Philippine Supreme Court Jurisprudence > Year 2014 > June 2014 Decisions > G.R. No. 189532, June 11, 2014 - VIRGINIA S. DIO AND H.S. EQUITIES, LTD., Petitioners, v. SUBIC BAY MARINE EXPLORATORIUM, INC., REPRESENTED BY ITS CHAIRMAN AND CHIEF EXECUTIVE OFFICER, TIMOTHY DESMOND, Respondents.:

This is a Petition for Review on Certiorari¹ pursuant to Rule 45 of the Revised Rules of Court, assailing the 3 April 2009 Order² of the Regional Trial Court (RTC) of Balanga City, Bataan, on pure question of law. In its assailed Order, the RTC denied the motion filed by petitioners to set their counterclaims for hearing on the ground that the main case was already dismissed with finality by the Court of Appeals in CA-G.R. CV No. 87117.

In an Order³ dated 26 August 2009, the RTC refused to reconsider its earlier disposition.

The Facts

Petitioner M.S. Equities, Ltd., (HSE) is a foreign corporation duly organized and existing under the laws of the British Virgin Islands, with registered address at Akara Building, 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands. It entered into an isolated transaction subject of the instant case. It is represented in this action by petitioner Virginia S. Dio (Dio).

Respondent Subic Bay Marine Exploratorium, Inc. (SBME) is a domestic corporation, duly organized and existing under the Philippine laws and is represented in this action by its Chief Executive Officer, respondent Timothy Desmond (Desmond).

In 2002, SBME decided to expand its business by operating a beach resort inside the property administered by the Subic Bay Metropolitan Authority (SBMA). For the business venture to take off, SBME needed to solicit investors who are willing to infuse funds for the construction and operation of the beach resort project. HSE (formerly known as Westdale Assets Limited) thru its authorized director, Dio, agreed to invest the amount of US$2,500,000.00 with SBME by purchasing 750,000 common shares with a par value of PI 00 per share from the increase in its authorized capital stock. The agreement was reduced into writing wherein HSE, in order to protect its interest in the company, was afforded minority protection rights such as the right to appoint a member of the board of directors and the right to veto certain board resolutions. After HSE initially paid US$200,000.00 for its subscription, it refused to further lay out money for the expansion project of the SBME due to the alleged mismanagement in the handling of corporate funds.

Consequently, SBME initiated an intra-corporate dispute before the RTC of Balanga City, Bataan against petitioners HSE and Dio.⁴ Before petitioners could file their answer to the complaint, respondents impleaded its Corporate Secretary, Atty. Winston Gincz, as additional defendant. In their Amended Complaint⁵ docketed as Civil Case No. 7572, SBME essentially alleged that LISP" unjustly refused to pay the balance of its unpaid subscription effectively jeopardizing the company's expansion project. Apart from their refusal to honor their obligation under the subscription contract, it was further alleged by SBME that Dio tried to dissuade local investors and financial institutions from putting in capital to SBME by imputing defamatory acts against Desmond. To protect the interest of the corporation and its stockholders, SBME sought that petitioners be enjoined from committing acts inimical to the interest of the company.

To refute the claims of respondents, petitioners maintained in their Answer with Compulsory Counterclaim⁶ that it would be highly preposterous for them to dissuade investors and banks from putting in money to SBME considering that HSE and Dio are stakeholders of the company with substantial investments therein. In turn, petitioners countered that their reputation and good name in the business community were tarnished as a result of the filing of the instant complaint, and thus prayed that they be indemnified in the amount of US$2,000,000.00 as moral damages. Constrained to litigate to protect their rights, petitioners asked that they be indemnified in the amount of P1,000,000.00 in litigation expenses. Petitioners likewise sought to recover their investment of US$1,500,000.00 since they were purportedly inveigled by Desmond into putting in money to SBME under the pretext that they will be accorded with minority protection rights. It was alleged that after the filing of the instant complaint, Desmond, in collusion with other Board of Directors of SBME, managed to unjustly deny HSE and Dio their rights under the Subscription Agreement. To curb similar socially abhorrent actions, petitioners prayed that SBME and its Board of Directors, namely, Desmond, John Corcoran, Gaile Laule and Gregorio Magdaraog, be jointly and severally held liable to pay exemplary damages in the amount of US$2,000,000.00.

After petitioners filed their Answer with Compulsory Counterclaim, the RTC, instead of setting the case for pre-trial, issued an Order⁷ dated 15 August 2005 motu proprio dismissing Civil Case No. 7572. The dismissal was grounded on the defective certificate of non-forum shopping which was signed by Desmond without specific authority from the Board of Directors of SBME.

