METALS ENGINEERING RESOURCES CORPORATION, PETITIONER, VS. COURT OF APPEALS AND PLARIDEL JOSE, RESPONDENTS.

Impugned in this petition for review on certiorari is the
decision of respondent Court of Appeals, dated August 9, 1990,^[1]
dismissing the special civil action for certiorari and prohibition filed
therein by petitioner corporation.

The appeal herein arose from Civil Case No. 55560 filed by
petitioner corporation against private respondent Plaridel Jose, for the
annulment of an agreement to buy and sell executed between the parties, before
the Regional Trial Court of Pasig, Branch 160, the complaint^[2]
alleging, inter alia, that:

x x x

“2.  On October 31, 1987, plaintiff and defend­ant
executed a document which was denominated as an ‘Agreement to Buy and Sell’ in
which plaintiff offered to sell to the defendant and the latter in turn agreed
to buy several parcels of land with an aggregate area of 6,135 sq. m. x x x.

x x x

“4.  The ‘Agreement to Buy and Sell’, on its face, is patently and plainly
imperfect and incomplete as there was and could have been no meeting of the minds of the parties
in regard to the manner, period and terms of payment of the purchase price or consideration which is undeniably an
essential element of the contract. Consequently, the subject ‘Agreement’, not having been perfected and
completed, did not contemplate nor did it result to a binding and enforceable
contract to sell. In fact, as stipulated in paragraphs 3 and 4
of said ‘agreement’, the terms of sale, including the payment of the purchase price, are uncertain
and imperfect as they are subject to the following:

a)  Defendant’s obligation to pay one half (1/2)
of the total consideration is conditioned and depends exclusively on the
ability of the plaintiff to ‘look for a place to transfer its offices and plants
from the land subject hereof within One hundred twenty days’ but should
plaintiff ‘fail to locate a place to transfer its offices and plants from the
land subject hereof within the said one hundred and twenty days’ the agreement
is merely subject to an ‘extension’ upon terms and conditions to be determined
and agreed upon separately and subsequently;
and

b)  The payment of the remaining fifty percent
(50%) thereof SHALL BE THE SUBJECT OF A (ANOTHER) SEPARATE AGREEMENT to be made
between the parties together with the execution of a Deed of Absolute Sale.

“5.  Despite the fact that the subject ‘agreement’
had not yet been perfected and completed, defendant prematurely caused the
preparation of a subdivision plan of the lands into several sub-lots and
offered the same for sale to the public through an advertisement published in
the issue of the ‘Manila Bulletin’ on November 25, 1987 x x x.

“6.  Thus, on December 24, 1987, plaintiff wrote a
letter to the defendant rescinding and/or withdrawing from the uncompleted and
imperfect ‘Agreement’ and tendered a check for the amount of P50,000.00
representing full refund of the earnest money previously delivered by defendant
pursuant to paragraph 2 of said agreement but defendant refused to accept the
same.

x x x

“8.  The refusal of defendant to acknowledge the
imperfection and non-completion of the ‘Agreement’ and to accept the refund of
P50,000.00 as well as his acts of offering the land for sale to third person
and his annotation of adverse claims in
the title covering the lands are unjustifiable and without legal basis
and caused irreparable and great damage and prejudice to plaintiff.”

x x x

Private respondent filed his Answer with Counterclaim^[3]
alleging a compulsory counterclaim on the following operative facts:

“12.  Defendant had already spent a considerable
amount for the subdivision of the subject properties into smaller parcels of
land for resale to a group of buyers, for the advertisements and promotions
necessary thereto, and other related expenses;

“13.  One of the pertinent provisions of the
AGREEMENT (Annex ‘A’) is the schedule of payments to be paid by the defendant
which provides as follows:

‘3.   Within one hundred and twenty (120) days from
the execution of this agreement, the VENDOR shall look for a place to transfer
its offices and plant from the land subject hereof. And once a place to transfer is found, the VENDOR shall inform
the VENDEE of the same. Within fifteen
(15) days from such notice of the VENDOR to the VENDEE, the latter shall
immediately pay, without need of demand and further notice, to the former
one-half (1/2) of the total purchase price of the land xxx xxx.’

