Ten Forty Realty and Development Corp. vs. Cruz

In an action for unlawful detainer, the plaintiff must prove that the defendant’s possession was lawful at its inception and that the right to possess was terminated or expired; mere allegation of tolerance, without more, does not convert an entry that was illegal from the beginning into a tolerated possession. Consequently, if the entry was unlawful, the proper remedy is forcible entry, which requires prior physical possession by the plaintiff and must be filed within one year from the date of entry. Under Article 1544 of the Civil Code, when immovable property is sold to different buyers and neither has registered the sale, ownership belongs to the buyer who first takes possession in good faith. The execution of a public instrument of sale is only a prima facie presumption of delivery, which is rebutted when the vendee does not take actual possession and the vendor continues to exercise acts of ownership. Private corporations are prohibited by Section 3, Article XII of the Constitution from acquiring alienable lands of the public domain, except by lease, unless the land has been converted to private property through open, continuous, and exclusive possession for at least thirty years.

Petitioner Ten Forty Realty and Development Corp., through its president Veronica G. Lorenzana, claimed ownership of a residential house and lot situated at #71 18th Street, East Bajac-Bajac, Olongapo City, by virtue of a Deed of Absolute Sale executed by Barbara Galino on December 5, 1996. The property was alienable and disposable public land. Galino remained in possession, declared it for tax purposes, and on April 24, 1998, sold the same property to respondent Marina Cruz. Cruz immediately entered the premises, undertook repairs and improvements, caused the tax declaration to be issued in her name on April 23, 1998, and filed a miscellaneous sales application with the Community Environment and Natural Resources Office. Petitioner obtained its own tax declaration only on November 3, 1998. On October 16, 1998, a barangay complaint for ejectment was filed but was not settled; a certificate to file action issued. A formal demand to vacate was sent on April 12, 1999. Respondent refused to leave. Petitioner then filed a complaint for ejectment before the MTCC of Olongapo City on May 12, 1999, styling it as an unlawful detainer suit based on its alleged tolerance of respondent’s occupation.

• The Property and the Double Sale. The disputed property is a parcel of residential land of 324 square meters with a house, situated in Olongapo City. Barbara Galino was its occupant and declared owner for tax purposes. On December 5, 1996, Galino executed a Deed of Absolute Sale in favor of petitioner Ten Forty Realty and Development Corp., a private corporation, as evidenced by a “Katunayan” and a Certification Authorizing Registration from the BIR for the capital gains tax. Petitioner never took physical possession; Galino stayed on, continued to declare the property for tax purposes, and subsequently sold the same property to respondent Marina Cruz on April 24, 1998, by virtue of a Waiver and Transfer of Possessory Rights and Deed of Sale. Respondent immediately occupied the property, made major repairs and improvements, and, on April 23, 1998, caused a new tax declaration to be issued in her name. Petitioner obtained its own tax declaration only on November 3, 1998. Respondent later filed a miscellaneous sales application with the Community Environment and Natural Resources Office, as the land was certified alienable and disposable public land.

• The Ejectment Complaint. On October 16, 1998, petitioner initiated a barangay complaint for ejectment; no amicable settlement was reached, and a Certificate to File Action was issued. On April 12, 1999, petitioner sent respondent a demand letter to vacate and pay reasonable rentals. Upon respondent’s refusal, petitioner filed a complaint for ejectment in the MTCC on May 12, 1999. The complaint alleged that petitioner was the true and absolute owner; that Galino sold the property to respondent on April 24, 1998; that respondent immediately occupied the property, an act which petitioner “merely tolerated”; and that possession was unlawful because respondent refused to vacate after demand. Petitioner prayed for eviction, monthly rentals of P500 from April 24, 1999, attorney’s fees, and costs.

• Respondent’s Defense. In her Answer with Counterclaim, respondent contended that petitioner, a corporation, was not qualified to own the public land; that Galino did not sell but merely obtained a loan from Lorenzana; that the complaint was filed beyond one year from unlawful deprivation; that petitioner had no prior physical possession; that respondent, as buyer, took possession, cancelled Galino’s tax declaration, and secured her own before petitioner did; and that the action for ejectment could not succeed where respondent had been in possession before petitioner.