Armed with a board resolution specifically authorizing Desmond to sign the certificate of non-forum shopping on behalf of SBME, respondents moved that Civil Case No. 7572 be reinstated and further proceedings thereon be conducted. A copy of such authority was attached by respondents to their Motion for Reconsideration.

For lack of merit, RTC denied respondents' motion and affirmed the dismissal in an Order⁸ dated 22 September 2005. In refusing to reinstate respondents' complaint, the court a quo ruled that the belated submission of a board resolution evidencing Desmond's authority to bind the corporation did not cure the initial defect in the complaint and declared that strict compliance with procedural rules is enjoined for the orderly administration of justice.

Aggrieved by the lower court's refusal to reinstate their complaint, respondents elevated the matter before the Court of Appeals assailing the propriety of the 15 August 2005 and 22 September 2005 RTC Orders via Petition for Review which was docketed as CA-G.R. CV No. 87117.

For failure of the respondents to file their appellants' brief, the appellate court proceeded to dismiss CA-G.R.CV No. 871 17 and considered the case closed and terminated in its Resolution⁹ dated 2 January 2007.

After respondents failed to seasonably move for the reconsideration of the aforementioned Resolution, the dismissal of CA-G.R. CV No. 87117 became final and executory, as shown in the Entry of Judgment¹⁰ dated 3 May 2007.

The procedural incidents before the appellate court having been resolved with finality, petitioners went back to the RTC to file a motion to set their counterclaims for hearing¹¹ which was opposed by the respondents on the ground that the filing of the compulsory counterclaims was not accompanied by payment of the required docket fees precluding the court from acquiring jurisdiction over the case.¹²cralawred

Acting on the motions filed by the opposing parties, the RTC, in an Order¹³ dated 3 April 2009 granted the motion of the respondents, thereby directing the dismissal of petitioners' counterclaims but not on the ground of non-payment of docket fees. In disallowing petitioners' counterclaims to proceed independently of respondents' complaint, the lower court pointed out that in view of the dismissal of the main case, which has already been affirmed with finality by the appellate court, it has already lost its jurisdiction to act on petitioners' counterclaim, the compulsory counterclaim being merely ancillary to the principal controversy.

In an Order¹⁴ dated 26 August 2009, the RTC refused to reconsider its earlier disposition.

Petitioners filed this instant Petition for Review on Certiorari¹⁵ on pure question of law seeking the reversal of the 3 April 2009 and 26 August 2009 RTC Orders on the ground that:ChanRoblesVirtualawlibrary

THE TRIAL COURT COMMITTED AN ERROR OF LAW WHEN IT REFUSED TO SET [PETITIONERS"] COUNTERCLAIMS FOR HEARING ON THE GROUND THAT THE CASE WAS DEEMED "CLOSED AND TERMINATED" BY THE COURT OF APPEAFS AFTER THE LATTER DISMISSED RESPONDENTS' APPEAF BECAUSE OF THEIR FAILURE TO FIFE THEIR APPELLANTS' BRIEF.¹⁶

Petitioners argue that despite the dismissal of the main case, the counterclaim may still remain for independent adjudication under Section 6, Rule 16 of the Revised Rules of Court.¹⁷ Petitioners pointed out that while the dismissal of respondents' complaint is a confirmation of Desmonds' lack of legal personality to file the case, this does not, however, mean that they also do not have the qualification to pursue their counterclaim. To fault petitioners for the fatal infirmity in the respondents' complaint would not only work injustice to the former but would result to an absurd situation where the fate of their counterclaims is placed entirely in the hands of the respondents.

For their part, respondents posit that, in directly assailing the adverse RTC Orders before the Court, petitioners erroneously availed themselves of an erroneous remedy arguing that this petition should have been initially filed with the appellate court. By seeking relief directly from the Court, petitioners ignored the judicial hierarchy warranting the peremptory dismissal of their petition. Unless special and important reasons were clearly and specifically set out in the petition, and in this case it was not, a direct invocation of this Court's original jurisdiction may not be allowed.

The established policy of strict observance of the judicial hierarchy of courts, as a rule, requires that recourse must first be made to the lower-ranked court exercising concurrent jurisdiction with a higher court. A regard for judicial hierarchy clearly indicates that petitions for the issuance of extraordinary writs against first level courts should be filed in the RTC and those against the latter should be filed in the Court of Appeals. The rule is not iron-clad, however, as it admits of certain exceptions.¹⁸cralawred

Thus, a strict application of the rule is unnecessary when cases brought before the appellate courts do not involve factual but purely legal questions.¹⁹ In fact, Rule 41, Section 2(c)²⁰ of the Revised Rules of Court provides that a decision or order of the RTC may as it was done in the instant case, be appealed to the Supreme Court by petition for review on certiorari under Rule 45, provided that such petition raises only questions of law.

