate as an overall standard.

The third test * * * same evidence or substantial identity in the evidence relating to the claim and
counterclaim[18] has been considered satisfactory if used with caution. A test based on similarity
of evidence appears reasonable considering that the very purpose of making certain types of
counterclaim compulsory is to prevent the relitigation of the same set of facts. However, it has
been shown that some counterclaims may be compulsory even if they do not meet this test. For
instance in an action to void an insurance policy on the ground of fraud, in which there is a
counterclaim for the amount of the loss covered by the policy, the evidence of fraud is apt to be
entirely different from the evidence as to the loss suffered by the insured (Mercury Ins. Co. v.
Verea Ruegg, D.C.N.Y. 1949, 12 F. R. Serv. 13a. 11 case 2) or an action for earned freight with
counterclaims for damages to cargo, demurrage, and expenses due to the unseaworthiness of the
vessel (Eastern Transp. Co. v. U.S., C.A. 2d 1947, 159 F.2d. 349).
The fourth test * * * the logical relationship between the claim and counterclaim has been called
"the one compelling test of compulsoriness."[19] It was enunciated in the leading case of Moore v.
New York Cotton Exchange.[20] Under this test, any claim a party has against an opposing party
that is logically related to the claim being asserted by the opposing party and that is not within
the exceptions to the rule, is a compulsory counterclaim. Its outstanding quality is its flexibility.
On the other hand this flexibility necessarily entails some uncertainty in its application because
pf its looseness and potentially overbroad scope. This difficulty notwithstanding, of the four
judicially formulated criteria it has by far attained the widest acceptance among the courts.

An examination of the cases on compulsory counterclaims may help clarify and illuminate the
judicial application of the 'logical relation test." In the leading case of Moore v. New York
Cotton Exchange (1926, 46 S.Ct 367, 371, 270 U.S. 593, 70 L. Ed. 750, 45 A.L.R. 1370) the
logical relation or connection between the defendant's counterclaim and the plaintiffs claim has
been explained thus:

"The bill sets forth the contract with the Western Union and the refusal of the New York
Exchange to allow appellant to receive the continuous cotton quotations, and asks a mandatory
injunction to compel appellees to furnish them. The answer admits the refusal and justifies it.
The counterclaim sets up that, nevertheless, appellant is purloining or otherwise illegally
obtaining them, and asks that this practice be enjoined. Transaction' is a word of flexible
meaning. It may comprehend a series of many occurrences, depending not so much upon the
immediateness of their connection as upon their logical relationship. The refusal to furnish the
quotations is one of the links in the chain which constitutes the transaction upon which appellant
here bases its cause of action. It is an important part of the transaction constituting the subject-
matter of the counterclaim. It is the one circumstance without which neither party would have
found it necessary to seek relief. Essential facts alleged by appellant enter into and constitute in
part the cause of action set forth in the counterclaim. That they are not precisely identical, or that
the counterclaim embraces additional allegations, as, for example, that appellant is unlawfully
getting the quotations, does not matter. To hold otherwise would be to rob this branch of the rule
of all serviceable meaning, since the facts relied upon by the plaintiff rarely, if ever, are, in all
particulars, the same as those constituting the defendant's counterclaim. Compare Xenia Branch
Bank v. Lee, 7 Abb. Pr. 372, 390-394. And see generally, Cleveland Engineering Co. v. Galion
Dynamic Motor Truck Co. supra, p. 408 [243 Fed.]; Champion Spark Plug Co. v. Champion
Ignition Co. (D.C.) 247 Fed. 200, 203-205.

"So close is the connection between the case sought to be stated in the bill and that set up in the
counterclaim, that it only needs the failure of the former to establish a foundation for the latter;
but the relief afforded by the dismissal of the bill is not complete without an injunction
restraining appellant from continuing to obtain by stealthy appropriation what the court had said
it could not have by judicial compulsion."[21]

It must be observed that in Moore, the important link which established that "logical relation"
between plaintiff Moore's claim and defendant New York Cotton Exchange's counterclaim, is the
refusal of the latter to furnish to the former cotton price quotations because of its belief that
Moore was purloining or otherwise illegally obtaining its cotton price quotations and distributing
them to bucket-shops. As the Court pointed out "It is an important part of the transaction
constituting the subject matter of the counterclaim. It is the one circumstance without which
neither party could have found it necessary to seek relief. * * * So close is the connection
between the case sought to be stated in the bill and that set up in the counterclaim, that it only
needs the failure of the former to establish a foundation for the latter; but the relief afforded by
the dismissal of the bill is not complete without an injunction restraining appellant from
continuing to obtain by stealthy appropriation what the court held it could not have by judicial
compulsion."

A review of decided cases in this jurisdiction on compulsory counterclaims likewise

demonstrates the nexus between plaintiffs claim and defendant's counterclaim showing the
"logical relation" between the two. Thus in actions for ejectment,[22] or for the recovery of
possession of real property,[23] it is well settled that the defendant's claims for value of the
improvements on the property or necessary expenses for its preservation are required to be
interposed in the same action as compulsory counterclaims. In such cases it is the refusal of the
defendant to vacate or surrender possession of the premises that serves as the vital link in the
chain of facts and events, that constitutes the transaction upon which the plaintiff bases his cause
of action. It is likewise an "important part of the transaction constituting the subject matter of the
counterclaim" of defendant for the value of the improvements or the necessary expenses incurred
for the preservation of the property. For they are off-shoots of the same basic controversy
between the parties which is the right of either to the possession of the property.

While the refusal of NAMARCO to deliver the remainder of the goods contracted for in its
"trade assistance agreement" with FEDERATION, is the important link in the chain of facts and
events that constituted the transaction upon which FEDERATION'S cause of action was based in
Civil Case No. 42684, it is not even a part of the transaction constituting the subject matter of
NAMARCO's present suit. For the action of FEDERATION on March 2, 1960, to compel
NAMARCO to recognize the validity of their agreement and deliver the remainder of the goods
to be paid "on cash basis" in no way involved the payment of the merchandise worth
P609,014.73, already delivered and presumptively paid for in cash by means of the domestic
letters of credit. When the domestic letters of credit were subsequently dishonored by the
Philippine National Bank on May 19, 1960 compelling NAMARCO to send on June 7,1960 a
letter of demand for payment to FEDERATION which the latter received on July 5, 1960, but
which it apparently ignored and because of such inaction NAMARCO therefore sued
FEDERATION for payment on January 25, 1961, such non-payment by FEDERATION was a
matter which was distinct and separate from and had no logical relationship with the subject
matter of FEDERATION'S own suit. These two claims are separate and distinct, as they involve
totally different factual and legal issues and do not represent the same "basic controversy."
"A counterclaim has been held to be compulsory if there is a logical relationship between it and
the main claim. Thus, in Great Lakes Rubber Corporation v. Herbert Cooper Co., 286 F.2d 631
(1961), Judge Biggs speaking for the Third Circuit Court said this:

'We have indicated that a counterclaim is compulsory if it bears a 'logical relationship' to an

opposing party's claim. Zion v. Sentry Safety Control Corp., 3 Cir., 1958, 258 F.2d 31. See also
United Artists Corp. v. Masterpiece Productions, Inc. 2 Cir., 1955, 221 F.2d 213, 216. The
phrase 'logical relationship' is given meaning by the purpose of the rule which it was designed to
implement. Thus, a counterclaim is logically related to the opposing party's claim where separate
trials of each of their respective claims would involve a substantial duplication of effort and time
by the parties and the courts. Where multiple claims involve many of the same factual issues, or
the same factual and legal issues, or where they are offshoots of the same basic controversy
between the parties, fairness and considerations of convenience and of economy require that the
counterclaimant be permitted to maintain his cause of action. * * *"[24]

II

But even assuming for the nonce that NAMARCO's present claim is logically related to the
claim of the FEDERATION in the previous case, NAMARCO's claim having accrued or
matured after the service of its answer in the earlier case is in the nature of an after-acquired
counterclaim which under the rules is not barred even if it is not set up in the previous case as a
counterclaim. An after-acquired counterclaim, is one of the recognized exceptions to the general
rule that a counterclaim is compulsory and must be asserted if it arises out of the same
transaction as the opposing party's claim.

"Although the claim arises out of the transaction or occurrence three exceptions are made to the
compulsory requirement that it be pleaded. They are:

(1) Time of Filing. The claim which is the basis of the counterclaim must be in existence at the
time the 'counterclaimant' files his pleading. Thus if P sues A and A does not have a claim
arising out of the transaction or occurrence of P's suit at the time A files his answer A is not
obliged to plead such a claim, although one arises subsequent to the filing of his answer."[25]

Wright & Miller, Federal Practice and Procedure,[26] explain this exception to the compulsory
counterclaim requirement thus:

"The first exception is that the party need not assert a counterclaim that has not matured at the
time he serves his pleading. This is derived from the language in the rule limiting its application
to claims the leader has 'at the time of serving the pleading.' A counterclaim acquired by
defendant after he has answered will not be considered compulsory, even if it arises out of the
same transaction as does plaintiffs claim. Similarly, a counterclaim acquired by plaintiff after he
has replied to a counterclaim by defendant is not compulsory under Rule 13(a). However, if a
party should acquire a matured counterclaim after he has pleaded, Rule 13(e) provides that fee
may obtain the court's permission to include it in a supplemental pleading under Rule 15(d)."[27]

"A counterclaim may be asserted under Rule 13(e) only by leave of court, which usually will be
granted in order to enable the parties to litigate all the claims that they have against each other at
one time thereby avoiding multiple actions. However, Rule 13(e) is permissive in character. An
after-acquired counterclaim, even if it arises out of the transaction or occurrence that is the
subject matter of the opposing party's claim, need not be pleaded supplementally; the after-
acquired claim is not considered a compulsory counterclaim under Rule 13(a) and a failure to
interpose it will not bar its assertion in a later suit."

"The decision to grant or deny a motion to serve a supplemental counterclaim is totally within
the trial court's discretion."[28]

The provisions of Rule 13 of the Federal Rules of Civil Procedure, adverted to in the preceding
commentaries and decisions of the federal courts, have been engrafted into our procedural rules.
Thus Section 3 of Rule 1029 of the former Rules of Court was taken from Rule 13(a) and (g) of
the Federal Rules of Civil Procedure, while Sections 4 and 6 of same Rule 10,[30] were taken,
respectively, from Rule 13(e) and (a) of the said Federal Rules.[31]

It is a rational rule of statutory construction that a statute adopted from another state or country
will be presumed to have been adopted with the construction placed upon it by the courts of that
state or country before its adoption. Such construction is regarded as of great weight, or at least
persuasive and will generally be followed if sound and reasonable, and in harmony with justice
and public policy, and with other laws of the adopting jurisdiction on the subject.[32] And while
the construction of a statute by courts of the original state after its adoption by another, may have
no controlling effect on the adopting state, it may be strongly persuasive and will be followed
when it is considered to give true force and effect to the statute.[33]

We find no cogent reason why such uniform and settled construction of Rule 13 of the Federal
Rules should not be applied in the interpretation of the aforesaid Sections of Rule 10 of the old
Rules of Court. Thus while Section 6 of Rule 10 of the old Rules defines a compulsory
counterclaim as a claim that "arises out of or is necessarily connected with, the transaction or
occurrence that is the subject-matter of the opposing party's claim," Section 3 of the same rule,
requires that such counterclaim must be in existence "at the time" the counterclaimant files his
answer.

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 Ms 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.[34]
Certainly a premature counterclaim cannot be set up in the answer. Tftis 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"

Thus a party who fails to interpose a counterclaim although arising out of or is necessarily
connected with, the transaction or occurrence of the plaintiffs 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. However such claim may with the court's permission be- included in the same
case by way of supplemental pleading before judgment under Section 4 of the former Rule 10 of
the Rules (now Sec. 9 of Rule 6). And the same may be allowed unless the case has progressed
so far that it may be inconvenient or confusing to allow the additional claim to be pleaded.[35]

We therefore rule that NAMARCO's present action, is not barred by its failure to assert it as a
counterclaim in the previous case.

III

The FEDERATION also contends that it has incurred no liability, as NAMARCO has neither
alleged nor proved that it has complied with the conditions contained in the three domestic letters
of credit, that the sight drafts drawn upon them be presented to FEDERATION for acceptance
before they can be honored by the Bank. It is the theory of the FEDERATION in its brief that the
failure of NAMARCO to present the sight drafts to the former for acceptance, pursuant to the
requirements of the letters of credit deprives NAMARCO of a cause of action against
FEDERATION. It must be noted however that such purported discharge from its obligation to
NAMARCO due to the failure of the latter to comply with the requirements of the domestic
letters of credit, was never invoked by FEDERATION as a basis for its "Motion to Dismiss" of
February 7, 1961[36] or as an affirmative defense in its "answer" to the complaint on June 14,
1961 in Civil Case No. 46124.[37] There is no showing that this question was raised as an issue
during the trial. As a matter of fact such matter was neither discussed nor mentioned in the
appealed judgment since the entire theory of the FEDERATION in its defense is that the claim of
NAMARCO being a "compulsory counterclaim," is now barred, NAMARCO having failed to set
it up on a counterclaim in the previous case. Well settled is the rule that questions which were
not raised in the lower court cannot be raised for the first time on appeal.[38] Defendant-appellant
therefore is now precluded from raising that question.

In any event NAMARCO's action is not based on the domestic letters of credit, but on its legal
right to the cost of the goods delivered to the FEDERATION, the correlative obligation of the
latter to pay for the same, and its default or refusal to make such payments.

Furthermore the mere delivery by the FEDERATION of the domestic letters of credit to
NAMARCO did not operate to discharge the debt of the FEDERATION. As shown by the
appealed judgment NAMARCO accepted the three letters of credit "to insure the payment of
those goods by the FEDERATION * * *." It was given therefore as a mere guarantee for the
payment of the merchandise. The delivery of promissory notes payable to order, or bills of
exchange or drafts or other mercantile document shall produce the effect of payment only when
realized, or when by the fault of the creditor, the privileges inherent in their negotiable character
have been impaired. (Art. 1249, New Civil Code.) The clause of Article 1249 relative to the
impairment of the negotiable character of the commercial paper by the fault of the creditor, is
applicable only to instruments executed by third persons and delivered by the debtor to the
creditor, and does not apply to instruments executed by the debtor himself and delivered to the
creditor.[39] hi the case at bar it is not even pretended that the negotiable character of the sight
drafts was impaired as a result of the fault of NAMARCO. The fact that NAMARCO attempted
to collect from the Philippine National Bank on the sight drafts on March 10, I960, is of no
material significance. As heretofore stated they were never taken, in the first instance as
payment. There was no agreement that they should be accepted as payment. The mere fact that
NAMARCO proceeded in good faith to try to collect payments thereon, did not amount to an
appropriation by it of the amounts mentioned in the sight drafts so as to release its claims against
the FEDERATION. A mere attempt to collect or enforce a bill or note from which no payment
results is not such an appropriation of it as to discharge the debt.[40]

We note however that the lower court erred in imposing interest at the legal rate on the amount
due, from date of delivery of the merchandise," and not from the date of the extra-judicial
demand. In the absence of any stipulations on the matter, the rule is that the obligor is considered
in default only from the time the obligee judicially or extra-judicially demands fulfillment of the
obligation and interest is recoverable only from the time such demand is made.[41] There being no
stipulation as to when the aforesaid payments were to be made," the FEDERATION is therefore
liable to pay interest at the legal rate only from June 7, 1960, the date when NAMARCO made
the extra-judicial demand upon said party. We likewise fail to find any factual or legal basis for
the award of attorney's fees.

ACCORDINGLY, with the modifications above indicated, the appealed judgment is hereby
affirmed, with costs against defendant-appellant.

Fernando, J., concur.

Makalintal, Zaldivar,Esguerra, and Ruiz Castro, JJ., concur in the result.

Teehankee, J., files a separate concurring opinion.

Barredo, J., dissents in a separate opinion.

Makasiar, J., concurs solely on the basis of reason no. II.

Concepcion, C.J., did not take part.

[1]
In case G.R. No. L-17819, Federation of United Namarco Distributors, Inc., et al., Plaintiffs-
Appellees, vs. National Marketing Corporation, Defendant-Appellant.

[2]
See Decision, Record on appeal, pp. 72-79.

[3]
Articles 1191, 1524, 1528, 1583, 1597 & 1598, Civil Code of the Philippines.

[4]
Now Section 9 of Rule 6 of the new Rules of Court.

[5]
Now Section 4 of Rule 9 of the new Rules of Court, with modification.

[6]
SEC. 97. Effect of ommission to Set up Counterclaim.— If the right out of which the
counterclaim arises exists at the time of the commencement of the action and arises out of the
transaction set forth in the complaint as the foundation of the plaintiffs claim, or is necessarily
connected with the subject of the action, neither the defendant nor his assignee can afterwards
maintain an action against the plaintiff therefor, if the defendant omits to set up a counterclaim
for the same. But if the counterclaim arises out of transaction distinct from those set forth in the
complaint as the foundation of the plaintiffs claim and not connected with the subject of the
action, the defendant shall not be barred from any subsequent action upon such counterclaim by
reason of his failure to set it up in his answer to the pending action. (Code of Civil Procedure of
the P.I., which took effect on Oct 1, 1901; italics supplied.)

[7]
RULE 13(a) Compulsory Counterclaims.— A pleading shall state as a counterclaim any claim
which at the time of serving the pleading the pleader has against any opposing party, if it arises
out of the transaction or occurence that is the subject matter of the opposing party's claim and
does not require for its adjudication the presence of third parties of whom the courts cannot
acquire jurisdiction. But the pleader need not state the claim if (1) at the time the action was
commenced the claim was the subject of another pending action, or (2) the opposing parly
brought suit upon his claim by attachment or other process by which the court did not acquire
jurisdiction to render a personal judgment on that claim, and the pleader is not stating any
counterclaim under this Rule 13. (Federal Rules of Civil Procedure, which took effect in 1938;
italics supplied.)

