FELICIANO JOVER LEDESMA, PETITIONER, VS. BUEN MORALES AND RAFAEL AMPARO, JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA, BRANCH III, RESPONDENTS.

On April 17, 1944 Buen Morales obtained a loan from Feliciano Jover
Ledesma in the amount of P2,023.86 in Japanese military notes. To
secure payment of said loan, Morales executed a real estate mortgage on
a parcel of land in the City of Manila. According to the terms of the
loan, it was to be pcpalfl.e within three years without interest but
that before the expiration of two years the mortgagee cannot be
compelled to accept payment of the debt or any part thereof; that in
case of foreclosure, judicially or extra-judicially, on account of the
failure of the mortgagor to pay the debt, said mortgagor will pay to
the mortgagee an additional sum equivalent to 15 per cent of the amount
due for attorney’s fees.

On May 10, 1948, Mortgagor Morales filed in the Court of First
Instance of Manila a petition for declaratory judgment against
mortgagee Ledesma making reference to the loan and the mortgage already
described, alleging that she (Morales) had offered to pay the
indebtedness in October, 1944 but that mortgagee Ledesma had refused to
accept payment because of the stipulation contained in the deed of
mortgage that the mortgagee may not accept payment until after the
expiration of two years; that after the expiration of said two years,
after liberation^ petitioner Morales had tendered full payment of the
debt by offering “victory peso” money in a sum equivalent to the amount
of the loan under the Ballantyne schedule, but that Ledesma had refused
to accept the offer, he (Ledesma) insisting that the entire debt be
paid in victory pesos; that it was the agreement between the parties
that in the event that at the time of payment of the debt, the Japanese
military note was no longer legal tender, then the debt should be paid
only in its equivalent value in legal currency, but that this agreement
was not expressed in the deed of mortgage for fear of the Japanese. The
petitioner in that case asked the court to state and declare the
equivalent value in the present currency of the P2,023.86 military
notes so that she might pay off the obligation, and that said
equivalent value declared by t he court be accepted by mortgagee
Ledesma.

Respondent Ledesma answered the petition claiming that the real
agreement between t he parties was that t he mortgage debt was to be
paid in genuine Philippine currency after the war, and for that reason
it was stipulated that the loan was not to be paid until after the
expiration of two years, within which period the parties believed that
war shall have terminated; and so he prayed that the petitioner be
declared indebted to him in the full amount of P2,023,86.

About a month after filing said answer respondent Ledesma filed a
motion to admit an amended answer which included a counterclaim, the
principal purpose of which, was to declare the petitioner indebted to
him not only in the amount of the loan of P2,023.86 but also in the
additional sum of P303.57 representing attorney’s fees, and that upon
petitioner’s failure to pay said two sums, within the period provided
by the lower court, the mortgaged property be sold thru public auction
by way of foreclosure of the mortgage.

Petitioner Morales objected to the admission of the amended answer.
She was sustained in her opposition by the trial Judge who in an order
dated July 6, 1949 denied the motion to admit his amended answer.
Ledesma filed a motion for reconsideration claiming that his failure to
include the counterclaim in his original answer was due to oversight
and inadvertence. Respondent Judge in an order dated July 25, 1949
denied the motion on the ground that the counter-claim relates to
matters entirely outside the subject of the petition for declaratory
relief. Ledesma has now filed a petition for certiorari in this Court
to review and to set aside said order of denial on the ground that the
trial judge had abused his discretion, and that said Judge be directed
to admit petitioner’s amended answer.

The question to be determined in this case is whether a
counterclaim may be filed and entertained in declaratory relief
proceedings.

By far, the great majority of courts in the United States of America
allow the setting up of a counterclaim in a petition for declaratory
relief or judgment. (87 A.L.R., 1249 and 68 A.L.R., 113.) The only
requirement is that the subject matter of the said counterclaim be
connected with the subject matter of the action and must, of course,
arise out of the same transaction. (Anderson on Declaratory Judgment p.
263). There, it is even allowed to bring in third parties by
counterclaim or cross-complaint. See also Borchard on Declaratory
Judgment, pp. 812-814.)