A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts; or when the issue does not call for the examination of the probative value of the evidence presented, the truth or falsehood of facts being admitted. A question of fact exists when the doubt or difference arises as to the truth or falsehood of facts or when the query invites calibration of the whole evidence considering mainly the credibility of the witnesses, the existence and relevancy of specific surrounding circumstances, as well as their relation to each other and to the whole, and the probability of the whole situation.²¹ Thus, the test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.²²cralawred

Petitioners here raise the solitary issue of the propriety of the dismissal of their counterclaim on the basis of the reasoning of the lower court that the counterclaim derives its jurisdictional support from the complaint which has already been dismissed. Petitioners maintain that the court a quo erred in arriving at the legal conclusion that the counterclaim can no longer stand for independent adjudication after the main case was already dismissed with finality. In order to resolve this issue, the Court need only to look into the pleadings, depositions, admissions, and affidavits submitted by the respective parties without going into the truth or falsity of such documents. Consequently, the petitioners' remedy for assailing the correctness of the dismissal of their counterclaims, involving as it does a pure question of law, indeed lies with this Court.

Now to the issue of the propriety of the dismissal of the counterclaim.

The dismissal of the complaint resulted from respondents failure to append to the complaint a copy of the board resolution authorizing Desmond to sign the certificate of non-forum shopping on behalf of SBME. The subsequent dismissal of the counterclaim, in turn, erroneously proceeded from the ratio that since the main action has already been dismissed with finality by the appellate court, the lower court has lost its jurisdiction to grant any relief under the counterclaim.

In the significant case of Pinga v. Heirs of German Santiago,²³ this Court speaking through Justice Dante Tinga, resolved the nagging question as to whether or not the dismissal of the complaint carries with it the dismissal of the counterclaim. Putting to rest the remaining confusion occasioned by Metals Engineering Resources Corp. v. Court of Appeals²⁴ and BA Finance Corporation v. Co,²⁵ the Court articulated that, in light of the effectivity of the 1997 Rules of Civil Procedure, the correct and prevailing doctrine is as follows:ChanRoblesVirtualawlibrary

To be certain, when the Court promulgated the 1997 Rules of Civil Procedure, including the amended Rule 17, those previous jural doctrines that were inconsistent with the new rules incorporated in the 1997 Rules of Civil Procedure were implicitly abandoned insofar as incidents arising after the effectivity of the new procedural rules on 1 July 1997. BA Finance, or even the doctrine that a counterclaim may be necessarily dismissed along with the complaint, clearly conflicts with the 1997 Rules of Civil Procedure. The abandonment of BA Finance as doctrine extends as far back as 1997, when the Court adopted the new Rules of Civil Procedure. If, since then, such abandonment has not been affirmed in jurisprudence, it is only because no proper case has arisen that would warrant express confirmation of the new rule. That opportunity is here and now, and we thus rule that the dismissal of a complaint due to fault of the plaintiff is without prejudice to the right of the defendant to prosecute any pending counterclaims of whatever nature in the same or separate action. We confirm that BA Finance and all previous rulings of the Court that arc inconsistent with this present holding arc now abandoned.

x x x x

Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more equitable disposition of the counterclaims by ensuring that any judgment thereon is based on the merit of the counterclaim itself and not on the survival of the main complaint. Certainly, if the counterclaim is palpably without merit or suffers jurisdictional flaws which stand independent of the complaint, the trial court is not precluded from dismissing it under the amended rules, provided that the judgment or order dismissing the counterclaim is premised on those defects. At the same time, if the counterclaim is justified, the amended rules now unequivocally protect such counterclaim from peremptory dismissal by reason of the dismissal of the complaint.²⁶

Reviewing the vacated position, in Metals Engineering Resources Corp., severance of causes of action was not permitted in order to prevent circuity of suits and to avert the possibility of inconsistent rulings based on the same set of facts, viz:ChanRoblesVirtualawlibrary

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. This is because a compulsory counterclaim is auxiliary to the proceeding in the original suit and derives its jurisdictional support therefrom, 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 docs 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 since no jurisdiction remained for any grant of relief under the counterclaim.

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. The philosophy of the rule is to discourage multiplicity of suits. 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 repugnant to the very purpose and intent of the rule on counterclaims.²⁷

In BA Finance Corporation, we likewise refused to entertain the compulsory counterclaim after the trial court lost its jurisdiction in the main case, thus:ChanRoblesVirtualawlibrary

The rule is that a compulsory counterclaim cannot "remain pending for independent adjudication by the court." This is because a compulsory counterclaim is auxiliary to the proceeding in the original suit and merely derives its jurisdictional support therefrom.

