FINANCIAL BUILDING CORPORATION v. FORBES PARK ASSOCIATION, INC.

G.R. No. 133119 // August 17, 2000

Topic: Failure to plead a compulsory counterclaim and cross-claim

Facts:
The then Union of Soviet Socialist Republic (hereafter, USSR) was the owner of a 4,223 square meter residential
lot located at No. 10, Narra Place, Forbes Park Village in Makati City. On December 2, 1985, the USSR engaged
the services of Financial Building for the construction of a multi-level office and staff apartment building at the
said lot, which would be used by the Trade Representative of the USSR. Due to the USSRs representation that
it would be building a residence for its Trade Representative, Forbes Park authorized its construction and work
began shortly thereafter.
On June 30, 1986, Forbes Park reminded the USSR of existing regulations authorizing only the construction
of a single-family residential building in each lot within the village. It also elicited a reassurance from the USSR
that such restriction has been complied with. Promptly, the USSR gave its assurance that it has been complying
with all regulations of Forbes Park. Despite this, Financial Building submitted to the Makati City Government
a second building plan for the construction of a multi-level apartment building, which was different from the
first plan for the construction of a residential building submitted to Forbes Park.
Forbes Park discovered the second plan and subsequent ocular inspection of the USSRs subject lot confirmed
the violation of the deed of restrictions. Thus, it enjoined further construction work. On March 27, 1987,
Forbes Park suspended all permits of entry for the personnel and materials of Financial Building in the said
construction site. The parties attempted to meet to settle their differences but it did not push through.
Instead, on April 9, 1987, Financial Building filed in the RTC of Makati, Metro Manila, a Complaint for
Injunction and Damages with a prayer for Preliminary Injunction against Forbes Park docketed as Civil Case
No. 16540. The latter, in turn, filed a Motion to Dismiss on the ground that Financial Building had no cause of
action because it was not the real party-in-interest.
On April 28, 1987, the trial court issued a writ of preliminary injunction against Forbes Park but the CA nullified
it and dismissed the complaint in Civil Case No. 16540 altogether. We affirmed the said dismissal in our
Resolution,[8] promulgated on April 6, 1988, in G.R. No. 79319 entitled Financial Building Corporation, et al.
vs. Forbes Park Association, et al.
After Financial Buildings case, G.R. No. 79319, was terminated with finality, Forbes Park sought to vindicate
its rights by filing on October 27, 1989 with the RTC of Makati a Complaint for Damages, against Financial
Building, docketed as Civil Case No. 89-5522, arising from the violation of its rules and regulations. On
September 26, 1994, the trial court rendered its Decision in Civil Case No. 89-5522 in favor of Forbes Park
and against Financial Building
Financial Building appealed the said Decision of the trial court in Civil Case No. 89-5522 by way of a petition
for review on certiorari entitled Financial Building Corporation vs. Forbes Park Association, Inc. to the Court
of Appeals and docketed therein as CA-GR CV No. 48194. However, the Court of Appeals affirmed it in its
Decision dated March 20, 1998.
Issue: Whether or not the CA gravely erred in not dismissing the complaint filed by respondent despite the
fact that its alleged claims and causes of action therein are barred by prior judgment and/or are deemed waived
for its failure to interpose the same as compulsory counterclaims in civil case no. 16540
Held: YES. The SC granted the petition.
First. The instant case is barred due to Forbes Parks failure to set it up as a compulsory counterclaim in Civil
Case No. 16540, the prior injunction suit initiated by Financial Building against Forbes Park.
A compulsory counterclaim is one which arises out of or is necessarily connected with the transaction or
occurrence that is the subject matter of the opposing partys claim. If it is within the jurisdiction of the court
and it does not require for its adjudication the presence of third parties over whom the court cannot acquire
jurisdiction, such compulsory counterclaim is barred if it is not set up in the action filed by the opposing party.
Thus, a compulsory counterclaim cannot be the subject of a separate action but it should instead be asserted in
the same suit involving the same transaction or occurrence, which gave rise to it. To determine whether a
counterclaim is compulsory or not, we have devised the following tests: (1) Are the issues of fact or law raised
by the claim and the counterclaim largely the same? (2) Would res judicata bar a subsequent suit on defendants
claim absent the compulsory counterclaim rule? (3) Will substantially the same evidence support or refute
plaintiffs claim as well as the defendants counterclaim? and (4) Is there any logical relation between the claim
and the counterclaim? Affirmative answers to the above queries indicate the existence of a compulsory
counterclaim.
Undoubtedly, the prior Civil Case No. 16540 and the instant case arose from the same occurrence the
construction work done by Financial Building on the USSRs lot in Forbes Park Village. The issues of fact and
law in both cases are identical. The factual issue is whether the structures erected by Financial Building violate
Forbes Parks rules and regulations, whereas the legal issue is whether Financial Building, as an independent
contractor working for the USSR, could be enjoined from continuing with the construction and be held liable
for damages if it is found to have violated Forbes Parks rules.
As a result of the controversy, Financial Building seized the initiative by filing the prior injunction case, which
was anchored on the contention that Forbes Parks prohibition on the construction work in the subject premises
was improper. The instant case on the other hand was initiated by Forbes Park to compel Financial Building to
remove the same structures it has erected in the same premises involved in the prior case and to claim damages
for undertaking the said construction. Thus, the logical relation between the two cases is patent and it is obvious
that substantially the same evidence is involved in the said cases.
Moreover, the two cases involve the same parties. The aggregate amount of the claims in the instant case is
within the jurisdiction of the regional trial court, had it been set up as a counterclaim in Civil Case No.
16540. Therefore, Forbes Parks claims in the instant case should have been filed as a counterclaim in Civil Case
No. 16540.
Second. Since Forbes Park filed a motion to dismiss in Civil Case No. 16540, its existing compulsory
counterclaim at that time is now barred.
A compulsory counterclaim is auxiliary to the proceeding in the original suit and derives its jurisdictional
support therefrom. A counterclaim presupposes the existence of a claim against the party filing the
counterclaim. Hence, where there is no claim against the counterclaimant, the counterclaim is improper and it
must dismissed, more so where the complaint is dismissed at the instance of the counterclaimant. In other
words, if the dismissal of the main action results in the dismissal of the counterclaim already filed, it stands to
reason that the filing of a motion to dismiss the complaint is an implied waiver of the compulsory counterclaim
because the grant of the motion ultimately results in the dismissal of the counterclaim.
Thus, the filing of a motion to dismiss and the setting up of a compulsory counterclaim are incompatible
remedies. In the event that a defending party has a ground for dismissal and a compulsory counterclaim at the
same time, he must choose only one remedy. If he decides to file a motion to dismiss, he will lose his
compulsory counterclaim. But if he opts to set up his compulsory counterclaim, he may still plead his ground
for dismissal as an affirmative defense in his answer. The latter option is obviously more favorable to the
defendant although such fact was lost on Forbes Park.
The ground for dismissal invoked by Forbes Park in Civil Case No. 16540 was lack of cause of action. There
was no need to plead such ground in a motion to dismiss or in the answer since the same was not deemed
waived if it was not pleaded. Nonetheless, Forbes Park still filed a motion to dismiss and thus exercised bad
judgment in its choice of remedies. Thus, it has no one to blame but itself for the consequent loss of its
counterclaim as a result of such choice.
Inasmuch as the action for damages filed by Forbes Park should be as it is hereby dismissed for being barred
by the prior judgment in G.R. No. 79319 (supra) and/or deemed waived by Forbes Park to interpose the same
under the rule on compulsory counterclaims, there is no need to discuss the other issues raised by the herein
petitioner.