Due to the adamant and unreasonable posture of the plaintiff,
defendant’s timetable to generate funds and profits was severely stalled and
placed at a standstill to the damage and prejudice of his investment and financial projection, which
can only be rectified or compensated by way of tacking into, and thus extending
the agreed period to pay the said one-half (1/2) of the purchase price, the
length of time from plaintiff’s notice to rescind (Annex ‘1’) until defendant
complies with its part of the AGREEMENT (Annex ‘A’) whether voluntarily, by
compromise, or by judicial compulsion;

“14.  Defendant suffered further due to the fact that
his reputation has been tarnished at the very least considering that he could
not pursue his legal and business commitment with those who have already
transacted with him over the subject parcels of land;

“15.  By reason of the present unfounded and malicious
action filed by the plaintiff, defendant suffered sleepless nights, serious
anxieties, embarrassment and similar injuries due to the indefensible and
destructive posture of the plaintiff
for which he should be awarded P300,000.00 at least in moral damages;

“16.  Due to the patent, wanton and gross bad faith
displayed by the plaintiff in its dealings with the defendant, the latter
should be awarded at least P100,000.00 in exemplary damages likewise to be
assessed against the plaintiff;

“17.  By
reason of the present suit, defendant was furthermore forced to hire the services of counsel to protect his
rights and interest under the premises, in the amount of P100,000.00 as and for
attorney’s fees aside from the expenses and cost of litigation which shall be
proved at the trial hereof.

“WHEREFORE, it is respectfully prayed that judgment be
rendered in favor of the defendant dismissing the Complaint and declaring the
AGREEMENT (Annex ‘A-Complaint’) with the defendant, valid for all legal intents
and purposes and ordering the plaintiff to honor its provisions except the term
or period of payment of the first one-half (1/2) of the purchase price, which
should be extended by tacking into the 15-day period the length of time
mentioned under paragraph 13 hereof; and for the damages, plaintiff be ordered
to pay defendant the following:

a)         
P300,000.00 in
moral damages for the besmirched reputation, embarrassment, anguish, anxieties,
sleepless nights, and similar injuries suffered by the defendant due to the
gross and wanton bad faith of the plaintiff;

b)         
P100,000.00 in exemplary damages so that others who are
similarly inclined to do as what the plaintiff did against the defendant, should
properly be forewarned and deterred therefrom;

c)         
P100,000.00 as
and for attorney’s fees plus the expenses of litigation proved at the trial;
and

d)         
Costs.”

Before the case could be heard on pre-trial, private respondent
filed a Motion to Expunge the Complaint on the ground that the same did not
specify the amount of damages sought either in the body or in the prayer of the
complaint, citing in support thereof the then ruling case of Manchester
Development Corporation, et al. vs. Court of Appeals, et al.^[4]
and Administrative Circular No. 7 issued by this Court on March 4, 1988.

In an Order dated December 15, 1988, the trial court required
petitioner to amend its complaint by specifying the amount of damages prayed
for, otherwise the original complaint shall be dismissed. In compliance therewith, petitioner filed
its Amended Complaint specifying the amount of damages it seeks to recover from
private respondent.

However, private respondent moved for the reconsidera­tion of the
trial court’s aforesaid order with respect to the portion allowing petitioner
to file an amended complaint, stating that the court did not acquire
jurisdiction when the wrong docket fee was paid, hence the amendment of the
complaint did not vest jurisdiction upon the court; and that for all legal
intents and purposes, no original complaint was filed which could be the
subject of an amendment.

Acting thereon, on April 12, 1989, the trial court issued an
Order^[5]
granting the motion for reconsideration and ordering that the complaint be
expunged from the record on the ground that it did not acquire jurisdiction
over the case.

Private respondent then filed a Motion to Set Case for
Presentation of Evidence in support of his counterclaim. In its Opposition, petitioner averred that
since private respondent’s counterclaim is compulsory in nature because it is
necessarily connected with and arose out of the same transaction subject of the
complaint, with the dismissal of petitioner’s complaint the compulsory
counterclaim can no longer remain pending for independent adjudication; and
considering further that since petitioner had re-filed its complaint against
private respondent on May 3, 1989 before the Regional Trial Court of Pasig,
Branch 168, docketed therein as Civil Case No. 58126, then private respondent
could easily set up the same compulsory counterclaim in said later case.

Thereafter, the court a quo issued an
Order,^[6]
dated June 20, 1989, granting private respondent’s motion to present evidence
and holding that “(a) compulsory counter­claim is a complaint in itself;
that it is a complaint against the plaintiff; that it is independent in
character. It has to be set up in the
answer otherwise it will be waived or barred and it cannot be invoked in
another case, for it would be splitting a cause of action which is not allowed
under the rules.” It added that herein private respondent “correctly
insisted that the compulsory counterclaim should be prosecuted now, otherwise
he cannot invoke his claim in a separate proceeding because he will be ‘barred
by the dismissal’ of the instant case.”

