RULE 17 - Dismissal of Actions !![G.R. NO. 170354 : June 30, 2006]

EDGARDO PINGA, Petitioner, v. THE HEIRS OF GERMAN, SANTIAGO represented by FERNANDO SANTIAGO, Respondents.

D E C I S I O N

TINGA, J.:

The constitutional faculty of the Court to promulgate rules of practice and procedure1 necessarily carries the power to overturn judicial precedents on points of remedial law through the amendment of the Rules of Court. One of the notable changes introduced in the 1997 Rules of Civil Procedure is the explicit proviso that if a complaint is dismissed due to fault of the plaintiff, such dismissal is "without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a separate action."2 The innovation was instituted in spite of previous jurisprudence holding that the fact of the dismissal of the complaint was sufficient to justify the dismissal as well of the compulsory counterclaim.3

In granting this petition, the Court recognizes that the former jurisprudential rule can no longer stand in light of Section 3, Rule 17 of the 1997 Rules of Civil Procedure.

The relevant facts are simple enough. Petitioner Eduardo Pinga was named as one of two defendants in a complaint for injunction4 filed with Branch 29 of the Regional Trial Court (RTC)5 of San Miguel, Zamboanga del Sur, by respondent Heirs of German Santiago, represented by Fernando Santiago. The Complaint6 dated 28 May 1998 alleged in essence that petitioner and co-defendant Vicente Saavedra had been

!!unlawfully entering the coco lands of the respondent, cutting wood and bamboos and harvesting the fruits of the coconut trees therein. Respondents prayed that petitioner and Saavedra be enjoined from committing "acts of depredation" on their properties, and ordered to pay damages.

!!In their Amended Answer with Counterclaim,7 petitioner and his co-defendant disputed respondents' ownership of the properties in question, asserting that petitioner's father, Edmundo Pinga, from whom defendants derived their interest in the properties, had been in possession thereof since the 1930s.8 They alleged that as far back as 1968, respondents had already been ordered ejected from the properties after a complaint for forcible entry was filed by the heirs of Edmundo Pinga. It was further claimed that respondents' application for free patent over the properties was rejected by the Office of the President in 1971. Defendants in turn prayed that owing to respondents' forcible re-entry in the properties and the irresponsible and reckless filing of the case, they be awarded various types of damages instead in amounts totaling P2,100,000 plus costs of suit.9

By July of 2005, the trial of the case had not yet been completed. Moreover, respondents, as plaintiffs, had failed to present their evidence. It appears that on 25 October 2004, the RTC already ordered the dismissal of the complaint after respondents' counsel had sought the postponement of the hearing scheduled then.10 However, the order of dismissal was subsequently reconsidered by the RTC in an Order dated 9 June 2005, which took into account the assurance of respondents' counsel that he would give priority to that case.11

At the hearing of 27 July 2005, plaintiffs' counsel on record failed to appear, sending in his stead a representative who sought the postponement of the hearing. Counsel for defendants (who include herein petitioner) opposed the move for postponement and moved instead for the dismissal of the case. The RTC noted that it was obvious that respondents had failed to prosecute the case for an unreasonable length of time, in fact not having presented their evidence yet. On that ground, the complaint was dismissed. At the same time, the RTC allowed defendants "to present their evidence ex-parte."12

Respondents filed a Motion for Reconsideration13 of the order issued in open court on 27 July 2005, opting however not to seek that their complaint be reinstated, but praying instead that the entire action be dismissed and petitioner be disallowed from presenting evidence ex-parte. Respondents claimed that the order of the RTC allowing petitioner to present evidence ex-parte was not in accord with established jurisprudence. They cited cases, particularly City of Manila v. Ruymann14 and Domingo v. Santos,15 which

noted those instances in which a counterclaim could not remain pending for independent adjudication.

On 9 August 2005, the RTC promulgated an order granting respondents' Motion for Reconsideration and dismissing the counterclaim, citing as the only ground therefor that "there is no opposition to the Motion for Reconsideration of the [respondents]."16 Petitioner filed a Motion for Reconsideration, but the same was denied by the RTC in an Order dated 10 October 2005.17 Notably, respondents filed an Opposition to Defendants' Urgent Motion for Reconsideration, wherein they argued that the prevailing jurisprudential rule18 is that "compulsory counterclaims cannot be adjudicated independently of plaintiff's cause of action," and "a conversu, the dismissal of the complaint carries with it the dismissal of the compulsory counterclaims."19

The matter was elevated to this Court directly by way of a Petition for Review under Rule 45 on a pure question of law, the most relevant being whether the dismissal of the complaint necessarily carries the dismissal of the compulsory counterclaim.

We hold that under Section 3, Rule 17 of the 1997 Rules of Civil Procedure, the dismissal of the complaint due to the fault of plaintiff does not necessarily carry with it the dismissal of the counterclaim, compulsory or otherwise. In fact, the dismissal of the complaint is without prejudice to the right of defendants to prosecute the counterclaim.

On a prefatory note, the RTC, in dismissing the counterclaim, did not expressly adopt respondents' argument that the dismissal of their complaint extended as well to the counterclaim. Instead, the RTC justified the dismissal of the counterclaim on the ground that "there is no opposition to [plaintiff's] Motion for Reconsideration [seeking the dismissal of the counterclaim]."20 This explanation is hollow, considering that there is no mandatory rule requiring that an opposition be filed to a motion for reconsideration without need for a court order to that effect; and, as posited by petitioner, the "failure to file an opposition to the Plaintiff's Motion for Reconsideration is definitely not one among the established grounds for dismissal [of the counterclaim]."21 Still, the dismissal of the counterclaim by the RTC betrays at very least a tacit recognition of respondents' argument that the counterclaim did not survive the dismissal of the complaint. At most, the dismissal of the counterclaim over the objection of the defendant (herein petitioner) on grounds other than the merits of the counterclaim, despite the provisions under Rule 17 of the 1997 Rules of Civil Procedure, constitutes a debatable question of law, presently meriting justiciability through the instant action. Indeed, in reviewing the assailed orders of the RTC, it is inevitable that the Court consider whether the

dismissal of the complaint, upon motion of the defendant, on the ground of the failure to prosecute on plaintiff's part precipitates or carries with it the dismissal of the pending counterclaims.

Our core discussion begins with Section 3, Rule 17 of the 1997 Rules of Civil Procedure, which states:

SEC. 3. Dismissal due to fault of plaintiff. If, for no justifiable cause, the plaintiff fails to appear on the date of the presentation of his evidence in chief on the complaint, or to prosecute his action for an unreasonable length of time, or to comply with these Rules or any order of the court, the complaint may be dismissed upon motion of defendant or upon the court's own motion, without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a separate action. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise declared by the court.

The express qualification in the provision that the dismissal of the complaint due to the plaintiff's fault, as in the case for failure to prosecute, is without prejudice to the right of the defendant to prosecute his counterclaim in the same or separate action. This stands in marked contrast to the provisions under Rule 17 of the 1964 Rules of Court which were superseded by the 1997 amendments. In the 1964 Rules, dismissals due to failure to prosecute were governed by Section 3, Rule 17, to wit:

SEC. 3. Failure to prosecute. - If plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable length of time, or to comply with these rules or any order of the court, the action may be dismissed upon motion of the defendant or upon the court's own motion. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise provided by court.

Evidently, the old rule was silent on the effect of such dismissal due to failure to prosecute on the pending counterclaims. As a result, there arose what one authority on remedial law characterized as "the nagging question of whether or not the dismissal of the complaint carries with it the dismissal of the counterclaim."22 Jurisprudence construing the previous Rules was hardly silent on the matter.

In their arguments before the RTC on the dismissal of the counterclaim, respondents cited in support City of Manila v.

Ruymann,23 Domingo v. Santos,24 Belleza v. Huntington,25 and Froilan v. Pan Oriental Shipping Co.,26 all of which were decided more than five decades

ago. Notably though, none of the complaints in these four cases were dismissed either due to the fault of the plaintiff or upon the instance of the defendant.27

The distinction is relevant, for under the previous and current incarnations of the Rules of Civil Procedure, it is Section 3, Rule 17 that governs the dismissals due to the failure of the plaintiff to prosecute the complaint, as had happened in the case at bar. Otherwise, it is Section 2, Rule 17, which then, and still is now, covered dismissals ordered by the trial court upon the instance of the plaintiff.28 Yet, as will be seen in the foregoing discussion, a discussion of Section 2 cannot be avoided as the postulate behind that provision was eventually extended as well in cases that should have properly been governed by Section 3.

Even though the cases cited by respondents involved different factual antecedents, there exists more appropriate precedents which they could have cited in support of their claim that the counterclaim should have been dismissed even if the dismissal of the complaint was upon the defendants' motion and was predicated on the plaintiff's fault. BA Finance Corp. v. Co29 particularly stands out in that regard, although that ruling is itself grounded on other precedents as well. Elucidation of these cases is in order.

