Union Bank of the Philippines vs. Maunlad Homes, Inc.

A metropolitan trial court has jurisdiction over an unlawful detainer action where the complaint alleges all the elements of unlawful detainer, even if resolution of the issue of possession requires interpretation of the contract between the parties, and a defendant may not divest the MeTC of jurisdiction by merely claiming ownership of the property. The MeTC may preliminarily resolve the issue of ownership only to determine the issue of possession, and its ruling is merely provisional and binding only with respect to possession. Additionally, a stipulation in a contract providing for a venue for ejectment actions other than that stated in the Rules of Court is valid, pursuant to Section 4, Rule 4 of the Rules of Court.

Union Bank of the Philippines is the owner of a commercial complex located in Malolos, Bulacan, known as the Maunlad Shopping Mall. In August 2002, Union Bank, as seller, and Maunlad Homes, Inc., as buyer, entered into a contract to sell involving the Maunlad Shopping Mall. The contract set the purchase price at ₱151 million, with a down payment of ₱2.4 million payable on or before July 5, 2002, and the balance to be amortized over a 180-month period. The contract authorized Maunlad Homes to take possession of the property and to build or introduce improvements thereon, and provided that in the event of rescission due to failure to pay or comply with the terms, Maunlad Homes would be required to immediately vacate the property and voluntarily turn possession over to Union Bank.

Union Bank of the Philippines is the owner of a commercial complex located in Malolos, Bulacan, known as the Maunlad Shopping Mall. Sometime in August 2002, Union Bank, as seller, and Maunlad Homes, Inc., as buyer, entered into a contract to sell involving the Maunlad Shopping Mall. The contract set the purchase price at ₱151 million, ₱2.4 million of which was to be paid by Maunlad Homes as down payment payable on or before July 5, 2002, with the balance to be amortized over the succeeding 180-month period. Under the contract, Union Bank authorized Maunlad Homes to take possession of the property and to build or introduce improvements thereon. The parties also agreed that if Maunlad Homes violates any of the provisions of the contract, all payments made will be applied as rentals for the use and possession of the property, and all improvements introduced on the land will accrue in favor of Union Bank. In the event of rescission due to failure to pay or to comply with the terms of the contract, Maunlad Homes will be required to immediately vacate the property and must voluntarily turn possession over to Union Bank.

When Maunlad Homes failed to pay the monthly amortization, Union Bank sent the former a Notice of Rescission of Contract dated February 5, 2003, demanding payment of the installments due within 30 days from receipt; otherwise, it shall consider the contract automatically rescinded. Maunlad Homes failed to comply. Hence, on November 19, 2003, Union Bank sent Maunlad Homes a letter demanding payment of the rentals due and requiring that the subject property be vacated and its possession turned over to the bank. When Maunlad Homes continued to refuse, Union Bank instituted an ejectment suit before the Metropolitan Trial Court of Makati City, Branch 64, on February 19, 2004. Maunlad Homes resisted the suit by claiming, among others, that it is the owner of the property as Union Bank did not reserve ownership of the property under the terms of the contract. By virtue of its ownership, Maunlad Homes claimed that it has the right to possess the property.

On May 18, 2005, the MeTC dismissed Union Bank's ejectment complaint. It found that Union Bank's cause of action was based on a breach of contract and that both parties are claiming a better right to possess the property based on their respective claims of ownership of the property. The MeTC ruled that the appropriate action to resolve these conflicting claims was an accion reivindicatoria, over which it had no jurisdiction. On appeal, the Regional Trial Court of Makati City, Branch 139, affirmed the MeTC in its decision dated July 17, 2008; it agreed with the MeTC that the issues raised in the complaint extend beyond those commonly involved in an unlawful detainer suit. The RTC declared that the case involved a determination of the rights of the parties under the contract. Additionally, the RTC noted that the property is located in Malolos, Bulacan, but the ejectment suit was filed by Union Bank in Makati City, based on the contract stipulation that "the venue of all suits and actions arising out or in connection with the Contract to Sell shall be in Makati City." The RTC ruled that the proper venue for the ejectment action is in Malolos, Bulacan, pursuant to the second paragraph of Section 1, Rule 4 of the Rules of Court, and declared that Union Bank cannot rely on the waiver of venue provision in the contract because ejectment is not an action arising out of or connected with the contract.

Union Bank appealed the RTC decision to the CA through a petition for review under Rule 42 of the Rules of Court. The CA affirmed the RTC decision in its October 28, 2009 decision, ruling that Union Bank's claim of possession is based on its claim of ownership which in turn is based on its interpretation of the terms and conditions of the contract, particularly, the provision on the consequences of Maunlad Homes' breach of contract. The CA determined that Union Bank's cause of action is premised on the interpretation and enforcement of the contract and the determination of the validity of the rescission, both of which are matters beyond the jurisdiction of the MeTC. Therefore, it ruled that the dismissal of the ejectment suit was proper. The CA, however, made no further ruling on the issue of venue of the action. From the CA's judgment, Union Bank appealed to the Court by filing the present petition for review on certiorari under Rule 45 of the Rules of Court.

