International Container Terminal Services, Inc. v. Court of Appeals (1992) Cruz, J. FACTS: Sharp, Inc.

. filed a complaint for prohibition with prayer for preliminary injunction against the DOTC Secretary, the Philippine Ports Authority (PPA), E. Razon, Inc. and petitioner ICTSI. Upon filing of a surety bond, the trial court issued the writ of preliminary injunction. Petitioner filed an answer with compulsory counterclaim against Sharp. o It alleged that the action was unfounded and frivolous. o It claimed damages amounting to more than P100 million. The SC annulled the writ of preliminary injunction. It held: o Sharp was not a proper party to stop the negotiation and awarding of the contract for the development, management and operation of the Container Terminal at the Port of Manila. o The petition was premature because Sharp failed to exhaust all administrative remedies. Recourse should have been with the PPA, the Bidding Committee, and the Office of the President. Thus, PPA filed a MTD. ICTSI adopted PPAs motion. Trial court: Dismissed the complaint as well as the counterclaim. o ICTSI filed a motion for reconsideration of the order insofar as it dismissed the counterclaim. o The MR was denied. The court held:
Indeed a compulsory counterclaim by the nature of i ts nomenclature arises out of or is so intertwined with the transaction or occurrence that is the subject matter of the complaint so that by the dismissal of the latter, the same has to be discarded, specially since the complaint was dismissed without any trial.

CA: Upheld the dismissal of the counterclaim. o Compulsory counterclaims for actual damages are not recoverable against the surety bond. o ICTSIs manifestation adopting PPAs MTD did not contain any reservation. o Damages, to be recovered against a bond, must be supported by an application and hearing (Sec. 20, Rule 57). Such application is separate from the compulsory counterclaim asserted in the answer. o Filing in court of a claim against the injunction bond is not sufficient notice to the surety of an application against it under said bond.

ISSUE + RULING: Was the dismissal of petitioners counterclaim proper? YES. The counterclaim for damages alleged that the delay in the award of the MICT contract caused by Sharps complaint and writ of preliminary injunction jeopardized the petitioners timetable to attain the projected volumes in its winning bid and, as well, caused it to incur litigation expenses, including attorneys fees. REQUISITES OF A COMPULSORY COUNTERCLAIM: 1. It arises out of, or is necessarily connected with, the transaction or occurrence that is the subject matter of the opposing partys claim; 2. It does not require or its adjudication the presence of third parties of whom the court cannot acquire jurisdiction; and 3. The court has jurisdiction to entertain the claim. Petitioners counterclaim was clearly compulsory. o ICTSI itself denominated it. o Same evidence required to sustain it and to refute Sharps cause of action. o The counterclaim would succeed only if the complaint does not. Sec. 2, Rule 17 of the Rules of Court provides:
Sec. 2. Dismissal by order of the court. Except as provided in the preceding section, an action shall not be dismissed at the plaintiffs instance save upon order of the court and upon such terms and conditions as th e court may deem proper. If a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiffs motion to dismiss, the action s hall not be dismissed against the defendants objection unless the counterclaim can remain pending fo r independent adjudication by the court. Unless otherwise specified in the order, a dismissal under this paragraph shall be without prejudice.

ICTSI joined PPA in asking for the dismissal of the complaint. It did not object to such dismissal. The compulsory counterclaim was so intertwined with the complaint that it could not remain pending for independent adjudication by the court after the dismissal of the complaint which had provoked the counter-claim in the first place. o Thus, dismissal of the complaint results in the dismissal of the counterclaim.

While petitioners claim for damages is a proper subject of a counterclaim, it was petitioner itself which caused the dismissal of such counterclaim when it failed to object to the dismissal of the complaint. It should have objected to the dismissal or at least reserved its right to prosecute the counterclaim. The compulsory counterclaim had no independent existence, being merely ancillary to the main action.

On the application of damages against the surety bond Sec. 20, Rule 57 provides: Claim for damages on account of illegal attachment. If the judgment on the action be in favor of the party against whom attachment was issued, he may recover, upon the bond given or deposit made by the attaching creditor, any damages resulting from the attachment. Such damages may be awarded only upon application and after hearing, and shall be included in the final judgment. The application must be filed before the trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching creditor and his surety or sureties, setting forth the facts showing his right to damages and the amount thereof. Guidelines laid down by SC: 1. Damages must be claimed in the same action with due notice to the surety; 2. If the surety is duly notified, he is bound by the judgment that may be entered against the principal, subject to execution to enforce the bond; 3. If the surety is not notified, the judgment cannot be executed against it without being given the opportunity to be heard. Petitioner contends that the surety was duly notified when it served the bonding company with notice of its claim for damages on August 31, 1988. o CORRECT. o No particular form of notice is required.

DISPOSITION: Petition denied.