Petitioner filed a Motion for Reconsideration of said order
alleging that a compulsory counterclaim is essentially ancillary to the main
controversy and that, assuming that private respondent’s counterclaim can
remain pending for independent trial, the same should nevertheless be dismissed
for non-payment of any docket fees on the total amount of the
counterclaim. Private respondent filed
his Opposition at the same time attaching thereto a receipt for the payment of
docket fees. In reply, petitioner
contended that the belated payment of the docket fees for the counterclaim does
not have the effect of vesting the trial court with jurisdiction over the
counterclaim. The motion for
reconsideration was denied by the trial court in its Order^[7] dated
September 29, 1989.

From said order, petitioner filed a special civil action for certiorari
and prohibition with prayer for preliminary injunction and/or temporary
restraining order with respondent Court of Appeals. Its contentions for the allowance thereof may be capsulized as
follows:

1.  Respondent court acted without or in excess of
its jurisdiction and gravely abused his discretion in granting respondent
Jose’s motion to present evidence on his compulsory counterclaim:

a.   
The dismissal of the complaint carries with it the dismissal
of the compulsory counterclaim.

b.    Even
assuming that respondent Jose’s counterclaim may remain pending for
adjudication independently of the principal complaint, it should still be
dismissed for failure on the part of respondent to pay docket fees thereon.

2.  Great or irreparable injury and injustice
would result to petitioner if respondent Jose should be allowed to present
evidence ex parte
on his counterclaim pursuant to respondent court’s order of September 29, 1989.^[8]

Respondent court, in its questioned decision, dismissed the
special civil action for certiorari, stating that since the order is
merely interlocutory in nature and that at most it is merely an error of
judgment, it cannot be corrected by certiorari, thus:

“It is obvious that no jurisdictional error is involved in this case. If to allow the respondent to present
evidence in support of his counterclaim is a mistake, it is at most an error of
judgment that is not correctible by certiorari or prohibition. Such an error can be corrected in an appeal
which may be taken from the judgment to be
rendered on the counterclaim (Fernando vs. Vasquez, 31 SCRA 288).

“Time and again, it has been said that the function of certiorari
and prohibition is to keep an inferior court within the limits of its
jurisdiction (Enriquez vs. Rivera, 90 SCRA 641). These two extraordinary writs are not intended to correct every error which may be committed in
the course of a trial.

“Finally, the order sought to be annulled is interlocutory in
nature which again cannot be corrected by certiorari (Perez vs. Monetary
Board, 20 SCRA 592; Layag vs. Gerardo, 10 SCRA 837).” ^[9]

Its motion for reconsideration having been denied, petitioner
filed the instant petition.

Petitioner avers that respondent Court of Appeals gravely erred
(1) in finding that no jurisdictional defect was committed by the trial court
in issuing the order dated June 20, 1989 allowing respondent Jose to present
evidence in support of his compulsory counterclaim despite the dismissal of the
complaint; and (2) in holding that the order of June 20, 1989 cannot be the
basis of a petition for certiorari and prohibition.^[10]

We find for petitioner.

Private respondent’s asseveration that a compulsory counterclaim
is not deemed dismissed just because the main complaint is dismissed by the
court, and that the same has to be pursued otherwise it will forever be barred
on the ground of res judicata, is at most specious and should be
struck down for lack of merit.

There is no dispute that private respondent’s counterclaim is
compulsory in nature since 1) it arises out of, or is necessarily connected
with the transaction or occurrence that is the subject matter of the opposing
party’s claim; 2) it does not require for its adjudication the presence of
third parties over whom the court cannot acquire jurisdiction; and 3) the court
has jurisdiction to entertain the claim. And the rule is that a compulsory counterclaim not set up shall be
barred^[11]
if not raised on time and the party in error is precluded from setting it up in
a subsequent litigation on the ground
of res judicata, the theory being that what are barred by prior
judgment are not only the matters actually raised and litigated upon, but also
such matters as could have been raised but were not.^[12] In other words, a compulsory counterclaim
cannot be made the subject of a separate action but should be asserted in the
same suit involving the same transaction or occurrence giving rise to it. Where the counterclaim is made the subject
of a separate suit, it may be abated upon a plea of auter action pendant
or litis pendentia, and/or dismissed on the ground of res judicata.^[13]

However, such is not the situation obtaining in the present action. In the petition before us, private
respondent, in his responsive pleading which is aptly titled “Answer with
Counterclaim,” has properly raised a counterclaim against herein
petitioner’s claim that the agreement to buy and sell is imperfect and
incomplete. Ironically, the insistence
of private respondent in proceeding with the trial of the case is premised on
the very existence of his counterclaim. Hence, there can be no res judicata to speak of because a
counterclaim was correctly invoked against herein petitioner’s complaint. In fine, what private respondent is in
effect saying is that his counterclaim should be allowed to proceed
independently of the main action.