• Nature of the Action: Union Bank disagreed with the CA's finding that it is claiming ownership over the property through the ejectment action. It claimed that it never lost ownership over the property despite the execution of the contract, since only the right to possess was conceded to Maunlad Homes under the contract; Union Bank never transferred ownership of the property to Maunlad Homes.
• Right to Rescind: Because of Maunlad Homes' failure to comply with the terms of the contract, Union Bank believes that it rightfully rescinded the sale, which rescission terminated Maunlad Homes' right to possess the subject property. Since Maunlad Homes failed to turn over the possession of the subject property, Union Bank believes that it correctly instituted the ejectment suit.

• Propriety of Rescission: Maunlad Homes contested Union Bank's arguments, invoking the rulings of the lower courts. It considered Union Bank's action as based on the propriety of the rescission of the contract, which, in turn, is based on a determination of whether Maunlad Homes indeed failed to comply with the terms of the contract; the propriety of the rescission, however, is a question that is within the RTC's jurisdiction.
• Dismissal Proper: Maunlad Homes contended that the dismissal of the ejectment action was proper.
• Venue: Maunlad Homes questioned the venue of Union Bank's unlawful detainer action which was filed in Makati City while the contested property is located in Malolos, Bulacan. Citing Section 1, Rule 4 of the Rules of Court, Maunlad Homes claimed that the unlawful detainer action should have been filed with the municipal trial court of the municipality or city where the real property involved is situated.

• Jurisdiction of the MeTC: Whether the MeTC has jurisdiction over an unlawful detainer action where the resolution of the issue of possession requires the interpretation of the contract between the parties and where the defendant claims ownership of the property.
• Nature of the Contract: Whether the contract between Union Bank and Maunlad Homes is a contract to sell or a contract of sale, and whether Maunlad Homes' non-payment of installments extinguished its right to possess the property.
• Venue of the Action: Whether the venue stipulation in the contract validly allowed the unlawful detainer action to be filed in Makati City despite the property being located in Malolos, Bulacan.

• Jurisdiction of the MeTC: Yes. The MeTC had jurisdiction over Union Bank's unlawful detainer action because the complaint alleged all four elements of unlawful detainer, and a defendant may not divest the MeTC of its jurisdiction by merely claiming ownership of the property. Under Section 16, Rule 70 of the Rules of Court, the issue of ownership shall be resolved only to determine the issue of possession.
• Nature of the Contract: The contract is a contract to sell. Section 11 of the contract provides that "upon payment in full of the Purchase Price of the Property x x x, the SELLER shall execute and deliver a Deed of Absolute Sale conveying the Property to the BUYER," which jurisprudence has established identifies the contract as a mere contract to sell. Maunlad Homes' non-payment rendered the contract ineffective and without force and effect, extinguishing its right to possess the property.
• Venue of the Action: Yes. The venue stipulation in the contract is valid. While Section 1, Rule 4 of the Rules of Court states that ejectment actions shall be filed in the municipal trial court where the real property is situated, Section 4 of the same Rule provides that the rule shall not apply "where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof." Since the unlawful detainer action is connected with the contract, Union Bank rightfully filed the complaint with the MeTC of Makati City.

• Jurisdiction of the MeTC: The Court was guided by the settled doctrine that the jurisdiction of a court is determined by the nature of the action pleaded by the litigant through the allegations in his complaint. Unlawful detainer is an action to recover possession of real property from one who unlawfully withholds possession after the expiration or termination of his right to hold possession under any contract, express or implied. Under Section 1, Rule 70 of the Rules of Court, the action must be filed "within one (1) year after the unlawful deprivation or withholding of possession." The Court enumerated the four elements that must be alleged in the complaint: (1) the defendant originally had lawful possession of the property, either by virtue of a contract or by tolerance of the plaintiff; (2) eventually, the defendant's possession of the property became illegal or unlawful upon notice by the plaintiff to defendant of the expiration or the termination of the defendant's right of possession; (3) thereafter, the defendant remained in possession of the property and deprived the plaintiff the enjoyment thereof; and (4) within one year from the unlawful deprivation or withholding of possession, the plaintiff instituted the complaint for ejectment. Contrary to the findings of the lower courts, all four requirements were alleged in Union Bank's Complaint. Union Bank alleged that Maunlad Homes "maintained possession of the subject properties" pursuant to the Contract to Sell, that Maunlad Homes "failed to faithfully comply with the terms of payment," prompting Union Bank to "rescind the Contract to Sell in a Notice of Rescission dated February 5, 2003," that Maunlad Homes "refused to turn over and vacate the subject premises," and that Union Bank instituted the action for unlawful detainer on February 19, 2004, within one year from the date of the last demand. The Court ruled that a defendant may not divest the MeTC of its jurisdiction by merely claiming ownership of the property. Under Section 16, Rule 70 of the Rules of Court, "when the defendant raises the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession." Section 18, Rule 70 of the Rules of Court, however, states that "the judgment x x x shall be conclusive with respect to the possession only and shall in no wise bind the title or affect the ownership of the land or building." 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. The Court cited Sps. Refugia vs. CA, where it ruled that "where the resolution of the issue of possession hinges on a determination of the validity and interpretation of the document of title or any other contract on which the claim of possession is premised, the inferior court may likewise pass upon these issues." The MeTC's ruling on the rights of the parties based on its interpretation of their contract is not conclusive, but is merely provisional and is binding only with respect to the issue of possession.