• Rulings Below. The MTCC gave credence to petitioner’s claim of tolerance and ordered eviction. On appeal, the RTC reversed, finding that no contract of tolerance existed; respondent entered the property by virtue of a sale, not by mere tolerance; petitioner never acquired delivery of the property despite the Deed of Absolute Sale, as Galino remained in possession and exercised acts of ownership; and that under the Constitution, a private corporation cannot acquire alienable public land. The CA affirmed, holding that because no express or implied contract existed between the parties, the complaint did not state a cause of action for unlawful detainer; the action was actually for forcible entry, which had prescribed as the complaint was filed more than one year after respondent’s entry; and that petitioner failed to prove prior physical possession, an essential element of forcible entry. The CA also passed upon the issue of ownership for the purpose of determining de facto possession, concluding that petitioner, being a corporation, was disqualified, and that respondent had exercised acts of ownership that should have put petitioner on guard.

• Tolerance and Unlawful Detainer: Petitioner argued that the CA erred in not holding that respondent’s occupation was by mere tolerance or permission, thereby sustaining an unlawful detainer suit. It maintained that its tolerance was the basis of the action and that the essential element of prior lawful possession was present.

• Nature of Ejectment Action: Petitioner contended that the CA erred in ruling that the case should have been one for forcible entry. It insisted that the complaint properly alleged unlawful detainer because respondent’s possession was initially tolerated and became unlawful only upon demand, and that prior physical possession was not required for unlawful detainer.

• Ownership and Right to Possession: Petitioner submitted that the CA should not have ruled on ownership, as the only question in an ejectment suit is de facto possession. It claimed that as the first buyer under the December 1996 Deed of Absolute Sale, it had a better right to the property. It further contended that the execution of the Deed of Sale and payment of capital gains tax constituted constructive delivery, and that Galino’s continued stay amounted to possession held on its behalf.

• Disqualification and No Sale: Respondent countered that petitioner, a private corporation, was constitutionally barred from acquiring the alienable public land. She alleged that Galino never sold the property to petitioner but merely obtained a loan from Lorenzana, challenging the authenticity of the alleged sale.

• No Tolerance, Prior Possession, and Prescription: Respondent argued that her entry was not by tolerance but by virtue of a legitimate sale from Galino. She emphasized that she took actual possession, made improvements, and obtained a tax declaration before petitioner did. She maintained that petitioner had never been in possession, and thus could not have tolerated her occupation. She further claimed that the complaint was filed beyond the one-year period from unlawful deprivation, depriving the MTCC of jurisdiction, and that the action was in reality one for forcible entry which had prescribed.

• Better Right to De Facto Possession: Respondent asserted that because she was the first in possession in good faith under the double sale and had exercised acts of ownership, she was entitled to remain on the property. She also invoked her filing of a miscellaneous sales application as evidence of her rightful interest in the public land.

• Tolerance and Unlawful Detainer: Whether the Court of Appeals erred in concluding that respondent’s possession was not by mere tolerance of petitioner, thereby failing to sustain the complaint for unlawful detainer.

• Nature of the Ejectment Action: Whether the CA correctly ruled that the action was one for forcible entry—which requires prior physical possession—rather than unlawful detainer, and that the action had prescribed.

• Determination of Ownership and Right to Possession: Whether the CA erred in passing upon the question of ownership and in ruling that respondent’s occupation constituted an exercise of ownership that entitled her to de facto possession, particularly considering the double sale rule and petitioner’s disqualification as a corporation.

• Tolerance and Unlawful Detainer: The appellate court’s finding that no tolerance was established was sustained. To maintain an action for unlawful detainer, permission or tolerance must have existed at the inception of possession; otherwise, the possession is illegal from the start and the proper remedy is forcible entry. Petitioner’s complaint contained only bare allegations that it “merely tolerated” respondent’s occupation. No factual averment showed that respondent’s entry was with petitioner’s consent. Indeed, the claimed tolerance contradicted petitioner’s own theory that respondent immediately occupied the property after a sale that petitioner considered adverse to its rights. Because the entry was unlawful from the beginning, the complaint failed to state a cause of action for unlawful detainer.

• Nature of the Ejectment Action: The CA correctly characterized the action as one for forcible entry that had already prescribed. The determinative factor is the nature of defendant’s entry as pleaded and proved. Where the entry is illegal, the case is forcible entry; where the entry is lawful but possession later becomes unlawful, it is unlawful detainer. Petitioner alleged that respondent occupied the property by virtue of a sale and was merely “tolerated”—an assertion that, rather than showing lawful possession, indicated that respondent’s occupation was adverse and illegal from the start. For forcible entry, prior physical possession by the plaintiff is an indispensable element, which petitioner did not and could not prove, having never occupied the property. Because the complaint was filed on May 12, 1999, more than one year after respondent’s entry on April 24, 1998, the forcible entry action had prescribed, and the MTCC lacked jurisdiction.