For all intents and purposes, such proposition runs counter to
the nature of a compulsory counterclaim in that it cannot remain pending for
independent adjudication by the court.^[14] This
is because a compulsory
counterclaim is auxiliary to the proceeding in the original suit^[15]
and derives its jurisdictional support therefrom,^[16]
inasmuch as it arises out of or is necessarily connected with the transaction
or occurrence that is the subject matter of the complaint. It follows that if the court does not have
jurisdiction to entertain the main action of the case and dismisses the same,
then the compulsory counterclaim, being ancillary to the principal controversy,
must likewise be dismissed^[17] since no jurisdiction remained for any
grant of relief under the counterclaim.^[18]

The aforementioned doctrine is
in consonance with the primary objective of a counterclaim which is to avoid
and prevent circuity of action by allowing the entire controversy between the
parties to be litigated and finally determined in one action, wherever this can
be done with entire justice to all parties before the court.^[19]
The philosophy of the rule is to discourage multiplicity of suits.^[20]
It will be observed that the order of the trial court allowing herein private
respondent to proceed with the presentation of his evidence in support of the
latter’s counterclaim is repugnant to the very purpose and intent of the rule
on counterclaims.

Furthermore, it has been held that a counterclaim presupposes the
existence of a claim against the party filing the counterclaim. Where there is no claim against the
counterclaimant, then the counterclaim is improper and should be dismissed.^[21]
The complaint filed by herein petitioner was dismissed on the ground of lack of
jurisdiction for non-payment of docket fees. By reason of said dismissal, it is as if no claim was filed against
herein private respondent, hence the counterclaim has no leg to stand on. In addition, it was at the instance of
private respondent that the complaint was dismissed. In the words of Justice Abad Santos, “(private respondent)
does not object to the dismissal of the civil case but nonetheless wants (his)
counterclaim therein to subsist. Impossible. A person cannot eat
his cake and have it at the same time. If the civil case is dismissed, so also is the counterclaim filed
therein.”^[22]

American jurisprudence similarly rules that in an action where
defendant’s answer set up a counterclaim, the court was without authority to
sever the causes of action by dismissing the complaint and submitting the
counterclaim to the jury, although the order of dismissal purported to be
without prejudice to the merits of plaintiff’s cause of action upon another
trial.^[23]
This is so because a severance for trial of a claim or counterclaim may
increase the possibility of inconsistent verdicts and decrease the ability of
the court to resolve such inconsistencies without granting a re-trial in one or
both causes.^[24]

In the case before us, severing herein private respondent’s
counterclaim to compel petitioner to honor the purchase agreement executed
between them, from petitioner’s action to declare null and void the same contract,
may result in the following outcomes:

1)     
If the same judgment would be rendered in Civil Case No. 55560
(on the counterclaim) and Civil Case No. 58126 (on the main action which was
re-filed) either for the validity or nullification of the contract, then there
would plausibly be no problem.

2)     
However, should different and conflicting decisions be handed
down in the two cases, which is not an impossibility, then this will only serve
to complicate the issues that will arise and the remedies that may be necessitated.

Verily, practical considerations of consistency and economy
likewise command a trial of the counterclaim jointly and concurrently with the
principal controversy. At any rate,
considering that petitioner has re-filed its complaint involving the same cause
of action which is now pending before another branch of the court, there is
nothing to prevent private respondent from raising the same counterclaim for
adjudication in the subsequent action.

It is the submission of herein petitioner that assuming arguendo
that the counterclaim can proceed independently of the main action, the court
did not acquire jurisdiction thereover for failure of private respondent to pay
the corresponding docket fees. Petitioner maintains that the ruling in Manchester should likewise
apply to compulsory counterclaims. The
argument is incorrect. The rules
regarding payment of docket fees have been summarized in a subsequent case^[25]
as follows:

“1.  It is not simply the filing of the complaint
or appropriate initiatory pleading, but the payment of the prescribed docket
fee, that vests a trial court with jurisdiction over the subject matter or
nature of the action. Where the filing
of the initiatory pleading is not accompanied by payment of the docket fee, the
court may allow payment of the fee within a reasonable time but in no case
beyond the applicable prescriptive or reglementary period.

