Lao v. Court of Appeals
REITERATIONFacts
The Antecedents: Better Homes Realty & Housing Corporation (BHRC) filed an unlawful detainer suit against Manuel Lao, claiming ownership of the property at Unit I, No. 21 N. Domingo Street, Quezon City, evidenced by a Transfer Certificate of Title. BHRC asserted that Lao occupied the property rent-free by its liberality and refused to vacate despite demand. Lao countered that he was the true owner, alleging the transaction with BHRC was a loan secured by a mortgage, not a sale, and that the case was outside the Metropolitan Trial Court's (MTC) jurisdiction. Procedural History: The Metropolitan Trial Court (MTC) ruled in favor of BHRC, ordering Lao to vacate and pay rent and attorney's fees. On appeal, the Regional Trial Court (RTC) reversed the MTC decision, dismissing BHRC's complaint. The RTC found that while BHRC held title, the true transaction was an equitable mortgage, making Lao the beneficial owner. BHRC appealed to the Court of Appeals (CA), which reversed the RTC, reinstating the MTC's decision and ruling that the MTC had jurisdiction to determine possession, even if ownership was raised, and that the RTC erred in ruling on ownership. The Petition: Manuel Lao filed a petition for review under Rule 45 of the Rules of Court, seeking to reverse the Court of Appeals' decision. He argued that the lower courts could decide the issue of ownership in an ejectment case, that the transaction was an equitable mortgage, not a sale, and therefore he should not be ejected. The petition contends that the CA erred in not applying Section 11, Rule 40 of the Rules of Court, which allows an RTC to try a case on the merits in its original jurisdiction if parties proceed to trial without objection, even if the inferior court lacked jurisdiction. Lao asserts that both the MTC and RTC considered the ownership issue, and the parties participated in the proceedings without objection, thus the RTC correctly exercised its original jurisdiction.
Issue(s)
Whether or not the lower court can decide on the issue of ownership in the present ejectment case. Whether or not private respondent had acquired ownership over the property in question. Whether or not petitioner should be ejected from the premises in question.
Ruling
The petition is granted. The challenged Decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Quezon City ordering the dismissal of the complaint for ejectment is REINSTATED and AFFIRMED.
Ratio Decidendi
On the issue of whether the lower court can decide on the issue of ownership in the present ejectment case: The Supreme Court held that while the main issue in an ejectment suit is possession de facto, this is not an absolute rule. Section 11, Rule 40 of the Rules of Court allows the Regional Trial Court, in the exercise of its original jurisdiction, to try a case on the merits if the parties file their pleadings and go to trial without objection to the inferior court's jurisdiction over the subject matter, even if it lacks such jurisdiction. In this case, both parties voluntarily submitted to the jurisdiction of the MTC and RTC on the issue of ownership by presenting evidence and arguing the matter without objection. Therefore, the RTC correctly exercised its original jurisdiction to rule on the ownership issue, and the CA erred in reversing the RTC decision on jurisdictional grounds. The Court emphasized that dismissing the case on jurisdictional grounds after parties have fully litigated the issue would lead to needless delays and multiplicity of suits. On the issue of whether private respondent had acquired ownership over the property in question: The Supreme Court ruled that the transaction was not an absolute sale but an equitable mortgage. The Court looked at the intent of the parties, not just the nomenclature of the contract. Applying Article 1602 of the Civil Code, the Court found several indicators of an equitable mortgage: (1) Petitioner Lao remained in possession of the property as the beneficial owner; (2) Options to purchase were extended twice, with the price increased, indicating a loan with mortgage rather than a sale; (3) The wording of the extension explicitly mentioned a loan of P20,000.00. The Court also considered the dire need for money by Lao's family corporation, which compelled them to agree to terms that did not reflect their true intention, citing the principle that "necessitous men are not, truly speaking, free men." The RTC's finding that the transaction was an equitable mortgage was supported by the evidence and the conduct of the parties. On the issue of whether petitioner should be ejected from the premises in question: The Supreme Court answered in the negative. Since the transaction was determined to be an equitable mortgage and not a sale, the property still belonged to petitioner's family corporation, N. Domingo Realty & Development Corporation. Private respondent, as a mere mortgagee, had no right to eject petitioner. The Court cited Article 2088 of the Civil Code, which prohibits mortgagees from appropriating the mortgaged property, stating that any stipulation to the contrary is null and void. Therefore, BHRC, as a mortgagee, could not eject Lao from the property.
Main Doctrine
In ejectment suits, while the main issue is possession de facto, if the parties voluntarily submit to the jurisdiction of the court on the issue of ownership, the court, particularly the Regional Trial Court on appeal, may rule on the issue of ownership in the exercise of its original jurisdiction under Section 11, Rule 40 of the Rules of Court, to avoid multiplicity of suits.