Financial Building Corporation v. Forbes Park Association, Inc.
REITERATIONFacts
The Antecedents: The Union of Soviet Socialist Republics (USSR) owned a residential lot in Forbes Park Village, Makati City. It engaged Financial Building Corporation (Financial Building) to construct a multi-level office and staff apartment building for its Trade Representative. Forbes Park Association, Inc. (Forbes Park) initially authorized construction based on the representation that it was for a residence. Forbes Park later reminded the USSR of regulations limiting construction to single-family residential buildings, and the USSR assured compliance. However, Financial Building submitted a second, different building plan to the Makati City Government for a multi-level apartment building. Forbes Park discovered this, conducted an ocular inspection confirming the violation of the deed of restrictions, and enjoined further construction, suspending permits for Financial Building's personnel and materials. Procedural History: On April 9, 1987, Financial Building filed a Complaint for Injunction and Damages against Forbes Park (Civil Case No. 16540). Forbes Park filed a Motion to Dismiss, arguing Financial Building lacked a cause of action as it was not the real party-in-interest. The trial court issued a preliminary injunction, but the Court of Appeals nullified it and dismissed the complaint. This dismissal was affirmed by the Supreme Court in G.R. No. 79319. Subsequently, on October 27, 1989, Forbes Park filed a Complaint for Damages against Financial Building (Civil Case No. 89-5522) for violating the deed of restrictions, claiming actual, moral, exemplary damages, and attorney's fees. The Regional Trial Court ruled in favor of Forbes Park, ordering the demolition of illegal structures and payment of damages. The Court of Appeals affirmed this decision but modified the awards for exemplary damages and attorney's fees. The Petition: Financial Building filed a petition for review on certiorari, assigning errors concerning the dismissal of Forbes Park's complaint due to bar by prior judgment or waiver, lack of cause of action, erroneous award of damages, and the order for demolition of structures on diplomatic premises.
Issue(s)
Whether Forbes Park's claim for damages was barred by prior judgment or deemed waived for failure to interpose it as a compulsory counterclaim in Civil Case No. 16540. Whether Forbes Park had a cause of action against Financial Building. Whether damages were correctly awarded to Forbes Park. Whether the demolition of the structures was proper, considering they were on diplomatic premises.
Ruling
The petition is granted. The Decision of the Court of Appeals is reversed and set aside. The complaint filed by Forbes Park is dismissed.
Ratio Decidendi
On the issue of whether Forbes Park's claim was barred by prior judgment or deemed waived: The Supreme Court held that the instant case was barred because Forbes Park failed to set up its claim as a compulsory counterclaim in Civil Case No. 16540, which was the prior injunction suit initiated by Financial Building. A compulsory counterclaim arises out of or is necessarily connected with the transaction or occurrence that is the subject matter of the opposing party's claim. The Court reiterated the tests for determining a compulsory counterclaim: (1) Are the issues of fact or law largely the same? (2) Would res judicata bar a subsequent suit on the defendant's claim absent the rule? (3) Will substantially the same evidence support or refute both claims? (4) Is there any logical relation between the claims? Affirmative answers indicate a compulsory counterclaim. In this case, both Civil Case No. 16540 and the instant case arose from the same occurrence—the construction work by Financial Building on the USSR's lot. The factual issue was whether the structures violated Forbes Park's rules, and the legal issue concerned Financial Building's liability. The parties were the same, and the claims were within the jurisdiction of the regional trial court. Therefore, Forbes Park's claims should have been filed as a counterclaim in the prior case. The Court further explained that by filing a motion to dismiss in Civil Case No. 16540, Forbes Park waived its compulsory counterclaim. The filing of a motion to dismiss and the setting up of a compulsory counterclaim are incompatible remedies. If a party chooses to file a motion to dismiss, it loses its compulsory counterclaim. The Court noted that Forbes Park invoked lack of cause of action as a ground for dismissal, which was a valid ground, but by choosing this remedy, it implicitly waived its right to pursue its counterclaim in a separate action. Thus, Forbes Park's claims were deemed waived under the rule on compulsory counterclaims and also barred by the prior judgment in G.R. No. 79319. No Ratio provided for the issue of whether Forbes Park had a cause of action against Financial Building. No Ratio provided for the issue of whether damages were correctly awarded to Forbes Park. No Ratio provided for the issue of whether the demolition of the structures was proper, considering they were on diplomatic premises.
Main Doctrine
A compulsory counterclaim that arises from the same transaction or occurrence as the main claim must be set up in the same action; failure to do so, or the filing of a motion to dismiss instead of asserting the counterclaim, results in the waiver or bar of the claim in a subsequent suit.