Spouses Carpio vs. Rural Bank of Sto. Tomas (Batangas), Inc.

A compulsory counterclaim pleaded in an Answer need not be accompanied by a certification against forum shopping under Section 5, Rule 7 of the 1997 Rules of Civil Procedure, because the certification requirement applies to a complaint or other initiatory pleading asserting a claim for relief, not to a responsive pleading.

Spouses Rodolfo Carpio and Remedios Orendain owned a parcel of land in Barangay San Vicente, Sto. Tomas, Batangas, and obtained a loan from Rural Bank of Sto. Tomas (Batangas), Inc. secured by a real estate mortgage over that property. The bank later initiated extrajudicial foreclosure proceedings, and petitioners challenged the sale. The procedural dispute concerns Section 5, Rule 7 of the 1997 Rules of Civil Procedure, which requires a certification against forum shopping in a complaint or other initiatory pleading asserting a claim for relief.

Spouses Rodolfo Carpio and Remedios Orendain alleged that they were the absolute owners of a 19,405-square-meter parcel of land in Barangay San Vicente, Sto. Tomas, Batangas. On May 30, 1996, they obtained a loan of P515,000.00 from Rural Bank of Sto. Tomas (Batangas), Inc., stated in their Complaint to be payable on January 27, 1996, and on the same date executed a real estate mortgage over the property in the bank's favor to secure the loan.

According to petitioners, on July 26, 1996, without prior demand or notice, the bank filed a Petition for Extra-Judicial Foreclosure of Mortgage. On September 26, 1996, Sheriff Jaime Ozaeta conducted a public auction sale of the mortgaged property, at which the bank was the only bidder for P702,889.77. Petitioners alleged that the sale was conducted without proper publication because the sheriff's notice of sale was published in a newspaper not of general circulation. On the same day, the sheriff issued a certificate of sale in favor of the bank. On February 25, 1999, the bank executed an affidavit of consolidation of ownership over the property. Petitioners claimed that they were not notified of the foreclosure sale and were not given an opportunity to redeem.

On May 17, 1999, petitioners filed with the RTC, Branch 83, Tanauan, Batangas, a Complaint for annulment of foreclosure sale and damages against the bank and Jaime Ozaeta, clerk of court and ex-officio sheriff. The bank filed its Answer with Counterclaim on August 9, 1999, denying the material allegations. It alleged that oral and written demands were made upon petitioners to pay their loan but they ignored them; that petitioners were properly notified of the filing of the petition for extrajudicial foreclosure; that there was proper publication and notices of the scheduled sale through public auction; and that petitioners were actually given more than two years to redeem the property but failed to do so. By way of counterclaim, the bank alleged actual damages of P100,000.00, compensatory damages of P100,000.00, moral damages of P500,000.00, and litigation expenses of not less than P50,000.00.

• Certification against Forum Shopping: Petitioners argued that the trial court and the Court of Appeals gravely abused their discretion in not dismissing respondent bank's counterclaim for lack of a certification against forum shopping.
• Grave Abuse of Discretion: Petitioners alleged that the RTC acted with grave abuse of discretion in holding that respondent bank's counterclaim need not be accompanied by a certification against forum shopping.

• Compulsory Counterclaim Not Initiatory Pleading: Respondent bank contended that its counterclaim, which is compulsory in nature, is not a complaint or initiatory pleading that requires a certification against forum shopping.
• Propriety of Foreclosure and Redemption: Respondent bank alleged that oral and written demands were made upon petitioners, that petitioners were properly notified and publication was proper, and that petitioners had more than two years to redeem but failed to do so.

• Certification against Forum Shopping: Whether a compulsory counterclaim pleaded in an Answer must be accompanied by a certification against forum shopping under Section 5, Rule 7 of the 1997 Rules of Civil Procedure.
• Grave Abuse of Discretion: Whether the RTC and the Court of Appeals gravely abused their discretion in denying petitioners' motion to dismiss the counterclaim for lack of such certification.

• Certification against Forum Shopping: No. Section 5, Rule 7 requires the certification in a complaint or other initiatory pleading asserting a claim for relief; a compulsory counterclaim in an Answer is a responsive pleading, not an initiatory pleading.
• Grave Abuse of Discretion: No. The RTC and Court of Appeals correctly held that the counterclaim need not be accompanied by a certification against forum shopping; no reversible error was committed.

