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Where an action for unlawful detainer is based on P.D. 957 (defective construction), HLURD,
not the MTC, has jurisdiction.

Francel alleged that it had executed a Contract to Sell to Sycip a property in Cavite, for
P451,000.00. The Contract to Sell provides that in case of default in the payment of two or more
installments, the whole obligation will become due and demandable and the seller will then be
entitled to rescind the contract and take possession of the property; the buyer will vacate the
premises without the necessity of any court action and the downpayment will be treated as
earnest money or as rental for the use of the premises. Francel alleged that Sycip failed to pay the
monthly amortization of P9,303.00 since October 30, 1990 despite demands to update his
payments and to vacate the premises, the latest of which was the demand made in the letter dated
September 26, 1992, so Francel filed in the MTC an action for unlawful detainer and award for
costs and damages.

Sycip, on the other hand filed a motion o dismiss the case on the ground that he stopped paying
because the townhouse sold to him was of defective construction; that in fact a case for unsound
real estate business practice is pending in the Housing and Land Use Regulatory Board

MTC granted the dismissal on the ground that it had no jurisdiction and that the case was
cognizable by the HLURB. RTC affirmed. CA reversed.

Whether or not MTC had jurisdiction?

Petitioner's complaint is for unlawful detainer. While generally speaking such action falls within
the original and exclusive jurisdiction of the MTC, the determination of the ground for ejectment
requires a consideration of the rights of a buyer on installment basis of real property. Indeed
private respondent claims that he has a right under P.D. No. 957, §23 to stop paying monthly
amortizations after giving due notice to the owner or developer of his decision to do so because
of petitioner's alleged failure to develop the subdivision or condominium project according to the
approved plans and within the time for complying with the same. The case thus involves a
determination of the rights and obligations of parties in a sale of real estate under P.D. No. 957,
Private respondent has in fact filed a complaint against petitioner for unsound real estate business
practice with the HLURB.

This is, therefore, not a simple case for unlawful detainer arising from the failure of the lessee to
pay the rents, comply with the conditions of a lease agreement or vacate the premises after the
expiration of the lease. Since the determinative question is exclusively cognizable by the
HLURB, the question of the right of petitioner must be determined by the agency.

As to the counterclaim, Pursuant to Rule 6, §8 a party may file a counterclaim only if the court
has jurisdiction to entertain the claim. Otherwise the counterclaim cannot be filed.
G.R. No. 135796. October 3, 2002
In August 1995, Pangan Lim, Jr. and a certain Mercedes M. Oliver opened a joint
account in China Banking Corporation. Lim introduced Oliver to the bank’s branch manager as
his partner in the rice and palay trading business. Thereafter, Lim and Oliver applied for a P17
million loan, offering as collateral a 7,782 sqm lot located in Tunasan, Muntinlupa in the name
of Oliver. The bank approved the application. Lim and Oliver executed in favor of Chinabank a
promissory note as well as a Real Estate Mortgage on the property. The mortgage was duly
registered and annotated on the original title under the custody of the Registry of Deeds of
Makati and on the owner’s duplicate copy in the bank’s possession. The mortgage document
showed Mercedes Oliver’s address to be No. 95 Malakas Street, Diliman, Quezon City. For
brevity, she is hereafter referred to as “Oliver One.”
On November 1996, respondent claiming that she is Mercedes M. Oliver with postal
office address at No. 40 J.P. Rizal St., San Pedro, Laguna, filed an action for annulment of
mortgage and cancellation of title with damages. Respondent, whom we shall call as “Oliver
Two,” claimed that she was the registered and lawful owner of the land subject of the real estate
mortgage; that the owner’s duplicate copy of the title had always been in her possession; and that
she did not apply for a loan or surrender her title to Chinabank.
On January 1997, Chinabank moved to dismiss the case for lack of cause of action and
non-joinder of an indispensable party, the mortgagor. On March 13, 1997, Judge Norma C.
Perello issued an order denying the motion to dismiss. Chinabank filed with the Court of Appeals
a petition for certiorari with prayer for the issuance of a writ of preliminary injunction and/or
restraining order to enjoin enforcement of the March 13, 1997 order and further action on the
case. The Court of Appeals directed respondent Oliver Two to file her comment and deferred
action on the prayer for the issuance of the preliminary injunction pending submission of the
On June 30, 1997, respondent Oliver Two moved to declare petitioner Chinabank in
default. She pointed out that since petitioner received the order denying the motion to dismiss on
March 21, 1997, it had only until April 7, 1997 to file its answer to the complaint. However,
until the filing of the motion for default, no answer had been filed yet. The trial court granted the
motion and declared petitioner in default in its order dated July 17, 1997.
Consequently, petitioner Chinabank filed a supplemental petition on August 11, 1997,
seeking annulment of the July 17, 1997 order. It argued that the special civil action for certiorari
filed in the Court of Appeals interrupted the proceedings before the trial court, thereby staying
the period for filing the answer.
On June 1, 1998, the Court of Appeals promulgated the assailed decision, finding no
grave abuse of discretion committed by the trial judge in ruling that the Rules of Court provided
the manner of impleading parties to a case and in suggesting that petitioner file an appropriate
action to bring the mortgagor within the court’s jurisdiction. The appellate court said that Rule
6, Section 11 of the Rules of Court allows petitioner to file a third-party complaint against the
mortgagor. As to the judgment by default, the Court of Appeals said that an order denying the
motion to dismiss is interlocutory and may not be questioned through a special civil action for
certiorari. The defendant must proceed with the case and raise the issues in his motion to dismiss
when he appeals to a higher court. In this case, petitioner Chinabank should have filed its
answer when it received the March 13, 1997 order denying the motion to dismiss. The special
civil action for certiorari with the Court of Appeals did not interrupt the period to file an answer,
there being no temporary restraining order or writ of preliminary injunction issued.
The Court of Appeals denied petitioner’s motion for reconsideration. Hence, this petition