On the general effect of the dismissal of a complaint, regardless of cause, on the pending counterclaims, previous jurisprudence laid emphasis on whether the counterclaim was compulsory or permissive in character. The necessity of such distinction was provided in the 1964 Rules itself, particularly Section 2, Rule 17, which stated that in instances wherein the plaintiff seeks the dismissal of the complaint, "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 by the court."30 The

vaunted commentaries of Chief Justice Moran, remarking on Section 2, Rule 17, noted that "[t]here are instances in which a counterclaim cannot remain pending for independent adjudication, as, where it arises out of, or is necessarily connected with, the transaction or occurrence which is the subject matter of the opposing party's claim."31

This view expressed in Moran's Commentaries was adopted by the Court in cases where the application of Section 2, Rule 17 of the 1964 Rules of Court was called for, such as in Lim Tanhu v. Ramolete,32 and Dalman v. City Court of Dipolog City.33 The latter case warrants brief elaboration. Therein, the

plaintiff in a civil case for damages moved for the withdrawal of her own case on the ground that the dispute had not been referred to the barangay council as required by law. Over the objection of the defendant, who feared that her own counterclaim would be prejudiced by the dismissal, plaintiff's motion was granted, the complaint and the counterclaim accordingly dismissed by the trial court. The Court refused to reinstate the counterclaim, opining without elaboration, "[i]f the civil case is dismissed, so also is the counterclaim filed therein."34 The broad nature of that statement gave rise to the notion that the mandatory

dismissal of the counterclaim upon dismissal of the complaint applied regardless of the cause of the complaint's dismissal.35

Notably, the qualification concerning compulsory counterclaims was provided in Section 2, Rule 17 of the 1964 Rules, the provision governing dismissals by order of the court, and not Section 3, Rule 17. As stated earlier, Section 3, which covered dismissals for failure to prosecute upon motion of the defendant or upon motu proprio action of the trial court, was silent on the effect on the counterclaim of dismissals of such nature.

Spouses Sta. Maria, Jr. v. Court of Appeals,36 decided in 1972, ostensibly supplied the gap on the effect on the counterclaim of complaints dismissed under Section 3. The defendants therein successfully moved before the trial court for the dismissal of the complaint without prejudice and their declaration in default on the counterclaim after plaintiffs therein failed to attend the pre-trial. After favorable judgment was rendered on the counterclaim, plaintiffs interposed an appeal, citing among other grounds, that the counterclaim could no longer have been heard after the dismissal of the complaint. While the Court noted that the adjudication of the counterclaim in question "does not depend upon the adjudication of the claims made in the complaint since they were virtually abandoned by the non-appearance of the plaintiffs themselves," it was also added that "[t]he doctrine invoked is not available to plaintiffs like the petitioners, who prevent or delay the hearing of their own claims and allegations."37 The Court, through Justice JBL Reyes, noted:

The doctrine that the complaint may not be dismissed if the counterclaim cannot be independently adjudicated is not available to, and was not intended for the benefit of, a plaintiff who prevents or delays the prosecution of his own complaint. Otherwise, the trial of counterclaims would be made to depend upon the maneuvers of the plaintiff, and the rule would offer a premium to vexing or delaying tactics to the prejudice of the counterclaimants. It is in the same spirit that we have ruled that a complaint may not be withdrawn over the opposition of the defendant

where the counterclaim is one that arises from, or is necessarily connected with, the plaintiff's action and cannot remain pending for independent adjudication.38

There is no doubt that under the 1964 Rules, the dismissal of a complaint due to the failure of the plaintiff to appear during pre-trial, as what had happened in Sta. Maria, fell within the coverage of Section 3, Rule 17. On the other hand, Section 2 was clearly limited in scope to those dismissals sustained at the instance of the plaintiff.39 Nonetheless, by the early 1990s, jurisprudence was settling on a rule that compulsory counterclaims were necessarily terminated upon the dismissal of the complaint not only if such dismissal was upon motion of the plaintiff, but at the instance of the defendant as well. Two decisions from that period stand out in this regard, Metals Engineering Resources Corp. v. Court of Appeals40 and International Container Terminal Services v. Court of Appeals.41

In Metals, the complaint was expunged from the record after the defendant had filed a motion for reconsideration of a trial court order allowing the filing of an amended complaint that corrected a jurisdictional error in the original complaint pertaining to the specification of the amount of damages sought. When the defendant was nonetheless allowed to present evidence on the counterclaim, the plaintiff assailed such allowance on the ground that the counterclaim was compulsory and could no longer remain pending for independent adjudication. The Court, in finding for the plaintiff, noted that the counterclaim was indeed compulsory in nature, and as such, was auxiliary to the proceeding in the original suit and derived its jurisdictional support therefrom.42 It was further explained that the doctrine was in consonance with the primary objective of a counterclaim, which was to avoid and prevent circuitry of action by allowing the entire controversy between the parties to be litigated and finally determined in one action, and to discourage multiplicity of suits.43 Also, the Court noted that since the complaint was dismissed for lack of jurisdiction, it was as if no claim was filed against the defendant, and there was thus no more leg for the complaint to stand on.44

In International Container, the defendant filed a motion to dismiss which was granted by the trial court. The defendant's counterclaim was dismissed as well. The Court summarized the key question as "what is the effect of the dismissal of a complaint ordered at the instance of the defendant upon a compulsory counterclaim duly raised in its answer."45 Then it ruled that the counterclaim did not survive such dismissal. After classifying the counterclaim therein as compulsory, the Court noted that "[i]t is obvious from the very nature of the counterclaim that it could not remain pending for independent

adjudication, that is, without adjudication by the court of the complaint itself on which the counterclaim was based."46

Then in 1993, a divided Court ruled in BA Finance that the dismissal of the complaint for nonappearance of plaintiff at the pre-trial, upon motion of the defendants, carried with it the dismissal of their compulsory counterclaim.47 The Court reiterated the rule that "a compulsory counterclaim cannot remain pending for independent adjudication by the court' as it is auxiliary to the proceeding in the original suit and merely derives its jurisdictional support therefrom."48 Express reliance was made on Metals, International Container, and even Dalman in support of the majority's thesis. BA Finance likewise advised that the proper remedy for defendants desirous that their counterclaims not be dismissed along with the main complaint was for them to move to declare the plaintiffs to be "non-suited" on their complaint and "as in default" on their compulsory counterclaim, instead of moving for the dismissal of the complaint.49

Justice Regalado, joined by Chief Justice Narvasa, registered a strong objection to the theory of the majority. They agreed that the trial court could no longer hear the counterclaim, but only on the ground that defendant's motion to be allowed to present evidence on the counterclaim was filed after the order dismissing the complaint had already become final. They disagreed however that the compulsory counterclaim was necessarily dismissed along with the main complaint, pointing out that a situation wherein the dismissal of the complaint was occasioned by plaintiff's failure to appear during pre-trial was governed under Section 3, Rule 17, and not Section 2 of the same rule. Justice Regalado, who ironically penned the decision in Metals cited by the majority, explained:

Turning back to Rule 17, it is readily apparent that Sections 2 and 3 thereof envisage different factual and adjective situations. The dismissal of the complaint under Section 2 is at the instance of plaintiff, for whatever reason he is minded to move for such dismissal, and, as a matter of procedure, is without prejudice unless otherwise stated in the order of the court or, for that matter, in plaintiff's motion to dismiss his own complaint. By reason thereof, to curb any dubious or frivolous strategy of plaintiff for his benefit or to obviate possible prejudice to defendant, the former may not dismiss his complaint over the defendant's objection if the latter has a compulsory counterclaim since said counterclaim would necessarily be divested of juridical basis and defendant would be deprived of possible recovery thereon in that same judicial proceeding.

Section 3, on the other hand, contemplates a dismissal not procured by plaintiff, albeit justified by causes imputable to him and which, in the present case, was petitioner's failure to appear at the pre-trial. This situation is also covered by Section 3, as extended by judicial interpretation, and is ordered upon motion of defendant or motu proprio by the court. Here, the issue of whether defendant has a pending counterclaim, permissive or compulsory, is not of determinative significance. The dismissal of plaintiff's complaint is evidently a confirmation of the failure of evidence to prove his cause of action outlined therein, hence the dismissal is considered, as a matter of evidence, an adjudication on the merits. This does not, however, mean that there is likewise such absence of evidence to prove defendant's counterclaim although the same arises out of the subject matter of the complaint which was merely terminated for lack of proof. To hold otherwise would not only work injustice to defendant but would be reading a further provision into Section 3 and wresting a meaning therefrom although neither exists even by mere implication. Thus understood, the complaint can accordingly be dismissed, but relief can nevertheless be granted as a matter of course to defendant on his counterclaim as alleged and proved, with or without any reservation therefor on his part, unless from his conduct, express or implied, he has virtually consented to the concomitant dismissal of his counterclaim.50

Justice Regalado also adverted to Sta. Maria and noted that the objections raised and rejected by the Court therein were the same as those now relied upon by the plaintiff. He pointed out that Dalman and International Container, both relied upon by the majority, involved the application of Section 2, Rule 17 and not Section 3, which he insisted as the applicable provision in the case at bar.51

The partial dissent of Justice Regalado in BA Finance proved opportune, as he happened then to be a member of the Rules of Court Revision Committee tasked with the revision of the 1964 Rules of Court. Just a few months after BA Finance was decided, Justice Regalado proposed before the Committee an amendment to Section 3, Rule 17 that would explicitly provide that the dismissal of the complaint due to the fault of the plaintiff shall be "without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a separate action." The amendment, which was approved by the Committee, is reflected in the minutes of the meeting of the Committee held on 12 October 1993:

[Justice Regalado] then proposed that after the words "upon the court's own motion" in the 6th line of the draft in Sec. 3 of Rule 17, the following provision be inserted: "without prejudice to the right of the defendant to prosecute

his counterclaim in the same or in a separate action." The Committee agreed with the proposed amendment of Justice Regalado.

