Tan vs. Kaakbay Finance Corporation

A counterclaim is compulsory, and requires no payment of docket fees, when it arises out of or is necessarily connected with the same transaction or occurrence as the plaintiff's claim and is logically related to it, such that separate trials would substantially duplicate the effort and time of the parties and the court. Here, respondents' claim for the unpaid loan and interest was compulsory because it shared the same loan transaction and evidence as petitioner's action to annul the loan documents.

In the latter part of 1995, Carlo A. Tan applied for and was granted a loan of P4,000,000 by Kaakbay Finance Corporation, represented by its president, Dennis S. Lazaro. As collateral, Tan executed a real estate mortgage over his parcel of land with improvements covered by Transfer Certificate of Title No. T-207125, located along Rizal St., Calamba, Laguna. Tan alleged that the stipulated interest was 12% per annum until fully paid, but this amount was not stated in the mortgage when he signed it on November 16, 1995. The loan was released in two installments: P2,500,000 on November 23, 1995 and P1,500,000 on December 23, 1995.

As of November 22, 1996, Tan failed to pay his obligation. He claimed that Kaakbay never furnished him a copy of the real estate mortgage; that, according to Kaakbay, his obligation had reached P5,570,000 because the actual interest was 0.3925% for a period of less than one year instead of the agreed 12% per annum; and that he was made to issue two postdated UCPB checks to guarantee his obligation, namely: Check No. CBA 052985 for P5,570,000 postdated November 5, 1996, and Check No. CBA 095215 for P6,175,000 postdated January 31, 1997.

Tan negotiated with Kaakbay for a further extension of time to pay, which Kaakbay agreed to. It was agreed that Tan and Kaakbay would sign, execute, and acknowledge a Deed of Sale Under Pacto de Retro upon the expiration of a two-year period starting January 8, 1998 to January 8, 2000. Tan was then given a blank Deed of Sale Under Pacto de Retro on January 8, 1998, which he signed. His suspicions that Kaakbay was charging usurious interest were confirmed when he obtained a Statement of Account stating that his obligation had reached P13,333,750. On October 21, 1999, Tan learned of an accomplished Deed of Sale Under Pacto de Retro appearing to be signed by him and his wife Maria Rosario Delmo Tan, on one hand, and Lazaro on the other, and allegedly notarized by Atty. Roldan M. Noynay on February 5, 1998, when in truth Tan, his wife, and their witness Charito Morales did not sign it on that date, nor execute it before Atty. Noynay or any other notary public on that date.

On January 5, 2000, Tan filed a complaint with the RTC of Calamba, Laguna, docketed as Civil Case No. 2881-2000-C, for declaration of nullity, invalidity, and unenforceability or annulment of the promissory notes purportedly attached to the Real Estate Mortgage dated November 16, 1995, the usurious and void interest rates and fees, and the Deed of Sale Under Pacto de Retro dated February 5, 1998, plus damages, with prayer for preliminary injunction and/or temporary restraining order. He prayed that his P4,000,000 obligation be subject to interest of only 12% per annum from November 23, 1995; that the promissory notes be declared null and void; that the Deed of Sale Under Pacto de Retro be declared unenforceable; and that respondents pay P200,000 moral and P50,000 exemplary damages, as well as attorney's fees. On the same date, he filed a Notice of Lis Pendens with the Registry of Deeds of Calamba, Laguna, which was annotated on TCT No. 207125.

Respondents, through Atty. Noynay, filed a Consolidated Answer with Compulsory Counterclaim and Opposition to Temporary Restraining Order and Preliminary Injunction on January 17, 2000. During the hearing of Tan's application for a TRO, the parties agreed in open court that Tan would withdraw his TRO application while respondents would hold in abeyance the registration of the Deed of Sale Under Pacto de Retro until the case was terminated; the RTC issued an order to that effect on January 17, 2000. Later, the law firm of Ortega, Del Castillo, Bacorro, Odulio, Calma, and Carbonell entered its appearance for respondents, requested an extension of time to file an Answer, and moved for the withdrawal of the Consolidated Answer insofar as Kaakbay and Lazaro were concerned. On February 3, 2000, respondents, through new counsel, filed an Answer with Counterclaim praying that Tan pay P4,000,000 representing the principal loan, P9,333,750 representing compounded monthly interest and annual penalty interest, P250,000 as litigation expenses, and P500,000 as attorney's fees. They also filed a Motion for Admission of Counterclaim Without Payment of Fees on the ground that their counterclaim was compulsory.

