G.R. No. 158245 ; June 30, 2005
MIGUELITO B. LIMACO, ROGELIO LIMACO, JR., and ISIDRO LIMACO, petitioners, vs. SHONAN GAKUEN CHILDREN’S HOUSE PHILIPPINES, INC., respondent.

FACTS

Petitioners, the Limaco brothers, as vendors, entered into a Contract of Sale with respondent Shonan Gakuen for three parcels of agricultural land in Laguna for ₱12,531,720. Respondent paid a ₱1,200,000 down payment. The contract stipulated that if the sale could not be effected, the paid amounts would be applied to another similar property owned by the vendors. Respondent refused further payments due to petitioners’ failure to secure the required Department of Agrarian Reform (DAR) clearance for the tenanted land. Respondent demanded either a resolution of the tenancy issue or substitution with suitable untenanted land.
Petitioners proposed a scheme involving donations from the tenants to the municipality, which would then donate to respondent. Respondent rejected this as unacceptable and formally requested substitution of the property or a refund of the down payment. Petitioners did not comply, leading respondent to file a complaint for rescission in Makati. Petitioners, in turn, filed a complaint for specific performance in Laguna. During trial, a partial compromise was reached where petitioners would return ₱600,000, but they only paid ₱487,000. Petitioners later moved to withdraw their complaint, but respondent insisted on pursuing its counterclaim for a full refund.

ISSUE

Whether the trial court retained jurisdiction to rule on respondent’s counterclaim for the refund of the down payment after petitioners moved to dismiss their own complaint for specific performance.

RULING

Yes, the trial court correctly retained jurisdiction. The Court affirmed that a compulsory counterclaim, once pleaded, remains for independent adjudication even if the main action is dismissed upon the plaintiff’s motion. The counterclaim for rescission and refund arose from the same transaction—the failed Contract of Sale—and was therefore compulsory in nature. Under the Rules of Court, a court cannot dismiss an action over the defendant’s objection if a compulsory counterclaim has been pleaded, unless the counterclaim can remain pending for independent adjudication, which it can.
The legal logic is grounded in procedural fairness and the prevention of multiplicity of suits. Allowing the withdrawal of the complaint to defeat a compulsory counterclaim would force the defendant to file a separate action, violating judicial efficiency. On the merits, rescission was justified due to petitioners’ failure to deliver a property free from legal impediments (the tenancy issue and lack of DAR clearance), which constituted a breach of their obligation. Applying the principle against unjust enrichment, petitioners were ordered to refund the balance of the down payment, amounting to ₱713,000 (₱1,200,000 less the ₱487,000 already returned). The partial compromise did not bar the full claim as it was not consummated and petitioners defaulted on their own commitment.