Justice Herrera observed that under Secs. 1 to 3 of Rule 17, it is not the action that is dismissed but the complaint. He asked whether there is any distinction between "complaint" and "action." Justice Regalado opined that the action of the plaintiff is initiated by his complaint.

Justice Feria then suggested that the dismissal be limited to the complaint[.] Thus, in the 1st line of Sec. 1, the words "An action" will be changed to "a complaint"; in the 2nd line of Sec. 2, the words "an action" will be changed to "a complaint" and in Sec. 3, the word "action" on the 5th line of the draft will be changed to "complaint." The Committee agreed with Justice Feria's suggested amendments.

CA Pao believed that there is a need to clarify the counterclaim that the defendant will prosecute, whether it is permissive or compulsory or all kinds of counterclaims.

Justice Regalado opined that there is no need of making a clarification because it is already understood that it covers both counterclaims.52

It is apparent from these minutes that the survival of the counterclaim despite the dismissal of the complaint under Section 3 stood irrespective of whether the counterclaim was permissive or compulsory. Moreover, when the Court itself approved the revisions now contained in the 1997 Rules of Civil Procedure, not only did Justice Regalado's amendment to Section 3, Rule 17 remain intact, but the final version likewise eliminated the qualification formerly offered under Section 2 on "counterclaims that can remain pending for independent adjudication by the court."53 At present, even Section 2, concerning dismissals on motion of the plaintiff, now recognizes the right of the defendant to prosecute the counterclaim either in the same or separate action notwithstanding the dismissal of the complaint, and without regard as to the permissive or compulsory nature of the counterclaim.

In his commentaries on the 1997 Rules of Civil Procedure, Justice Regalado expounds on the effects of the amendments to Section 2 and 3 of Rule 17:

2. Under this revised section [2], where the plaintiff moves for the dismissal of his complaint to which a counterclaim has been interposed, the dismissal shall be limited to the complaint. Such dismissal shall be without prejudice to the right of the defendant to either prosecute his counterclaim in a separate action or to have the same resolved in the same action. Should he opt for the first

alternative, the court should render the corresponding order granting and reserving his right to prosecute his claim in a separate complaint. Should he choose to have his counterclaim disposed of in the same action wherein the complaint had been dismissed, he must manifest such preference to the trial court within 15 days from notice to him of plaintiff's motion to dismiss. These alternative remedies of the defendant are available to him regardless of whether his counterclaim is compulsory or permissive. A similar alternative procedure, with the same underlying reason therefor, is adopted in Sec. 6, Rule 16 and Sec. 3 of this Rule, wherein the complaint is dismissed on the motion of the defendant or, in the latter instance, also by the court motu proprio.

x x x x

2. The second substantial amendment to [Section 3] is with respect to the disposition of the defendant's counterclaim in the event the plaintiff's complaint is dismissed. As already observed, he is here granted the choice to prosecute that counterclaim in either the same or a separate action. x x x x

3. With the aforestated amendments in Secs. 2 and 3 laying down specific rules on the disposition of counterclaims involved in the dismissal actions, the controversial doctrine in BA Finance Corporation v. Co, et al., (G.R. No. 105751, June 30, 1993) has been abandoned, together with the apparent confusion on the proper application of said Secs. 2 and 3. Said sections were distinguished and discussed in the author's separate opinion in that case, even before they were clarified by the present amendments x x x.54

Similarly, Justice Feria notes that "the present rule reaffirms the right of the defendant to move for the dismissal of the complaint and to prosecute his counterclaim, as stated in the separate opinion [of Justice Regalado in BA Finance.]"55 Retired Court of Appeals Justice Herrera pronounces that the amendment to Section 3, Rule 17 settles that "nagging question" whether the dismissal of the complaint carries with it the dismissal of the counterclaim, and opines that by reason of the amendments, the rulings in Metals Engineering, International Container, and BA Finance "may be deemed abandoned."56 On the effect of amendment to Section 3, Rule 17, the commentators are in general agreement,57 although there is less unanimity of views insofar as Section 2, Rule 17 is concerned.58

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 are inconsistent with this present holding are now abandoned.

Accordingly, the RTC clearly erred when it ordered the dismissal of the counterclaim, since Section 3, Rule 17 mandates that the dismissal of the complaint is without prejudice to the right of the defendant to prosecute the counterclaim in the same or separate action. If the RTC were to dismiss the counterclaim, it should be on the merits of such counterclaim. Reversal of the RTC is in order, and a remand is necessary for trial on the merits of the counterclaim.

It would be perfectly satisfactory for the Court to leave this matter at that. Still, an explanation of the reason behind the new rule is called for, considering that the rationale behind the previous rule was frequently elaborated upon.

Under Act No. 190, or the Code of Procedure in Civil Actions promulgated in 1901, it was recognized in Section 127(1) that the plaintiff had the right to seek the dismissal of the complaint at any time before trial, "provided a counterclaim has not been made, or affirmative relief sought by the cross-complaint or answer of the defendant."59 Note that no qualification was made then as to the nature of the counterclaim, whether it be compulsory or permissive. The protection of the defendant's right to prosecute the counterclaim was indeed unqualified. In City of Manila, decided in 1918, the Court explained:

By paragraph 1 [of Section 127], it will be seen that, where the defendant has interposed a counterclaim, or is seeking affirmative relief by a cross-complaint, that then, and in that case, the plaintiff cannot dismiss the action so as to affect the right of the defendant in his counterclaim or prayer for affirmative relief. The reason for that exception is clear. When the answer sets up an independent action against the plaintiff, it then becomes an

action by the defendant against the plaintiff, and, of course, the plaintiff has no right to ask for a dismissal of the defendant's action.60

Nonetheless, a new rule was introduced when Act No. 190 was replaced by the 1940 Rules of Court. Section 2, Rule 30 of the 1940 Rules specified that if a counterclaim is pleaded by a defendant prior to the service 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 by the court. This qualification remained intact when the 1964 Rules of Court was introduced.61 The rule referred only to compulsory counterclaims, or counterclaims which arise out of or are necessarily connected with the transaction or occurrence that is the subject matter of the plaintiff's claim, since the rights of the parties arising out of the same transaction should be settled at the same time.62 As was evident in Metals, International Container and BA Finance, the rule was eventually extended to instances wherein it was the defendant with the pending counterclaim, and not the plaintiff, that moved for the dismissal of the complaint.

We should not ignore the theoretical bases of the rule distinguishing compulsory counterclaims from permissive counterclaims insofar as the dismissal of the action is concerned. There is a particular school of thought that informs the broad proposition in Dalman that "if the civil case is dismissed, so also is the counterclaim filed therein,"63 or the more nuanced discussions offered in Metals, International Container, and BA Finance. The most potent statement of the theory may be found in Metals,64 which proceeds from the following fundamental premises'a compulsory counterclaim must be set up in the same proceeding or would otherwise be abated or barred in a separate or subsequent litigation on the ground of auter action pendant, litis pendentia or res judicata; a compulsory counterclaim is auxiliary to the main suit and derives its jurisdictional support therefrom as it arises out of or is necessarily connected with the transaction or occurrence that is the subject matter of the complaint;65 and that if the court dismisses the complaint on the ground of lack of jurisdiction, the compulsory counterclaim must also be dismissed as it is merely ancilliary to the main action and no jurisdiction remained for any grant of relief under the counterclaim.

The first point is derived from Section 4, Rule 9, of the 1964 Rules of Court, while the two latter points are sourced from American jurisprudence. There is no disputing the theoretical viability of these three points. In fact, the requirement that the compulsory counterclaim must be set up in the same proceeding remains extant under the 1997 Rules of Civil Procedure.66 At the same time, other considerations rooted in actual practice provide a counterbalance to the above-cited rationales.

Whatever the nature of the counterclaim, it bears the same integral characteristics as a complaint; namely a cause (or causes) of action constituting an act or omission by which a party violates the right of another. The main difference lies in that the cause of action in the counterclaim is maintained by the defendant against the plaintiff, while the converse holds true with the complaint. Yet, as with a complaint, a counterclaim without a cause of action cannot survive.