On February 21, 2000, Tan filed an Urgent Motion to Expunge Motions and Pleadings Filed by Defendants Kaakbay Finance Corporation and Dennis S. Lazaro, Particularly Their Answer with Counterclaim and Motion for Admission of Counterclaim both dated February 3, 2000, and/or Comment/Opposition. He argued that the new law firm had not complied with the rules on change or substitution of counsel and that the Answer with Counterclaim should not be admitted because it was a permissive counterclaim requiring filing fees, so the RTC did not acquire jurisdiction over it. The RTC granted respondents' motion for admission of counterclaim without payment of fees in its February 8, 2000 order and denied Tan's Supplemental Motion by Way of Motion for Reconsideration on March 29, 2000.

• Nature of the Counterclaim: Petitioner argued that respondents' counterclaim is permissive, not compulsory, because his complaint attacks the unauthorized application of usurious, unconscionable, and exorbitant interest rates and fees, the approval and falsification of the promissory note, and the genuineness of the Deed of Sale Under Pacto de Retro, while respondents' counterclaim seeks payment of the loan and interest under the same contracts; the evidence needed to support the genuineness and due execution of the promissory note and deed is not the same as the evidence needed to prove his fraud claim. He invoked Yulienco vs. Court of Appeals, G.R. No. 131692, June 10, 1999, 308 SCRA 206, which he said supported his position.
• Inconsistency of Positions: Petitioner maintained that because respondents demand payment under the contract of loan, which is completely inconsistent with his claim that the documents are a nullity, their counterclaim cannot be compulsory.
• Filing Fees and Jurisdiction: Petitioner argued that since the counterclaim is permissive, it required payment of the prescribed filing fees; because respondents did not pay, the RTC did not acquire jurisdiction over the Answer with Counterclaim, and the Answer should be expunged.
• Substitution of Counsel: Petitioner pointed out that the new law firm entered appearance without stating whether it was in collaboration with or in substitution of Atty. Noynay, and that the procedure for change or substitution of counsel had not been complied with, so the motions filed by the firm should be expunged.

• Compulsory Counterclaim: Respondents countered that their counterclaims for P4,000,000 unpaid loan, P9,333,750 compounded interest with annual penalty, P250,000 litigation expenses, and P500,000 attorney's fees are compulsory, not permissive. Petitioner admitted in his complaint his indebtedness of P4,000,000 and liability for 12% per annum interest; these admissions arise out of, are necessarily connected with, or have a logical relation to the transaction or occurrence forming the subject matter of petitioner's claim. Thus payment of docket fees is not necessary, and the RTC did not err.

• Compulsory Counterclaim and Docket Fees: Whether respondents' counterclaim for the unpaid loan, compounded interest, penalty, litigation expenses, and attorney's fees is compulsory, such that no docket fees are required and the RTC acquired jurisdiction over it.

• Compulsory Counterclaim and Docket Fees: Yes. The counterclaim is compulsory because it arises out of the same loan transaction as petitioner's claims, raises largely the same issues, and requires substantially the same evidence; no docket fees are required.

• Compulsory Counterclaim and Docket Fees: The SC applied the rule in Intestate Estate of Dalisay vs. Marasigan that a counterclaim is compulsory where (1) it arises out of or is necessarily connected with the transaction or occurrence that is the subject matter of the opposing party's claim; (2) it does not require the presence of third parties of whom the court cannot acquire jurisdiction; and (3) the trial court has jurisdiction to entertain the claim. It also applied the tests: whether the issues of fact or law raised by the claim and counterclaim are largely the same; whether res judicata would bar a subsequent suit on defendant's claims absent the compulsory counterclaim rule; whether substantially the same evidence would support or refute plaintiff's claim and defendant's counterclaim; and whether there is a logical relation between the claim and counterclaim. Quintanilla vs. Court of Appeals supplied the "compelling test of compulsoriness": a logical relationship exists where conducting separate trials would entail a substantial duplication of effort and time by the parties and the court. On the facts, petitioner's complaint sought to annul the promissory notes attached to the November 16, 1995 Real Estate Mortgage, the usurious interest rates, and the Deed of Sale Under Pacto de Retro; respondents' counterclaim sought payment of the P4,000,000 principal, P9,333,750 compounded monthly interest and annual penalty, litigation expenses, and attorney's fees. The principal obligation of P4,000,000 was undisputed; the dispute was over the rate and amount of interest—petitioner claimed 12% yearly until fully paid, respondents claimed 3.5% monthly—and over the validity of the Deed, which petitioner alleged was falsified and respondents averred was valid. The evidence needed to prove petitioner's claims was similar or identical to that needed to establish respondents' demand for the unpaid loan, including the amount of interest rates. The claim and counterclaim were therefore logically related, and separate trials would substantially duplicate the time and effort of the court and the parties. The counterclaim was compulsory, not permissive; payment of docket fees was not required; and the CA did not err in holding that the RTC acquired jurisdiction.

