G.R. No. 156474.

August 16, 2005

PESANE ANIMAS MONGAO, joined by her husband BENHUR MONGAO, Petitioners,

vs.
PRYCE PROPERTIES CORPORATION, Respondent.

DECISION

TINGA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure
assailing the Decision of the Court of Appeals in CA-G.R. CV No. 52753, which reversed the trial
1 

court’s judgment on the pleadings and remanded the case thereto for trial on the merits, and
the Resolution denying petitioners’ motion for reconsideration.
2 

The instant petition originated from a complaint for rescission and

damages filed on February 14, 1995 by [mongao vs pryce prop corp]
petitioners, Spouses Pesane Animas Mongao (hereafter referred to as petitioner Mongao) and
Benhur Mongao,

against respondent Pryce Properties Corporation before the Regional Trial Court (RTC) in General
Santos City. 3 

The complaint alleged that petitioner Mongao and respondent corporation executed a 

Memorandum of Agreement4 on December 20, 1993, wherein the

former MONGAO agreed to sell to the latter PRYCE for the total price of Five Million Twenty-Eight
Thousand Eight Hundred Pesos (₱5,028,800.00) a parcel of land in Polomolok, South Cotabato
covered by Transfer Certificate of Title (TCT) No. T-22186 registered in the name of petitioner
5 

Mongao only.

In accordance with the terms and conditions of the Memorandum of Agreement, respondent

corporation allegedly paid petitioners the sum of Five Hundred
Fifty Thousand Pesos (₱550,000.00) as earnest money considered
as part of the purchase price.

The complaint further alleged that after considerable delay, respondent corporation offered
to pay the balance of the purchase price by issuing a check payable to petitioner Mongao and her
mother, Nellie Animas, which the former rejected. Allegedly, respondent
corporation
continuously refused to heed petitioners’ written and oral
demands to pay the balance solely to petitioner Mongao.
The complaint also denied that petitioner Mongao executed a Deed of
Absolute Sale dated November 15, 1994 in favor of respondent
corporation, the registration of which caused the cancellation of TCT No. T-22186 in the name
of petitioner Mongao and the issuance of TCT No. T-62944.

In addition to petitioners’ prayer for the rescission of the Memorandum of Agreement and the Deed

of Absolute Sale and the forfeiture of the earnest money paid by respondent corporation, the
complaint also asked for the award of moral and exemplary damages and attorney’s fees.

Respondent corporation filed an answer and refuted petitioners’ allegations

with a narration of the factual antecedents leading to the perfection of the contract of sale. It claimed
6 

that sometime in 1993, a certain Pedro Animas IV approached Sonito N. Mole, an officer of
respondent corporation, and negotiated the sale of properties belonging to the Animas family which
were on the verge of being foreclosed by the bank. Respondent corporation further claimed that the
subject property was one of the two parcels of land it selected for purchase. Said property covered
by TCT No. T-22186 allegedly belonged to petitioner Mongao’s parents but was registered in
petitioner Mongao’s name as a trustee thereof.

Respondent corporation averred that the true agreement between

respondent corporation and the Animas family was for the former to purchase the
two parcels of land belonging to the late Pedro Animas, father of
petitioner Mongao.

It admitted the execution of the Memorandum of Agreement but qualified

that
respondent corporation did not pay the earnest money directly
and solely to petitioner Mongao. Said earnest money was allegedly part of the
amount directly paid by respondent corporation to the Development Bank of the Philippines in order
to redeem certain properties of the Animas family which were foreclosed and sold at a public
auction.

Respondent corporation averred that petitioner Mongao and Pedro Animas, Jr., the registered
owners of the subject properties, executed simultaneously the corresponding Deed
of Sale and Memorandum of Agreement after respondent corporation’s
representative delivered the checks to the bank as payment for redemption
of the properties.

Controversy arose after respondent corporation had allegedly manifested

its intent to complete payments but petitioner Mongao demanded that
payment be made to her alone to the exclusion of the rest of the Animas
family.
Respondent corporation admitted issuing a check in the amount of Three Million Three
Hundred Fifty-Seven Pesos and Eighty-Seven Centavos (₱3,353,357.84) payable to the order
of petitioner Mongao and her mother, Nellie Animas, which was however refused
by petitioner Mongao.

The answer also admitted that due

to the demands of both petitioner
Mongao and the Animas family, respondent corporation was
constrained to deposit the payment with the Clerk of Court of the
RTC of Davao City. By way of a compulsory counterclaim, respondent corporation prayed
that petitioners be adjudged liable for attorney’s fees for their hasty and unjustified institution of the
case.

Petitioners moved for judgment on the pleadings on the ground that the
answer admitted the material allegations of the complaint and, therefore, failed to tender an issue. In 7 

particular, the answer allegedly admitted the existence of the contract of sale and respondent
corporation’s refusal to satisfy the unpaid balance of the purchase price despite demand. Petitioners
contended that respondent corporation cannot avoid rescission by raising the defense that it
contracted with the Animas family and not solely with petitioner Mongao. Petitioners belied
respondent corporation’s claim for consignation by attaching a letter from the Office of the Clerk of
Court of the RTC of Davao City to the effect that the court could not act on petitioners’ motion to
deny consignation because the deposit was transmitted through a mere letter, hence, the case was
not raffled to a particular branch of the court.
8

Respondent corporation opposed petitioners’ motion for judgment

on the pleadings, arguing that two material allegations in the complaint, namely: that
petitioner Mongao did not execute the Deed of Sale and that petitioner Mongao was the owner of the
subject property, were disputed in the answer. 9

The trial court granted petitioners’ motion for judgment on the

pleadings and considered the case submitted for decision.

The trial court rendered a Decision 10 

on November 13, 1995. The dispositive portion
thereof reads:

WHEREFORE, premises considered, the Memorandum of Agreement dated 20 December 1993, as

well as the Deed of Absolute Sale entered into between plaintiff Pesane Animas Mongao and
defendant Pryce Properties Corporation dated November 15, 1994, are hereby declared
rescinded. As a consequence thereof, Pryce Properties Corporation is directed to execute a
Deed of Reconveyance of the property covered by TCT No. T-62944 in favor of Pesane Animas and
to pay attorney’s fees in the amount of ₱50,000.00 as well as costs of suit, by way of damages.

On the other hand plaintiff Pesane Animas Mongao is likewise directed to return to the defendant
Pryce Properties Corporation, what she had received by virtue of the contract in the amount of
₱1,675,442.16, a portion of which may be compensated to the damages herein awarded pursuant to
Article 1278 of the New Civil Code.
SO ORDERED. 11

With the adverse decision, respondent corporation elevated the case to the Court of
Appeals, which reversed the trial court’s Decision and remanded the case for trial on the
merits through its Decision promulgated on March 22, 2001. 12 

On the main issue of whether or not judgment on the pleadings was proper, the
Court of Appeals ruled in the negative, finding that there were actual issues raised in the
answer requiring the presentation and assessment of evidence. The appellate court opined that
aside from the amount of damages claimed by both parties, the following were also put in issue: (1)
the genuineness of the Deed of Sale purportedly executed by petitioner Mongao, and (2) the nature
of petitioner Mongao’s title to the subject property. The Court of Appeals also ruled against the trial
court’s interference with the consignation case pending before the RTC of Davao City but did not
find petitioners guilty of forum-shopping in filing the action for rescission despite the pendency of the
consignation case with the RTC of Davao City.

Petitioners moved for the reconsideration of the Court of Appeals’ Decision but the same was denied
in a Resolution dated November 25, 2002. Hence, this petition for review, raising the following
issues:

A. WHETHER OR NOT THE MERE DEPOSIT OF A CHECK ¾ PAYABLE TO TWO PERSONS,

ONE OF WHOM IS A THIRD PARTY AND/OR A STRANGER TO THE TRANSACTION, AND THE
RELEASE OF WHICH IS SUBJECT TO CERTAIN CONDITIONS¾ CONSTITUTES
CONSIGNATION.

B. WHETHER OR NOT JUDGMENT ON THE PLEADINGS IS PROPER IN

THIS CASE. YES 13

The main issue for this Court’s resolution is the propriety of the trial court’s judgment on the
pleadings on the ground that respondent corporation’s allegation did not tender an issue.

Judgment on the pleadings is governed by Section 1, Rule 34 of the 1997 Rules of

Civil Procedure, essentially a restatement of Section 1, Rule 19 of the 1964 Rules of Court then
applicable to the proceedings before the trial court. Section 1, Rule 19 of the Rules of Court provides
that 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."
The answer would fail to tender an issue, of course, if it does not comply with the requirements for a
specific denial set out in Section 10 (or Section 8) of Rule 8; and it would admit the material
14  15 

allegations of the adverse party's pleadings not only where it expressly confesses the truthfulness
thereof but also if it omits to deal with them at all.
16

Now, if an answer does in fact specifically deny the material averments of the complaint in the
manner indicated by said Section 10 of Rule 8, and/or asserts affirmative defenses (allegations of
new matter which, while admitting the material allegations of the complaint expressly or impliedly,
would nevertheless prevent or bar recovery by the plaintiff) in accordance with Sections 4 and 5 of
17  18 

Rule 6, a judgment on the pleadings would naturally not be proper. 19

Thus, there is joinder of issues when the answer makes a specific denial of the material
allegations in the complaint or asserts affirmative defenses which would bar recovery by the plaintiff.
Where there is proper joinder of issues, the trial court is barred from rendering judgment based only
on the pleadings filed by the parties and must conduct proceedings for the reception of evidence. On
the other hand, an answer fails to tender an issue where the allegations admit the allegations in
support of the plaintiff’s cause of action or fail to address them at all. In either case, there is no
genuine issue and judgment on the pleadings is proper.