[8]
De Jesus v. I M. Tuason & Co., 18 SCRA 403; Papa v. Banaag, 17 SCRA 1083; Tornado v.
Bilbars 17 SCRA 251; Pennsylvania R. Co. v. Musante- Philipps, Inc., 42 F. Supp. 340.

[9]
See Sec. 3 of Rule 10 of the old Rules, now Sec. 8 of Rule 6 of the new Rules of Court Cf. Yu
Lay v. Galmes, 40 Phil. 651.
[10]
Sec. 8 Rule 6, New Rules of Court; Rule 13(b) Federal Rules of Civil Procedure.

[11]
3 Federal Rules Service, 174.

[12]
Cited in Story 8c Isham Commercial Co. v. Story, 100 Cal. 35, 34 Pac. 671.

[13]
Sec. 3 of Rule 10 of old Rules, now Sec. 8 of Rule 6 of the new Rules of Court; Rule 13(a)
Fed. Rules of Civil Procedure.

[14]
6 Fed. Practice & Proc, Civil Sec. 1410, p. 42, 1971 Ed. Same issues of fact and law test
applied in: Connecticut Indem. Co. v. Lee, CA. 1st, 1948, 168 F. 2d 420.

[15]
Same issues of fact and law test applied in: Connecticut Indem. Co. v. Lee, CA. 1st, 1948,
168 F.2d420. Nachtman v. Crucible Steel Co., CA. 3d, 1948, 165 F.2d 997. Nye Rubber Co. v.
V.R.P. Rubber Co., D.C. Ohio 1948, 81 F. Supp. 635.

Keyes Fibre Co. v. Chaplin Corp., D.C. Me. 1947, 76 F. Supp. 981. International Union, United
Automobile, Aircraft & Agricultural Implement Workers of America v. Piasecki Aircraft Corp.,
D.C. Del. 1965, 241 F. Supp. 385.

[16]
Res judicata as test applied in:

Libbey-owens-Ford Glass Co. v. Sylvania Indus. Corp., CA 2d, 1946, 154 F.2d 814, 818,
certiorari denied 66 S.Ct 1353, 328 U.S. 859, 90 L.Ed. 1630; Big Cola Corp. v. World Bottling
Co., CA. 6th, 1943, 134 F.2d 718; Weber v. Weber, D.C. Pa. 1968, 44 F.R.D. 227; Non Ferrous
Metals, Inc. v. Saramar Aluminum Co., D.C. Onio I960, 25 F.R.D. 102; American Samec Corp.
v. Florian, D.C. Conn. 1949, 9 F.R.D. 718.

[17]
Libbey-Owens-Ford Glass Co. v. Sylvania Indus. Corp., supra.

[18]
Same evidence or substantial identity as test applied in: Non-Ferrous Metals, Inc. v. Saramar
Aluminum Co., D.C. Ohio I960, 25 F.R.D. 102. In the Matter of Farrell Publishing Corp.,
D.C.N.Y. 1955, 130 F. Supp. 449.

Kuster Labs., Inc. v. Lee, D.C. Cal. 1950, 10 F.R.D. 350. American Samec Corp. v. Florian, D.C.
Conn. 1949, 9 F.R. D. 718. Keyes Fibre co. v. Chaplin, D.C.Me. 1947, 76 F.Supp. 981. Williams
v. Robinson, D.C.D.C. 1940, 1 F.R.D. 211.

[19]
Rosenthal v. Fowler, D.C.N.Y. 1952, 12 F.R.D. 388, 391.

[20]
Logical relation as test applied in: Moore v. New York Cotton Exhange, 1926, 46 S.Ct. 367,
371, 270 U.S. 593 70 L.Ed. 750, 45 AX.R. 1370.
U.S. for Use &, Benefit of D'Agostino Excavators, Inc. v. Heyward-Robinson Co., CA.2d,
1970,430 F.2d. 1077. Revere Copper 8c Brass Inc. v. Aetna Cas. & Sur. Co., C.A. 5th, 1970, 426
F.2& 709.

Koufakis v. Carvel, C.A. 2d, 1970, 425 F.2d 892.

Diamond v. Terminal Ry. Alabama State Docks, C A. 5th 1970, 421 F.2d. 228, certiorari denied
90 S.Ct 1531, 397 U.S. 1079, 25 L.Ed. 2 815.

Kissel Co. v. Farley, C.A. 7th, 1969, 417 F.2d. 1180. National Equip. Rental, Ltd. v. Fowler,
C.A. 2d. 1961. 267 F.2d 43. Great Lakes Rubber Corp. v. Herbert Cooper Co., C A. 3d, 1961,
286 F.2d. 631, 634.

[21]
70 L. ed. pp. 756-757.

See also United States v. Heyward-Robinson Co. (430 F. 2d. 1077 [1970] where the court ruled
in an action by D'Agostino against Heyward to recover payments alleged to be due on a Navy
construction job, that Heyward's counterclaim for alleged overpayments and extra costs of
completing both the Navy construction contract and the construction of a plant for Stelma Inc.,
was compulsory. The court explaining the close and logical relationship between the two claims
thus:

"There was such a close and logical relationship between the claims on the Navy and Stehna jobs
that the Stelma counterclaims arose out of the same 'transaction or occurrence' as those terms are
now broadly defined. Both subcontracts were entered into by the same parties for the same type
of work and carried on during substantially the same period. Heyward had the right to terminate
both subcontracts in the event of a'breach by D'Agostino of either. Heyward also had the right to
withhold monies due on one to apply against any damages suffered on the other. Progress
payments made by Heyward were not allocated as between jobs and were made on a lump sum
basis for both as though for a single account.

"A single insurance policy covered both jobs. The letters of Heyward to D'Agostino of October 8
and 19,1965 threatening termination and terminating both jobs, allegedly because of the
cancellation by D'Agostino of this point insurance coverage and failure to properly man bom
projects, treated both jobs together. These letters formed the basis of one of Heyward's major
claims at the trial.

"The controversy between the parties which gave rise to this litigation was with respect to both
jobs and arose from occurrence affecting both. Indeed, it would seem to have been impossible
for Heyward to have fully litigated the claims against it on the Navy job without including the
Stelma job, because the payments it made to D'Agostino could not be allocated between the two
jobs.
"As the appellants themselves point out in their brief, the 'Stelma and Navy claims were so
interwoven at the trial that they are now absolutely incapable of separation.' The proof as to
payments and alleged defaults in payments was made without any differentiation between the
two claims and neither of the parties was able to offer any evidence of apportionment Finally, the
evidence as to the breaches of contract claimed by the respective parties related in the main to
both contracts rather than to one or the other."

[22]
Berses v. Villanueva, 25 Phil. 473; Beltran v. Valbuena, 53 Phil. 697; Ozoa v. Vda. de
Montaur, L-8621, Aug. 26, 1956, 99 Phil. 1061; Carpena v. Manalo, 1 SCRA 1060.

[23]
Berses v. Villanueva, supra; Yap Unli v. Chua Jamco, 14 Phil. 602; Camara v Aguilar, 94
Phil. 527; Castro v. Montes, 107 Phil. 533; See also; Motos v. Soler, 2 SCRA 293, 295.

[24]
International Union, U.A., A. & A.I. WXRS v. PIASECK 1 Air Corp. 241 Fed. Supp. pp.
388-389.

[25]
I Moore's Federal Practice, 1938, pp. 384-385.

[26]
6 Wright & Miller, Federal Practice and Procedure, Civil Section 1411, pp. 54-55, citing:

Stahl v. Ohio River Co., C.A. 3d 1970, 424 F. 2d 52.

Esquire, Inc. v. Varga Enterprises, Inc., C.A. 7th, 1950, 185 F. 2d 14.

Denys Fisher (Spirograph) Ltd. v. Louis Marx & Co., D.C.W. Va. 1969,. 306 F. Supp. 956.

Goldlawr, Inc. v. Shubert, D.C. Pa. 1967, 268 F. Supp. 965.

Marcus v. Marcoux, D.C.R.I. 1967, 41 F.R.D. 332.

Local Union 499 oflnt'I Bhd. of Elec. Workers, AFL-CIO v. Iowa Power & Light Co., D.C. Iowa
1964, 224 F. Supp. 731, 738.

Slavics v. Wood, D.C. Pa. 1964, 36 F.R.D. 47.

Allstate Ins. Co v. Valdez, D.C. Mich. 1962, 29 F.R.D. 479.

Miner v. Commerce Oil Ref. Corp., D.C.R.I. 1961, 198 F. Supp. 887, vacated on other grounds
C.A. 1st, 1962, 303 F. 2d 125.

Hartford Ace. & Indem. Co. v. Levitt & Sons, Inc., D.C.Pa. 1959, 24 F.R.D.230.

Cyclotherm Corp. v. Miller, D.C.Pa. 1950, 11 F.R.D. 88.

Goodyear Tire & Rubber Co. v. Marbon Corp., D.C. Del. 1940. 32 F. Supp. 279, 280.

Cold Metal Process Co. v. United Engineering & Foundry Co., C.A. 3d, 1951, 190 F. 2d 217.

Magna Pictures Corp. v. Paramount Pictures Corp., D.C. Cal. 1967, 265 F. Supp. 144.

RFC v. First Nat. Bank of Cody, D.C. Wyo. 1955, 17 F.R.D. 397.

[27]
Ibid., Civil Section 1411, p.55.

[28]
Ibid., Civil Section 1428, pp. 148-149.

[29]
Now Section 8 of Rule 6, Revised Rules of Court.

[30]
Now Section 9 of Rule 6, and Section 4 of Rule 9, respectively of the Revised Rules.

[31]
Rule 13. Counterclaim and Cross-Claim.

(a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim, not the
subject of a pending action, which at the time of filing the pleading the pleader has against any
opposing party, if it arises out of the transaction or occurrence that is 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.

xxx xxx xxx

(e) Counterclaim Maturing or Acquired After Pleading. A claim which either matured or was
acquired by the pleader after serving his pleading may, with the permission of the court, be
presented as a counterclaim by supplemental pleading.

xxx xxx xxx

(g) Cross-Claim Against Co-Party. A pleading may state as a cross-claim any claim by one party
against a co-party arising out of the transaction or occurrence that is the subject matter either of
the original action or of a' counterclaim therein. Such cross-claim may include a claim that the
party against whom it is asserted is or may be liable to the cross-claimant for all or part of a
claim asserted in the action against the cross-claimant. (See 1 Moore's Federal Practice, 1938 ed.,
pp. 664-665.)

[32]
82 C.J.S. 860-863; Cu v. Republic, 89 Phil. 473.
[33]
82 CIS. 867-868.

[34]
The counterclaim procedure in the federal courts is set forth in Rule 13 of the Federal Rules
of Civil Procedure. Rule 13 refers only to claims which have "matured" at the time they are
pleaded as counterclaims. See Cold Metal Process Co. v. United Engineering & Foundry Co.,
190 F. 2d 217 (3d Cir. 1951); 3 J. MOore, Federal Practice, par. 13.32, pp. 85-88 (2d ed. 1966),
pp. 46-47 (Supp. 1967). 1A. Barron & Holtzoff, Federal Practice and Procedure, Sec. 402, p. 622
(1960) and cases cited therein. The crucial time for determining whether a claim may be filed as
a counterclaim under the Rule 13(a) and Rule 13(b) is the time pleadings are filed. 3 J. Moore,
Federal Practice, par. 13.32. Claims which have "matured" after the filing of a party's pleadings
in the action may be pleaded with the pennission of the court under Rule 13(e). But under the
specific language of Rule 13(e) such permission may be given only if the claim is a "matured"
one at the time pennission is requested. (Stahl v. Ohio River Company, 424 F. 2d 52).

[35]
A motion to serve a supplemental counterclaim should be granted when plaintiff cannot be
seriously prejudiced by so doing inasmuch as the trial of the case will not be delayed, (Dazian's
Inc. v. Switzer Bros., Inc., D.C. Ohio 1953, 14 F.R.D. 24), unless the case has progressed to a
stage in the action that to do so would cause hardship or confusion (Newell v. O.A. Newton &
Son Co., D.D. Del. 1950, 10 F.R.D. 286.)

See also: Shwab v. Doelz, C.A. 7th, 1956, 229 F. 2d 749 Michigan Tool Co. v. Drummond,
D.C.D.C. 1938, 33 F. Supp. 540.

[36]
Pp. 15-31, Record on Appeal.

[37]
Pp. 54-61, Record on Appeal.

[38]
City of Manila v. Ebay, 1 SCRA 1086; Zambales Chromite Co. v. Robles, 2 SCRA 1051;
Ferrer v. Commissioner of Internal Revenue, 5 SCRA 1022; San Miguel Brewery v. Vda. de
Joves, 23 SCRA 1093; Luzon Surety Co. Inc. v. De Garcia, 30 SCRA 111 and other cases.

[39]
Compania General de Tabacos v. Molina, 5 Phil. 142.

[40]
Olyphant v. St. Louis Ore & Steel Co., 28 F. 729.

[41]
Vda. de Murciano v. Auditor General, 103 Phil. 907, 914

SEPARATE OPINION

TEEHANKEE, J.,
I concur in the main opinion in effect affirming in toto the appealed judgment sentencing
defendant-appellant to pay plaintiff-appellee the sum of P609,014.73 representing the Cost of
admittedly unpaid merchandise delivered to defendant since January, 1960, with interests,
attorney's fees and costs of suit.

The merchandise was delivered by plaintiff Namarco to defendant under the so-called Namarco
''trade assistance agreements" whereby Namarco imported the merchandise under its dollar
allocation tax- and duty-free and in turn sold and delivered the same to defendant at procurement
cost plus a mere 5% mark-up, for distribution to Namarco retailers for resale supposedly under
Namarco-approved prices.

Defendant in turn contracted to pay for the merchandise upon delivery in cash through domestic
letters of credit opened through the Philippine National Bank in favor of Namarco.

The mere fact that defendant federation as plaintiff filed suit against Namarco on March 2, 1960
for specific performance, to require Namarco to make delivery of the remainder of the
merchandise contracted for in their "trade assistance agreement" and to accept the cash payments
preferred therefor by the federation (since Namarco had second thoughts about the legality and
validity of its agreement) in no way involved the merchandise worth P609,014.73 already
delivered by Namarco and presumably paid for in cash under the domestic letters of credit
opened therefor. When it turned out subsequently on May 19, 1960 that the sight drafts drawn by
Namarco against the domestic letters of credit opened with the Philippine National bank for
collection of the payments due thereon were not honored, such non-payment was entirely
separate from the subject-matter of the federation's first suit against Namarco to compel it to
recognize the validity of their agreement and deliver upon cash payment the remainder of the
contracted merchandise.

Such non-payment could in no way be deemed a compulsory counterclaim that should have been
filed as such by Namarco in the first suit, so as to bar the present action subsequently filed on
January 25, 1961 by Namarco as plaintiff this time against the federation as defendant to collect
the unpaid price of P609,014.73 justly due Namarco for the merchandise.

This collection suit by Namarco could not be deemed barred by the compulsory counterclaim
rule provided in Rule 9, Section 4 (formerly Rule 10, Section 6) since it was not a compulsory
counterclaim that should have been set up as such in the first suit and it was long after Namarco
had joined issues therein with the filing of its answer that its sight drafts for collection under the
domestic letters of credit opened in its favor were dishonored by the bank. Namarco had every
reason to expect that the federation, which was suing it for further deliveries, would honor its just
commitments and see to it that the sight drafts drawn against its L/C's would be duly honored
and made good.
Namarco had every legal right therefore to institute in January, 1961 this action for collection
and payment of the sums justly due it, upon the federation's failing to make payment
notwithstanding the lapse of over a year.

The Rules of Court were never intended to serve as a tool for a party to unjustly enrich itself to
the extent of over PI million (including interests) for merchandise long delivered to it in I960
practically at procurement cost, which it could not otherwise have procured due to exchange and
import control restrictions and which it has not paid for up to now notwithstanding its then
having immediately enjoyed the benefits and profits thereof.

The defendant-appellant's stance raises a mere technicality — which, as was long ago held by me
Court, when it deserts

its proper office as an aid to the administration of justice and becomes its great hindrance and
chief enemy, deserves scant consideration from the courts. (Alonso vs. Villamor, 16 Phil. 315).

Hence, even if Namarco's present collection suit could technically be deemed a compulsory
counterclaim which should have been filed by it as such in the first suit filed against it by the
federation, I would disregard such a technicality and hold nevertheless as a matter of plain and
simple justice and equity that Namarco's failure to file such counterclaim should not bar the
present action and Namarco's right to judgment against defendant federation for the sums justly
due it.

DISSENTING

BARREDO, J.,

I was on the verge of expressing my reluctant concurrence in the judgment in this case, when
upon further study and deeper reflection, I became more convinced that a reversal rather than an
affirmance of the trial court's decision would be more in consonance with the fundamental
principles on the prescription of compulsory counterclaims.

As I see it now, the situation confronting the Court in this case is very simple and is far from
being unusual. Its solution requires no more than the application of the basic rules on pleadings,
without the need of any scholarly discourse which can only serve to confuse concepts and
mislead one into error in the application of the proper rule.