• Compulsory counterclaim — A counterclaim is compulsory if (1) it arises out of or is necessarily connected with the transaction or occurrence that is the subject matter of the opposing party's claim; (2) it does not require the presence of third parties of whom the court cannot acquire jurisdiction; and (3) the trial court has jurisdiction to entertain the claim. The SC applied this to hold that respondents' counterclaim for the unpaid loan and interest was compulsory because it arose from the same loan transaction as petitioner's annulment action.
• Tests for compulsoriness — The SC listed four tests: (1) whether the issues of fact or law raised by the claim and counterclaim are largely the same; (2) whether res judicata would bar a subsequent suit on defendant's claims absent the compulsory counterclaim rule; (3) whether substantially the same evidence would support or refute plaintiff's claim and defendant's counterclaim; and (4) whether there is a logical relation between the claim and counterclaim. The SC found the issues and evidence largely the same and the claims logically related.
• Logical relationship and compelling test — A "compelling test of compulsoriness" is whether there is a logical relationship between the claim and counterclaim, such that conducting separate trials would entail a substantial duplication of effort and time by the parties and the court. The SC applied this because petitioner's annulment claims and respondents' collection counterclaim both turned on the same loan documents, interest rates, and deed.
• No docket fees for compulsory counterclaim — A compulsory counterclaim does not require payment of docket fees, and the trial court acquires jurisdiction over it even without such payment. The SC applied this after finding respondents' counterclaim compulsory.

• "a counterclaim is compulsory where: (1) it arises out of, or is necessarily connected with the transaction or occurrence that is the subject matter of the opposing party’s claim; (2) it does not require the presence of third parties of whom the court cannot acquire jurisdiction; and (3) the trial court has jurisdiction to entertain the claim." — The SC quoted this three-part rule from Intestate Estate of Dalisay vs. Marasigan as the governing requisites for compulsoriness.
• "To determine whether a counterclaim is compulsory or not, we have devised the following tests: (1) Are the issues of fact or law raised by the claim and the counterclaim largely the same? (2) Would res judicata bar a subsequent suit on defendant’s claims absent the compulsory counterclaim rule? (3) Will substantially the same evidence support or refute plaintiff’s claim as well as the defendant’s counterclaim? and (4) Is there any logical relation between the claim and the counterclaim?" — The SC used these four tests to assess whether respondents' counterclaim was compulsory.
• "a "compelling test of compulsoriness" is whether there is "a logical relationship between the claim and counterclaim, that is, where conducting separate trials of the respective claims of the parties would entail a substantial duplication of effort and time by the parties and the court." — The SC adopted this formulation from Quintanilla vs. Court of Appeals and treated it as the decisive standard.
• "considering that the counterclaims of respondents are compulsory in nature, payment of docket fees is not required. The CA did not err in holding that the trial court had acquired jurisdiction on the matter." — This is the SC's conclusion on the effect of compulsoriness on docket fees and jurisdiction.

• Intestate Estate of Dalisay vs. Marasigan, 327 Phil. 298, 301 (1996) — Controlling precedent for the requisites of a compulsory counterclaim; the SC quoted and applied its three-part rule.
• Financial Building Corporation vs. Forbes Park Association, Inc., G.R. No. 133119, 17 August 2000, 338 SCRA 346, 352 — Cited for the four tests used to determine whether a counterclaim is compulsory or permissive.
• Quintanilla vs. Court of Appeals, 344 Phil. 811, 819 (1997) — Supplied the "compelling test of compulsoriness" based on logical relationship and substantial duplication of effort and time; applied to hold respondents' counterclaim compulsory.
• Cabaero vs. Cantos, 338 Phil. 105, 116-117 (1997) — Cited in support of the ruling that no docket fees are required for a compulsory counterclaim and that the trial court acquired jurisdiction.