Petitioners’ action for rescission is mainly based on the alleged breach by

respondent corporation of its contractual obligation under
the Memorandum of Agreement when respondent refused to effect
payment of the purchase price solely to petitioner Mongao. The complaint
pertinently alleged the following:

4. Plaintiff Pesane Animas Mongao is the registered owner in fee simple of a parcel of land more
particularly described as: . . . .

5. In a Memorandum of Agreement dated 20 December 1993 and entered in the Notarial Register of
Atty. Rosalio C. Cariño, as Document No. 75, Page No. 15, Book No. II, Series of 1993; plaintiff
Pesane Animas Mongao agreed to sell the aforesaid parcel of land to defendant (copy of the
Memorandum of Agreement is attached as Annex B);

6. As earnest money, defendant paid to plaintiff Pesane Animas Mongao, and in her sole name, the
amount of P550,000.00;

....20

On the other hand, nothing from the allegations in respondent corporation’s

answer makes out a proper joinder of issues. Petitioners’ cause of action
for rescission is founded mainly on a perfected contract of sale allegedly
entered into between petitioners and respondent corporation as embodied
in the Memorandum of Agreement attached to the complaint. 

First, the allegations in respondent corporation’s answer do not

make out a specific denial that a contract of sale was perfected
between the parties. 

Second, respondent corporation does not contest the due execution and/or
genuineness of said Memorandum of Agreement. In fact, paragraph 1 of
the answer categorically admits paragraph 5 of the complaint, thus:
1. Paragraphs 1, 2, 3, and 5 of the Complaint are admitted. 21

Paragraph 5 of the complaint referred to above states:

5. In a Memorandum of Agreement dated 20 December 1993 and entered in the Notarial Register of
Atty. Rosalio C. Cariño, as Document No. 75, Page No. 15, Book No. II, Series of 1993; plaintiff
Pesane Animas Mongao agreed to sell the aforesaid parcel of land to defendant (copy of the
Memorandum of Agreement is attached as Annex B); 22

As to how respondent corporation allegedly breached its contractual obligation under

the Memorandum of Agreement is illustrated by the following averments in the complaint:

7. Subsequent to the execution of the Memorandum of Agreement, defendant corporation after

considerable delay offered to pay the balance of the purchase price net of still undetermined and
undisclosed deductions, this time in the name of both plaintiff Pesane Animas Mongao and that of
her mother;

8. Plaintiff Pesane Animas Mongao justifiably refused to accept payment under the conditions
unilaterally imposed by defendant corporation;

9. Several demands, both written and oral, were conveyed by plaintiffs to defendant corporation to
pay the balance immediately, directly and solely to plaintiff Pesane Animas Mongao, but defendant
corporation, in patent breach of its contractual obligation, refused;
23

The answer denied the aforequoted allegations and asserted that there was an earlier
understanding between the parties, the substance of which was not clearly expressed in the
following averments:

4. Paragraph 7 of the Complaint is denied, the truth of the matter being those stated in the Special
and Affirmative Defenses in this Answer.

5. Paragraph 8 of the Complaint is denied, the truth of the matter being that plaintiff’s refusal to
accept payment was not justified and was contrary to the earlier understanding and agreement of
the parties.

6. Paragraph 9 of the Complaint is admitted, except for the allegation that defendant was in "patent
breach of its contractual obligation, the truth of the matter being that defendant’s refusal was in
accordance with its contractual obligation.24

Respondent corporation offered the affirmative defense that the

separate demands of petitioner Mongao and the Animas family compelled it
to issue the check payable to both petitioner Mongao and her mother, to
wit:
16. That in so far as Pedro Animas, Jr., was concerned, he did not object to payment being made to
his brother and/or mother, but with respect to plaintiff Pesane Animas Mongao, it was then that the
controversy began since plaintiff now demanded that payment be given to her alone to the exclusion
of the rest of the Animas family.

17. That in order to play safe, defendant issued the check in the amount of
₱3,353,357.84, payable to the order of plaintiff "Pesane Animas Mongao" and the
surviving matriarch of the Animas Family in the person of "Nellie vda. de Animas".
Plaintiff resented this arrangement and refused to accept payment unless the check was made out
to her alone.

18. That since defendant was now receiving demands from plaintiff and the rest of the Animas
Family (through Nellie vda. de Animas), defendant became confused on which was the proper party
to receive payment and, on January 18, 1995, the amount of ₱3,353,357.84 was deposited by the
defendant by way consignment with the Clerk of Court of the Regional Court, 11th Judicial Region. 25

Effectively, the
aforequoted averments imply an admission by
respondent corporation that it effected payment contrary to the
express terms of the contract of sale.

Nowhere in the terms of the Memorandum of Agreement does it

state that the payment of the purchase price be tendered to any
person other than petitioner Mongao.

The averment virtually admits petitioners’ allegation that

respondent corporation committed a breach of its contractual
obligation to petitioners and supports their cause of action for
rescission. Indeed, the drawing of the check payable to the order of
petitioner Mongao and Nellie Vda. de Animas would deprive
petitioner Mongao of the exclusive benefit of the payment, thereby
sharply deviating from the terms of the contract of sale.

As earlier stated, an answer may allege affirmative defenses which may strike down the
plaintiff’s cause of action. An affirmative defense is one which is not a denial of an essential
ingredient in the plaintiff’s cause of action, but one which, if established, will be a good
defense—i.e. an "avoidance" of the claim. Affirmative defenses include fraud, statute of
26 

limitations, release payment, illegality, statute of frauds, estoppel, former recovery, discharge in
bankruptcy, and any other matter by way of confession and avoidance.

When the answer asserts affirmative defenses, there is proper joinder of issues which must be
ventilated in a full-blown trial on the merits and cannot be resolved by a mere judgment
on the pleadings. Allegations presented in the answer as affirmative defenses are not
automatically characterized as such. Before an allegation qualifies as an affirmative defense, it must
be of such nature as to bar the plaintiff from claiming on his cause of action. For easy reference,
respondent corporation’s affirmative defenses shall be laid out in full:

SPECIAL AND AFFIRMATIVE DEFENSES

9. That, sometime in the latter half of 1993, defendant’s officer, Sonito N. Mole, was approached by
a real estate broker who introduced Pedro Animas IV who disclosed that his family (referring to his
mother, brothers and sisters) was on the verge of permanently losing to the Bank all of their family
properties. The Animas family desperately needed to sell some of the properties so that the rest
could be saved. Thus, S.N. Mole, as representative of the defendant, and Pedro Animas IV, as
representative of the Animas Family, discussed and negotiated on what properties would be
purchased and the terms of the purchase.

10. That defendant was shown a sketch plan of what was referred to therein as the "ANIMAS
SUBDIVISION" situated at Matinao, Polomolok, South Cotabato and its corresponding
"Development Permit" No. 01835 issued on January 10, 1985, covering TCT Nos. T-22186 and T-
22188, for a residential subdivision in the name of applicant/owner "PEDRO ANIMAS", the late
father of the Complainant Pesane Animas Mongao. Because of their potential as residential
subdivision, these very same two (2) parcels of land at Matinao were the ones defendant chose to
purchase.

11. That, sometime in December, 1993, the defendant, through S.N. Mole went to General Santos
City, bringing with him the two (2) checks necessary to pay the Bank in order to redeem the Animas
family lands from the Bank, the written agreements outlining the terms of the purchase by defendant
of the lands, and the deeds of absolute sale for the lands that defendant intended to purchase.

12. That upon delivery of the checks to the Bank, plaintiff (and her husband), as well as Pedro
Animas, Jr. (the registered owner of the other land purchased by the defendant) signed the
necessary memoranda of agreement, as well as the deeds of conveyances (deeds of absolute sale).

13. That, in the meantime, a Notice of Lis Pendens was annotated in TCT No. T-22186 regarding
Civil Case No. 5195 "FOR: PARTITION" then pending . . . and entitled "PEDRO ANIMAS VI,
Plaintiff, versus NELLIE ANIMAS, BALDOMERO ANIMAS, EDUARDO ANIMAS, PEDRO ANIMAS,
JR., PEDRO ANIMAS IV, PEDRO ANIMAS V, MARIVIC ANIMAS, MARINEL ANIMAS LIM and
PESANE ANIMAS, Defendants" and, on May 23, 1994, judgment was rendered approving the
Compromise Agreement, wherein "the defendants will give plaintiff the amount of ONE HUNDRED
THOUSAND (₱100,000.00) PESOS upon the sale of their Matinao properties in favor of PRYCE
INC."

14. That in the middle of November, 1995 the lands subject of the purchase by the defendant were
finally issued clearances for transfer of title in favor and in the name of the defendant.

15. That in early December, 1995, plaintiff Pesane Animas Mongao and the rest of the Animas
Family were advised that defendant was ready to complete payments in accordance with their
Memorandum of Agreement.

16. That in so far as Pedro Animas, Jr., was concerned, he did not object to payment being made to
his brother and/or mother, but with respect to plaintiff Pesane Animas Mongao, it was then that the
controversy began since plaintiff now demanded that payment be given to her alone to the exclusion
of the rest of the Animas Family.

17. That in order to play safe, defendant issued the check in the amount of ₱3,353,357.84, payable
to the order of plaintiff "Pesane Animas Mongao" and the surviving matriarch of the Animas Family in
the person of "Nellie vda. de Animas". Plaintiff resented this arrangement and refused to accept
payment unless the check was made out to her alone.

