G.R. No. L-69158 December 29, 1988
PACIFIC BANKING CORPORATION, petitioner, vs. HON. RAFAEL T. MENDOZA and J. ANTONIO C. LEVISTE, respondents.

FACTS

Pacific Banking Corporation filed a complaint for sum of money against Jose M. Guevarra and J. Antonio Leviste as an alleged guarantor. Leviste denied signing any guaranty and filed a permissive counterclaim for damages in the Manila City Court, without specifying an amount, leaving it to the court’s discretion. During trial, Leviste testified his damages were “not less than a million pesos,” and his counsel immediately reserved the right to file a separate action for such damages. Based on this testimony, the city court dismissed the counterclaim for lack of jurisdiction, as its jurisdictional limit was P10,000 under the then-governing Judiciary Act of 1948, while absolving Leviste from liability. Leviste later filed a separate complaint for damages in the Makati Regional Trial Court.
Pacific Bank moved to dismiss the RTC case on the ground of res judicata, arguing the city court’s dismissal of the counterclaim was a final judgment on the merits that barred the second action, even if the dismissal for lack of jurisdiction was arguably erroneous. The respondent judge denied the motion.

ISSUE

Whether the dismissal of Leviste’s counterclaim by the city court for lack of jurisdiction bars the subsequent filing of a separate complaint for damages on the ground of res judicata.

RULING

No, res judicata does not apply. For res judicata to bar a subsequent action, the judgment must be final, rendered by a court with jurisdiction over the subject matter and parties, and on the merits, with identity of parties, subject matter, and causes of action. Here, a critical element is missing: the city court lacked jurisdiction over the counterclaim. While the petitioner argued that by not specifying an amount, Leviste impliedly limited his claim to the city court’s P10,000 jurisdiction under the Agustin v. Bacalan doctrine, this was superseded by Leviste’s subsequent testimony expressly quantifying his damages at over one million pesos. This testimony, to which no objection was made, amended the pleadings by implied consent under Rule 10, Section 5 of the Rules of Court, thereby placing the claim beyond the city court’s jurisdictional limit.
Furthermore, counsel’s immediate reservation of the right to file a separate suit and request that the city court not rule on the counterclaim constituted a withdrawal of the permissive counterclaim, to which the petitioner raised no objection. Since the counterclaim was permissive and beyond the city court’s jurisdiction, its dismissal did not constitute an adjudication on the merits. Therefore, Leviste was not barred from re-asserting the claim in a separate action before the competent court, the Regional Trial Court. The petition was denied.