**Facts:**
1. Antonio Lim Tanhu owned a piece of land known as Lot 5357 covered by Transfer Certificate of Title (TCT) No. T-0500 in Lapu-lapu City, Cebu.
2. On January 8, 1966, Antonio sold Lot 5357 to spouses Francisco and Estrella Cabansag, but Francisco did not transfer the title due to frequent travels.
3. In 1988, Spouses Cabansag sold the lot to Serafin Uy. Attempts to transfer the title failed because the owner’s copy of TCT No. T-0500 was lost.
4. Serafin Uy filed a petition in 1996 for the issuance of a new duplicate TCT, which was initially granted but then nullified because Lim Teck Chuan claimed possession of the original copy.
5. Henry Lim alias Lim Sing Chan executed an Affidavit of Sole Adjudication and sold Lot 5357 to Leopolda Cecilio for P500,000.00, declaring himself the heir of Antonio.
6. Serafin Uy filed a complaint for quieting of title and other reliefs against Leopolda Cecilio, Henry Lim, and Lim Teck Chuan (Civil Case No. 4786-L).
7. Leopolda filed a counterclaim and cross-claim against Henry, asserting herself as a buyer in good faith.
8. Lim Teck Chuan opposed the claims of sale and inheritance, calling the transactions fraudulent.
9. At pre-trial, several stipulations and issues were set, including the genuineness of deeds and the identity of heirs.
10. Initial trials and hearings were postponed multiple times.
11. On September 20, 2001, Serafin and Leopolda filed a Joint Motion to Dismiss based on an amicable settlement which Lim Teck Chuan opposed.
12. Despite the opposition, the RTC dismissed the case and ignored Lim Teck Chuan’s counterclaims.
**Issues:**
1. Whether the RTC erred in dismissing Civil Case No. 4786-L despite Lim Teck Chuan’s opposition and his preference to prosecute his counterclaim in the same action.
2. Whether the dismissal of the main action dismissed the petitioner’s counterclaims and cross-claims.
**Court’s Decision:**
1. **Propriety of dismissal**: The Philippine Supreme Court found the RTC decision to dismiss the entire case was incorrect. The RTC should have limited the dismissal to the complaint only, given the valid and timely opposition raises by Lim Teck Chuan to continue with the counterclaim within the same case.
2. **Counterclaims and Cross-claims**: The Supreme Court reaffirmed that under Section 2, Rule 17, of the Rules of Civil Procedure, the dismissal of the complaint does not automatically result in the dismissal of a defendant’s counterclaim. Lim Teck Chuan’s adequately expressed preference to prosecute his counterclaim and cross-claim should have permitted these to proceed in the same action.
**Doctrine:**
– **Rule 17, Section 2 of the Rules of Civil Procedure**: This rule states that dismissal of a complaint upon motion by the plaintiff should be limited to the complaint and should not affect a defendant’s counterclaim if the defendant timely manifests preference to continue the case. This doctrine was reiterated, reaffirming that a counterclaim can survive independent of the main complaint being dismissed.
**Class Notes:**
– *Rule 17 Section 2*: If a counterclaim is raised prior to the motion to dismiss, the dismissal should be limited to the complaint unless the defendant prefers to have the counterclaim resolved in the same action within 15 days of notice.
– *Voluntary Dismissal*: A voluntary dismissal by the plaintiff does not ensure automatic dismissal of the defendant’s counterclaims.
– *Counterclaims and Cross-claims*: Counterclaims can be pursued independently if a preference is timely shown.
– *Case Precedent*: Refer to *Pinga v. Heirs of German Santiago* for related jurisprudence.
**Historical Background:**
The background of this litigation is rooted in a complex land dispute involving multiple transactions and the question of legitimate ownership and inheritance issues. The passage of ownership was clouded by conflicting claims and suspicious documentation, reflecting both the vulnerability of property rights and inheritance complications typical in land-rich familial disputes in the Philippines. The case underscores the importance of due diligence and legal procedures in validating property transactions and declarations of heirship to avoid protracted litigation.
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