Both the claim of the Federation against the Namarco in Civil Case No. 42684 and the claim of
the Namarco against the Federation in Civil Case No. 46124 arose from the same contract. The
Federation had sued Namarco for the specific performance thereof seeking the delivery of the
balance of the goods which Namarco allegedly agreed to sell to it, but which the former refused
to deliver claiming that the contract was illegal, whereas Namarco, in turn, sued the Federation in
the present action for the payment of the goods already delivered thereunder, with the
particularity, however, that Namarco chose to file this suit against the Federation only when the
Federation's case against it was already pending appeal by Namarco in this Court. The issue now
is whether or not Namarco should have made its claim against the Federation the subject of a
counterclaim when the Federation's own claim against it was still pending in the lower court,
with the consequence that, not having done so, it should no longer be allowed to maintain the
case at bar, pursuant to the rule on prescription of compulsory counterclaims, more specifically,
what was Section 6 of Rule 10 of the old rules and is now Section 4 of Rule 9 of the present rules
in force since January 1, 1964.[1]

It appears that when Namarco was informed by the Philippine National Bank on May 19, 1960
that it could not negotiate and effect payment of the sight drafts of the Federation totally worth
P611,053.35, corresponding to the goods already received by the Federation since January 29,
1960 and February 20, 1960 and covered by PNB Domestic L/C Nos. 600606 and 600586,
respectively, the Federation's action against it (Civil Case No. 42684) for specific performance
by the delivery of the balance of the goods stipulated in the contract was still pending in the trial
court. In fact, the Federation had already failed to pay notwithstanding Namarco's formal
demand made on June 7, 1960, when the decision of the trial court was promulgated on October
15, 1960.

Notwithstanding the lengthy exposition in the main opinion regarding the meaning of the words
'"transaction" and "occurrence" used in the aforecited provisions, it is very clear to me that,
having in mind the objective of the rules in permitting counterclaims and, more particularly, in
making some of them compulsory, Namarco's present claim did arise out of or was necessarily
connected with the transaction or occurrence that was the subject matter of the Federation's
action in Civil Case No. 42684 within the contemplation of the rule on compulsory
counterclaims. It is too obvious for equivocation or doubt that the material subject matter of both
of said claims were the goods referred to in their contract, while juridically, it was the contract
itself. As I have already stated, the Federation sued for their complete delivery, whereas
Namarco has sued in the present action for the payment of the part thereof that it had already
delivered to the Federation. I consider it beyond dispute that under these circumstances, the
claim of Namarco for such payment of the goods it had delivered pursuant to the contract "arose
out of that contract, which is precisely the very same one that was "the subject matter" of the
Federation's claim for the delivery of the balance of the goods covered by it

To believe otherwise is to ignore the fundamental reason behind the rule on counterclaims which
is to avoid multiplicity of suits. In the case of permissive counterclaims which are unrelated to
the adverse party's claims, I can understand the option given to the defendant to plead them in
the same action or not, because it is possible that the defendant may wish to immediately remove
the risk of a judgment against him and thus have peace of mind as early as possible, instead of
suffering delay in his exoneration by litigating with the plaintiff in regard to his (defendant's)
own claims against him, which, of course, will necessarily entail a longer and more complicated
proceeding. On the other hand, one can easily see why the claims of the defendant arising out of
the same transaction or occurrence are made compulsory in the sense of considering them as
completely barred if they are not set up in the same action of the plaintiff. Since the subject
matter involved in the defendant's claim is the same one on which the plaintifThas sued him, it
becomes a matter of public policy that they should be settled in one proceeding, thus avoiding
any duplication of the time, effort and money that would have to be spent in the trial and
disposition of more or less the same set of facts and circumstances as well as legal issues,
varying only in some details or aspects which can anyway be conveniently and properly
determined in the same proceeding. Thus, it is too plain to be overlooked or not to be understood
that when, on the one hand, a party sues for the complete delivery of goods covered by a
contract, and the other party, on the other hand, claims payment for goods it has already
delivered under the same contract, the rule should be that both claims should be made in the
same action or in one single proceeding, and, as I will explain later, this must be the rule even if

the legality or validity of the contract should be put in issue by any of the parties. This to me in
synthesis is the situation in the case at bar. Indeed, even if it were necessary to apply the so-
called logical-relation-test referred to in the main opinion, I would still say that there is definitely
such logical relation between the claim at bar of Namarco and the claim of the Federation in
Civil Case No. 42684, since that one was for the delivery of goods promised under the contract
whereas the other was for the payment of goods delivered under it, so much so that the reliefs in
one could in fact be possibly setofif against the reliefs in the other.

It was the element of time herein involved that somehow induced me at the beginning to be
inclined, albeit reluctantly, to sustain Namarco's position in this appeal. As I have explained
above, at the precise time that Namarco filed its answer in Civil Case No. 42684, it was not yet
certain that the Federation would not pay or that payment of its sight drafts would not be effected
by the bank. In other words, from that point of view, Namarco's cause of action had not yet
matured then. It is also clear, however, that said cause of action accrued before the judgment was
rendered by the trial court. Under Section 4 of Rule 10 of the old rules, now Section 9 of Rule 6,
a counterclaim which either matured or was acquired by a defendant after serving his answer
may be set up in a supplemental pleading later -before judgment. Since this may be done or not
in the case of counterclaims not arising out of the same transaction or occurrence, the question
that arises is, must it have to be done in the case of counterclaims that do arise from the same
transaction or occurrence, such that if not interposed, they must be deemed barred? Stated
differently, the doubt that assailed me in regard to this view of this case is whether or not the fact
that a supplemental pleading could in fact have been filed by Namarco before judgment placed
its present claim within the contemplation of Section 6 of Rule 10 of the old rules as a claim that
should be barred.

In this connection, much as I am inclined towards compelling parties to litigate all their claims
against each other in one single proceeding in the interest of a more speedy restoration of normal
relations between them, I feel constrained in the absence of any contrary precedent, to yield to
the observations noted in footnote 25 of the main opinion to the effect that for a counterclaim,
arising out of the same transaction or occurrence that is the subject matter of the plaintiffs claim
to be compulsory, under the said Section 6 of Rule 10, it must be existing at the time of the filing
of the answer by the defendant, and the fact that Section 4 of the same rule allows the filing of
supplemental counterclaims before judgment does not alter the situation.

To make myself clearer, I agree that the Court rule for the present that for a counterclaim to be
considered as barred, under the above provisions, the cause of action thereof must have already
accrued at the time the answer is filed by the defendant, although I, for one, would prefer that,
considering the provisions allowing the filing of supplemental counterclaims, the defendant
should just the same be compelled to allege it in such a supplemental pleading in those cases
where his claim accrues before trial has began or at the latest, before the defendant has started
presenting his evidence. Otherwise stated, my position is that the claim of Namarco in this case
did arise out of the same transaction or occurrence that was the subject matter of the Federation's
anterior action, but inasmuch as, on the hypothesis that the contract were binding, the former's
cause of action could not have been considered as already matured when it filed its answer, there
would have been no need for it to file this counterclaim..

The whole trouble with Namarco's pose in this appeal lies, however, in the fact that in its answer
to the Federation's complaint, it pleaded the defense of illegality or nullity of the contract From
that point of view, it was immaterial to Namarco's recovery of the purchase price of goods it had
already delivered under the contract that these was in said contract any term for the payment
thereof. As far as Namarco was concerned, those goods had been delivered illegally and should
have been immediately returned unless their value had been paid for, [Article 1412. (2), Civil
Code] or Namarco was in pah delicto (Article 1411, id). Such being the case, it is quite evident
that when Namarco filed its answer to the Federation's action, its cause of action for the recovery
of the price of the delivered goods was already existing and could have been the subject of a
counterclaim. This means that as of the time Namarco filed its answer contesting the legality or
validity of the contract, it was already incumbent upon it to then and there seek recovery of
whatever it had delivered thereunder. Nothing could be more logical and legally proper, specially
when viewed from the angle of diligent protection of public interest, Namarco being a
government corporation.

Obviously, the foregoing consideration serves also to refute Namarco's contention that it could
not have claimed for the payment now in question because it would have been inconsistent for it
to do so. Moreover, in Camara vs. Aguilar, 94 Phil. 527, this Court already held that:

"The contention that a counterclaim for expenses incurred in clearing and cultivating the parcel
of land and planting coconut and other fruit-bearing trees therein could not have been set up in
the former case because that would have been inconsistent with or would have weakened the
claim that they were entitled to the parcel of land, is without merit, because 'A party may set
forth two or more statements of a claim or defense alternatively or hypothetically, either in one
cause of action or defense or in separate causes of action or defenses.' Hence, the plaintiffs herein
and intervenors in the former case could have set up the claim that they were entitled to the
parcel of land and alternatively that assuming (hypothetically) that they were not entitled to the
parcel of land, at least they were entitled as possessors in good faith to the coconut and other
fiuit-bearing trees planted by them in the parcel of land and their fruits or their value."

IN VIEW OF ALL THE FOREGOING, I vote to reverse the judgment of the lower court, with
the result that Namaro's present suit should be dismissed, without costs.

[1]
The action herein was filed and tried before the Revised Rules of 1964 took effect.

Copyright 2016 - Batas.org

Supreme Court of the Philippines

534 Phil. 246

FIRST DIVISION

G.R. NO. 157745, September 26, 2006

GENALYN D. YOUNG, PETITIONER, VS. SPOUSES MANUEL SY AND VICTORIA SY,

RESPONDENTS.

GENALYN D. YOUNG, PETITIONER,

G.R. NO. 157955 (CA-G.R. SP NO. 65629) VS. SPOUSES MANUEL SY AND VICTORIA SY,
RESPONDENTS.

DECISION

AUSTRIA-MARTINEZ, J.:

The Cases
Before this Court are two Petitions for Review on Certiorari under Rule 45 of the Rules of
Court. Since the two cases are interdependent and originate from the same proceeding, and for
the sake of expediency, they have been consolidated by this Court.

The Petition under G.R. No. 157955 (Re: Supplemental Complaint) challenges the Decision
dated November 18, 2002[1] of the Court of Appeals (CA) in CA-G.R. SP No. 65629 affirming
the Orders dated December 28, 2000 and April 6, 2001 of the Regional Trial Court, San Pablo
City, Branch 32, in Civil Case No. SP-5703 (2000) (RTC) which denied the admission of
petitioner's Supplemental Complaint; and the CA Resolution dated April 2, 2003[2] which denied
the petitioner's Motion for Reconsideration.

The Petition under G.R. No. 157745 (Re: Non-Suit) questions the Decision dated November 29,
2002[3] of the CA in CA-G.R. SP No. 70610 which affirmed the Orders of the RTC dated August
30, 2001, January 4, 2002 and January 16, 2002 (RTC Orders), all of which in effect dismissed
the Complaint for non-suit; and the CA Resolution dated March 21, 2003[4] which denied the
petitioner's Motion for Reconsideration.

Both petitions originated from a Complaint for Nullification of Second Supplemental Extra-
judicial Settlement, Mortgage, Foreclosure Sale and Tax Declaration filed by the petitioner on
May 2, 2000 with the RTC. Genalyn D. Young (petitioner), in her Complaint, alleged that the
extra-judicial partition executed by her natural mother, Lilia Dy Young which adjudicated an
unregistered parcel of land solely in favor of the latter, is unenforceable, since at the time of the
execution, she (petitioner) was only 15 years old and no court approval had been procured; that
the partition had been registered with the Register of Deeds; that Lilia Dy obtained a loan from
spouses Manuel Sy and Victoria Sy (respondents) and mortgaged the subject property; that the
property was foreclosed and sold to the highest bidder, respondent Manuel Sy; that a Certificate
of Sale for this purpose had been registered with the Register of Deeds; and that, thereafter,
respondents obtained in their name a tax declaration over the property in question.

The Antecedents

G.R. No. 157955 (Re: Supplemental Complaint)

On July 20, 2000, the petitioner filed with the RTC a Motion to Admit Supplemental Complaint,
attaching the Supplemental Complaint wherein petitioner invoked her right, as co-owner, to
exercise the legal redemption. The RTC denied the Motion in an Order dated December 28,
2000. Petitioner, on July 16, 2001, filed a Petition for Certiorari and Mandamus under Rule 65
of the Rules of Court, docketed as CA- G.R. SP No. 65629, and raised the following grounds:
THE HONORABLE RESPONDENT COURT ACTED WITHOUT OR IN EXCESS OF
JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION IN ISSUING THE ORDERS
DATED 28 DECEMBER 2000 AND 06 APRIL 2001 SINCE:
 A.

THE RELIEFS IN THE SUPPLEMENTAL COMPLAINT MERELY DEVELOP OR EXTEND

THE ORIGINAL CAUSES OF ACTION. PLAINTIFF'S CAUSE OF ACTION FOR LEGAL
REDEMPTION ARISES DIRECTLY FROM AND IS A NATURAL EXTENSION OR
CONSEQUENCE OF HER RIGHTS AS CO-OWNER OF THE PROPERTY SUBJECT OF
THE CASE.

B.

THE SUPERVENING EVENT WHICH IS THE CONSOLIDATION OF TITLE TO THE

SUBJECT PROPERTY IN THE NAME OF MANUEL SY, OCCURRED AFTER 21 JUNE
2000; SUCH DATE IS PLAINLY SUBSEQUENT TO THE FILING OF THE COMPLAINT
ON 02 MAY 2000.[5]
On November 18, 2002, the CA promulgated its Decision denying the Petition for Certiorari and
Mandamus and held that the cause of action of the petitioner in the Supplemental Complaint is
entirely different from the original complaint; that the Supplemental Complaint did not merely
supply its deficiencies; and that, at any rate, in the event the trial court issues an adverse ruling,
the petitioner can still appeal the same, hence, the petition under Rule 65 is not proper.

Hence, the present Petition for Review on Certiorari under Rule 45, raising the following issues:
A.

WHETHER OR NOT THE RTC ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR

WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LOSS OF JURISDICTION IN
ISSUING THE ORDERS DATED 28 DECEMBER 2000 AND 06 APRIL 2001.

1.

WHETHER OR NOT THE RELIEFS IN THE SUPPLEMENTAL COMPLAINT MERELY

DEVELOP OR EXTEND THE ORIGINAL CAUSES OF ACTION.

2.

WHETHER OR NOT THE SUPERVENING EVENT WHICH IS THE CONSOLIDATION OF

TITLE TO THE SUBJECT PROPERTY IN THE NAME OF MANUEL SY, OCCURRED
AFTER 21 JUNE 2000 OR SUBSEQUENT TO THE FILING OF THE COMPLAINT ON 02
MAY 2000.

B.

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT

NO GRAVE ABUSE OF DISCRETION WAS COMMITTED BY THE RTC AND THAT
THERE WAS NO NEED TO FILE A "PETITION" TO EXERCISE THE RIGHT OF LEGAL
REDEMPTION.

C.

WHETHER OR NOT THE INSTANT PETITION IS MOOT AND ACADEMIC.

D.

WHETHER OR NOT PETITIONER COMMITTED FORUM-SHOPPING.[6]

G.R. No. 157745 (Re: Non-Suit)

I. Appeal to the CA

While the Petition for Certiorari and Mandamus (re: Supplemental Complaint) was pending in
the CA, trial in the RTC continued. On August 29, 2001, a day before the hearing slated for
August 30, 2001, the petitioner filed a Motion to Cancel Hearing, alleging that she was
indisposed. On the day of the hearing, respondents, through counsel, objected to the
postponement and moved for the dismissal of the case for non-suit. The RTC sustained the
objection and issued the assailed August 30, 2001 Order dismissing the Complaint. This Order
reads in full:
ORDER

Atty. Raul S. Sison and his client arrived on time. When the case was called for hearing, the
Court found attached to the records a last minute Motion to Cancel Hearing from Atty. Perpetuo
M. Lotilla, Jr. The Court invited the attention of Atty. Sison on the said motion. Atty. Sison
vehemently objected to the postponement on the following grounds:
1) the motion is in violation of the three-day notice rule;

2) the ground stated in the motion is too shallow to be appreciated because it merely states that a
witness is indisposed without stating the indisposition and there is no Medical Certificate
attached to the motion;

3) the instant motion for postponement is one of the several postponements filed by Atty. Lotilla
and this is confirmed by the records of this case showing that last minute postponements and
other postponements were filed by Atty. Lotilla;

4) that damages are being suffered by defendants in paying the legal services of their counsel and
that defendants are unduly deprived of the possession and enjoyment of the subject property.
The Court is constrained to sustain the objection to the Motion for Postponement by Atty. Sison.
The Court has also been quite liberal with the Motions for Postponement filed by Atty. Lotilla by
granting the same. The Court holds that somehow the practice of filing several postponements
must be discouraged.
Atty. Sison therefore moved for the dismissal of the case for non-suit. The Court finds merit on
the Motion to Dismiss.

WHEREFORE, the Motion to Dismiss is granted and this case is ordered DISMISSED without
costs.

SO ORDERED.[7]
On January 4, 2002, the RTC denied the petitioner's Motion for Reconsideration. The dispositive
portion of this Order states:
WHEREFORE, the Motion for Reconsideration is DENIED. The resolution on the pending
incident of execution pendente lite is now considered moot and academic.[8]
On January 16, 2002, the RTC issued an Order correcting the January 4, 2002 Order due to a
typographical error. This Order reads in full:
ORDER

Finding merit on the Motion, the same is granted. The Court is sure that only typographical error
was committed.

The dispositive portion of the Order should therefore read as follows:

"WHEREFORE, the Motion for Reconsideration is DENIED. The resolution on the pending
incident of Motion for Writ of Possession, pendente lite, is now considered moot and academic.

SO ORDERED.[9]
On January 31, 2002, the petitioner filed a Notice of Appeal questioning the foregoing RTC
Orders. The case was eventually docketed as C.A.-G.R. CV No. 74045. In said appeal, the
petitioner assigned the following errors:
A

THE TRIAL COURT GRAVELY ERRED IN ISSUING THE ORDERS DATED 30 AUGUST
2001, 04 JANUARY 2002 AND 16 JANUARY 2002, SINCE THERE WAS NO FACTUAL
OR LEGAL BASIS TO DISMISS THE COMPLAINT FOR NON-SUIT.