It would then seemingly follow that if the dismissal of the complaint somehow eliminates the cause(s) of the counterclaim, then the counterclaim cannot survive. Yet that hardly is the case, especially as a general rule. More often than not, the allegations that form the counterclaim are rooted in an act or omission of the plaintiff other than the plaintiff's very act of filing the complaint. Moreover, such acts or omissions imputed to the plaintiff are often claimed to have occurred prior to the filing of the complaint itself. The only apparent exception to this circumstance is if it is alleged in the counterclaim that the very act of the plaintiff in filing the complaint precisely causes the violation of the defendant's rights. Yet even in such an instance, it remains debatable whether the dismissal or withdrawal of the complaint is sufficient to obviate the pending cause of action maintained by the defendant against the plaintiff.67

These considerations persist whether the counterclaim in question is permissive or compulsory. A compulsory counterclaim arises out of or is connected with the transaction or occurrence constituting the subject matter of the opposing party's claim, does not require for its adjudication the presence of third parties, and stands within the jurisdiction of the court both as to the amount involved and the nature of the claim.68 The fact that the culpable acts on which the counterclaim is based are founded within the same transaction or occurrence as the complaint, is insufficient causation to negate the counterclaim together with the complaint. The dismissal or withdrawal of the complaint does not traverse the boundaries of time to undo the act or omission of the plaintiff against the defendant, or vice versa. While such dismissal or withdrawal precludes the pursuit of litigation

by the plaintiff, either through his/her own initiative or fault, it would be iniquitous to similarly encumber the defendant who maintained no such initiative or fault. If the defendant similarly moves for the dismissal of the counterclaim or neglects to timely pursue such action, let the dismissal of the counterclaim be premised on those grounds imputable to the defendant, and not on the actuations of the plaintiff.

The other considerations supplied in Metals are anchored on the premise that the jurisdictional foundation of the counterclaim is the complaint itself. The theory is correct, but there are other facets to this subject that should be taken into account as well. On the established premise that a counterclaim involves separate causes of action than the complaint even if derived from the same transaction or series of transactions, the counterclaim could have very well been lodged as a complaint had the defendant filed the action ahead of the complainant.69 The terms "ancillary" or "auxiliary" may mislead in signifying that a complaint innately possesses more credence than a counterclaim, yet there are many instances wherein the complaint is trivial but the counterclaim is meritorious. In truth, the notion that a counterclaim is, or better still, appears to be merely "ancillary" or "auxiliary" is chiefly the offshoot of an accident of chronology, more than anything else.

The formalistic distinction between a complaint and a counterclaim does not detract from the fact that both of them embody causes of action that have in their end the vindication of rights. While the distinction is necessary as a means to facilitate order and clarity in the rules of procedure, it should be remembered that the primordial purpose of procedural rules is to provide the means for the vindication of rights. A party with a valid cause of action against another party cannot be denied the right to relief simply because the opposing side had the good fortune of filing the case first. Yet this in effect was what had happened under the previous procedural rule and correspondent doctrine, which under their final permutation, prescribed the automatic dismissal of the compulsory counterclaim upon the dismissal of the complaint, whether upon the initiative of the plaintiff or of the defendant.

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.

WHEREFORE, the petition is GRANTED. The Orders dated 9 August 2005 and 10 October 2005 of Branch 29, Regional Trial Court of San Miguel, Zamboanga del Sur in Civil Case No. 98-012 are SET ASIDE. Petitioner's counterclaim as defendant in Civil Case. No. 98-012 is REINSTATED. The

Regional Trial Court is ORDERED to hear and decide the counterclaim with deliberate dispatch.

SO ORDERED.

!FILINVEST LAND, INC., Petitioner,

- versus -

HON. COURT OF APPEALS and ROMEO, ANTONIO, JOSEFINA, RICARDO (JR.), all surnamed ALVAREZ and VENANCIA R. Vda. de ALVAREZ, for herself as guardian ad litem for her minor children, RAMON, VERONICA, and FLORDELIZA, all surnamed ALVAREZ, and as necessary and indispensable party plaintiffs JAIME, VICTORIA, and MANUEL, all surnamed ALVAREZ, and ROSARIO PARAM Vda. de ALVAREZ,

Respondents. !G. R. No. 142439 !Promulgated: December 6, 2006 x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Court, as amended, seeking to set aside a Decision[1] of the Court of Appeals dated 11 November 1998 in CAG.R. SP No. 48396 annulling the sale of a parcel of land specified as Lot No. 329, GSS-877 of the Laguna Resettlement Project, to the late Ricardo Alvarez and the subsequent transfers to Mercedes Oliver and petitioner Filinvest Land Inc. (Filinvest); and the reversion of the subject property to the ownership of the government. The Court of Appeals in its assailed Decision affirmed the Decision[2] of the

Department of Agrarian Reform Adjudication Board (DARAB) dated 1 July 1998.

The subject matter in this case is a parcel of land registered as Lot No. 329 of the Laguna Resettlement Project, located in Barrio San Vicente, San Pedro, Laguna, with an area of 16,495 square meters. The Department of Agrarian Reform (DAR) awarded to Ricardo Alvarez the right to purchase the land in question, pursuant to an Order of Award dated 9 October 1973.[3] On 15 August 1977, Ricardo Alvarez, with the consent of his wife, respondent Rosario Param, purchased the land, evidenced by a Deed of Sale executed by the DAR.[4] This Deed of Sale specifically prohibited the transfer of the land within ten (10) years from the issuance of the certificate of title to any person other than the vendees relatives within the third civil degree by consanguinity or affinity who are, at the same time, qualified beneficiaries.[5] This restriction was in accordance with Section 62 of Republic Act No. 3844, or the Agricultural Land Reform Code.[6]

However, pending the issuance of the certificate of title of the said

land, Presidential Decree No. 1474, Declaring the San Pedro Tunasan Estate (also known as the Laguna Resettlement Project) of the Department of Agrarian Reform Suitable for Residential, Commercial, or Industrial, or other Non-Agricultural Purposes, was enacted on 11 June 1978 and published in the Official Gazette on 27 November 1978. This effectively repealed the ten-year prohibition on the transfer of agrarian lands situated in the Laguna Resettlement Project. Presidential Decree No. 1474 provided that:

Section 1. The Department of Agrarian Reform, as Administrator of the San Pedro Tunasan Estate, is hereby ordered to convert such estate into a commercial, industrial and residential site and to transfer the same to the National Housing Authority.

Section 2. Individuals who have

legally acquired farm lots in the Estate under Orders of Award or Certificates of Land Transfer or Agreement to Sell or Deeds of Sale, may sell or transfer their lots covered thereby or convert the same for the purposes mentioned in Section 1 hereof.

The Register of Deeds of the Province of Laguna issued Transfer Certificate of Title (TCT) No. 62731, covering the subject land, in the name of Ricardo Alvarez on 25 May 1979. On 10 June 1979, only 16 days after the title was issued, Ricardo Alvarez and his wife, Rosario Param, sold the said land to Mercedes Oliver for Ten Thousand Pesos (P10, 000.00). Oliver was not a relative within the third degree of consanguinity and had no capacity to personally cultivate the land, as required of a qualified beneficiary. Thus, TCT No. 62731 was cancelled, and TCT No. 64967 was issued in the name of Mercedes Oliver.[7]

On 22 December 1989, Mercedes Oliver sold the subject land to

Filinvest, resulting in the issuance of TCT No. 201836 on 23 January 1990 in the name of Filinvest.[8]

On 7 March 1982, the heirs of the late Ricardo Alvarez filed a case

for reconveyance, redemption and damages against Mercedes Oliver, Avelino Ramos and Jose Nunez, before the Regional Trial Court (RTC) of Bian, Laguna.[9] Respondents filed an Amended Complaint for Annulment of Title with Reconveyance, dated 4 December 1985, wherein they claim that the sale of the subject land was made without their knowledge, and it was only in the 1980s that they learned of such sale. They alleged that their mother and father, both illiterate, were deceived by the defendants into executing the Deed of Sale covering the subject land in favor of Mercedes Oliver. Respondents also argued that such sale was void since the Deed of Sale was executed in violation of the law which enjoins the sale of the subject land.[10] This case was, however, dismissed for failure of the respondents and counsel to appear during the hearing for the reception of their evidence, despite due notice and after eight postponements[11]. The RTC, in its Order,[12] dated 17 February 1989, ruled that:

Further considering that without the

evidence of said witness and the plaintiffs not having presented any evidence on record, upon motion of counsel for defendants that this case be dismissed and further manifestation by the defendants that they are waiving their right to a counterclaim, the Court hereby orders the dismissal of this case (both the complaint and counterclaim).

Let copy of this Order be furnished

party plaintiff.

