Keppel Bank Philippines, Inc. v. Adao

A bank acquiring property through dacion en pago is bound by an unannotated contract to sell previously executed by the assignor where the bank failed to exercise the heightened diligence required of banking institutions, but the bank as unpaid seller retains ownership and may file an ejectment suit against a buyer who fails to prove full payment of the purchase price.

Keppel Bank Philippines, Inc. held an outstanding obligation of two hundred million pesos (₱200,000,000) against Project Movers Realty and Development Corporation (PMRDC). The parties entered into a court-approved Compromise Agreement under which PMRDC, through its president Mario P. Villamor, assigned, transferred, and conveyed twenty-five properties to the bank by way of dacion en pago as partial settlement. Keppel Bank thereafter secured Condominium Certificates of Title over the assigned units. One of those units — Unit 4 of the Luxor Villas Townhouse — was already occupied by Philip Adao, who claimed rights under a Contract to Sell executed with PMRDC years before the dacion en pago.

Keppel Bank Philippines, Inc. held an outstanding obligation of ₱200,000,000 against Project Movers Realty and Development Corporation (PMRDC). The parties entered into a court-approved Compromise Agreement under which PMRDC, through its president Mario P. Villamor, assigned, transferred, and conveyed twenty-five properties — consisting of townhouses, condominium units, and vacant lots — to the bank by way of dacion en pago as partial settlement. Pursuant to the agreement, Keppel Bank secured Condominium Certificates of Title over the units.

Upon inspection of the assigned properties, Keppel Bank discovered respondent Philip Adao occupying Unit 4 of the Luxor Villas Townhouse, one of the twenty-five conveyed properties. On February 18, 2000, the bank sent Adao a written demand to vacate the unit within thirty days from receipt. Adao refused and instead offered to purchase the unit, but the parties failed to reach an agreement. On October 19, 2000, the bank sent a final demand to vacate. When that demand went unheeded, Keppel Bank filed a civil case for ejectment against Adao, docketed as Civil Case No. 8911.

In his defense, Adao alleged that he had long been occupying the contested unit by virtue of a Contract to Sell dated February 7, 1995 between him and PMRDC. He stated that to avoid litigation, he had offered to purchase the unit for ₱2.5 million in addition to the ₱3 million he had already paid to PMRDC. He further claimed that had his pre-agreed marketing services with PMRDC been duly audited to his credit, the unit would have already been fully paid. Adao contended that Keppel Bank's recourse was to demand from PMRDC the immediate replacement of the property as provided in their Compromise Agreement and dacion en pago.

The Metropolitan Trial Court dismissed the ejectment complaint on August 6, 2001, holding Adao as the lawful possessor. The Regional Trial Court affirmed in toto on March 4, 2002, ruling that by virtue of the dacion en pago, Keppel Bank merely stepped into the shoes of PMRDC and must respect the contract to sell; that the bank failed to show non-payment by Adao; and that in case of non-payment, the vendor's remedy is either rescission with recovery of possession or specific performance based on breach of contract, but not ejectment. The Court of Appeals affirmed the RTC, additionally holding that Keppel Bank was not a purchaser in good faith because it failed to exercise the due diligence required of banks, and that as an unpaid seller the bank could only rescind under Article 1526 of the Civil Code, which does not sanction ejectment.

• Not Bound by the Contract to Sell: Petitioner contended it was not bound by the contract to sell because the same was not annotated on the Condominium Certificate of Title, and the bank had no knowledge of its existence prior to executing the court-approved Compromise Agreement and dacion en pago.
• Ownership Retained Under Contract to Sell: Petitioner maintained that the contract to sell specifically provides that title shall be transferred to the respondent only after full payment of the purchase price, and since respondent had not fully paid, he was not the owner.
• Burden of Proof on Payment: Petitioner argued that respondent has the burden of proving payment, since under the rules on evidence a party must prove his own affirmative allegation, and that the CA erred in shifting the burden to petitioner to prove non-payment.
• Possession by Mere Tolerance: Petitioner asserted that PMRDC merely tolerated respondent's possession, which became illegal when the new owner demanded that respondent immediately vacate the property.
• Ejectment as Proper Remedy: Petitioner maintained that the RTC's suggested remedy of rescission with recovery of possession wrongfully presumes the contract to sell is binding on the bank, and that in a contract to sell, ownership is retained by the seller until full payment, making ejectment the proper remedy.
• Recourse Against PMRDC Is Misplaced: Petitioner argued that the ruling directing it to seek recourse against PMRDC and/or its president was erroneous.