• Determination of Ownership and Right to Possession: The CA did not err in resolving the question of ownership for the limited purpose of determining who was entitled to de facto possession, as expressly allowed under Section 16 of Rule 70. Both parties anchored their right to possess on claims of ownership. Under Article 1544 of the Civil Code, in the double sale of immovable property, ownership belongs to the buyer who first registers the sale in good faith; in the absence of registration, to the buyer who first takes possession in good faith; and absent possession, to the buyer with the oldest title in good faith. Petitioner’s Deed of Absolute Sale was not registered; its claim that a notation on the deed sufficed was rejected. As to possession, the execution of a public instrument creates only a prima facie presumption of delivery, which was rebutted by the undisputed fact that petitioner never took physical possession, Galino continued to occupy and declare the property, and Galino later sold it to respondent. Respondent was the first to take actual possession, and she did so in good faith: she relied on Galino’s tax declarations and physical occupancy, and no circumstance put her on inquiry as to petitioner’s adverse claim. Additionally, under Section 3, Article XII of the Constitution, a private corporation cannot acquire alienable public land except by lease. The property was certified as alienable and disposable public land, and petitioner failed to prove that it had been converted to private land through at least thirty years of open, continuous, and exclusive possession. Consequently, petitioner had no right to acquire the land, reinforcing respondent’s provisional entitlement to de facto possession. This determination, however, is without prejudice to a separate action on ownership.

• Doctrine of Tolerance in Unlawful Detainer — Possession by tolerance must be present at the very beginning of the possession sought to be recovered. If the entry was illegal from the start, an action for unlawful detainer cannot be maintained; the proper remedy is forcible entry. The purpose of this rule is to prevent a plaintiff from circumventing the one‑year prescriptive period for forcible entry by merely alleging tolerance after the fact. (See Sarona v. Villegas, 131 Phil. 365.) The Court applied this doctrine to reject petitioner’s unsupported claim of tolerance and to hold that the complaint actually alleged an illegal entry, making it a forcible entry case that had prescribed.

• Distinction Between Forcible Entry and Unlawful Detainer — Forcible entry involves deprivation of physical possession by force, intimidation, threat, strategy, or stealth; possession is illegal from the beginning, and the inquiry centers on prior physical possession de facto. Unlawful detainer involves withholding possession after the expiration or termination of a right to possess under a contract, express or implied; possession was originally lawful but became unlawful. What determines the cause of action is the nature of the defendant’s entry as alleged in the complaint. The Court applied this distinction to conclude that because respondent’s entry was illegal from the start, the case was for forcible entry, not unlawful detainer.

• Constructive Delivery of Immovable Property — The execution of a public instrument of sale creates only a prima facie presumption of delivery under Article 1498 of the Civil Code. That presumption is destroyed when the vendee fails to take actual possession and the vendor remains in possession, continues to exercise acts of ownership, or subsequently transfers the property to another. Ownership is transferred by tradition or delivery, not by the contract of sale alone. Here, petitioner never occupied the land and Galino’s continued possession and subsequent sale rebutted any constructive delivery.

• Double Sale of Immovable Property under Article 1544 — In case of a double sale of immovable property, ownership belongs to the first buyer who in good faith records the sale in the Registry of Property. In the absence of registration, ownership belongs to the buyer who in good faith first takes possession—whether material or symbolic. A buyer in good faith is one unaware of any flaw in the title at the time of acquisition. A buyer of property in the possession of a person other than the seller must investigate the rights of the possessor; otherwise, good faith may be lost. The Court applied the rule to give preference to respondent, who was first in actual possession and in good faith, over petitioner, who never possessed the land and whose unregistered deed was insufficient.

• Disqualification of Private Corporations from Acquiring Public Land — Section 3, Article XII of the 1987 Constitution prohibits private corporations from holding alienable lands of the public domain except by lease. However, alienable public land held by a possessor openly, continuously, exclusively, and notoriously for at least thirty years is ipso jure converted to private property and may be acquired by a corporation. The Court found that petitioner, a corporation, failed to prove that the property had been so converted, thus it was disqualified, and this reinforced respondent’s right to de facto possession.

• “A close assessment of the law and the concept of the word ‘tolerance’ confirms our view heretofore expressed that such tolerance must be present right from the start of possession sought to be recovered, to categorize a cause of action as one of unlawful detainer not of forcible entry. Indeed, to hold otherwise would espouse a dangerous doctrine. … if a forcible entry action in the inferior court is allowed after the lapse of a number of years, then the result may well be that no action for forcible entry can really prescribe. No matter how long such defendant is in physical possession, plaintiff will merely make a demand, bring suit in the inferior court – upon a plea of tolerance to prevent prescription to set in – and summarily throw him out of the land.” (Quoting Sarona v. Villegas) — This passage anchors the strict requirement that tolerance must exist from the start, preventing abuse of the summary ejectment remedy.

