FELISA CHAN, PETITIONER, VS. HON. COURT OF APPEALS AND GRACE CU, RESPONDENTS.

This is a petition for review on certiorari of the decision of the Court of Appeals in
CA-G.R. SP No. 28870^[1] which
reversed and set aside the decision of the Regional Trial Court (RTC) of Manila
in Civil Case No. 91-55879.^[2] The
RTC had affirmed the decision of the Metropolitan Trial Court (MTC) of Manila
in Civil Case No. 131203-CV.^[3]

The antecedent facts are set forth in the challenged decision of
the public respondent Court of Appeals as follows:

“It appears from the
records that on February 1, 1983, Felisa Chan and Grace Cu entered into a
contract of lease whereby the latter will occupy for residential purposes Room
401 and the roof top of Room 442 of a building owned by the former located at
Elcano corner Urbistondo, Manila. The
term of the lease is one year or up to February 1, 1984 at a monthly rental of P2,400.00. Said contract of lease was renewed every
year for two successive years or up to February 1, 1986. In the contracts, it was agreed that the
premises shall be used as a learning center. After February 1, 1986, there was no written contract of lease executed
by the parties, but Grace has continuously occupied the premises as a learning
center.

The monthly rental was raised every year. In January, 1989, it was increased to P3,484.80.

Sometime in November, 1989, Felisa padlocked the way to the roof
top. Thereafter, there was an exchange
of communications between the parties. Grace insisted that she should be allowed to use the roof top of Room
442, while Felisa maintained that only Room 401 was leased and that the use of
the roof top which, according to her poses danger to the students, was merely
tolerated. Eventually, Felisa
terminated the lease, giving Grace until January 1, 1990 to vacate the
premises.

Because of the dispute between the parties, Felisa did not collect
the rental for December, 1989. Whereupon, Grace tendered to Felisa a check amounting to P3,310.56. The latter refused to accept the check. So Grace’s lawyer tendered the payment in
cash in the same amount of P3,310.56, with notice to Felisa that if she will
not accept the payment, the same will be deposited in court by way of
consignation. At this juncture, Felisa
allowed Grace to hold classes only up to March, 1990.

On January 15, 1990, Grace filed Civil Case No. 131203 for consignation
with the Metropolitan Trial Court of Manila, Branch 15, alleging in her
complaint that Felisa refused to accept, without justifiable cause, the rentals
for the premises in question. Felisa
interposed in her answer a counterclaim for ejectment, contending that the
lease, being month to month, had expired but that despite demand, Grace refused
to vacate the premises.”^[4]

On 18 December 1990, the MTC rendered its decision, the
dispositive portion of which reads:

“WHEREFORE, judgment is hereby rendered as follows:

1. The court declares that the roof top of the
building at 442 Elcano corner Urbistondo Street, Manila is included in the
lease;

2. The court fixes the term of the lease over
the subject premises until June 30, 1992 upon the expiration of which,
petitioner [Grace Cu] is ordered to vacate the said premises;

3. The court declares the consignation of
rentals made by the petitioner to be valid and legal and hereby release[s] the
petitioner from the obligation of paying the said rentals;

4. All the respective claims of the parties
against each other for damages and attorney’s fees are hereby dismissed.

SO ORDERED.”^[5]

Both parties appealed to the RTC of Manila. Grace Cu maintained that the MTC should have
fixed a longer period, while Felisa Chan contended that the MTC erred in
extending the term of the lease and in upholding the validity of the
consignation. In its Decision of 27
March 1992, the RTC affirmed the decision of the MTC.

Cu then went to the Court of Appeals on a petition for review^[6]
alleging therein that the RTC erred “in not fixing a longer period of extension
of the lease” and “in extending the duration of the lease to 30 June 1992 but
subverting its factual findings in justification of the extension as it
concluded that the period was intended by the parties for a longer duration.”
In its challenged Decision of 20 January 1993, the Court of Appeals reversed
and set aside the decisions of the MTC and the RTC and dismissed the complaint
for consignation for lack of merit. It
likewise said that the MTC 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.