The order became final and executory when the respondents failed to file a motion for reconsideration of this Order, despite receipt thereof.[13]

On 26 March 1990, respondents filed a complaint against Mercedes Oliver and Filinvest before the Provincial Agrarian Reform Adjudication (PARAD) of Sta. Cruz, Laguna, seeking to annul the Deed of Sale between the Spouses Alvarez and Mercedes Oliver and the subsequent transfer between Mercedes Oliver and Filinvest, on grounds similar to the complaint filed before the RTC of Bian. They also sought the issuance of a restraining order enjoining Filinvest from bulldozing the subject land, which was occupied and cultivated by the respondents. Mercedes Oliver filed a Motion to Dismiss on the grounds of res judicata and that the PARAD had no jurisdiction over the subject matter of the case. Filinvest similarly filed a motion to dismiss on the grounds of res judicata and laches. It also alleged, in its defense, that it was a purchaser for value and in good faith. In its Position Paper, Filinvest likewise asserted that the restriction against selling the subject land within ten years, provided under the Deed of Sale executed by DAR in favor of the Spouses Alvarez had already been superseded by Presidential Decree No. 1474, which took effect in 1978.[14]

On 25 August 1993, the PARAD of Sta. Cruz, Laguna, dismissed

the complaint on the ground of res judicata. Moreover, it ruled that the sale between the Spouses Alvarez and Mercedes Oliver was valid.[15] The dispositive part of this Decision[16] reads:

WHEREFORE, in view therefrom,

Judgment is hereby rendered dismissing the instant case for lack of merit.

On appeal, the DARAB reversed and set aside the Decision dismissing the complaint, and ordered the reversion of the subject property to the government. The dispositive portion of the said Order,[17] dated 1 July 1998 reads:

WHEREFORE, premises considered,

the challenged decision dated August 25, 1993 is hereby REVERSED and SET ASIDE and a new judgment is hereby rendered as follows:

1. Annulling the transfer of the land in

question to the late Ricardo Alvarez and its subsequent transfers to defendant Mercedes

O l i ve r and de fendan t F i l i nves t Land Incorporated;

2. Ordering the cancellation of

Transfer Certificate of Title No. 201836, covering the subject land, issued by the Register of Deeds for the Province of Laguna, Calamba branch, in the name of defendant Filinvest; and 3. Directing the Register of Deeds for the Province of Laguna, Calamba branch, to issue in lieu of TCT No. 201836, a Certificate of Title in the name of the Republic of the Philippines, through DAR, for distribution to qualified farmer-beneficiary in accordance with Administrative Order No. 01, Series of 1992, which is the Revised Rules and Procedures Governing the Disposition of Homelots and other Lots in Barangay Sites and Residential, Commercial, and Industrial Lots in Townsites within DAR Settlement Project and Similar Other Areas under DAR Jurisdiction.

The DARAB ruled, too, that res judicata as a bar against filing a complaint with the PARAD is not applicable in this case since there was no adjudication of the merits before the RTC of Bian.

The DARAB considered as self-serving and unsupported by evidence the allegations of the respondents that the consent of the Spouses Alvarez was obtained through fraud in connection with the sale made in favor of Mercedes Oliver. It also ruled that the sale between Ricardo Alvarez and Mercedes Oliver was a violation of the ten-year prohibition against the transfer of the land imposed by the Deed of Sale between the government and Ricardo Alvarez, in accordance with Section 62 of Republic Act No. 3844. Such act rendered the Deed of Sale executed by the DAR in favor of Ricardo Alvarez void, and, therefore, the subsequent transfers to Mercedes Oliver and Filinvest were, likewise, void.[18]

In negating Filinvests claim that Presidential Decree No. 1474 has

superseded Section 62 of Republic Act No. 3844, the DARAB cited the case of Tipon v. Intermediate Appellate Court,[19] where the Court upheld the validity of the ten-year prohibition on the transfer of land given by the

government to farmer-beneficiaries. The DARAB added that the restriction on transfer of land is contained in our present agrarian laws, particularly Republic Act No. 6675.[20]

The petitioners then filed a Petition for Certiorari under Section 43

of the 1997 Rules of Court before the Court of Appeals, but on 11 November 1998, the appeal was again dismissed for lack of merit and the assailed Decision of the DARAB was affirmed. [21]

The petitioners filed a Motion for Reconsideration, which was

subsequently denied in a Resolution dated 8 February 1999.[22] Hence this petition, wherein Filinvest raised the following issues:

I

WHETHER OR NOT THE COURT OF A P P E A L S G R AV E LY A B U S E D I T S DISCRETION AND COMMITTED REVERSIBLE ERROR IN HOLDING THAT THE SALE OF THE SUBJECT PARCEL OF LAND BY RICARDO ALVAREZ TO MERCEDES OLIVER VIOLATED THE TRANSFER RESTRICTION CONTAINED IN THE PRIOR DEED OF SALE OF THE SAME PROPERTY EXECUTED BY THE DEPARTMENT OF AGRARIAN REFORM IN FAVOR OF RICARDO ALVAREZ AND SECTION 62, ARTICLE II, CHAPTER III OF REPUBLIC ACT NO. 3844

II

WHETHER OR NOT THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED REVERSIBLE ERROR IN APPLYING SECTION 1 (C), RULE II OF THE NEW RULES OF PROCEDURE OF THE DEPARTMENT OF AGRARIAN REFORM A D J U D I C AT I O N B O A R D ( D A R A B ) , CONFERRING JURISDICTION OF THE DARAB OVER THE INSTANT CASE, IN DISREGARD OF THE PROVISIONS OF PRESIDENTIAL DECREE NO. 1474

III

WHETHER OR NOT THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED REVERSIBLE ERROR IN RULING THAT THE DOCTRINE OF RES JUDICATA DOES NOT APPLY TO BAR RESPONDENTS COMPLAINT IN DARAB CASE NO. IV-032-L

IV

WHETHER OR NOT THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED REVERSIBLE ERROR IN NOT RULING THAT PETITIONER IS A BUYER IN GOOD FAITH WHO SHOULD BE ENTITLED TO PROTECTION AGAINST THE ALLEGED CLAIM OF THE RESPONDENT HEREIN, PURSUANT TO THIS HONORABLE COURTS RULING IN AGRICULTURAL AND HOME EXTENSION DEVELOPMENT GROUP VS. COURT OF APPEALS, ET AL., G.R. NO. 92319, SEPTEMBER 3, 1992[23]

This petition is meritorious.

The first issue raised by Filinvest is whether the sale between Ricardo Alvarez and Mercedes Oliver was void because it violated the prohibitory condition contained in the Deed of Sale between Ricardo Alvarez and the Government, to wit:

2. That from the date of the pertinent Order of Award and within TEN (10) years from the date of issuance by the proper Register of Deeds of the certificate of title, the land subject hereof shall not, except by hereditary succession, be subdivided, sold o r in any manner t rans fe r red o r encumbered except in favor of any of the VENDEES relative within the third civil

degree by consanguinity or affinity who fulfill the four (4) requirements in Section 6 Land Authority Administrative Order No. 4, Series of 1967, or in favor of the Government and its financial or banking institutions or rural banks, and only upon prior written consent of the Secretary of the Department of Agrarian Reform; and any sale, transfer, encumberance or alienation made in violation hereof shall be null and void: x x x[24]

This condition is in accordance with Section 62 of Republic Act No. 3844, The Agricultural Land Reform Code, which provided that:

Section 62. Limitation on Land Rights. - Except in case of hereditary succession by one heir, landholdings acquired under this Code may not be resold, mortgaged, encumbered, or transferred until after the lapse of ten years from the date of full payment and acquisition and after such ten-year period, any transfer, sale or disposition may be made only in favor of persons qualified to acquire economic family-size farm units in accordance with the provisions of this Code: Provided, That a purchaser who acquired his landholding under a contract to sell may secure a loan on the same from any private lending institution or individual for an amount not exceeding his equity on said landholding upon a guaranty by the Land Bank.

Filinvest, however, contends that these restrictions were already

revoked by the issuance of Presidential Decree No. 1474, Declaring the San Pedro Tunasan Estate of the Department of Agrarian Reform Suitable for Residential, Commercial or Industrial, or Other Non-Agricultural Purposes. This law reclassifies the San Pedro Tunasan Estate, known as and hereinafter referred to as the Laguna Resettlement Project, into a commercial, industrial and residential site as it is no longer conducive to agricultural development.

The position taken by Filinvest is justified. Section 2 of Presidential Decree No. 1474[25] categorically empowers individuals who have legally

acquired lots in the (San Pedro Tunasan) Estate under Orders of Awards or Deeds of Sale, among others things, to sell or transfer their lots covered thereby. Therefore, transfers of land located within the Laguna Resettlement Project, made after the law took effect, are valid and the restriction on transfer of the land within ten years after its registration is no longer applicable.

In the present case, the government, through the DAR had already issued an Order of Award and a Deed of Sale in favor of Ricardo Alvarez covering a parcel of land located within the Laguna Resettlement Project, when Presidential Decree No. 1474 was enacted on 11 June 1978. In 1979, Alvarez, with the consent of his spouse, Rosario Param, transferred the same parcel of land to Mercedes Oliver. Such transfer was clearly sanctioned. As earlier adverted to, Section 2 of Presidential Decree No. 1474 revoked the application of Section 62 of Republic Act No. 3844 and the condition prohibiting the transfer of the land contained in the Deed of Sale executed by the DAR in favor of Alvarez, in so far as land within the Laguna Resettlement Project was concerned. Since the transfer made by Ricardo Alvarez to Mercedes Oliver was valid, the subsequent transfer made by Mercedes Oliver to Filinvest is also valid.