1. Is the mortgagor who goes by the name of Mercedes M. Oliver, herein called Oliver One,
an indispensable party in Civil Case No. 96219?
2. Should Section 7 Rule 3 of the 1997 Rules of Civil Procedure apply in this case?

Petitioner Chinabank alleges that there are two owner’s duplicate copies of TCT No. S-
50195 involved in this case and two persons claiming to be the real “MERCEDES
MARAVILLA OLIVER.” One is the mortgagor, Oliver One. The other is the respondent,
Oliver Two. Respondent’s complaint before the trial court was one for cancellation of the
transfer certificate of title in petitioner’s possession (Annex B). According to petitioner, the
issue below is the genuineness of the titles, which is intertwined with the issue of ownership.
This being the case, said the petitioner, the mortgagor Oliver One must necessarily be impleaded
for she is the registered owner under Annex “B.” Hence, mortgagor Oliver One’s participation
in the suit is indispensable, according to petitioner. In brief, what petitioner Chinabank is saying
is that it was indispensable for respondent Oliver Two to implead mortgagor Oliver One in the
case before the trial court. Failing to do that, the complaint of herein respondent Oliver Two
should have been dismissed.

Petitioner’s contention is far from tenable. An indispensable party is a party in interest,
without whom no final determination can be had of an action. It is true that mortgagor Oliver
One is a party in interest, for she will be affected by the outcome of the case. She stands to be
benefited in case the mortgage is declared valid, or injured in case her title is declared fake.
However, mortgagor Oliver One’s absence from the case does not hamper the trial court in
resolving the dispute between respondent Oliver Two and petitioner. A perusal of Oliver Two’s
allegations in the complaint below shows that it was for annulment of mortgage due to
petitioner’s negligence in not determining the actual ownership of the property, resulting in the
mortgage’s annotation on TCT No. S-50195 in the Registry of Deeds’ custody. To support said
allegations, respondent Oliver Two had to prove (1) that she is the real Mercedes M. Oliver
referred to in the TCT, and (2) that she is not the same person using that name who entered into a
deed of mortgage with the petitioner. This, respondent Oliver Two can do in her complaint
without necessarily impleading the mortgagor Oliver One. Hence, Oliver One is not an
indispensable party in the case filed by Oliver Two.
In Noceda vs. Court of Appeals, et al., 313 SCRA 504 (1999), we held that a party is not
indispensable to the suit if his interest in the controversy or subject matter is distinct and
divisible from the interest of the other parties and will not necessarily be prejudiced by a
judgment which does complete justice to the parties in court. In this case, Chinabank has interest
in the loan which, however, is distinct and divisible from the mortgagor’s interest, which
involves the land used as collateral for the loan.
As to the second issue, since mortgagor Oliver One is not an indispensable party, Section
7, Rule 3 of the 1997 Rules of Civil Procedure, which requires compulsory joinder of
indispensable parties in a case, does not apply. Instead, it is Section 11, Rule 3, that applies.
Non-joinder of parties is not a ground for dismissal of an action. Parties may be added by order
of the court, either on its own initiative or on motion of the parties. Hence, the Court of Appeals
committed no error when it found no abuse of discretion on the part of the trial court for denying
Chinabank’s motion to dismiss and, instead, suggested that petitioner file an appropriate action
against mortgagor Oliver One. A person who is not a party to an action may be impleaded by the
defendant either on the basis of liability to himself or on the ground of direct liability to the

