Optimum Development Bank vs. Spouses Jovellanos

A municipal trial court has jurisdiction over an unlawful detainer case even when the resolution of the issue of possession requires the interpretation of a contract to sell and the application of the Realty Installment Buyer Protection Act (RA 6552). The authority to preliminarily resolve ownership to determine possession inevitably includes the authority to interpret the contract upon which the possessory claim is premised.

Spouses Benigno and Lourdes Jovellanos purchased a residential property on installment from Palmera Homes, Inc., paying a downpayment but defaulting on the subsequent monthly amortizations. Palmera Homes assigned its rights to Optimum Development Bank. Following the spouses' default, Optimum issued a notarized notice of delinquency and cancellation, and subsequently a final demand to vacate, which the spouses ignored.

• Contract to Sell: On April 26, 2005, Sps. Jovellanos entered into a Contract to Sell with Palmera Homes for a residential property in Caloocan City for ₱1,015,000.00. They paid a downpayment of ₱91,500.00 and took possession, undertaking to pay the balance in monthly installments of ₱13,107.00 starting June 12, 2005.
• Assignment of Rights: On August 22, 2006, Palmera Homes assigned all its rights, title, and interest in the Contract to Sell to petitioner Optimum Development Bank.
• Default and Cancellation: Sps. Jovellanos failed to pay the monthly installments. On April 10, 2006, Optimum issued a notarized Notice of Delinquency and Cancellation of Contract to Sell. On May 25, 2006, Optimum issued a final demand to vacate within seven days, which was unheeded.
• Ejectment Suit: On November 3, 2006, Optimum filed a complaint for unlawful detainer before the MeTC. Sps. Jovellanos failed to file an answer within the reglementary period, prompting Optimum to move for judgment. The spouses later filed an opposition questioning the court's jurisdiction.

• Jurisdiction: Petitioner argued that the case is one for unlawful detainer, which falls within the exclusive original jurisdiction of the municipal trial courts, and not a case incapable of pecuniary estimation cognizable solely by the regional trial courts.

• Jurisdiction: Respondents countered that the controversy does not merely involve physical possession but also the validity of the cancellation of the Contract to Sell and the determination of the parties' rights under the contract and RA 6552. Accordingly, the subject matter is incapable of pecuniary estimation and within the jurisdiction of the RTC.
• Non-admission of Answer: Respondents maintained that they failed to file an answer because petitioner's counsel made them believe a compromise agreement was being prepared.

• Jurisdiction: Whether the metropolitan trial court has jurisdiction over an unlawful detainer case that necessitates the interpretation of a contract to sell and the application of the Maceda Law (RA 6552).
• Validity of Cancellation: Whether the Contract to Sell was validly cancelled in accordance with RA 6552.

• Jurisdiction: Jurisdiction over an unlawful detainer case remains with the municipal trial court even if the resolution of possession requires interpreting the underlying contract and applying RA 6552. The nature of the action is determined by the allegations in the complaint and the relief sought, not the defenses raised. Because the complaint sufficiently alleged unlawful detainer—initial possession by contract, illegal possession upon termination of the right, continued withholding of possession, and filing within one year from last demand—the MeTC properly assumed jurisdiction. The authority to resolve the issue of possession necessarily includes the authority to interpret the contract upon which the claim of possession is premised; to hold otherwise would effectively rule out unlawful detainer as a remedy whenever a contract is involved.
• Validity of Cancellation: The cancellation of the Contract to Sell was validly effected in compliance with Section 4 of RA 6552, which governs buyers who have paid less than two years of installments. The law requires three requisites: (1) a 60-day grace period from the date the installment became due; (2) a notice of cancellation or demand for rescission by notarial act if the buyer fails to pay after the grace period; and (3) actual cancellation only after 30 days from the buyer's receipt of the notarial notice. All three were satisfied: the 60-day grace period automatically operated upon the spouses' default, a notarized notice of cancellation was issued on April 10, 2006, and the contract was actually cancelled only after the 30-day period expired, prompting the final demand to vacate on May 25, 2006. Consequently, the spouses' right to possess was extinguished, making their continued possession unlawful.