DARABs reliance on the ruling of the Court in Tipon v.

Intermediate Appellate Court,[26] upholding the ten-year prohibition on the transfer of land distributed by the government in favor of its beneficiaries, is misplaced. This case is not applicable for it did not take into account Presidential Decree No. 1474 because of different factual circumstances. It is true that the Tipon case shares some similarities with the present case - the subject property was part of the Laguna Resettlement Project, and the Deed of Sale between the DAR and the farmer-beneficiary, Renato Tipon, was executed before the enactment of Presidential Decree No. 1474 in 1978. However, there is a crucial difference. Unlike the present case where the subsequent transfer by the farmer-beneficiary, Ricardo Alvarez, to Mercedes Oliver was made in 1979 after Presidential Decree No. 1474 took effect, the subsequent transfer by farmer-beneficiary Renato Tipon to Atty. Umiral Matic, was made in 1976 before the enactment of Presidential Decree No. 1474. The factual background of the Tipon case, as recounted by the Court, are thus:

Petitioner Renato Tipon acquired the

lot in question (Lot No. 386 of the Laguna Settlement Project) from the government by virtue of a Deed of Sale executed in his favor by the Department of Agrarian Reform on

November 23, 1976, for the price of P1,251.20. x x x.

x x x x

On the day the Deed of Sale was executed in his favor, Tipon filed a request with the Department of Agrarian Reform for permission to transfer his rights and interest over the lot in question in favor of Atty. Umiral P. Matic (respondent herein). This request was granted by the Regional Director of Region IV of the Department of Agrarian Reform on December 9, 1976 subject to the condition that the Deed of Transfer is submitted to this department for verification and final approval. On December 10, 1976, Tipon submitted the Deed of Absolute Sale in favor of Matic for approval and, on the same day, it was approved by the Regional Director of Region IV of the Department of Agrarian Reform. Thereafter, Matic caused the titling of the property in the name of Tipon to whom was issued Transfer Certificate of Title No. 50617 and later, had the same transferred to his name under Transfer Certificate of Title No. 53850 dated July 12, 1977, of the Registry of Deeds for the Province of Laguna.[27]

A basic principle of statutory construction mandates that general legislation must give way to special legislation on the same subject, and generally be so interpreted as to embrace only cases in which the special provisions are not applicable.[28] There is no question that Section 2 of Presidential Decree No. 1474 is inconsistent with Section 62 of Republic Act No. 3844. The former authorizes the sale or transfer of agricultural lands within the Laguna Resettlement Project, while the latter law prohibits the transfer of agricultural lands distributed by the government to farmer-beneficiaries, at least for a limited period. Presidential Decree No. 1474 as a special law should govern lands within the Laguna Resettlement Project, while Republic Act No. 3844 is a law generally applied to agrarian lands.

The second issue Filinvest raised is whether the DARAB had jurisdiction over a case involving the subject land. Rule II, Section 1, of the DARAB Revised Rules of Procedure provides that the DARAB shall have primary jurisdiction, both original and appellate over:

(c) Cases involving the annulment or cancellation of orders or decisions of DAR officials other than the Secretary, lease contracts or deeds of sale or their amendments under the administration and disposition of the DAR and LBP; x x x.

However, Filinvest argued that under Section 1 of Presidential Decree No. 1474, the Laguna Resettlement Project was no longer agricultural land but was effectively converted into a commercial, industrial and residential site, and was therefore outside the jurisdiction of the DARAB. Section 1 of Presidential Decree No. 1474 reads:

Section 1. The Department of Agrarian Reform, as Administrator of the San Pedro Tunasan Estate, is hereby ordered to convert such estate into a commercial, industrial and residential site and to transfer the same to the National Housing Authority.

From the aforecited provision, it is clear that the DAR had lost

jurisdiction over government lands located in the Laguna Resettlement Project formerly under its administration which it was ordered to transfer to the National Housing Authority (NHA). More importantly, the DARAB can no longer annul the Deed of Sale between the government and Ricardo Alvarez, or the subsequent transfers, on the ground that Alvarez violated Section 62 of Republic Act No. 3844 and the conditions laid down in the Deed of Sale regarding the ten-year restriction on the transfer of the same land. At that time, the transfer between Alvarez and Oliver was made, these aforementioned rules were repealed by the provisions of Presidential Decree No. 1474. These rules were no longer applicable to the land in question, as it was no longer under the administration of the DAR nor agrarian in character. The validity of the subsequent transfer of the subject land between Ricardo Alvarez and Mercedes Oliver, or even the later transfer between Mercedes Oliver and Filinvest, was no longer subject to agrarian laws, as the land was already commercial, industrial, or residential in nature at the time of the transfer. Therefore, any proceeding which attacks the validity of the subsequent transfers are within the jurisdiction of regular courts.

Clearly, the respondents filed the case before the PARAD, not

because the case involved a dispute that would be properly resolved by the PARAD, but because they were already barred from filing the case before the proper forum. The allegations and relief found in the Complaint filed by the respondents before the PARAD are conspicuously similar to those in the Amended Complaint which they had earlier filed before the trial court of Bian.[29] As earlier discussed, the trial court ordered the dismissal of the case for failure to prosecute. When the respondents failed to file a motion for reconsideration, despite due notice, such order became final.

This Court cannot countenance the party-litigants recourse to such

measures. The foundation principle upon which the doctrine of res judicata rests is that parties should not be permitted to litigate the same issue more than once. When a right or fact has been judicially tried and determined by a court of competent jurisdiction, or an opportunity for such trial has been given, the judgment of the court, so long as it is not reversed, should be conclusive upon the parties and those in privity with them in law or estate.[30]

The following requisites must concur in order that a prior judgment may bar a subsequent action: (1) the former judgment or order must be final; (2) it must be a judgment or order on the merits, that is, it was rendered after a consideration of the evidence or stipulations submitted by the parties at the trial of the case; (3) it must have been rendered by a court having jurisdiction over the subject matter and the parties; and (4) there must be, between the first and second actions, identity of parties, of subject matter and of cause of action. [31]

A perusal of the records easily shows that the first, third and fourth

requirements have been complied with in this case. The Order rendered by Branch XXIV of the RTC of Bian, dated 17 February 1989, dismissing the case, is clearly final, as it disposed of all the rights and obligations of the parties before it.[32] There was never any question raised on the jurisdiction of Branch XXIV of the RTC to hear and decide the question of whether the sale executed between Ricardo Alvarez and Mercedes Oliver was valid. It is also obvious that the allegations of the respondents in their Amended Complaint filed before the RTC of Bian are substantially identical to the Complaint filed before the PARAD; involved the same subject matter, and raised the same causes of action.[33] Filinvest was named as a party only in the complaint before the PARAD, since it acquired the property from Mercedes Oliver only on 22 December 1989,[34] after the case before the RTC was dismissed on 17 February 1997. Moreover, the fact that its predecessor-in interest, Mercedes Oliver, was a party in the case filed before

the RTC of Bian satisfies the requirement on the identity of parties. In the case of Camara v. Court of Appeals,[35] this Court has ruled that, [t]here is identity of parties not only where the parties are the same, but also those in privity with them, as between their successors-in-interest by title subsequent to the commencement of the action, litigating for the same thing and under the same title and in the same capacity.

The only contention between the parties was whether the second requirement, that the decision or order must have been based on the merits of the case, was met. In situations contemplated in Section 3, Rule 17 of the Rules of Court,[36] where a complaint is dismissed for failure of the plaintiff to comply with a lawful order of the court, such dismissal has the effect of an adjudication upon the merits.[37] A dismissal for failure to prosecute has the effect of an adjudication on the merits, and operates as res judicata, particularly when the court did not direct that the dismissal was without prejudice.[38]

Having complied with the four requisites needed for the doctrine of

res judicata to operate, the Order rendered by the RTC of Bian dismissing Civil Case No. B-1941 finally determined the ownership of the subject land, the heirs of the late Ricardo Alvarez, Mercedes Oliver, and her successor-in-interest, Filinvest, as no motion for reconsideration on this Order was filed. Moreover, this would bar any dispute over the subject land from being brought before any judicial forum. Rule 39, Section 47 of the Rules of Court[39] provides that in case of a judgment or final order over a specific thing, rendered by a court having jurisdiction, the judgment or final order is conclusive upon the title to the thing and binding upon the parties and their successors-in-interest.

Furthermore, the allegations of the private respondents of their counsels negligence cannot be given any credence. In the Affidavit of private respondent Romeo Alvarez, and reiterated in the Comment filed by the private respondents before the Court of Appeals, it was alleged that on 12 December 1986, their counsel, Atty. Rosendo O. Chavez, executed a Notice of Withdrawal, which was not filed before the trial court and did not bear the conformity of the private respondents.[40] Thereafter, Atty. Chavez allegedly stopped attending the hearings before the trial court. As a result thereof, the private respondents were not notified of the 17 February 1989 hearing, when the Order dismissing the case was issued.