18. That since defendant was now receiving demands from plaintiff and the rest of the Animas
Family (through Nellie vda. de Animas), defendant became confused on which was the proper party
to receive payment and, on January 18, 1995, the amount of ₱3,353,357.84 was deposited by the
defendant by way consignment with the Clerk of Court of the Regional Court, 11th Judicial Region.
19. The defendant is still ready and willing to cause the release of said consignment amount (less
consignment fees of the court) to whomsoever that the Court may adjudge to be the proper party
entitled to the amount.

20. That since the start of the negotiations for the purchase of the lands, it was made clear to the
defendant that the properties were part of the estate of the deceased Judge Pedro Animas and his
surviving wife Nellie vda. de Animas and that the registered owners (the children) were merely
holding the same in trust for the estate and Nellie vda. de Animas.

21. That no factual nor legal ground exists to support plaintiffs claim for rescission of contract.

22. That the complaint states no cause of action against the defendant.

23. That this suit actually involves conflicting claims among members of the same family. 27

In essence, respondent corporation justifies its refusal to tender payment of the purchase price
solely to petitioner Mongao by alleging that the latter was a mere trustee and not the beneficial
owner of the property subject of the sale and therefore not the proper party to receive payment.

Such defense cannot prevent petitioners from seeking the rescission of the contract of sale. The
express terms of the Memorandum of Agreement, the genuineness and due execution of which are
not denied, clearly
show that the contract of sale was executed only
between petitioner Mongao and respondent corporation.
Where there is an apparent repudiation of the trust by petitioner Mongao, such claim or defense may
properly be raised only by the parties for whose benefit the trust was created.

Respondent corporation cannot assert said defense in order to resist petitioners’ claim for rescission
where it has been sufficiently shown by the allegations of the complaint and answer that respondent
corporation has breached its contractual obligation to petitioners. There being no material allegation
in the answer to resist petitioners’ claim, the trial court correctly rendered judgment based on the
pleadings submitted by the parties.

The Court of Appeals enumerated certain factual controversies, which it believed can only be
resolved after presentation of evidence, and these are: (1) whether or not petitioner Mongao
executed the Deed of Absolute Sale in favor of respondent corporation, and (2) whether or not
petitioner Mongao is the sole owner of the subject property.

The Court finds that the determination of these factual questions is immaterial to the resolution of the
main issue of whether or not there is a valid cause for rescission in light of respondent’s implied
admissions of certain allegations and the weakness of the affirmative defenses in the answer. At the
risk of being repetitious,

respondent corporation’s answer admitted that there was a perfected contract of sale between
respondent

and petitioner Mongao and that respondent corporation refused to tender payment of the purchase
price solely to petitioner Mongao. These admissions clearly make out a case for rescission of
contract.
On the peripheral issue of whether or not there was proper consignation of the purchase price with
the RTC of Davao City, the Court adopts the trial court’s finding that respondent corporation did not
follow the procedure required by law, to wit:

On the second issue, the mere consignment or deposit of the check to the Clerk of Court without
observing the mandatory provisions of Articles 1256 to 1257 of the New Civil Code, does not
produce the effect of payment in order that the obligor or the defendant herein shall be released from
the obligation, hence, no payment of the unpaid balance of ₱3,533,357.84 has actually been made.
In fact it was noted by the Court that the deposit is even conditional, i.e. it should not be released
without a court order.28

The records reveal that respondent corporation did not file any formal complaint for consignation but
merely deposited the check with the Clerk of Court. A formal complaint must be commenced with the
trial court to provide the proper venue for the determination if there is a valid tender of payment.
Strictly speaking, without the institution of an action for tender of payment and consignation, the trial
court cannot rule on whether or not respondent was justified in not effecting payment solely to
petitioner Mongao.

WHEREFORE, the instant petition for review is GRANTED. The Decision of the Court of Appeals in
CA-G.R. CV No. 52753 is REVERSED and SET ASIDE and the Decision of the Regional Trial Court,
Branch 35, General Santos City in Civil Case No. 5545 is hereby REINSATED. Costs against
respondent.

SO ORDERED.

G.R. Nos. 158090               October 4, 2010

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), Petitioner,

vs.
HEIRS OF FERNANDO F. CABALLERO, represented by his daughter, JOCELYN G.
CABALLERO, Respondents.

DECISION

PERALTA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
set aside the Decision1 and the Resolution,2 dated December 17, 2002 and April 29, 2003,
respectively, of the Court of Appeals (CA) in CA-G.R. CV. No. 49300.

The antecedents are as follows:

Respondent Fernando C. Caballero (Fernando) was the registered

owner of a residential lot designated as Lot No. 3355, Ts-268, covered by TCT No.
T-16035 of the Register of Deeds of Cotabato, containing an area of 800 square meters and situated
at Rizal Street, Mlang, Cotabato. On the said lot, respondent built a
residential/commercial building consisting of two (2) stories.

secured a loan from

On March 7, 1968, Fernando and his wife, Sylvia Caballero,

petitioner Government Service Insurance System (GSIS) in the amount of ₱20,000.00, as

evidenced by a promissory note. Fernando and his wife likewise executed a real estate
mortgage on the same date, mortgaging the afore-stated property as security.

Fernando defaulted on the payment of his loan with the

GSIS. Hence, on January 20, 1973, the mortgage covering the subject property was

foreclosed, and on March 26, 1973, the same was sold at a public auction where the
petitioner was the only bidder in the amount of ₱36,283.00. For failure of Fernando to redeem the
said property within the designated period, petitioner executed an Affidavit of Consolidation of
Ownership on September 5, 1975. Consequently, TCT No. T-16035 was cancelled and TCT No. T-
45874 was issued in the name of petitioner.

[GSIS] wrote a letter to Fernando,

On November 26, 1975, petitioner
informing him of the consolidation of title in its favor, and
requesting payment of monthly rental in view of
Fernando's continued occupancy of the subject property.
In reply, Fernando
requested that he be allowed to repurchase the
same through partial payments. Negotiation as to the repurchase by Fernando of
the subject property went on for several years, but no agreement was reached
between the parties.

petitioner scheduled the subject property for

On January 16, 1989,
public bidding. On the scheduled date of bidding,
Fernando's daughter, Jocelyn Caballero, submitted a bid in the amount of ₱350,000.00, while

Carmelita Mercantile Trading Corporation (CMTC) submitted a bid in the amount of ₱450,000.00.

Since CMTC was the highest bidder , it was awarded the subject property.
On May 16, 1989, the Board of Trustees of the GSIS issued Resolution No. 199 confirming the
award of the subject property to CMTC for a total consideration of ₱450,000.00. Thereafter, a Deed
of Absolute Sale was executed between petitioner and CMTC on July 27, 1989, transferring the
subject property to CMTC. Consequently, TCT No. T-45874 in the name of GSIS was cancelled, and
TCT No. T-76183 was issued in the name of CMTC.
Due to the foregoing, Fernando, represented by his daughter and attorney-in-fact, Jocelyn
Caballero , filed with the Regional Trial Court (RTC) of Kabacan, Cotabato a
Complaint  against CMTC, the GSIS and its responsible officers, and the Register of Deeds
3

of Kidapawan, Cotabato. Fernando prayed, among others, that judgment be rendered:

declaring GSIS Board of Trustees Resolution No. 199, dated May 16, 1989, null and void;

declaring the Deed of Absolute Sale between petitioner and CMTC null and void ab initio;

declaring TCT No. 76183 of the Register of Deeds of Kidapawan, Cotabato, likewise, null and
void ab initio;

declaring the bid made by Fernando in the amount of ₱350,000.00 for the repurchase of his property
as the winning bid;

and ordering petitioner to execute the corresponding Deed of Sale of the subject property in favor of
Fernando.

He also prayed for payment of moral damages, exemplary damages, attorney's fees and litigation
expenses.

In his complaint, Fernando alleged that there were irregularities in

the conduct of the bidding.
CMTC misrepresented itself to be wholly owned by Filipino citizens.

It misrepresented its working capital.

Its representative Carmelita Ang Hao had no prior authority from its board of directors in an
appropriate board resolution to participate in the bidding.

The corporation is not authorized to acquire real estate or invest its funds for purposes other than its
primary purpose.

Fernando further alleged that the GSIS allowed CMTC to bid despite knowledge that said
corporation has no authority to do so.

The GSIS also disregarded Fernando's prior right to buy back his family home and lot in violation of
the laws.

The Register of Deeds of Cotabato acted with abuse of power and authority when it issued the TCT
in favor of CMTC without requiring the CMTC to submit its supporting papers as required by the law.
Petitioner and its officers filed their Answer with Affirmative
Defenses and Counterclaim.   4

The GSIS alleged that Fernando lost his right of redemption.

He was given the chance to repurchase the property; however, he did not avail of such option
compelling the GSIS to dispose of the property by public bidding as mandated by law.

There is also no "prior right to buy back" that can be exercised by Fernando. Further,

it averred that the articles of incorporation and other papers of CMTC were all in order.

In its counterclaim, petitioner alleged that

Fernando owed petitioner the sum of ₱130,365.81, representing back rentals, including
additional interests from January 1973 to February 1987, and

the additional amount of ₱249,800.00, excluding applicable interests, representing rentals Fernando
unlawfully collected from Carmelita Ang Hao from January 1973 to February 1988.