• “In forcible entry, the possession is illegal from the beginning and the basic inquiry centers on who has the prior possession de facto. In unlawful detainer, the possession was originally lawful but became unlawful by the expiration or termination of the right to possess, hence the issue of rightful possession is decisive.” — Defines the core distinction that controlled the characterization of the complaint and led to the finding of prescription.

• “Nowhere in the Civil Code is it provided that the execution of a Deed of Sale is a conclusive presumption of delivery of possession of a piece of real estate.” — Underscores that constructive delivery is merely prima facie and was rebutted by the vendor’s continued possession and subsequent sale.

• “Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.” (Quoting Article 1544, Civil Code) — The statutory rule on double sales that the Court applied to prefer respondent’s possession.

• “Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, and not to exceed one thousand hectares in area.” (Quoting Section 3, Art. XII, Constitution) — The constitutional bar that independently supported respondent’s right to de facto possession.

• Sarona v. Villegas, 131 Phil. 365 (1968) — Applied and extensively quoted for the rule that tolerance must be present from the start of possession to sustain unlawful detainer and to prevent circumvention of the prescriptive period for forcible entry.

• Go v. Court of Appeals (cited as Go Jr. v. CA) — Cited for the same tolerance principle and for the distinction between forcible entry and unlawful detainer.

• Sarmiento v. Court of Appeals, 320 Phil. 146 (1995) — Referred to in defining the nature and distinctions of the two ejectment actions and identifying that the nature of entry determines the cause of action.

• Equatorial Realty Development Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001) — Followed for the principle that ownership is transferred by tradition (delivery), not by contract, and that a public instrument gives only a prima facie presumption of delivery.

• Pasagui v. Villablanca (cited as supra) — Relied upon for the holding that constructive delivery is negated by the vendee’s failure to take actual possession of the land sold.

• Navera v. Court of Appeals, 184 SCRA 585 (1990) — Cited for the interpretation that possession under Article 1544 includes both material and symbolic possession.

• Gener v. De Leon, 367 SCRA 631 (2001); Tirona v. Alejo, 367 SCRA 17 (2001) — Cited for the essential elements of forcible entry, including prior physical possession.

• Republic v. Court of Appeals, 374 Phil. 209 (1999) — Invoked for the rule that alienable public land possessed for thirty years is ipso jure converted to private property.

• Article 1544, Civil Code — Double sale rule for immovable property. Applied to determine that, in the absence of registration, the buyer who first took possession in good faith (respondent) had a superior right to de facto possession.

• Article 1496, Civil Code — Provides that the buyer acquires the thing sold only upon its delivery. Applied to underscore that ownership was not transferred by the mere execution of the Deed of Absolute Sale.

• Article 1497, Civil Code — Defines delivery as placing the thing sold in the control and possession of the vendee. The Court found that petitioner never had control or possession.

• Article 1498, Civil Code — Establishes that execution of a public instrument is equivalent to delivery, unless the contrary appears or can be inferred. The presumption was rebutted because petitioner never took actual possession and the vendor remained and later sold to another.

• Article 526, Civil Code — Defines possessors in good faith as those unaware of any flaw in their title or mode of acquisition. Applied in assessing respondent’s good faith in purchasing from Galino who was in possession.

• Section 1, Rule 70, Rules of Court — Governs who may institute ejectment proceedings and when; distinguishes forcible entry (deprivation by force, intimidation, threat, strategy, or stealth) and unlawful detainer (unlawful withholding after expiration or termination of right to possess). The Court used this provision to classify the action and determine jurisdiction.

• Section 16, Rule 70, Rules of Court — Allows the court in an ejectment suit to provisionally rule on the question of ownership for the sole purpose of determining possession de facto. The CA’s ruling on ownership was justified under this rule.

• Section 3, Article XII, 1987 Constitution — Prohibits private corporations from holding alienable lands of the public domain except by lease. Applied to support the conclusion that petitioner was disqualified from acquiring the property, a public land.

• Section 7, Article XII, 1987 Constitution — Allows corporations to acquire private lands. Mentioned to clarify that the prohibition applies only to public domain lands; petitioner could not show that the land was private land.

Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concurred. Puno, J. (Chairman), was on official leave.