G.R. No. 25951 , December 24, 1927
MODESTA BELTRAN, plaintiff-appellant, vs. JUAN VALBUENA, ET AL., defendants-appellees.

FACTS

In 1920, Juan Valbuena and others (defendants-appellees) filed an ejectment case (Civil Case No. 2159) against Modesta Beltran (plaintiff-appellant) to recover possession of a 68-hectare land. Beltran subsequently filed a land registration case (LRC No. 403) for the same property, which the Valbuenas opposed. The two cases were jointly tried. On January 12, 1923, the trial court ruled in favor of the Valbuenas, ordering Beltran to vacate the land and denying her registration application. This decision was affirmed by the Supreme Court on October 15, 1923, and executed on December 10, 1923, with the sheriff delivering possession and the standing crops to the Valbuenas.

Beltran then filed the present action to recover P25,840.97 as compensation for improvements she allegedly made on the land from 1917 until her ouster in 1923, and for reimbursement of cultivation expenses for the crops delivered to the Valbuenas. She also sought a right of retention until payment.

The Valbuena defended by arguing that Beltran’s claim for indemnity should have been raised as a compulsory counterclaim in the earlier ejectment case (Civil Case No. 2159). Their failure to do so barred the present suit under Section 97 of the Code of Civil Procedure. The trial court agreed, dismissing Beltran’s complaint.

ISSUE

Whether Modesta Beltran’s claim for indemnity for improvements and cultivation expenses is barred for failure to assert it as a compulsory counterclaim in the prior ejectment case.

RULING

YES, the claim is barred.

The Supreme Court affirmed the trial court’s dismissal. The case is squarely governed by the precedent in *Berses v. Villanueva* (25 Phil. 473), which held that a claim for indemnity of this nature, if existing at the commencement of the original action and arising from the same transaction, must be set up as a counterclaim in that action. Failure to do so bars a subsequent independent action under Section 97 of the Code of Civil Procedure.

The Court clarified that while it might be unjust to require a possessor in good faith in an ejectment suit to set up such counterclaims (as they might reasonably believe their title is sound, citing *Bautista v. Jimenez*), that exception did not apply here. The evidence established that Beltran was not a possessor in good faith. The land had a history of transactions (pacto de retro sales) favoring the Valbuenas, who had been paying taxes since 1899. Beltran’s offer to redeem the land in 1917 was rejected by the Valbuenas, who asserted full ownership. Despite this clear challenge to her claim and the existence of other heirs with equal rights, Beltran took possession and made improvements. Therefore, she possessed the land in bad faith and was aware of the flaw in her title.

As a possessor in bad faith, she might only recover necessary expenses under Article 453 of the Civil Code. However, because her claim for these expenditures was compulsory and arose from the same subject matter as the ejectment suit, she was obligated to raise it in that prior case. Her failure to do so resulted in the bar of her claim by prior judgment.

The appealed judgment was affirmed, with costs against appellant Beltran.