• Ejectment Concerns Possession De Facto: Respondent countered that an ejectment suit is merely concerned with possession de facto and that the issue of ownership need not be resolved.
• Better Right of Possession: Respondent claimed to have a better right of possession, having fully paid the purchase price under the contract to sell.
• Bank as Successor-in-Interest: Respondent asserted that petitioner, being a successor-in-interest of PMRDC, is bound by the contract to sell.
• Sufficiency of Affidavit: Respondent averred that ejectment cases are governed by the Rules on Summary Procedure, which relies merely on affidavits and position papers, and that his affidavit dated June 25, 2001 was sufficient to prove full payment.

• Binding Effect of the Contract to Sell: Whether petitioner is bound by the contract to sell between respondent and PMRDC despite the contract not being annotated on the certificate of title.
• Availability of Ejectment: Whether the remedy of ejectment is legally available to petitioner as the unpaid seller under a contract to sell.
• Entitlement to Possession: Who is entitled to physical possession of the property.

• Binding Effect of the Contract to Sell: Yes. Petitioner is bound by the contract to sell because banks are required to exercise more care and prudence than private individuals in dealing with registered properties, and petitioner failed to inspect the properties before signing the compromise agreement, making it not a purchaser in good faith.
• Availability of Ejectment: Yes. Ejectment is available to the unpaid seller under a contract to sell, because in such a contract ownership is retained by the seller until full payment, and the failure of payment is not a breach but a situation that prevents the obligation to convey title from acquiring obligatory force.
• Entitlement to Possession: Petitioner. Respondent failed to discharge the burden of proving full payment, his lone self-serving affidavit not constituting substantial evidence; his possession was by mere tolerance and became unlawful upon the owner's demand to vacate.

• Binding Effect of the Contract to Sell: While the general rule is that persons dealing with registered property can rely solely on the certificate of title and need not go beyond it, this rule does not apply to banks. Banks are required to exercise more care and prudence than private individuals in dealing even with registered properties because their business is affected with public interest. As master of its business, petitioner should have sent representatives to check the assigned properties before signing the compromise agreement; had it done so, it would have discovered that respondent was already occupying one of the condominium units and that a contract to sell existed between respondent and PMRDC. Petitioner was therefore not a purchaser in good faith and is bound by the contract to sell.

• Availability of Ejectment: Although petitioner is bound by the contract to sell, the contract does not by itself give respondent the right to possess the property. Unlike in a contract of sale, in a contract to sell there is yet no actual sale or transfer of title until and unless full payment is made. The payment of the purchase price is a positive suspensive condition, the failure of which is not a breach — casual or serious — but a situation that prevents the vendor's obligation to convey title from acquiring obligatory force. Respondent must have fully paid the price to acquire title and the right to retain possession. In cases of non-payment, the unpaid seller can avail of the remedy of ejectment since he retains ownership of the property. The CA's reliance on Article 1526 of the Civil Code was misplaced, as that provision governs the remedies of an unpaid seller of goods, not the right to eject a non-paying buyer from real property under a contract to sell.

• Entitlement to Possession: Respondent failed to discharge the burden of proving full payment. Although ejectment cases are governed by the Rules on Summary Procedure, there is still need to present substantial evidence to support a claim of full payment. Section 9 of the Rules on Summary Procedure requires parties to submit affidavits of witnesses and other evidence on the factual issues. Respondent's lone affidavit is self-serving and cannot be considered substantial evidence. As a general rule, one who pleads payment has the burden of proving it; even where petitioner alleged non-payment, the burden rests on respondent to prove payment rather than on petitioner to prove non-payment. Having failed to prove payment, respondent cannot claim ownership, and his possession was by mere tolerance, becoming unlawful upon the owner's demand to vacate. The Court stressed, however, that this adjudication is only a provisional determination of ownership for the purpose of settling the issue of possession and does not bar or prejudice an action between the same parties involving title to the property.

• Purchaser in Good Faith — Heightened Standard for Banks — While persons dealing with registered property can generally rely solely on the certificate of title and need not go beyond it, this rule does not apply to banks. Banks are required to exercise more care and prudence than private individuals in dealing even with registered properties because their business is affected with public interest. A bank that fails to inspect properties before acquiring them through dacion en pago is not a purchaser in good faith and is bound by prior unannotated contracts affecting those properties.

• Contract to Sell vs. Contract of Sale — Suspensive Condition of Full Payment — In a contract to sell, there is yet no actual sale or transfer of title until and unless full payment is made. The payment of the purchase price is a positive suspensive condition, the failure of which is not a breach — casual or serious — but a situation that prevents the obligation of the vendor to convey title from acquiring obligatory force. The buyer must fully pay the price to acquire title and the right to retain possession. In cases of non-payment, the unpaid seller retains ownership and may avail of the remedy of ejectment.