• Certification against Forum Shopping: Section 5, Rule 7 of the 1997 Rules of Civil Procedure, as amended, provides that the plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith, that he has not commenced any action or filed any claim involving the same issues in any court, tribunal, or quasi-judicial agency; if there is such other pending action or claim, a complete statement of its status; and that he shall report within five days if he learns of any similar action or claim. The rationale is to curb forum shopping, defined as an act of a party against whom an adverse judgment has been rendered in one forum of seeking and possibly getting a favorable opinion in another forum other than by appeal or certiorari, or the institution of two or more actions or proceedings grounded on the same cause. The required certification is intended to cover an "initiatory pleading," meaning an "incipient application of a party asserting a claim for relief." Respondent bank's Answer with Counterclaim is a responsive pleading, filed merely to counter petitioners' complaint that initiates the civil action. The rule does not contemplate a defendant's or respondent's claim for relief that is derived only from, or is necessarily connected with, the main action or complaint. Upon failure by the plaintiff to comply, Section 5 directs dismissal of the case without prejudice, not dismissal of respondent's counterclaim. Thus, the counterclaim was outside the certification requirement.
• Grave Abuse of Discretion: Because the RTC and Court of Appeals correctly applied Section 5, Rule 7, they did not commit grave abuse of discretion in denying the motion to dismiss and affirming the denial. The petition must fail.

• Certification against forum shopping — Under Section 5, Rule 7 of the 1997 Rules of Civil Procedure, as amended, the plaintiff or principal party must certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith, that he has not commenced any action or filed any claim involving the same issues in any court, tribunal, or quasi-judicial agency; if there is such other pending action or claim, a complete statement of its status; and that he shall report within five days if he learns of any similar action or claim. The purpose is to curb forum shopping. The Court applied this to hold that a compulsory counterclaim in an Answer is not covered because it is a responsive pleading, not an initiatory pleading.
• Forum shopping — Defined as an act of a party against whom an adverse judgment has been rendered in one forum of seeking and possibly getting a favorable opinion in another forum, other than by appeal or the special civil action of certiorari, or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a favorable disposition. The Court cited this rationale for the certification requirement but held that the requirement does not extend to a compulsory counterclaim.
• Initiatory pleading — An "incipient application of a party asserting a claim for relief." The Court used this definition to distinguish the bank's Answer with Counterclaim, which is a responsive pleading, from a complaint or other initiatory pleading that requires a certification against forum shopping.
• Compulsory counterclaim — A compulsory counterclaim is a responsive pleading derived from or necessarily connected with the main action; it is not an initiatory pleading and need not be accompanied by a certification against forum shopping.

• "The rationale of the above provisions is to curb the malpractice commonly referred to as forum shopping – "an act of a party against whom an adverse judgment has been rendered in one forum of seeking and possibly getting a favorable opinion in another forum, other than by appeal or the special civil action of certiorari, or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a favorable disposition."" — States the purpose of the certification requirement and defines forum shopping.
• "It bears stressing that the Rule distinctly provides that the required certification against forum shopping is intended to cover an "initiatory pleading," meaning an "incipient application of a party asserting a claim for relief."" — States the key textual limitation of Section 5, Rule 7.
• "Certainly, respondent bank’s Answer with Counterclaim is a responsive pleading, filed merely to counter petitioners’ complaint that initiates the civil action. In other words, the rule requiring such certification does not contemplate a defendant’s/respondent’s claim for relief that is derived only from, or is necessarily connected with, the main action or complaint." — Articulates the ratio decidendi distinguishing a compulsory counterclaim from an initiatory pleading.
• "In fact, upon failure by the plaintiff to comply with such requirement, Section 5, quoted above, directs the "dismissal of the case without prejudice," not the dismissal of respondent’s counterclaim." — Explains the consequence of non-compliance and confirms that it does not authorize dismissal of the counterclaim.

• Santo Tomas University Hospital vs. Surla, G.R. No. 129718, August 17, 1998, 294 SCRA 382, 391 — Cited for the definition of forum shopping and for the meaning of "initiatory pleading" as an "incipient application of a party asserting a claim for relief"; the Court relied on it to hold that the certification requirement does not cover a compulsory counterclaim in an Answer.

• Section 5, Rule 7, 1997 Rules of Civil Procedure, as amended — Requires the plaintiff or principal party to certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith, that he has not commenced any action or filed any claim involving the same issues in any court, tribunal, or quasi-judicial agency; if there is such other pending action or claim, a complete statement of its status; and that he shall report within five days if he learns of any similar action or claim. Failure to comply is not curable by mere amendment and is cause for dismissal of the case without prejudice, unless otherwise provided, upon motion and after hearing. The Court applied the provision by holding that it covers only initiatory pleadings, not a compulsory counterclaim in an Answer.

Renato C. Corona, Adolfo S. Azcuna, and Cancio C. Garcia concurred. Reynato S. Puno was on leave.