Keppel Bank v. Adao
REITERATIONFacts
The Antecedents: Petitioner Keppel Bank acquired 25 properties, including Unit 4 of Luxor Villas Townhouse, from Project Movers Realty and Development Corporation (PMRDC) through dacion en pago as partial settlement of PMRDC's outstanding obligation. Upon inspection, petitioner found respondent Philip Adao occupying Unit 4. Petitioner sent demand letters for Adao to vacate, which were refused. Adao claimed to be occupying the unit by virtue of a Contract to Sell with PMRDC dated February 7, 1995, and offered to purchase the unit. Procedural History: Petitioner filed an ejectment case against Adao. The Metropolitan Trial Court (MeTC) dismissed the complaint, holding Adao as the lawful possessor. The Regional Trial Court (RTC) affirmed the MeTC decision, stating that petitioner merely stepped into the shoes of PMRDC and must respect the contract to sell. The RTC also held that petitioner failed to show non-payment and that ejectment was not the proper remedy for an unpaid seller. The Court of Appeals (CA) affirmed the RTC, holding that petitioner, not being a purchaser in good faith due to lack of due diligence, must respect the contract to sell, and that an unpaid seller's remedy is rescission, not ejectment. The Petition: Petitioner elevated the case to the Supreme Court, alleging that the CA erred in ruling that it must respect the contract to sell despite it being unannotated, in shifting the burden of proof to petitioner to prove non-payment, and in affirming that ejectment was not the proper remedy.
Issue(s)
Whether petitioner is bound by the Contract to Sell between respondent and PMRDC. Whether the remedy of ejectment is legally available to petitioner. Who is entitled to the physical possession of the property.
Ruling
The Supreme Court granted the petition, reversed the decision of the Court of Appeals, and ordered the respondent to vacate the property.
Ratio Decidendi
On whether petitioner is bound by the Contract to Sell: The Court held that while generally parties dealing with registered property can rely solely on the certificate of title, this rule does not apply to banks. Banks are required to exercise greater care and prudence. Petitioner, by failing to conduct due diligence and inspect the assigned properties, should have discovered respondent's occupancy and the existing contract to sell. Therefore, petitioner was not a purchaser in good faith and is bound by the contract to sell. On whether the remedy of ejectment is legally available to petitioner: The Court clarified that in a contract to sell, ownership is retained by the seller until full payment. The payment of the purchase price is a suspensive condition. In cases of non-payment, the unpaid seller retains ownership and can avail of the remedy of ejectment. The Court found that respondent failed to discharge the burden of proving full payment of the purchase price. His lone affidavit was considered self-serving and not substantial evidence. Consequently, respondent's possession became unlawful upon the owner's demand to vacate. On who is entitled to the physical possession of the property: The Court ruled that respondent failed to prove full payment, thus he did not acquire ownership and the right to retain possession. His possession was by mere tolerance and became unlawful upon demand to vacate. The adjudication of possession in this case is provisional and does not prejudice any action concerning the title to the property.
Main Doctrine
In a contract to sell, ownership is retained by the seller until full payment of the purchase price. The unpaid seller may avail of the remedy of ejectment. A bank, as a financial institution, is expected to exercise greater diligence in verifying the status of properties it acquires through dacion en pago, and may be bound by existing contracts to sell even if unannotated.