In this jurisdiction we see no objection to allowing the filing of
a counterclaim in a petition for declaratory relief. Rule 10 of the
Rules of Court provides for the filing of a counterclaim. And section 6
of said Rule 10 further provides that a counterclaim not set up shall
be barred if it arises out of or is necessarily connected with the
transaction or occurrence that is the subject matter of the opposing
party’s claim and does not require for its adjudication the presence of
third parties of whom the court cannot acquire jurisdiction. This is
what is generally termed a compulsory counterclaim, one which a
defendant must interpose in order to prevent it from being barred in a
subsequent, separate action.

The philosophy of the Rule seem to be to discourage separate
actions which make for multiplicity of suits and wherever possible, to
permit, and sometimes require, combining in one litigation all the
cross-claims of the parties, particularly where they arise out of the
same transaction, (Gallahar vs. George A. Rheman Co., 7 Fed. Rules Service p. 229, cited in Moran, Comments on the Rules of Court, Vol. I, p. 183).

Of course, the counterclaim involved in the present case was not
included in the original answer but was set up in an amended answer
which the petitioner prayed the court for permission to file. Section 5
of the same Rule 10 provides that when a pleading fails to set up a
counterclaim thru oversight, inadvertence or excusable neglect,
he may, by leave of court set up the counterclaim by amendment before
judgment. In his motion for reconsideration, petitioner herein alleged
oversight and inadvertence as reason for his failure to include the
counterclaim in his original answer.

In the case of Gallahar vs. Rheman Co., supra, a
motion to strike counterclaims on the ground that they were omitted
from the answers as originally filed and were brought in too late by
amendment was overruled since the counterclaims arose out of a
transaction which was the subject matter of the opposing party’s claim
and if not adjudicated in the proceeding, defendants might lose all
right to have them determined. The circumstances attending the filing
of the counterclaims in said case being exactly the same as those
involved in the present case, this ruling in the Gallahar case has
particular application in the present considerations.

One might contend, however, that Rule 10 above-cited and commented
on, applies only to ordinary civil actions and not to a special civil
action like a petition for declaratory relief. But we should bear in
mind that Rule 65 of the Rules of Court expressly states that “the
provisions of the preceding rules (including Rule 10 of course), shall
apply in special civil actions for declaratory relief,
certiorari, prohibition, * * * which are not inconsistent with or may
serve to supple merit the provisions of the Rules relating to such
special civil action.”

In the special civil action pending in the lower court, at least
one of the claims of the defendant, contained in his counterclaim, that
referring to attorney’s fees, arises from or is intimately connected
with the transaction or contract on which the petition for declaratory
relief is based. Said counterclaim seeks to increase the amount
allegedly payable and due to the defendant by adding thereto the amount
corresponding to attorney’s fees, and if not set up in that special
civil action, may be forever barred.

In conclusion, we believe and hold that, in a .special civil action
for declaratory relief, to the petition filed by the petitioner, the
defendant or respondent may set up in his answer a counterclaim based
on or arising from the same transaction, deed or contract on which the
petition is based. He may also set up said counterclaim in an amended
answer filed before judgment,, provided that his failure to include the
counterclaim in the original answer was due to oversight’, inadvertence
or excusable neglect. Courts should be liberal in the admission,
especially of compulsory counterclaims which may be barred unless so
interposed.

In view of the foregoing, the order of the respondent Judge denying
the motion to admit the amended answer and the other order denying the
motion for reconsideration are hereby set aside and said respondent
Judge is directed to admit the amended answer, including the
counterclaim. No pronouncement as to costs.

Moran, C.J., Ozaeta, Pablo, Bengzon, and Reyes, JJ., concur.