G.R. No. L-13124; February 28, 1919
PATRICINIO BAYOT, as administratrix of the intestate estate of Francisco Ma. Bayot, plaintiff-appellant, vs. LUCAS ZURBITO, as administrator of the intestate estate of Gaspar Zurbito, defendant-appellee.

FACTS:
Patrocinio Bayot, as administratrix of the estate of her deceased father Francisco Ma. Bayot, filed an action to recover a debt of P9,694.52 from the estate of Gaspar Zurbito, administered by Lucas Zurbito. The debt arose from mercantile transactions prior to Bayot’s death. This claim was previously presented as a counterclaim or set-off when Gaspar Zurbito’s estate filed a separate claim (for P53,602.76) against the Bayot estate. The committee on claims in the Bayot estate disallowed Zurbito’s claim and, believing it lacked jurisdiction to rule on Bayot’s counterclaim after disallowing the main claim, merely referred the counterclaim to the court without deciding its merits. No formal appeal was taken from this referral. In the subsequent court proceedings on Zurbito’s appeal, Bayot’s counterclaim was also dismissed because the court considered the committee’s action as a disallowance and no appeal was perfected. The Supreme Court affirmed that dismissal. Bayot’s administratrix then filed this independent action to recover the debt. The trial court dismissed the case on the ground of res judicata, holding the matter was already determined in the prior proceedings.

ISSUE:
Whether the prior disallowance and dismissal of the administratrix’s counterclaim in the proceedings concerning the Zurbito estate’s claim against the Bayot estate operates as res judicata, barring the present independent action for the recovery of the debt.

RULING:
No. The Supreme Court reversed the dismissal and remanded the case for trial on the merits.
1. On the Committee’s Jurisdiction: The committee on claims erred in holding it lost jurisdiction to allow the set-off merely because the main claim (Zurbito’s) was disallowed. Under Section 696 of the Code of Civil Procedure, a creditor who presents a claim submits to the committee’s jurisdiction, and the committee retains authority to adjudicate a set-off presented by the estate, regardless of the outcome of the creditor’s claim.
2. On Res Judicata: The prior judgment does not constitute a bar. For res judicata to apply, the prior judgment must be on the merits. Here, the committee did not adjudicate the counterclaim on its merits but dismissed it based on a perceived lack of jurisdiction. The subsequent courts merely upheld the dismissal due to the lack of a proper appeal, not on the merits of the debt. A judgment not on the merits does not create a conclusive bar.
3. On the Right to Institute an Independent Action: Section 701 of the Code of Civil Procedure authorizes an executor or administrator to commence and prosecute an action for the recovery of a debt that accrued in the decedent’s lifetime. This general authority prevails over the restrictive provision in Section 696. The requirement in Section 696 to present claims as offsets is directory, not an absolute bar to filing a separate suit. Therefore, the plaintiff’s failure to successfully prosecute the claim as an offset does not preclude the present independent action.