G.R. No. L-16677 November 27, 1964
LAMBERTO YNOTORIO and SANTOS CATALAN, plaintiffs-appellees, vs. CANUTA LIRA, ET AL., defendants, JOSEFINO LIRA, VICENTE LIRA, PEPITO LIRA, MANUEL GRINO, JR. and CRISPINA C. VDA. DE GRINO, defendants-appellants.

FACTS

On July 8, 1957, plaintiffs Lamberto Ynotorio and Santos Catalan filed an action for partition and/or recovery of ownership and possession of a one-half undivided interest in 144 parcels of land, plus damages. They alleged that the properties were conjugal assets of the late Felipe Ynotorio (plaintiffs’ uncle) and his wife, defendant Canuta Lira. They claimed that upon Felipe’s intestate death in 1924, they were entitled to a share as his nearest collateral relatives, and that Canuta Lira had fraudulently transferred several properties to her co-defendants (her adopted children and others), depriving plaintiffs of their inheritance.
Defendants, in their answer, asserted that Felipe Ynotorio died with a duly probated will instituting Canuta Lira as his universal heir. They claimed that 80 parcels belonged exclusively to Canuta (acquired after Felipe’s death) and the remaining 64 parcels were owned by Crispina Catalan Vda. de Grino. They also alleged that Canuta had donated her properties to her legally adopted children in 1936. As affirmative defenses, defendants contended the complaint stated no cause of action, the action had prescribed, and plaintiffs lacked legal capacity to sue. They also filed a counterclaim for damages amounting to P160,000.00, alleging plaintiffs filed the suit in bad faith despite knowledge of the probated will and judicial settlement of Felipe’s estate.
During the pendency of the case, defendant Canuta Lira died. Plaintiffs moved to dismiss the case without prejudice, intending to await the outcome of related administration proceedings (Special Proceedings No. V-2269). Defendants opposed, arguing their counterclaim could not remain pending for independent adjudication. The lower court granted the dismissal without prejudice, ruling the counterclaim could be the subject of a separate action or claimed in the special proceedings.
Defendants appealed from: (1) the order denying their motion for a preliminary hearing on their affirmative defenses and their motion to strike certain allegations, and (2) the order dismissing the case without prejudice.

ISSUE

Whether the trial court erred in dismissing the plaintiffs’ complaint without prejudice over the defendants’ objection, given the existence of a compulsory counterclaim that arises from or is connected with the main action.

RULING

Yes. The Supreme Court set aside the appealed orders and remanded the case to the lower court for further proceedings.
1. On the denial of the motion for preliminary hearing: The Court found no merit in this part of the appeal. The trial court correctly denied the motion, as resolving the affirmative defenses (lack of cause of action, prescription, capacity to sue, res judicata) would require the presentation of evidence, making a full trial on the merits more appropriate.
2. On the dismissal of the case: The trial court erred in dismissing the complaint without prejudice over the defendants’ objection. The defendants’ counterclaim for damages, based on the alleged bad faith filing of the suit despite knowledge of a probated will and settled estate, is a compulsory counterclaim. It arises from, or is necessarily connected with, the transaction or occurrence that is the subject matter of the plaintiffs’ own action. Following established jurisprudence (Belleza vs. Huntington, Froilan vs. Pan Oriental Shipping Co., Domingo vs. Santos), such a counterclaim cannot remain pending for independent adjudication. Therefore, the court may not dismiss the main action over the defendant’s opposition when a compulsory counterclaim has been pleaded.
The Court deemed it unnecessary to resolve other incidental issues raised.