Lim Teck Chuan vs. Uy

Under Section 2, Rule 17 of the 1997 Rules of Civil Procedure, when a plaintiff moves to dismiss his complaint after a counterclaim has been pleaded, the dismissal shall be limited to the complaint; the defendant is entitled to prosecute his counterclaim in the same action if, within 15 days from notice of the motion, he manifests a preference to do so. This right exists regardless of whether the counterclaim is compulsory or permissive.

Antonio Lim Tanhu, married to Dy Ochay, was the registered owner of Lot 5357 covered by TCT No. T-0500 in Barrio Agus, Lapu-lapu City. A Deed of Sale dated January 8, 1966 indicated that Antonio sold the lot to Spouses Francisco and Estrella Cabansag, but title was never transferred. In 1988, Spouses Cabansag sold the lot to respondent Serafin Uy. Serafin’s efforts to secure title led to a cadastral proceeding for issuance of a new owner’s duplicate certificate of title. Petitioner Lim Teck Chuan intervened, claiming to be one of the six legitimate descendants of Antonio and asserting that the original owner’s copy of TCT No. T-0500 was in his custody and never lost. Meanwhile, respondent Henry Lim executed an Affidavit of Self-Adjudication declaring himself the sole heir of Antonio and sold Lot 5357 to respondent Leopolda Cecilio. Serafin then commenced an action to quiet his title against Leopolda, Henry, and petitioner.

• Nature: The controversy centered on Lot 5357, a 33,610-square-meter property in Barrio Agus, Lapu-lapu City, covered by TCT No. T-0500 registered in the name of Antonio Lim Tanhu, married to Dy Ochay.
• The Alleged Sale to Spouses Cabansag: A Deed of Sale dated January 8, 1966 indicated that Antonio sold Lot 5357 to Spouses Francisco and Estrella Cabansag. Transfer of title was never effected; Francisco allegedly lost the owner’s copy of TCT No. T-0500 and related documents due to frequent travel abroad. In 1988, Spouses Cabansag sold the lot to respondent Serafin Uy through a Deed of Sale dated April 8, 1988. Serafin’s attempt to secure title prompted him to file a petition for issuance of a new owner’s duplicate TCT.
• The Cadastral Proceedings and Petitioner’s Intervention: Serafin’s petition, docketed as Cadastral Case No. 21, was raffled to the RTC of Lapu-lapu City, Branch 27, sitting as a cadastral court. On June 14, 1996, the cadastral court ordered issuance of a new owner’s duplicate. Petitioner Lim Teck Chuan opposed, asserting he was one of six legitimate descendants of Antonio and that the original owner’s copy of TCT No. T-0500 had always been in his custody. The order was recalled and nullified on September 3, 1996; petitioner was directed to deposit the owner’s copy with the court.
• Henry Lim’s Affidavit and Sale to Leopolda Cecilio: On August 2, 1996, respondent Henry Lim executed an Affidavit of Sole Adjudication/Settlement of the Estate of Antonio Lim Tanhu with Deed of Sale, claiming to be the only surviving heir of Antonio and selling Lot 5357 to respondent Leopolda Cecilio for ₱500,000.00. Leopolda secured a new tax declaration in her name and claimed actual, open, and material possession of the lot as owner.
• The Complaint for Quieting of Title: Serafin filed his complaint on July 25, 1997, seeking to quiet his title against the cloud cast by Henry’s affidavit and Leopolda’s tax declaration, and impleading petitioner because of his claim as an heir. Petitioner answered, asserting that the Cabansag deed was simulated and spurious and intended to defraud Antonio’s estate, and questioning Henry’s status as an heir and the validity of the affidavit and sale to Leopolda. Petitioner raised counterclaims for moral and exemplary damages and attorney’s fees against Serafin, and cross-claims against Leopolda and Henry.
• Pre-Trial and Stipulations: At pre-trial on December 22, 1998, the parties stipulated that Antonio died on April 13, 1991, survived by six children (including petitioner); that Henry Lim was a fictitious person (later withdrawn); and that there existed the 1966 deed to Spouses Cabansag, the 1988 deed to Serafin, and Henry’s affidavit with deed of sale. The issues framed were: (1) validity of Serafin’s causes of action; (2) validity of defendants’ counterclaims; and (3) petitioner’s cross-claim against Leopolda. The RTC later clarified that the genuineness of the 1966 deed and Henry’s identity were not admitted.
• Amicable Settlement and Joint Motion to Dismiss: On September 20, 2001, Serafin and Leopolda filed a Joint Motion to Dismiss, alleging that they had amicably settled; Leopolda waived her counterclaim; Serafin had secured a certificate of title in his name dated July 26, 2001 and agreed to cancel it for issuance of a new one in their common names; and any claim of petitioner could be ventilated in a separate action. Petitioner opposed the motion, alleging bad faith and connivance between Serafin and Leopolda to defraud Antonio’s estate, and expressly manifested under paragraph 1.5 of his opposition his preference to have his counterclaims and cross-claims resolved in the present case. Petitioner also moved to implead Spouses Cabansag as indispensable parties. The RTC granted the Joint Motion to Dismiss, dismissed the entire case, and denied petitioner’s motion to implead.