B.

THE TRIAL COURT GRAVELY ERRED IN NOT HOLDING THAT PLAINTIFF-

APPELLANT HAD A JUST AND VALID GROUND TO MOVE FOR THE
CANCELLATION OF THE HEARING SET ON 30 AUGUST 2001.[10]
The CA rendered a Decision dated March 30, 2005[11] in favor of the petitioner, reversing and
setting aside the RTC Orders, the dispositive portion of this Decision reads:
WHEREFORE, premises considered, the Orders, dated August 30, 2001, January 4, 2002 and
January 16, 2002, issued by Branch 32 of the Regional Trial Court of San Pablo City are hereby
REVERSED and SET ASIDE. The record/case is hereby remanded to the court of origin for
further proceedings.

SO ORDERED.[12]
The respondents filed their Motion for Reconsideration, and based on the records before the
Court, this case is still pending in the CA.

II. Petition for Certiorari filed with the CA

On top of the foregoing appeal, the petitioner, four months after filing her Notice of Appeal to
the CA, or on May 28, 2002, filed with the CA a Petition for Certiorari under Rule 65, docketed
as CA-G.R. SP No. 70610 to annul the same RTC Orders that comprise the subject matter of the
ordinary appeal. Predictably, the petitioner raised essentially the same issues:
THE HONORABLE RESPONDENT COURT ACTED WITHOUT OR IN EXCESS OF
JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LOSS OF
JURISDICTION IN ISSUING THE ORDERS DATED AUGUST 30, 2001, JANUARY 4,
2002, AND JANUARY 16, 2002, SINCE:

A.

THERE WAS NO FACTUAL OR LEGAL BASIS FOR DISMISSAL OF THE COMPLAINT

ON THE GROUNDS OF NON-SUIT;

B.

PETITIONER HAD A JUST AND VALID GROUND TO MOVE FOR THE

CANCELLATION OF THE HEARING SET ON AUGUST 30, 2001.[13]
On November 29, 2002, ahead of the Decision dated March 30, 2005 rendered in the appealed
case, the CA denied[14] the Petition for Certiorari and held that the dismissal of the case by the
RTC on the ground of non prosequitur has the effect of an adjudication upon the merits; that an
order of dismissal, whether right or wrong, is a final order that may constitute an error of
judgment correctible by ordinary appeal and not by certiorari; that the petitioner actually chose
the mode of ordinary appeal by filing a Notice of Appeal on January 31, 2000; and that since the
remedy of appeal was available, then the petition for certiorari, being an extraordinary remedy,
must fail.

Hence, the present Petition for Review under Rule 45, with the following issues that are likewise
similar to the appealed case in the CA:
A.

WHETHER OR NOT THE REGIONAL TRIAL COURT ACTED WITHOUT OR IN EXCESS

OF JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LOSS
OF JURISDICTION IN ISSUING THE ORDERS DATED AUGUST 30, 2001, JANUARY 4,
2002, AND JANUARY 16, 2002, DISMISSING THE COMPLAINT.

1.

WHETHER OR NOT THERE WAS FACTUAL OR LEGAL BASIS FOR DISMISSAL OF

THE COMPLAINT ON THE GROUNDS OF NON- SUIT.

2.

WHETHER OR NOT PETITIONER HAD A JUST AND VALID GROUND TO MOVE FOR
THE CANCELLATION OF THE HEARING SET ON AUGUST 30, 2001.

B.

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT

NO GRAVE ABUSE OF DISCRETION WAS COMMITTED BY THE RTC AND THAT
ORDINARY APPEAL IS PETITIONER'S REMEDY FROM THE DISMISSAL OF THE
COMPLAINT BY THE RTC.[15]
The Ruling of the Court

The Petition (re: Supplemental Complaint) is meritorious; but the Petition (re: Non-Suit) must
fail.

On the denial of the Motion to Admit Supplemental Complaint:

The courts a quo held that the Supplemental Complaint constituted a substantial amendment of
the original complaint; that the relief prayed for in the former is inconsistent with the latter; and
that the causes of action of both are likewise different. This is incorrect.

Section 6, Rule 10 of the Revised Rules of Court provides:

SECTION 6. Supplemental Pleadings. - Upon motion of a party the court may, upon reasonable
notice and upon such terms as are just, permit him to serve a supplemental pleading setting forth
transactions, occurrences or events which have happened since the date of the pleading sought to
be supplemented. The adverse party may plead thereto within ten (10) days from notice of the
order admitting the supplemental pleading.
As its very name denotes, a supplemental pleading only serves to bolster or add something to the
primary pleading. A supplement exists side by side with the original. It does not replace that
which it supplements.[16] Moreover, a supplemental pleading assumes that the original pleading
is to stand and that the issues joined with the original pleading remained an issue to be tried in
the action.[17] It is but a continuation of the complaint. Its usual office is to set up new facts
which justify, enlarge or change the kind of relief with respect to the same subject matter as the
controversy referred to in the original complaint.[18]
The purpose of the supplemental pleading is to bring into the records new facts which will
enlarge or change the kind of relief to which the plaintiff is entitled; hence, any supplemental
facts which further develop the original right of action, or extend to vary the relief, are available
by way of supplemental complaint even though they themselves constitute a right of action.[19]

In Leobrera v. Court of Appeals,[20] the Court ruled that when the cause of action stated in the
supplemental complaint is different from the causes of action mentioned in the original
complaint, the court should not admit the supplemental complaint; the parties may file
supplemental pleadings only to supply deficiencies in aid of an original pleading, but not to
introduce new and independent causes of action. However, in Planters Development Bank v.
LZK Holdings and Development Co.,[21] the Court held that a broad definition of causes of action
should be applied: while a matter stated in a supplemental complaint should have some relation
to the cause of action set forth in the original pleading, the fact that the supplemental pleading
technically states a new cause of action should not be a bar to its allowance but only a factor to
be considered by the court in the exercise of its discretion; and of course, a broad definition of
"cause of action" should be applied here as elsewhere.[22]

In this case, the consolidation of title over the subject property in the name of respondent Manuel
Sy and the issue as to whether it precluded petitioner as alleged co-owner from exercising the
right of legal redemption, are new matters that occurred after the filing of the original complaint.
The relief prayed for in the Supplemental Complaint, which is the exercise of the right of legal
redemption accorded to co-owners of property, is germane to and intertwined with the cause of
action in the Complaint for the nullification of the "Second Supplemental to the Extrajudicial
Partition" on the ground that it lacked the approval of a guardianship court.

The petitioner's right to redeem the property is dependent on the nullification of the partition
which is the subject of the original complaint. Unless the partition is nullified or declared without
any force or effect, the petitioner will not be considered a co-owner of the property and,
consequently, she will be unable to exercise any right of legal redemption under Article 1620[23]
of the Civil Code granted to co-owners of property.

The right of legal redemption as co-owner is conferred by law and is merely a natural
consequence of co-ownership. Hence, the petitioner's cause of action for legal redemption as
embodied in her Supplemental Complaint stems directly from and is an extension of her rights as
co-owner of the property subject of the Complaint.

Furthermore, the evidence required to prove petitioner's right of legal redemption in the
Supplemental Complaint will be exactly the same evidence required to prove the nullification of
the partition in the Complaint.

If a separate action is filed for the subject covered by the Supplemental Complaint, there will be
multiplicity of suits. Should a separate complaint be filed before the nullification of the partition,
the same would be dismissed for being premature pending the resolution of the Complaint for
nullification.

After all, the respondents have the right to file a supplemental answer to the Supplemental
Complaint, conformably with Section 7, Rule 11 of the Rules of Court which reads:
SEC. 7. Answer to supplemental complaint. - A supplemental complaint may be answered within
ten (10) days from notice of the order admitting the same, unless a different period is fixed by
the court. The answer to the complaint shall serve as the answer to the supplemental complaint if
no new or supplemental answer is filed.
In affirming the RTC's denial of the admission of the Supplemental Complaint, the CA
rationalized that "[i]n the event that the lower court rules in favor of petitioner, then there is no
need for her to file a petition to exercise the right of redemption. On the other hand, should the
trial court issue[ ] an adverse ruling then petitioner can still appeal the same. The petition for
certiorari is therefore not proper."[24]

This, too, is incorrect.

As the petitioner correctly pointed out, even if the trial court decides in her favor, the redemption
period would have lapsed and would not form a part of the decision since it was not prayed for,
much less alleged in the original complaint. In such a case, the respondents could oppose the
exercise of the right to redeem since it would not have been included in the decision over the
original complaint. And should the trial court issue an adverse ruling, the petitioner can only
appeal what is included in the ruling which is limited to the denial of the prayer for the
nullification of the partition. Naturally, such a decision would not concern any right of
redemption.

Besides, as in Planters Development Bank,[25] the admission of the petitioner's Supplemental

Complaint will better serve the ends of justice. The Rules of Court were designed to facilitate the
administration of justice to the rival claims of the parties in a just, speedy and inexpensive
manner.

Thus, the courts a quo erred in denying the admission of petitioner's Supplemental Complaint
and the Petition (G.R. No. 157955) should be granted.

On the alleged Forum Shopping:

This Court is now concerned with the question of whether the petitioner has engaged in forum
shopping in appealing the RTC Orders which dismissed her complaint for non-suit and in filing a
Petition for Certiorari under Rule 65 with the CA involving the same RTC Orders.

Forum shopping consists of filing multiple suits involving the same parties for the same cause of
action, either simultaneously or successively, for the purpose of obtaining a favorable
judgment.[26]
There is forum shopping where there exist: (a) identity of parties, or at least such parties as
represent the same interests 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 pending case, regardless of which party is successful
would amount to res judicata.[27]

Ineluctably, the petitioner, by filing an ordinary appeal and a petition for certiorari with the CA,
engaged in forum shopping. When the petitioner commenced the appeal, only four months had
elapsed prior to her filing with the CA the Petition for Certiorari under Rule 65 and which
eventually came up to this Court by way of the instant Petition (re: Non-Suit). The elements of
litis pendentia are present between the two suits. As the CA, through its Thirteenth Division,
correctly noted, both suits are founded on exactly the same facts[28] and refer to the same subject
matter-the RTC Orders which dismissed Civil Case No. SP-5703 (2000) for failure to prosecute.
In both cases, the petitioner is seeking the reversal of the RTC orders. The parties, the rights
asserted, the issues professed, and the reliefs prayed for, are all the same. It is evident that the
judgment of one forum may amount to res judicata in the other.

But it is the proposition of the petitioner that between these two cases, the one that is "proper" is
the petition for certiorari filed with the CA, since the RTC, according to her, acted with grave
abuse of discretion; and that her appeal in the CA "has proven to be not a speedy remedy" and
had only been instituted as a "precautionary measure." As proof of the averment that the appeal
was not speedy enough, she points out the fact that while the CA had just promulgated a
Decision on March 30, 2005 with respect to the appealed case, that case, however, is still
pending to this day in the CA by virtue of a motion for reconsideration recently filed by the
respondents, whereas, in the proceedings that led to the present Petition (re: Non-Suit), the CA
had rendered a Decision dated November 29, 2000 - over four years ahead of its counterpart.
From these premises, she proceeds to cite jurisprudence invoking the exceptional instances
where a party may directly resort to the extraordinary remedy of certiorari, because the appeal,
in those cases, is not speedy enough.[29]

This is completely unacceptable.

The Court begins with the unassailable premise that the RTC orders dismissing the case for
failure to prosecute are final orders, because such orders of dismissal operate as a judgment on
the merits.[30] This principle is now an express provision in Section 3, Rule 17 of the Rules of
Court, to wit:
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. (emphasis supplied)
It is firmly established, and with very few exceptions, that the remedy against such final order is
appeal and not certiorari.[31]

The general rule is that a writ of certiorari will not issue where the remedy of appeal is available
to the aggrieved party. The remedies of appeal in the ordinary course of law and that of
certiorari under Rule 65 are mutually exclusive and not alternative or cumulative. [32] Hence, the
special civil action of certiorari under Rule 65 cannot be a substitute for an appeal where the
latter remedy is available.

While indeed there are exceptions to the foregoing rule, and assuming further that the case of the
petitioner falls under any of those exceptions which allows her to elect Rule 65, the
jurisprudence which she calls upon does not sanction the successive or cumulative filing of both
an appeal and a special civil action of certiorari. Quite the opposite, these cases set down the
exceptional circumstances where certiorari can be directly invoked in lieu of appeal.

The remedies of appeal and certiorari under Rule 65 are mutually exclusive and not alternative
or cumulative.[33] This is a firm judicial policy. The petitioner cannot hedge her case by wagering
two or more appeals, and, in the event that the ordinary appeal lags significantly behind the
others, she cannot post facto validate this circumstance as a demonstration that the ordinary
appeal had not been speedy or adequate enough, in order to justify the recourse to Rule 65. This
practice, if adopted, would sanction the filing of multiple suits in multiple fora, where each one,
as the petitioner couches it, becomes a "precautionary measure" for the rest, thereby increasing
the chances of a favorable decision. This is the very evil that the proscription on forum shopping
seeks to put right. In Guaranteed Hotels, Inc. v. Baltao,[34] the Court stated that the grave evil
sought to be avoided by the rule against forum shopping is the rendition by two competent
tribunals of two separate and contradictory decisions. Unscrupulous party litigants, taking
advantage of a variety of competent tribunals, may repeatedly try their luck in several different
fora until a favorable result is reached. To avoid the resultant confusion, the Court adheres
strictly to the rules against forum shopping, and any violation of these rules results in the
dismissal of the case. [35]

Thus, the CA correctly dismissed the petition for certiorari and the petition for review (G.R. No.
157745) filed with this Court must be denied for lack of merit.

WHEREFORE, the Petition for Review in G.R. No. 157745 is DENIED for lack of merit.

The Petition for Review in G.R. No. 157955 is GRANTED. The Decisions and Resolutions of
the Court of Appeals in CA-G.R. SP No. 65629 are REVERSED AND SET ASIDE. The
Regional Trial Court, San Pablo City, Branch 32, is DIRECTED to ADMIT the petitioner's
Supplemental Complaint dated July 20, 2000.
No costs.

SO ORDERED.

Panganiban, C. J. (Chairperson)., Ynares-Santiago, Callejo, Sr., and Chico-Nazario, JJ., concur.

[1]
Penned by Associate Justice Juan Q. Enriquez, Jr., with Associate Justices Bernardo P.
Abesamis (retired) and Edgardo F. Sundiam concurring.

[2]
Id.

[3]
Penned by Associate Justice Sergio L. Pestaño (retired), with Acting Presiding Justice Cancio
C. Garcia (now Associate Justice of the Supreme Court) and Associate Justice Eloy R. Bello, Jr.
(retired) concurring.

[4]
Id.

[5]
CA rollo, CA-G.R. SP No. 65629, p. 157.

[6]
Rollo, pp. 386-387. The issue as to whether the petitioner engaged in forum shopping refers to
two cases covering the same subject (Re: Non-Suit), namely, CA-G.R. CV No. 74075 and CA-
G.R. SP No. 70610 which will be discussed forthwith.

[7]
Records, pp. 308-309.

[8]
Id. at 393.

[9]
Id. at 397.

[10]
Rollo, G.R. No. 157745, p. 343.

[11]
Penned by Associate Justice Edgardo F. Sundiam, with Associate Justices Renato C. Dacudao
and Japar B. Dimaampao concurring.

[12]
Rollo, G.R. No. 157745, pp. 346-347.

[13]
Rollo, G.R. No. 157745, p. 140.

[14]
Penned by Associate Justice Sergio L. Pestaño (retired), with Acting Presiding Justice Cancio
C. Garcia (now Associate Justice of the Supreme Court) and Associate Justice Eloy R. Bello, Jr.
(retired) concurring.
[15]
Rollo, G.R. No. 157955, pp. 496-497.

[16]
Planters Development Bank v. LZK Holdings and Development Co., G.R. No. 153777, April
15, 2005, 456 SCRA 366, 379; Aznar III v. Bernad, G.R. No. L-81190, 9 May 1988, 161 SCRA
276, 281-282.

[17]
Planters Development Bank case, supra; Delbros Hotel Corporation v. Intermediate
Appellate Court, G.R. No. L-72566, April 12, 1988, 159 SCRA 533, 543.

[18]
Planters Development Bank case, supra.

[19]
Ibid.

[20]
G.R. No. 80001, February 27, 1989, 170 SCRA 711.

[21]
Supra note 16.

[22]
Id. at 380.

[23]
Article 1620 of the Civil Code provides:
Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all
the other co-owners or of any of them, are sold to a third person. If the price of the alienation is
grossly excessive, the redemptioner shall pay only a reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common. (1522a)
The foregoing article should be read in light of Article 1623 of the same Code:
Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied
by an affidavit of the vendor that he has given written notice thereof to all possible
redemptioners.
xxxx

[24]
CA rollo, p. 159.

[25]
Supra.

[26]
Guaranteed Hotels, Inc. v. Baltao, G.R. No. 164338, January 17, 2005, 448 SCRA 738, 743.

[27]
Id. at 743-744.
[28]
Rollo, G.R. No. 157745, pp. 340-342.

[29]
Rollo, G.R. No. 157955, pp. 407-408, citing Raymundo v. Court of Appeals, 374 Phil. 95, 101
(1999); Conti v. Court of Appeals, 366 Phil. 956, 965 (1999); Jaca v. Davao Lumber, 198 Phil.
493, 517 (1999); Co Chuan Seng v. Court of Appeals, 213 Phil. 274, 279 (1984); PNR v. CFI of
Albay, No. L-46943, June 8, 1978, 83 SCRA 569; Rollo, pp. 511-513 G.R. No. 157745, citing, in
addition, Republic v. Court of Appeals, 357 Phil. 174 (1998); Philippine Long Distance
Telephone Co. v. Genovea, 201 Phil. 862 (1982); Rexwell Corporation v. Canlas, 113 Phil. 854
(1961); Philippine Commercial and Industrial Bank v. Escolin, 155 Phil. 228 (1974).