Records clearly show that Atty. Chavez could not have withdrawn from the case on 12 December 1986. As of 14 December 1987, Atty. Chavez

presented as his witness, Rosario Param, one of the private respondents.[41] Since he requested for continuance, he was required to bring the witness on the next hearing date. However, seven postponements later, he was unable to bring the witness he presented.[42] On 17 October 1988, Atty. Chavez attended the hearing. He failed to attend the next hearing on 20 January 1989. Nevertheless, he was still at that time the counsel of the private respondents and therefore the notice to him was binding upon the parties. Moreover, the private respondent Rosario Param was perfectly aware that her testimony was far from finished, and that she still needed to appear before the Court. Given the foregoing facts, private respondents allegations that their counsel was grossly negligent and that he had deceived them is not credible. Even if the allegations of the private respondents are to be believed, they should have raised them in a Motion for Reconsideration, or a petition to annul the Order of the trial court dismissing the case. While they alleged that they did not receive the Order requiring them to appear on the 17 February 1989 hearing, they never denied receiving the Order of dismissal. As the records stand, the counsel for the respondents received the Order dismissing the case on 28 February 1989,[43] and the respondents never filed a Motion for Reconsideration or even a belated appeal to question the Order dismissing case. Instead, they waited for a full year and filed with the DARAB a case which was under the jurisdiction of the regular courts.

WHEREFORE, premises considered, this Court GRANTS this

petition and REVERSES the Decision of the Court of Appeals in CA-G.R. SP No. 48396, dated 11 November 1998, affirming the Order of the DARAB nullifying the transfer certificate titles issued in the names of Ricardo Alvarez, Mercedes Oliver and Filinvest Land Inc. since the DARAB was without jurisdiction to issue the said Order. No costs.

SO ORDERED. !!!!!!!!!!!

[G.R. NO. 166104 : June 26, 2008]

RN DEVELOPMENT CORPORATION, Petitioner, v. A.I.I. SYSTEM, INC., Respondent.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

In this Petition for Review under Rule 45 of the Rules of Court, petitioner RN Development Corporation (now Fontana Development Corporation) seeks the reversal of the September 2, 2004 decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 75227 entitled A.I.I. Systems, Inc. v. RN Development Corporation as reiterated in its November 22, 2004 Resolution2 denying petitioner's motion for reconsideration.

The assailed decision reversed and set aside an earlier Order and Resolution of the Regional Trial Court (RTC) of Quezon City, Branch 226, in Civil Case No. QOO-41445, dismissing respondent's complaint for its failure to appear for pre-trial and for lack of interest. The respondent's motion for reconsideration of the said Order was denied by the RTC in its Resolution dated March 22, 2002, which is quoted hereunder:

As set forth in the Order of November 27, 2001, the pre-trial in this case has been reset for five times already: first on February 6, 2001, then on April 24, 2001, on August 7, 2001, September 18, 2001 and on November 27, 2001. Let it be noted that on April 24, 2001, there was no appearance for [respondent] and counsel. Again, on August 7, 2001, [respondent] and counsel did not appear, which prompted the Court to reset the pre-trial for the last time to September 18, 2001, with a warning that should the [respondent] and counsel not appear on the next setting, the Court will dismiss the case for lack of interest. On September 18, 2001, counsel for the [respondent] moved for a resetting since the new counsel had not yet studied the proposals for settlement made by the [petitioner]. Thus, pre-trial was again reset for the last time to November 27, 2001. On November 27, 2001, there was again no appearance for the [respondent] and its counsel.

The record thus bears out that the Court had been very lenient to the [respondent] when it allowed the resetting of the pre-trial for five times. In fact, the Court set the pre-trial "for the last time" twice. It is litigants like

[respondent] who unduly clog the court dockets by taking advantage of the court's leniency. If only to decongest the court dockets and to serve as a lesson to [respondent] and counsel to be more considerate of the time and resources of the Court, the amended motion for reconsideration is DENIED, for lack of merit.

WHEREFORE, in view of the foregoing, the amended Motion for Reconsideration is DENIED, for lack of merit. The Order of November 27, 2001 is REITERATED.

SO ORDERED.3

Aggrieved, respondent went on appeal to the CA on the lone issue as to whether or not its complaint was properly dismissed for its failure to appear on November 27, 2001 for pre-trial and for its lack of interest to prosecute the case.

In its assailed Decision dated September 2, 2004, the CA reversed and set aside the RTC's Order dated November 27, 2001 and the Resolution dated March 22, 2002 and remanded the case to the said trial court for further proceedings. We quote the fallo of the CA decision:

WHEREFORE, the appealed Order and Resolution of Branch 226 of the Regional Trial Court of Quezon City, in Civil Case No. QOO-41445, dated 27 November 2001 and 22 March 2002, respectively, are hereby REVERSED AND SET ASIDE. The case is remanded to the trial court for further proceedings.

The petitioner sought reconsideration of the above-cited decision, which was denied by the appellate court.

Hence, the petitioner is now before this Court contending that the CA erred in reversing the RTC's Order dismissing the petitioner's complaint because "the inference made by the Court of Appeals was manifestly mistaken; its judgment was based on misapprehension of facts; and the Court of Appeals manifestly overlooked certain facts not disputed by the parties and which, if properly considered, would justify a different conclusion." Petitioner added that the trial court did not commit grave abuse of discretion in dismissing respondent's complaint.

The facts of the case are summed up by the CA from the records in its decision, which reads in part:

On 28 July 2000, AII Systems, Inc. [respondent] filed a Complaint for Sum of Money against RN Development Corporation [petitioner], seeking to collect the outstanding balance of the purchase price of the pipes and fittings, valves and electrical panels which [petitioner] allegedly ordered from [respondent].

On 09 November 2000, [petitioner] filed its answer. On 20 November 2000, [respondent] filed an Ex-Parte Motion to Set Case for Pre-Trial which was granted by the court a quo scheduling the case for pre-trial on 06 February 2001.

During the 06 February 2001 pre-trial conference, parties' counsel manifested their intention to settle the case. In view thereof the pre-trial was reset to 24 April 2001.

At the calendared 24 April 2001 pre-trial, only [petitioner's] counsel appeared. He manifested that there are negotiations for the settlement of the case and moved for the resetting of the pre-trial. The trial court granted said request in order to give the parties an opportunity to settle the case. Pre-trial was rescheduled to 07 August 2001.

In the 07 August 2001 pre-trial meeting, [petitioner's] counsel appeared but [respondent] and counsel were absent. The trial court deferred the pre-trial and set the same to 18 September 2001, with a proviso that said resetting shall be "the last time" and warned that if [respondent] and his counsel will not appear again "the Court shall dismiss the case for lack of interest."

During the 18 September 2001 pre-trial, [respondent's] new counsel appeared. He requested the resetting of the pre-trial because he has yet to study [petitioner's] proposals for the settlement of the case. Despite its warning in the 07 August 2001 Order the trial court relented to [respondent's] request setting another date, 27 November 2001, for pre-trial. The trial court again cautioned the parties that the resetting shall be for the "last time."

On 27 November 2001, pre-trial proceeded. [Petitioner] appeared but [respondent] did not. Pursuant to the trial court's warning contained in the 07 August 2001 Order, the [respondent's] Complaint was dismissed, thus:

When this case was called for pre-trial, only [the] counsel for the [petitioner] appeared; there was no appearance for the [respondent] and its counsel.

The court issued a warning during the hearing held on August [7,] 2001 that should the [respondent] and counsel fail to appear again today for pre-trial, the case shall be dismissed. The Court observes that this is the fifth time that this case has been reset for pre-trial'

WHEREFORE, as prayed for, the complaint is hereby DISMISSED for failure of the [respondent] and counsel to appear for pre-trial and for lack of interest'

SO ORDERED.

On 03 December 2001, [respondent] filed its Motion for Reconsideration explaining his failure to attend the 27 November 2001 pre-trial, thus:

1. The instant case was scheduled for Pre-Trial last November 27, 2001 at 8:30 a.m. However, the - counsel [for respondent] arrived in court at 8:34 a.m. or four (4) minutes late'

2. The - counsel [for respondent] sincerely apologizes for - tardiness which was entirely unintentional. [He] left his residence [in Sampaloc, Manila] at 7:00 a.m. allotting the usual one (1) hour for his trip to Quezon City knowing that [the] Honorable Court starts its hearing at exactly 8:30 [a.m.] but' along the way [his vehicle suffered] a flat tire' It took - thirty (30) minutes to replace the - tire and [he arrived at] Quezon City Hall at 8:20 a.m. - unfortunately [he] had a hard time locating a parking space. [He] arrived in court at 8:34 a.m.

3. [Counsel] for [respondent] had always been punctual in attending the hearing in this case.

On March 22, 2002 [respondent's] motion for reconsideration was denied by the trial court, hence, this appeal.