• Error in Dismissing Entire Case: Petitioner argued that the RTC erred in dismissing Civil Case No. 4786-L in its entirety upon the joint motion of plaintiff Serafin and defendant Leopolda, despite petitioner’s timely manifestation—made within 15 days from notice of the motion—of his preference to prosecute his counterclaim and cross-claims in the same action, in accordance with Section 2, Rule 17 of the 1997 Rules of Civil Procedure.
• Bad Faith and Fraud: Petitioner maintained that Serafin and Leopolda acted in bad faith and connived to mislead the court and defraud the estate of Antonio, as the deed of sale to Spouses Cabansag was falsified and fictitious, and Henry Lim had misrepresented himself as an heir with Leopolda’s knowledge.

• Mootness and Satisfaction of Reliefs: Respondents contended that the case had become moot and academic because Serafin’s principal reliefs—quieting of title—had been satisfied; his title was secured and the clouds on it (Henry’s affidavit and Leopolda’s tax declaration) were removed by the amicable settlement.
• Availability of Separate Action: Respondent Serafin argued that petitioner’s counterclaims and cross-claims could be properly ventilated in an independent action, as the nullification of the Cabansag deed required impleading indispensable parties not yet before the court, and the determination of Antonio’s true heirs could be done in a separate proceeding.
• Propriety of Appeal: Respondents preliminarily questioned petitioner’s direct recourse to the Supreme Court, asserting that no appeal may be taken from an order dismissing an action without prejudice.

• Propriety of Direct Appeal to the Supreme Court: Whether petitioner’s direct appeal by petition for review on certiorari under Rule 45 was proper given that the RTC order dismissed the case without prejudice.
• Application of Section 2, Rule 17 on Dismissal of Counterclaim: Whether the RTC erred in dismissing petitioner’s counterclaim and cross-claims despite petitioner’s timely manifestation of his preference to prosecute them in the same action after plaintiff moved for dismissal.