[30]
Suarez v. Villarama, G.R. No. 124512, June 27, 2006; Heirs of the Late Flor Tungpalan v.
Court of Appeals, G.R. No. 136207, June 21, 2005, 460 SCRA 392, 398; Ilasco, Jr. v. Court of
Appeals, G.R. No. 88983, December 14, 1993, 228 SCRA 413, 418.

[31]
Suarez v. Villarama, supra note 30.

[32]
Perez-Rosario v. Court of Appeals, G.R. No. 140796, June 30, 2006; Hanjin Engineering and
Construction Co. Ltd. v. Court of Appeals, G.R. No. 165910, April 10, 2006; Land Bank of the
Philippines v. Court of Appeals, G.R. No. 129368, August 25, 2003.

[33]
Perez-Rosario v. Court of Appeals, G.R. No. 140796, June 30, 2006; Hanjin Engineering and
Construction Co. Ltd. v. Court of Appeals, G.R. No. 165910, April 10, 2006; Land Bank of the
Philippines v. Court of Appeals, 456 Phil. 755, 785 (2003).

[34]
Supra note 26.

[35]
Id.

Copyright 2016 - Batas.org

Supreme Court of the Philippines

136 Phil. 239

G.R. No. L-27802, January 31, 1969

REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLEE, VS. CENTRAL SURETY &

INSURANCE COMPANY, ET AL., DEFENDANTS-APPELLANTS. CENTRAL SURETY &
 INSURANCE COMPANY, THIRD-PARTY PLAINTIFF-APPELLANT, VS. PO KEE KAM, ET
AL., THIRD-PARTY DEFENDANTS-APPELLEES.

RESOLUTION

CASTRO, J.:

The Central Surety & Insurance Company filed on November 13, 1968 a "motion to modify
judgment" - referring to this Court's decision of October 26, 1968 - praying that

1. The date October 23, 1959 stated in the first line of par. 1, page 1 of the statement of the case
in the decision be changed to June 20, 1963, the date when the plaintiff-appellee actually filed
the complaint against the defendant-appellant;

2. Go Siu Eng and Jao Yan alias Go Liao Lian be specifically mentioned as third-party
defendants in addition to the third-party defendants Po Kee Kam and Tony Go whose names
appear on page 2 of the decision; and

3. The clause, "plus interest at the rate of 12% per annum, compounded quarterly from the filing
of the complaint, until the whole obligation is fully paid, and attorney's fees of 15% of the total
amount due as prayed for in the third-party complaint," be added to the first sentence of the
dispositive portion of the decision.

By resolution dated November 20, 1968, this Court required the plaintiff-appellee to comment,
within 10 days from notice, on the said "motion to modify judgment." The plaintiff-appellee
filed on December 5, 1968 its "Comment" wherein it manifested that it "offers no objection to
the motion to modify judgment it appearing that the reasons stated in said motion are borne out
by the records."

The counsel for the third-party defendants-appellees was likewise required, by resolution of this
Court of December 11, 1968, to comment within 10 days from notice on the same "motion to
modify judgment." Up to the date of this resolution, no comment whatsoever has been filed by
the said counsel nor by any of the third-party defendants-appellees.

ACCORDINGLY, finding the grounds of the "motion to modify judgment" meritorious because
sustained by the record, the decision of this Court is hereby modified so that:

(a) the first sentence of the decision will read as follows: "On June 20, 1963 the Republic of the
Philippines (hereinafter referred to as the Republic) filed suit against the Central Surety &
Insurance Company (hereinafter referred to as the Surety) and the latter's manager of the bond
department, Casimiro Mangoba;"
(b) the fourth paragraph of the decision will read as follows: "On July 30, 1963 the Surety filed
a third-party complaint, with leave of court, against Po Kee Kam, Tony Go, Go Siu Eng, Jao Yan
alias Go Liao Lian (hereinafter referred to as the third-party defendants) …;" and

(c) the dispositive portion of the decision will read as follows: "ACCORDINGLY, the order
dated December 2, 1963 dismissing the third-party complaint is set aside; the decision dated De-
cember 3, 1963 is modified in the sense that the third-party defendants are hereby ordered to pay
to the Surety whatever sums the latter will pay to the Republic by virtue of the judgment
appealed from, plus interest at the rate of 12% per annum, compounded quarterly from the filing
of the complaint, until the whole obligation is paid, and attorney's fees of 15% of the total
amount as prayed for in the third-party complaint. Costs are assessed against the Surety in favor
of the Republic, and against the third-party defendants in favor of the Surety."

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando, and
Capistrano, JJ., concur.

Copyright 2016 - Batas.org

Supreme Court of the Philippines

498 Phil. 36

SECOND DIVISION

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:

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. 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]

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;

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 Appeals[12] 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:

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.[18] The
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.[19] There 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,[20] the 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.

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.

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.

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.

Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

[1]
Rollo, pp. 26-30.

[2]
Rollo, p. 29.

[3]
id. at 44.

[4]
Rollo, p. 45.

[5]
Ibid.

[6]
Records, pp. 39-40.

[7]
id. at 34.

[8]
id. at 36-37.

[9]
Records, p. 48.

[10]
CA Rollo, p. 15.

[11]
Rollo, p. 12.

[12]
G.R. No. 85868, 13 October 1989, 178 SCRA 526.

[13]
G.R. No. 121824, 29 January 1998, 285 SCRA 450.

[14]
Rollo, p. 16.

[15]
Koenigs v. Travis, 75 N.W.2d 478 (1956).

[16]
Allied Banking Corporation v. Court of Appeals, supra.

[17]
Allied Banking Corporation v. Court of Appeals, supra.

[18]
Capayas v. Court of First Instance of Albay, 77 Phil. 181 (1946).

[19]
Atlantic Coast Line R. Company v. United States Fidelity & Guaranty Co., 52 F.Supp. 177
(1943).

[20]
Supra.

[21]
Blaszak v. Union Tank Car. Co., 184 N.E.2d 808 (1962).
[22]
Goswami v. H & D Construction Company, 355 N.Y.S.2d 922 (1974).

[23]
Capayas v. Court of First Instance of Albay, supra.

[24]
Koenigs v. Travis, supra.

[25]
United States v. Consolidated Elevator Company, 141 F.2d 791 (1944).

[26]
Capayas v. Court of First Instance of Albay, supra.

[27]
See Bourree v. A. K. Roy, Inc., 94 So.2d 13 (1957).

[28]
Allied Banking Corporation v. Court of Appeals, supra.

[29]
British Airways v. Court of Appeals, supra.

Copyright 2016 - Batas.org

Supreme Court of the Philippines

637 Phil. 283

SECOND DIVISION

G.R. No. 171736, July 05, 2010

PENTACAPITAL INVESTMENT CORPORATION, PETITIONER, VS. MAKILITO B.

MAHINAY, RESPONDENT.

[G.R. NO. 181482]

PENTACAPITAL INVESTMENT CORPORATION, PETITIONER, VS. MAKILITO B.

MAHINAY, RESPONDENT.

DECISION

NACHURA, J.:
Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of
Court filed by petitioner Pentacapital Investment Corporation. In G.R. No. 171736, petitioner
assails the Court of Appeals (CA) Decision[1] dated December 20, 2005 and Resolution[2] dated
March 1, 2006 in CA-G.R. SP No. 74851; while in G.R. No. 181482, it assails the CA
Decision[3] dated October 4, 2007 and Resolution[4] dated January 21, 2008 in CA-G.R. CV No.
86939.

The Facts

Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based on
two separate loans obtained by the latter, amounting to P1,520,000.00 and P416,800.00, or a
total amount of P1,936,800.00. These loans were evidenced by two promissory notes[5] dated
February 23, 1996. Despite repeated demands, respondent failed to pay the loans, hence, the
complaint.[6]

In his Answer with Compulsory Counterclaim,[7] respondent claimed that petitioner had no cause
of action because the promissory notes on which its complaint was based were subject to a
condition that did not occur.[8] While admitting that he indeed signed the promissory notes, he
insisted that he never took out a loan and that the notes were not intended to be evidences of
indebtedness.[9] By way of counterclaim, respondent prayed for the payment of moral and
exemplary damages plus attorney's fees.[10]

Respondent explained that he was the counsel of Ciudad Real Development Inc. (CRDI). In
1994, Pentacapital Realty Corporation (Pentacapital Realty) offered to buy parcels of land
known as the Molino Properties, owned by CRDI, located in Molino, Bacoor, Cavite. The
Molino Properties, with a total area of 127,708 square meters, were sold at P400.00 per sq m. As
the Molino Properties were the subject of a pending case, Pentacapital Realty paid only the down
payment amounting to P12,000,000.00. CRDI allegedly instructed Pentacapital Realty to pay the
former's creditors, including respondent who thus received a check worth P1,715,156.90.[11] It
was further agreed that the balance would be payable upon the submission of an Entry of
Judgment showing that the case involving the Molino Properties had been decided in favor of
CRDI.[12]

Respondent, Pentacapital Realty and CRDI allegedly agreed that respondent had a charging lien
equivalent to 20% of the total consideration of the sale in the amount of P10,277,040.00.
Pending the submission of the Entry of Judgment and as a sign of good faith, respondent
purportedly returned the P1,715,156.90 check to Pentacapital Realty. However, the Molino
Properties continued to be haunted by the seemingly interminable court actions initiated by
different parties which thus prevented respondent from collecting his commission.

On motion[13] of respondent, the Regional Trial Court (RTC) allowed him to file a Third Party
Complaint[14] against CRDI, subject to the payment of docket fees.[15]
Admittedly, respondent earlier instituted an action for Specific Performance against Pentacapital
Realty before the RTC of Cebu City, Branch 57, praying for the payment of his commission on
the sale of the Molino Properties.[16] In an Amended Complaint,[17] respondent referred to the
action he instituted as one of Preliminary Mandatory Injunction instead of Specific Performance.
Acting on Pentacapital Realty's Motion to Dismiss, the RTC dismissed the case for lack of cause
of action.[18] The dismissal became final and executory.

With the dismissal of the aforesaid case, respondent filed a Motion to Permit Supplemental
Compulsory Counterclaim.[19] In addition to the damages that respondent prayed for in his
compulsory counterclaim, he sought the payment of his commission amounting to
P10,316,640.00, plus interest at the rate of 16% per annum, as well as attorney's fees equivalent
to 12% of his principal claim.[20] Respondent claimed that Pentacapital Realty is a 100%
subsidiary of petitioner. Thus, although petitioner did not directly participate in the transaction
between Pentacapital Realty, CRDI and respondent, the latter's claim against petitioner was
based on the doctrine of piercing the veil of corporate fiction. Simply stated, respondent alleged
that petitioner and Pentacapital Realty are one and the same entity belonging to the Pentacapital
Group of Companies.[21]

Over the opposition of petitioner, the RTC, in an Order[22] dated August 22, 2002, allowed the
filing of the supplemental counterclaim. Aggrieved, petitioner sought recourse in the CA through
a special
civil action for certiorari, seeking to reverse and set aside the RTC Order. The case was
docketed as CA-G.R. SP No. 74851. On December 20, 2005, the CA rendered the assailed
Decision dismissing the petition.[23] The appellate court sustained the allowance of the
supplemental compulsory counterclaim based on the allegations in respondent's pleading. The
CA further concluded that there was a logical relationship between the claims of petitioner in its
complaint and those of respondent in his supplemental compulsory counterclaim. The CA
declared that it was inconsequential that respondent did not clearly allege the facts required to
pierce the corporate separateness of petitioner and its subsidiary, the Pentacapital Realty.[24]

Petitioner now comes before us in G.R. No. 171736, raising the following issues:

A.

WHETHER RESPONDENT MAHINAY IS BARRED FROM ASSERTING THE CLAIM

CONTAINED IN HIS "SUPPLEMENTAL COMPULSORY COUNTERCLAIM" ON THE
GROUNDS OF (1) RES JUDICATA, (2) WILLFUL AND DELIBERATE FORUM SHOPPING,
AND (3) FAILURE TO INTERPOSE SUCH CLAIM ON TIME PURSUANT TO SECTION 2
OF RULE 9 OF THE RULES OF COURT;

B.

WHETHER RESPONDENT MAHINAY'S SUPPLEMENTAL COMPULSORY

COUNTERCLAIM IS ACTUALLY A THIRD-PARTY COMPLAINT AGAINST
PENTACAPITAL REALTY, THE INTRODUCTION OF WHICH REQUIRES THE
PAYMENT OF THE NECESSARY DOCKET FEES;

C.

ASSUMING FOR THE SAKE OF PURE ARGUMENT THAT IT IS PROPER TO PIERCE

THE CORPORATE VEIL AND TO ALLOW RESPONDENT MAHINAY TO LODGE A
"SUPPLEMENTAL COMPULSORY COUNTERCLAIM" AGAINST HEREIN PETITIONER
PENTACAPITAL INVESTMENT FOR AN ALLEGED OBLIGATION OF ITS
SUBSIDIARY, PENTACAPITAL REALTY, ON THE THEORY THAT THEY ARE "ONE
AND THE SAME COMPANY," WHETHER PENTACAPITAL REALTY SHOULD HAVE
AT LEAST BEEN MADE A PARTY TO THE CASE AS RULED BY THIS HONORABLE
COURT IN FILMERCO COMMERCIAL CO., INC. VS. INTERMEDIATE APPELLATE
COURT;

D.

WHETHER RESPONDENT MAHINAY SHOULD BE ALLOWED TO PRESENT

EVIDENCE ON HIS SO-CALLED "SUPPLEMENTAL COMPULSORY COUNTERCLAIM"
INASMUCH AS (1) RESPONDENT MAHINAY'S PLEADINGS ARE BEREFT OF ANY
ALLEGATIONS TO BUTTRESS THE MERGING OF PENTACAPITAL REALTY AND
PENTACAPITAL INVESTMENT INTO ONE ENTITY AND THE CONSEQUENT
IMPUTATION ON THE LATTER OF THE FORMER'S SUPPOSED LIABILITY ON
RESPONDENT MAHINAY'S SUPPLEMENTAL COMPULSORY COUNTERCLAIM, AND
(2) THE INCIDENTS ALLEGEDLY PERTAINING TO, AND WHICH WOULD THEREBY
SUPPORT, THE PIERCING OF CORPORATE VEIL ARE NOT EVIDENTIARY MATTERS
MATERIAL TO THE PROCEEDINGS BEFORE THE COURT A QUO CONSIDERING
THAT THE SAME ARE BEYOND THE SCOPE OF THE PLEADINGS;

E.

WHETHER THE DOCTRINE OF PIERCING THE CORPORATE VEIL MAY BE INVOKED

AND APPLIED IN ORDER TO EVADE AN OBLIGATION AND FACILITATE
PROCEDURAL WRONGDOING; AND

F.

WHETHER PETITIONER PENTACAPITAL INVESTMENT COMMITTED FORUM

SHOPPING WHEN IT FILED THE PRESENT PETITION DURING THE PENDENCY OF
THE MOTION FOR RECONSIDERATION IT FILED BEFORE THE COURT A QUO AND,
SUBSEQUENTLY, OF THE APPEAL BEFORE THE COURT OF APPEALS TO QUESTION
THE JUDGMENT OF THE COURT A QUO.[25]

There being no writ of injunction or Temporary Restraining Order (TRO), the proceedings
before the RTC continued and respondent was allowed to present his evidence on his
supplemental compulsory counterclaim. After trial on the merits, the RTC rendered a decision[26]
dated March 20, 2006, the dispositive portion of which reads:

WHEREFORE, PREMISES CONSIDERED, plaintiff's complaint is hereby ordered dismissed

for lack of merit. This court, instead, finds that defendant was able to prove by a clear
preponderance of evidence his cause of action against plaintiff as to defendant's compulsory and
supplemental counterclaims. That, therefore, this court hereby orders the plaintiff to pay unto
defendant the following sums, to wit:

1. P1,715,156.90 representing the amount plaintiff is obligated to pay

defendant as provided for in the deed of sale and the supplemental
agreement, plus interest at the rate of 16% per annum, to be computed
from September 23, 1998 until the said amount shall have been fully paid;

2. Php 10,316,640.00 representing defendant's share of the proceeds of the

sale of the Molino property (defendant's charging lien) plus interest at the
rate of 16% per annum, to be computed from September 23, 1998 until the
said amount shall have been fully paid;

3. Php 50,000.00 as attorney's fees based on quantum meruit;

4. Php 50,000.00 litigation expenses, plus costs of suit.

This court finds it unnecessary to rule on the third party complaint, the relief prayed for therein
being dependent on the possible award by this court of the relief of plaintiff's complaint.[27]

On appeal, the CA, in CA-G.R. CV No. 86939, affirmed in toto the above decision. The CA
found no basis for petitioner to collect the amount demanded, there being no perfected contract
of loan for lack of consideration.[28] As to respondent's supplemental compulsory counterclaim,
quoting the findings of the RTC, the appellate court held that respondent was able to prove by
preponderance of evidence that it was the intent of Pentacapital Group of Companies and CRDI
to give him P10,316,640.00 and P1,715,156.90.[29] The CA likewise affirmed the award of
interest at the rate of 16% per annum, plus damages.[30]

Unsatisfied, petitioner moved for reconsideration of the aforesaid Decision, but it was denied in a
Resolution[31] dated January 21, 2008. Hence, the present petition in G.R. No. 181482, anchored
on the following arguments:

A.