Thus, it necessarily follows that if the trial court no longer possesses jurisdiction to entertain the main action of the case, as when it dismisses the same, then the compulsory counterclaim being ancillary to the principal controversy, must likewise be similarly dismissed since no jurisdiction remains for the grant of any relief under the counterclaim.²⁸

As the rule now stands, the nature of the counterclaim notwithstanding, the dismissal of the complaint does not ipso jure result in the dismissal of the counterclaim, and the latter may remain for independent adjudication of the court, provided that such counterclaim, states a sufficient cause of action and does not labor under any infirmity that may warrant its outright dismissal. Stated differently, the jurisdiction of the court over the counterclaim that appears to be valid on its face, including the grant of any relief thereunder, is not abated by the dismissal of the main action. The court's authority to proceed with the disposition of the counterclaim independent of the main action is premised on the fact that the counterclaim, on its own, raises a novel question which may be aptly adjudicated by the court based on its own merits and evidentiary support.

In Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporation,²⁹ a case on all fours with the present one, we expounded our ruling in Pinga and pointed out that the dismissal of the counterclaim due to the fault of the plaintiff is without prejudice to the right of the defendant to prosecute any pending counterclaims of whatever nature in the same or separate action, thus:ChanRoblesVirtualawlibrary

Based on the aforequoted ruling of the Court, if the dismissal of the complaint somehow eliminates the cause of the counterclaim, then the counterclaim cannot survive. Conversely, if the counterclaim itself states sufficient cause of action then it should stand independently of and survive the dismissal of the complaint. Now, having been directly confronted with the problem of whether the compulsory counterclaim by reason of the unfounded suit may prosper even if the main complaint had been dismissed, we rule in the affirmative.

It bears to emphasize that petitioner's counterclaim against respondent is for damages and attorney's fees arising from the unfounded suit. While respondent's Complaint against petitioner is already dismissed, petitioner may have very well already incurred damages and litigation expenses such as attorney's fees since it was forced to engage legal representation in the Philippines to protect its rights and to assert lack of jurisdiction of the courts over its person by virtue of the improper service of summons upon it. Hence, the cause of action of petitioner's counterclaim is not eliminated by the mere dismissal of respondent's complaint.³⁰ (Emphasis theirs).

Once more, we allow the counterclaim of the petitioners to proceed independently of the complaint of the respondents.

WHEREFORE, premises considered, the petition is GRANTED. The assailed RTC Orders dated 3 April 2009 and 26 August 2009 are hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Balanga City, Bataan for further proceedings, on the matter of petitioners Virginia S. Dio and H.S. Equities, Ltd.'s counterclaims. No pronouncement as to costs.

SO ORDERED.

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

Endnotes:

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¹Rollo, pp. 36-51.

² Presided by Judge Remigio M. Escalada, Jr.� Id. at 55-57.

³ Id. at 80-81.

⁴ Id. at 82-87.

⁵ Id. at 88-96.

⁶ Id. at 116-161.

⁷ Id. at 162-163.

⁸ Id. at 164-166.

⁹ Id. at 179-180.

¹⁰ Id. at 197.

¹¹ Id. at 11-24.

¹² Id. at 181-184.

¹³ Id. at 55-57.

¹⁴ Id. at 80-81.

¹⁵ Id. at 36-51.

¹⁶ Id. at 43.

¹⁷ Section 6. Pleading grounds as affirmative defenses. - If no motion to dismiss has been filed, any of the grounds for dismissal provided for in this Rule may be pleaded as an affirmative defense in the answer and, in the discretion of the court, a preliminary hearing may be had thereon as if a motion to dismiss had been filed.

The dismissal of the complaint under this section shall be without prejudice to the' prosecution in the same or separate action of the counterclaim pleaded in the answer.

¹⁸Bonifacio v. RTC of Makati, Branch 149, G.R. No. I 84800. 5 May 20 10, 620 SCRA 268, 277.

¹⁹ Id.

²⁰ Section 2. Modes of Appeal, x x x (c) Appeal by certiorari. - In all cases where only questions of law are raised or involved, the appeal shall be to the Supreme Court by petition for review on certiorari in accordance with Rule 45.

²¹Binayug v Ugaddan, G.R. No. 181623, 5 December 2012, 687 SCRA 260. 271-272.

²²Republic v. Malabanan, G.R. No. 169067, 6 October 2010. 632 SCRA 338, 345.

²³ 526 Phil. 868 (2006).

²⁴ G.R. No. 95631, 28 October 1991, 203 SCRA 273.

²⁵ G.R. No. 105751,30 June 1993, 224 SCRA 163.

²⁶Pinga v. Heirs of German Santiago, supra note 23 at 887-893.

²⁷ Supra note 24 at 282-283.

²⁸ Supra note 25 at 167.

²⁹ 556 Phil. 822 (2007).

³⁰ Id. at 850-851.