After trial, the RTC, in its Decision  dated September 27, 1994, ruled in favor of
5

petitioner and dismissed the complaint. In the same decision, the trial court
granted petitioner's counterclaim and directed Fernando to pay petitioner the rentals paid by CMTC
in the amount of ₱249,800.00. The foregoing amount was collected by Fernando from the CMTC
and represents payment which was not turned over to petitioner, which was entitled to receive the
rent from the date of the consolidation of its ownership over the subject property.

Fernando filed a motion for reconsideration, which was denied by the

RTC in an Order dated March 27, 1995.

Aggrieved by the Decision, respondent filed a Notice of Appeal.6  The CA, in its Decision
dated December 17, 2002, affirmed the decision of the RTC with the
modification that the portion of the judgment ordering Fernando to pay rentals in the amount of
₱249,800.00, in favor of petitioner, be deleted. Petitioner filed a motion for reconsideration, which
the CA denied in a Resolution dated April 29, 2003. Hence, the instant petition.

An Ex Parte Motion for Substitution of Party,7 dated July 18, 2003, was filed by the
surviving heirs of Fernando, who died on February 12, 2002. They prayed that they be allowed to be
substituted for the deceased, as respondents in this case.
Petitioner enumerated the following grounds in support of its petition:

THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN HOLDING

THAT GSIS' COUNTERCLAIM, AMONG OTHERS, OF ₱249,800.00 REPRESENTING
RENTALS COLLECTED BY PRIVATE RESPONDENT FROM CARMELITA MERCANTILE
TRADING CORPORATION IS IN THE NATURE OF A PERMISSIVE COUNTERCLAIM
WHICH REQUIRED THE PAYMENT BY GSIS OF DOCKET FEES BEFORE THE TRIAL
COURT CAN ACQUIRE JURISDICTION OVER SAID COUNTERCLAIM.

II

THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN HOLDING

THAT GSIS' DOCUMENTARY EVIDENCE SUPPORTING ITS CLAIM OF ₱249,800.00
LACKS PROPER IDENTIFICATION.8

The petition of the GSIS seeks the review of the CA's Decision insofar as it deleted the trial court's
award of ₱249,800.00 in its favor representing rentals collected by Fernando from the CMTC.

In their Memorandum, respondents’ claim that CMTC cannot purchase real estate or invest its funds
in any purpose other than its primary purpose for which it was organized in the absence of a
corporate board resolution; the bid award, deed of absolute sale and TCT No. T-76183, issued in
favor of the CMTC, should be nullified; the trial court erred in concluding that GSIS personnel have
regularly performed their official duty when they conducted the public bidding; Fernando, as former
owner of the subject property and former member of the GSIS, has the preemptive right to
repurchase the foreclosed property.

These additional averments cannot be taken cognizance by the Court, because they were
substantially respondents’ arguments in their petition for review on certiorari earlier filed before Us
and docketed as G.R. No. 156609. Records show that said petition was denied by the Court in a
Resolution9 dated April 23, 2003, for petitioners’ (respondents herein) failure to sufficiently show that
the Court of Appeals committed any reversible error in the challenged decision as to warrant the
exercise by this Court of its discretionary appellate jurisdiction.10 Said resolution became final and
executory on June 9, 2003.11 Respondents’ attempt to re-litigate claims already passed upon and
resolved with finality by the Court in G.R. No. 156609 cannot be allowed.

Going now to the first assigned error, petitioner

submits that its counterclaim for the
rentals collected by Fernando from the CMTC is in the nature of a
compulsory counterclaim in the original action of Fernando against petitioner for annulment
of bid award, deed of absolute sale and TCT No. 76183. Respondents, on the other hand, alleged
that petitioner's counterclaim is permissive and its failure to pay the prescribed docket fees results
into the dismissal of its claim.
To determine whether a counterclaim is compulsory or not, the Court
has devised the following tests:

(a) Are the issues of fact and law raised by the claim and by the counterclaim largely the
same?

(b) Would res judicata bar a subsequent suit on defendant’s claims, absent the compulsory
counterclaim rule?

(c) Will substantially the same evidence support or refute plaintiff’s claim as well as the
defendant’s counterclaim? and

(d) Is there any logical relation between the claim and the counterclaim?

A positive answer to all four questions would indicate that the counterclaim is compulsory.12

Tested against the above-mentioned criteria, this Court agrees with the CA's view that petitioner's
counterclaim for the recovery of the amount representing rentals collected by Fernando from the

permissive. The evidence needed by

CMTC is

Fernando to cause the annulment of the bid

award, deed of absolute sale and TCT is
different from that required to establish
petitioner's claim for the recovery of rentals.
The issue in the main action, i.e., the nullity or validity of the bid award, deed of
absolute sale and TCT in favor of CMTC,

is entirely different from the issue in the counterclaim, i.e., whether

petitioner is entitled to receive the CMTC's rent payments over the subject property when petitioner
became the owner of the subject property by virtue of the consolidation of ownership of the property
in its favor.

The rule in permissive counterclaims is that for the trial court to acquire jurisdiction, the
counterclaimant is bound to pay the prescribed docket fees.13 This, petitioner
did not do,
because it asserted that its claim for the collection of rental
payments was a compulsory counterclaim.
Since petitioner failed to pay the docket fees, the RTC did not acquire jurisdiction over its permissive
counterclaim. The judgment rendered by the RTC, insofar as it ordered Fernando to pay
petitioner the rentals which he collected from CMTC, is considered null and void. Any
decision rendered without jurisdiction is a total nullity and may be struck down at any time, even on
appeal before this Court.14

Petitioner further argues that assuming that its counterclaim is permissive, the trial court has
jurisdiction to try and decide the same, considering petitioner's exemption from all kinds of fees.

In In Re: Petition for Recognition of the Exemption of the Government Service Insurance System
from Payment of Legal Fees,15 the Court ruled that the provision in the Charter of the GSIS, i.e.,
Section 39 of Republic Act No. 8291, which exempts it from "all taxes, assessments, fees, charges
or duties of all kinds," cannot operate to exempt it from the payment of legal fees. This was because,
unlike the 1935 and 1973 Constitutions, which empowered Congress to repeal, alter or supplement
the rules of the Supreme Court concerning pleading, practice and procedure, the 1987 Constitution
removed this power from Congress. Hence, the Supreme Court now has the sole authority to
promulgate rules concerning pleading, practice and procedure in all courts.

In said case, the Court ruled that:

The separation of powers among the three co-equal branches of our government has erected an
impregnable wall that keeps the power to promulgate rules of pleading, practice and procedure
within the sole province of this Court. The other branches trespass upon this prerogative if they
enact laws or issue orders that effectively repeal, alter or modify any of the procedural rules
promulgated by this Court. Viewed from this perspective, the claim of a legislative grant of exemption
from the payment of legal fees under Section 39 of RA 8291 necessarily fails.

Congress could not have carved out an exemption for the GSIS from the payment of legal fees
without transgressing another equally important institutional safeguard of the Court's independence
− fiscal autonomy. Fiscal autonomy recognizes the power and authority of the Court to levy, assess
and collect fees, including legal fees. Moreover, legal fees under Rule 141 have two basic
components, the Judiciary Development Fund (JDF) and the Special Allowance for the Judiciary
Fund (SAJF). The laws which established the JDF and the SAJF expressly declare the identical
purpose of these funds to "guarantee the independence of the Judiciary as mandated by the
Constitution and public policy." Legal fees therefore do not only constitute a vital source of the
Court's financial resources but also comprise an essential element of the Court's fiscal
independence. Any exemption from the payment of legal fees granted by Congress to government-
owned or controlled corporations and local government units will necessarily reduce the JDF and the
SAJF. Undoubtedly, such situation is constitutionally infirm for it impairs the Court's guaranteed fiscal
autonomy and erodes its independence.

Petitioner also invoked our ruling in Sun Insurance Office, Ltd. v. Judge Asuncion,16 where the Court
held that:

xxxx

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

In Ayala Corporation v. Madayag,17 the Court, in interpreting the third rule laid down in Sun Insurance
Office, Ltd. v. Judge Asuncion regarding awards of claims not specified in the pleading, held that the
same refers only to damages arising after the filing of the complaint or similar pleading as to which
the additional filing fee therefor shall constitute a lien on the judgment.

The amount of any claim for damages, therefore, arising on or before the filing of the complaint or
any pleading should be specified. While it is true that the determination of certain damages as
exemplary or corrective damages is left to the sound discretion of the court, it is the duty of the
parties claiming such damages to specify the amount sought on the basis of which the court may
make a proper determination, and for the proper assessment of the appropriate docket fees. The
exception contemplated as to claims not specified or to claims although specified are left for
determination of the court is limited only to any damages that may arise after the filing of the
complaint or similar pleading for then it will not be possible for the claimant to specify nor speculate
as to the amount thereof. (Emphasis supplied.) 1avvphi1

Petitioner's claim for payment of rentals collected by Fernando from the CMTC did not arise after the
filing of the complaint; hence, the rule laid down in Sun Insurance finds no application in the present
case.

Due to the non-payment of docket fees on petitioner's counterclaim, the trial

court never acquired jurisdiction over it and, thus, there is no need to discuss the second issue
raised by petitioner.

WHEREFORE, the petition is DENIED. The Decision and the Resolution, dated December 17, 2002
and April 29, 2003, respectively, of the Court of Appeals in CA-G.R. CV. No. 49300, are AFFIRMED.

SO ORDERED.

G.R. No. 155173             November 23, 2004

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON

CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION and
PHILIP ROSEBERG, petitioners,
vs.
CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A.
MARIANO, respondents.

DECISION

PANGANIBAN, J.:

May defendants in civil cases implead in their counterclaims persons who were not parties to the
original complaints? This is the main question to be answered in this controversy.