• Nature of the Contract: Maunlad Homes acquired possession of the property based on its contract with Union Bank. While admitting that it suspended payment of the installments, Maunlad Homes contended that the suspension of payment did not affect its right to possess the property because its contract with Union Bank was one of sale and not to sell; hence, ownership of the property has been transferred to it, allowing it to retain possession notwithstanding nonpayment of installments. The terms of the contract, however, do not support this conclusion. Section 11 of the contract provides that "upon payment in full of the Purchase Price of the Property x x x, the SELLER shall execute and deliver a Deed of Absolute Sale conveying the Property to the BUYER." The Court cited the established jurisprudence that "where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the price, the contract is only a contract to sell." The presence of this provision generally identifies the contract as being a mere contract to sell. After reviewing the terms of the contract, the Court found no reasonable ground to exempt the present case from the general rule; the contract between Union Bank and Maunlad Homes is a contract to sell. In a contract to sell, the full payment of the purchase price is a positive suspensive condition whose non-fulfillment is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. "The non-payment of the purchase price renders the contract to sell ineffective and without force and effect." Maunlad Homes' act of withholding the installment payments rendered the contract ineffective and without force and effect, and ultimately deprived itself of the right to continue possessing Maunlad Shopping Mall.

• Venue of the Action: While Section 1, Rule 4 of the Rules of Court states that ejectment actions shall be filed in "the municipal trial court of the municipality or city wherein the real property involved x x x is situated," Section 4 of the same Rule provides that the rule shall not apply "where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof." Precisely, in this case, the parties provided for a different venue. In Villanueva vs. Judge Mosqueda, the Court upheld the validity of a stipulation in a contract providing for a venue for ejectment actions other than that stated in the Rules of Court. Since the unlawful detainer action is connected with the contract, Union Bank rightfully filed the complaint with the MeTC of Makati City.

• Jurisdiction determined by allegations in the complaint — The jurisdiction of a court is determined by the nature of the action pleaded by the litigant through the allegations in his complaint. In this case, the Court applied this doctrine to find that Union Bank's complaint alleged all four elements of unlawful detainer, vesting the MeTC with jurisdiction over the action.

• Elements of unlawful detainer — To fall within the jurisdiction of the MeTC, the complaint must allege that: (1) the defendant originally had lawful possession of the property, either by virtue of a contract or by tolerance of the plaintiff; (2) eventually, the defendant's possession of the property became illegal or unlawful upon notice by the plaintiff to defendant of the expiration or the termination of the defendant's right of possession; (3) thereafter, the defendant remained in possession of the property and deprived the plaintiff the enjoyment thereof; and (4) within one year from the unlawful deprivation or withholding of possession, the plaintiff instituted the complaint for ejectment. The Court found that all four requirements were alleged in Union Bank's Complaint.

• Preliminary resolution of ownership in ejectment cases — Under Section 16, Rule 70 of the Rules of Court, when the defendant raises the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession. The MeTC's ruling on the rights of the parties based on its interpretation of their contract is not conclusive, but is merely provisional and is binding only with respect to the issue of possession. A defendant may not divest the MeTC of its jurisdiction by merely claiming ownership of the property.

• Contract to sell distinguished from contract of sale — Where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the price, the contract is only a contract to sell. In a contract to sell, the full payment of the purchase price is a positive suspensive condition whose non-fulfillment is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect.

• Validity of venue stipulation in ejectment cases — While Section 1, Rule 4 of the Rules of Court states that ejectment actions shall be filed in the municipal trial court where the real property is situated, Section 4 of the same Rule provides that the rule shall not apply where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof. A stipulation in a contract providing for a venue for ejectment actions other than that stated in the Rules of Court is valid.

