Title
Ficial Building Corp. vs. Forbes Park Association, Inc.
Case
G.R. No. 133119
Decision Date
Aug 17, 2000
USSR's construction of a multi-level building on diplomatic premises violated Forbes Park Association's regulations. FPA sued FBC for damages, but claims were barred due to failure to assert compulsory counterclaims in prior case.
construction company
staff apartment building
deed restrictions
A

Case Summary (G.R. No. 133119)

Factual Background

The USSR owned a 4,223-square-meter lot at No. 10 Narra Place. On December 2, 1985, the USSR engaged Financial Building for construction of a multi-level office and staff apartment building purportedly to serve as a residence for its Trade Representative. Forbes Park initially authorized construction based on the USSR’s representation that a residence would be built. On June 30, 1986 Forbes Park reminded the USSR of the village rule permitting only single-family residential buildings; the USSR reassured compliance. Despite that reassurance, Financial Building submitted to Makati City a second plan for a multi-level apartment building different from the residential plan submitted to Forbes Park. Forbes Park discovered the second plan and, after ocular inspection, confirmed a violation of its deed restrictions, enjoined further construction, and on March 27, 1987 suspended permits of entry for Financial Building’s personnel and materials.

Prior Procedural History (first action)

On April 9, 1987, Financial Building filed a complaint for injunction and damages (Regional Trial Court of Makati, Civil Case No. 16540) with a prayer for preliminary injunction against Forbes Park. Forbes Park filed a motion to dismiss that complaint on the ground that Financial Building was not the real party in interest. On April 28, 1987 the trial court issued a writ of preliminary injunction, but the Court of Appeals nullified the injunction and dismissed the complaint. The dismissal was affirmed by the Supreme Court in G.R. No. 79319 by Resolution promulgated on April 6, 1988.

Subsequent Procedural History (second action)

After finality of the prior case, Forbes Park filed on October 27, 1989 a separate complaint for damages against Financial Building (Regional Trial Court of Makati, Civil Case No. 89-5522), claiming P3,000,000.00 actual damages, P1,000,000.00 moral damages, P1,000,000.00 exemplary damages, and P1,000,000.00 attorney’s fees. On September 26, 1994 the trial court rendered judgment in favor of Forbes Park ordering removal/demolition of illegal structures and awarding P3,000,000.00 as actual damages (demolition expenses), P1,000,000.00 exemplary damages, P500,000.00 attorney’s fees, and costs. Financial Building appealed to the Court of Appeals (CA-G.R. CV No. 48194), which affirmed the trial court on March 20, 1998 but reduced exemplary damages and attorney’s fees to P50,000.00 each.

Issues Presented by Petitioner

Financial Building assigned errors to the Court of Appeals decision, primarily that: (I) Forbes Park’s complaint for damages was barred by prior judgment and/or was waived for failing to interpose its claims as compulsory counterclaims in Civil Case No. 16540; (II) Forbes Park had no cause of action against Financial Building; (III) the award of damages and liability findings were unsupported by the record; and (IV) demolition should not have been ordered because the structures were on a diplomatic premise.

Applicable Law and Procedural Rules

Constitutional framework applicable (decision date after 1990): 1987 Philippine Constitution. Procedural rules actually invoked in the analysis: the 1964 Rules of Court provisions in effect during the pendency of Civil Case No. 16540, notably Sec. 3, Rule 6 (real party in interest), Sec. 4, Rule 9 (compulsory counterclaims), and Sec. 5, Rule 16 (relation of dismissal and counterclaim under then-applicable rules). The Court also referenced Sec. 6, Rule 16 of the 1997 Rules on Civil Procedure to explain subsequent rule changes.

Legal Standard on Compulsory Counterclaims

A compulsory counterclaim arises out of or is necessarily connected with the transaction or occurrence that is the subject matter of the opposing party’s claim; if within the court’s jurisdiction and not requiring third parties over whom the court cannot obtain jurisdiction, it is barred if not asserted in the action filed by the opposing party. The Court articulated four tests to determine whether a counterclaim is compulsory: (1) whether the issues of fact or law are largely the same; (2) whether res judicata would bar a subsequent suit absent the compulsory counterclaim rule; (3) whether substantially the same evidence will support or refute both the plaintiff’s claim and the defendant’s counterclaim; and (4) whether there is any logical relation between the claim and the counterclaim. Affirmative answers to these queries indicate a compulsory counterclaim.

Application of the Compulsory Counterclaim Rule to the Facts

The Supreme Court found that Civil Case No. 16540 (Financial Building’s prior injunction action) and Civil Case No. 89-5522 (Forbes Park’s later damages action) arose from the same occurrence: the construction undertaken by Financial Building on the USSR-owned lot. The issues of fact—whether the structures violated Forbes Park’s deed restrictions—and law—whether Financial Building as contractor could be enjoined and held liable—were identical in both suits. The same evidence would support or refute both actions, the parties were the same, and the aggregate amount of Forbes Park’s claims fell within the regional trial court’s jurisdiction such that they should have been asserted as a counterclaim in the prior suit. Accordingly, Forbes Park’s cause of action was a compulsory counterclaim that should have been litigated in Civil Case No. 16540.

Effect of Forbes Park’s Motion to Dismiss in the Prior Case

The Court further held that Forbes Park’s decision to file a motion to dismiss the prior complaint was incompatible with preserving a compulsory counterclaim. Under the rules as then in force, a counterclaim is auxiliary to the original proceeding and derives jurisdictional support from i

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