The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to nullify the May 22,
1 

2002 and the September 3, 2002 Orders of the Regional Trial Court (RTC) of Quezon City (Branch
2  3 

80) in Civil Case No. Q-00-41103. The decretal portion of the first assailed Order reads:

"WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to dismiss
claims is granted. Accordingly, the defendants' claims against Mr. Lim and Mr. Mariano
captioned as their counterclaims are dismissed." 4

The second challenged Order denied petitioners' Motion for Reconsideration.

The Facts

Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI)
executed by both parties on August 11, 1998,

whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates
and other qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC) --
agreed to purchase the cement business of Respondent Continental Cement Corporation (CCC). On
October 21, 1998, both parties entered into a Sale and Purchase Agreement (SPA).

At the time of the foregoing transactions, petitioners were well aware that CCC had a case pending
with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset Privatization
Trust (APT) v. Court of Appeals and Continental Cement Corporation.

In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under
Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of the contract
price in the amount of P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be
deposited in an interest-bearing account in the First National City Bank of New York (Citibank) for
payment to APT, the petitioner in GR No. 119712.

However, petitioners allegedly refused to apply the sum to the payment to APT, despite the
subsequent finality of the Decision in GR No. 119712 in favor of the latter and the repeated
instructions of Respondent CCC.

Fearful that nonpayment to APT would result in the foreclosure, not just of its properties covered by
the SPA with Lafarge but of several other properties as well,

"Complaint
CCC filed before the Regional Trial Court of Quezon City on June 20, 2000, a

with Application for Preliminary Attachment" against

petitioners. Docketed as Civil Case No. Q-00-41103, the Complaint prayed,
among others, that petitioners be directed to pay the "APT
Retained Amount" referred to in Clause 2 (c) of the SPA.
Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-
shopping. Respondent CCC had allegedly made the same claim it was raising in Civil Case No. Q-
00-41103 in another action, which involved the same parties and which was filed earlier before the
International Chamber of Commerce. After the trial court denied the Motion to Dismiss in its
November 14, 2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR SP
No. 68688.

In the meantime, to avoid being in default and without prejudice to the outcome of their appeal,

petitioners filed their Answer and Compulsory

Counterclaims ad Cautelam before the trial court in Civil Case No. Q-00-
41103. In their Answer,

they denied the allegations in the Complaint.

They prayed -- by way of compulsory counterclaims against Respondent CCC, its majority
stockholder and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the
sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages,
(c) P100,000,000 each as moral damages, and (d) P5,000,000 each as attorney's fees plus costs of
suit.

Petitioners alleged that CCC, through Lim and Mariano, had

filed the "baseless" Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in
bad faith. Relying on this Court's pronouncement in Sapugay v. CA, petitioners prayed that both Lim
5 

and Mariano be held "jointly and solidarily" liable with Respondent CCC.

On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss
petitioners' compulsory counterclaims on grounds that essentially constituted the very issues for
resolution in the instant Petition.

Ruling of the Trial Court

On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed
petitioners' counterclaims for several reasons, among which were the following:

a) the counterclaims against Respondents Lim and Mariano were not compulsory;

b) the ruling in Sapugay was not applicable; and

c) petitioners' Answer with Counterclaims violated procedural rules on the proper joinder of causes
of action.
6

Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an Amended Order
dated September 3, 2002 -- admitted some errors in its May 22, 2002 Order, particularly in its
7 

pronouncement that their counterclaim had been pleaded against Lim and Mariano only. However,
the RTC clarified that it was dismissing the counterclaim insofar as it impleaded Respondents Lim
and Mariano, even if it included CCC.

Hence this Petition. 8

Issues
In their Memorandum, petitioners raise the following issues for our consideration:

"[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no
personality to move to dismiss petitioners' compulsory counterclaims on Respondents Lim
and Mariano's behalf.

"[b] Whether or not the RTC gravely erred in ruling that

(i) petitioners' counterclaims against Respondents Lim and Mariano are not
compulsory;
(ii) (ii) Sapugay v. Court of Appeals is inapplicable here; and
(iii) (iii) petitioners violated the rule on joinder of causes of action."
9

For clarity and coherence, the Court will resolve the foregoing in reverse order.

The Court's Ruling

The Petition is meritorious.

First Issue:

Counterclaims and Joinder of Causes of Action.

Petitioners' Counterclaims Compulsory----

Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any
claim
which a defending party may have against an opposing party."
They are generally allowed in order to avoid a multiplicity of suits and to facilitate the disposition of
the whole controversy in a single action, such that the defendant's demand may be adjudged by a
counterclaim rather than by an independent suit.

The only limitations to this principle are

(1) that the court should have jurisdiction over the subject matter of the counterclaim, and

(2) that it could acquire jurisdiction over third parties whose presence is essential for its
adjudication. 10

A counterclaim may either be permissive or compulsory.

permissive
It is "if it does not arise out of or is not necessarily connected with the subject
matter of the opposing party's claim." A permissive counterclaim is essentially an independent claim
11 

that may be filed separately in another case.

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

with the transaction or occurrence constituting the subject matter of the opposing party's claim and
does not require for its adjudication the presence of third parties of whom the court cannot acquire
jurisdiction."
12

Unlike permissive counterclaims, compulsory counterclaims should be set up

in the same action; otherwise, they would be barred forever. NAMARCO v. Federation of
United Namarco Distributors laid down the following criteria to determine whether a counterclaim is
13 

compulsory or permissive:

1) Are issues of fact and law raised by the claim and by the counterclaim largely the same?

2) Would res judicata bar a subsequent suit on defendant's claim, absent the compulsory
counterclaim rule?

3) Will substantially the same evidence support or refute plaintiff's claim as well as defendant's
counterclaim?

4) Is there any logical relation between the claim and the counterclaim?

A positive answer to all four questions would indicate that the counterclaim is compulsory.

Adopted in Quintanilla v. CA and reiterated in Alday v. FGU Insurance Corporation, the "compelling
14  15 

test of compulsoriness" characterizes a counterclaim as compulsory if there should exist a

"logical relationship" between the main claim and the counterclaim. There exists such a
relationship when conducting separate trials of the respective claims of the parties would entail
substantial duplication of time and effort by the parties and the court; when the multiple claims
involve the same factual and legal issues; or when the claims are offshoots of the same basic
controversy between the parties.

We shall now examine the nature of petitioners' counterclaims against respondents with the use of
the foregoing parameters.

Petitioners base their counterclaim on the following

allegations:
"Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad
faith decisions for, and causing plaintiff to file this baseless suit and to procure an
unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no right to
bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was motivated
by his personal interests as one of the owners of plaintiff while Anthony A. Mariano was
motivated by his sense of personal loyalty to Gregory T. Lim, for which reason he
disregarded the fact that plaintiff is without any valid cause.

"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint
tortfeasors in the commission of the acts complained of in this answer and in the compulsory
counterclaims pleaded below. As such they should be held jointly and solidarily liable as
plaintiff's co-defendants to those compulsory counterclaims pursuant to the Supreme Court's
decision in Sapugay v. Mobil.
 xxx    xxx    xxx

"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless
case has compelled the defendants to engage the services of counsel for a fee and to incur
costs of litigation, in amounts to be proved at trial, but in no case less than P5 million for
each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano should be held
jointly and solidarily liable.

"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the
reputations of the defendants and they should be held jointly and solidarily liable to them for
moral damages of P100 million each.

"In order to serve as an example for the public good and to deter similar baseless, bad faith
litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly and
solidarily liable to the defendants for exemplary damages of P100 million each."  16

The above allegations show that petitioners'

counterclaims for damages were
the result of respondents' (Lim and Mariano) act of filing the
Complaint and securing the Writ of Attachment in bad faith. Tiu Po v.
Bautista involved the issue of whether the counterclaim that sought moral, actual and exemplary
17 

damages and attorney's fees against respondents on account of their "malicious and unfounded"
complaint was compulsory. In that case, we held as follows:

"Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory

counterclaim. They are damages claimed to have been suffered by petitioners as a
consequence of the action filed against them. They have to be pleaded in the same action;
otherwise, petitioners would be precluded by the judgment from invoking the same in an
independent action. The pronouncement in Papa vs. Banaag (17 SCRA 1081) (1966) is in
point:

"Compensatory, moral and exemplary damages, allegedly suffered by the creditor in

consequence of the debtor's action, are also compulsory counterclaim barred by the
dismissal of the debtor's action. They cannot be claimed in a subsequent action by the
creditor against the debtor."

"Aside from the fact that petitioners' counterclaim for damages cannot be the subject of an
independent action, it is the same evidence that sustains petitioners' counterclaim that will
refute private respondent's own claim for damages. This is an additional factor that
characterizes petitioners' counterclaim as compulsory." 18

Moreover, using the "compelling test of compulsoriness," we find that, clearly, the recovery of
petitioners' counterclaims is contingent upon the case filed by respondents; thus, conducting
separate trials thereon will result in a substantial duplication of the time and effort of the court and
the parties.

Since the counterclaim for damages is compulsory, it must be set up in the same action;
otherwise, it would be barred forever.
If it is filed concurrently with the main action but in a different proceeding, it would be abated on the
ground of litis pendentia; if filed subsequently, it would meet the same fate on the ground of res
judicata.
19

Sapugay v. Court of Appeals Applicable to the Case at Bar

Sapugay v. Court of Appeals finds application in the present case. In Sapugay, Respondent Mobil
Philippines filed before the trial court of Pasig an action for replevin against Spouses Marino and
Lina Joel Sapugay.