• "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." — This passage articulates the core ratio decidendi on the jurisdiction issue, establishing that the MeTC's authority to resolve possession includes the power to interpret the contract, and that a contrary rule would render unlawful detainer an ineffective remedy.

• "In a contract to sell, the full payment of the purchase price is a positive suspensive condition whose non-fulfillment is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. 'The non-payment of the purchase price renders the contract to sell ineffective and without force and effect.'" — This passage defines the legal effect of non-payment in a contract to sell, distinguishing it from a breach of contract in a contract of sale, and explains why Maunlad Homes' non-payment extinguished its right to possess the property.

• "While Section 1, Rule 4 of the Rules of Court states that ejectment actions shall be filed in 'the municipal trial court of the municipality or city wherein the real property involved x x x is situated,' Section 4 of the same Rule provides that the rule shall not apply 'where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof.' Precisely, in this case, the parties provided for a different venue." — This passage resolves the venue issue, applying the exception in Section 4, Rule 4 to uphold the contractual venue stipulation for the ejectment action.

• Sps. Refugia vs. CA, 327 Phil. 982 (1996) — Cited as controlling authority for the proposition that where the resolution of the issue of possession hinges on a determination of the validity and interpretation of the document of title or any other contract on which the claim of possession is premised, the inferior court may likewise pass upon these issues.

• Tan vs. Benolirao, G.R. No. 153820, October 16, 2009, 604 SCRA 36 — Cited for the established jurisprudence that where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the price, the contract is only a contract to sell.

• Valenzuela vs. Kalayaan Development & Industrial Corporation, G.R. No. 163244, June 22, 2009, 590 SCRA 380 — Cited for the proposition that the non-payment of the purchase price renders the contract to sell ineffective and without force and effect.

• Villanueva vs. Judge Mosqueda, 201 Phil. 474 (1982) — Cited as controlling authority upholding the validity of a stipulation in a contract providing for a venue for ejectment actions other than that stated in the Rules of Court.

• Consignado vs. Court of Appeals, G.R. No. 87148, March 18, 1992, 207 SCRA 297 — Cited for the rule that a defendant may not divest the MeTC of its jurisdiction by merely claiming ownership of the property.

• Abaya Investments Corporation vs. Merit Philippines, G.R. No. 176324, April 16, 2008, 551 SCRA 646 — Cited for the settled doctrine that the jurisdiction of a court is determined by the nature of the action pleaded by the litigant through the allegations in his complaint.

• Canlas vs. Tubil, G.R. No. 184285, September 25, 2009, 601 SCRA 147 — Cited for the definition of unlawful detainer as an action to recover possession of real property from one who unlawfully withholds possession after the expiration or termination of his right to hold possession under any contract, express or implied.

• Delos Reyes vs. Odones, G.R. No. 178096, March 23, 2011, 646 SCRA 328 — Cited for the enumeration of the four elements that must be alleged in a complaint for unlawful detainer.

• Section 1, Rule 70, Rules of Court — Provides that the action for unlawful detainer must be filed "within one (1) year after the unlawful deprivation or withholding of possession." The Court applied this provision to determine that Union Bank's complaint, filed on February 19, 2004, was within one year from the date of the last demand on November 19, 2003.

• Section 16, Rule 70, Rules of Court — Provides that when the defendant raises the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession. The Court applied this provision to hold that the MeTC retained jurisdiction over the action despite Maunlad Homes' claim of ownership.

• Section 18, Rule 70, Rules of Court — Provides that the judgment in an ejectment case shall be conclusive with respect to the possession only and shall in no wise bind the title or affect the ownership of the land or building. The Court cited this provision to emphasize the provisional nature of the MeTC's ruling on ownership.

• Section 1, Rule 4, Rules of Court — Provides that actions affecting title to or possession of real property, or interest therein, shall be commenced and tried in the proper court which has jurisdiction over the area wherein the real property involved, or a portion thereof, is situated, and that forcible entry and detainer actions shall be commenced and tried in the municipal trial court of the municipality or city wherein the real property involved, or a portion thereof, is situated. The RTC relied on this provision in ruling that the proper venue was Malolos, Bulacan.

• Section 4, Rule 4, Rules of Court — Provides that the rule on venue of real actions shall not apply "where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof." The Court applied this provision to uphold the validity of the venue stipulation in the contract, which allowed the ejectment action to be filed in Makati City.

• Carpio, J. (Senior Associate Justice, Chairperson)
• Villarama, Jr., J. (Acting member in lieu of Associate Justice Maria Lourdes P. A. Sereno per Special Order No. 1274 dated July 30, 2012)
• Perez, J.
• Reyes, J.