• Determination of Nature of Action — The nature of an action and the court with jurisdiction over it are determined by the allegations in the complaint and the character of the relief sought, not by the defenses set up in the answer.
• Authority of Inferior Courts in Ejectment Cases — Metropolitan trial courts are conditionally vested with authority to resolve the question of ownership raised as an incident in an ejectment case where the determination is essential to adjudicating the issue of possession. Concomitant to this authority is the authority to interpret the contract or agreement upon which the claim of possession is premised. The ruling on the rights of the parties based on contract interpretation is provisional and binding only with respect to the issue of possession.
• Cancellation of Contract to Sell under Section 4 of RA 6552 (Less than 2 years of installments paid) — Three requisites must be met before a seller may actually cancel the contract: (1) the seller shall give the buyer a 60-day grace period to be reckoned from the date the installment became due; (2) the seller must give the buyer a notice of cancellation or demand for rescission by notarial act if the buyer fails to pay the installments due at the expiration of the grace period; and (3) the seller may actually cancel the contract only after thirty (30) days from the buyer's receipt of the notice of cancellation or demand for rescission by notarial act.
• Automatic Operation of Grace Period — A grace period unconditionally conferred by law is a right, not an obligation, of the debtor. It becomes ipso facto operative from the moment the due payments are not met at their stated maturities, without need of further demand.

• "The authority granted to the MeTC to preliminarily resolve the issue of ownership to determine the issue of possession ultimately allows it to interpret and enforce the contract or agreement between the plaintiff and the defendant. To deny the MeTC jurisdiction over a complaint merely because the issue of possession requires the interpretation of a contract will effectively rule out unlawful detainer as a remedy."
• "Interpretation of the contract between the plaintiff and the defendant is inevitable because it is the contract that initially granted the defendant the right to possess the property; it is this same contract that the plaintiff subsequently claims was violated or extinguished, terminating the defendant’s right to possess."

• Oronce v. CA, 358 Phil. 616 (1998) — Followed. Affirmed the propriety of the ejectment court's examination of the terms of an agreement to determine the basis for the claim of ownership and possession.
• Union Bank of the Philippines v. Maunlad Homes, Inc., G.R. No. 190071, August 15, 2012 — Followed. Declared that MeTCs have authority to interpret contracts in unlawful detainer cases, and that the seller's cancellation of the contract to sell necessarily extinguished the buyer's right of possession.
• Rillo v. CA, G.R. No. 125347, June 19, 1997 — Followed. Explained the mechanics of cancellation under RA 6552 based on the amount of installments already paid by the buyer.
• Bricktown Dev’t. Corp. v. Amor Tierra Dev’t. Corp., G.R. No. 112182, December 12, 1994 — Followed. Held that a grace period unconditionally conferred is effective without further need of demand, operating automatically from the moment due payments are not met.

• Section 33, Batas Pambansa Blg. 129 (as amended by RA 7691) — Provides metropolitan trial courts with exclusive original jurisdiction over cases of forcible entry and unlawful detainer, allowing them to resolve issues of ownership only to determine the issue of possession. Applied to establish the MeTC's conditional authority to interpret the contract and determine ownership as an incident to resolving possession.
• Section 4, Republic Act No. 6552 (Maceda Law) — Governs the rights of a buyer who has paid less than two years of installments, requiring a 60-day grace period, a notarial notice of cancellation, and a 30-day waiting period before actual cancellation. Applied to validate Optimum's cancellation of the Contract to Sell and the consequent extinguishment of the spouses' right to possess.
• Section 5, Republic Act No. 6552 — Grants the buyer the right to sell or assign their rights or reinstate the contract by updating the account during the grace period and before actual cancellation. Cited in relation to the buyer's rights prior to the effective date of cancellation.

Carpio (Chairperson), Brion, Del Castillo, Perez.