The Complaint arose from the supposed failure of the couple to keep their end of their Dealership
Agreement.

In their Answer with Counterclaim, petitioners alleged that after incurring expenses in anticipation of
the Dealership Agreement, they requested the plaintiff to allow them to get gas, but that it had
refused.

It claimed that they still had to post a surety bond which, initially fixed at P200,000, was later raised
to P700,000.

The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of the
Dealership Agreement, which respondent continued to withhold from them.

Later, petitioners discovered that respondent and its manager, Ricardo P. Cardenas, had intended
all along to award the dealership to Island Air Product Corporation.

In their Answer, petitioners

impleaded in the counterclaim Mobil Philippines and
its manager -- Ricardo P. Cardenas -- as defendants. They prayed that judgment
be rendered, holding both jointly and severally liable for pre-operation expenses, rental, storage,
guarding fees, and unrealized profit including damages. After both Mobil and Cardenas failed to
respond to their Answer to the Counterclaim, petitioners filed a "Motion to Declare Plaintiff and its
Manager Ricardo P. Cardenas in Default on Defendant's Counterclaim."

Among the issues raised in Sapugay was whether Cardenas, who was not a party to
the original action, might nevertheless be impleaded in the counterclaim. We disposed of this issue
as follows:

"A counterclaim is defined as any claim for money or other relief which a defending
party may have against an opposing party. However, the

general rule that a defendant cannot by a counterclaim bring into the action any claim
against persons other than the plaintiff admits of an exception

under Section 14, Rule 6 which provides that

'when the presence of parties other than those to the original action is required for the
granting of complete relief in the determination of a counterclaim or cross-claim, the court
shall order them to be brought in as defendants, if jurisdiction over them can be obtained.'
 The inclusion, therefore, of Cardenas in petitioners' counterclaim is sanctioned by the
rules."20

The prerogative of bringing in new parties to the action at any stage before judgment is intended to
accord complete relief to all of them in a single action and to avert a duplicity and even a
multiplicity of suits thereby.
In insisting on the inapplicability of Sapugay,

respondents argue that new parties cannot be included in a counterclaim, except when
no complete relief can be had. They add that "[i]n the present case, Messrs. Lim and Mariano are
not necessary for petitioners to obtain complete relief from Respondent CCC as plaintiff in the lower
court. This is because Respondent CCC as a corporation with a separate [legal personality] has the
juridical capacity to indemnify petitioners even without Messrs. Lim and Mariano." 21

We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim and
Mariano in the instant case -- is not premised on the assumption that the plaintiff corporation does
not have the financial ability to answer for damages, such that it has to share its liability with
such inclusion is based on the
individual defendants. Rather,
allegations of fraud and bad faith on the part of the
corporate officer or stockholder. These allegations may warrant the piercing of
the veil of corporate fiction, so that the said individual may not seek refuge therein, but may be held
individually and personally liable for his or her actions.

In Tramat Mercantile v. Court of Appeals, the Court held that generally, it should only be the
22 

corporation that could properly be held liable. However, circumstances may warrant the inclusion of
the personal liability of a corporate director, trustee, or officer, if the said individual is found guilty of
bad faith or gross negligence in directing corporate affairs.

Remo Jr. v. IAC has stressed that while a corporation is an entity separate and distinct from its
23 

stockholders, the corporate fiction may be disregarded if "used to defeat public convenience, justify a
wrong, protect fraud, or defend crime." In these instances, "the law will regard the corporation as an
association of persons, or in case of two corporations, will merge them into one." Thus, there is no
debate on whether, in alleging bad faith on the part of Lim and Mariano the counterclaims had in
effect made them "indispensable parties" thereto; based on the alleged facts, both are clearly parties
in interest to the counterclaim. 24

Respondents further assert that "Messrs. Lim and Mariano cannot be held
personally liable [because their assailed acts] are within the powers
granted to them by the proper board resolutions; therefore, it is not a personal
decision but rather that of the corporation as represented by its board of directors." The foregoing
25 

assertion, however, is a matter of defense that should be threshed out during the trial; whether or not
"fraud" is extant under the circumstances is an issue that must be established by convincing
evidence. 26

Suability and liability are two distinct matters. While the Court does rule that the
counterclaims against Respondent CCC's president and manager may be properly filed, the
determination of whether both can in fact be held jointly and severally liable with respondent
corporation is entirely another issue that should be ruled upon by the trial court.

while a compulsory counterclaim may implead

However,
persons not parties to the original complaint,
the general rule -- a defendant in a compulsory counterclaim need not file any responsive pleading,
as it is deemed to have adopted the allegations in the complaint as its answer -- does not
apply.
The filing of a responsive pleading is deemed a voluntary submission to the jurisdiction of the court;
a new party impleaded by the plaintiff in a compulsory counterclaim cannot be considered to have
automatically and unknowingly submitted to the jurisdiction of the court. A contrary ruling would
result in mischievous consequences whereby a party may be indiscriminately impleaded as a
defendant in a compulsory counterclaim; and judgment rendered against it without its knowledge,
much less participation in the proceedings, in blatant disregard of rudimentary due process
requirements.

The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of the
Rules of Court, to "order [such impleaded parties] to be brought in as defendants, if jurisdiction over
them can be obtained," by directing that summons be served on them. In this manner, they can be
properly appraised of and answer the charges against them. Only upon service of summons can the
trial court obtain jurisdiction over them.

In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file any
responsive pleading to the counterclaim leveled against him. Nevertheless, the Court gave due
consideration to certain factual circumstances, particularly the trial court's treatment of the Complaint
as the Answer of Cardenas to the compulsory counterclaim and of his seeming acquiescence
thereto, as evidenced by his failure to make any objection despite his active participation in the
proceedings. It was held thus:

"It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against him
on the ground of lack of jurisdiction. While it is a settled rule that the issue of jurisdiction may
be raised even for the first time on appeal, this does not obtain in the instant case. Although
it was only Mobil which filed an opposition to the motion to declare in default, the fact that the
trial court denied said motion, both as to Mobil and Cardenas on the ground that Mobil's
complaint should be considered as the answer to petitioners' compulsory counterclaim, leads
us to the inescapable conclusion that the trial court treated the opposition as having been
filed in behalf of both Mobil and Cardenas and that the latter had adopted as his answer the
allegations raised in the complaint of Mobil. Obviously, it was this ratiocination which led the
trial court to deny the motion to declare Mobil and Cardenas in default. Furthermore,
Cardenas was not unaware of said incidents and the proceedings therein as he testified and
was present during trial, not to speak of the fact that as manager of Mobil he would
necessarily be interested in the case and could readily have access to the records and the
pleadings filed therein.

"By adopting as his answer the allegations in the complaint which seeks affirmative relief,
Cardenas is deemed to have recognized the jurisdiction of the trial court over his person and
submitted thereto. He may not now be heard to repudiate or question that jurisdiction." 27
 Such factual circumstances are unavailing in the instant case. The records do not show that
Respondents Lim and Mariano are either aware of the counterclaims filed against them, or
that they have actively participated in the proceedings involving them. Further, in dismissing
the counterclaims against the individual respondents, the court a quo -- unlike in Sapugay --
cannot be said to have treated Respondent CCC's Motion to Dismiss as having been filed on
their behalf.

Rules on Permissive Joinder of Causes

of Action or Parties Not Applicable

Respondent CCC contends that petitioners' counterclaims violated the rule on

joinder of causes of action. It argues that while the original Complaint was a suit for specific
performance based on a contract, the counterclaim for damages was based on the tortuous acts of
respondents. In its Motion to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the
28 

Rules of Civil Procedure, which we quote:

"Section 5. Joinder of causes of action. – A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an opposing
party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of parties; x x
x"

Section 6. Permissive joinder of parties. – All persons in whom or against whom any right to
relief in respect to or arising out of the same transaction or series of transactions is alleged to
exist whether jointly, severally, or in the alternative, may, except as otherwise provided in
these Rules, join as plaintiffs or be joined as defendants in one complaint, where any
question of law or fact common to all such plaintiffs or to all such defendants may arise in the
action; but the court may make such orders as may be just to prevent any plaintiff or
defendant from being embarrassed or put to expense in connection with any proceedings in
which he may have no interest."

The foregoing procedural rules are founded on practicality and convenience. They are meant to
discourage duplicity and multiplicity of suits. This objective is negated by insisting -- as the court a
quo has done -- that the compulsory counterclaim for damages be dismissed, only to have it possibly
re-filed in a separate proceeding.

More important, as we have stated earlier,

Respondents Lim and Mariano are
real parties in interest to the compulsory counterclaim; it is
imperative that they be joined therein. Section 7 of Rule 3 provides:
"Compulsory joinder of indispensable parties. – Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants."

Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being
consistent with the solidary nature of the liability alleged therein.
 Second Issue:

CCC's Personality to Move to Dismiss the Compulsory Counterclaims

Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as "joint
and solidary," petitioners prayed:

"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:

"1. Dismissing the complaint in its entirety;

"2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to pay
defendant actual damages in the sum of at least P2,700,000.00;

"3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to pay
the defendants LPI, LCLC, COC and Roseberg:

"a. Exemplary damages of P100 million each;

"b. Moral damages of P100 million each; and

"c. Attorney's fees and costs of suit of at least P5 million each.

Other reliefs just and equitable are likewise prayed for." 29

Obligations may be classified as either joint or solidary. "Joint" or "jointly" or "conjoint" means
mancum or mancomunada or pro rata obligation; on the other hand, "solidary obligations" may be
used interchangeably with "joint and several" or "several." Thus, petitioners' usage of the term "joint
and solidary" is confusing and ambiguous.