In dismissing the complaint for consignation, the Court of
Appeals ruled that under Article 1256 of the Civil Code, consignation may only
be resorted to by a debtor if the creditor to whom tender of payment has been
made refuses without just cause to accept it. The Court of Appeals held that Chan’s refusal to accept the rental was
justified. It said:

“Thus, the respondent [Chan] allowed the petitioner [Cu] to hold
classes in the premises only until March, 1981.^[7]
Obviously, from respondent landlord’s point of view, beyond March, 1989,^[8]
(1) the petitioner may no longer be considered as lessee or debtor who may
relieve herself of liability by tendering payment of the rentals and if
refused, by consigning them in court; and that (2) the petitioner is a squatter
or trespasser who has occupied the premises not only without any agreement with
the respondent but against her will. So, as far as the respondent is concerned, this consignation may not
come under the provisions of Article 1256 of the Civil Code cited above. Simply put, respondent’s refusal to accept
petitioner[‘s] rental payments was with just cause and that, therefore, the respondent may not be
compelled to accept such rental payments.”^[9]

On the issue of ejectment, the Court of Appeals made the
following observations:

“Now, for a digression, We cannot see our way clear why the MTC and
the RTC passed upon the issue of ejectment raised in respondent’s counterclaim
and fixed the term of the lease up to June 10, 1992. Under Section 1, Rule 70 of the Revised Rules of Court, an action for ejectment can only be
initiated through a verified complaint, not counterclaim. This is basic. Thus, the said courts should not have fixed the term of the
lease. This issue can only be decided
in a case of ejectment filed pursuant to the said rule. The Supreme Court, in Ching Pue vs. Gonzales
[87 Phil. 81] held:

‘Consignation in court under article 1176 of the Civil Code, is not
the proper proceedings to determine the relation between landlord and tenant, the
period or life of the lease or
tenancy, the reasonableness of the rental, the right of the tenant to
keep the premises against the will of the landlord, etc. These questions should be
decided in a case of ejectment or
detainer like those two cases brought by Gonzales against two of the
petitioners under the provisions of Rule 72 of the Rules of Court. In a case of ejectment, the landlord claims either
that the lease has ended or been terminated or that the lessee has forfeited
his right as such because of his failure to pay the rents as agreed upon or
because he failed or refused to pay the new rentals fixed and demanded by the
lessor. The lessee in his turn may put
up the defense that according to law, the rental demanded of him is
unreasonable, exorbitant and illegal, or that the period of the lease has not
yet expired, or that if the rental law is applicable, and that the premises are
destined solely for dwelling, he may not be ousted therefrom because the owner
does not need them for his own use, etc. We repeat that all these questions
should be submitted and decided in a
case of ejectment and cannot be decided
in a case of consignation.’”^[10]

Chan’s motion to reconsider the decision^[11]
having been denied by the Court of Appeals in its Resolution of 23 February
1993,^[12]
she filed the instant petition wherein she alleges that:

“1.  THE
HONORABLE COURT OF APPEALS HAS DECIDED THE CASE IN A WAY PROBABLY NOT IN ACCORD
WITH THE LAW OR APPLICABLE
JURISPRUDENCE OF THE SUPREME COURT (SECTION 4 (A), RULE 45 OF THE RULES OF
COURT;

2.   THE
HONORABLE COURT OF APPEALS, WITH UTMOST RESPECT, COMMITTED AN ERROR:

(A) IN HOLDING THAT THE COUNTERCLAIM FOR
UNLAWFUL DETAINER WAS IMPROPERLY INCLUDED IN THE COMPLAINT FOR CONSIGNATION;

(B)   IN
RELYING ON THE CASE OF CHING PUE VS. GONZALES (87 PHIL. 81) AS BASIS FOR NOT
ACTING UPON THE COUNTERCLAIM FOR UNLAWFUL
DETAINER AND IN IMPLIEDLY DISMISSING THE SAME;

(C)     IN RENDERING A DECISION WHICH PROMOTES,
INSTEAD OF AVOID, A MULTIPLICITY OF SUITS;

(D)     IN RENDERING A DECISION WHICH GAVE THE
PRIVATE RESPONDENT UNWARRANTED BENEFITS BECAUSE SHE IS PRACTICALLY ALLOWED TO
CONTINUE OCCUPYING PETITIONER’S PREMISES WHILE PETITIONER, WHOSE RIGHTS OVER
THE PREMISES WERE UPHELD, IS FORCED TO LITIGATE ANEW AND/OR TO
RE-COMMENCE UNLAWFUL DETAINER PROCEEDINGS.”^[13]

Chan maintains that the Court of Appeals erred in giving due
course to Cu’s petition for review and in deciding upon issues which Cu never
raised in her petition. Chan contends
that the Court of Appeals should have limited itself to the matter of the
extension of the lease period and not on the jurisdiction over the action or
subject matter of the suit which was never raised, nor on the propriety of the
counterclaim for ejectment.

