G.R. No. 125766 October 19, 1998
FELICIDAD L. ORONCE and ROSITA L. FLAMINIANO, petitioners, vs. HON. COURT OF APPEALS and PRICILIANO B. GONZALES DEVELOPMENT CORPORATION, respondent.

FACTS

Private respondent Priciliano B. Gonzales Development Corporation (PBGDC) was the registered owner of a parcel of land in Quezon City. In June 1988, it mortgaged the property to China Banking Corporation to secure a loan. On April 13, 1992, PBGDC, through its president, executed a Deed of Sale with Assumption of Mortgage covering the property in favor of petitioners Felicidad L. Oronce and Rosita L. Flaminiano. The deed stipulated that possession of the premises would be delivered to the petitioners one year from its execution. Petitioners paid PBGDC’s indebtedness to the bank, obtained a new title (TCT No. 67990) in their names, and paid real estate taxes. However, PBGDC refused to vacate the premises after the one-year period. After sending unclaimed demand letters, petitioners filed an unlawful detainer complaint before the Metropolitan Trial Court (MTC) of Quezon City. In its answer, PBGDC raised the defense of ownership, alleging that the true intention of the parties was to create an equitable mortgage, not a sale, citing inadequacy of price, PBGDC’s continued possession, and petitioners’ retention of part of the purchase price. During pre-trial, the parties stipulated on the existence and due execution of the Deed and on the issue of unlawful withholding. The MTC ruled in favor of petitioners, ordering PBGDC to vacate and pay compensation. PBGDC appealed to the Regional Trial Court (RTC), which affirmed the MTC decision. During the pendency of the appeal, PBGDC also filed a separate action for reformation of instrument with another RTC branch. The RTC granted petitioners’ motion for execution pending appeal. PBGDC filed a petition for certiorari with the Court of Appeals (CA) assailing the writ of execution. The CA later rendered a decision setting aside the RTC decision and declaring the MTC decision null and void for want of jurisdiction, making permanent the injunction against the execution. Meanwhile, the RTC branch hearing the reformation case dismissed it, declaring PBGDC non-suited for failure to appear at pre-trial.

ISSUE

Whether the Metropolitan Trial Court had jurisdiction to resolve the unlawful detainer case despite the defendant’s raising the defense of ownership.

RULING

Yes. The Supreme Court granted the petition, reversed the Court of Appeals decision, and reinstated the MTC and RTC decisions. The Court held that the MTC had jurisdiction over the unlawful detainer case. The defense of ownership raised by the defendant does not divest the inferior court of its jurisdiction over the ejectment case. Under the Rules of Court (Rule 70, Section 16), when the defendant raises the defense of ownership 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 MTC, therefore, had the authority to make a preliminary determination of ownership for the sole purpose of deciding the issue of possession. The Court clarified that the MTC’s adjudication of ownership in an ejectment case is not a final and binding determination of title; it is merely provisional and without prejudice to a separate action expressly aimed at resolving ownership. The pendency of an action for reformation of instrument (which was eventually dismissed) does not bar the ejectment proceeding, as the two actions can proceed independently. The Court found that the MTC correctly ruled based on the evidence presented (the deed of sale, the new title, payment of the mortgage, and tax payments) that petitioners were entitled to possession. PBGDC’s refusal to vacate after the agreed period and after demand made its possession unlawful.