The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if proven, is

solidary. This characterization finds basis in Article 1207 of the Civil Code, which provides that
obligations are generally considered joint, except when otherwise expressly stated or when the law
or the nature of the obligation requires solidarity. However, obligations arising from tort are, by their
nature, always solidary. We have assiduously maintained this legal principle as early as 1912 in
Worcester v. Ocampo, in which we held:
30 

"x x x The difficulty in the contention of the appellants is that they fail to recognize that the
basis of the present action is tort. They fail to recognize the universal doctrine that each joint
tort feasor is not only individually liable for the tort in which he participates, but is also jointly
liable with his tort feasors. x x x

"It may be stated as a general rule that joint tort feasors are all the persons who command,
instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the
commission of a tort, or who approve of it after it is done, if done for their benefit. They are
each liable as principals, to the same extent and in the same manner as if they had
performed the wrongful act themselves. x x x
 "Joint tort feasors are jointly and severally liable for the tort which they commit. The persons
injured may sue all of them or any number less than all. Each is liable for the whole damages
caused by all, and all together are jointly liable for the whole damage. It is no defense for one
sued alone, that the others who participated in the wrongful act are not joined with him as
defendants; nor is it any excuse for him that his participation in the tort was insignificant as
compared to that of the others. x x x

"Joint tort feasors are not liable pro rata. The damages can not be apportioned among them,
except among themselves. They cannot insist upon an apportionment, for the purpose of
each paying an aliquot part. They are jointly and severally liable for the whole amount. x x x

"A payment in full for the damage done, by one of the joint tort feasors, of course satisfies
any claim which might exist against the others. There can be but satisfaction. The release of
one of the joint tort feasors by agreement generally operates to discharge all. x x x

"Of course the court during trial may find that some of the alleged tort feasors are liable and
that others are not liable. The courts may release some for lack of evidence while
condemning others of the alleged tort feasors. And this is true even though they are charged
jointly and severally."

In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or
"joint and several" obligation, the relationship between the active and the passive subjects is so
close that each of them must comply with or demand the fulfillment of the whole obligation. The fact
31 

that the liability sought against the CCC is for specific performance and tort, while that sought
against the individual respondents is based solely on tort does not negate the solidary nature of their
liability for tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this
point:

"Solidarity may exist although the creditors and the debtors may not be bound in the same
manner and by the same periods and conditions."

The solidary character of respondents' alleged liability is precisely why credence cannot be given to
petitioners' assertion. According to such assertion, Respondent CCC cannot move to dismiss the
counterclaims on grounds that pertain solely to its individual co-debtors. In cases filed by the
32 

creditor, a solidary debtor may invoke defenses arising from the nature of the obligation, from
circumstances personal to it, or even from those personal to its co-debtors. Article 1222 of the Civil
Code provides:

"A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are
derived from the nature of the obligation and of those which are personal to him, or pertain to
his own share. With respect to those which personally belong to the others, he may avail
himself thereof only as regards that part of the debt for which the latter are responsible."
(Emphasis supplied).

The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim
on grounds that pertain only to its individual co-debtors -- is therefore allowed.

However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it
on behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be
dismissed. Be that as it may, Respondent CCC cannot be declared in default. Jurisprudence
teaches that if the issues raised in the compulsory counterclaim are so intertwined with the
allegations in the complaint, such issues are deemed automatically joined. Counterclaims that are
33 
only for damages and attorney's fees and that arise from the filing of the complaint shall be
considered as special defenses and need not be answered. 34

CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed

While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that
pertain to individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for
the simple reason that it lacks the requisite authority to do so. A corporation has a legal personality
entirely separate and distinct from that of its officers and cannot act for and on their behalf, without
being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss the
compulsory counterclaim filed by Respondent CCC has no force and effect as to them.

In summary, we make the following pronouncements:

1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A. Mariano
are compulsory.

2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A.
Mariano, even if both were not parties in the original Complaint.

3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may include,
in a Motion to Dismiss, defenses available to their co-defendants; nevertheless, the same
Motion cannot be deemed to have been filed on behalf of the said co-defendants.

4. Summons must be served on Respondents Lim and Mariano before the trial court can
obtain jurisdiction over them.

WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is
hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners' Answer with
Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim
and Anthony A. Mariano. No costs.

SO ORDERED.

G.R. No. 212904

YOLANDA VILLANUEVA-ONG, Petitioner
vs.
JUAN PONCE ENRILE, Respondent

DECISION

TIJAM, J.:

Before Us is a Petition for Review on Certiorari  under Rule 45 of the Rules of Court, assailing the
1

Decision  dated March 4, 2014 and Resolution  dated June 9, 2014 of the Court of Appeals (CA) in
2 3

CA-G.R. SP No. 132034.

The Facts
On December 4, 2012, Juan Ponce Enrile (respondent) filed a civil Complaint  for damages against
4

Yolanda Villanueva-Ong (petitioner) for libel before the Regional Trial Court (RTC) of Pasay City,
Branch 118, in Civil Case No. R-PSY-12-12031-CV. The pertinent portions of the complaint are as
follows:

2.1 On 16 October 2012, a libelous article entitled "Like father like son?" was published in page 16,
Opinion Section of the Philippine 'Star. The article was authored by [petitioner]. x x x

2.2 The article characterizes [respondent] as a liar, fraud, and manipulator. It accuses [respondent]
of attempting to "revise history" with a devious purpose of enticing the electorate to support his only
son, Juan Castañer Ponce Emile, Jr., (popularly known as Jack Emile), an incumbent Congressman
in the province of Cagayan and a candidate in the upcoming senatorial elections. [Petitioner],
instead of giving fair comments on [respondent] as public official, deliberately focuses on attacking
his character with false and defamatory accusations and intrigues affecting his family and personal
life.

2.3 The pertinent portions of the libelous article that characterizes [respondent] as a liar, fraud, and
manipulator are as follows:

"Just when we were about to forgive-and-forget [respondent's] checkered past, he himself reminded
us of what a wily, shifty chameleon he truly and naturally is.

xxx

In Juan Ponce Enrile: A Memoir, and bio-documentary 'Johnny' that aired in ABS-CBN-he recants

his previous recantation of the assasination attempt on him, which Marcos used as one more reason
to justify Martial Law. x x x Did he expect national amnesia to afflict Filipinos who know the truth?"

xxx

"In his attempt to leave an acceptable legacy for posterity and bequeath a Senate seat for junior, the
nonagenarian is sanitizing his recollections instead of asking for absolution. Stem cell therapy can
deter dementia but it cannot regenerate an innocent man."

xxx

"We are being wooed to perpetuate the 40-yearsrunning Enrile saga. Every night we should
pray: Dear God, Make all who want our vote, be the men we want them to be."

2.4 The libelous article's opening sentence alone - "Just when we were about to forgive-and-forget
[respondent's] checkered past, he himself reminded us of what a wily, shifty chameleon he truly and
naturally is" - already indicates [petitioner's] malicious objective: to discredit the integrity of
[respondent] and degrade his accomplishments and success as an elected public official. Read with
the succeeding paragraphs cited above, the libelous article clearly depicts [respondent] as a liar and
a hoax who deceives the public to believe that he is an honorable and respectable public figure.

2.5 Worse, the libelous article insinuates that [respondent] is a criminal who committed the crime of
smuggling of cars. Thus:

"Another misdeed associated with father-and-son is the alleged rampant car smuggling in Port Irene.
In 1995, the Cagayan Export Zone Authority (CEZA) was established through Republic Act 7922,
authored by Cagayan native [respondent]. x x x Despite E0156 issued in 2008, which prohibited
such importations, smuggling continued. Enrile countered that CEZA is not covered by the
prohibition because the importers pay the correct duties and taxes. Ford reportedly pulled out its
manufacturing business to protest the nefarious activities in CEZA."

2.6 These statements clearly tend to cause dishonor, discredit, disrespect, and contempt of
[respondent] by characterizing him as a liar, fraud, manipulator, criminal and smuggler of cars.

2. 7 At the time of publication of the libelous article, [respondent] is a public officer holding office in
Pasay City."  (Underlining omitted and italics in the original)
5

On January 17, 2013, petitioner filed an Answer with Compulsory Counterclaims,  the pertinent
6

portion of which, states:

COMPULSORY COUNTERCLAIMS

First Compulsory Counterclaim

2.4 [Petitioner] reiterates and incorporates by reference each and every allegation made in each and
every preceding paragraph and subparagraph of this Answer.

25. In filing this lawsuit, [respondent] did not implead the editor, publisher, and newspaper that
published (petitioner's] column (The Philippine Star), but only [petitioner].

26. [Respondent's] unfounded prosecution of [petitioner], coupled with the singling out of

[petitioner], constitutes harassment, malice and evident bad faith. It is meant to intimidate and
silence (petitioner], and to place a chilling effect on her rights (and the rights of other journalists) to
express themselves and write freely about [respondent's] public conduct on matters of public
concern.

27. In filing the Complaint, under the facts and circumstances set out above, [respondent] acted with
malice, evident bad faith, and in a wanton, reckless, offensive and malevolent manner, and has
caused [petitioner] damages consisting of x x x:

xxxx

Second Compulsory Counterclaim

30. [Petitioner], as a Filipino citizen and journalist, has a constitutional right to speak out, write and
express her opinion and make fair comments on matters of public interest, including those involving
the public conduct of [respondent] as a public officer and public figure and his fitness for public
office.