Chan submits that while it is true that her cause of action for
unlawful detainer was incorporated in her answer to the complaint for consignation,
the Rules of Court do not prohibit such procedure, and in her case the MTC has
exclusive original jurisdiction on the counterclaim for ejectment. The summary disposition of the complaint for
consignation as determined by the trial court was not affected by the filing of
the counterclaim since it is a counterclaim allowed under Section 1 of the Rule
on Summary Procedure as it did not involve any question of ownership nor did it
allege any claim in excess of P20,000.00. She then concludes that what the Court of Appeals has impliedly
suggested was for her to file a separate complaint for unlawful detainer, which
would be laborious and would encourage multiplicity of suits; hence, the
counterclaim for unlawful detainer should not have been dismissed.

Chan also contends that the case of Ching Pue vs. Gonzales^[14]
is not applicable because in Ching Pue the consignation cases were filed
with the Court of First Instance of Manila which did not have jurisdiction to
pass upon the unlawful detainer cases that were properly cognizable by the
Municipal Court. In the instant case,
the consignation case was filed with the MTC which also has jurisdiction over
the counterclaim for ejectment. The
Court of Appeals should have ordered the ejectment of Cu not only because it
found that her refusal to accept the payment was with just cause, thereby
impliedly holding that Cu has no right to stay in the premises in question, but
also because when it promulgated its decision on 20 January 1993, the extended
period (until 30 June 1992) fixed by the trial court and the Regional Trial
Court had already expired.

Chan further asserts that the Court of Appeals’ decision gives Cu
undue and unwarranted benefits since Cu was granted much more than what she
prayed for in her complaint for consignation and Chan’s counterclaim was
dismissed. A new ejectment suit may
last for years, even beyond March 1995 which is the expiration date originally
prayed for by Cu, for the duration of which Chan would be precluded from
increasing the rentals.

In her Comment,^[15] Cu
claims that the Court of Appeals decided the case properly and in accord with
applicable law and jurisprudence. As to
the dismissal of the counterclaim for ejectment, Cu cites Metals Engineering Resources Corp. vs. Court
of Appeals^[16] which holds that where there is no
claim against the counterclaimant, the counterclaim is improper and should be
dismissed, and that a compulsory counterclaim is auxiliary to the proceeding in
the original suit and derives its jurisdictional support therefrom inasmuch as
it arises out of or is necessarily connected with the transaction or occurrence
that is the subject matter of the complaint. It follows that if the court does not have jurisdiction to entertain the
main action of the case and dismisses the same, then the compulsory
counterclaim, being ancillary to the principal controversy, must likewise be
dismissed since no jurisdiction remained for any grant of relief under the
counterclaim.

In her Reply to the Comment,^[17] Chan
maintains that the Court of Appeals should not have dismissed the counterclaim
because such dismissal would deny her justice and give undue advantage to
Cu. She set up the counterclaim for
ejectment to avoid the effects of Section 4, Rule 9 of the Rules of Court which
bars a counterclaim not set up and Section 2(A) of the Rules of Summary
Procedure which states that a compulsory counterclaim “must be asserted in the
answer, or be considered barred.” The Metals
case is not applicable to this case because the issue therein was lack of jurisdiction
by reason of non-payment of docket fees.

Cu filed a Rejoinder to the Reply.^[18]

After deliberating on the allegations, issues, and arguments
raised by the parties in their pleadings, we find merit in the petition.

It must be stressed that the validity of the consignation and the
propriety of the counterclaim for ejectment were not raised before the Court of
Appeals. As to the first, both the MTC
and the RTC ruled that the consignation was valid. The MTC specifically stated in its decision:

“On the validity of the consignation, both parties agree that the
controlling case is Ponce de Leon vs. Syjuco Inc., 90 Phil. 311. The court believes that under the undisputed
facts earlier narrated, petitioner has complied with all the requisites laid down in the said case,
namely; ‘The debtor must show (1) that
there was a debt due; (2) that
the consignation of the obligation had been made because the creditor to whom
tender of payment was made refused to accept it, or because he was absent or
incapacitated, or because several persons claimed to be entitled to receive the
amount due (Art. 1176, Civil Code); (3) that previous notice of the
consignation had been given to the person interested in the performance of the
obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the
disposal of the court and (5) that after the consignation had been made the
person interested was notified thereof.”^[19]