• Propriety of Direct Appeal: The petition raised only a question of law—the correct application of Section 2, Rule 17 of the Rules of Court—which does not require examination of the probative value of evidence. Accordingly, direct review by the Supreme Court under Rule 45 was proper, consistent with Section 2(c), Rule 41 and Section 1, Rule 45.
• Application of Section 2, Rule 17 on Dismissal of Counterclaim: The RTC’s dismissal of petitioner’s counterclaim was erroneous. Under Section 2, Rule 17, when a plaintiff moves for dismissal of his complaint after a counterclaim has been pleaded, the dismissal is strictly limited to the complaint. The defendant is entitled either to prosecute his counterclaim in a separate action or to have it resolved in the same action. If the defendant manifests his preference to continue in the same action within 15 days from notice of the plaintiff’s motion, the court must allow the counterclaim to proceed. Petitioner submitted his opposition and express manifestation on October 4, 2001, well within the 15-day period from notice of the joint motion to dismiss. The RTC’s reasoning that the plaintiff’s satisfaction of his reliefs rendered the case moot and that it would be “repugnant” to hear a counterclaim after the complaint’s dismissal contradicted the clear text of the rule and the prevailing interpretation under Pinga v. Heirs of German Santiago. That decision abandoned earlier precedents that distinguished between compulsory and permissive counterclaims; under the 1997 Rules, the right to prosecute a counterclaim survives the voluntary dismissal of the complaint regardless of its nature.

• Rule 17, Section 2 — Dismissal limited to complaint; survival of counterclaim: When a plaintiff moves to dismiss his complaint after a counterclaim has been interposed, the dismissal shall be limited to the complaint. The defendant has the right either to prosecute his counterclaim in a separate action or, upon manifesting his preference within 15 days from notice of the motion, to have the same resolved in the same action. This rule abandons the prior distinction between compulsory and permissive counterclaims for purposes of survival after plaintiff’s dismissal; the defendant’s right exists irrespective of the nature of the counterclaim.
• Distinction between dismissal of an action and dismissal of the complaint: A dismissal of an action is different from a mere dismissal of the complaint. Because only the complaint—and not the action—is dismissed upon plaintiff’s motion under Rule 17, Section 2, the defendant may still prosecute his counterclaim in the same action.

• “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.” — citing Pinga v. Heirs of German Santiago, crystallizing the 1997 amendment’s departure from earlier jurisprudence.
• “A dismissal of an action is different from a mere dismissal of the complaint. For this reason, since only the complaint and not the action is dismissed, the defendant in spite of said dismissal may still prosecute his counterclaim in the same action.” — emphasizing the distinct consequences of the rule.

• Pinga v. Heirs of German Santiago, 526 Phil. 868 (2006) — Followed. The Court expressly relied on this case for the controlling interpretation of Section 2, Rule 17, which guarantees the defendant’s right to continue prosecuting his counterclaim after plaintiff’s voluntary dismissal, clarifying that the rule applies regardless of whether the counterclaim is compulsory or permissive.
• Metals Engineering Resources Corporation v. Court of Appeals, G.R. No. 95631, October 28, 1991, 203 SCRA 273 — Abandoned in this respect, as it previously applied a distinction between compulsory and permissive counterclaims that the 1997 Rules and Pinga discarded.
• International Container Terminal Services, Inc. v. Court of Appeals, G.R. No. 90530, October 7, 1992, 214 SCRA 456 — Same, abandoned.
• BA Finance Corporation v. Co, G.R. No. 105751, June 30, 1993, 224 SCRA 163 — Same, abandoned.
• Bukidnon Doctors’ Hospital, Inc. v. Metropolitan Bank & Trust Co., 501 Phil. 516 (2005) — Cited for the definition of a question of law and the propriety of a direct appeal to the Supreme Court under Rule 45 from RTC orders involving purely legal questions.

• Section 2, Rule 17, 1997 Rules of Civil Procedure — The core procedural provision applied: upon plaintiff’s motion to dismiss after a counterclaim is pleaded, the dismissal is limited to the complaint; defendant may prosecute his counterclaim in the same action by manifesting his preference within 15 days from notice. The Court applied the rule literally and rejected the trial court’s contrary interpretation.
• Section 1, Rule 45 — Served as the jurisdictional basis for the direct petition for review on certiorari from an RTC order, given that only a question of law was raised.

Presbitero J. Velasco, Jr. (Chairperson), Diosdado M. Peralta, Martin S. Villarama, Francis H. Jardeleza