“2.  The same rule applies to permissive coun­terclaims,
third-party claims and similar pleaddings, which shall not be considered filed
until and unless the filing fee prescribed therefore is paid. x x x”

The rule, therefore is made to apply specifically to permissive
counterclaims only, thereby excluding compulsory counterclaims from its
purview.^[26]
This is because there is no need to pay docketing fees for a compulsory counter­claim.^[27]

Finally, we do not ascribe to respondent court’s declaration that
the order of dismissal issued by the trial court is merely interlocutory and,
at most, an error of judgment which is not correctible by certiorari and
prohibition. As earlier stated, the
trial court acted without jurisdiction in proceeding with the hearing on the
counterclaim after it had dismissed the complaint to which the counterclaim
attached. It is precisely to correct
the lower court when in the course of proceedings it acts without jurisdiction
or in excess thereof or if the trial judge otherwise acted with grave abuse of
discretion that the extraordinary writ of certiorari or prohibition is
afforded to parties as a relief. Such a
relief is available even in respect to interlocutory orders.^[28]

WHEREFORE, the decision appealed from is hereby REVERSED
and SET ASIDE, and judgment is hereby rendered DISMISSING the compulsory
counterclaim of private respondent in Civil Case No. 55560, without prejudice
to the setting up of the same in Civil Case No. 58126, both of the Regional
Trial Court of Pasig, Metro Manila.

SO ORDERED.

Paras, and Padilla, JJ.,
concur.

Melencio-Herrera, J., (Chairman), on
leave.

^[1]
Penned by Associate Justice Ricardo L. Pronove, Jr., with Associate Justices
Alfredo L. Benipayo and Salome A. Montoya, concurring; Annex A, Petition; Rollo,
24.

^[2]
Annex B, id.; ibid., 31.

^[3]
Annex C, id.; ibid., 42.

^[4]
149 SCRA 562 (1987).

^[5]
Annex K, id.; ibid., 88.

^[6]
Annex O, id.; ibid., 98.

^[7]
Annex S, id.; ibid., 111.

^[8]
Rollo, CA-G.R. SP No. 19227, 9, 12.

^[9]
Ibid., id., 146-147.

^[10]
Rollo, 14.

^[11]
Section 4, Rule 9, Rules of Court.

^[12]
Cojuangco vs. Villegas, et al., 184 SCRA 374 (1990).

^[13]
The Visayan Packing Corporation vs. The Reparations Com­mission, et al.,
155 SCRA 542 (1987).

^[14]
Lim Tanhu, et al., vs. Ramolete, et al., 66 SCRA 425 (1975).

^[15]
Hoffman vs. Maloratsky, et ux., 164 A. 260.

^[16]
20 Am. Jur. 2d 234.

^[17]
I Moran, Comments on the Rules of Court, 1979 ed., 354.

^[18]
Isenberg vs. Biddle, et al., 125 F. 2d 741; Kelleam, et al. vs.
Maryland Casualty Co. of Baltimore, et al., 312 U.S. 377.

^[19]
80 CJS 22.

^[20]
Baclayon, et al. vs. Court of Appeals, et al., 182 SCRA 761 (1990).

^[21]
U.S. vs. Raefsky, et al., 19 F.R.D. 355.

^[22]
Dalman vs. City Court of Dipolog City, Br. II, et al., 134 SCRA 243
(1985).

^[23]
1 CJS 1381.

^[24]
Travellers Express, Inc. vs. Acosta, 397 So. 2d 733.

^[25]
Sun Insurance Office, Ltd., (SIOL), et al. vs. Asuncion, et al., 170
SCRA 274 (1989).

^[26]
Sapugay, et al. vs. Court of Appeals, et al., 183 SCRA 464 (1990).

^[27]
Vda. de Carmen, et al. vs. Cartagena, et al., 178 SCRA 616 (1989). See also Section 5, Rule 141, Rules of Court
(now Section 7 of said Rule as amended by resolution of the Court En Banc dated
September 4, 1990).

^[28]
Gegare vs. Court of Appeals, et al., 177 SCRA 471 (1989).