Considering that the inferences made in the present case are manifestly absurd, mistaken or
impossible, and are even contrary to the admissions of respondent Mahinay, and inasmuch as the
judgment is premised on a misapprehension of facts, this Honorable Court may validly take
cognizance of the errors relative to the findings of fact of both the Honorable Court of Appeals
and the court a quo.

B.

Respondent Mahinay is liable to petitioner PentaCapital Investment for the PhP1,936,800.00

loaned to him as well as for damages and attorney's fees.

1.

The Honorable Court of Appeals erred in concluding that respondent Mahinay failed to receive
the money he borrowed when there is not even any dispute as to the fact that respondent
Mahinay did indeed receive the PhP1,936,800.00 from petitioner PentaCapital Investment.

2.

The Promissory Notes executed by respondent Mahinay are valid instruments and are binding
upon him.

C.

Petitioner PentaCapital Investment cannot be held liable on the supposed "supplemental

compulsory counterclaim" of respondent Mahinay.

1.

The findings of fact as well as the conclusions arrived at by the Court of Appeals in its decision
were based on mistaken assumptions and on erroneous appreciation of the evidence on record.

2.

There is no evidence on record to support the merging of PentaCapital Realty and petitioner
PentaCapital Investment into one entity and the consequent imputation on the latter of the
former's supposed liability on respondent Mahinay's supplemental compulsory counterclaim.
 3.

Inasmuch as the claim of respondent Mahinay is supposedly against PentaCapital Realty, and
considering that petitioner PentaCapital Investment is a separate, distinct entity from
PentaCapital Realty, the latter should have been impleaded as it is an indispensable party.

D.

Assuming for the sake of pure argument that it is proper to disregard the corporate fiction and to
consider herein petitioner PentaCapital Investment and its subsidiary, PentaCapital Realty, as
one and the same entity, respondent Mahinay's "supplemental compulsory counterclaim" must
still necessarily fail.

1.

The cause of action of respondent Mahinay, as contained in his "supplemental compulsory

counterclaim," is already barred by a prior judgment (res judicata).

2.

Considering that the dismissal on the merits by the RTC Cebu of respondent Mahinay's
complaint against PentaCapital Realty for attorney's fees has attained finality, respondent
Mahinay committed a willful act of forum shopping when he interposed the exact same claim in
the proceedings a quo as a supposed supplemental compulsory counterclaim against what he
claims to be "one and the same" company.

3.

Respondent Mahinay's supplemental compulsory counterclaim is actually a third party complaint

against PentaCapital Realty; the filing thereof therefore requires the payment of the necessary
docket fees.

E.

The doctrine of piercing the corporate veil is an equitable remedy which cannot and should not
be invoked, much less applied, in order to evade an obligation and facilitate procedural
wrongdoing.[32]

Simply put, the issues for resolution are: 1) whether the admission of respondent's supplemental
compulsory counterclaim is proper; 2) whether respondent's counterclaim is barred by res
judicata; and (3) whether petitioner is guilty of forum-shopping.
 The Court's Ruling

Admission of Respondent's
Supplemental Compulsory Counterclaim

The pertinent provision of the Rules of Court is Section 6 of Rule 10, which reads:

Sec. 6. Supplemental pleadings. - Upon motion of a party, the court may, upon reasonable notice
and upon such terms as are just, permit him to serve a supplemental pleading setting forth
transactions, occurrences or events which have happened since the date of the pleading sought to
be supplemented. The adverse party may plead thereto within ten (10) days from notice of the
order admitting the supplemental pleading.

As a general rule, leave will be granted to a party who desires to file a supplemental pleading
that alleges any material fact which happened or came within the party's knowledge after the
original pleading was filed, such being the office of a supplemental pleading. The application of
the rule would ensure that the entire controversy might be settled in one action, avoid
unnecessary repetition of effort and unwarranted expense of litigants, broaden the scope of the
issues in an action owing to the light thrown on it by facts, events and occurrences which have
accrued after the filing of the original pleading, and bring into record the facts enlarging or
charging the kind of relief to which plaintiff is entitled. It is the policy of the law to grant relief
as far as possible for wrongs complained of, growing out of the same transaction and thus put an
end to litigation.[33]

In his Motion to Permit Supplemental Compulsory Counterclaim, respondent admitted that, in

his Answer with Compulsory Counterclaim, he claimed that, as one of the corporations
composing the Pentacapital Group of Companies, petitioner is liable to him for P10,316,640.00,
representing 20% attorney's fees and share in the proceeds of the sale transaction between
Pentacapital Realty and CRDI. In the same pleading, he further admitted that he did not include
this amount in his compulsory counterclaim because he had earlier commenced another action
for the collection of the same amount against Pentacapital Realty before the RTC of Cebu. With
the dismissal of the RTC-Cebu case, there was no more legal impediment for respondent to file
the supplemental counterclaim.

Moreover, in his Answer with Compulsory Counterclaim, respondent already alleged that he
demanded from Pentacapital Group of Companies to which petitioner supposedly belongs, the
payment of his 20% commission. This, in fact, was what prompted respondent to file a complaint
before the RTC-Cebu for preliminary mandatory injunction for the release of the said amount.

Given these premises, it is obvious that the alleged obligation of petitioner already existed and
was known to respondent at the time of the filing of his Answer with Counterclaim. He should
have demanded payment of his commission and share in the proceeds of the sale in that Answer
with Compulsory Counterclaim, but he did not. He is, therefore, proscribed from incorporating
the same and making such demand via a supplemental pleading. The supplemental pleading must
be based on matters arising subsequent to the filing of the original pleading related to the claim
or defense presented therein, and founded on the same cause of action.[34] Supplemental
pleadings must state transactions, occurrences or events which took place since the time the
pleading sought to be supplemented was filed.[35]

Even on the merits of the case, for reasons that will be discussed below, respondent's
counterclaim is doomed to fail.

Petitioner's Complaint

In its complaint for sum of money, petitioner prayed that respondent be ordered to pay his
obligation amounting to P1,936,800.00 plus interest and penalty charges, and attorney's fees.
This obligation was evidenced by two promissory notes executed by respondent. Respondent,
however, denied liability on the ground that his obligation was subject to a condition that did not
occur. He explained that the promissory notes were dependent upon the happening of a remote
event that the parties tried to anticipate at the time they transacted with each other, and the event
did not happen.[36] He further insisted that he did not receive the proceeds of the loan.

To ascertain whether or not respondent is bound by the promissory notes, it must be established
that all the elements of a contract of loan are present. Like any other contract, a contract of loan
is subject to the rules governing the requisites and validity of contracts in general. It is
elementary in this jurisdiction that what determines the validity of a contract, in general, is the
presence of the following elements: (1) consent of the contracting parties; (2) object certain
which is the subject matter of the contract; and (3) cause of the obligation which is
established.[37]

In this case, respondent denied liability on the ground that the promissory notes lacked
consideration as he did not receive the proceeds of the loan.

We cannot sustain his contention.

Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful
unless the debtor proves the contrary.[38] Moreover, under Section 3, Rule 131 of the Rules of
Court, the following are disputable presumptions: (1) private transactions have been fair and
regular; (2) the ordinary course of business has been followed; and (3) there was sufficient
consideration for a contract.[39] A presumption may operate against an adversary who has not
introduced proof to rebut it. The effect of a legal presumption upon a burden of proof is to create
the necessity of presenting evidence to meet the legal presumption or the prima facie case
created thereby, and which, if no proof to the contrary is presented and offered, will prevail. The
burden of proof remains where it is, but by the presumption, the one who has that burden is
relieved for the time being from introducing evidence in support of the averment, because the
presumption stands in the place of evidence unless rebutted.[40]

In the present case, as proof of his claim of lack of consideration, respondent denied under oath
that he owed petitioner a single centavo. He added that he did not apply for a loan and that when
he signed the promissory notes, they were all blank forms and all the blank spaces were to be
filled up only if the sale transaction over the subject properties would not push through because
of a possible adverse decision in the civil cases involving them (the properties). He thus posits
that since the sale pushed through, the promissory notes did not become effective.

Contrary to the conclusions of the RTC and the CA, we find such proof insufficient to overcome
the presumption of consideration. The presumption that a contract has sufficient consideration
cannot be overthrown by the bare, uncorroborated and self-serving assertion of respondent that it
has no consideration.[41] The alleged lack of consideration must be shown by preponderance of
evidence.[42]

As it now appears, the promissory notes clearly stated that respondent promised to pay petitioner
P1,520,000.00 and P416,800.00, plus interests and penalty charges, a year after their execution.
Nowhere in the notes was it stated that they were subject to a condition. As correctly observed by
petitioner, respondent is not only a lawyer but a law professor as well. He is, therefore, legally
presumed not only to exercise vigilance over his concerns but, more importantly, to know the
legal and binding effects of promissory notes and the intricacies involving the execution of
negotiable instruments including the need to execute an agreement to document extraneous
collateral conditions and/or agreements, if truly there were such.[43] This militates against
respondent's claim that there was indeed such an agreement. Thus, the promissory notes should
be accepted as they appear on their face.

Respondent's liability is not negated by the fact that he has uncollected commissions from the
sale of the Molino properties. As the records of the case show, at the time of the execution of the
promissory notes, the Molino properties were subject of various court actions commenced by
different parties. Thus, the sale of the properties and, consequently, the payment of respondent's
commissions were put on hold. The non-payment of his commissions could very well be the
reason why he obtained a loan from petitioner.

In Sierra v. Court of Appeals,[44] we held that:

A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it

on the date and under the conditions agreed upon by the borrower and the lender. A person who
signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him
through the signature he affixes thereto as a token of his good faith. If he reneges on his promise
without cause, he forfeits the sympathy and assistance of this Court and deserves instead its
sharp repudiation.
Aside from the payment of the principal obligation of P1,936,800.00, the parties agreed that
respondent pay interest at the rate of 25% from February 17, 1997 until fully paid. Such rate,
however, is excessive and thus, void. Since the stipulation on the interest rate is void, it is as if
there was no express contract thereon. To be sure, courts may reduce the interest rate as reason
and equity demand.[45] In this case, 12% interest is reasonable.

The promissory notes likewise required the payment of a penalty charge of 3% per month or
36% per annum. We find such rates unconscionable. This Court has recognized a penalty clause
as an accessory obligation which the parties attach to a principal obligation for the purpose of
ensuring the performance thereof by imposing on the debtor a special prestation (generally
consisting of the payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled.[46] However, a penalty charge of 3% per month is
unconscionable;[47] hence, we reduce it to 1% per month or 12% per annum, pursuant to Article
1229 of the Civil Code which states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.[48]

Lastly, respondent promised to pay 25% of his outstanding obligations as attorney's fees in case
of non-payment thereof. Attorney's fees here are in the nature of liquidated damages. As long as
said stipulation does not contravene law, morals, or public order, it is strictly binding upon
respondent. Nonetheless, courts are empowered to reduce such rate if the same is iniquitous or
unconscionable pursuant to the above-quoted provision.[49] This sentiment is echoed in Article
2227 of the Civil Code, to wit:

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.

Hence, we reduce the stipulated attorney's fees from 25% to 10%.[50]

Respondent's Counterclaim and Supplemental Counterclaim

The RTC, affirmed by the CA, granted respondent's counterclaims as it applied the doctrine of
piercing the veil of corporate fiction. It is undisputed that the parties to the contract of sale of the
subject properties are Pentacapital Realty as the buyer, CRDI as the seller, and respondent as the
agent of CRDI. Respondent insisted, and the RTC and the CA agreed, that petitioner, as the
parent company of Pentacapital Realty, was aware of the sale transaction, and that it was the
former who paid the consideration of the sale. Hence, they concluded that the two corporations
should be treated as one entity.
Petitioner assails the CA Decision sustaining the grant of respondent's counterclaim and
supplemental counterclaim on the following grounds: first, respondent's claims are barred by res
judicata, the same having been adjudicated with finality by the RTC-Cebu in Civil Case No.
CEB-25032; second, piercing the veil of corporate fiction is without basis; third, the case is
dismissible for failure to implead Pentacapital Realty as indispensable party; and last,
respondent's supplemental counterclaim is actually a third party complaint against Pentacapital
Realty, the filing thereof requires the payment of the necessary docket fees.

Petitioner's contentions are meritorious.

Res judicata means "a matter adjudged; a thing judicially acted upon or decided; a thing or
matter settled by judgment." It lays the rule that an existing final judgment or decree rendered on
the merits, without fraud or collusion, by a court of competent jurisdiction, upon any matter
within its jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions
or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and
matters in issue in the first suit.[51]

The requisites of res judicata are:

(1) The former judgment or order must be final;

(2) It must be a judgment on the merits;

(3) It must have been rendered by a court having jurisdiction over the subject matter and the
parties; and

(4) There must be between the first and second actions, identity of parties, subject matter, and
cause of action.[52]

These requisites are present in the instant case. It is undisputed that respondent instituted an
action for Preliminary Mandatory Injunction against Pentacapital Realty, before the RTC of
Cebu City, docketed as Civil Case No. CEB-25032. On motion of Pentacapital Realty, in an
Order dated August 15, 2001, the court dismissed the complaint on two grounds: 1) non-payment
of the correct filing fee considering that the complaint was actually a collection of sum of money
although denominated as Preliminary Mandatory Injunction; and 2) lack of cause of action. The
court treated the complaint as a collection suit because respondent was seeking the payment of
his unpaid commission or share in the proceeds of the sale of the Molino Properties.
Additionally, the RTC found that respondent had no cause of action against Pentacapital Realty,
there being no privity of contract between them. Lastly, the court held that it was CRDI which
agreed that 20% of the total consideration of the sale be paid and delivered to respondent.[53]
Instead of assailing the said Order, respondent filed his supplemental compulsory counterclaim,
demanding again the payment of his commission, this time, against petitioner in the instant case.
The Order, therefore, became final and executory.

Respondent's supplemental counterclaim against petitioner is anchored on the doctrine of

piercing the veil of corporate fiction. Obviously, after the dismissal of his complaint before the
RTC-Cebu, he now proceeds

against petitioner, through a counterclaim, on the basis of the same cause of action. Thus, if we
follow respondent's contention that petitioner and Pentacapital Realty are one and the same
entity, the latter being a subsidiary of the former, respondent is barred from instituting the
present case based on the principle of bar by prior judgment. The RTC-Cebu already made a
definitive conclusion that Pentacapital Realty is not a privy to the contract between respondent
and CRDI. It also categorically stated that it was CRDI which agreed to pay respondent's
commission equivalent to 20% of the proceeds of the sale. With these findings, and considering
that petitioner's alleged liability stems from its supposed relation with Pentacapital Realty, logic
dictates that the findings of the RTC-Cebu, which had become final and executory, should bind
petitioner.

It is well-settled that when material facts or questions in issue in a former action were
conclusively settled by a judgment rendered therein, such facts or questions constitute res
judicata and may not again be litigated in a subsequent action between the same parties or their
privies regardless of the form of the latter.[54] Absolute identity of parties is not required, and
where a shared identity of interest is shown by the identity of the relief sought by one person in a
prior case and the second person in a subsequent case, such was deemed sufficient.[55] There is
identity of parties not only when the parties in the cases are the same, but also between those in
privity with them.

No other procedural law principle is indeed more settled than that once a judgment becomes
final, it is no longer subject to change, revision, amendment, or reversal, except only for
correction of clerical errors, or the making of nunc pro tunc entries which cause no prejudice to
any party, or where the judgment itself is void. The underlying reason for the rule is two-fold:
(1) to avoid delay in the administration of justice and thus make orderly the discharge of judicial
business; and (2) to put judicial controversies to an end, at the risk of occasional errors, inasmuch
as controversies cannot be allowed to drag on indefinitely and the rights and obligations of every
litigant must not hang in suspense for an indefinite period of time.[56]

In view of the foregoing disquisitions, we find no necessity to discuss the other issues raised by
petitioner.

Forum Shopping

For his part, respondent adopts the conclusions made by the RTC and the CA in granting his
counterclaims. He adds that the petition should be dismissed on the ground of forum-shopping.
He argues that petitioner is guilty of forum-shopping by filing the petition for review (G.R. No.
181482), assailing the CA Decision dated October 4, 2007, despite the pendency of G.R. No.
171736 assailing the CA Decision dated December 20, 2005.

We do not agree with respondent.

Forum-shopping is the act of a litigant who repetitively availed of several judicial remedies in
different courts, simultaneously or successively, all substantially founded on the same
transactions and the same essential facts and circumstances, and all raising substantially the same
issues, either pending in or already resolved adversely by some other court, to increase his
chances of obtaining a favorable decision if not in one court, then in another.[57]

What is important in determining whether forum-shopping exists is the vexation caused the
courts and parties-litigants by a party who asks different courts and/or administrative agencies to
rule on the same or related causes and/or grant the same or substantially the same reliefs, in the
process creating the possibility of conflicting decisions being rendered by the different fora upon
the same issues.[58]

Forum-shopping can be committed in three ways: (1) by filing multiple cases based on the same
cause of action and with the same prayer, the previous case not having been resolved yet (where
the ground for dismissal is litis pendentia); (2) by filing multiple cases based on the same cause
of action and with the same prayer, the previous case having been finally resolved (where the
ground for dismissal is res judicata); and (3) by filing multiple cases based on the same cause of
action but with different prayers (splitting of causes of action, where the ground for dismissal is
also either litis pendentia or res judicata).[59]

More particularly, the elements of forum-shopping are: (a) identity of parties or at least such
parties that represent the same interests in both actions; (b) identity of rights asserted and reliefs
prayed for, the relief being founded on the same facts; (c) identity of the two preceding
particulars, such that any judgment rendered in the other action will, regardless of which party is
successful, amount to res judicata in the action under consideration.[60]

These elements are not present in this case. In G.R. No. 171736, petitioner assails the propriety
of the admission of respondent's supplemental compulsory counterclaim; while in G.R. No.
181482, petitioner assails the grant of respondent's supplemental compulsory counterclaim. In
other words, the first case originated from an interlocutory order of the RTC, while the second
case is an appeal from the decision of the court on the merits of the case. There is, therefore, no
forum-shopping for the simple reason that the petition and the appeal involve two different and
distinct issues.

