BA Finance Corporation v. Co
REITERATIONFacts
The Antecedents: Petitioner BA Finance Corporation initiated a lawsuit to recover a sum of money. This claim stemmed from a credit accommodation in the form of a discounting line granted to defendant Rufino Co, and from suretyship agreements executed in favor of BA Finance Corporation by its co-defendants: Highline Mercantile, Inc., Lucita Veloso Yap, Cloverleaf Supermarket, Inc., and San Andres Commercial. Procedural History: Following the admission of the defendants' Amended Answer to Complaint with Compulsory Counterclaim, the case was scheduled for a Pre-Trial Conference. However, due to repeated resettings, the plaintiff's counsel failed to appear on December 19, 1989. Consequently, the defendants moved for the dismissal of the case without prejudice, which the trial court granted. Subsequently, the private respondents moved to set the reception of evidence for their counterclaim, but this was denied by the trial court. The private respondents then appealed this denial to the Court of Appeals, which reversed the trial court's order and directed the reception of evidence for the counterclaim. BA Finance Corporation's motion for reconsideration was denied, leading to the instant petition. The Petition: BA Finance Corporation, the petitioner, contends that the dismissal of its complaint should automatically carry with it the dismissal of the compulsory counterclaim filed by the private respondents. The petition argues that a compulsory counterclaim is ancillary to the main action and derives its jurisdictional support therefrom, thus it cannot subsist independently if the main action is dismissed. The petitioner asserts that the private respondents' failure to object to the dismissal of the complaint or to reserve their right to maintain their counterclaim resulted in its dismissal along with the complaint, and that their subsequent motion to present evidence on the counterclaim was filed after the dismissal order had become final.
Issue(s)
Whether the dismissal of the complaint for non-appearance of the plaintiff at the pre-trial, upon motion of the defendants, carries with it the dismissal of their compulsory counterclaim. Whether the Court of Appeals erred in reversing the trial court's order denying the reception of evidence for the counterclaim, considering the finality of the dismissal order and the proper procedure for pursuing a compulsory counterclaim when the plaintiff fails to prosecute.
Ruling
The petition is granted. The decision of the Court of Appeals is reversed and set aside. The order of the Regional Trial Court dismissing the case is reinstated and reiterated.
Ratio Decidendi
On the issue of whether the dismissal of the complaint carries with it the dismissal of the compulsory counterclaim: The Court held that the dismissal of the complaint for non-appearance of the plaintiff at the pre-trial conference, upon motion of the defendants, necessarily carries with it the dismissal of the compulsory counterclaim. The counterclaim in this case was found to be compulsory in nature because it arose out of, or was necessarily connected with, the transaction or occurrence that was the subject matter of the plaintiff's claim. It did not require the presence of third parties, and the trial court had jurisdiction to entertain it. The same evidence needed to sustain the counterclaim would also refute the cause of action in the complaint. A compulsory counterclaim is auxiliary to the proceeding in the original suit and derives its jurisdictional support therefrom. Therefore, if the trial court no longer possesses jurisdiction to entertain the main action and dismisses the same, the compulsory counterclaim, being ancillary, must likewise be dismissed as no jurisdiction remains for the grant of any relief under the counterclaim. The Court emphasized that a compulsory counterclaim cannot remain pending for independent adjudication. The rule is that if the trial court dismisses the main action, the compulsory counterclaim must also be dismissed. On the procedural aspect and the respondents' motion to set the reception of evidence for their counterclaim: The Court noted that the private respondents moved to set for hearing the reception of evidence to support their counterclaim more than a month after the case was dismissed. By then, the order of dismissal had already become final. Therefore, it was an error for the appellate court to set aside the trial court's order of dismissal, as there was no ground to warrant it, and only an error of judgment, not an error of jurisdiction, was involved. The Court also clarified that under Section 2 of Rule 17 of the Rules of Court, if a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication. However, in this case, the dismissal was under Section 3 of Rule 17 (Failure to prosecute), which is triggered by the plaintiff's failure to appear. The Court provided guidance for future cases, stating that if a ground to dismiss under Section 3, Rule 17 arises, the proper recourse for a defendant desiring to pursue a compulsory counterclaim is not to move for dismissal of the complaint, but to move to have the plaintiff declared non-suited on the complaint and simultaneously move that the plaintiff be declared in default on the compulsory counterclaim, reserving the right to present evidence ex parte. This procedure allows the trial court to retain jurisdiction over the complaint and the whole case, keeping the compulsory counterclaim active.
Main Doctrine
The dismissal of a complaint due to the plaintiff's failure to appear at the pre-trial conference, whether upon motion of the defendant or motu proprio by the court, carries with it the dismissal of a compulsory counterclaim, as the latter is ancillary to the principal action and derives its jurisdictional support therefrom.