• Burden of Proof on Payment — One who pleads payment has the burden of proving it. Even where the opposing party alleges non-payment, the burden rests on the party claiming payment to prove it, rather than on the other to prove non-payment. A lone self-serving affidavit does not constitute substantial evidence of payment, even in ejectment cases governed by the Rules on Summary Procedure, which still require the submission of affidavits of witnesses and other evidence on factual issues.

• Provisional Determination of Ownership in Ejectment — The question of ownership may be provisionally ruled upon in an ejectment case for the sole purpose of determining who is entitled to possession de facto. Such adjudication does not bar or prejudice a separate action between the same parties involving title to the property.

• "However, as correctly held by the Court of Appeals, this rule does not apply to banks. Banks are required to exercise more care and prudence than private individuals in dealing even with registered properties for their business is affected with public interest." — This passage articulates the heightened diligence standard imposed on banks when dealing with registered properties, distinguishing them from ordinary private purchasers and forming the basis for holding the bank bound by an unannotated contract to sell.

• "Unlike in a contract of sale, here in a contract to sell, there is yet no actual sale nor any transfer of title, until and unless, full payment is made. The payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force." — This is the canonical formulation distinguishing a contract to sell from a contract of sale, explaining why non-payment prevents title from passing and why the seller retains ownership and the right to eject.

• "As a general rule, one who pleads payment has the burden of proving it. Even where the petitioner alleged non-payment, the general rule is that the burden rests on the respondent to prove payment, rather than on the petitioner to prove non-payment." — This passage states the evidentiary rule on the burden of proving payment, applied here to defeat the respondent's claim of full payment based solely on a self-serving affidavit.

• Lim vs. Chuatoco, G.R. No. 161861, March 11, 2005, 453 SCRA 308 — Cited for the general rule that persons dealing with registered property can rely solely on the certificate of title and need not go beyond it. The Court applied this rule but carved out an exception for banks.

• Manlapat vs. Court of Appeals, G.R. No. 125585, June 8, 2005 — Cited for the doctrine that banks are required to exercise more care and prudence than private individuals in dealing with registered properties because their business is affected with public interest. The Court relied on this to hold that Keppel Bank was not a purchaser in good faith.

• Rivera vs. Del Rosario, G.R. No. 144934, January 15, 2004, 419 SCRA 626 — Cited for the principle that in a contract to sell, full payment is a positive suspensive condition, the failure of which prevents the vendor's obligation to convey title from acquiring obligatory force. The Court applied this to hold that the unpaid seller retains ownership and may eject.

• Mayon Hotel and Restaurant vs. Adana, G.R. No. 157634, May 16, 2005 — Cited for the rule that one who pleads payment has the burden of proving it, and that even where the opposing party alleges non-payment, the burden remains on the claimant of payment. The Court applied this to hold that respondent failed to prove full payment.

• National Onion Growers Cooperative Marketing Association, Inc. vs. Lo, G.R. No. 141493, July 28, 2004, 435 SCRA 358 — Cited for the doctrine that the only issue in an ejectment case is physical or material possession, independent of any claim of ownership, and that ownership may be provisionally determined only for the purpose of resolving possession de facto.

• Co vs. Militar, G.R. No. 149912, January 29, 2004, 421 SCRA 455 — Cited for the principle that a provisional determination of ownership in an ejectment case does not bar or prejudice a separate action between the same parties involving title to the property.

• Article 1526, Civil Code — Governs the remedies of an unpaid seller of goods, including lien, stoppage in transitu, resale, and rescission. The Court of Appeals relied on this provision to deny ejectment, but the Supreme Court found this reliance misplaced, as the provision governs goods, not real property, and does not preclude ejectment by an unpaid seller who retains ownership under a contract to sell.

• Section 9, Rules on Summary Procedure — Requires parties to submit, together with their position papers, the affidavits of their witnesses and other evidence on the factual issues defined. The Court applied this to hold that respondent's lone self-serving affidavit was insufficient to prove full payment and that substantial evidence is still required even in summary ejectment proceedings.

The decision was penned by Associate Justice Quisumbing. The endnotes indicate the Court of Appeals decision was penned by Associate Justice Elvi John S. Asuncion, with Associate Justices Ruben T. Reyes and Lucas P. Bersamin concurring. No concurring opinions are noted in the Supreme Court decision.