WHEREFORE, premises considered, the petitions are hereby GRANTED. The Decisions and
Resolutions of the Court of Appeals dated December 20, 2005 and March 1, 2006, in CA-G.R.
SP No. 74851, and October 4, 2007 and January 21, 2008, in CA-G.R. CV No. 86939, are
REVERSED and SET ASIDE.
Respondent Makilito B. Mahinay is ordered to pay petitioner Pentacapital Investment
Corporation P1,936,800.00 plus 12% interest per annum, and 12% per annum penalty charge,
starting February 17, 1997. He is likewise ordered to pay 10% of his outstanding obligation as
attorney's fees. No pronouncement as to costs.

SO ORDERED.

Carpio, (Chairperson), Peralta, Abad, and Mendoza, JJ., concur.

[1]
Penned by Associate Justice Mario L. Guariña III, with Associate Justices Roberto A. Barrios
and Santiago Javier Ranada, concurring; rollo (G.R. No. 171736), pp. 75-82.

[2]
Id. at 84.

[3]
Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Noel G. Tijam and
Myrna Dimaranan Vidal, concurring; rollo (G.R. No. 181482), pp. 114-142.

[4]
Id. at 99-100.

[5]
Rollo (G.R. No. 181482), pp. 155-157.

[6]
Id. at 171-174.

[7]
Id. at 175-185.

[8]
Id. at 176.

[9]
Id. at 119.

[10]
Id. at 183.

[11]
Id. at 120.

[12]
Id. at 176-177.

[13]
Id. at 208-212.

[14]
Id. at 213-216.

[15]
Id. at 217-218.
[16]
Id. at 158-161.

[17]
Id. at 162-167.

[18]
Id. at 168-170.

[19]
Id. at 219-223.

[20]
Id. at 226.

[21]
Id. at 224-227.

[22]
Id. at 238-239.

[23]
Supra note 1.

[24]
Rollo (G.R. No. 171736), pp. 79-82.

[25]
Id. at 459-460.

[26]
Penned by Judge Maria Rosario B. Ragasa, rollo (G.R. No. 181482), pp. 311-323.

[27]
Id. at 322-323.

[28]
Rollo (G.R. No. 181482), p. 133.

[29]
Id. at 137-139.

[30]
Id. at 140-141.

[31]
Supra note 4.

[32]
Rollo (G.R. No. 181482), pp. 40-43.

[33]
Lambino v. Presiding Judge, RTC, Br. 172, Valenzuela City, G.R. No. 169551, January 24,
2007, 512 SCRA 525, 539-540.

[34]
Id. at 539.

[35]
De Rama v. Court of Appeals, 405 Phil. 531, 547 (2001).

[36]
Rollo (G.R. 181482), p. 176.
[37]
Saguid v. Security Finance, Inc., G.R. No. 159467, December 9, 2005, 477 SCRA 256, 268;
Santos v. Heirs of Jose P. Mariano & Erlinda Mariano-Villanueva, 398 Phil. 174 (2000).

[38]
Saguid v. Security Finance, Inc., supra, at 270.

[39]
Surtida v. Rural Bank of Malinao (Albay), Inc., G.R. No. 170563, December 20, 2006, 511
SCRA 507, 519.

[40]
Id. at 519-520.

[41]
Id. at 520; Fernandez v. Fernandez, 416 Phil. 322 (2001).

[42]
Surtida v. Rural Bank of Malinao (Albay), Inc., supra, at 520.

[43]
Rollo (G.R. No. 181482), p. 59.

[44]
G.R. No. 90270, July 24, 1992, 211 SCRA 785, 795.

[45]
Ileana Dr. Macalinao v. Bank of the Philippine Islands, G.R. No. 175490, September 17,
2009.

[46]
Development Bank of the Philippines v. Family Foods Manufacturing Co., Ltd., G.R. No.
180458, July 30, 2009, 594 SCRA 461.

[47]
See Ileana Dr. Maclinao v. Bank of the Philippine Islands, supra note 45.

[48]
Emphasis supplied.

[49]
Co v. Admiral United Savings Bank, G.R. No. 154740, April 16, 2008, 551 SCRA 472.

[50]
Id.; Sim v. M.B. Finance Corporation, G.R. No. 164300, November 29, 2006, 508 SCRA
556.

[51]
Heirs of Panfilo F. Abalos v. Bucal, G.R. No. 156224, February 19, 2008, 546 SCRA 252,
271-272.

[52]
The Estate of Don Filemon Y. Sotto v. Palicte, G.R. No. 158642, September 22, 2008, 566
SCRA 142, 150; Mallion v. Alcantara, G.R. No. 141528, October 31, 2006, 506 SCRA 336,
343-344.

[53]
Rollo (G.R. No. 181482), pp. 168-170.
[54]
Navarro v. Metropolitan Bank & Trust Company, G.R. Nos. 165697 & 166481, August 4,
2009, 595 SCRA 149.

[55]
The Estate of Don Filemon Y. Sotto v. Palicte, supra note 52, at 152.

[56]
Navarro v. Metropolitan Bank & Trust Company, supra note 54.

[57]
Briones v. Henson-Cruz, G.R. No. 159130, August 22, 2008, 563 SCRA 69, 84.

[58]
Collantes v. Court of Appeals, G.R. No. 169604, March 6, 2007, 517 SCRA 561, 568.

[59]
Id. at 569; Ao-As v. Court of Appeals, G.R. No. 128464, June 20, 2006, 491 SCRA 339.

[60]
Id.; Marcopper Mining Corporation v. Solidbank Corporation, 476 Phil. 415 (2004).

Copyright 2016 - Batas.org

Supreme Court of the Philippines

G.R. No. 170498

SECOND DIVISION

G.R. No. 170498, January 09, 2013

METROPOLITAN BANK & TRUST COMPANY, PETITIONER, VS. ABSOLUTE

MANAGEMENT CORPORATION, RESPONDENT.

DECISION

BRION, J.:

We resolve petitioner Metropolitan Bank & Trust Company's (Metrobank 's) petition for review
on certiorari[1] seeking the reversal of the decision[2] dated August 25, 2005 and the resolution[3]
dated November 17, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 86336. The assailed
decision affirmed the order[4] dated May 7, 2004 of the Regional Trial Court (RTC) of Quezon
City, Branch 80. The RTC had denied the admission of Metrobank's Fourth-Party Complaint[5]
against the Estate of Jose L. Chua for being a money claim that falls under Section 5, Rule 86 of
the Rules of Court; the claim should have been filed in the pending judicial settlement of Chua’s
estate before the RTC of Pasay City. The CA affirmed the RTC’s order based on the same
ground.

Factual Antecedents

On October 5, 2000, Sherwood Holdings Corporation, Inc. (SHCI) filed a complaint for sum of
money against Absolute Management Corporation (AMC). The complaint was docketed as Civil
Case No. Q-00-42105 and was assigned to the RTC of Quezon City, Branch 80.[6]

SHCI alleged in its complaint that it made advance payments to AMC for the purchase of 27,000
pieces of plywood and 16,500 plyboards in the sum of P12,277,500.00, covered by Metrobank
Check Nos. 1407668502, 140768507, 140768530, 140768531, 140768532, 140768533 and
140768534. These checks were all crossed, and were all made payable to AMC. They were given
to Chua, AMC’s General Manager, in 1998.[7]

Chua died in 1999,[8] and a special proceeding for the settlement of his estate was commenced
before the RTC of Pasay City. This proceeding was pending at the time AMC filed its answer
with counterclaims and third-party complaint.[9]

SHCI made demands on AMC, after Chua’s death, for allegedly undelivered items worth
P8,331,700.00. According to AMC, these transactions could not be found in its records. Upon
investigation, AMC discovered that in 1998, Chua received from SHCI 18 Metrobank checks
worth P31,807,500.00. These were all payable to AMC and were crossed or “for payee’s account
only[.]”[10]

In its answer with counterclaims and third-party complaint,[11] AMC averred that it had no
knowledge of Chua’s transactions with SHCI and it did not receive any money from the latter.
AMC also asked the RTC to hold Metrobank liable for the subject checks in case it is adjudged
liable to SHCI.

Metrobank filed a motion for bill of particulars,[12] seeking to clarify certain ambiguous
statements in AMC’s answer. The RTC granted the motion but AMC failed to submit the
required bill of particulars. Hence, Metrobank filed a motion to strike out the third-party
complaint.[13]

In the meantime, Metrobank filed a motion to dismiss[14] against AMC on the ground that the
latter engaged in prohibited forum shopping. According to Metrobank, AMC’s claim against it is
the same claim that it raised against Chua’s estate in Special Proceedings No. 99-0023 before the
RTC of Pasay City, Branch 112. The RTC subsequently denied this motion.[15]

The RTC of Quezon City opted to defer consideration[16] of Metrobank’s motion to strike out
third-party complaint[17] and it instead granted AMC’s motion for leave to serve written
interrogatories on the third- party defendant.[18] While Metrobank filed its answer to the written
interrogatories, AMC was again directed by the RTC, in an order[19] dated August 13, 2003, to
submit its bill of particulars. Instead, AMC filed a motion for reconsideration[20] which was
denied in an order[21] dated October 28, 2003. AMC still did not file its bill of particulars. The
RTC, on the other hand, did not act on Metrobank’s motion to strike out AMC’s third-party
complaint.[22]

In its answer[23] dated December 1, 2003, Metrobank admitted that it deposited the checks in
question to the account of Ayala Lumber and Hardware, a sole proprietorship Chua owned and
managed. The deposit was allegedly done with the knowledge and consent of AMC. According
to Metrobank, Chua then gave the assurance that the arrangement for the handling of the checks
carried AMC’s consent. Chua also submitted documents showing his position and interest in
AMC. These documents, as well as AMC’s admission in its answer that it allowed Chua to
manage AMC with a relative free hand, show that it knew of Chua’s arrangement with
Metrobank. Further, Chua’s records show that the proceeds of the checks were remitted to AMC
which cannot therefore now claim that it did not receive these proceeds.

Metrobank also raised the defense of estoppel. According to Metrobank, AMC had knowledge of
its arrangements with Chua for several years. Despite this arrangement, AMC did not object to
nor did it call the attention of Metrobank about Chua’s alleged lack of authority to deposit the
checks in Ayala Lumber and Hardware’s account. At this point, AMC is already estopped from
questioning Chua’s authority to deposit these checks in Ayala Lumber and Hardware’s account.

Lastly, Metrobank asserted that AMC gave Chua unbridled control in managing AMC’s affairs.
This measure of control amounted to gross negligence that was the proximate cause of the loss
that AMC must now bear.

Subsequently, Metrobank filed a motion for leave to admit fourth- party complaint[24] against
Chua’s estate. It alleged that Chua’s estate should reimburse Metrobank in case it would be held
liable in the third-party complaint filed against it by AMC.

The RTC’s Ruling

In an order[25] dated May 7, 2004, the RTC denied Metrobank’s motion. It likewise denied
Metrobank’s motion for reconsideration in an order[26] dated July 7, 2004.

The RTC categorized Metrobank’s allegation in the fourth-party complaint as a “cobro de lo

indebido”[27] – a kind of quasi-contract that mandates recovery of what has been improperly paid.
Quasi-contracts fall within the concept of implied contracts that must be included in the claims
required to be filed with the judicial settlement of the deceased’s estate under Section 5, Rule 86
of the Rules of Court. As such claim, it should have been filed in Special Proceedings No. 99-
0023, not before the RTC as a fourth-party complaint. The RTC, acting in the exercise of its
general jurisdiction, does not have the authority to adjudicate the fourth-party complaint. As a
trial court hearing an ordinary action, it cannot resolve matters pertaining to special proceedings
because the latter is subject to specific rules.

Metrobank responded to the RTC ruling by filing a petition for certiorari[28] under Rule 65
before the CA.

The CA’s Ruling

The CA affirmed the RTC’s ruling that Metrobank’s fourth-party complaint should have been
filed in Special Proceedings No. 99-0023.[29]

According to the CA, the relief that Metrobank prayed for was based on a quasi-contract and was
a money claim categorized as an implied contract that should be filed under Section 5, Rule 86 of
the Rules of Court.

Based on the statutory construction principle of lex specialis derogat generali, the CA held that
Section 5, Rule 86 of the Rules of Court is a special provision that should prevail over the
general provisions of Section 11, Rule 6 of the Rules of Court. The latter applies to money
claims in ordinary actions while a money claim against a person already deceased falls under the
settlement of his estate that is governed by the rules on special proceedings. If at all, rules for
ordinary actions only apply suppletorily to special proceedings.

The Present Petition

In its present petition for review on certiorari,[30] Metrobank asserts that it should be allowed to
file a fourth-party complaint against Chua’s estate in the proceedings before the RTC; its fourth-
party complaint was filed merely to enforce its right to be reimbursed by Chua’s estate in case
Metrobank is held liable to AMC. Hence, Section 11, Rule 6 of the Rules of Court should apply.

AMC, in its comment,[31] maintains the line that the CA and the RTC rulings should be followed,
i.e., that Metrobank’s claim is a quasi-contract that should be filed as a claim under Section 5,
Rule 86 of the Rules of Court.

AMC also challenges the form of Metrobank’s petition for failure to comply with Section 4, Rule
45 of the Rules of Court. This provision requires petitions filed before the Supreme Court to be
accompanied by “such material portions of the record as would support the petition[.]”
According to AMC, the petition’s annexes are mostly Metrobank’s pleadings and court
issuances. It did not append all relevant AMC pleadings before the RTC and the CA. For this
reason, the petition should have been dismissed outright.

Issues
The parties’ arguments, properly joined, present to us the following issues:

1) Whether the petition for review on certiorari filed by Metrobank before the Supreme Court
complies with Section 4, Rule 45 of the Rules of Court; and
2) Whether Metrobank’s fourth-party complaint against Chua’s estate should be allowed.

The Court’s Ruling

The Present Petition Complies With Section 4, Rule 45 of the Rules of Court

AMC posits that Metrobank’s failure to append relevant AMC pleadings submitted to the RTC
and to the CA violated Section 4, Rule 45 of the Rules of Court,[32] and is a sufficient ground to
dismiss the petition under Section 5, Rule 45 of the Rules of Court.[33]

We disagree with AMC’s position.

In F.A.T. Kee Computer Systems, Inc. v. Online Networks International, Inc.,[34] Online
Networks International, Inc. similarly assailed F.A.T. Kee Computer Systems, Inc.’s failure to
attach the transcript of stenographic notes (TSN) of the RTC proceedings, and claimed this
omission to be a violation of Section 4, Rule 45 of the Rules of Court that warranted the
petition’s dismissal. The Court held that the defect was not fatal, as the TSN of the proceedings
before the RTC forms part of the records of the case. Thus, there was no incurable omission that
warranted the outright dismissal of the petition.

The Court significantly pointed out in F.A.T. Kee that the requirement in Section 4, Rule 45 of
the Rules of Court is not meant to be an absolute rule whose violation would automatically lead
to the petition’s dismissal.[35] The Rules of Court has not been intended to be totally rigid. In
fact, the Rules of Court provides that the Supreme Court “may require or allow the filing of such
pleadings, briefs, memoranda or documents as it may deem necessary within such periods and
under such conditions as it may consider appropriate";[36] and "[i]f the petition is given due
course, the Supreme Court may require the elevation of the complete record of the case or
specified parts thereof within fifteen (15) days from notice."[37] These provisions are in keeping
with the overriding standard that procedural rules should be liberally construed to promote their
objective and to assist the parties in obtaining a just, speedy and inexpensive determination of
every action or proceeding.[38]

Under this guiding principle, we do not see Metrobank’s omission to be a fatal one that should
warrant the petition’s outright dismissal. To be sure, the omission to submit the adverse party’s
pleadings in a petition before the Court is not a commendable practice as it may lead to an
unduly biased narration of facts and arguments that masks the real issues before the Court. Such
skewed presentation could lead to the waste of the Court’s time in sifting through the maze of the
parties’ narrations of facts and arguments and is a danger the Rules of Court seeks to avoid.

Our examination of Metrobank’s petition shows that it contains AMC’s opposition to its motion
to admit fourth-party complaint among its annexes. The rest of the pleadings have been
subsequently submitted as attachments in Metrobank’s Reply. A reading of these pleadings
shows that their arguments are the same as those stated in the orders of the trial court and the
Court of Appeals. Thus, even if Metrobank’s petition did not contain some of AMC’s pleadings,
the Court still had the benefit of a clear narration of facts and arguments according to both
parties’ perspectives. In this broader view, the mischief that the Rules of Court seeks to avoid has
not really been present. If at all, the omission is not a grievous one that the spirit of liberality
cannot address.

The Merits of the Main Issue

The main issue poses to us two essential points that must be addressed. First, are quasi-contracts
included in claims that should be filed pursuant to Rule 86, Section 5 of the Rules of Court?
Second, if so, is Metrobank’s claim against the Estate of Jose Chua based on a quasi- contract?