The RTC explicitly affirmed the MTC on
this issue, thus:

“3.  With
respect to the validity of the consignation, the Court affirms the finding of
the trial court that indeed plaintiff substantially complied with all the
requirements of consignation and, therefore, the same was valid and effective.”^[20]

Chan filed no petition for the review of
the RTC decision and had, therefore, accepted the said ruling. Cu did not, for obvious reasons, raise the
issue on consignation in her petition for review in CA-G.R. SP No. 28870. Since the validity of the consignation was
not raised before it, the Court of Appeals seriously erred when it dismissed
the complaint for consignation on the ground that it has no merit. Section 7, Rule 51 of the Revised Rules of
Court provides:

“SEC. 7. Questions that
may be decided. -? No error which does not affect the
jurisdiction over the subject matter will be considered unless stated in the
assignment of errors and properly argued in the brief, save as the court, at
its option, may notice plain errors not specified, and also clerical errors.”

Jurisdiction is not
involved in the consignation case, and no plain errors with respect thereto are
discernible from the MTC and RTC decisions.

As to the counterclaim for ejectment, it must be emphasized that
the parties have conceded its propriety and accepted the MTC’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. In her
Position Paper for the Plaintiff filed with the MTC,^[21]
Cu admitted having filed an answer to the counterclaim and even a counterclaim
to the counterclaim:

“In answer to the counterclaim, plaintiff [Cu] asserted that the
lease is not on a month-to-month basis but for as long as the premises is being
used as a learning center. She contends
that it will be highly inequitous that after undergoing so much expenses, her
occupancy of the premises will be abruptly terminated. … that on the basis of justice and equity, the period of plaintiff’s lease
should be fixed for at least five years from February 1990 ….

As counterclaim to the counterclaim, plaintiff alleged ….”^[22]

and assigned as one of the errors to be
resolved by the court the following:

“2.  Whether or not the plaintiff may be ejected
from the subject premises.”^[23]

A counterclaim is any claim for money or other relief which a
defending party may have against an opposing party. It need not diminish or defeat the recovery sought by the
opposing party, but may claim relief exceeding in amount or different in kind
from that sought by the opposing party’s claim.^[24]
Counterclaims are designed to enable the disposition of a whole controversy of
interested parties’ conflicting claims, at one time and in one action, provided
all the parties can be brought before the court and the matter decided without
prejudicing the rights of any party.^[25] A
counterclaim “is in itself a distinct and independent cause of action, so that
when properly stated as such, the defendant becomes, in respect to the matter
stated by him, an actor, and there are two simultaneous actions pending between
the same parties, wherein each is at the same time both a plaintiff and a
defendant …. A counterclaim stands on the same footing and is to be tested by
the same rules, as if it were an independent action.”^[26]
In short, the defendant is a plaintiff with respect to his counterclaim.

Section 8, Rule 6 of the Rules of Court provides that the answer
may contain any counterclaim which a party may have against the opposing party
provided that the court has 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 Rule 9, a
counterclaim not set up shall be barred if it arises out of or is necessarily
connected with the transaction or occurrence that is the subject matter of the
opposing party’s claim and does not require for its adjudication the presence
of third parties of whom the court cannot acquire jurisdiction. A counterclaim may be compulsory or
permissive. The former is that covered
by Section 4 of Rule 9.

Chan’s counterclaim for ejectment is a compulsory counterclaim
because it is necessarily connected with the transaction or occurrence which is
the subject matter of Cu’s complaint, viz., the lease contract between them. Consequently, the Court of Appeals erred
when it held that Chan’s cause of action for ejectment could not be set up in a
counterclaim.

We agree with Chan that Ching Pue vs. Gonzales is inapplicable because in Ching
Pue the consignation cases were filed with the Court of First Instance
which did not have jurisdiction over ejectment cases; necessarily, no
counterclaim for ejectment could have been interposed therein. The ratio decidendi of the said case is that consignation is not
proper where the refusal of the creditor to accept tender of payment is with
just cause. One will search therein in
vain even for an obiter dictum which suggests that an action for
ejection cannot be set up in a counterclaim. In the instant case, the ejectment was set up as a counterclaim in the
MTC which has jurisdiction over it and Cu joined that issue and the incidents
thereto by her answer to the counterclaim and the counterclaim to the
counterclaim.

