G.R. No. L-14619; January 13, 1920
YU LAY, plaintiff-appellee, vs. JUAN GALMES, defendant-appellant.

FACTS:
On October 18, 1917, Yu Lay filed a complaint in the justice of the peace court of Manila against Juan Galmes to recover P556.85, the price of eggs sold and delivered in September 1917. Galmes answered with a general denial and a counterclaim for P1,373. The justice of the peace, finding the counterclaim exceeded his jurisdictional limit of P600, refused to rule on it and rendered judgment for Yu Lay. Galmes appealed to the Court of First Instance (CFI).

In the CFI, Yu Lay relied on his original complaint. Galmes filed an answer with a general denial, a special defense alleging Yu Lay breached their egg supply contract by delivering defective and insufficient eggs, and a detailed counterclaim for P7,918.90 in damages, including future losses. Yu Lay moved to dismiss the counterclaim, arguing the CFI had no jurisdiction over it since it was not and could not have been set up in the inferior court. The trial court dismissed the counterclaim.

Galmes then filed a separate action in the CFI based on the same cause of action and sought to amend his answer in the appealed case to reallege a reduced counterclaim of P565.05 and to consolidate the two cases. The trial court denied both motions. After trial, the CFI rendered judgment ordering Galmes to pay Yu Lay P556.85 with interest. Galmes appealed.

ISSUE:
Whether the Court of First Instance, on appeal from a justice of the peace court, acquired jurisdiction over the defendant’s compulsory counterclaim which exceeded the jurisdictional amount of the inferior court and which was not presented therein.

RULING:
No. The judgment of the Court of First Instance is affirmed.

The Supreme Court held that the provisions of the Code of Civil Procedure governing counterclaims in the Courts of First Instance, particularly the compulsory counterclaim rule in Section 97 (which bars a defendant from subsequently asserting a counterclaim arising from the same transaction if not set up in the original answer), do not apply to proceedings in justice of the peace courts. Jurisdiction of justices of the peace is limited by statute, and they cannot entertain a counterclaim exceeding their jurisdictional amount. Since Galmes’s counterclaim exceeded P600, it could not have been validly filed in the justice of the peace court. Consequently, on appeal, the CFI’s jurisdiction was limited to the subject matter of the original complaintthe collection of P556.85and it correctly dismissed the counterclaim. The defendant is not barred from pursuing his larger claim in a separate action before the competent court. On the merits, the evidence supported the CFI’s finding that Yu Lay delivered the eggs and Galmes refused to pay.