Quasi-contracts are included in

claims that should be filed under Rule
86, Section 5 of the Rules of Court

In Maclan v. Garcia,[39] Gabriel Maclan filed a civil case to recover from Ruben Garcia the
necessary expenses he spent as possessor of a piece of land. Garcia acquired the land as an heir
of its previous owner. He set up the defense that this claim should have been filed in the special
proceedings to settle the estate of his predecessor. Maclan, on the other hand, contended that his
claim arises from law and not from contract, express or implied. Thus, it need not be filed in the
settlement of the estate of Garcia’s predecessor, as mandated by Section 5, Rule 87 of the Rules
of Court (now Section 5, Rule 86).

The Court held under these facts that a claim for necessary expenses spent as previous possessor
of the land is a kind of quasi-contract. Citing Leung Ben v. O’Brien,[40] it explained that the term
“implied contracts,” as used in our remedial law, originated from the common law where
obligations derived from quasi-contracts and from law are both considered as implied contracts.
Thus, the term quasi-contract is included in the concept “implied contracts” as used in the Rules
of Court. Accordingly, liabilities of the deceased arising from quasi-contracts should be filed as
claims in the settlement of his estate, as provided in Section 5, Rule 86 of the Rules of Court.[41]

Metrobank’s fourth-party complaint

is based on quasi-contract

Both the RTC and the CA described Metrobank’s claim against Chua’s estate as one based on
quasi-contract. A quasi-contract involves a juridical relation that the law creates on the basis of
certain voluntary, unilateral and lawful acts of a person, to avoid unjust enrichment.[42] The Civil
Code provides an enumeration of quasi-contracts,[43] but the list is not exhaustive and merely
provides examples.[44]

According to the CA, Metrobank’s fourth-party complaint falls under the quasi-contracts
enunciated in Article 2154 of the Civil Code.[45] Article 2154 embodies the concept “solutio
indebiti” which arises when something is delivered through mistake to a person who has no right
to demand it. It obligates the latter to return what has been received through mistake.[46]

Solutio indebiti, as defined in Article 2154 of the Civil Code, has two indispensable requisites:
first, that something has been unduly delivered through mistake; and second, that something was
received when there was no right to demand it.[47]

In its fourth-party complaint, Metrobank claims that Chua’s estate should reimburse it if it
becomes liable on the checks that it deposited to Ayala Lumber and Hardware’s account upon
Chua’s instructions.

This fulfills the requisites of solutio indebiti. First, Metrobank acted in a manner akin to a
mistake when it deposited the AMC checks to Ayala Lumber and Hardware’s account; because
of Chua’s control over AMC’s operations, Metrobank assumed that the checks payable to AMC
could be deposited to Ayala Lumber and Hardware’s account. Second, Ayala Lumber and
Hardware had no right to demand and receive the checks that were deposited to its account;
despite Chua’s control over AMC and Ayala Lumber and Hardware, the two entities are distinct,
and checks exclusively and expressly payable to one cannot be deposited in the account of the
other. This disjunct created an obligation on the part of Ayala Lumber and Hardware, through its
sole proprietor, Chua, to return the amount of these checks to Metrobank.

The Court notes, however, that its description of Metrobank’s fourth- party complaint as a claim
closely analogous to solutio indebiti is only to determine the validity of the lower courts’ orders
denying it. It is not an adjudication determining the liability of Chua’s estate against Metrobank.
The appropriate trial court should still determine whether Metrobank has a lawful claim against
Chua’s estate based on quasi-contract.

Metrobank’s fourth-party complaint,

as a contingent claim, falls within the
claims that should be filed under Section 5,
Rule 86 of the Rules of Court

A distinctive character of Metrobank’s fourth-party complaint is its contingent nature – the claim
depends on the possibility that Metrobank would be adjudged liable to AMC, a future event that
may or may not happen. This characteristic unmistakably marks the complaint as a contingent
one that must be included in the claims falling under the terms of Section 5, Rule 86 of the Rules
of Court:

Sec. 5. Claims which must be filed under the notice. If not filed, barred; exceptions. – All claims
for money against the decedent, arising from contract, express or implied, whether the same be
due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of
the decedent, and judgment for money against the decedent, must be filed within the time limited
in the notice[.] [italics ours]

Specific provisions of Section 5, Rule 86 of the

Rules of Court prevail over general provisions
of Section 11, Rule 6 of the Rules of Court

Metrobank argues that Section 11, Rule 6 of the Rules of Court should apply because it
impleaded Chua’s estate for reimbursement in the same transaction upon which it has been sued
by AMC. On this point, the Court supports the conclusion of the CA, to wit:

Notably, a comparison of the respective provisions of Section 11, Rule 6 and Section 5, Rule 86
of the Rules of Court readily shows that Section 11, Rule 6 applies to ordinary civil actions while
Section 5, Rule 86 specifically applies to money claims against the estate. The specific
provisions of Section 5, Rule 86 x x x must therefore prevail over the general provisions of
Section 11, Rule 6[.][48]

We read with approval the CA’s use of the statutory construction principle of lex specialis
derogat generali, leading to the conclusion that the specific provisions of Section 5, Rule 86 of
the Rules of Court should prevail over the general provisions of Section 11, Rule 6 of the Rules
of Court; the settlement of the estate of deceased persons (where claims against the deceased
should be filed) is primarily governed by the rules on special proceedings, while the rules
provided for ordinary claims, including Section 11, Rule 6 of the Rules of Court, merely apply
suppletorily.[49]

In sum, on all counts in the considerations material to the issues posed, the resolution points to
the affirmation of the assailed CA decision and resolution. Metrobank's claim in its fourth-party
complaint against Chua's estate is based on quasi-contract. It is also a contingent claim that
depends on another event. Both belong to the category of claims against a deceased person that
should be filed under Section 5, Rule 86 of the Rules of Court and, as such, should have been so
filed in Special Proceedings No. 99-0023.

WHEREFORE, premises considered, we hereby DENY the petition for lack of merit. The
decision of the Court of Appeals dated August 25, 2005, holding that the Regional Trial Court of
Quezon City, Branch 80, did not commit grave abuse of discretion in denying Metropolitan Bank
& Trust Company's motion for leave to admit fourth-party complaint is AFFIRMED. Costs
against Metropolitan Bank & Trust Company.
SO ORDERED.

Carpio, (Chairperson), Del Castillo, Perez, and Perlas-Bernabe, JJ., concur.

[1]
Rollo, pp. 9-18.

[2]
Id. at 24-32. Penned by Associate Justice Fernanda Lampas Peralta, and concurred in by
Associate Justices Ruben T. Reyes (now a retired member of this Court) and Josefina Guevara-
Salonga.

[3]
Id. at 34-35.

[4]
Id. at 121-123. Penned by Judge Agustin S. Dizon.

[5]
Id. at 110-1 13.

[6]
Id. at 25.

[7]
Id. at 232-233.

[8]
Id. at 233.

[9]
Id. at 11.

[10]
Id. at 233.

[11]
Id. at 147-156.

[12]
Id. at 48-50.

[13]
Id. at 76-77.

[14]
Id. at 51-60.

[15]
Order dated May 23, 2001; id. at 68-70.

[16]
Order dated June 4, 2002; id. at 78.

[17]
Id. at 11.
[18]
Id. at 72-75.

[19]
Id. at 86-87.

[20]
Id. at 88-93.

[21]
Id. at 94.

[22]
Id. at 12.

[23]
Id. at 95-101.

[24]
Supra note 5.

[25]
Supra note 4.

[26]
Rollo, pp. 128-129.

[27]
Id. at 122.

[28]
Id. at 130-141.

[29]
Supra notes 2 and 3.

[30]
Supra note 1.

[31]
Supra note 7.

[32]
Sec. 4. Contents of petition. – The petition shall be filed in eighteen (18) copies, with the
original copy intended for the court being indicated as such by the petitioner, and shall (a) state
the full name of the appealing party as the petitioner and the adverse party as respondent, without
impleading the lower courts or judges thereof either as petitioners or respondents; (b) indicate the
material dates showing when notice of the judgment or final order or resolution subject thereof
was received, when a motion for new trial or reconsideration, if any, was filed and when notice
of the denial thereof was received; (c) set forth concisely a statement of the matters involved, and
the reasons or arguments relied on for the allowance of the petition; (d) be accompanied by a
clearly legible duplicate original, or a certified true copy of the judgment or final order or
resolution certified by the clerk of court of the court a quo and the requisite number of plain
copies thereof, and such material portions of the record as would support the petition; and (e)
contain a sworn certification against forum shopping as provided in the last paragraph of section
2, Rule 42. [italics ours]

[33]
Sec. 5. Dismissal or denial of petition. – The failure of the petitioner to comply with any of
the foregoing requirements regarding the payment of the docket and other lawful fees, deposit
for costs, proof of service of the petition, and the contents of and the documents which should
accompany the petition shall be sufficient ground for the dismissal thereof. [italics ours]

[34]
G.R. No. 171238, February 2, 2011, 641 SCRA 390.

[35]
Id. at 401.

[36]
Section 7, Rule 45 of the Rules of Court provides:

“Pleadings and documents that may be required; sanctions. — For purposes of determining
whether the petition should be dismissed or denied pursuant to section 5 of this Rule, or where
the petition is given due course under section 8 hereof, the Supreme Court may require or allow
the filing of such pleadings, briefs, memoranda or documents as it may deem necessary within
such periods and under such conditions as it may consider appropriate, and impose the
corresponding sanctions in case of non-filing or unauthorized filing of such pleadings and
documents or noncompliance with the conditions thereof.” (italics ours)

[37]
Section 8, Rule 45 of the Rules of Court provides:

“Due course; elevation of records. — If the petition is given due course, the Supreme Court may
require the elevation of the complete record of the case or specified parts thereof within fifteen
(15) days from notice.”

[38]
F.A.T. Kee Computer Systems, Inc. v. Online Networks International, Inc., supra note 34, at
401-402.

[39]
97 Phil. 119 (1955).

[40]
38 Phil. 182, 189-194 (1918).

[41]
Maclan v. Garcia, supra note 39, at 123-124.

[42]
Cruz v. J.M. Tuason Company, Inc., 167 Phil. 261, 276-277 (1977).

[43]
See CIVIL CODE, Articles 2144, 2154, 2164-2175.

[44]
Article 2143 of the Civil Code provides:

“The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which
may come within the purview of the preceding article.”

The number of the quasi-contracts may be indefinite as may be the number of lawful facts, the
generations of the said obligations; but the Code, just as we shall see further on, in the
impracticableness of enumerating or including them all in a methodical and orderly
classification, has concerned itself with two only — namely, the management of the affairs of
other persons and the recovery of things improperly paid — without attempting by this to
exclude the others. (Manresa, 2d ed., vol. 12, p. 549, as cited in Leung Ben v. O’Brien, supra note
40, at 195.)

[45]
Rollo, p. 30.

[46]
Andres v. Manufacturers Hanover & Trust Corporation, G.R. No. 82670, September 15,
1989, 177 SCRA 618, 622, citing Velez v. Balzarza, 73 Phil. 630 (1942); and City of Cebu v.
Piccio, 110 Phil. 558, 563 (1960).

[47]
Philippine National Bank v. Court of Appeals, G.R. No. 97995, January 21, 1993, 217 SCRA
347, 355.

[48]
Rollo, p. 28.

[49]
Id. at 28-29.

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Supreme Court of the Philippines

642 Phil. 732

THIRD DIVISION

G.R. No. 186175, August 25, 2010

3A APPAREL CORPORATION AND RAY SHU, PETITIONERS, VS. METROPOLITAN BANK

AND TRUST CO., JAIME T. DEE, ENRIQUETO MAGPANTAY, REGISTER OF DEEDS FOR
SAN JUAN, METRO MANILA, SHERIFF VICTOR S. STA. ANA, EX-OFFICIO SHERIFF
GRACE S. BELVIS AND SEVERAL JOHN DOES, RESPONDENTS.

DECISION

CARPIO MORALES, J.:

The present petition for review on certiorari dwells on what remedy a litigant, whose complaint
was dismissed by the trial court for failure to prosecute, has to challenge the same.

Petitioner 3A Apparel Corporation (the corporation) mortgaged its condominium unit to

respondent Metropolitan Bank and Trust Company (MBTC) to secure a loan. For failure to settle
its obligation, MBTC extrajudicially foreclosed the mortgage, drawing the corporation,
represented by its president Ray Shu, to file a complaint for petition for annulment of real estate
mortgage, promissory note, foreclosure of sale, and related documents[1] before the Regional
Trial Court (RTC) of Pasig against MBTC and its officers.

After almost two years from the time the case was scheduled for presentation of the corporation's
evidence, without it having presented any evidence, Branch 264 of the Pasig, RTC, upon motion
of MBTC, dismissed[2] the corporation's complaint for failure to prosecute.

The corporation's motion for reconsideration[3] having been denied[4] by the trial court, it filed a
petition for certiorari before the Court of Appeals, positing that substantial justice must prevail
over mere technicalities. By Decision[5] of July 18, 2008, the appellate court dismissed the
petition, it holding that dismissal on the ground of failure to prosecute has, citing Section 3 of
Rule 17, the effect of an adjudication on the merits, unless otherwise declared by the court.

The appellate court went on to hold:

The Order of September 29, 2003 is couched in such a way as to show that the dismissal of
herein petitioners' complaint was an adjudication upon the merits. The dismissal of the
complaint is appealable. The remedy of appeal being available to petitioners, resort to . . .
petition [for certiorari] is precluded. (emphasis and underscoring supplied)

Petitioners' Motion for Reconsideration[6] having been denied,[7] the present petition for review
on certiorari was filed, the corporation raising the following issues:

1. Whether the appellate court erred when it dismissed the petition for
certiorari for being the wrong remedy; and

2. Whether the appellate court erred when it upheld the trial court's dismissal
of Civil Case No. 67416 for failure to prosecute under Section 3, Rule 17
of the Rules of Court.

The petition fails.

Section 3 of Rule 17 of the Rules of Court[8] is indeed clear that a dismissal for failure to
prosecute is an adjudication upon the merits, unless otherwise declared by the court. No such
declaration was made by the trial court, hence, its dismissal of the corporation's petition should
be challenged by appeal within the reglementary period.[9]

The invocation of "justice and fair play" by the corporation does not impress.

. . . In order to perfect an appeal all that is required is a pro forma notice of appeal. Perhaps due
to failure to file a notice of appeal within the remaining two days of the appeal period,
petitioner's counsel instead filed the instant petition. The rules of procedure, however, do not
exist for the convenience of the litigants. These rules are established to provide order to and
enhance the efficiency of our judicial system. They are not to be trifled with lightly or
overlooked by mere expedience of invoking "substantial justice."[10] (underscoring supplied)

Even on the merits, the petition just the same fails.

To justify the delay in the presentation of its evidence, the corporation recites the following
schedules of hearings and what transpired therein before the trial court:

10 October 2001 - both parties were not ready for hearing and agreed for a resetting;

25 October 2001 - witness, Ray Shu was not available to testify because of "Acute Viral
Gastroentiritis;

22 November 2001 - hearing was reset by agreement of both parties;

17 January 2002 - petitioners' witness, Ray Shu was present but Atty. Caraan was not present as
he had an emergency at home according to his representative Jaime Fellicen;

11 April 2002 - petitioners were ready to present their evidence, but the hearing was reset as the
presiding Judge was on official leave;

20 June 2002 - petitioners were ready, however, the court reset all hearings due to semestral
docket inventory and also because the presiding judge was busy due to his application as Justice
to the Court of Appeals;

7 August 2002 - no petitioners' witness was available at that time since most of them are from
the National Bureau of Investigation (NBI) and they had conflict in their schedule;

3 October & 11 December 2002 - Atty. Caraan sent Jaime Felicen to inform the court of his
emergency leave of absence due to his father's unstable condition.

26 March and 30 April 2003 - Ray Shu attended without Atty. Caraan;
9 July 2003 - Atty. Caraan sent Oliver Bautista to inform the court of his father's serious and
unstable condition. (underscoring supplied)

This Court finds the foregoing "justifications" insufficient to warrant a finding that the trial court
gravely abused its discretion when it dismissed Civil Case No. 67416. For the dismissal of a
case for failure to prosecute is addressed to the sound discretion of the trial court and where, as
here, the plaintiff is chargeable with want of due diligence in failing to proceed with reasonable
promptitude[11] in the prosecution of its case, and absent grave abuse on the part of the trial court,
the dismissal must be upheld.

Indeed, a plaintiff is duty-bound to prosecute its action with utmost diligence and with
reasonable dispatch in order to obtain the relief prayed for and, at the same time, minimize the
clogging of court dockets. The expeditious disposition of cases is as much the duty of the
plaintiff as the court's.[12]

The corporation's attempt to attribute part of the blame to the trial court which cancelled the
hearing on April 15, 2002 when the presiding judge was on official leave, and that on June 20,
2002 during the semestral docket inventory of cases, at which times the corporation claims to
have been ready to present evidence does not impress too. If indeed that were the case, it could
have presented its evidence during the succeeding scheduled hearings. Yet, it did not. Instead, it
caused the postponement of the subsequent six scheduled hearings from August 7, 2002 to July
9, 2003 inclusive for unjustifiable reasons.

WHEREFORE, the petition is DENIED.

SO ORDERED.

Brion, Bersamin, Villarama, Jr., and Sereno, JJ., concur.

[1]
Records, p. 1.

[2]
Id. at 203.

[3]
CA rollo, pp. 311-343.

[4]
Id. at 344-346.

[5]
Id. at 301-304.

[6]
Supra note 3.
[7]
Supra note 4.

[8]
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.

[9]
Ko v. Philippine National Bank, 479 SCRA 298, 303, January 20, 2006.

[10]
Ibid.

[11]
Producers Bank of the Philippines v. Cotton (Phil.) Corpo., Lan Shing Chin, Shin May Wan
and Nelson Kho, G.R. No. 125468, October 9, 2000, 342 SCRA 327, 334.

[12]
Ko v. PNB, supra note 9.

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