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VIRGINIA S. DIO v. SUBIC BAY MARINE EXPLORATORIUM

FACTS:

M.S. Equities, Ltd. (HSE), a foreign corporation, and Virginia S. Dio entered into an agreement with Subic Bay Marine Exploratorium, Inc. (SBME), a domestic corporation, to invest in a beach resort project. After paying their initial subscription, the petitioners refused to further invest due to alleged mismanagement of funds. SBME filed a complaint against the petitioners before the Regional Trial Court (RTC), accusing them of unjust refusal to pay and Dio of dissuading investors from putting in capital. The petitioners denied the allegations and counterclaimed for damages and the recovery of their investment. However, the RTC dismissed the case because of a defect in the certificate of non-forum shopping. The dismissal was affirmed by the Court of Appeals (CA) due to the respondents' failure to file their appellants' brief. After the dismissal became final, the petitioners filed a motion to set their counterclaims for hearing before the RTC, which was opposed by the respondents. The RTC granted the motion but later dismissed the counterclaims, citing loss of jurisdiction over the case. The petitioners appealed to the Supreme Court, arguing that the RTC erred in refusing to set their counterclaims for hearing.

ISSUES:

  1. Can the counterclaim remain for independent adjudication despite the dismissal of the main case?

  2. Did the petitioners use the correct remedy in directly assailing the RTC Orders before the Supreme Court?

  3. Whether the dismissal of a complaint due to the fault of the plaintiff results in the dismissal of a pending counterclaim.

  4. Whether a counterclaim can survive the dismissal of the complaint if it states a sufficient cause of action.

RULING:

  1. Yes, the counterclaim can remain for independent adjudication despite the dismissal of the main case. The dismissal of the complaint does not automatically result in the dismissal of the counterclaim. The correct and prevailing doctrine is that the dismissal of the counterclaim must be based on its own merits and not solely on the dismissal of the main case. The court erred in concluding that the counterclaim can no longer stand for independent adjudication after the main case was dismissed.

  2. No, the petitioners did not use the correct remedy in directly assailing the RTC Orders before the Supreme Court. The established policy of strict observance of judicial hierarchy requires recourse to be made first to the lower-ranked court exercising concurrent jurisdiction with a higher court. Unless special and important reasons are clearly and specifically set out in the petition, a direct invocation of the Supreme Court's original jurisdiction may not be allowed. However, in cases involving purely legal questions and where the appellate court can determine the issue raised without reviewing or evaluating the evidence, the rule may be relaxed.

  3. The dismissal of a complaint due to the fault of the plaintiff does not result in the dismissal of a pending counterclaim.

  4. A counterclaim can survive the dismissal of the complaint if it states a sufficient cause of action.

  5. The Supreme Court allowed the counterclaim of the petitioners to proceed independently of the complaint of the respondents. The dismissal of the respondents' complaint does not eliminate the cause of action of the petitioners' counterclaim. Thus, the case is remanded to the Regional Trial Court for further proceedings on the counterclaims of the petitioners.

PRINCIPLES:

  • Dismissal of the complaint does not automatically result in the dismissal of the counterclaim. The counterclaim must be decided on its own merits.

  • Strict observance of the judicial hierarchy requires recourse to be made first to the lower-ranked court exercising concurrent jurisdiction with a higher court.

  • The rule on judicial hierarchy may be relaxed in cases involving purely legal questions where the appellate court can determine the issue without reviewing or evaluating the evidence.

  • The dismissal of a complaint does not ipso jure result in the dismissal of a counterclaim, and the latter may remain for independent adjudication of the court, provided that such counterclaim states a sufficient cause of action and does not labor under any infirmity that may warrant its outright dismissal.

  • The jurisdiction of the court over a counterclaim that appears to be valid on its face, including the grant of any relief thereunder, is not abated by the dismissal of the main action.

  • The dismissal of the complaint due to the fault of the plaintiff is without prejudice to the right of the defendant to prosecute any pending counterclaims in the same or separate action, as long as the counterclaim states a sufficient cause of action.