The Court of Appeals therefore should have confined itself to the
principal error raised in Cu’s petition in CA-G.R. SP No. 28870, viz.,
the duration of the extended term of the lease fixed in the decision of the MTC
and affirmed by the RTC. As fixed, the
term of the lease was extended to 30 June 1992. That period had expired six months before the Court of Appeals
promulgated its challenged decision. Considering that Chan did not file any petition for the review of the
RTC decision and was, therefore, deemed to have agreed to the extension; and
considering further that Cu, as petitioner in CA-G.R. SP No. 28870, did not
come to us on a petition for review to seek reversal of the decision therein
and should thus be considered to have agreed to the dismissal of her
consignation case, the parties must be deemed bound by the extended term, which
has, nevertheless, already lapsed.

We hold that the MTC had the authority to extend the period of
the lease. The parties started with a
written contract of lease with a term for one year from 1 February 1983 to 1
February 1984. This was renewed every
year for two successive years, or up to 1 February 1986. No written contract was made thereafter, but
Cu was allowed to occupy the premises at a monthly rental which was increased
every year. In November 1989, Chan
informed Cu of the termination of the lease and gave her until 1 January 1990
to vacate the premises. Articles 1670
and 1687 of the Civil Code thus came into play:

“ART. 1670. If at the end
of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence
of the lessor and unless a notice to the contrary by either party has
previously been given, it is understood that there is an implied new lease, not
for the period of the original contract, but for the time established in
Articles 1682 and 1687. The other terms
of the original contract shall be revived.

x x x

ART. 1687. If the period
for the lease has not been fixed, it is understood to be from year to year, if
the rent agreed upon is annual; from month to month, if it is monthly; from
week to week, if the rent is weekly; and from day to day, if the rent is to be
paid daily. However, even though a
monthly rent is paid, and no period for the lease has been set, the courts may
fix a longer term for the lease after the lessee has occupied the premises for
over one year. If the rent is weekly,
the courts may likewise determine a longer period after the lessee has been in
possession for over six months. In case
of daily rent, the courts may also fix a longer period after the lessee has stayed
in the place for over one month.”

Article 1687 grants the court the authority to fix the term of
the lease depending on how the rentals are paid and on the length of the
lessee’s occupancy of the leased premises. In the light of the special circumstances of this case, we find the
extended term fixed by the MTC to be reasonable.

WHEREFORE, the instant petition is GRANTED and the
challenged Decision of 20 January 1993 of the Court of Appeals in CA-G.R. SP
No. 28870 is hereby SET ASIDE, and the Decisions of 27 March 1992 of Branch 11
of the Regional Trial Court of Manila in Civil Case No. 91-55879, and of 18
December 1990 of Branch 15 of the Metropolitan Trial Court of Manila in Civil
Case No. 131203-CV are REINSTATED.

Costs against the private respondent.

SO ORDERED.

Cruz, (Chairman), Bellosillo, Quiason, and Kapunan, JJ., concur.

^[1]
Rollo, 114-120. Per Associate
Justice Angelina S. Gutierrez, concurred in by Associate Justices Fidel P.
Purisima and Jesus M. Elbinias.

^[2]
Annex “G” of Petition; Id., 88-96.

^[3]
Annex “F” of Petition; Id., 82-87.

^[4]
Rollo, 115-116.

^[5]
MTC Decision, 5-6; Rollo, 86-87.

^[6]
Annex “I” of Petition; Id., 100-112.

^[7]
Should be March 1990.

^[8]
Id.

^[9]
Rollo, 118.

^[10]
Rollo, 118-119 (emphasis supplied).

^[11]
Annex “K” of Petition; Id., 121-129.

^[12]
Annex “L” of Petition; Id., 131.

^[13]
Rollo, 15-16; Petition, 10-11.

^[14]
87 Phil. 81 [1950].

^[15]
Rollo, 133-140.

^[16]
203 SCRA 273 [1991].

^[17]
Rollo, 144-148.

^[18]
Rollo, 151-154.

^[19]
Id., 86.

^[20]
Id., 95.

^[21]
Annex “E” of Petition; Rollo, 68-77.

^[22]
Rollo, 71-72.

^[23]
Id., 73.

^[24]
Section 6, Rule 6, Rules of Court.

^[25]
1 VICENTE J. FRANCISCO, THE
REVISED RULES OF COURT IN
THE PHILIPPINES 463 (2d ed. 1973).

^[26]
FRANCISCO, op. cit., at 464.