According to petitioner, the case was scheduled for pre-trial for five (5) times, particularly, on February 6, April 24, August 7, September 18, and November 27, 2001. The pre-trial set for April 24 and August 7, 2001 were reset when respondent and counsel did not appear without any motion for postponement. The pre-trial scheduled for September 18, 2001 was again reset on motion of

respondent's counsel who had not studied yet the proposals for settlement. In two of these four resettings, the trial court warned respondent that the resetting "was for the last time" and that in case of another failure to appear, the case would be dismissed for lack of interest. It was only when respondent and counsel failed to appear on November 27, 2001, despite warning, that the trial court dismissed the complaint. Under the foregoing circumstances, petitioner contended that the CA committed a reversible error when it inferred that the trial court had been unduly strict in applying the rules of procedure and that it entirely had no reason to dismiss the complaint. Petitioner likewise disputed the appellate court's observation that the trial court's inflexible attitude failed to meet the fundamental requirement of fairness and justice.

After a careful study and a thorough examination of the records, we find no substantial reason to overturn the findings and conclusions of the CA, particularly, that the respondent should not be blamed entirely for the resetting of the pre-trial, which were duly approved by the trial court for the reasons cited in its orders, quoted hereunder:

1. The Order dated February 6, 2001 which reset the pre-trial at the instance of both parties -

When this case was called for pre-trial, the respective counsel of the parties appeared and manifested before the Court their desire for an amicable settlement of this case. In view of this, reset the pre-trial to April 24, 2001 at 8:30 a.m., sharp.

2. The Order dated April 24, 2001 which reset the pre-trial at the instance of the petitioner's counsel also in view of the on-going negotiations between the parties '

When this case was called for pre-trial, only the defendant's (petitioner's) counsel, appeared. However, he manifested before this Court that there are negotiations for the settlement of this case and asked for a resetting of the pre-trial today, in order to give the parties time to settle the case. Wherefore, reset the pre-trial to August 7, 2001 at 8:30 a.m., sharp.

3. The Order dated August 7, 2001 which allowed for the last time the postponement of the scheduled pre-trial at the request of [petitioner's] counsel -

When this case was called for pre-trial, only the defendant's (petitioner's) counsel appeared. There was no appearance for the plaintiff (respondent) and counsel. As manifested in open court, to show good faith on the part of the defendant's (petitioner's) counsel and so as not to take advantage of the absence of plaintiff (respondent) and counsel, reset the pre-trial for the last time to September 18, 2001 at 8:30 a.m. sharp.

Notify the plaintiff and counsel. Should the plaintiff and counsel not appear on the next setting, the Court will dismiss the case for lack of interest.

4. The Order dated September 18, 2001 which still allowed the postponement of the pre-trial despite the previous warning in the 7 August 2001 Order, on motion of respondent's new counsel to enable him to study the petitioner's proposal for amicable settlement -

When this case was called for pre-trial, the respective counsel of the parties appeared, counsel for the plaintiff moved for a resetting of this case since the new counsel had not yet studied the proposals for settlement made by the defendant.

Wherefore, reset this case for pre-trial for the last time to November 27, 2001, with additional setting for initial trial on January 21, 2002, both dates at 8:30 in the morning, sharp.

What remains for consideration is the cancellation of the pre-trial on November 27, 2001 which resulted in the dismissal of the complaint by the trial court. The counsel for respondent sought the reconsideration of the dismissal of the case on the ground that he was only four (4) minutes late. He explained why he came late for pre-trial on November 27, 2001, but nonetheless apologized to the court for his tardiness which was not intentional.

While petitioner now raises a factual issue as to whether or not the counsel for respondent actually arrived in court four (4) minutes late on November 27, 2001, there is nothing on record to show that the allegation of the counsel for respondent on this factual matter was disputed before the trial court. Hence, the CA did not err when it found that the respondent only failed to arrive on time for the pre-trial, instead of finding that there was failure to appear and lack of interest on the part of the respondent. Under this factual setting, the CA properly applied our ruling in Africa v. Intermediate Appellate Court,4 which

set aside the order of default issued by the trial court due to the ten-minute delay of petitioner's counsel, ratiocinating that:

.. petitioner was declared in default - for his lawyer's ten-minute delay at the pre-trial'

It is quite obvious that petitioner was denied his basic right to be heard, even after his counsel had promptly explained the reason for his tardiness at the pre-trial' [I]t would seem that the proverbial wheels of justice literally "oversped". For an innocuous delay of ten minutes, petitioner was ultimately denied due process of law which could have, had respondent judge been in a less hurry to clear his docket, enable him to present his defenses . . .

While it is desirable that the Rules of Court be faithfully observed, courts should not be obsessively strict over the occasional lapses of litigants. Given a good reason, the trial court should set aside its order of default, constantly bearing in mind that it is the exception and not the rule of the day. A default order must be resorted to only in clear cases of obstinate refusal or inordinate neglect to comply with the orders of the court.

Further, in Bank of the Philippine Islands v. Court of Appeals,5 we cautioned the courts against the improvident dismissal of cases for failure to prosecute, thus:

xxx. In Marahay v. Melicor, we said -

While a court can dismiss a case on the ground of non prosequitur, the real test of such power is whether, under the circumstances, plaintiff is chargeable with want of due diligence in failing to proceed with reasonable promptitude. In the absence of a pattern or a scheme to delay the disposition of the case or a wanton failure to observe the mandatory requirement of the rules on the part of the plaintiff, as in the case at bar, courts should decide to dispense rather than wield their authority to dismiss.

Indeed, the dismissal of a case whether for failure to appear during trial or prosecute an action for an unreasonable length of time rests on the sound discretion of the trial court. But this discretion must not be abused, nay gravely abused, and must be exercised soundly. Deferment of proceedings may be tolerated so that cases may be adjudged only after a full and free presentation of all the evidence by both parties. The propriety of dismissing a

case must be determined by the circumstances surrounding each particular case. There must be sufficient reason to justify the dismissal of a complaint.

Pre-trial is not a mere technicality in court proceeding for it is essential in the simplification and the speedy disposition of disputes. The Court observed in the case of Development Bank of the Philippines v. Court of Appeals6 that:

Everyone knows that a pre-trial in civil actions is mandatory, and has been so since January 1, 1964. Yet to this day its place in the scheme of things is not fully appreciated, and it receives but perfunctory treatment in many courts. Some courts consider it a mere technicality, serving no useful purpose save perhaps, occasionally to furnish ground for non-suiting the plaintiff, or declaring a defendant in default, or, wistfully, to bring about a compromise. The pre-trial device is not thus put to full use. Hence it has failed in the main to accomplish the chief objective for it: the simplification, abbreviation and expedition of the trial, if not indeed its dispensation. This is a great pity, because the objective is attainable, and with not much difficulty, if the device were more intelligently and extensively handled.

It is the policy of the Court to afford every litigant the amplest opportunity for the proper and just determination of his cause, free from the constraints of technicalities. Since rules of procedure are mere tools designed to facilitate the attainment of justice, courts must avoid the rigid application thereof which tends to frustrate rather than promote the ends of justice.7 Here, the counsel for respondent, upon receiving the order dismissing the complaint, immediately filed a motion for reconsideration which adequately explained his late arrival for four (4) minutes, which was not disputed before the trial court. Under the circumstances, the latter should have granted respondent's motion for reconsideration of the dismissal of the complaint. The interest of justice will be better served by the continuation of the proceedings and final disposition of the case on the merits before the trial court. Thus, the appellate court did not commit any reversible error when it set aside the order of the trial court dismissing the respondent's complaint.

WHEREFORE, the instant petition is DENIED for lack of merit. The Decision of the Court of Appeals dated September 2, 2004 is AFFIRMED. Civil Case No. QOO-41445 is remanded to the court of origin which is directed to resolve the case with dispatch.

SO ORDERED.

G.R. No. 119879. March 11, 2004]

HEIRS OF JUANA GAUDIANE, namely: DATIVA M. PASTOR, MARIA M. ALCORIZA, BEATRIZ M. PATROCIO, SOLOMON I. MARIO, BENJAMIN

I. MARIO, LILI MARIO, VERONICA I. MARIO, SEVERINA MARIO VDA. DE ISO, ROSITA ISO, AGRIPINO ISO, ELIZABETH ISO, VIRGINIA

ISO, LEOPOLDO ISO, NAPOLEON ISO, petitioners, vs.

COURT OF APPEALS and THE HEIRS OF FELIX GAUDIANE, namely: ARNULFO GAUDIANE, GEORGE GAUDIANE, RODOLFO GAUDIANE,

RAYMUNDO GAUDIANE, SANDRA GAUDIANE, CEFERINA GAUDIANE, JONNA GAUDIANE, MILLARD GAUDIANE, GLORIA TORRES-GAUDIANE,

WILFREDO GAUDIANE, ROLANDO GAUDIANE, ANTONIO GAUDIANE, KATHRYN GAUDIANE, PRISCILLA GAUDIANE, CATALINA PACIOS,

DONATELLA PACIOS, REMEDIOS PACIOS, GUALBERTO GAUDIANE, VICTOR GAUDIANE, LORNA GAUDIANE, DOLORES GAUDIANE,

respondents.

D E C I S I O N

CORONA, J.:

Before us is a petition for review of the decision[1