31. In singling out [petitioner] and suing her alone for libel, [respondent] acted with malice and
evident bad faith. In so doing, [respondent] is using the strong arm of the law to intimidate, cow and
silence [petitioner] and other journalists, and to neutralize and place a chilling effect on their ability to
speak and write freely about [respondent's] public conduct on matters of public concern.

32. Under Article 32 of the Civil Code, a public officer who directly indirectly obstructs, defeats,
violates or in any manner impedes or impairs a person's freedom of speech and freedom to write for
the press is liable in actual, moral and exemplary damages, as well as attorney's fees and
costs.  (Emphasis ours)
7

The respondent filed a Motion to Dismiss  (Re: Defendant's permissive counterclaims) which argued
8

that petitioner's counterclaims are actually permissive, and hence should have complied with the
requirements of an initiatory pleading, specifically the payment of docket fees and certification
against forum shopping. Respondent prayed for dismissal of petitioner's counterclaims for her failure
to comply with such requirements.

Meanwhile, petitioner opposed respondent's motion arguing that her counterclaims are both
compulsory in nature, since both counterclaims arose from the filing of respondent's complaint. 9

Ruling of the RTC

The RTC, in its Order  dated April 26, 2013, gave petitioner 15 days from receipt of the said order, to
10

pay the appropriate docket fees, otherwise, such counterclaims shall be dismissed. Despite
petitioner's motion for reconsideration,  the RTC stood its ground, and affirmed its ruling in the
11

Order  dated July 22, 2013.

12

Dissatisfied, petitioner filed a petition for certiorari with the CA.

Ruling of the CA

On March 4, 2014, the CA issued the assailed Decision,  the dispositive portion of which states:
13

WHEREFORE, premises considered, the Petition is DENIED. No pronouncement as to costs.

SO ORDERED. 14

Hence this petition where petitioner argues that the CA erred in ruling that her counterclaims are
permissive in nature. She contends that the same are compulsory, having arisen from respondent's
filing of complaint in the court a quo.

In his Comment,  respondent maintains that petitioner's counterclaims are permissive in nature
15

since they are based on different sources of obligations: petitioner's counterclaims are based on
quasi-delict, while respondent's claim is based on delict.

Issue

Are petitioner's counterclaims compulsory or permissive in nature?

Ruling of the Court

The nature and kinds of counterclaims are well-explained m jurisprudence. In Alba, Jr. v.
Malapajo,  the Court explained:
16

[C]ounterclaim is any claim which a defending party may have against an opposing party. A
compulsory counterclaim is one which, being cognizable by the regular courts of justice, arises out of
or is connected with the transaction or occurrence constituting the subject matter of the opposing
party's claim and does not require for its adjudication the presence of third parties of whom the court
cannot acquire jurisdiction. Such a counterclaim must be within the jurisdiction of the court both as to
the amount and the nature thereof, except that in an original action before the Regional Trial Court,
necessarily connected with the subject matter of the opposing party's claim or even where there is
such a connection, the Court has no jurisdiction to entertain the claim or it requires for adjudication
the presence of third persons over whom the court acquire jurisdiction. A compulsory counterclaim is
barred if not set up in the same action. 17

"A counterclaim is permissive if it does not arise out of or is not necessarily connected with the
subject matter of the opposing party's claim. It is essentially an independent claim that may be filed
separately in another case." 18

Determination of the nature of counterclaim is relevant for purposes of compliance to the

requirements of initiatory pleadings. In order for the court to acquire jurisdiction, permissive
counterclaims require payment of docket fees, while compulsory counterclaims do not. 19

Jurisprudence has laid down tests in order to determine the nature of a counterclaim, to wit:

(a) Are the issues of fact and law raised by the claim and the counterclaim largely the same? (b)
Would res judicata bar a subsequent suit on defendants' claims, absent the compulsory counterclaim
rule? (c) Will substantially the same evidence support or refute plaintiffs' claim as well as the
defendants' counterclaim? and (d) Is there any logical relation between the claim and the
counterclaim[?] x x x [A positive answer to all four questions would indicate that the counterclaim is
compulsory]. 20

In this case, the complaint filed by respondent for damages arose from the alleged malicious
publication written by petitioner, hence central to the resolution of the case is petitioner's malice, or
specifically that the libelous statement must be shown to have been written or published with the
knowledge that they are false or in reckless disregard of whether they are false or not. 21

Meanwhile, petitioner's counterclaim presupposes bad faith or malice on the part of respondent in
instituting the complaint for damages. In the allegations supporting her counterclaims, it was alleged
that respondent's complaint was filed merely to harass or humiliate her.

Such allegations are founded on the theory of malicious prosecution.

Traditionally, the term malicious prosecution has been associated with unfounded criminal actions,
jurisprudence has also recognized malicious prosecution to include baseless civil suits intended to
vex and humiliate the defendant despite the absence of a cause of action or probable cause. 22

In this case, while it can be conceded that petitioner can validly interpose a claim based on malicious
prosecution, the question still remains as to the nature of her counterclaim, and the consequent
obligation to comply with the requirements of initiatory pleadings.

We find that petitioners claims are compulsory, and hence should be resolved along with the civil
complaint filed by respondent, without the necessity of complying with the requirements for initiatory
pleadings.

Indeed, a perfunctory reading of respondent's allegations in support of her counterclaims refers to

incidental facts or issues related to her counterclaim against petitioner. She alleges that respondent
unduly singled her out, and is actually violating her legal and constitutional rights.
However, stripped of the aforesaid niceties, it is at once apparent that petitioner essentially argues
that respondent's suit is unfounded and is merely instituted to harass and vex her.

A counterclaim purely for damages and attorneys fees by reason of the unfounded suit filed by the
respondent, has long been settled as falling under the classification of compulsory counterclaim and
it must be pleaded in the same action, otherwise, it is barred.  In Lafarge Cement Phil. Inc. v.
23

Continental Cement Corp.,  citing Tiu Po, et al. v. Hon. Bautista, et al.,  this Court ruled that
24 25

counterclaims seeking moral, actual and exemplary damages and attorneys fees against the
respondent on account of their malicious and unfounded complaint was compulsory. 26

In this case, the counterclaims, set up by petitioner arises from the filing of respondent's complaint. 1awp+

 "'The counterclaim is so intertwined with the main case that it is incapable of proceeding
+i1

independently."  We find that the evidence supporting respondent's cause that malice attended in
27

the publication of the article would necessarily negate petitioner's counterclaim for damages
premised on the malicious and baseless suit filed by respondent.

Bungcayao, Sr. v. Fort llocandia Property Holdings and Development Corp.  cited by respondent, is
28

starkly different from the factual circumstances obtaining at the case at bar. In that case, petitioner
Manuel C. Bungcayao, Sr. sought the annulment of a Deed of Assignment, Release, Waiver and
Quitclaim, on the ground of the lack of authority of petitioner's son to represent him thereon. For their
part, respondent prayed, as counterclaims to the complaint, that petitioner be required to: 1) return
the amount of ₱400,000 from respondent, 2) to vacate the portion of the respondent's property he
(petitioner) was occupying, and 3) to pay damages because his (petitioner) continued refusal to
vacate the property caused tremendous delay in the planned implementation of Fort Ilocandias
expansion projects. In that case, We ruled that the recovery of possession of the property is a
permissive counterclaim, while being an offshoot of the basic transaction between the parties, will
not be barred if not set up in the answer to the complaint in the same case. This is because the title
of respondent to the disputed property therein was actually recognized by the administrative
authorities. Necessarily, respondent will not be precluded from asserting its right of ownership over
the land occupied by petitioner in a separate proceeding. In other words, respondent's right therein
can be enforced separately and is distinct from the legal consequences of the Deed of Assignment,
Release, Waiver and Quitclaim executed between the parties therein.

The same, however, does not obtain in the instant case. Petitioner's counterclaims refer to the
consequences brought about by respondent's act of filing the complaint for damages.

Petitioner's allegation citing Article 32 of the Civil Code do not dilute the compulsory nature of her
counterclaims. In Alday v. FGU Insurance Corporation,  this Court found the following allegation in
29

therein defendant's counterclaim to be permissive, despite mention of the civil code provision on
abuse of rights, to wit:

(b) the minimum amount of ₱500,000.00 plus the maximum allowable interest representing
defendant's accumulated premium reserve for 1985 and previous years, which FGU has unjustifiably
failed to remit to defendant despite repeated demands in gross violation of their Special Agent's
Contract and in contravention of the principle of law that ''every person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith."  (Emphasis ours)
30

Considering the foregoing, petitioner's counterclaims should not be prejudiced for non-compliance
with the procedural requirements governing initiatory pleadings.
Neither should her counterclaims be dismissed pursuant to this Court's ruling in Korea Technologies
Co. Ltd. v. Hon. Lerma, et al.,  which held that "effective August 16, 2004 under Section 7, Rule 141,
31

as amended by A.M. No. 04-2-04-SC, docket fees are now required to be paid in compulsory
counterclaim or cross-claims. "  Note must be taken of OCA Circular No. 96-2009 entitled "Docket
32

Fees For Compulsory Counterclaims," dated August 13, 2009, where it was clarified that the rule on
imposition of filing fees on compulsory counterclaims has been suspended. Such suspension
remains in force up to this day.

WHEREFORE, premises considered, We resolve to GRANT the petition. The Decision dated March

4, 2014 and Resolution dated June 9, 2014 of the Court of Appeals in CA-G.R. SP No. 132034 are
hereby REVERSED and SET ASIDE.

SO ORDERED.