Chan v. CA

G.R.No. 109020; March3, 1994

Petitioners:Felisa Chan

Respondents:Hon. Court of Appeals and Grace Cu


1. A counterclaim for ejectment may be set up in a complaint for consignation.


1. Felisa Chan and Grace Cu entered into a contract of lease whereby the latter will occupy
for residential purposes Room 401 and the rooftop of Room 442 of a building owned by
the former located in Manila. The term of the lease is 1 year. In the contracts, it was
agreed that the premises shall be used as a learning center. The monthly rental was raised
every year.
2. Said contract of lease was renewed every year for 2 successive years or up to February 1,
1986. After February 1, 1986, there was no written contract of lease executed by the
parties, but Cu has continuously occupied the premises as a learning center.
3. Sometime in November 1989, Chan padlocked the way to the rooftop.
4. Cu insisted that she should be allowed to use the rooftop while Chan maintained that only
Room 401 was leased and that the use of the rooftop was merely tolerated.
5. Eventually, Chan terminated the lease, giving Cu until January 1, 1990 to vacate the
6. Because of the dispute between the parties, Chan did not collect the rental for December
1989. Whereupon, Cu tendered to Chan a check, which the latter refused to accept. Cu’s
lawyer tendered the payment in cash in the same amount with notice to Chan that if she
will not accept the payment, the same will be deposited in court by way of consignation.
7. Chan allowed Cu to hold classes only up to March 1990.
8. On January 15, 1990, Cu filed a civil case for consignation with the Metropolitan Trial
Court of Manila. She alleged that Chan refused to accept, without justifiable cause, the
rentals for the premises in question.
9. Chaninterposed in her answer a counterclaim for ejectment. She contended that the lease,
being month to month, had expired but that despite demand, Cu refused to vacate the
10. The MeTC declared that the rooftop is included in the lease and fixed the term of the
lease over the subject premises until June 30, 1992. It declared the consignation of rentals
made by Cu to be valid and legal and released Cu from the obligation of paying the said
11. Both parties appealed to the RTC of Manila.
12. Cu maintained that the MeTC should have fixed a longer period, while Chan contended
that the court erred in extending the term of the lease and in upholding the validity of the
13. RTC affirmed the MeTC’s decision.
14. CA reversed and set aside the decisions of the MeTC and the RTC and dismissed the
complaint for consignation for lack of merit.
o The MeTC and the RTC erred in passing upon the issue of ejectment raised in
Chan’s counterclaim since an action for ejectment can only be initiated through a
verified complaint, not a counterclaim. Thus, the courts should not have fixed the
term of the lease. This issue can only be decided in a case of ejectment.
o In dismissing the complaint for consignation, CA ruled that Chan’s refusal to
accept the rental was justified and that she may not be compelled to accept such
rental payments.


1. Whether the counterclaim for unlawful detainer was properly included in the complaint
for consignation. – YES.

1. It must be emphasized that the parties have conceded the propriety of the counterclaim
for ejectment and accepted the MeTC’s jurisdiction thereon. As a matter of fact, the
consignation was relegated to the background and the parties heatedly tangled on the
nagging issues on the duration of the lease after the expiration of the last written contract,
the power of the court to extend the lease, and the length of the extension – all of which
were provoked by and linked to the counterclaim for ejectment.
A counterclaim is any claim for money or other relief which a defending party may have
against an opposing party. Itneed not diminish or defeat the recovery sought by
theopposing party, but may claim relief exceeding in amountor different in kind from that
sought by the opposingparty’s claim.Counterclaims are designed to enable thedisposition
of a whole controversy of interested parties’conflicting claims, at one time and in one
action, providedall the parties can be brought before the court and thematter decided
without prejudicing the rights of anyparty.A counterclaim “is in itself a distinct
andindependent cause of action, so that when properly statedas such, the defendant
becomes, in respect to the matterstated by him, an actor, and there are two
simultaneousactions pending between the same parties, wherein each isat the same time
both a plaintiff and a defendant . . . . Acounterclaim stands on the same footing and is to
be tested

by the same rules, as if it were an independent action.” In short, the defendant is a

plaintiff with respect to his counterclaim.

Section 8, Rule 6 of the Rules of Court provides that theanswer may contain any
counterclaim which a party mayhave against the opposing party provided that the
courthas jurisdiction to entertain the claim and can, if the

presence of third parties is essential for its adjudication,acquire jurisdiction of such

parties. Under Section 4 of Rule9, a counterclaim not set up shall be barred if it arises
outof or is necessarily connected with the transaction oroccurrence that is the subject
matter of the opposingparty’s claim and does not require for its adjudication thepresence
of third parties of whom the court cannot acquirejurisdiction. A counterclaim may be
compulsory orpermissive. The former is that covered by Section 4 of Rule9.

Chan’s counterclaim for ejectment is a compulsory counterclaim because it is necessarily

connected with thetransaction or occurrence which is the subject matter ofCu’s
complaint, viz., the lease contract between them. Consequently, the CA erred when it
held that Chan’s cause of action for ejectment could not be set up in a counterclaim.